-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, QZtXPormiARMobTqi9RvVP7jfnHn1mAw7z9oZZHBYIvRImxsY3Y3pbNchMDiOcev fs7ZV0IpMNc260r9a7+Bwg== 0000950109-95-000919.txt : 199507120000950109-95-000919.hdr.sgml : 19950711 ACCESSION NUMBER: 0000950109-95-000919 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950328 SROS: NYSE SROS: PHLX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARMSTRONG WORLD INDUSTRIES INC CENTRAL INDEX KEY: 0000007431 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 230366390 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-02116 FILM NUMBER: 95523773 BUSINESS ADDRESS: STREET 1: P O BOX 3001 CITY: LANCASTER STATE: PA ZIP: 17604 BUSINESS PHONE: 7173970611 MAIL ADDRESS: STREET 1: P.O. BOX 3001 CITY: LANCASTER STATE: PA ZIP: 17604 FORMER COMPANY: FORMER CONFORMED NAME: ARMSTRONG CORK CO DATE OF NAME CHANGE: 19800611 10-K405 1 FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1994 ------------------------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- -------------------------- Commission file number 1-2116 --------------------------------------------------------- Armstrong World Industries, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-0366390 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P. O. Box 3001, Lancaster, Pennsylvania 17604 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (717) 397-0611 ----------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ Common Stock ($1 par value) New York Stock Exchange, Inc. Preferred Stock Purchase Rights Pacific Stock Exchange, Inc. (a) 9-3/4% Debentures Due 2008 Philadelphia Stock Exchange, Inc. (a) (a) Common Stock and Preferred Stock Purchase Rights only Securities registered pursuant to Section 12(g) of the Act: None 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- -------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Common Stock of registrant held by non- affiliates of the registrant based on the closing price ($46.00 per share) on the New York Stock Exchange on February 6, 1995, was approximately $1.7. billion. For the purposes of determining this amount only, registrant has defined affiliates as including (a) the executive officers named in Item 10 of this 10-K Report, (b) all directors of registrant, and (c) each shareholder that has informed registrant by February 14, 1995, as having sole or shared voting power over 5% or more of the outstanding Common Stock of registrant as of December 31, 1994. This amount does not include the 5,478,416 shares of Series A ESOP Convertible Preferred Stock as of December 31, 1994, which vote with the Common Stock as if converted and have an aggregate liquidation preference of $261,594,364, held by Mellon Bank, N.A., as Trustee of the Company's Employee Stock Ownership Plan. As of February 6, 1995, the number of shares outstanding of registrant's Common Stock was 37,278,732. Documents Incorporated by Reference Portions of the Proxy Statement dated March 20, 1995, relative to the April 24, 1995, annual meeting of the shareholders of registrant (the "Company's 1995 Proxy Statement") have been incorporated by reference into Part III of this Form 10-K Report. - 2 - PART I ------ Item 1. Business - ------------------ Armstrong World Industries, Inc. is a Pennsylvania corporation incorporated in 1891. The Company is a manufacturer of interior furnishings, including floor coverings, building products and furniture, which are sold primarily for use in the furnishing, refurbishing, repair, modernization and construction of residential, commercial and institutional buildings. It also manufactures various industrial and other products. Unless the context indicates otherwise, the term "Company" means Armstrong World Industries, Inc. and its consolidated subsidiaries. Industry Segments The company operates worldwide in four reportable segments: floor coverings, building products, furniture and industry products. Floor coverings sales include resilient floors, ceramic tile and accessories.
Industry segments at December 31 (millions) 1994 1993 1992 ================================================================================ Net trade sales: - -------------------------------------------------------------------------------- Floor coverings $1,283.7 $1,191.3 $1,134.9 - -------------------------------------------------------------------------------- Building products 630.0 586.7 656.7 - -------------------------------------------------------------------------------- Furniture 526.8 449.7 438.4 - -------------------------------------------------------------------------------- Industry products 312.2 297.7 319.8 ================================================================================ Total net sales $2,752.7 $2,525.4 $2,549.8 ================================================================================ Operating income (loss): (See Note 1 on page 36 & Note 3 below) - -------------------------------------------------------------------------------- Floor coverings $ 190.4 $ 112.4 $ 12.6 - -------------------------------------------------------------------------------- Building products 86.8 18.8 (19.3) - -------------------------------------------------------------------------------- Furniture 38.6 24.1 5.8 - -------------------------------------------------------------------------------- Industry products 41.2 27.2 29.7 - -------------------------------------------------------------------------------- Unallocated corporate expense (23.8) (59.8) (54.9) - -------------------------------------------------------------------------------- Total operating income (loss) $ 333.2 $ 122.7 $ (26.1) ================================================================================ Depreciation and amortization: ================================================================================ Floor coverings $ 63.0 $ 63.2 $ 67.8 - -------------------------------------------------------------------------------- Building products 34.5 34.1 37.6 - -------------------------------------------------------------------------------- Furniture 12.7 12.9 13.5 - -------------------------------------------------------------------------------- Industry products 17.6 14.6 12.8 - -------------------------------------------------------------------------------- Corporate 5.6 5.2 5.2 ================================================================================ Total depreciation and amortization $ 133.4 $ 130.0 $ 136.9 ================================================================================ Capital additions: (See Note 2 on page 36) - -------------------------------------------------------------------------------- Floor coverings $ 77.1 $ 59.5 $ 48.0 - -------------------------------------------------------------------------------- Building products 31.5 24.2 25.9 - -------------------------------------------------------------------------------- Furniture 14.1 10.0 8.3 - -------------------------------------------------------------------------------- Industry products 22.6 22.1 31.4 - -------------------------------------------------------------------------------- Corporate 3.0 1.8 2.2 ================================================================================ Total capital additions $ 148.3 $ 117.6 $ 115.8 ================================================================================ Identifiable assets: (See Note 2 on page 36) - -------------------------------------------------------------------------------- Floor coverings $ 866.4 $ 818.4 $ 847.0 - -------------------------------------------------------------------------------- Building products 478.1 483.0 500.3 - -------------------------------------------------------------------------------- Furniture 245.2 234.6 238.7 - -------------------------------------------------------------------------------- Industry products 234.8 207.9 197.0 - -------------------------------------------------------------------------------- Corporate 408.0 185.4 226.8 ================================================================================ Total assets $2,232.5 $1,929.3 $2,009.8
Note 3:
Restructuring charges in operating income (loss) (millions) 1994 1993 1992 ================================================================================ Floor coverings -- $ 27.7 $ 80.8 - -------------------------------------------------------------------------------- Building products -- 13.7 35.0 - -------------------------------------------------------------------------------- Furniture -- .6 4.8 - -------------------------------------------------------------------------------- Industry products -- 12.9 12.5 - -------------------------------------------------------------------------------- Unallocated corporate expense -- 35.0 32.4 ================================================================================ Total restructuring charges in operating income (loss) -- $ 89.9 $ 165.5 ================================================================================
- 3 - Narrative Description of Business The Company manufactures and sells interior furnishings, including floor coverings (resilient flooring and all ceramic tile), building products, and furniture, and makes and markets a variety of specialty products for the building, automotive, textile, and other industries. The Company's activities extend worldwide. Floor Coverings The Company is a prominent manufacturer of floor coverings for the interiors of homes and commercial and institutional buildings, with a broad range of resilient flooring, ceramic tile for floors, walls and countertops, together with adhesives, installation and maintenance materials and accessories. Resilient flooring, in both sheet and tile form, is made in a wide variety of types, designs, and colors. Included are types of flooring that offer such features as ease of installation, reduced maintenance (no-wax), and cushioning for greater underfoot comfort. Ceramic products include glazed wall and floor tile and marble (a portion of which is imported) and glazed and unglazed ceramic mosaic tile, all featuring a range of designs and colors, as well as quarry tile, natural stone and related installation products. Floor covering products are sold to the commercial and residential market segments through wholesalers, retailers, and contractors, and to the hotel/motel and manufactured homes industries. Ceramic products also are sold through sales service centers operated by American Olean Tile Company, Inc. ("American Olean"), a wholly-owned subsidiary which manufactures and markets ceramic tile. Building Products A major producer of ceiling materials in the United States and abroad, the Company markets both residential and architectural ceiling systems. Ceiling materials for the home are offered in a variety of types and designs; most provide noise reduction and incorporate Company-designed features intended to permit ease of installation. These residential ceiling products are sold through wholesalers and retailers. Architectural ceiling systems, designed for use in shopping centers, offices, schools, hospitals, and other commercial and institutional structures, are available in numerous colors, performance characteristics and designs and offer characteristics such as acoustical control, rated fire protection, and aesthetic appeal. Architectural ceiling materials and accessories, along with acoustical wall panels, are sold by the Company to ceiling systems contractors and to resale distributors. Furniture A wholly-owned subsidiary, Thomasville Furniture Industries, Inc., and its subsidiaries manufacture and market traditional and contemporary wood and--by a Thomasville subsidiary--upholstered furniture for use in dining rooms, bedrooms, living rooms, hotels/motels and other residential and commercial interior areas. Thomasville furniture is sold to retailers, contract accounts and government agencies. Thomasville also manufactures both assembled and ready-to-assemble furniture which is sold to retailers, wholesalers and contract accounts under the Armstrong name. In addition, it sells a line of imported furniture made by other producers. Industry Products The Company, including a number of its subsidiaries, makes and sells a variety of specialty products for the building, automotive, textile and other industries. These products include flexible pipe insulation sold for use in construction and in original equipment manufacture; gasket materials for new - 4 - equipment and replacement use in the automotive, farm equipment, appliance, and other industries; textile mill supplies including cots and aprons sold to equipment manufacturers and textile mills; adhesives; and certain cork products. Industry products are sold, depending on type and ultimate use, to original equipment manufacturers, contractors, wholesalers, fabricators and end users. ___________________________________ The principal raw materials used in the manufacture of the Company's products are synthetic resins, lumber, plasticizers, latex, mineral fibers and fillers, clays, starches, perlite, and pigments and inks. In addition, the Company uses a wide variety of other raw materials. Most raw materials are purchased from sources outside of the Company. The Company also purchases significant amounts of packaging materials for the containment and shipment of its various products. During 1994, adequate supplies of raw materials were available to all of the Company's industry segments. Customers' orders for the Company's products are mostly for immediate shipment. Thus, in each industry segment, the Company has implemented inventory systems, including its "just in time" inventory system, pursuant to which orders are promptly filled out of inventory on hand or the product is manufactured to meet the delivery date specified in the order. As a result, there historically has been no material backlog in any industry segment. The competitive position of the Company has been enhanced by patents on products and processes developed or perfected within the Company or obtained through acquisition. Although the Company considers that, in the aggregate, its patents constitute a valuable asset, it does not regard any industry segment as being materially dependent upon any single patent or any group of related patents. There is significant competition in all the industry segments in which the Company does business. Competition in each industry segment includes numerous active companies (domestic and foreign), with emphasis on price, product performance and service. In addition, with the exception of industrial and other products and services, product styling is a significant method of competition in the Company's industry segments. Increasing domestic competition from foreign producers is apparent in certain industry segments and actions continue to be taken to meet this competition. The Company invested $148.3 million in 1994, $117.6 million in 1993, and $115.8 million in 1992 for additions to its property, plant and equipment. Research and development activities are important and necessary in assisting the Company to carry on and improve its business. Principal research and development functions include the development of new products and processes and the improvement of existing products and processes. Research and development activities are conducted principally at the Company's Innovation Center in Lancaster, Pennsylvania. The Company spent $57.4 million in 1994, $63.0 million in 1993, and $64.9 million in 1992 on research and development activities worldwide for the continuing businesses. The Company will incur capital expenditures in order to meet the new requirements of the Clean Air Act of 1990 and is awaiting the final promulgation of implementing regulations by various state agencies to determine the magnitude of additional costs and the time period over which they will be incurred. In 1994, the Company incurred capital expenditures of approximately $1.9 million for environmental compliance and control facilities and anticipates comparable annual expenditures for those purposes for the years 1995 and 1996. - 5 - As with many industrial companies, the Company is involved in proceedings under the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund"), and similar state laws at approximately 23 sites. In most cases, the Company is one of many potentially responsible parties ("PRPs") who have voluntarily agreed to jointly fund the required investigation and remediation of each site. With regard to some sites, however, the Company disputes either liability or the proposed cost allocation. Sites where the Company is alleged to have contributed a significant volume of waste material include a former municipal landfill site in Volney, New York; and a former county landfill site in Buckingham County, Virginia, which is alleged to have received material from Thomasville Furniture Industries, Inc. Armstrong may also have rights of contribution or reimbursement from other parties or coverage under applicable insurance policies. The Company is also remediating environmental contamination resulting from past industrial activity at certain of its current plant sites. Estimates of future liability are based on an evaluation of currently available facts regarding each individual site and consider factors including existing technology, presently enacted laws and regulations, and prior Company experience in remediation of contaminated sites. Although current law imposes joint and several liability on all parties at any Superfund site, the Company's contribution to the remediation of these sites is expected to be limited by the number of other companies which have also been identified as potentially liable for site costs. As a result, the Company's estimated liability reflects only the Company's expected share. In determining the probability of contribution, the Company considers the solvency of the parties, whether responsibility is being disputed, the terms of any existing agreements, and experience regarding similar matters. The estimated liabilities do not take into account any claims for recoveries from insurance or third parties. Because of uncertainties associated with remediation activities and technologies, regulatory interpretations, and the allocation of those costs among various other parties, the Company has accrued, before agreed-to insurance coverages, $10.4 million to reflect its estimated undiscounted liability for environmental remediation. As assessments and remediation activities progress at each individual site, these liabilities are reviewed to reflect additional information as it becomes available. Actual costs to be incurred at identified sites in the future may vary from the estimates, given the inherent uncertainties in evaluating environmental liabilities. Subject to the imprecision in estimating environmental remediation costs, the Company believes that any sum it may have to pay in connection with environmental matters in excess of the amounts noted above would not have a materially adverse effect on its financial condition liquidity or results of operations. As of December 31, 1994, the Company had approximately 20,600 active employees, of whom approximately 4,070 are located outside the United States. Year-end employment in 1994 was below the level at the end of 1993. About 36% of the Company's approximately 11,760 hourly-paid employees in the United States are represented by labor unions. In the fall of 1995, the Company will negotiate at the Lancaster Plant with the United Rubber Workers representing approximately 1,325 production employees and the International Association of Machinists and Aerospace Workers representing approximately 235 maintenance employees. - 6 - Geographic areas United States net trade sales include export sales to non-affiliated customers of $40.9 million in 1994, $27.0 million in 1993 and $24.4 million in 1992. "Europe" includes operations located primarily in England, France, Germany, Italy, the Netherlands, Spain and Switzerland. Operations in Australia, Canada, China, Hong Kong, Indonesia, Japan, Korea, Singapore and Thailand are in "Other foreign." Transfers between geographic areas and commissions paid to affiliates marketing exported products are accounted for by methods that approximate arm's-length transactions, after considering the costs incurred by the selling company and the return on assets employed of both the selling unit and the purchasing unit. Operating income of a geographic area includes income accruing from sales to affiliates.
Geographic areas at December 31 (millions) 1994 1993 1992 ================================================================================ Net trade sales: - -------------------------------------------------------------------------------- United States $2,090.7 $1,910.7 $1,841.5 - -------------------------------------------------------------------------------- Europe 483.4 456.6 544.5 - -------------------------------------------------------------------------------- Other foreign 178.6 158.1 163.8 ================================================================================ Interarea transfers: - -------------------------------------------------------------------------------- United States 95.1 76.1 69.9 - -------------------------------------------------------------------------------- Europe 8.7 6.0 4.0 - -------------------------------------------------------------------------------- Other foreign 26.1 21.9 18.5 - -------------------------------------------------------------------------------- Eliminations (129.9) (104.0) (92.4) ================================================================================ Total net sales $2,752.7 $2,525.4 $2,549.8 ================================================================================ Operating income (loss): (Note 1) - -------------------------------------------------------------------------------- United States $ 274.1 $ 140.8 $ 10.9 - -------------------------------------------------------------------------------- Europe 75.3 31.7 22.5 - -------------------------------------------------------------------------------- Other foreign 7.6 10.0 (4.6) - -------------------------------------------------------------------------------- Unallocated corporate expense (23.8) (59.8) (54.9) - -------------------------------------------------------------------------------- Total operating income (loss) $ 333.2 $ 122.7 $ (26.1) ================================================================================ Identifiable assets: (Note 2) - -------------------------------------------------------------------------------- United States $1,375.9 $1,334.0 $1,362.2 - -------------------------------------------------------------------------------- Europe 376.5 347.0 362.5 - -------------------------------------------------------------------------------- Other foreign 72.6 63.2 64.9 - -------------------------------------------------------------------------------- Corporate 408.0 185.4 226.8 - -------------------------------------------------------------------------------- Eliminations (.5) (.3) (6.6) ================================================================================ Total assets $2,232.5 $1,929.3 $2,009.8
Note 1: Certain expenses, principally employee benefit costs, that were previously unallocated are included in operating income for the respective geographical area and industry segments in 1994. Years 1993 and 1992 were restated to conform to current year presentation. Note 2: Identifiable assets for geographic areas and industry segments exclude cash, marketable securities and assets of a corporate nature. Capital additions for industry segments include property, plant and equipment from acquisitions. - 7 - The Company's foreign operations are subject to foreign government legislation involving restrictions on investments (including transfers thereof), tariff restrictions, personnel administration, and other actions by foreign governments. In addition, consolidated earnings are subject to both U.S. and foreign tax laws with respect to earnings of foreign subsidiaries, and to the effects of currency fluctuations. Item 2. Properties - -------------------- The Company produces and markets its products and services throughout the world, operating 74 manufacturing plants in 11 countries, 56 of which are located throughout the United States. Additionally, affiliates operate eight plants in four countries. Floor covering products are produced at 23 plants with principal manufacturing facilities located in Lancaster and Lansdale, Pennsylvania. American Olean owns or leases various quarries throughout the United States for the supply of clays and shale. Under a long-term lease, a quarry in Newfoundland, Canada, also supplies a raw material important to American Olean's manufacture of glazed tile at a proven reserve level of approximately 50 years at current production levels. Building products are produced at 12 plants with principal facilities in Macon, Georgia, the Florida-Alabama Gulf Coast area and Marietta, Pennsylvania. Furniture is manufactured at 28 plants, 14 of which are located at Thomasville, North Carolina. Insulating materials, textile mill supplies, fiber gasket materials, adhesives and other products for industry are manufactured at 15 plants with principal manufacturing facilities at Munster, Germany, Braintree, Massachusetts and Fulton, New York. Numerous sales offices are leased worldwide, and leased facilities are utilized for American Olean's distribution centers and to supplement the Company's owned warehousing facilities. Productive capacity and extent of utilization of the Company's facilities are difficult to quantify with certainty because in any one facility maximum capacity and utilization varies periodically depending upon the product that is being manufactured and individual facilities manufacture more than one type of product. In this context, the Company estimates that the production facilities in each of its industry segments were effectively utilized during 1994 at 80% to 90% of overall productive capacity in meeting market conditions. Remaining productive capacity is sufficient to meet expected customer demands. The Company believes its various facilities are adequate and suitable. Additional incremental investments in plant facilities are being made as appropriate to balance capacity with anticipated demand, improve quality and service, and reduce costs. Item 3. Legal Proceedings - --------------------------- OVERVIEW OF ASBESTOS-RELATED LEGAL PROCEEDINGS - The full report on the Asbestos-Related Litigation immediately follows this summary. The company is involved, as of December 31, 1994, in approximately 73,000 pending personal injury asbestos claims and lawsuits and 51 pending lawsuits and claims alleging damages to buildings caused by asbestos-containing products. The Company's insurance carriers provide coverage for both personal injury and property damage claims. The personal injury claims only (not property damage claims) are processed for payment through the Center for Claims Resolution (the "Center"). Personal injury claims in the federal courts have been transferred by the Judicial Panel for Multidistrict Litigation to the Eastern District Court for pretrial purposes. Pending state - 8 - court cases have not been directly affected by the transfer. A settlement class action which includes essentially all future asbestos-related personal injury claims against Center members was filed in the Federal District Court for the Eastern District of Pennsylvania. The court has tentatively approved the settlement although the settlement will become final only after certain issues, including insurance coverage for class members' claims are resolved and appeals are exhausted which could take up to several years. An Agreement Concerning Asbestos-Related Claims (the "Wellington Agreement") provides for a settlement of insurance coverage for personal injury claims with certain primary carriers and excess carriers. Settlement agreements which complement Wellington have been signed with one primary carrier and certain excess carriers. Insurance coverage litigation that was initiated by the Company in California with respect to asbestos-related personal injury and property damage lawsuits and claims is on appeal before the California Supreme Court from favorable final decisions received from the trial court that were substantially upheld by the California Court of Appeal. The California litigation did not encompass coverage for non-products claims. Coverage for non-products claims is included in the Company's primary policies and certain excess policies. This additional coverage is substantial. Negotiations are underway with several primary carriers to resolve the coverage issues, but no agreement has been reached. If the non-products coverage issues are not resolved through negotiation, the Company is entitled to pursue alternative dispute resolution proceedings against the primary and certain excess carriers pursuant to the Wellington Agreement. The Company believes that an estimated $198 million in liability and defense costs recorded on its 1994 balance sheet will be incurred to resolve approximately 73,000 asbestos-related personal injury claims against the Company as of December 31, 1994. An insurance asset in the amount of $198 million recorded on the balance sheet reflects the Company's belief in the availability of insurance in this amount to cover the liability for these pending claims. The Company also projects the maximum cost in the settlement class action as a reasonably possible additional liability of $245 million for a ten-year period; a portion of such additional projected liability may not be covered by the Company's ultimately applicable insurance recovery. Although subject to uncertainties and limitations, the Company also believes it is probable that substantially all of the expenses and liability payments associated with the asbestos-related property damage claims will be covered by insurance. Even though uncertainties still remain as to the potential number of unasserted claims, liability resulting therefrom, and the ultimate scope of its insurance coverage, after consideration of the factors involved, including the Wellington Agreement, the settlements with other insurance carriers, the results of the trial phase and the intermediate appellate stage of the California insurance coverage litigation, the remaining reserve, the establishment of the Center, the proposed settlement class action, and its experience, the Company believes the asbestos-related lawsuits and claims against the Company would not be material either to the financial condition of the Company or to its liquidity although the net effect of any future liabilities recorded in excess of insurance assets could be material to earnings in a future period. The full report on the asbestos-related litigation is set forth below: Asbestos-Related Litigation The Company is named as one of many defendants in pending lawsuits and claims involving, as of December 31, 1994, approximately 73,000 individuals alleging personal injury from exposure to asbestos or asbestos-containing products. Included in the above number are approximately 14,300 lawsuits and claims which appear not to be covered by the settlement class action referred to - 9 - below that were received by the Company in 1994. This compares with 24,036 in 1993. About 5,000 claims that may involve the Company were received in 1994 under the settlement class action, but the vast majority of these claims have not been evaluated to date as meeting the payment criteria under the settlement agreement. (In late 1993, the Company revised its claims handling procedures to provide for individual claim information to be supplied by the Center for Claims Resolution, referred to below. It is expected that the changed process will provide more current tracking of outstanding claims. The reconciliation between the two systems continues. Claim numbers in this note have been received from the Center and its consultants.) Nearly all the personal injury suits and claims seek general and punitive damages arising from alleged exposures, during a period of years, commencing during World War II onward into the 1970s, to asbestos-containing insulation products used, manufactured or sold by the companies involved in the asbestos-related litigation. Claims against the Company generally involve allegations of negligence, strict liability, breach of warranty and conspiracy with other defendants in connection with alleged exposure generally to asbestos-containing insulation products; the Company discontinued the sale of all such products in 1969. The first asbestos-related lawsuit was filed against the Company in 1970, and such lawsuits and claims continue to be filed against the Company. The claims generally allege that injury may be determined many years (up to 40 years) after alleged exposure to asbestos or asbestos-containing products. Nearly all suits include a number of defendants (including both members of the Center and other companies), and well over 100 different companies are reportedly involved as defendants in the litigation. A significant number of suits in which the Company does not believe it should be involved have been filed by persons engaged in vehicle tire production, aspects of the construction industry, and the steel industry. The Company believes that a large number of the plaintiffs filing suit are unimpaired individuals. Although a large number of suits and claims have either been put on inactive lists, settled, dismissed or otherwise resolved, and the Company is generally involved in all stages of claims resolution and litigation, including trials and appeals, and while the number of pending cases reflects a decrease during the past year, neither the rate of future dispositions nor the number of future potential unasserted claims can be reasonably predicted at this time. Attention has been given by various parties both individually and collectively to securing a comprehensive solution to the large number of pending as well as potential future asbestos-related personal injury claims. Discussions have been undertaken by attorneys for plaintiffs and defendants to devise methods or procedures for the comprehensive treatment of asbestos-related personal injury suits and claims. The Judicial Panel for Multidistrict Litigation ordered the transfer of all pending federal cases to a single court, the Eastern District Court of Pennsylvania in Philadelphia, for pretrial purposes. The Company has supported such action. Some of these cases are periodically released for trial. Pending state court cases have not been directly affected by the transfer. The Court to which the cases have been assigned has been instrumental in having the parties settle large numbers of cases in various jurisdictions and has been receptive to different approaches to the resolution of asbestos-related personal injury claims. A national class action was filed in the Eastern District of Texas; it was not certified and the cases involved were also transferred to the Eastern District Court of Pennsylvania for pretrial purposes. Periodically, this Court returns certain cases for trial to the courts from which the cases were originally transferred, although the issue of punitive damages is retained by the Eastern District Court. Settlement Class Action A settlement class action which includes essentially all future asbestos-related personal injury claims against members of the Center for Claims Resolution (the "Center") was filed in Philadelphia, in the Federal District - 10 - Court for the Eastern District of Pennsylvania, on January 15, 1993. These proceedings are before the same judge to whom the federal cases were transferred under the Multidistrict Litigation order referred to above. The proposed settlement class action was negotiated by the Center and two leading plaintiffs' law firms. The settlement class action is designed to establish a non- litigation system for the resolution of essentially all future asbestos-related personal injury claims against the Center members including this Company. Other defendant companies which are not Center members may be able to join the class action later. The class action proposes a voluntary settlement that offers a method for prompt compensation to claimants who were occupationally exposed to asbestos if they are impaired by such exposure. Claimants must meet certain exposure and medical criteria to receive compensation which is derived from historical settlement data. Under limited circumstances and in limited numbers, qualifying claimants may choose to litigate certain claims in court or through alternative dispute resolution, rather than accept an offered settlement amount, after their claims are processed within the system. No punitive damages will be paid under the proposed settlement. The settlement is designed to minimize transactional costs, including attorneys fees, and to relieve the courts of the burden of handling future asbestos-related personal injury claims. Each member of the Center has an obligation for its own fixed share in this proposed settlement. The Federal District Court has ruled that claimants who neither filed a lawsuit against the Company or other members of the Center for Claims Resolution for asbestos-related personal injury nor filed exclusion request forms to opt out of the settlement class action by January 24, 1994, are subject to the terms of the class action. The settlement class action does not include claims deemed otherwise not covered by the class action settlement, or claims for asbestos-related property damage. Agreed upon annual case flow caps and agreed upon compensation ranges for each compensable medical category including amounts paid even more promptly under the simplified payment procedures, have been established for an initial period of ten years. Case flow caps may be increased during the second five-year period depending upon case flow during the first five-year period. The case flow figures and annual compensation levels are subject to renegotiation after the initial ten-year period. On August 16, 1994, the Court tentatively approved the settlement, and notification has been provided to potential class members who were offered the opportunity to opt out by January 24, 1994. The Center had reserved the right to withdraw from the program if an excessive number of individuals opted out. The Center determined that there was not an excessive number of opt outs and decided to proceed with the settlement class action. The opt outs are not asbestos-related claims as such but rather are reservations of rights to possibly bring court actions in the future. Most of the opt outs were the subject of a motion before the Court that questioned their validity and sought a second notice period to determine whether or not they wished to remain outside the class action. The Court recently ruled on the motion and has ordered a new notice period for the opt outs. Therefore, the total number of effective opt outs cannot be determined at this time. The settlement will become final only after certain issues, including insurance coverage for class members' claims, are resolved and appeals are exhausted. This process could take up to several years. The Center members have stated their intention to resolve over a five-year period the asbestos- related personal injury claims pending prior to the date the settlement class action was filed. A significant number of these pending claims have been settled with a number of plaintiffs' counsel and a number of these claims are currently the subject of settlement negotiations, in both instances, based upon historical averages. The Company is seeking agreement from its involved insurance carriers or a binding judgment against them that the settlement class action will not jeopardize existing insurance coverage, and the settlement is contingent upon such an agreement or judgment. With respect to carriers that do not agree, this matter will be resolved either by alternative dispute resolution - 11 - procedures, in the case of carriers that subscribed to the Wellington Agreement referred to below, or by litigation, in the case of carriers that did not subscribe to the Wellington Agreement. The Company believes that the future claimants settlement class action will receive final approval. However, the potential exists that an appellate court will reject the settlement class action and that the above-referenced companion insurance action will not be successful. A few state and federal judges have undertaken to consolidate numbers of asbestos-related personal injury cases for trial. The Company has generally opposed as unfair the consolidation of numerous cases for trial. The Company recently commenced trial in Baltimore, Maryland, in one such consolidation in which common issues involved with an initial group of ten plaintiffs will bind the parties in the remaining approximately 170 cases. Insurance Carriers/Wellington Agreement In 1983, three of the Company's four primary insurers entered into an Interim Agreement with the Company to provide defense and indemnity coverage on an interim basis for asbestos-related personal injury claims and for the defense of asbestos-related property damage claims which are described below. One primary insurer did not enter into the Interim Agreement, but did subscribe to the Wellington Agreement as noted below. The Interim Agreement was superseded by the Wellington Agreement with respect to the coverage issues for asbestos- related personal injury claims. The one primary insurer of the four primary carriers that did not subscribe to the Wellington Agreement subsequently entered into a separate agreement with the Company resolving coverage issues for asbestos-related property damage claims and for asbestos-related personal injury claims which complements the Wellington Agreement. All of the Company's primary insurers are paying for the defense of asbestos-related property damage claims in accordance with the provisions of the Interim Agreement pending the final resolution on appeal of the coverage issues for asbestos-related property damage claims in the California insurance litigation referenced later in this note. The Company's insurance carriers providing coverage for asbestos-related claims are as follows: Reliance Insurance, Aetna Casualty and Surety Company and Liberty Mutual Insurance Companies are primary insurers that have subscribed to the Wellington Agreement. Travelers Insurance Company is a primary insurer that entered into a settlement agreement which complements Wellington. The excess insurers which subscribed to Wellington are Aetna Insurance Company, Fireman's Fund Insurance Company, Insurance Company of North America, Lloyds of London and various London market companies, Fidelity and Casualty Insurance Company, First State Insurance Company and U.S. Fire Insurance Company. Home Insurance Company and Travelers Insurance Company are excess insurers which entered into settlement agreements for coverage of personal injury claims which complement Wellington, and Great American is an excess insurer which also entered into a settlement agreement with the Company. The Company also entered into a settlement agreement with American Home Assurance Company and National Union Fire Insurance Company (known as the AIG Companies) and recently with CNA Insurance Company which complements the Wellington Agreement. Other excess insurers which remain as defendants against whom the Company has received a favorable trial and appellate court decision in the California insurance litigation described below are: Central National Insurance Company, Interstate Insurance Company, Puritan Insurance Company, and Commercial Union Insurance Company. Midland Insurance Company, an excess carrier, which insured the Company with $25 million of bodily injury products coverage, became insolvent during the trial. The Company is pursuing claims with the state guaranty associations on account of the Midland insolvency. The gap in coverage created by the Midland Insurance Company insolvency will be covered by other insurance. Certain companies in the - 12 - London block of coverage and certain carriers providing coverage at the excess level for property damage claims only have also become insolvent. In addition to the aforementioned insurance carriers, certain insurance carriers which were not included in the Company's California insurance litigation described later herein also provide insurance for asbestos-related property damage claims. The Company along with 52 other companies (defendants in the asbestos-related litigation and certain of their insurers) signed the 1985 Agreement Concerning Asbestos-Related Claims (the "Wellington Agreement"). This Agreement provided for a final settlement of nearly all disputes concerning insurance for asbestos- related personal injury claims between the Company and three of its primary insurers and seven of its excess insurers which also subscribed to the Wellington Agreement. The one primary insurer that did not sign the Wellington Agreement had earlier entered into the Interim Agreement with the Company and had paid into the Wellington Asbestos Claims Facility (the "Facility"). The Wellington Agreement provides for those insurers to indemnify the Company up to the policy limits for claims that trigger policies in the insurance coverage period, and nearly all claims against the Company fall within the coverage period; both defense and indemnity are paid under the policies and there are no deductibles under the applicable Company policies. The Wellington Agreement addresses both products and non-products insurance coverage. One of the Company's larger excess insurance carriers entered into a settlement agreement in 1986 with the Company under which payments also were made through the Facility and are now being paid through the Center for Claims Resolution referenced below in this note. Coverage for asbestos-related property damage claims was not included in the settlement, and the agreement provides that either party may reinstitute a lawsuit in the event the coverage issues for property damage claims are not amicably resolved. The Wellington Agreement also provided for the establishment of the Facility to evaluate, settle, pay and defend all pending and future asbestos-related personal injury claims against those companies which subscribed to the Agreement. The insurance coverage designated by the Company for coverage in the Facility consists of all relevant insurance policies issued to the Company from 1942 through 1976. Liability payments and allocated expenses with respect to each claim filed against Wellington Agreement subscribers who were defendants in the underlying asbestos-related personal injury litigation were allocated on a formula percentage basis to each such defendant, including the Company. The Facility, which has been dissolved, over time was negatively impacted by concerns raised by certain subscribers relating to their share of liability payments and allocated expenses and by certain insurer concerns with respect to defense costs and Facility operating expenses. As a result of seven subscribing companies giving notice that they wished to withdraw their cases from the Facility, a majority of the insurers and the company subscribing members agreed to dissolve the ongoing operation of the Facility as of October 3, 1988 and the Facility has now been fully dissolved. Except for eliminating the future availability of an insurer-paid special defense fund benefit linked to the existence of the Facility, a benefit not deemed material to the Company, the dissolution of the Facility essentially did not affect the Company's overall Wellington Agreement insurance settlement, which stood on its own separate from the Facility. The relinquishment of the insurer-paid special defense fund benefit was a condition of insurer support for the creation of the Center and its expected benefits. Center for Claims Resolution A new asbestos-related personal injury claims handling organization known as the Center for Claims Resolution (the "Center") was created in October 1988 by Armstrong and 20 other companies, all of which were former members of the Facility. Insurance carriers are not members of the Center, although certain of the insurance carriers for those members that joined the Center signed an - 13 - agreement to provide approximately 70% of the financial support for the Center's operational costs during its first year of existence; they also are represented ex officio on the Center's governing board. The Center adopted many of the conceptual features of the Facility, and the members' insurers generally provide coverage under the Wellington Agreement terms. The Center has operated under a revised concept of allocated shares of liability payments and defense costs for its members based primarily on historical experience and has defended the members' interests and addressed the claims in a manner consistent with the prompt, fair resolution of meritorious claims. In late 1991, the Center sharing formula was revised to provide that members will pay only on claims in which the member is a named defendant. This change has caused a slight increase in the Company's share, but has enhanced the Company's case management focus. Future claim payments by the Center pursuant to the settlement class action will require each member to pay its own fixed share of every claim. A large share member earlier withdrew from the Center. Accordingly, the allocated shares of liability payments and defense costs of the Center were recalculated with the remaining members' shares being increased. Under the class action settlement resolution, if a member withdraws from the Center or the settlement, the shares of those remaining members would not be increased. It is expected that the Center members will reach an agreement with the insurers relating to the continuing operation of the Center and that the insurers will fund the Center's operating expenses for its seventh year of operation. With the filing of the settlement class action, the Center will continue to process pending claims and is handling the program for processing future claims. Consistent with the Center's objective of prompt resolution of meritorious claims, and to establish the Center's credibility after the cessation of the Facility and for other strategic reasons, a planned increase in claims resolution by the Center was implemented during the first two years. This increased the rate of utilization of Company insurance for claims resolution, offset in part by savings in defense costs. During the first three years, the rate of claims resolution had about trebled from the prior two years of experience. An increase in the utilization of the Company's insurance also has occured as a result of the class action settlement due to the commitment to attempt to resolve pending claims within five years. Aside from the commitments under the class action settlement, no forecast can be made for future years regarding either the rate of claims, the rate of pending and future claims resolution by the Center, or the rate of utilization of Company insurance. If the settlement class action is finalized and all appeals are exhausted, projections of the rate of disposition of future cases may be made and the rate of insurance usage will be accelerated as an effort is made to resolve both outstanding cases and to address future claims. Property Damage Litigation The Company is also one of many defendants in a total of 51 pending lawsuits and claims, including class actions, as of December 31, 1994, brought by public and private entities, including public school districts and public and private building owners. These lawsuits and claims include allegations of damage to buildings caused by asbestos-containing products and generally claim compensatory and punitive damages and equitable relief, including reimbursement of expenditures, for removal and replacement of such products. They appear to be aimed at friable (easily crumbled) asbestos-containing products, although allegations in some suits encompass all asbestos-containing products, including allegations with respect to asbestos-containing resilient floor covering materials. Among the lawsuits that have been resolved are four class actions which had been certified, each involving a distinct class of building owner: public and private schools; Michigan state public and private schools; colleges and universities, and private property owners who leased - 14 - facilities to the federal government. The settlements reached with the class representatives for three of the four classes are subject to a fairness hearing. The Court in the Michigan class action has given final approval to that settlement. The Company vigorously denies the validity of the allegations against it contained in these suits and claims. Increasing defense costs, paid by the Company's insurance carriers either under reservation or settlement arrangement, will be incurred. As a consequence of the California insurance litigation discussed elsewhere in this note, the Company believes that it is probable that costs of the property damage litigation that are being paid by the Company's insurance carriers under reservation of rights will not be subject to recoupment. These suits and claims were not handled by the former Facility nor are they being handled by the Center. Certain co-defendant companies in the asbestos-related litigation have filed for reorganization under Chapter 11 of the Federal Bankruptcy Code. As a consequence, this litigation with respect to these co-defendants (with several exceptions) has been stayed or otherwise impacted by the restrictions placed on proceeding against these co-defendants. Due to the uncertainties involved, the long-term effect of these Chapter 11 proceedings on the litigation cannot be predicted. California Insurance Coverage Lawsuit The Company concluded in early 1989 the trial phase of a coordinated lawsuit in a California state court to resolve a dispute concerning certain of its insurance carriers' obligations with respect to insurance coverage for alleged personal injury and property damage asbestos-related lawsuits and claims. The trial court issued favorable final decisions in important phases of the trial relating to coverage for personal injury and property damage lawsuits and claims. The Company earlier dismissed from the asbestos-related personal injury coverage portion of the litigation those insurance carriers which had subscribed to the Wellington Agreement, and the excess carriers which entered into settlement agreements with the Company which complement Wellington also have been dismissed. As indicated above, the California trial court issued final decisions in various phases in the insurance lawsuit. One decision concluded that the trigger of insurance coverage for asbestos-related personal injury claims was continuous from exposure through death or filing of a claim. The court also found that a triggered insurance policy should respond with full indemnification up to exhaustion of the policy limits. The court concluded that any defense obligation ceases upon exhaustion of policy limits. Although not as comprehensive, another important decision in the trial established a favorable defense and indemnity coverage result for asbestos-related property damage claims; the final decision holds that, in the event the Company is held liable for an underlying property damage claim, the Company would have coverage under policies in effect during the period of installation and during any subsequent period in which a release of fibers occurred. Appeals were filed from the trial court's final decision by those carriers still in the litigation and the California Court of Appeal has substantially upheld the trial court's final decisions. The insurance carriers have petitioned the California Supreme Court to hear the various asbestos-related personal injury and property damage coverage issues. The California Supreme Court has accepted review pending its review of related issues in another California case. Based upon the trial court's favorable final decisions in important phases of the trial relating to coverage for asbestos-related personal injury and property damage lawsuits and claims, including the favorable decision by the California Court of Appeal, and a review of the coverage issues by its trial counsel, the Company believes that it has a substantial legal basis for sustaining its right to defense and indemnification. After concluding the last phase of the trial against one of its primary carriers, which is also an - 15 - excess carrier, the Company and the carrier reached a settlement agreement on March 31, 1989. Under the terms of the settlement agreement, coverage is provided for asbestos-related bodily injury and property damage claims generally consistent with the interim rulings of the California trial court and complements the coverage framework established by the Wellington Agreement. The parties also agreed that a certain minimum and maximum percentage of indemnity and allocated expenses incurred with respect to asbestos-related personal injury claims would be deemed allocable to non-products claims coverage and that the percentage amount would be negotiated between the Company and the insurance carrier. These negotiations continue. The Company also settled both asbestos-related personal injury and property damage coverage issues with a small excess carrier and in 1991 settled those same issues with a larger excess carrier. In these settlements, the Company and the insurers agreed to abide by the final judgment of the trial court in the California insurance litigation with respect to coverage for asbestos-related claims. In 1994, the Company also settled coverage issues for asbestos-related claims with a significant excess carrier. Non-Products Insurance Coverage Non-products insurance coverage is included in the Company's primary insurance policies and certain excess policies for non-products claims. The settlement agreement referenced above with one primary carrier included an amount for non- products claims. Non-products claims include claims that may have arisen out of exposure during installation of asbestos materials or before control of such materials has been relinquished. Negotiations have been undertaken with the Company's primary insurance carriers and are currently underway with several of them to categorize the percentage of previously resolved and yet to be resolved asbestos-related personal injury claims as non-products claims and to establish the entitlement to such coverage. The additional coverage potentially available to pay claims categorized as non-products is substantial, and at the primary level, includes defense costs in addition to limits. No agreement has been reached with the primary carriers on the amount of non-products coverage attributable to claims that have been disposed of or the type of claims that should be covered by non-products insurance. One of the primary carriers alleges that it is no longer bound by the Wellington Agreement and one primary carrier seemingly takes the view that the Company verbally waived certain rights regarding non-products coverage against that carrier at the time the Wellington Agreement was signed. All the carriers presumably raise various reasons why they should not pay their coverage obligations. The Company is entitled to pursue alternative dispute resolution proceedings against the primary and certain excess carriers to resolve the non-products coverage issues. ACandS, Inc., a former subsidiary of the Company, which for certain insurance periods has coverage rights under some of the Company's insurance policies, and has accessed such coverage on the same basis as the Company, was a subscriber to the Wellington Agreement, but is not a subscriber to the Center. The Company and ACandS, Inc., have negotiated a settlement agreement which reserves for ACandS, Inc., a certain amount of insurance from the joint policies reserved solely for its own use in the payment of defense and indemnity costs for asbestos-related claims. Conclusions Based upon the Company's experience with this litigation and its disputes with insurance carriers, a reserve was recorded in June 1983 to cover estimated potential liability and settlement costs and legal and administrative costs not covered under the Interim Agreement, cost of litigation against the Company's insurance carriers, and other factors involved in the litigation which are referred to herein about which uncertainties exist. As a result of - 16 - the Wellington Agreement, the reserve was earlier reduced for that portion associated with pending personal injury suits and claims. As a result of the March 31, 1989, settlement referenced above, the Company received $11.0 million, of which approximately $4.4 million was credited to income with nearly all of the balance being recorded as an increase to its reserve for potential liabilities and other costs and uncertainties associated with the asbestos-related litigation. Future costs of litigation against the Company's insurance carriers and other legal costs indirectly related to the litigation will be expensed outside the reserve. The Company does not know how many claims will be filed against it in the future, nor the details thereof or of pending suits not fully reviewed, nor the expense and any liability that may ultimately result therefrom, nor does the Company know whether the settlement class action will ultimately succeed, the number of individuals who ultimately will be deemed to have opted out or who could file claims outside the settlement class action, nor the annual claims flow caps to be negotiated after the initial ten-year period for the settlement class action or the compensation levels to be negotiated for such claims or the scope of its non-products coverage ultimately deemed available or the ultimate conclusion of the California insurance coverage litigation. Beginning with the first quarter 1994, the Company's balance sheet reflected a liability--"Asbestos-Related Liabilities" and an asset--"Insurance for Asbestos- Related Liabilities." This accounting presentation is required by the Securities and Exchange Commission's Staff Accounting Bulletin No. 92 which states that liabilities and assets related to contingencies should be evaluated and recorded separately pursuant to Financial Accounting Standards Board Interpretation No. 39 unless a contractual "right of setoff" exists. Prior to the first quarter 1994, the Company had set off such amounts for financial reporting. In accordance with the foregoing accounting presentation and subject to the uncertainties and limitations referred to in this note and based upon its experience and other factors also referred to in this note, the Company believes that the estimated $198 million in liability and defense costs recorded on the balance sheet will be incurred to resolve an estimated 73,000 asbestos-related personal injury claims pending against the Company as of December 31, 1994. These claims include claims that were filed for the period from January 1, 1994, to January 24, 1994, and which previously were treated as potentially included within the settlement class action, and claims filed by claimants who have been identified as having filed exclusion request forms to opt out of the settlement class action. A ruling has been received from the Court that has established January 24, 1994, as the date after which any asbestos-related personal injury claims filed by non-opt-out claimants against the Company or other members of the Center for Claims Resolution are subject to the settlement class action. In addition to the currently estimated pending claims and any claims filed by individuals deemed to have opted out of the settlement class action, any claims otherwise determined not to be subject to the settlement class action, will be resolved outside the settlement class action. The Company does not know how many such claims ultimately may be filed by claimants deemed to have opted out of the class action or by claimants otherwise determined not to be subject to the settlement class action. An insurance asset in the amount of $198 million recorded on the balance sheet reflects the Company's belief in the availability of insurance in this amount to cover the liability in like amount referred to above. Such insurance has either been agreed upon or is probable of recovery through negotiation, alternative dispute resolution or litigation. The Company also notes that, based on maximum mathematical projections covering a ten-year period from 1994 to 2004, its estimated cost in the settlement class action reflects a reasonably possible additional liability of $245 million. A portion of such - 17 - additional liability may not be covered by the Company's ultimately applicable insurance recovery. However, the Company believes that any after-tax impact on the difference between the aggregate of the estimated liability for pending cases and the estimated cost for the ten-year maximum mathematical projection, and the probable insurance recovery, would not be material either to the financial condition of the Company or to its liquidity, although it could be material to earnings if it is determined in a future period to be appropriate to record a reserve for this difference. The period in which such a reserve may be recorded and the amount of any reserve that may be appropriate cannot be determined at this time. Subject to the uncertainties and limitations referred to elsewhere in this note and based upon its experience and other factors referred to above, the Company believes it is probable that substantially all of the expenses and any liability payments associated with the asbestos-related property damage claims will be paid under an existing interim agreement, by insurance coverage settlement agreements and through additional coverage reasonably anticipated from the outcome of the insurance litigation. Even though uncertainties still remain as to the potential number of unasserted claims, liability resulting therefrom, and the ultimate scope of its insurance coverage, after consideration of the factors involved, including the Wellington Agreement, the referenced settlements with other insurance carriers, the results of the trial phase and the intermediate appellate stage of the California insurance coverage litigation, the remaining reserve, the establishment of the Center, the proposed settlement class action, and its experience, the Company believes the asbestos-related lawsuits and claims against the Company would not be material either to the financial condition of the Company or to its liquidity, although as stated above, the net effect of any future liabilities recorded in excess of insurance assets could be material to earnings in such future period. _______________________________ TINS Litigation In 1984, suit was filed against the Company in the U. S. District Court for the District of New Jersey (the "Court") by The Industry Network System, Inc. (TINS), a producer of video magazines in cassette form, and Elliot Fineman, a consultant (Fineman and The Industry Network System, Inc. v. Armstrong World ---------------------------------------------------------------- Industries, Inc., C.A. No. 84-3837 JWB). At trial, TINS claimed, among other - -------------------------------------- things, that the Company had improperly interfered with a tentative contract which TINS had with an independent distributor of the Company's flooring products and further claimed that the Company used its alleged monopoly power in resilient floor coverings to obtain a monopoly in the video magazine market for floor covering retailers in violation of federal antitrust laws. The Company denied all allegations. On April 19, 1991, the jury rendered a verdict in the case, which as entered by the court in its order of judgment, awarded the plaintiffs the alternative, after all post-trial motions and appeals were completed, of either their total tort claim damages (including punitive damages), certain pre-judgment interest, and post-judgment interest or their trebled antitrust claim damages, post-judgment interest and attorneys fees. The higher amount awarded to the plaintiffs as a result of these actions totaled $224 million in tort claim damages and pre-judgment interest, including $200 million in punitive damages. On June 20, 1991, the Court granted judgment for the Company notwithstanding the jury's verdict, thereby overturning the jury's award of damages and dismissing the plaintiffs' claims with prejudice. Furthermore, on June 25, 1991, the Court ruled that, in the event of a successful appeal restoring the jury's verdict in the case, the Company would be entitled to a new trial on the matter. - 18 - On October 28, 1992, the United States Court of Appeals for the Third Circuit issued an opinion in Fineman v. Armstrong World Industries, Inc. (No. 91-5613). ------------------------------------------- The appeal was taken to the Court of Appeals from the two June 1991 orders of the United States District Court in the case. In its decision on the plaintiff's appeal of these rulings, the Court of Appeals sustained the U. S. District Court's decision granting the Company a new trial, but overturned in certain respects the District Court's grant of judgment for the Company notwithstanding the jury's verdict. The Court of Appeals affirmed the trial judge's order granting Armstrong a new trial on all claims of plaintiffs remaining after the appeal; affirmed the trial judge's order granting judgment in favor of Armstrong on the alleged actual monopolization claim; affirmed the trial judge's order granting judgment in favor of Armstrong on the alleged attempt to monopolize claim; did not disturb the District Court's order dismissing the alleged conspiracy to monopolize claim; affirmed the trial judge's order dismissing all of Fineman's personal claims, both tort and antitrust; and affirmed the trial judge's ruling that plaintiffs could not recover the aggregate amount of all damages awarded by the jury and instead must elect damages awarded on one legal theory. However, the Third Circuit, contrary to Armstrong's arguments, reversed the trial judge's judgment for Armstrong on TINS' claim for an alleged violation of Section 1 of the Sherman Act; reversed the trial judge's judgment in favor of Armstrong on TINS' claim for tortious interference; reversed the trial judge's judgment in favor of Armstrong on TINS' claim for punitive damages; and reversed the trial judge's ruling that had dismissed TINS' alleged breach of contract claim. The Court of Appeals, in affirming the trial court's new trial order, agreed that the trial court did not abuse its discretion in determining that the jury's verdict was "clearly against the weight of the evidence" and that a new trial was required due to the misconduct of plaintiffs' counsel. The foregoing summary of the Third Circuit's opinion is qualified in its entirety by reference thereto. The Court of Appeals granted the Company's motion to stay return of the case to the District Court pending the Company's Petition for Certiorari to the Supreme Court appealing certain antitrust rulings of the Court of Appeals. The Company was informed on February 22, 1993, that the Supreme Court denied its Petition. After the case was remanded by the Third Circuit Court of Appeals in Philadelphia to the U.S. District Court in Newark, New Jersey, a new trial commenced on April 26, 1994. TINS claimed damages in the form of lost profits ranging from approximately $17 million to approximately $56 million. Plaintiff also claimed punitive damages in conjunction with its request for tort damages. Other damages sought included reimbursement of attorneys' fees and interest, including prejudgment interest. On August 19, 1994, the jury returned a verdict in favor of the Company finding that the Company had not caused damages to TINS. The court subsequently entered judgment in the Company's favor based upon the verdict. TINS' motion for a new trial based upon alleged inaccurate jury instructions and alleged improper evidentiary rulings during the trial was denied and TINS has filed a Notice of Intent to Appeal with the U.S. Court of Appeals for the Third Circuit. _____________________________ - 19 - Environmental Remediation Thomasville Furniture Industries, Inc. and seven other parties have been identified by the U. S. Environmental Protection Agency ("USEPA") as Potentially Responsible Parties ("PRPs") to fund the cost of remediating environmental conditions at the Buckingham County (Virginia) Landfill, a former waste disposal site which has been listed as a federal Superfund site. After review of investigative studies to determine the nature and extent of contamination and identify various remediation alternatives, USEPA issued its Proposed Remedial Action Plan in May 1993 proposing a $21 million clean-up cost. In November 1993, USEPA issued a revised plan which recommended a reduced $3.5 million alternative, subject to additional costs depending on test results. In September 1994, USEPA issued a Record of Decision in the matter providing two alternative remedies for the site. Both options provide for limited capping and long-term groundwater monitoring, as well as limited source control and groundwater treatment in the event monitoring demonstrates contaminant migration. The PRPs' consultants current estimate for the cost of required remediation at the site is approximately $2.2 million, subject to additional costs depending on long-term monitoring results. USEPA's current estimate, however, is $4.34 million. Discussions with USEPA are continuing regarding finalization of the appropriate remedial plan. Spent finishing materials from Thomasville's Virginia furniture plants at Appomattox and Brookneal allegedly comprise a significant portion of the waste presently believed to have been taken to the site by a now defunct disposal firm in the late 1970s. Accordingly, Thomasville could be called upon to fund a significant portion of the eventual remedial costs. Because neither a final remedial design nor an appropriate cost allocation among the PRPs has been completed, the total cost to Thomasville cannot be determined at this time. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ Not applicable. Executive Officers of the Registrant - ------------------------------------- The information appearing in Item 10 hereof under the caption "Executive Officers of the Registrant" is incorporated by reference herein. PART II -------- Item 5. Market for the Registrant's Common Stock and Related Security Holder - ----------------------------------------------------------------------------- Matters ------- The Company's Common Stock is traded on the New York Stock Exchange, Inc., the Philadelphia Stock Exchange, Inc., and the Pacific Stock Exchange, Inc. As of February 6, 1995, there were approximately 7,443 holders of record of the Company's Common Stock.
Total Quarterly financial information (millions except for per-share data) First Second Third Fourth year ==================================================================================================================================== 1994 ==================================================================================================================================== Net sales $642.7 $689.3 $715.3 $705.4 $2,752.7 - ------------------------------------------------------------------------------------------------------------------------------------ Gross profit* 192.4 220.6 231.9 203.1 848.0 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings 48.0 53.3 61.6 47.5 210.4 - ------------------------------------------------------------------------------------------------------------------------------------ Per share of common stock:** - ------------------------------------------------------------------------------------------------------------------------------------ Primary 1.17 1.31 1.54 1.17 5.22 - ------------------------------------------------------------------------------------------------------------------------------------ Fully diluted 1.06 1.18 1.37 1.04 4.64 - ------------------------------------------------------------------------------------------------------------------------------------ Dividends per share of common stock .30 .32 .32 .32 1.26 - ------------------------------------------------------------------------------------------------------------------------------------ Price range of common stock--low 49 3/8 43 3/8 43 36 36 - ------------------------------------------------------------------------------------------------------------------------------------ Price range of common stock--high 57 1/2 57 1/4 53 7/8 46 5/8 57 1/2 ==================================================================================================================================== 1993 ==================================================================================================================================== Net sales $611.9 $629.0 $660.1 $624.4 $2,525.4 - ------------------------------------------------------------------------------------------------------------------------------------ Gross profit* 154.9 179.6 193.7 178.0 706.2 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) 11.3 31.9 42.3 (22.0) 63.5 - ------------------------------------------------------------------------------------------------------------------------------------ Per share of common stock:** - ------------------------------------------------------------------------------------------------------------------------------------ Primary .21 .76 1.04 (.68) 1.32 - ------------------------------------------------------------------------------------------------------------------------------------ Fully diluted .21 .68 .93 (.68) 1.26 - ------------------------------------------------------------------------------------------------------------------------------------ Dividends per share of common stock .30 .30 .30 .30 1.20 - ------------------------------------------------------------------------------------------------------------------------------------ Price range of common stock--low 28 7/8 29 3/8 30 1/4 40 1/4 28 7/8 - ------------------------------------------------------------------------------------------------------------------------------------ Price range of common stock--high 33 1/8 34 3/4 42 1/2 55 1/4 55 1/4 ====================================================================================================================================
*Gross profit has been restated to reflect certain reclassification of expenses for years 1994 and 1993. **The sum of the quarterly earnings (loss) per-share data does not always equal the total year amounts due to changes in the average shares outstanding and, for fully diluted data, the exclusion of the antidilutive effect in certain quarters. - 20 - Item 6. Selected Financial Data - --------------------------------- - -------------------------------------------------------------------------------- NINE - YEAR SUMMARY - --------------------------------------------------------------------------------
($ millions except for per-share data) FOR YEAR 1994 1993 1992 1991 1990 1989 1988 1987 1986 ==================================================================================================================================== Net sales 2,752.7 2,525.4 2,549.8 2,439.3 2,518.8 2,488.7 2,261.2 1,969.6 1,602.3 - ------------------------------------------------------------------------------------------------------------------------------------ Cost of goods sold 1,904.7 1,819.2 1,903.8 1,814.4 1,830.5 1,776.8 1,621.2 1,390.7 1,125.3 - ------------------------------------------------------------------------------------------------------------------------------------ Selling, general and administrative expenses 514.8 493.6 506.6 474.4 461.5 437.1 383.2 333.2 279.8 - ------------------------------------------------------------------------------------------------------------------------------------ Restructuring charges -- 89.9 165.5 12.8 6.8 5.9 -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Gain from sales of woodlands -- -- -- -- (60.4) (9.5) (1.9) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Operating income (loss) 333.2 122.7 (26.1) 137.7 280.4 278.4 258.7 245.7 197.2 - ------------------------------------------------------------------------------------------------------------------------------------ Interest expense 28.3 38.0 41.6 45.8 37.5 40.5 25.8 11.5 5.4 - ------------------------------------------------------------------------------------------------------------------------------------ Other expense (income), net .4 (6.0) (7.3) (8.4) 19.8 (5.7) (13.1) (4.3) (3.0) - ------------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) from continuing businesses before income taxes 304.5 90.7 (60.4) 100.3 223.1 243.6 246.0 238.5 194.8 - ------------------------------------------------------------------------------------------------------------------------------------ Income taxes 94.1 27.2 (.5) 39.7 76.7 85.9 92.4 97.4 82.6 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) from continuing businesses 210.4 63.5 (59.9) 60.6 146.4 157.7 153.6 141.1 112.2 - ------------------------------------------------------------------------------------------------------------------------------------ As a percentage of sales 7.6% 2.5% (2.3)% 2.5% 5.8% 6.3% 6.8% 7.2% 7.0% - ------------------------------------------------------------------------------------------------------------------------------------ As a percentage of average monthly assets (a) 10.5% 3.2% (2.8)% 2.9% 7.1% 8.3% 10.2% 11.6% 11.3% - ------------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) from continuing businesses applicable to common stock (b) 196.3 49.6 (73.7) 41.2 126.9 148.0 153.2 140.7 111.8 - ------------------------------------------------------------------------------------------------------------------------------------ Per common share--primary 5.22 1.32 (1.98) 1.11 3.26 3.26 3.31 2.98 2.33 - ------------------------------------------------------------------------------------------------------------------------------------ Per common share--fully diluted (c) 4.64 1.26 (1.98) 1.11 2.99 3.11 3.31 2.98 2.33 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) 210.4 63.5 (227.7) 48.2 141.0 187.6 162.7 150.4 122.4 - ------------------------------------------------------------------------------------------------------------------------------------ As a percentage of sales 7.6% 2.5% (8.9)% 2.0% 5.6% 7.5% 7.2% 7.6% 7.6% - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) applicable to common stock (b) 196.3 49.6 (241.5) 28.8 121.5 177.9 162.3 150.0 122.0 - ------------------------------------------------------------------------------------------------------------------------------------ As a percentage of average shareholders' equity 31.3% 9.0% (33.9)% 3.3% 13.0% 17.9% 17.0% 17.6% 16.0% - ------------------------------------------------------------------------------------------------------------------------------------ Per common share--primary 5.22 1.32 (6.49) .77 3.12 3.92 3.51 3.18 2.54 - ------------------------------------------------------------------------------------------------------------------------------------ Per common share--fully diluted (c) 4.64 1.26 (6.49) .77 2.86 3.72 3.51 3.18 2.54 - ------------------------------------------------------------------------------------------------------------------------------------ Dividends declared per share of common stock 1.26 1.20 1.20 1.19 1.135 1.045 .975 .885 .7325 - ------------------------------------------------------------------------------------------------------------------------------------ Purchases of property, plant and equipment 148.3 117.6 115.8 133.8 195.1 231.0 198.7 183.0 139.8 - ------------------------------------------------------------------------------------------------------------------------------------ Aggregate cost of acquisitions -- -- 4.2 -- 16.1 -- 355.8 71.5 53.1 - ------------------------------------------------------------------------------------------------------------------------------------ Total depreciation and amortization 133.4 130.0 136.9 135.7 130.1 134.0 109.2 91.4 74.3 - ------------------------------------------------------------------------------------------------------------------------------------ Average number of employees-- continuing businesses 20,583 21,682 23,500 24,066 25,014 25,349 22,801 21,020 18,916 - ------------------------------------------------------------------------------------------------------------------------------------ Average number of common shares outstanding 37.5 37.2 37.1 37.1 38.8 45.4 46.2 47.2 48.1 ==================================================================================================================================== YEAR-END POSITION ==================================================================================================================================== Working capital 303.7 204.1 167.1 238.9 181.8 323.5 139.0 255.3 327.7 - ------------------------------------------------------------------------------------------------------------------------------------ Net property, plant and equipment 1,069.9 1,039.1 1,072.0 1,152.9 1,147.4 1,059.2 1,040.2 760.7 603.0 - ------------------------------------------------------------------------------------------------------------------------------------ Total assets 2,232.5 1,929.3 2,009.8 2,149.9 2,146.3 2,033.0 2,097.7 1,602.5 1,298.2 - ------------------------------------------------------------------------------------------------------------------------------------ Long-term debt 237.2 256.8 266.6 301.4 233.2 181.3 185.9 67.7 58.8 - ------------------------------------------------------------------------------------------------------------------------------------ Total debt as a percentage of total capital (d) 41.4% 52.2% 57.2% 46.9% 45.7% 36.1% 35.9% 22.8% 16.9% - ------------------------------------------------------------------------------------------------------------------------------------ Shareholders' equity 735.1 569.5 569.2 885.5 899.2 976.5 1,021.8 913.8 813.0 - ------------------------------------------------------------------------------------------------------------------------------------ Book value per share of common stock 18.97 14.71 14.87 23.55 24.07 23.04 21.86 19.53 16.85 - ------------------------------------------------------------------------------------------------------------------------------------ Number of shareholders (e) (f) 7,473 7,962 8,611 8,896 9,110 9,322 10,355 9,418 9,621 - ------------------------------------------------------------------------------------------------------------------------------------ Common shares outstanding 37.5 37.2 37.1 37.1 37.1 42.3 46.3 46.2 47.5 - ------------------------------------------------------------------------------------------------------------------------------------ Market value per common share 38 1/2 53 1/4 31 7/8 29 1/4 25 37 1/4 35 32 1/4 29 7/8 - ------------------------------------------------------------------------------------------------------------------------------------
Notes: (a) Assets exclude insurance for asbestos-related liabilities. (b) After deducting preferred dividend requirements and adding the tax benefits for unallocated shares. (c) See italicized definition of fully diluted earnings per share on page 28. (d) Total debt includes short-term debt, current installments of long-term debt, long-term debt and ESOP loan guarantee. Total capital includes total debt and total shareholders' equity. (e) Includes one trustee who is the shareholder of record on behalf of approximately 4,300 to 4,700 employees for years 1988 through 1994. (f) Includes, for 1987 and 1986, a trustee who was the shareholder of record on behalf of approximately 11,000 employees who obtained beneficial ownership through the Armstrong Stock Ownership Plan, which was terminated at the end of 1987. - 21 - Item 7. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------- Results of Operations ---------------------- - -------------------------------------------------------------------------------- 1994 compared with 1993 - -------------------------------------------------------------------------------- Financial condition As shown on the Consolidated Statement of Cash Flows (see page 31), net cash provided by operating activities in 1994 was $300.9 million, which was more than sufficient to cover working capital requirements; payment of dividends; the payment for restructuring activities and the investment in property, plant and equipment. The remaining cash, including proceeds from stock options exercised and the cash proceeds from the sale of assets and the company's majority investment in BEGA/US, Inc., was used to reduce debt by $95.3 million and to repurchase shares of the company's common stock for the treasury. In November 1994, the Board of Directors authorized the company to repurchase up to 2.5 million shares of its common stock, either in the open market or in negotiated transactions. The timing and number of shares repurchased depends on a combination of market conditions, other investment opportunities and continued cash flow strength. As of December 31, 1994, the company had repurchased 270,000 shares with a cash outlay of $10.6 million. Working capital was $303.7 million as of December 31, 1994, $99.6 million higher than the $204.1 million at year-end 1993. The primary reasons for the increase in working capital were the $73.8 million repayment of short-term debt and the $36.5 million increase in accounts receivable resulting from higher sales levels. Modest increases in other assets including inventories and lower levels of income taxes payable also increased working capital by $22.3 million. Partially offsetting the working capital increase were higher levels of accounts payable and accrued expenses totaling $33 million. The company's 1994 year-end ratio of current assets to current liabilities was 1.78 to 1 compared with a ratio of 1.47 to 1 reported in 1993. The major reason for the ratio increase was the $73.8 million reduction of short-term debt. Long-term debt, excluding the company's guarantee of the ESOP loan, was reduced by $19.6 million in 1994. At year-end 1994, long-term debt of $237.2 million represented 19% of total capital compared with 22% at the end of 1993. The 1994 and 1993 year-end ratio of total debt as a percent of total capital was 41.4% and 52.2%, respectively. During the first quarter of 1994, the company terminated, prior to maturity, a notional amount $25 million interest rate swap and, in the second quarter of 1994, a notional amount $15 million interest rate swap matured. During the fourth quarter of 1993, the company terminated, prior to maturity, two notional amount $50 million interest rate swaps and foreign currency swaps of French francs 182.4 million and Belgian francs 270 million. The company's management of foreign currency and interest rate exposures resulted in a loss of $1.7 million in 1994 compared with a gain in 1993 of $1.9 million. As of December 31, 1994, the company had no outstanding interest rate or currency swaps. The company is involved in significant asbestos-related litigation which is described more fully on pages 43-45 and which should be read in connection with this discussion and analysis. The company does not know how many claims will be filed against it in the future, nor the details thereof or of pending suits not fully reviewed, nor the expense and any liability that may ultimately result therefrom, nor does the company know whether the settlement class action will ultimately succeed, the number of individuals who will ultimately be deemed to have opted out or who could file claims outside the settlement class action, nor the annual claims caps to be negotiated after the initial 10-year period for the settlement class action or the compensation levels to be negotiated for such claims, nor the scope of its nonproducts coverage ultimately deemed available or the ultimate conclusion of the California insurance coverage litigation. Subject to the foregoing and based upon its experience and other factors also referred to above, the company believes that the estimated $198 million in liability and defense costs recorded on the 1994 balance sheet will be incurred to resolve an estimated 73,000 asbestos-related personal injury claims pending against the company as of December 31, 1994. These claims include those that were filed for the period from January 1, 1994, to January 24, 1994, and which were previously treated as potentially included within the settlement class action, and those claims filed by claimants who have been identified as having filed exclusion request forms to opt out of the settlement class action. A ruling from the Court established January 24, 1994, as the date after which any asbestos-related personal injury claims filed by non-opt-out claimants against the company or other members of the Center for Claims Resolution are subject to the settlement class action. In addition to the currently estimated pending claims and any claims filed by individuals deemed to have opted out of the settlement class action, any claims otherwise determined not to be subject to the settlement class action will be resolved outside the settlement class action. The company does not know how many such claims ultimately may be filed by claimants deemed to have opted out of the class action or - 22 - by claimants otherwise determined not to be subject to the settlement class action. An insurance asset in the amount of $198 million recorded on the 1994 balance sheet reflects the company's belief in the availability of insurance in this amount to cover the liability in like amount referred to above. Such insurance has either been agreed upon or is probable of recovery through negotiation, alternative dispute resolution or litigation. The company also notes that, based on maximum mathematical projections covering a 10-year period from 1994 to 2004, its estimated cost in the settlement class action reflects a reasonably possible additional liability of $245 million. A portion of such additional liability may not be covered by the company's ultimately applicable insurance recovery. However, the company believes that any after-tax impact on the difference between the aggregate of the estimated liability for pending cases and the estimated cost for the 10-year maximum mathematical projection, and the probable insurance recovery, would not be material either to the financial condition of the company or to its liquidity, although it could be material to earnings if it is determined in a future period to be appropriate to record a reserve for this difference. The period in which such a reserve may be recorded and the amount of any reserve that may be appropriate cannot be determined at this time. Subject to the uncertainties and limitations referred to above and based upon its experience and other factors, the company believes it is probable that substantially all of the expenses and any liability payments associated with the asbestos-related property damage claims will be paid under an existing interim agreement, by insurance coverage settlement agreements and through additional coverage reasonably anticipated from the outcome of the insurance litigation. Even though uncertainties still remain as to the potential number of unasserted claims, liability resulting therefrom and the ultimate scope of its insurance coverage, after consideration of the factors involved, including the Wellington Agreement, the referenced settlements with other insurance carriers, the results of the trial phase and the intermediate appellate stage of the California insurance coverage litigation, the remaining reserve, the establishment of the Center, the proposed settlement class action and its experience, the company believes the asbestos-related lawsuits and claims against the company would not be material either to the financial condition of the company or to its liquidity, although as stated above, the net effect of any future liabilities recorded in excess of insurance assets could be material to earnings in such future period. Reference is made to the litigation involving The Industry Network System, Inc. (TINS), discussed on page 46. In 1994, the jury returned a verdict finding that the company had not caused damages to TINS, and the court subsequently entered judgment in the company's favor. TINS' motion for a new trial was denied. TINS has filed a notice of intent to appeal with the U.S. Court of Appeals for the Third Circuit. Reference is also made to environmental matters as discussed on pages 39, 40 and 46. The company believes any sum it may have to pay in connection with environmental matters in excess of amounts accrued would not have a material adverse affect on its financial condition, liquidity or results of operations. In February 1995, Armstrong arranged a $200 million, five-year revolving line of credit with 10 banks. The line of credit is for general corporate purposes, including a backstop for commercial paper notes. This replaced $245 million of short-term bilateral lines of credit with eight banks. Should a need develop for additional financing, it is management's opinion that the company has sufficient financial strength to warrant the required support from lending institutions and financial markets. Consolidated results Record net sales in 1994 of $2.75 billion were 9% higher than the 1993 sales of $2.53 billion. Armstrong's U.S. residential markets reflected continued strength in 1994, while European area economic conditions improved in 1994 causing a rebound in sales opportunity. On a worldwide basis, the commercial and institutional end-use markets also improved, favorably affecting sales opportunity. Armstrong took advantage of this opportunity and increased sales in nearly every one of its businesses. The introduction of new products, primarily for the residential markets, also helped to increase sales in 1994. Record net earnings were $210.4 million compared with net earnings of $63.5 million in 1993. The 1993 earnings included restructuring charges of $60.0 million after tax. Net earnings per common share were $5.22 on a primary basis and $4.64 on a fully diluted basis compared with $1.32 and $1.26, respectively, for 1993. Armstrong's measure of return on average monthly assets was 10.5% for 1994 compared with 3.2% for 1993. Average monthly assets exclude the insurance for asbestos-related liabilities. The return on common shareholders' equity in 1994 was 31.3% compared with 9.0% in 1993. Cost of goods sold as a percent of sales was 69.2% for the year, the lowest level for more than a quarter of a century, which compares favorably to 1993's cost of goods sold of 72.0%. The continuing reduction in cost of goods sold reflects the positive influence of the prior two years' restructuring programs, productivity improvement in all our businesses, sales price increases in a number of our businesses, some product mix improvement and the introduction of new products, primarily in our residential businesses. During 1994, $12.0 million of the $14.6 million before-tax gain from a reduction in Armstrong's health-care liability for employees on long-term disability also lowered the cost of goods sold. The reduction resulted from actions taken by the company to qualify these employees for primary coverage under Medicare. - 23 - Selling, general and administrative expenses represent 18.7% of sales, down from the 19.5% reported for 1993 with overall expenses increasing 4.3% when comparing 1994 with those of 1993. Higher costs for the use of consultants in improving the company's global competitiveness and for special incentive awards to motivate superior performance were partially offset by the previously mentioned gain from the reduction in the health-care liability and a gain from the sale of Armstrong's majority interest in BEGA/US, Inc. No restructuring charges were recorded in 1994. However, 1993 results included $89.9 million before tax of restructuring charges associated with Armstrong initiatives to enhance its global competitiveness. These costs were primarily associated with eliminating approximately 950 employee positions in the U.S. and Europe. More than half of the amounts accrued at the end of 1993 were used with much of the remaining accrual to be utilized in 1995. Interest expense was significantly reduced in 1994 compared with last year and was the result of lower debt levels. The effective tax rate for 1994 was 30.9% compared with 30.0% in 1993. The current year tax rate was helped by a gain of $6.5 million from the reversal of previously accrued tax expense following resolution of the company's 1988, 1989 and 1990 tax audits, the positive effect of about $5.4 million of tax benefits related to taxes on foreign income and state income taxes as a result of the realization of previously unrecognized deferred tax assets and lower withholding taxes on foreign dividends. In addition, the company utilized excess foreign tax credits during 1994. The 1993 tax rate reflected the company's higher use of foreign tax credits, reductions of deferred taxes resulting from some countries lowering their statutory tax rates and lower foreign tax rates, which more than offset the 1% increase in the U.S. statutory tax rate. Geographic area results (see page 7) United States--Sales increased by more than 9% while operating income was nearly double when compared with 1993. The primary end-use markets--residential, which reflected continued strength from the prior year, and commercial/institutional that became stronger during 1994--had a positive effect on this area. Even though interest rates were raised six times during 1994, they had very little effect on 1994's results. During 1994, both single family housing starts and sales of existing single family homes rose close to 5%. Nonresidential new construction grew at a rate of over 8% in 1994. The long-term effect of higher interest rates may slow future sales growth in these market segments. Higher sales occurred primarily in the furniture and floor coverings segments. As in past years, higher sales levels continued through the national home centers and mass merchandisers channel. New product introductions for the residential end-use markets also provided additional sales. While the higher sales levels were a key factor, the significant restructuring actions of the past two years also played a major part in increasing operating income mainly in the building products segment and the ceramic tile portion of the floor coverings segment. Sales price increases occurred in most of the U.S. businesses and had a positive effect on operating income. Export sales of Armstrong products from the U.S. to trade customers increased $14 million, or 51%, compared with 1993. Europe--During mid-1994, the economic conditions began to improve and helped Armstrong's end-use markets. For the year, sales increased nearly 6% and operating income improved by 138%. All the company's European businesses recorded year-to-year sales increases. Operating income was helped significantly by improved productivity--much of it related to restructuring actions taken in 1992 and 1993. The results in the European insulation products business were adversely affected by increased competitive pricing and higher than usual obsolescence of equipment. Other foreign--Sales in 1994 reversed a four-year declining trend and increased by 13% compared with 1993. Operating income declined by $2.4 million, or 24%, reflecting the competitive pricing and higher expenses needed to penetrate the Chinese and other Far East markets and a shift in product mix towards lower margin commodity products. Industry segment results (see page 3) Floor coverings--Worldwide sales were 8% higher in 1994, with operating income increasing by 69% from 1993 levels. The 1993 operating income included almost $28 million of restructuring charges with three-fourths of the charges related to ceramic tile and the remainder to resilient flooring. The resilient flooring portion of the segment recorded strong sales growth in both North America and Europe. The U.S. resilient flooring business continued to benefit in 1994 from higher sales of existing homes, new residential construction and continued strength in the commercial construction and remodeling markets. This was accomplished even in light of the numerous interest rate increases throughout 1994. Successful new product introductions in the second half of 1994 helped to improve sales. The ceramic tile portion recorded sales increases in both the commercial and residential parts of the business with the residential part reflecting the highest growth. The year-to-year improvement in operating income was almost equally divided between resilient flooring, ceramic tile and the absence of restructuring charges in 1994. Ceramic tile recorded a significant operating loss in 1993 that was reversed in 1994 with a small operating income. The major restructuring actions of the past two years, primarily in manufacturing, some sales price increases, some unit volume - 24 - increases and the continued development of the residential market were key factors for this turnaround. In the resilient flooring portion of the segment, operating income improvement was the result of higher sales volume, some sales price increases and manufacturing productivity improvements. Offsetting some of the effects of these positive items were higher raw material costs that became more notable in the second half of the year. Sales prices were increased as of January 1995 to offset the rise in raw material prices. Capital expenditures increased by about one-third over those of 1993. The expenditures continue to be concentrated on improving manufacturing productivity, increasing capacity and developing business systems. Building products--During 1994, commercial and institutional end-use markets continued to provide more opportunity. Sales grew more than 7% with North American sales growing faster than those of the European area. The Pacific area recorded the highest percentage growth with new business in China being a factor. Operating income, excluding the effects of restructuring charges in 1993, recorded the fastest growth of any segment--up 167% over 1993. While higher sales levels and sales price increases had a positive impact on operating income, the prior two years' restructuring actions dramatically reduced manufacturing costs and had the most significant impact on results. Capital expenditures were increased about one-third over those of the past two years and were directed at higher productivity levels and improving capacity. 1994 expenditures were about the same as depreciation levels. Furniture--This segment had the highest year-to-year sales growth, an increase of 17%. All areas of this business--Thomasville wood, Armstrong retail, upholstered furniture, RTA and contract--had significant increases, with the latter three businesses' increase in percentage in the 30s and the first two in the teens. Again in 1994, U.S. consumer household durable goods spending increased. Operating income increased by 56%, excluding the impact of the 1993 restructuring charges. Operating margins of 7.3% were the highest in the past four years. The higher profitability was the result of higher sales, improved sales pricing and new product introductions partially offset by some increased raw material costs. Capital expenditures, which exceeded depreciation levels, increased in 1994 with a large portion providing more capacity for upholstered furniture. Industry products--Sales increased by 5% while operating income improved only 3% when the 1993 restructuring charges of nearly $13 million are excluded. This segment is highly influenced by its European orientation and the rebound in that area's economies that started in the second half of 1994. The insulation business, the largest portion of this segment, recorded sales growth of about 5% while operating income was slightly higher than 1993. During 1994, this business lowered sales prices to meet intense European competition, recorded higher than usual obsolescence of equipment and incurred some start-up costs for its new manufacturing facility in Panyu, China. The gasket materials business grew sales by 18% and pushed operating income 32% higher. This business was favorably affected by the strong automotive markets in 1994. The textile mill supply business saw its 1994 sales decline by 4% due to soft end-use markets on a worldwide basis and strong competitive pressures. A small operating loss was recorded for 1994 as this business continues to reengineer its operations. Capital expenditures were slightly higher in 1994 than 1993, but continue to exceed depreciation. A significant portion of the expenditures were in the insulation products business. In the first quarter of 1995, the company announced the planned closing of the Braintree, Massachusetts, manufacturing facility that produces elastomeric pipe insulation, specialty gasket materials and textile spinning accessories. This plant is to phase out operations by the end of 1995. There will be a nonrecurring charge to first-quarter 1995 financial results of an after-tax amount substantially less than 1% of the company's total assets as of December 31, 1994, or in the range of $10 million to $15 million after tax. The company expects to maintain uninterrupted service to its customers during the planned transition period. The insulation products business would plan to continue to make a full range of products at other locations within the United States. The gasket products business would consolidate its operations at its Fulton, New York, plant. Textile manufacturing operations would be integrated into the existing Greenville, South Carolina, facility. - -------------------------------------------------------------------------------- 1994 compared with 1993 - -------------------------------------------------------------------------------- Financial condition As shown on the Consolidated Statements of Cash Flows, net cash provided by operating activities in 1993 was $291.2 million which was more than sufficient to cover investments in property, plant and equipment and dividends. The excess cash, plus cash proceeds from the sale of assets and the decrease in cash and cash equivalents, was used to reduce debt by $124.1 million. For 1993, the company recorded an $89.9 million charge before tax ($60.0 million after tax) for restructuring resulting from 1993 decisions associated with major process improvements and significant organizational changes. Approximately 80% of the before-tax losses related to charges for severance and special retirement incentives - 25 - associated with the elimination of approximately 950 employee positions, and approximately one-third of the before-tax loss represented future cash outlays. For 1992, the company recorded a $165.5 million before-tax restructuring charge which included severance pay and special retirement incentives associated with the elimination of approximately 1,440 employee positions. The operating cash savings, resulting from restructuring actions taken during 1993 and 1992, more than offset the 1993 cash outlay of $39.3 million for restructuring. During the fourth quarter of 1993, the company terminated, prior to maturity, interest rate swaps totaling $100 million and currency swaps totaling $37.2 million. Working capital was $204.1 million as of December 31, 1993--$37.0 million higher than the $167.1 million at year-end 1992. The primary reason for the increase in working capital was the repayment of short-term debt. Accounts receivable and inventories declined $19.1 million and $33.2 million, respectively, both reflecting reductions in most business units with half of the reductions attributed to the European building products business. A financing arrangement of a foreign subsidiary's principal pension plan, whereby the subsidiary became self-insured for its pension obligations, resulted in recording a noncurrent asset and long-term liability of $37.7 million. The company's 1993 year-end ratio of current assets to current liabilities was 1.47 to 1 compared with 1.31 to 1 ratio reported in 1992. Long-term debt, excluding the company's guarantee of the ESOP loan, was reduced by $9.8 million in 1993. The 1993 and 1992 year-end ratio of total debt as a percent of total capital was 52.2% and 57.2%, respectively. Consolidated results Net sales in 1993 of $2.53 billion decreased 1.0% compared with 1992 sales of $2.55 billion. The weaker European exchange rates were a key factor in the sales decline. Translating foreign currency sales to U.S. dollars at 1992 exchange rates would have resulted in a year-to-year sales increase of 1.9%. Armstrong's residential markets were very positive in the U.S., but weakness in the European economies and lackluster commercial markets worldwide reduced the overall opportunity. While sales in the first two quarters of 1993 were lower than the comparable 1992 quarters, third- and fourth-quarter sales exceeded those of the prior year. Net earnings were $63.5 million compared with a net loss in 1992 of $227.7 million. Net earnings per common share were $1.32 on a primary basis and $1.26 on a fully diluted basis. The net loss per share of common stock was $6.49 on both a primary and fully diluted basis for 1992. The return on common shareholders' equity in 1993 was 9.0% compared with a negative 33.9% in 1992. The 1992 loss reflects charges of $167.8 million after tax related to the company's adoption, retroactive to January 1, 1992, of SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions;" and SFAS 112, "Employers' Accounting for Postemployment Benefits." The computation of SFAS 112 was refined during 1993 with the net loss in 1992 reduced and restated by $6.5 million, or 18 cents per share. The restated 1992 net loss from continuing businesses totaled $59.9 million, or a $1.98 loss per share of common stock. The effective tax rate for 1993 was 30.0%. This reflects the company's higher use of foreign tax credits, reductions of deferred taxes because some foreign countries reduced their statutory tax rates and lower foreign tax rates, which more than offset the 1% increase in the U.S. statutory tax rate. The net loss from 1992 included an effective tax benefit rate of only 1.0%, primarily because some of the restructuring charges did not provide tax benefits. The company also adopted SFAS 109, "Accounting for Income Taxes," resulting in tax benefits of $5.5 million for 1992 being credited directly to retained earnings rather than to income taxes on the consolidated statement of earnings. Restructuring charges for 1993, totaling $89.9 million before tax, were included in the earnings from continuing businesses and were associated with Armstrong initiatives to enhance its global competitiveness. These costs were primarily associated with the elimination of employee positions in the U.S. and Europe. For the full year 1992, restructuring charges totaled $165.5 million before tax and related to the closing of four major manufacturing plants; the scaling back of operations in certain other plants in the U.S. and abroad; accruals for costs associated with the elimination of positions throughout the rest of the company; as well as write-downs of the value of land, buildings, equipment and intangible assets of the company. Cash outlays for the 1993 restructuring charges occurred in 1994 and should be fully recovered within two to three years. The cost of goods sold for 1993, when expressed as a percent of sales, was 72.0%--the lowest level for the last four years--and compared favorably with 1992's cost of goods sold of 74.7%. These lower costs reflected the positive effects of the 1992 restructuring activities, productivity gains, some pricing increases and product mix enhancements. Interest expense was favorably affected by lower debt levels and lower interest accruals for tax obligations. Other income and expense in 1993 included interest income of $3.9 million resulting from currency and interest rate swap activities which included closing out some interest rate swaps in anticipation of interest rate increases. Partially offsetting these positive effects was a small foreign exchange loss in 1993 compared with a small foreign exchange gain in 1992. Geographic area results (see page 7) United States--Sales increased by nearly 4% from 1992 levels. The 1992 net sales included five months of the building products segment's grid sales that were made prior to the - 26 - formation of the Armstrong and Worthington Industries joint venture (WAVE) effective June 1, 1992. Removing these sales from 1992 would result in an additional 1% increase in the year-to-year sales comparison. Operating income jumped more than tenfold when comparing 1993 with 1992. The continuing economic recovery provided increased opportunity in our end-use markets. During 1993, single family housing starts increased 6% and the sale of existing single family homes rose nearly 8%. Nonresidential new construction appeared to be close to the bottom of its cycle. A major source of higher sales in 1993 was the significant increase in business channeled through home centers and mass merchandisers. These sales, coupled with the stronger resilient flooring business, were major factors in generating significantly higher operating income. The furniture and ceramic tile businesses also generated higher sales, while sales in the building products and textile products businesses were lower. The operating income improvements were also driven by the 1992 restructuring activities that resulted in lower manufacturing costs in most domestic businesses, by some higher sales levels and by continuing productivity improvements. Operating income for both years included significant restructuring charges. The 1993 and 1992 restructuring charges totaled about $37 million and $98 million, respectively. The 1993 restructuring charges were primarily attributable to position eliminations. The 1992 restructuring charges included closing two plants, the write-down of fixed assets and the elimination of employee positions. Export sales of Armstrong products from the U.S. to trade customers increased nearly $3 million, or 11%, compared with 1992. Europe--The 1993 European economic environment continued to be weak in both the commercial and residential markets; however, the British market offered some improvement for Armstrong products. Net sales decreased 16%, but two-thirds of the decline reflected the weakening of European currencies. Excluding the impact of the strong U.S. dollar, insulation products was the only business in Europe that recorded a year-to-year sales increase. The European building products business relies entirely on commercial construction and had the largest decline, nearly 12%. Even with lower sales, operating income for Europe improved 41%. This improvement was primarily the result of lower costs caused by restructuring actions taken in the latter part of 1992, including the closing of the Ghlin, Belgium, ceilings manufacturing facility. Other foreign--Sales in 1993 declined nearly 4% from those of 1992. Operating income was recorded for 1993 compared with an operating loss in 1992. The 1992 operating loss resulted from restructuring charges associated with the closing of the Gatineau, Canada, ceilings manufacturing plant. The overall sales decline was a result of lower sales of resilient flooring in Japan and Southeast Asia that were partially offset by higher sales of flooring in Australia and Canada and of building products in the Pacific Rim. Excluding the impact of the restructuring charges in 1992, operating income for 1993 increased in the year- to-year comparison. Industry segment results (see page 3) Floor coverings--Worldwide sales were 5% higher in 1993 than in 1992, with operating income increasing eightfold from 1992 levels. The operating income included restructuring charges in 1993 of almost $28 million compared with nearly $81 million in 1992. Almost three-fourths of the 1993 restructuring charges related to ceramic tile with the remainder recorded in resilient flooring. Nearly all of the 1992 restructuring charges related to ceramic tile. Sales in the resilient flooring portion increased in North America but were lower in the European and Pacific areas. The North American increase was driven by sales in the U.S. market with strong growth through home centers and mass merchandisers as well as modest growth through wholesalers. The U.S. resilient flooring business was also helped by higher sales of existing homes and new housing construction. Ceramic tile recorded a modest sales increase primarily because of its residential business. The commercial institutional market segment for ceramic tile continued to be weak, providing little sales growth in 1993 compared with 1992. Operating income, excluding the effects of restructuring charges, increased 50%. Resilient flooring operating income improved because of the higher sales levels and significantly lower manufacturing costs achieved by process improvement and productivity gains. Ceramic tile continued to record a loss in 1993 as it did in 1992, but the losses were less in each of the 1993 quarters when compared with 1992. The ceramic tile business was adversely affected by very competitive pricing and a shift in product mix to lower margin products. Capital investments for 1993 were higher than those of 1992 with concentration of those expenditures on improving and maintaining manufacturing processes and in generating additional capacity from existing equipment. Building products--On a worldwide basis, market conditions did not improve in the commercial construction markets in 1993. The North American sales comparison reflects a decline because the first five months of 1992 included grid that was sold prior to the formation of the WAVE joint venture. The European markets, with the exception of the United Kingdom, were weaker in 1993. European sales declined by nearly 22%, of which half was caused by weaker European currencies. The 1993 operating income included restructuring charges of nearly $14 million, while the 1992 operating loss included $35 million of restructuring charges. This segment lowered its cost structure significantly as a result of restructuring actions - 27 - taken in 1992 that included the closing of two manufacturing facilities and productivity improvements that were attained in 1993. Even with lower sales and competitive pricing early in 1993, the lower cost structure that was put in place, coupled with some higher sales prices in the second half of 1993, permitted this segment to increase operating income. Capital investments in 1993 were about the same as 1992, but both years' expenditures were lower than depreciation levels. Furniture--Operating results for this segment were positive--1993 sales nearly 3% higher than those of 1992 and operating income more than 300% higher than the prior year. Both years contained restructuring charges that were less than $1 million in 1993 and nearly $5 million in 1992. Exclusive of restructuring charges, this segment recorded operating income that was 133% higher than the prior year. U.S. consumer household durable goods spending increased in 1993, and modest sales increases were recorded in the Thomasville wood and upholstery business that more than offset declines in the Armstrong retail, ready-to-assemble furniture and the contract businesses. The operating income improvement was driven by higher sales volume, lower costs resulting from the 1992 restructuring program and improved productivity. Higher lumber costs had a negative impact on 1992 operating results and continued to increase throughout much of 1993 but were offset by increased sales prices. Capital expenditures in 1993 increased modestly over those of 1992. Industry products--Almost three-quarters of the sales of this segment generally occur in European markets, which in 1993 remained in recession, limiting growth opportunities. Worldwide sales declined nearly 7%, with the stronger U.S. dollar accounting for 95% of the decline. Operating income declined by slightly more than 8%, with restructuring charges of almost $13 million in each year. The insulation business continued to be the most significant portion of this segment. Excluding the negative effect of currency translation, sales grew modestly while operating income recorded a small decline. The German market remained relatively strong for this business while markets in the other European countries were adversely affected by weak economies. Sales in North America and the Pacific Rim recorded a small increase in 1993. While the insulation business restructuring programs did lower costs, they were not able to offset the impact of the lower sales and competitive pricing pressures. The gasket materials business recorded slightly lower sales with a small decline in operating income from 1992 levels. The textile mill supplies business recorded significantly lower sales that were driven by the worldwide recession in the textile industry. This business, while lowering its cost structure, was unable to offset the impact of the significantly lower sales worldwide. Capital expenditures were reduced by about one-third from 1992 levels but were almost 40% greater than annual depreciation levels. The capital investments continued, generally, to support future growth of this segment. - 28 - Item 8. Financial Statements and Supplementary Data - ----------------------------------------------------- FINANCIAL STATEMENTS AND REVIEW * ARMSTRONG WORLD INDUSTRIES, INC., AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- The Financial Review, pages 32-46, is an integral part of these statements.
Millions except for per-share data Years ended December 31 1994 1993 1992 ================================================================================================================== Net sales $2,752.7 $2,525.4 $2,549.8 - ------------------------------------------------------------------------------------------------------------------ Cost of goods sold 1,904.7 1,819.2 1,903.8 - ------------------------------------------------------------------------------------------------------------------ Gross profit 848.0 706.2 646.0 - ------------------------------------------------------------------------------------------------------------------ Selling, general and administrative expenses 514.8 493.6 506.6 - ------------------------------------------------------------------------------------------------------------------ Restructuring charges -- 89.9 165.5 - ------------------------------------------------------------------------------------------------------------------ Operating income (loss) 333.2 122.7 (26.1) - ------------------------------------------------------------------------------------------------------------------ Interest expense 28.3 38.0 41.6 - ------------------------------------------------------------------------------------------------------------------ Other expense (income), net .4 (6.0) (7.3) - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Earnings (loss) before income taxes 304.5 90.7 (60.4) - ------------------------------------------------------------------------------------------------------------------ Income taxes 94.1 27.2 (.5) - ------------------------------------------------------------------------------------------------------------------ Earnings (loss) before cumulative effect of accounting changes 210.4 63.5 (59.9) - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Cumulative effect of changes in accounting for: - ------------------------------------------------------------------------------------------------------------------ Postretirement benefits, net of income tax benefit of $84.9 -- -- (135.4) - ------------------------------------------------------------------------------------------------------------------ Postemployment benefits, net of income tax benefit of $20.9 -- -- (32.4) - ------------------------------------------------------------------------------------------------------------------ Net earnings (loss) $ 210.4 $ 63.5 $ (227.7) ================================================================================================================== - ------------------------------------------------------------------------------------------------------------------ Dividends paid on Series A convertible preferred stock 19.0 19.2 19.3 - ------------------------------------------------------------------------------------------------------------------ Tax benefit on dividends paid on unallocated preferred shares 4.9 5.3 5.5 - ------------------------------------------------------------------------------------------------------------------ Net earnings (loss) applicable to common stock $ 196.3 $ 49.6 $ (241.5) ================================================================================================================== - ------------------------------------------------------------------------------------------------------------------ Per share of common stock: - ------------------------------------------------------------------------------------------------------------------ Primary: - ------------------------------------------------------------------------------------------------------------------ Earnings (loss) before cumulative effect of accounting changes $ 5.22 $ 1.32 $ (1.98) - ------------------------------------------------------------------------------------------------------------------ Cumulative effect of changes in accounting for: - ------------------------------------------------------------------------------------------------------------------ Postretirement benefits -- -- (3.64) - ------------------------------------------------------------------------------------------------------------------ Postemployment benefits -- -- (.87) - ------------------------------------------------------------------------------------------------------------------ Net earnings (loss) $ 5.22 $ 1.32 $ (6.49) ================================================================================================================== Fully diluted: - ------------------------------------------------------------------------------------------------------------------ Earnings (loss) before cumulative effect of accounting changes $ 4.64 $ 1.26 $ (1.98) - ------------------------------------------------------------------------------------------------------------------ Cumulative effect of changes in accounting for: - ------------------------------------------------------------------------------------------------------------------ Postretirement benefits -- -- (3.64) - ------------------------------------------------------------------------------------------------------------------ Postemployment benefits -- -- (.87) - ------------------------------------------------------------------------------------------------------------------ Net earnings (loss) $ 4.64 $ 1.26 $ (6.49) ==================================================================================================================
- 29 - FINANCIAL STATEMENTS AND REVIEW * ARMSTRONG WORLD INDUSTRIES, INC., AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- The Financial Review, pages 32-46, is an integral part of these statements.
Millions except for numbers of shares and per-share data As of December 31 1994 1993 ================================================================================================================================ Assets - -------------------------------------------------------------------------------------------------------------------------------- Current assets: - -------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 12.0 $ 9.1 - -------------------------------------------------------------------------------------------------------------------------------- Accounts and notes receivable - -------------------------------------------------------------------------------------------------------------------------------- (less allowance for discounts and losses: 1994--$42.3; 1993--$37.5) 320.0 283.5 - -------------------------------------------------------------------------------------------------------------------------------- Inventories 293.5 286.2 - -------------------------------------------------------------------------------------------------------------------------------- Income tax benefits 35.9 36.8 - -------------------------------------------------------------------------------------------------------------------------------- Other current assets 29.6 24.8 - -------------------------------------------------------------------------------------------------------------------------------- Total current assets 691.0 640.4 - -------------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment - -------------------------------------------------------------------------------------------------------------------------------- (less accumulated depreciation and amortization: 1994--$1,098.8; 1993--$1,006.7) 1,069.9 1,039.1 - -------------------------------------------------------------------------------------------------------------------------------- Insurance for asbestos-related liabilities 198.0 -- - -------------------------------------------------------------------------------------------------------------------------------- Other noncurrent assets 273.6 249.8 - -------------------------------------------------------------------------------------------------------------------------------- Total assets $2,232.5 $1,929.3 ================================================================================================================================ - -------------------------------------------------------------------------------------------------------------------------------- Liabilities and shareholders' equity - -------------------------------------------------------------------------------------------------------------------------------- Current liabilities: - -------------------------------------------------------------------------------------------------------------------------------- Short-term debt $ 17.9 $ 105.4 - -------------------------------------------------------------------------------------------------------------------------------- Current installments of long-term debt 19.5 5.8 - -------------------------------------------------------------------------------------------------------------------------------- Accounts payable and accrued expenses 327.4 293.3 - -------------------------------------------------------------------------------------------------------------------------------- Income taxes 22.5 31.8 - -------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 387.3 436.3 - -------------------------------------------------------------------------------------------------------------------------------- Long-term debt 237.2 256.8 - -------------------------------------------------------------------------------------------------------------------------------- Employee Stock Ownership Plan (ESOP) loan guarantee 245.5 253.9 - -------------------------------------------------------------------------------------------------------------------------------- Deferred income taxes 32.1 18.8 - -------------------------------------------------------------------------------------------------------------------------------- Postretirement and postemployment benefit liabilities 270.4 283.7 - -------------------------------------------------------------------------------------------------------------------------------- Asbestos-related liabilities 198.0 -- - -------------------------------------------------------------------------------------------------------------------------------- Other long-term liabilities 118.3 99.6 - -------------------------------------------------------------------------------------------------------------------------------- Minority interest in subsidiaries 8.6 10.7 - -------------------------------------------------------------------------------------------------------------------------------- Total noncurrent liabilities 1,110.1 923.5 - -------------------------------------------------------------------------------------------------------------------------------- Shareholders' equity: - -------------------------------------------------------------------------------------------------------------------------------- Class A preferred stock. Authorized 20 million shares; - -------------------------------------------------------------------------------------------------------------------------------- issued 5,654,450 shares of Series A convertible preferred stock; - -------------------------------------------------------------------------------------------------------------------------------- outstanding: 1994--5,478,416 shares; 1993--5,527,692 shares; - -------------------------------------------------------------------------------------------------------------------------------- retired: 1994--176,034 shares; 1993--126,758 shares 261.6 263.9 - -------------------------------------------------------------------------------------------------------------------------------- Common stock, $1 par value per share. - -------------------------------------------------------------------------------------------------------------------------------- Authorized 200 million shares; issued 51,878,910 shares 51.9 51.9 - -------------------------------------------------------------------------------------------------------------------------------- Capital in excess of par value 39.3 29.7 - -------------------------------------------------------------------------------------------------------------------------------- Reduction for ESOP loan guarantee (233.9) (241.8) - -------------------------------------------------------------------------------------------------------------------------------- Retained earnings 1,076.8 927.7 - -------------------------------------------------------------------------------------------------------------------------------- Foreign currency translation 8.3 (3.4) - -------------------------------------------------------------------------------------------------------------------------------- 1,204.0 1,028.0 - -------------------------------------------------------------------------------------------------------------------------------- Less common stock in treasury, at cost: 1994--14,602,132 shares; 1993--14,656,488 shares 468.9 458.5 - -------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 735.1 569.5 - -------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 2,232.5 $1,929.3 ================================================================================================================================
- 30 - FINANCIAL STATEMENTS AND REVIEW * ARMSTRONG WORLD INDUSTRIES, INC., AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- The Financial Review, pages 32-46, is an integral part of these statements.
Millions Years ended December 31 1994 1993 1992 ================================================================================================================ Cash flows from operating activities: - ---------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 210.4 $ 63.5 $(227.7) - ---------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net earnings (loss) to net cash - ---------------------------------------------------------------------------------------------------------------- provided by operating activities: - ---------------------------------------------------------------------------------------------------------------- Depreciation and amortization 133.4 130.0 136.9 - ---------------------------------------------------------------------------------------------------------------- Deferred income taxes 14.6 (1.3) (36.6) - ---------------------------------------------------------------------------------------------------------------- Loss from restructuring activities -- 89.9 165.5 - ---------------------------------------------------------------------------------------------------------------- Restructuring payments (20.6) (39.3) (9.4) - ---------------------------------------------------------------------------------------------------------------- Loss from cumulative effect of changes in accounting -- -- 167.8 - ---------------------------------------------------------------------------------------------------------------- Changes in operating assets and liabilities net of - ---------------------------------------------------------------------------------------------------------------- effect of accounting changes, restructuring and dispositions: - ---------------------------------------------------------------------------------------------------------------- (Increase) decrease in receivables (32.5) 18.3 (11.9) - ---------------------------------------------------------------------------------------------------------------- (Increase) decrease in inventories (4.4) 28.4 (1.3) - ---------------------------------------------------------------------------------------------------------------- (Increase) decrease in other current assets (4.9) 10.8 10.2 - ---------------------------------------------------------------------------------------------------------------- (Increase) in other noncurrent assets (23.5) (45.3) (27.0) - ---------------------------------------------------------------------------------------------------------------- Increase in accounts payable and accrued expenses 38.1 18.0 7.9 - ---------------------------------------------------------------------------------------------------------------- Increase (decrease) in income taxes payable (10.1) 11.3 1.4 - ---------------------------------------------------------------------------------------------------------------- Increase (decrease) in other long-term liabilities (3.3) 15.5 16.5 - ---------------------------------------------------------------------------------------------------------------- Other, net 3.7 (8.6) (5.5) - ---------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 300.9 291.2 186.8 - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: - ---------------------------------------------------------------------------------------------------------------- Purchases of property, plant and equipment (148.3) (117.6) (115.8) - ---------------------------------------------------------------------------------------------------------------- Proceeds from sale of land and facilities 12.8 10.3 5.5 - ---------------------------------------------------------------------------------------------------------------- Investment in joint ventures -- -- (4.2) - ---------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (135.5) (107.3) (114.5) - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: - ---------------------------------------------------------------------------------------------------------------- Increase (decrease) in short-term debt (89.6) (114.9) 25.5 - ---------------------------------------------------------------------------------------------------------------- Reduction of long-term debt (5.7) (9.2) (30.6) - ---------------------------------------------------------------------------------------------------------------- Cash dividends paid (66.2) (63.8) (63.8) - ---------------------------------------------------------------------------------------------------------------- Purchase of common stock for the treasury (10.6) (.1) -- - ---------------------------------------------------------------------------------------------------------------- Proceeds from exercised stock options 8.4 4.9 .4 - ---------------------------------------------------------------------------------------------------------------- Other, net (.8) (7.6) 6.1 - ---------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (164.5) (190.7) (62.4) - ---------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 2.0 .7 (2.9) - ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents $ 2.9 $ (6.1) $ 7.0 ================================================================================================================ Cash and cash equivalents at beginning of year $ 9.1 $ 15.2 $ 8.2 ================================================================================================================ Cash and cash equivalents at end of year $ 12.0 $ 9.1 $ 15.2 ================================================================================================================ - ---------------------------------------------------------------------------------------------------------------- Supplemental cash flow information - ---------------------------------------------------------------------------------------------------------------- Interest paid $ 31.9 $ 33.8 $ 39.9 - ---------------------------------------------------------------------------------------------------------------- Income taxes paid $ 62.0 $ 15.8 $ 31.0 - ---------------------------------------------------------------------------------------------------------------- ================================================================================================================
- 31 - ARMSTRONG WORLD INDUSTRIES, INC., AND SUBSIDIARIES - -------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------- The consolidated financial statements and the accompanying data in this report include the accounts of the parent Armstrong World Industries, Inc., and its domestic and foreign subsidiaries. All significant intercompany transactions have been eliminated from the consolidated statements. To assist in understanding this financial review, the accounting policies and principles used are printed in italics. - -------------------------------------------------------------------------------- OPERATING STATEMENT ITEMS - -------------------------------------------------------------------------------- Statements of operations have been reformatted and certain expenses have been reclassified compared to previously published data for 1994. Also, certain 1994 expenses, principally associated with employee benefits and previously unallocated, are included in operating income for the respective geographical area and industry segments. All prior year data has been restated to conform to the new presentation. Net sales in 1994 totaled $2,752.7 million, 9.0% above the 1993 total of $2,525.4 million. 1993 sales were 1.0% below the 1992 total of $2,549.8 million. The amounts reported as net sales are the total sales billed during the year less the sales value of goods returned, trade discounts and customers' allowances and freight costs incurred in delivering products to customers. Net earnings were $210.4 million for 1994 compared with earnings for 1993 of $63.5 million and a net loss of $227.7 million for 1992. Included in the earnings for 1993 and 1992 were restructuring charges after tax of $60.0 million and $123.8 million, respectively. The 1992 loss also included a $167.8 million after-tax charge for the cumulative effect of changes in accounting related to the adoption of Statement of Financial Accounting Standards (SFAS) 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and SFAS 112, "Employers' Accounting for Postemployment Benefits." Earnings (loss) per common share are presented on the Consolidated Statements of Operations on page 29. Primary earnings (loss) per share, for "Net earnings (loss)," are determined by dividing the earnings (loss), after deducting preferred dividends (net of tax benefits on unallocated shares), by the average number of common shares outstanding and shares issuable under stock options, if dilutive. Fully diluted earnings (loss) per share include the shares of common stock outstanding and the adjustments to common shares and earnings (loss) required to portray the convertible preferred shares on an "if converted" basis unless the effect is antidilutive. Research and development costs were $57.4 million in 1994, $63.0 million in 1993 and $64.9 million in 1992. Advertising costs were $39.2 million in 1994, $37.8 million in 1993 and $42.4 million in 1992. Maintenance and repair costs were $129.0 million in 1994, $126.1 million in 1993 and $137.2 million in 1992. Depreciation and amortization amounted to $133.4 million in 1994, $130.0 million in 1993 and $136.9 million in 1992. These amounts include amortization of intangible assets of $8.5 million in 1994, $10.0 million in 1993 and $16.2 million in 1992. Depreciation charges for financial reporting purposes are determined generally on the straight-line basis at rates calculated to provide for the retirement of assets at the end of their useful lives. Accelerated depreciation is generally used for tax purposes. When assets are disposed of or retired, their costs and related depreciation are removed from the books, and any resulting gains or losses are reflected in "Selling, general and administrative expenses." Intangibles are amortized over periods ranging from 3 to 40 years. Restructuring charges amounted to $89.9 million in 1993 and $165.5 million in 1992. The 1993 charges were primarily the result of accruals for severance and special retirement incentives associated with the elimination of employee positions. The 1992 charges related to the company's closing of four major manufacturing facilities--two in the U.S., one in Canada, one in Belgium--and to the scaling back of operations in certain other plants in the U.S. and abroad. The provision also included accruals for costs associated with the elimination of positions throughout the company, as well as write-downs of the value of land, buildings, equipment and intangible assets of the company. In the first quarter of 1995, the company announced a planned closing of an Industry Products manufacturing plant located in Braintree, Massachusetts. This plant is to phase out operations by the end of 1995. Accordingly, there will be a nonrecurring charge to the first-quarter 1995 financial results of an amount substantially less than 1% of the company's total assets, or in the range of $10 million to $15 million after tax.
Details of other expense (income), net (millions) 1994 1993 1992 ================================================================================ Interest and dividend income $(3.7) $(7.5) $(4.5) - -------------------------------------------------------------------------------- Foreign exchange, net (gain) loss 2.6 .5 (1.4) - -------------------------------------------------------------------------------- Minority interest 1.8 2.1 1.9 - -------------------------------------------------------------------------------- Other (.3) (1.1) (3.3) ================================================================================ Total $ .4 $(6.0) $(7.3)
Employee compensation is presented in the table below and excludes restructuring charges for severance costs and early retirement incentives.
Employee compensation cost summary (millions) 1994 1993 1992 ================================================================================ Wages and salaries $748.7 $709.8 $741.5 - -------------------------------------------------------------------------------- Payroll taxes 67.5 68.2 74.3 - -------------------------------------------------------------------------------- Pension credits (10.2) (3.5) (.7) - -------------------------------------------------------------------------------- Insurance and other benefit costs 59.6 78.0 87.2 ================================================================================ Total $865.6 $852.5 $902.3
Average total employment of 20,583 in 1994 compares with 21,682 in 1993 and 23,500 in 1992. - 32 - ARMSTRONG WORLD INDUSTRIES, INC., AND SUBSIDIARIES - -------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------- Pension costs The company and a number of its subsidiaries have pension plans covering substantially all employees. Benefits from the principal plan are based on the employee's compensation and years of service. Generally, the company's practice is to fund the actuarially determined current service costs and the amounts necessary to amortize prior service obligations over periods ranging up to 30 years, but not in excess of the full funding limitation. Funding requirements are determined independently of expense, using an expected long-term rate of return on assets of 8.67%. The company's principal plan is subject to the full funding limitation in 1994, 1993 and 1992, and the company made no contribution to that plan in any of these years. Contributions of $.8 million in 1993 and $.6 million in 1992 were made to defined-benefit plans of company subsidiaries. No contributions were made in 1994. The total pension cost or credit from all plans is presented in the table below.
Total pension (credit) cost (millions) 1994 1993 1992 ================================================================================ U.S. defined-benefit plans: - -------------------------------------------------------------------------------- Net pension credit $(28.0) $(17.4) $(16.2) - -------------------------------------------------------------------------------- Early retirement incentives -- 38.0 30.0 - -------------------------------------------------------------------------------- Defined contribution plans 6.1 6.0 5.9 - -------------------------------------------------------------------------------- Non-U.S. defined-benefit plans: - -------------------------------------------------------------------------------- Net pension cost 8.6 6.1 6.1 - -------------------------------------------------------------------------------- Early retirement incentives -- -- 1.3 - -------------------------------------------------------------------------------- Other funded and unfunded pension costs 3.1 1.8 2.2 ================================================================================ Total pension (credit) cost $(10.2) $34.5 $29.3
The net credit for U.S. defined-benefit pension plans is presented in the table below.
Net credit for U.S. defined-benefit pension plans (millions) 1994 1993 1992 ================================================================================ Actual (return) loss on assets $ 97.1 $(236.9) $ (94.8) - -------------------------------------------------------------------------------- Less amount deferred (189.7) 155.9 17.8 - -------------------------------------------------------------------------------- Expected return on assets (92.6) (81.0) (77.0) - -------------------------------------------------------------------------------- Net amortization and other (9.9) (6.9) (6.3) - -------------------------------------------------------------------------------- Service cost--benefits earned during the year 19.8 19.1 18.7 - -------------------------------------------------------------------------------- Interest on the projected benefit obligation 54.7 51.4 48.4 ================================================================================ Net pension credit $ (28.0) $ (17.4) $ (16.2)
The company has defined-contribution pension plans for eligible employees at certain of its U.S. subsidiaries, such as the Employee Stock Ownership Plan (ESOP) described on page 35. Company contributions and accrued compensation expense related to the ESOP are included with other plans' contributions and costs, based on the compensation of each eligible employee. The costs of such plans totaled $6.1 million in 1994, $6.0 million in 1993 and $5.9 million in 1992. The funded status of the company's U.S. defined-benefit pension plans is presented in the following table.
Funded status of U.S. defined-benefit pension plans (millions) 1994 1993 ================================================================================ Actuarial present value of benefit obligations: Vested benefit obligation $ (657.7) $ (704.0) ================================================================================ Accumulated benefit obligation $ (700.6) $ (743.1) ================================================================================ Projected benefit obligation for services rendered to date $ (774.8) $ (797.2) ================================================================================ Plan assets at fair value 1,099.1 1,248.2 ================================================================================ Plan assets in excess of projected benefit obligation 324.3 451.0 - -------------------------------------------------------------------------------- Unrecognized transition asset (46.6) (53.0) - -------------------------------------------------------------------------------- Unrecognized prior service cost 102.8 114.2 - -------------------------------------------------------------------------------- Unrecognized net gain--experience different from assumptions (285.4) (428.3) - -------------------------------------------------------------------------------- Provision for restructuring charges (8.9) (27.1) ================================================================================ Prepaid pension cost $ 86.2 $ 56.8
The plan assets at each December 31 are based on measurements from October 31 to December 31. Stated at fair value, they are primarily listed stocks, bonds and investments with a major insurance company. Note: Rates used in determining the actuarial present value of the projected benefit obligation at the end of 1994 and 1993 are: (1) the discount rate or the assumed rate at which the pension benefits could be effectively settled, 8.00% in 1994 and 7.00% in 1993; and (2) the compensation rate or the long-term rate at which compensation is expected to increase as a result of inflation, promotions, seniority and other factors, 5.25% for 1994 and 4.75% for 1993. The expected long-term rate of return on assets at December 31, 1994 and 1993 was 8.50% and 8.25%, respectively. The company has pension plans covering employees in a number of foreign countries that utilize assumptions that are consistent, but not identical, with those of the U.S. plans.
Net cost for non-U.S. defined-benefit pension plans (millions) 1994 1993 1992 ================================================================================ Actual (return) loss on assets $ 1.8 $(14.3) $ (9.1) - -------------------------------------------------------------------------------- Less amount deferred (6.1) 8.0 2.6 - -------------------------------------------------------------------------------- Expected return on assets (4.3) (6.3) (6.5) - -------------------------------------------------------------------------------- Net amortization and other .6 .5 .5 - -------------------------------------------------------------------------------- Service cost--benefits earned during the year 5.2 5.2 5.3 - -------------------------------------------------------------------------------- Interest on the projected benefit obligation 7.1 6.7 6.8 ================================================================================ Net pension cost $ 8.6 $ 6.1 $ 6.1
- 33 - The following table presents the funded status of the non-U.S. defined- benefit pension plans at December 31.
Funded status of non-U.S. defined-benefit pension plans (millions) 1994 1993 ================================================================================ Actuarial present value of benefit obligations: Vested benefit obligation $(87.1) $(83.1) ================================================================================ Accumulated benefit obligation $(91.5) $(88.7) ================================================================================ Projected benefit obligation for services rendered to date $(99.5) $(95.9) ================================================================================ Plan assets at fair value 58.0 58.3 ================================================================================ Projected benefit obligation greater than plan assets (41.5) (37.6) - -------------------------------------------------------------------------------- Unrecognized transition obligation 3.2 2.9 - -------------------------------------------------------------------------------- Unrecognized prior service cost 3.5 2.8 - -------------------------------------------------------------------------------- Unrecognized net gain--experience different from assumptions (9.5) (4.9) - -------------------------------------------------------------------------------- Adjustment required to recognize minimum liability (.4) (5.3) ================================================================================ Accrued pension cost $(44.7) $(42.1)
Postretirement benefits other than pensions and postemployment benefits The company has plans that provide for medical and life insurance benefits to certain eligible employees, worldwide, when they retire from active service. The company funds these benefit costs primarily on a pay-as-you-go basis, with the retiree paying a portion of the cost for health-care benefits through deductibles and contributions. The company announced in 1989-90 a 15-year phaseout of its cost of health- care benefits for certain future retirees. These future retirees include parent company nonunion employees and some union employees. Shares of ESOP convertible preferred stock (see page 35) are scheduled to be allocated to these employees, based on employee age and years to expected retirement. In addition, they may enroll in a voluntary portion of the ESOP to purchase additional shares. In 1992, the company adopted SFAS 106 and elected to immediately recognize the cumulative effect of the change in accounting for postretirement benefits of $220.3 million ($135.4 million after taxes). Under this standard, total retiree health-care and life insurance expense was $21.4 million in 1994, $21.2 million in 1993 and $22.3 million in 1992.
Periodic postretirement benefit costs (millions) 1994 1993 1992 ================================================================================ Service cost of benefits earned during the year $ 3.9 $ 3.9 $ 4.7 ================================================================================ Interest cost on accumulated postretirement benefit obligation 18.3 18.1 17.6 ================================================================================ Amortization of prior service credit (.8) (.8) -- ================================================================================ Periodic postretirement benefit cost $21.4 $21.2 $22.3
The following table sets forth the status of the company's postretirement benefit plans at December 31.
Status of postretirement benefit plans (millions) 1994 1993 ================================================================================ Retirees $147.4 $143.3 - -------------------------------------------------------------------------------- Fully eligible active plan participants 31.2 39.9 - -------------------------------------------------------------------------------- Other active plan participants 54.2 64.7 ================================================================================ Total accumulated postretirement benefit obligation (APBO) $232.8 $247.9 ================================================================================ Unrecognized prior service credit 8.1 8.8 ================================================================================ Unrecognized net loss (4.7) (24.1) ================================================================================ Accrued postretirement benefit cost $236.2 $232.6
The assumed health-care cost trend rate used to measure the APBO was 13% in 1993, decreasing 1% per year to an ultimate rate of 6% by the year 2000. The health-care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, if the health-care cost trend rate assumptions were increased by 1%, the APBO as of December 31, 1994, would be increased by $27.5 million. The effect of this change on the total of service and interest costs for 1994 would be an increase of $3.1 million. The APBO at December 31, 1994, was determined utilizing a discount rate of 8.25% and a compensation rate of 5.25%. The discount and compensation rates used in determining the APBO at December 31, 1993, were 7.75% and 4.75%, respectively. The company provides certain postemployment benefits to eligible parent company and subsidiary employees. These benefits are provided to former or inactive employees and their dependents during the period following employment but before retirement. In 1992, the company adopted SFAS 112 and elected to immediately recognize the cumulative effect of the change in accounting for postemployment benefits of $53.3 million ($32.4 million after tax). In 1994, the company recorded a postemployment benefit credit of $12.2 million, which included a $14.6 million gain related to the qualification in 1994 of long-term disabled employees for primary medical coverage under Medicare. Postemployment benefit expense was $4.6 million in 1993 and $6.3 million in 1992. - 34 - ARMSTRONG WORLD INDUSTRIES, INC., AND SUBSIDIARIES - -------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------- Employee Stock Ownership Plan (ESOP) In 1989, Armstrong established an ESOP that borrowed $270 million from banks and insurance companies, repayable over 15 years and guaranteed by the company. The ESOP used the proceeds to purchase 5,654,450 shares of a new series of convertible preferred stock issued by the company. The number of preferred shares released for allocation to participant accounts is based on the proportion of principal and interest paid to the total amount of debt service remaining to be paid over the life of the borrowings. Through December 31, 1994, the ESOP allocated to participants 1,599,677 shares and retired 176,034 shares. The preferred stock has a minimum conversion value of $47.75 per share with an annual dividend of $3.462. The ESOP currently covers parent company nonunion employees, some union employees and those employees of major domestic subsidiaries who wish to participate in the voluntary contribution portion of the plan. Armstrong used the proceeds from the 1989 sale of preferred stock to repurchase common stock in 1989 and 1990 for the company treasury. The company's guarantee of the ESOP loan has been recorded as a long-term obligation and as a reduction of shareholders' equity on its consolidated balance sheet.
Details of ESOP debt service payments (millions) 1994 1993 1992 ================================================================================ Preferred dividends paid $19.0 $19.2 $19.3 - -------------------------------------------------------------------------------- Employee contributions 6.2 5.9 5.9 - -------------------------------------------------------------------------------- Company contributions 4.9 3.5 2.2 ================================================================================ Debt service payments made by ESOP trustee $30.1 $28.6 $27.4
The company recorded costs for the ESOP, utilizing the 80% of the shares allocated method, of $4.4 million in 1994, $4.5 million in 1993 and $4.4 million in 1992. Costs for all years continue to be offset by savings from changes to company-sponsored health-care benefits and elimination of a contribution- matching feature in the company-sponsored voluntary retirement savings plan. Taxes totaled $180.9 million in 1994, $113.6 million in 1993 and $92.4 million in 1992. Deferred tax assets and liabilities are recognized using enacted tax rates for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. The tax benefit for dividends paid on unallocated shares of stock held by the ESOP is recognized in shareholders' equity (see page 42).
Details of taxes (millions) 1994 1993 1992 ================================================================================ Earnings (loss) before income taxes: Domestic $301.4 $ 85.7 $(59.2) - -------------------------------------------------------------------------------- Foreign 52.1 29.3 8.0 - -------------------------------------------------------------------------------- Eliminations (49.0) (24.3) (9.2) ================================================================================ Total $304.5 $ 90.7 $(60.4) ================================================================================ Income taxes: Payable: Federal $ 29.5 $ 28.4 $ 20.4 - -------------------------------------------------------------------------------- Foreign 25.9 10.6 16.2 - -------------------------------------------------------------------------------- State 5.0 3.7 3.2 ================================================================================ 60.4 42.7 39.8 ================================================================================ Deferred: Federal 40.2 (14.3) (37.9) - -------------------------------------------------------------------------------- Foreign (2.2) (1.2) (2.4) - -------------------------------------------------------------------------------- State (4.3) -- -- ================================================================================ 33.7 (15.5) (40.3) ================================================================================ Total income taxes 94.1 27.2 (.5) - -------------------------------------------------------------------------------- Payroll taxes 67.5 68.2 74.3 - -------------------------------------------------------------------------------- Property, franchise and capital stock taxes 19.3 18.2 18.6 ================================================================================ Total taxes $180.9 $113.6 $92.4
At December 31, 1994, unremitted earnings of subsidiaries outside the United States were $92.1 million (at current balance sheet exchange rates) on which no U.S. taxes have been provided. If such earnings were to be remitted without offsetting tax credits in the United States, withholding taxes would be $10.8 million. The company's intention, however, is to permanently reinvest those earnings or to repatriate them only when it is tax effective to do so.
Reconciliation to U.S. statutory tax rate 1994 1993 1992 ================================================================================ Statutory tax (benefit) rates 35.0% 35.0% (34.0)% - -------------------------------------------------------------------------------- State income taxes .1 2.6 3.5 - -------------------------------------------------------------------------------- (Benefit) on ESOP dividend (.6) (1.5) (1.7) - -------------------------------------------------------------------------------- (Benefit) taxes on foreign and foreign-source income (.7) (8.8) 3.7 - -------------------------------------------------------------------------------- Utilization of excess foreign tax credit (1.8) -- -- - -------------------------------------------------------------------------------- Reversal of prior year provisions (2.1) -- -- - -------------------------------------------------------------------------------- Other items 1.0 .9 3.5 - -------------------------------------------------------------------------------- Restructuring charges -- 1.8 24.0 - -------------------------------------------------------------------------------- Effective tax (benefit) rates 30.9% 30.0% (1.0)%
- 35 - - -------------------------------------------------------------------------------- BALANCE SHEET ITEMS - -------------------------------------------------------------------------------- Cash and cash equivalents increased to $12.0 million at the end of 1994 from $9.1 million at the end of 1993. Operating and other factors associated with the increase in cash and cash equivalents are detailed in the Consolidated Statements of Cash Flows on page 31. Short-term investments, substantially all of which have maturities of three months or less when purchased, are considered to be cash equivalents and are carried at cost or less, generally approximating market value. Receivables increased $36.5 million in 1994, with most of the increase related to higher sales volume during the last quarter of 1994.
Accounts and notes receivable (millions) 1994 1993 ================================================================================ Customers' receivables $324.6 $287.0 - -------------------------------------------------------------------------------- Customers' notes 26.9 22.3 - -------------------------------------------------------------------------------- Miscellaneous receivables 10.8 11.7 - -------------------------------------------------------------------------------- 362.3 321.0 - -------------------------------------------------------------------------------- Less allowance for discounts and losses 42.3 37.5 ================================================================================ Net $320.0 $283.5
Generally, the company sells its products to select, preapproved groups of customers that include: flooring and building material distributors, ceiling systems contractors, regional and national mass merchandisers and home centers, original equipment manufacturers and large furniture retailers. The businesses of these customers are directly affected by changes in economic and market conditions. The company considers these factors and the financial condition of each customer when establishing its allowance for losses from doubtful accounts. The carrying amount of the receivables approximates fair value because of the short maturity of these items. Trade receivables are recorded in gross billed amounts as of date of shipment. Provision is made for estimated applicable discounts and losses. Inventories were $7.3 million higher at the end of 1994. The translation of foreign currency inventories to U.S. dollars at higher exchange rates provided approximately $4.6 million of the increase. Approximately 49% in 1994 and 51% in 1993 of the company's total inventory was valued on a LIFO (last-in, first-out) basis. Such inventory values were lower than would have been reported on a total FIFO (first-in, first-out) basis, by $115.4 million at the end of 1994 and $109.7 million at year-end 1993.
Inventories (millions) 1994 1993 - -------------------------------------------------------------------------------- Finished goods $179.1 $176.8 - -------------------------------------------------------------------------------- Goods in process 35.5 34.5 - -------------------------------------------------------------------------------- Raw materials and supplies 78.9 74.9 - -------------------------------------------------------------------------------- Total $293.5 $286.2
Inventories are valued at the lower of cost or market. Approximately two- thirds of 1994's domestic inventories are valued using the LIFO method. Other inventories are generally determined on a FIFO method. Income tax benefits were $35.9 million in 1994 and $36.8 million in 1993. Of these amounts, deferred tax benefits were $31.7 million in 1994 and $34.1 million in 1993. Other current assets were $29.6 million in 1994, an increase of $4.8 million from the $24.8 million in 1993.
Property, plant and equipment (millions) 1994 1993 - -------------------------------------------------------------------------------- Land $ 33.5 $ 32.2 - -------------------------------------------------------------------------------- Buildings 521.8 505.1 - -------------------------------------------------------------------------------- Machinery and equipment 1,523.8 1,446.5 - -------------------------------------------------------------------------------- Construction in progress 89.6 62.0 - -------------------------------------------------------------------------------- 2,168.7 2,045.8 - -------------------------------------------------------------------------------- Less accumulated depreciation and amortization 1,098.8 1,006.7 ================================================================================ Net $1,069.9 $1,039.1
The $122.9 million increase in gross book value to $2,168.7 million at the end of 1994 included $148.3 million for capital additions and a $55.3 million reduction from sales, retirements, dispositions and other changes. Also, because of translating foreign currency property, plant and equipment into U.S. dollars at higher exchange rates, 1994 gross book value was higher by $29.9 million and net book value increased by $13.9 million. The unexpended cost of approved capital appropriations amounted to $108.8 million at December 31, 1994, substantially all of which is scheduled to be expended during 1995. Property, plant and equipment values are stated at acquisition cost, with accumulated depreciation and amortization deducted to arrive at net book value. Insurance for asbestos-related liabilities was $198.0 million reflecting the company's belief in the availability of insurance in an amount to cover the estimated liability of a like amount (see page 39). Such insurance has either been agreed upon or is probable of recovery through negotiation, alternative dispute resolution or litigation. Beginning with the first quarter 1994, the company's balance sheet reflected a new liability--"Asbestos-related liabilities" and a new asset--"Insurance for asbestos-related liabilities" to conform to FASB Interpretation No. 39. In the past, the company set off such amounts for financial reporting. - 36 - ARMSTRONG WORLD INDUSTRIES, INC., AND SUBSIDIARIES - -------------------------------------------------------------------------------- FINANCIAL REVIEW - --------------------------------------------------------------------------------
Other noncurrent assets (millions) 1994 1993 - -------------------------------------------------------------------------------- Goodwill and other intangibles $ 67.4 $ 68.1 - -------------------------------------------------------------------------------- Pension-related assets 106.7 76.0 - -------------------------------------------------------------------------------- Other 99.5 105.7 ================================================================================ Total $273.6 $249.8
Other noncurrent assets increased $23.8 million in 1994. The $30.7 million increase in pension-related assets and the recording of a $3.9 million receivable for estimated environmental-remediation activities (see page 39) were the major factors for the increase. Partially offsetting these increases was the use of $13.5 million of deferred income tax benefits. Noncurrent assets are carried at cost or less or under the equity method of accounting.
Accounts payable and accrued expenses (millions) 1994 1993 ================================================================================ Payables, trade and other $172.1 $145.3 - -------------------------------------------------------------------------------- Employment costs 92.0 55.0 - -------------------------------------------------------------------------------- Restructuring costs 20.3 41.7 - -------------------------------------------------------------------------------- Other 43.0 51.3 ================================================================================ Total $327.4 $293.3
The carrying amount of accounts payable and accrued expenses approximates fair value because of the short maturity of these items.
Income taxes (millions) 1994 1993 ================================================================================ Payable--current $21.4 $31.7 - -------------------------------------------------------------------------------- Deferred--current 1.1 .1 ================================================================================ Total $22.5 $31.8
Deferred income taxes (millions) 1994 1993 ================================================================================ Postretirement and postemployment benefits $ (95.0) $ (99.6) - -------------------------------------------------------------------------------- Restructuring benefits (14.7) (31.0) - -------------------------------------------------------------------------------- Asbestos-related liabilities (69.3) -- - -------------------------------------------------------------------------------- Alternative minimum tax credit (5.3) (20.3) - -------------------------------------------------------------------------------- Excess foreign tax credit carryforward -- (6.9) - -------------------------------------------------------------------------------- Other (77.8) (69.6) - -------------------------------------------------------------------------------- Total gross deferred tax assets $(262.1) $(227.4) - -------------------------------------------------------------------------------- Less valuation allowance -- 6.9 - -------------------------------------------------------------------------------- Net deferred assets $(262.1) $(220.5) - -------------------------------------------------------------------------------- Accumulated depreciation $ 106.5 $ 96.2 - -------------------------------------------------------------------------------- Pension costs 33.1 29.4 - -------------------------------------------------------------------------------- Insurance for asbestos-related liabilities 69.3 -- - -------------------------------------------------------------------------------- Other 54.7 66.1 - -------------------------------------------------------------------------------- Total deferred income tax liabilities $ 263.6 $ 191.7 - -------------------------------------------------------------------------------- Net deferred income tax liabilities (assets) $ 1.5 $ (28.8) - -------------------------------------------------------------------------------- Less net income tax (benefits)--current (30.6) (34.1) - -------------------------------------------------------------------------------- Less net income tax (benefits)--noncurrent -- (13.5) ================================================================================ Deferred income taxes--long term $ 32.1 $ 18.8
The tax effects of principal temporary differences between the carrying amounts of assets and liabilities and their tax bases are summarized in the preceding table.
Average Average year-end year-end interest interest Debt (millions) 1994 rate 1993 rate ============================================================================ Short-term debt: Commercial paper $ 3.2 6.00% $ 75.5 3.36% - ---------------------------------------------------------------------------- Foreign banks 14.7 7.20% 29.9 6.81% - ---------------------------------------------------------------------------- Total short-term debt $ 17.9 6.99% $105.4 4.34% - ---------------------------------------------------------------------------- Long-term debt: 9 3/4% debentures due 2008 $125.0 9.75% $125.0 9.75% - ---------------------------------------------------------------------------- Medium-term notes 8.5-9% due 1995-2001 111.8 8.75% 116.8 8.71% - ---------------------------------------------------------------------------- Industrial development bonds 17.7 5.66% 17.9 3.08% - ---------------------------------------------------------------------------- Other 2.2 12.25% 2.9 11.25% - ---------------------------------------------------------------------------- Total long-term debt $256.7 9.05% $262.6 8.88% - ---------------------------------------------------------------------------- Less current installments 19.5 8.80% 5.8 8.13% ============================================================================ Net long-term debt $237.2 9.07% $256.8 8.85%
Scheduled amortization of long-term debt (millions) ============================================================================ 1996 $40.1 1999 $ -- - ---------------------------------------------------------------------------- 1997 13.7 2000 18.1 - ---------------------------------------------------------------------------- 1998 13.5
The December 31, 1994, carrying amounts of short-term debt and current installments of long-term debt approximate fair value because of the short maturity of these items. The estimated fair value of net long-term debt was $247.2 million and $301.3 million at December 31, 1994 and 1993, respectively. The fair value estimates of long-term debt were based upon quotes from major financial institutions, taking into consideration current rates offered to the company for debt of the same remaining maturities. The 9 3/4% debentures and the medium-term notes are not redeemable until maturity and have no sinking-fund requirements. The industrial development bonds have maturities from 1995 to 2005, and $16.5 million has a variable interest rate that is reset weekly. Other debt includes an $18.6 million zero-coupon note due in 2013 that had a carrying value of $1.7 million at December 31, 1994. - 37 - In February 1995, Armstrong arranged a $200 million five-year revolving line of credit with 10 banks for general corporate purposes. In addition, the company's foreign subsidiaries have approximately $143 million of unused short- term lines of credit available from banks. The domestic credit lines are extended on a fee basis. The company can borrow from its banks generally at rates approximating the lowest available to commercial borrowers and can issue short-term commercial paper notes supported by the lines of credit. Financial instruments with off-balance sheet risks The company selectively uses foreign currency forward and option contracts to offset the effects of exchange rate changes on cash flow exposures denominated in foreign currencies. These exposures include firm or anticipated intercompany trade accounts, royalties, service fees, dividends, intercompany loans and third party sales or payments. The primary exposures are denominated in European currencies and the Canadian dollar. The company normally hedges cash flow exposures up to one year. The company's foreign currency cash flow exposures, the net hedge and the unhedged exposure at December 31, 1994, were as follows:
Foreign currency Net exposure (millions)1 Gross hedge Unhedged ================================================================================ Canadian dollar $ 42.0 $ 36.0 $ 6.0 - -------------------------------------------------------------------------------- German mark 38.0 38.0 -- - -------------------------------------------------------------------------------- British pound 28.3 15.5 12.8 - -------------------------------------------------------------------------------- French franc 25.0 24.3 .7 - -------------------------------------------------------------------------------- Italian lira to French franc 15.6 10.8 4.8 - -------------------------------------------------------------------------------- French franc to German mark 12.7 7.7 5.0 - -------------------------------------------------------------------------------- German mark to British pound 10.0 7.1 2.9 - -------------------------------------------------------------------------------- Other 37.6 20.8 16.8 - -------------------------------------------------------------------------------- Total $209.2 $160.2 $49.0
Note 1: The currencies shown are in relation to the U.S. dollar, except as indicated. Realized and unrealized gains and losses on contracts that are used to offset the effects of exchange rate changes on foreign currency cash flows are normally marked to market and recognized in statements of operations. The foreign currency options consist primarily of purchased options that are designated as effective hedges and are deferred and included in income as part of the underlying transactions. Realized and unrealized gains and losses on foreign currency contracts used to hedge intercompany transactions of a long-term investment nature are included in the foreign currency translation components of shareholders' equity. The company's foreign currency forward and option contracts by currency at December 31, 1994, were as follows. All of the contracts mature within eight months.
Foreign currency Forward Option contracts (millions)1 contracts contracts ================================================================================ Sold Bought Sold Bought - -------------------------------------------------------------------------------- Canadian dollar $ 26.7 $1.4 -- $10.7 - -------------------------------------------------------------------------------- German mark 27.1 3.2 -- 14.1 - -------------------------------------------------------------------------------- British pound 12.4 -- -- 3.1 - -------------------------------------------------------------------------------- French franc 17.6 -- -- 6.7 - -------------------------------------------------------------------------------- Italian lira to French franc 10.8 -- -- -- - -------------------------------------------------------------------------------- French franc to German mark 7.7 -- -- -- - -------------------------------------------------------------------------------- German mark to British pound 7.1 -- -- -- - -------------------------------------------------------------------------------- Other 20.8 -- -- -- - -------------------------------------------------------------------------------- Total $130.2 $4.6 -- $34.6
Note 1: The currencies shown are in relation to the U.S. dollar, except as indicated, and are converted at year-end market exchange rates. The company selectively enters into interest rate swap agreements to reduce the impact of interest rate changes on its debt. The interest rate swap agreements involve exchanges of fixed or floating rate interest payments without the exchange of the underlying notional amounts. The notional amounts of such agreements are used to measure the interest to be paid or received and do not represent the amount of exposure to loss. In 1987, the company entered into a seven-year notional $15 million interest rate swap whereby the company paid interest at the 30-day U.S. commercial paper rate and received interest at a fixed rate of 10.22%. The swap matured in 1994. In 1987, the company entered into one five-year and two seven-year currency interest rate swaps whereby the company exchanged a total of U.S. $86.3 million for German marks 90 million, French francs 182.4 million and Belgian francs 270 million to hedge net investment in foreign subsidiaries. The agreements provided for the company to make fixed interest rate payments of 5.37% for the German mark swap, 8.88% for the French franc swap and 7.8% for the Belgian franc swap while receiving interest at the 30-day U.S. commercial paper rate. The swaps hedged net investment in foreign subsidiaries until 1992, at which time they were redesignated to hedge foreign currency cash flow exposures. Upon redesignation, the swaps were marked to market through income. The German mark swap matured in 1992. The two remaining swaps were terminated prior to maturity in 1993 due to the appreciation of the foreign currencies at a pretax loss of $.7 million that was recognized in other income and expense. - 38 - ARMSTRONG WORLD INDUSTRIES, INC., AND SUBSIDIARIES - -------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------- In 1992, the company entered into two three-year notional amount $50 million interest rate swaps, whereby the company paid interest at the six-month London Interbank Offered Rate (LIBOR) in arrears and received interest at an average fixed rate of 6.6%. The swaps were terminated prior to maturity in 1993 due to a rising LIBOR at a pretax gain of $2.5 million that was recognized in income. In 1993, the company entered into a five-year notional amount $25 million interest rate swap, whereby the company paid interest at the six-month LIBOR and received interest at a fixed rate of 5.575%. The swap was terminated in 1994 due to a rising LIBOR at a pretax loss of $.1 million that was recognized in income. The foreign currency hedges and the swap agreements are straightforward "plain vanilla" contracts that have no imbedded options or other terms that involve a higher level of complexity or risk. The realized and unrealized gains and losses relating to the company's management of foreign currency and interest rate exposures are shown below on a disaggregated basis for the years ended December 31, 1994 and 1993.
Foreign currency ---------------------------------- Interest Gain (loss) Exposure Net rate (millions) effect Contracts1 effect2 swaps ================================================================================ Year 1994 - -------------------------------------------------------------------------------- Income statement: Realized $ (.7) $(2.5) $(3.2) $ .2 - -------------------------------------------------------------------------------- Unrealized -- .4 .4 -- - -------------------------------------------------------------------------------- On balance sheet: Realized 2.1 (5.8) (3.7) -- - -------------------------------------------------------------------------------- Unrealized 4.8 (.2) 4.6 -- - -------------------------------------------------------------------------------- Off balance sheet -- -- -- -- - -------------------------------------------------------------------------------- Total $ 6.2 $(8.1) $(1.9) $ .2 - -------------------------------------------------------------------------------- Year 1993 - -------------------------------------------------------------------------------- Income statement: Realized $ (.8) $(2.8) $(3.6) $7.0 - -------------------------------------------------------------------------------- Unrealized -- (.9) (.9) -- - -------------------------------------------------------------------------------- On balance sheet: Realized -- -- -- -- - -------------------------------------------------------------------------------- Unrealized (1.2) .2 (1.0) -- - -------------------------------------------------------------------------------- Off balance sheet -- -- -- .4 - -------------------------------------------------------------------------------- Total $(2.0) $(3.5) $(5.5) $7.4
Note 1: The company borrows centrally and enters into foreign currency intercompany transactions of a long-term investment nature with foreign subsidiaries. These are fully hedged. Accordingly, gains and losses on these transactions are fully offset by losses and gains from the related foreign exchange contracts. Note 2: Excludes the offsetting effect of interest rate differentials on underlying intercompany transactions being hedged of $.6 million in 1994 and $.5 million in 1993. The company continually monitors the market risk of its foreign currency and interest rate contracts by marking the positions to market. The counterparties to these instruments are major international financial institutions. The company uses commercial rating agencies to evaluate the credit quality of the counterparties, and the company does not anticipate a loss resulting from any credit risk of these institutions. As of December 31, 1994, the company had provided $96 million in standby letters of credit and financial guarantees. The company does not normally provide collateral or other security to support these instruments. Other long-term liabilities were $118.3 million in 1994 and $99.6 million in 1993 and include amounts for pensions, deferred compensation, workers' compensation, vacation accrual, a reserve for estimated environmental- remediation liabilities (see below) and a reserve for the estimated potential liability primarily associated with claims pending in the company's asbestos- related litigation. Based upon the company's experience with this litigation--as well as the Wellington Agreement, other settlement agreements with certain of the company's insurance carriers and an earlier interim agreement with several primary carriers--a residual reserve amount of $3.3 million is intended to cover potential liability and settlement costs which are not covered by insurance, legal and administrative costs not covered under the agreements and certain other factors which have been involved in the litigation about which uncertainties exist. Future costs of litigation against the company's insurance carriers and other legal costs indirectly related to the litigation, expected to be modest, will be expensed outside the reserve. Amounts, primarily insurance litigation costs, estimated to be payable within one year are included under current liabilities. This reserve does not address any unanticipated reduction in expected insurance coverage which might result in the future related to pending lawsuits and claims nor any potential shortfall in such coverage for claims which are subject to the settlement class action referred to on pages 43-45. The fair value of other long-term liabilities was estimated to be $104.4 million at December 31, 1994, and $87.2 million at December 31, 1993, using a discounted cash flow approach. Asbestos-related liabilities of $198.0 million represent the estimated liability and defense cost to resolve approximately 73,000 personal injury claims pending against the company as of December 31, 1994. The insurance asset (see page 36) in the amount of $198.0 million offsets the liability. Environmental matters The company will incur capital expenditures in order to meet the new requirements of the Clean Air Act of 1990 and is awaiting the final promulgation of implementing regulations by various state agencies to determine the magnitude of additional costs and the time period over which they will be incurred. In 1994, the company incurred capital expenditures of approximately $1.9 million for environmental compliance and control facilities and anticipates comparable annual expenditures for those purposes for the years 1995 and 1996. - 39 - As with many industrial companies, Armstrong is involved in proceedings under the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund"), and similar state laws at approximately 23 sites. In most cases, Armstrong is one of many potentially responsible parties ("PRPs") who have voluntarily agreed to jointly fund the required investigation and remediation of each site. With regard to some sites, however, Armstrong disputes either liability or the proposed cost allocation. Sites where Armstrong is alleged to have contributed a significant volume of waste material include a former municipal landfill site in Volney, New York, and a former county landfill site in Buckingham County, Virginia, which is alleged to have received material from Thomasville Furniture Industries, Inc. (see page 46). Armstrong may also have rights of contribution or reimbursement from other parties or coverage under applicable insurance policies. The company is also remediating environmental contamination resulting from past industrial activity at certain of its current plant sites. Estimates of future liability are based on an evaluation of currently available facts regarding each individual site and consider factors including existing technology, presently enacted laws and regulations and prior company experience in remediation of contaminated sites. Although current law imposes joint and several liability on all parties at any Superfund site, Armstrong's contribution to the remediation of these sites is expected to be limited by the number of other companies also identified as potentially liable for site costs. As a result, the company's estimated liability reflects only the company's expected share. In determining the probability of contribution, the company considers the solvency of the parties, whether responsibility is being disputed, the terms of any existing agreements and experience regarding similar matters. The estimated liabilities do not take into account any claims for recoveries from insurance or third parties. Because of uncertainties associated with remediation activities and technologies, regulatory interpretations and the allocation of those costs among various other parties, the company has accrued, before agreed-to insurance coverage, $10.4 million to reflect its estimated undiscounted liability for environmental remediation. As assessments and remediation activities progress at each individual site, these liabilities are reviewed to reflect additional information as it becomes available. Actual costs to be incurred at identified sites in the future may vary from the estimates, given the inherent uncertainties in evaluating environmental liabilities. Subject to the imprecision in estimating environmental remediation costs, the company believes that any sum it may have to pay in connection with environmental matters in excess of the amounts noted above would not have a material adverse effect on its financial condition, liquidity or results of operations. Geographic areas United States net trade sales include export sales to non-affiliated customers of $40.9 million in 1994, $27.0 million in 1993 and $24.4 million in 1992. "Europe" includes operations located primarily in England, France, Germany, Italy, the Netherlands, Spain and Switzerland. Operations in Australia, Canada, China, Hong Kong, Indonesia, Japan, Korea, Singapore and Thailand are in "Other foreign." Transfers between geographic areas and commissions paid to affiliates marketing exported products are accounted for by methods that approximate arm's- length transactions, after considering the costs incurred by the selling company and the return on assets employed of both the selling unit and the purchasing unit. Operating income of a geographic area includes income accruing from sales to affiliates.
Geographic areas at December 31 (millions) 1994 1993 1992 - -------------------------------------------------------------------------------- Net trade sales: - -------------------------------------------------------------------------------- United States $2,090.7 $1,910.7 $1,841.5 - -------------------------------------------------------------------------------- Europe 483.4 456.6 544.5 - -------------------------------------------------------------------------------- Other foreign 178.6 158.1 163.8 - -------------------------------------------------------------------------------- Interarea transfers: - -------------------------------------------------------------------------------- United States 95.1 76.1 69.9 - -------------------------------------------------------------------------------- Europe 8.7 6.0 4.0 - -------------------------------------------------------------------------------- Other foreign 26.1 21.9 18.5 - -------------------------------------------------------------------------------- Eliminations (129.9) (104.0) (92.4) - -------------------------------------------------------------------------------- Total net sales $2,752.7 $2,525.4 $2,549.8 ================================================================================ Operating income (loss): (Note 1) - -------------------------------------------------------------------------------- United States $ 274.1 $ 140.8 $ 10.9 - -------------------------------------------------------------------------------- Europe 75.3 31.7 22.5 - -------------------------------------------------------------------------------- Other foreign 7.6 10.0 (4.6) - -------------------------------------------------------------------------------- Unallocated corporate expense (23.8) (59.8) (54.9) - -------------------------------------------------------------------------------- Total operating income (loss) $ 333.2 $ 122.7 $ (26.1) ================================================================================ Identifiable assets: (Note 2) - -------------------------------------------------------------------------------- United States $1,375.9 $1,334.0 $1,362.2 - -------------------------------------------------------------------------------- Europe 376.5 347.0 362.5 - -------------------------------------------------------------------------------- Other foreign 72.6 63.2 64.9 - -------------------------------------------------------------------------------- Corporate 408.0 185.4 226.8 - -------------------------------------------------------------------------------- Eliminations (.5) (.3) (6.6) - -------------------------------------------------------------------------------- Total assets $2,232.5 $1,929.3 $2,009.8
Note 1: Certain expenses, principally employee benefit costs, that were previously unallocated are included in operating income for the respective geographical area and industry segments in 1994. Years 1993 and 1992 were restated to conform to current year presentation. Note 2: Identifiable assets for geographic areas and industry segments exclude cash, marketable securities and assets of a corporate nature. Capital additions for industry segments include property, plant and equipment from acquisitions. - 40 - ARMSTRONG WORLD INDUSTRIES, INC., AND SUBSIDIARIES - -------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------- Industry segments The company operates worldwide in four reportable segments: floor coverings, building products, furniture and industry products. Floor coverings sales include resilient floors, ceramic tile and accessories.
Industry segments at December 31 (millions) 1994 1993 1992 - -------------------------------------------------------------------------------- Net trade sales: - -------------------------------------------------------------------------------- Floor coverings $1,283.7 $1,191.3 $1,134.9 - -------------------------------------------------------------------------------- Building products 630.0 586.7 656.7 - -------------------------------------------------------------------------------- Furniture 526.8 449.7 438.4 - -------------------------------------------------------------------------------- Industry products 312.2 297.7 319.8 ================================================================================ Total net sales $2,752.7 $2,525.4 $2,549.8 ================================================================================ Operating income (loss): (See Note 1 on page 40 & Note 3 below) - -------------------------------------------------------------------------------- Floor coverings $ 190.4 $ 112.4 $ 12.6 - -------------------------------------------------------------------------------- Building products 86.8 18.8 (19.3) - -------------------------------------------------------------------------------- Furniture 38.6 24.1 5.8 - -------------------------------------------------------------------------------- Industry products 41.2 27.2 29.7 - -------------------------------------------------------------------------------- Unallocated corporate expense (23.8) (59.8) (54.9) ================================================================================ Total operating income (loss) $ 333.2 $ 122.7 $ (26.1) ================================================================================ Depreciation and amortization: - -------------------------------------------------------------------------------- Floor coverings $ 63.0 $ 63.2 $ 67.8 - -------------------------------------------------------------------------------- Building products 34.5 34.1 37.6 - -------------------------------------------------------------------------------- Furniture 12.7 12.9 13.5 - -------------------------------------------------------------------------------- Industry products 17.6 14.6 12.8 - -------------------------------------------------------------------------------- Corporate 5.6 5.2 5.2 ================================================================================ Total depreciation and amortization $ 133.4 $ 130.0 $ 136.9 ================================================================================ Capital additions: (See Note 2 on page 40) - -------------------------------------------------------------------------------- Floor coverings $ 77.1 $ 59.5 $ 48.0 - -------------------------------------------------------------------------------- Building products 31.5 24.2 25.9 - -------------------------------------------------------------------------------- Furniture 14.1 10.0 8.3 - -------------------------------------------------------------------------------- Industry products 22.6 22.1 31.4 - -------------------------------------------------------------------------------- Corporate 3.0 1.8 2.2 ================================================================================ Total capital additions $ 148.3 $ 117.6 $ 115.8 ================================================================================ Identifiable assets: (See Note 2 on page 40) - -------------------------------------------------------------------------------- Floor coverings $ 866.4 $ 818.4 $ 847.0 - -------------------------------------------------------------------------------- Building products 478.1 483.0 500.3 - -------------------------------------------------------------------------------- Furniture 245.2 234.6 238.7 - -------------------------------------------------------------------------------- Industry products 234.8 207.9 197.0 - -------------------------------------------------------------------------------- Corporate 408.0 185.4 226.8 ================================================================================ Total assets $2,232.5 $1,929.3 $2,009.8
Note 3: Restructuring charges in operating income (loss) (millions) 1994 1993 1992 ================================================================================ Floor coverings -- $27.7 $ 80.8 - -------------------------------------------------------------------------------- Building products -- 13.7 35.0 - -------------------------------------------------------------------------------- Furniture -- .6 4.8 - -------------------------------------------------------------------------------- Industry products -- 12.9 12.5 - -------------------------------------------------------------------------------- Unallocated corporate expense -- 35.0 32.4 - -------------------------------------------------------------------------------- Total restructuring charges in operating income (loss) -- $89.9 $165.5 - --------------------------------------------------------------------------------
Stock options No further options may be granted under the 1984 Long-Term Stock Option Plan for Key Employees since the 1993 Long-Term Stock Incentive Plan, approved by the shareholders in April 1993, replaced the 1984 Plan for purposes of granting additional options. Awards under the 1993 Long-Term Stock Incentive Plan may be in the form of stock options, stock appreciation rights in conjunction with stock options, performance restricted shares and restricted stock awards. No more than 4,300,000 shares of common stock may be issued under the Plan, and no more than 430,000 shares of common stock may be awarded in the form of restricted stock awards (see page 42). The Plan extends to April 25, 2003. Pre-1993 grants made under predecessor plans will be governed under the provisions of those plans. At December 31, 1994, there were 3,691,512 shares available for grant under the 1993 Plan. Options are granted to purchase shares at prices not less than the closing market price of the shares on the dates the options were granted and expire 10 years from the date of grant. The average share price of all options exercised was $31.20 in 1994, $27.41 in 1993 and $12.34 in 1992.
Changes in option shares outstanding (thousands except for share price) 1994 1993 1992 ================================================================================ Option shares at beginning of year 1,708.4 1,730.7 1,458.5 - -------------------------------------------------------------------------------- Options granted 247.1 245.1 383.9 - -------------------------------------------------------------------------------- 1,955.5 1,975.8 1,842.4 - -------------------------------------------------------------------------------- Less: Option shares exercised 323.1 182.2 27.4 - -------------------------------------------------------------------------------- Stock appreciation rights exercised 8.5 14.0 9.1 - -------------------------------------------------------------------------------- Options canceled 11.8 71.2 75.2 - -------------------------------------------------------------------------------- 343.4 267.4 111.7 - -------------------------------------------------------------------------------- Option shares at end of year 1,612.1 1,708.4 1,730.7 - -------------------------------------------------------------------------------- Average share price of options $ 36.82 $ 33.20 $ 32.88 - -------------------------------------------------------------------------------- Option shares exercisable at end of year 1,367.1 1,464.2 1,349.1
Performance restricted shares issuable under the 1993 Long-Term Stock Incentive Plan entitle certain key executive employees to earn shares of Armstrong's common stock, only if the company meets certain predetermined performance measures during a three-year performance period. At the end of the performance period, common stock awarded will generally carry an additional four-year restriction period whereby the shares will be held in custody by the company until the expiration or termination of the restriction. Compensation expense will be charged to earnings over the period in which the restrictions lapse. At the end of 1994, there were 110,132 performance restricted shares outstanding, with associated potential future common stock awards falling in the range of zero to 330,396 shares of Armstrong common stock. - 41 - Restricted stock awards can be used for the purposes of recruitment, special recognition and retention of key employees. Awards for 12,000 shares of restricted stock were granted during 1994, with 256 accumulated dividend equivalent shares outstanding. Shareholders' equity changes for 1994, 1993 and 1992 are summarized below:
Years ended December 31 (millions except for per-share data) 1994 1993 1992 - -------------------------------------------------------------------------------- Series A convertible preferred stock: ================================================================================ Balance at beginning of year $ 263.9 $ 266.4 $ 267.7 - -------------------------------------------------------------------------------- Shares retired 2.3 2.5 1.3 - -------------------------------------------------------------------------------- Balance at end of year $ 261.6 $ 263.9 $ 266.4 - -------------------------------------------------------------------------------- Common stock, $1 par value: - -------------------------------------------------------------------------------- Balance at beginning and end of year $ 51.9 $ 51.9 $ 51.9 - -------------------------------------------------------------------------------- Capital in excess of par value: - -------------------------------------------------------------------------------- Balance at beginning of year $ 29.7 $ 26.1 $ 25.8 - -------------------------------------------------------------------------------- Stock issuances 9.6 3.6 .3 - -------------------------------------------------------------------------------- Balance at end of year $ 39.3 $ 29.7 $ 26.1 - -------------------------------------------------------------------------------- Reduction for ESOP loan guarantee: - -------------------------------------------------------------------------------- Balance at beginning of year $ (241.8) $ (249.2) $ (256.0) - -------------------------------------------------------------------------------- Principal paid 8.4 6.3 4.5 - -------------------------------------------------------------------------------- Accrued compensation (.5) 1.1 2.3 - -------------------------------------------------------------------------------- Balance at end of year $ (233.9) $ (241.8) $ (249.2) - -------------------------------------------------------------------------------- Retained earnings: - -------------------------------------------------------------------------------- Balance at beginning of year $ 927.7 $ 922.7 $1,208.7 - -------------------------------------------------------------------------------- Net earnings (loss) for year 210.4 63.5 (227.7) - -------------------------------------------------------------------------------- Tax benefit on dividends paid on unallocated preferred shares 4.9 5.3 5.5 - -------------------------------------------------------------------------------- Total $1,143.0 $ 991.5 $ 986.5 - -------------------------------------------------------------------------------- Less dividends: Preferred stock $3.462 per share $ 19.0 $ 19.2 $ 19.3 - -------------------------------------------------------------------------------- Common stock $1.26 per share in 1994; 47.2 $1.20 per share in 1993; 44.6 $1.20 per share in 1992 44.5 - -------------------------------------------------------------------------------- Total dividends $ 66.2 $ 63.8 $ 63.8 - -------------------------------------------------------------------------------- Balance at end of year $1,076.8 $ 927.7 $ 922.7 - -------------------------------------------------------------------------------- Foreign currency translation: - -------------------------------------------------------------------------------- Balance at beginning of year $ (3.4) $ 8.6 $ 44.7 - -------------------------------------------------------------------------------- Translation adjustments and hedging activities 11.7 (12.5) (37.0) - -------------------------------------------------------------------------------- Allocated income taxes -- .5 .9 - -------------------------------------------------------------------------------- Balance at end of year $ 8.3 $ (3.4) $ 8.6 - -------------------------------------------------------------------------------- Less treasury stock at cost: - -------------------------------------------------------------------------------- Balance at beginning of year $ 458.5 $ 457.3 $ 457.3 - -------------------------------------------------------------------------------- Stock purchases 10.6 .1 -- - -------------------------------------------------------------------------------- Stock issuance activity, net (.2) 1.1 -- - -------------------------------------------------------------------------------- Balance at end of year $ 468.9 $ 458.5 $ 457.3 - -------------------------------------------------------------------------------- Total shareholders' equity $ 735.1 $ 569.5 $ 569.2
Treasury shares changes for 1994, 1993 and 1992 are as follows:
Years ended December 31 (thousands) 1994 1993 1992 - -------------------------------------------------------------------------------- Common shares ================================================================================ Balance at beginning of year 14,656.5 14,750.6 14,776.3 - -------------------------------------------------------------------------------- Stock purchases 272.4 2.4 .6 - -------------------------------------------------------------------------------- Stock issuance activity, net (326.8) (96.5) (26.3) - -------------------------------------------------------------------------------- Balance at end of year 14,602.1 14,656.5 14,750.6
Preferred stock purchase rights plan In 1986, the Board of Directors declared a distribution of one right for each share of the company's common stock outstanding on and after March 21, 1986. Following the two-for-one stock split later in 1986, one-half of one right attaches to each share of common stock outstanding. In general, the rights become exercisable at $175 per right for a fractional share of a new series of Class A preferred stock (which will differ from the Series A Convertible Preferred Stock issued to the Employee Stock Ownership Plan described on page 35) 10 days after a person or group either acquires beneficial ownership of shares representing 20% or more of the voting power of the company or announces a tender or exchange offer that could result in such person or group beneficially owning shares representing 28% or more of the voting power of the company. If thereafter any person or group becomes the beneficial owner of 28% or more of the voting power of the company or if the company is the surviving company in a merger with a person or group that owns 20% or more of the voting power of the company, then each owner of a right (other than such 20% stockholder) would be entitled to purchase shares of common stock having a value equal to twice the exercise price of the right. Should the company be acquired in a merger or other business combination, or sell 50% or more of its assets or earnings power, each right would entitle the holder to purchase, at the exercise price, common shares of the acquirer having a value of twice the exercise price of the right. The exercise price was determined on the basis of the Board's view of the long-term value of the company's common stock. The rights have no voting power nor do they entitle a holder to receive dividends. At the company's option, the rights are redeemable prior to becoming exercisable at five cents per right. The rights expire on March 21, 1996. - 42 - ARMSTRONG WORLD INDUSTRIES, INC., AND SUBSIDIARIES - -------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LITIGATION AND RELATED MATTERS - -------------------------------------------------------------------------------- Asbestos-related litigation The company is one of many defendants in pending lawsuits and claims involving, as of December 31, 1994, approximately 73,000 individuals alleging personal injury from exposure to asbestos-containing products. Included in the above number are approximately 14,300 lawsuits and claims which appear not to be covered by the settlement class action referred to below that were received by the company in 1994. This compares with 24,036 in 1993. About 5,000 claims which may involve the company were received in 1994 under the settlement class action, but the vast majority of these claims have not been evaluated to date as meeting the payment criteria under the settlement agreement. Nearly all the pending personal injury suits and claims seek compensatory and punitive damages arising from alleged exposure to asbestos-containing insulation products used, manufactured or sold by the company. The company discontinued the sale of all asbestos-containing insulation products in 1969. Although a large number of suits and claims pending in prior years have been resolved, neither the rate of future dispositions nor the number of future potential unasserted claims can be reasonably predicted. The Judicial Panel for Multidistrict Litigation has ordered the transfer of all pending federal cases to the Eastern District Court in Philadelphia for pretrial purposes. Periodically some of those cases are released for trial. Pending state court cases have not been directly affected by the transfer. Settlement class action A settlement class action which includes essentially all future asbestos- related personal injury claims against members of the Center for Claims Resolution (the "Center") referred to below was filed in Philadelphia on January 15, 1993, in Federal District Court for the Eastern District of Pennsylvania. This is before the same judge handling the cases covered under the Multidistrict Litigation order referred to above. The settlement class action is designed to establish a nonlitigation system for the resolution of essentially all future asbestos-related personal injury claims against the Center members including this company. Other defendant companies which are not Center members may be able to join the class action later. The class action proposes a voluntary settlement that offers a method for prompt compensation to claimants who were occupationally exposed to asbestos if they are impaired by such exposure. Claimants must meet certain exposure and medical criteria to receive compensation which is derived from historical settlement data. Under limited circumstances and in limited numbers, qualifying claimants may choose to litigate certain claims in court or through alternative dispute resolution, rather than accept an offered settlement amount, after their claims are processed within the system. No punitive damages will be paid under the proposed settlement. The settlement is designed to minimize transactional costs, including attorneys' fees, and to relieve the courts of the burden of handling future asbestos-related personal injury claims. Each member of the Center has an obligation for its own fixed share in this proposed settlement. The Court has ruled that claimants who neither filed a lawsuit against the company or other Center members for asbestos-related personal injury nor filed exclusion request forms to opt out of the settlement class action by January 24, 1994, are subject to the terms of the class action. The settlement class action does not include claims based on nonoccupational exposure or claims for asbestos-related property damage. Agreed upon annual case flow caps and agreed upon compensation ranges for each compensable medical category have been established for an initial period of 10 years. The case flow figures and annual compensation levels are subject to renegotiation after the initial 10-year period. On August 16, 1994, the Court tentatively approved the settlement. The settlement will become final only after appeals have been exhausted; this process could take up to several years. The Center members also have stated their intention to resolve all of the pending asbestos-related personal injury claims over a five-year period from the date the settlement class action was filed. A significant number of these pending claims have been settled with a number of the plaintiffs' counsel. The company is seeking agreement from its insurance carriers or a binding judgment that the settlement class action is covered by existing insurance coverage; the settlement is contingent upon such an agreement or judgment. With respect to carriers that do not agree, this matter will be resolved either by alternative dispute resolution in the case of the insurance carriers which subscribed to the Wellington Agreement referred to below, or by litigation against those carriers which did not subscribe to the Wellington Agreement. A few state judges have been undertaking to consolidate numbers of asbestos- related personal injury cases for trial. The company generally opposes these actions as being unfair. The company has commenced trial in Baltimore, Maryland, in one such consolidation in which common issues involved with an initial 10 plaintiffs will bind the parties in the remainder of the about 170 cases involved in the consolidation. Insurance settlements The pending personal injury lawsuits and claims against the company are being paid by insurance proceeds under the 1985 Agreement Concerning Asbestos-Related Claims, the "Wellington Agreement," and by insurance proceeds from other insurance settlements noted below. A new claims handling organization, known as the Center for Claims Resolution, was created in October 1988 by Armstrong and 20 other companies to replace the Wellington Asbestos Claims Facility (the "Facility"), which has since been dissolved. Generally, the dissolution of the Facility does not essentially affect the company's overall Wellington agreement - 43 - insurance settlement. That settlement provided for a final resolution of nearly all disputes concerning insurance for asbestos-related personal injury claims as between the company and three of its primary insurers and eight of its excess insurers. The one primary carrier that did not sign the Wellington Agreement paid into the Wellington Facility and settled with the company in March 1989 nearly all outstanding issues relating to insurance coverage for asbestos- related personal injury and property damage claims. In addition, one of the company's large excess-insurance carriers entered into a settlement agreement in 1986 with the company under which payments for personal injury claims were made through the Wellington Facility, and this carrier continues to make payments for such claims through the Center for Claims Resolution. Other excess-insurance carriers also have entered into settlement agreements with the company which complement Wellington including a settlement that was recently entered into with a significant excess carrier. ACandS, Inc., a former subsidiary of the company, which for certain insurance periods has coverage rights under some company insurance policies, subscribed to the Wellington Agreement but did not become a member of the Center for Claims Resolution. One excess carrier (providing $25 million of insurance coverage) and certain companies in an excess carrier's block of coverage (involving several million dollars of coverage) have become insolvent. Certain carriers providing excess level coverage solely for property damage claims also have become insolvent. The several million dollars of coverage referred to has been paid by company reserves. The $25 million insolvency gap has been (or will be) covered by other available insurance coverage. The company and ACandS, Inc., have negotiated a settlement agreement which reserves for ACandS, Inc., a certain amount of insurance from joint policies solely for its use in the payment of costs associated with the asbestos-related personal injury and property damage claims. Center for Claims Resolution The Center for Claims Resolution operates under a concept of allocated shares of liability payments and defense costs for its members based primarily on historical experience, and it defends the members' interests and addresses pending and future claims in a manner consistent with the prompt, fair resolution of meritorious claims. In late 1991, the Center sharing formula was revised to provide that members will pay only on claims in which the member is a named defendant; as to future claims resolved under the settlement class action, the company has agreed to a percentage of each resolution payment. Although the Center members and their participating insurers were not obligated beyond one year, the insurance companies are expected to commit to the continuous operation of the Center for a seventh year and to the funding of the Center's operating expenses. With the filing of the settlement class action, the Center will continue to process pending claims and will handle the program for processing future asbestos-related personal injury claims if the class action settlement is approved by the courts. No forecast can be made for future years regarding either the rate of pending and future claims resolution by the Center or the rate of utilization of company insurance. Property damage litigation The company is also one of many defendants in a total of 51 pending lawsuits and claims, including class actions, as of December 31, 1994, brought by public and private entities, including public school districts, public and private building owners. These lawsuits and claims include allegations of property damage to buildings caused by asbestos-containing products and generally claim compensatory and punitive damages and equitable relief, including reimbursement of expenditures, for removal and replacement of such products. These suits and claims appear to be aimed at friable (easily crumbled) asbestos-containing products although allegations in some suits encompass other asbestos-containing products, including allegations with respect to asbestos-containing resilient floor tile. The company vigorously denies the validity of the allegations against it contained in these suits and claims. Increasing defense costs, paid by the company's insurance carriers either under reservation or settlement arrangement, will be incurred. These suits and claims are not encompassed within the Wellington Agreement nor are they being handled by the Center for Claims Resolution. Insurance coverage suit In 1989, Armstrong concluded the trial phase of a lawsuit in California state court to resolve disputes concerning certain of its insurance carriers' obligations with respect to personal injury and property damage liability coverage, including defense costs, for alleged personal injury and property damage asbestos-related lawsuits and claims. The Court issued final decisions generally in the company's favor, and the carriers appealed. The California Court of Appeal has substantially upheld the trial court's final decisions, and the insurance carriers have petitioned the California Supreme Court to hear the asbestos-related personal injury and property damage coverage issues. The California Supreme Court has accepted review pending its review of related issues in another California case. Since the company's recent settlement with a significant excess carrier, only one excess carrier providing products coverage for personal injury claims remains in the personal injury coverage litigation. Based upon the trial court's favorable final decisions in important phases of the trial relating to coverage for asbestos-related personal injury and property damage lawsuits and claims including the favorable decision by the California Court of Appeal, and a review of the coverage issues by its counsel, the company believes it has a substantial legal basis for sustaining its right to defense and indemnification. For the same reasons, the company also believes that it is probable that claims by the - 44 - ARMSTRONG WORLD INDUSTRIES, INC., AND SUBSIDIARIES - -------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------- several primary carriers for recoupment of defense expenses in the property damage litigation, which the carriers also appealed, will ultimately not be successful. Nonproducts insurance coverage Nonproducts insurance coverage is included in the company's primary insurance policies and certain excess policies for nonproducts claims. Nonproducts claims include claims that may have arisen out of exposure during installation of asbestos materials or before control of such material has been relinquished. Negotiations are currently underway with several of the company's primary carriers to resolve the nonproducts coverage issues and to establish entitlement to and the amount of such coverage. The additional coverage potentially available to pay claims categorized as nonproducts is substantial and, at the primary level, includes defense costs in addition to limits. The company is entitled to pursue alternative dispute resolution proceedings against the primary and certain excess carriers to resolve the nonproducts coverage issues. Conclusions The company does not know how many claims will be filed against it in the future, nor the details thereof or of pending suits not fully reviewed, nor the expense and any liability that may ultimately result therefrom, nor does the company know whether the settlement class action will ultimately succeed, the number of individuals who ultimately will be deemed to have opted out or who could file claims outside the settlement class action, nor the annual claims caps to be negotiated after the initial 10-year period for the settlement class action or the compensation levels to be negotiated for such claims, nor the scope of its nonproducts coverage ultimately deemed available or the ultimate conclusion of the California insurance coverage litigation. Subject to the foregoing and based upon its experience and other factors also referred to above, the company believes that the estimated $198 million in liability and defense costs recorded on the 1994 balance sheet will be incurred to resolve an estimated 73,000 asbestos-related personal injury claims pending against the company as of December 31, 1994. These claims include claims that were filed for the period from January 1, 1994, to January 24, 1994, and which previously were treated as potentially included within the settlement class action, and claims filed by claimants who have been identified as having filed exclusion request forms to opt out of the settlement class action. A ruling from the Court established January 24, 1994, as the date after which any asbestos-related personal injury claims filed by non-opt-out claimants against the company or other members of the Center for Claims Resolution are subject to the settlement class action. In addition to the currently estimated pending claims and any claims filed by individuals deemed to have opted out of the settlement class action, any claims otherwise determined not to be subject to the settlement class action will be resolved outside the settlement class action. The company does not know how many such claims ultimately may be filed by claimants deemed to have opted out of the class action or by claimants otherwise determined not to be subject to the settlement class action. An insurance asset in the amount of $198 million recorded on the 1994 balance sheet reflects the company's belief in the availability of insurance in this amount to cover the liability in like amount referred to above. Such insurance has either been agreed upon or is probable of recovery through negotiation, alternative dispute resolution or litigation. The company also notes that, based on maximum mathematical projections covering a 10-year period from 1994 to 2004, its estimated cost in the settlement class action reflects a reasonably possible additional liability of $245 million. A portion of such additional liability may not be covered by the company's ultimately applicable insurance recovery. However, the company believes that any after-tax impact on the difference between the aggregate of the estimated liability for pending cases and the estimated cost for the 10-year maximum mathematical projection, and the probable insurance recovery, would not be material either to the financial condition of the company or to its liquidity, although it could be material to earnings if it is determined in a future period to be appropriate to record a reserve for this difference. The period in which such a reserve may be recorded and the amount of any reserve that may be appropriate cannot be determined at this time. Subject to the uncertainties and limitations referred to above and based upon its experience and other factors, the company believes it is probable that substantially all of the expenses and any liability payments associated with the asbestos-related property damage claims will be paid under an existing interim agreement, by insurance coverage settlement agreements and through additional coverage reasonably anticipated from the outcome of the insurance litigation. Even though uncertainties still remain as to the potential number of unasserted claims, liability resulting therefrom and the ultimate scope of its insurance coverage, after consideration of the factors involved, including the Wellington Agreement, the referenced settlements with other insurance carriers, the results of the trial phase and the intermediate appellate stage of the California insurance coverage litigation, the remaining reserve, the establishment of the Center, the settlement class action, and its experience, the company believes the asbestos-related lawsuits and claims against the company would not be material either to the financial condition of the company or to its liquidity, although as stated above, the net effect of any future liabilities recorded in excess of insurance assets could be material to earnings in such future period. _________________________ - 45 - TINS litigation In October 1992, the U.S. Court of Appeals for the Third Circuit issued its decision in a lawsuit brought by The Industry Network System, Inc. (TINS), and its founder, Elliot Fineman. The plaintiffs alleged that in 1984 Armstrong had engaged in antitrust and tort law violations and breach of contract which damaged TINS' ability to do business. The Court of Appeals sustained the U.S. District Court's decision that the April 1991 jury verdict against Armstrong in the amount of $224 million including $200 million in punitive damages should be vacated, and that there should be a new trial on all claims remaining after the appeal. The Court of Appeals sustained the District Court ruling that the jury's verdict had reflected prejudice and passion due to the improper conduct of plaintiffs' counsel and was clearly contrary to the weight of the evidence. The Court of Appeals affirmed or did not disturb the trial court's order dismissing all of TINS' claims under Section 2 of the Sherman Act for alleged conspiracy, monopolization and attempt to monopolize and dismissing all of Mr. Fineman's personal claims. These claims were not the subject of a new trial. However, the Court of Appeals reversed the trial court's directed verdict for Armstrong on TINS' claim under Section 1 of the Sherman Act, reversed the summary judgment in Armstrong's favor on TINS' claim for breach of contract based on a 1984 settlement agreement, and reversed the judgment n.o.v. for Armstrong on TINS' tortious interference and related punitive damage claims. These claims were the subject of a new trial. A second trial of the TINS' litigation began on April 26, 1994, in the Newark, New Jersey, District Court. TINS asked for damages in a range of $17 to $56 million. A jury found that Armstrong had breached its contract with TINS and had interfered with TINS' contractual business relationship with an Armstrong wholesaler but that Armstrong's conduct did not damage TINS and awarded no compensatory or nominal money damages. Following oral argument on November 14, 1994, TINS' motion for a partial or complete new trial was denied by the District Court. On December 22, 1994, TINS filed a Notice in the U.S. Court of Appeals for the Third Circuit of its intent to appeal the District Court's refusal to grant a new trial. _________________________ Environmental remediation Thomasville Furniture Industries, Inc. and seven other parties have been identified by the U.S. Environmental Protection Agency ("USEPA") as Potentially Responsible Parties ("PRPs") to fund the cost of remediating environmental conditions at the Buckingham County (Virginia) Landfill, a former waste disposal site which has been listed as a federal Superfund site. After review of investigative studies to determine the nature and extent of contamination and identify various remediation alternatives, USEPA issued its Proposed Remedial Action Plan in May 1993 proposing a $21 million cleanup cost. In November 1993, USEPA issued a revised plan which recommended a reduced $3.5 million alternative, subject to additional costs depending on test results. In September 1994, USEPA issued a Record of Decision in the matter providing two alternative remedies for the site. Both options provide for limited capping and long-term groundwater monitoring, as well as limited source control and groundwater treatment in the event monitoring demonstrates contaminant migration. The PRPs' consultants current estimate for the cost of required remediation at the site is approximately $2.2 million, subject to additional costs depending on long-term monitoring results. The USEPA's current estimate, however, is $4.34 million. Discussions with USEPA are continuing regarding finalization of the appropriate remedial plan. Spent finishing materials from Thomasville's Virginia furniture plants at Appomattox and Brookneal allegedly comprise a significant portion of the waste presently believed to have been taken to the site by a now defunct disposal firm in the late 1970s. Accordingly, Thomasville could be called upon to fund a significant portion of the eventual remedial costs. Because neither a final remedial design nor an appropriate cost allocation among the PRPs has been completed, the total cost to Thomasville cannot be determined at this time. - 46 - Independent auditors' report The Board of Directors and Shareholders, Armstrong World Industries, Inc.: We have audited the consolidated financial statements of Armstrong World Industries, Inc. and its subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the related supplementary information on depreciation rates and schedule listed in the accompanying index. These consolidated financial statements and supplementary information and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and supplementary information and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Armstrong World Industries, Inc., and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion the related supplementary information and schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects, the information set forth therein. As discussed under litigation in the Financial Review section, the company is involved in antitrust litigation, the outcome of which cannot presently be determined. Accordingly, no provision for any liability that may result has been made in the accompanying consolidated financial statements. Also, as discussed in the Financial Review section, effective January 1, 1992, the company changed its methods of accounting to adopt the provisions of the Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes", SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and SFAS 112, "Employers' Accounting for Postemployment Benefits". Philadelphia, Pa. KPMG PEAT MARWICK LLP February 20, 1995 - 47 -
Total Quarterly financial information (millions except for per-share data) First Second Third Fourth Year - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Net sales $642.7 $689.3 $715.3 $705.4 $2,752.7 - ------------------------------------------------------------------------------------------------------------------------------ Gross profit* 192.4 220.6 231.9 203.1 848.0 - ------------------------------------------------------------------------------------------------------------------------------ Net earnings 48.0 53.3 61.6 47.5 210.4 - ------------------------------------------------------------------------------------------------------------------------------ Per share of common stock:** - ------------------------------------------------------------------------------------------------------------------------------ Primary 1.17 1.31 1.54 1.17 5.22 - ------------------------------------------------------------------------------------------------------------------------------ Fully diluted 1.06 1.18 1.37 1.04 4.64 - ------------------------------------------------------------------------------------------------------------------------------ Dividends per share of common stock .30 .32 .32 .32 1.26 - ------------------------------------------------------------------------------------------------------------------------------ Price range of common stock--low 49 3/8 43 3/8 43 36 36 - ------------------------------------------------------------------------------------------------------------------------------ Price range of common stock--high 57 1/2 57 1/4 53 7/8 46 5/8 57 1/2 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Net sales $611.9 $629.0 $660.1 $624.4 $2,525.4 - ------------------------------------------------------------------------------------------------------------------------------ Gross profit* 154.9 179.6 193.7 178.0 706.2 - ------------------------------------------------------------------------------------------------------------------------------ Net earnings(loss) 11.3 31.9 42.3 (22.0) 63.5 - ------------------------------------------------------------------------------------------------------------------------------ Per share of common stock:** - ------------------------------------------------------------------------------------------------------------------------------ Primary .21 .76 1.04 (.68) 1.32 - ------------------------------------------------------------------------------------------------------------------------------ Fully diluted .21 .68 .93 (.68) 1.26 - ------------------------------------------------------------------------------------------------------------------------------ Dividends per share of common stock .30 .30 .30 .30 1.20 - ------------------------------------------------------------------------------------------------------------------------------ Price range of common stock--low 28 7/8 29 3/8 30 1/4 40 1/4 28 7/8 - ------------------------------------------------------------------------------------------------------------------------------ Price range of common stock--high 33 1/8 34 3/4 42 1/2 55 1/4 55 1/4 - ------------------------------------------------------------------------------------------------------------------------------
*Gross profit has been restated to reflect certain reclassification of expenses for years 1994 and 1993. **The sum of the quarterly earnings (loss) per-share data does not always equal the total year amounts due to changes in the average shares outstanding and, for fully diluted data, the exclusion of the antidilutive effect in certain quarters. Fourth quarter 1994 compared with fourth quarter 1993 Forth-quarter sales of $705.4 million, a record for any fourth quarter, increased 13% from the $624.4 million recorded last year on the strength of the resilient flooring, building products and furniture businesses. Sales within North America increased by nearly 12%. The European area recorded a sales increase of nearly 19%--about one-half was due to the translation of foreign currencies to a weaker U.S. dollar--reflecting a rebound in sales for this area. Net earnings were $47.5 million, or $1.17 per share on a primary basis and $1.04 on a fully diluted basis, compared with a net loss of $22.0 million in the fourth quarter of 1993 when Armstrong incurred significant restructuring charges totaling $60.0 million. The fourth-quarter 1993 loss per share was 68 cents on both a primary and fully diluted basis. The higher earnings level was driven by increased sales volume, some higher sales prices, improved productivity and a lower effective tax rate. Cost of goods sold, when expressed as a percent of sales, was reduced to 71.2% from the 71.5% of 1993's fourth quarter. Earnings were negatively affected by higher raw material costs, primarily in the resilient flooring business, higher than usual equipment obsolescence in the industry products segment and higher expense related to a special incentive award to motivate superior financial performance. The 1994 effective tax rate was 26.6% compared with a tax benefit of 39.9% last year. The lower current quarter tax rate was primarily because of tax benefits related to foreign and state income tax expense that was reduced as a result of realization of previously unrecognized deferred tax assets and lower withholding taxes on foreign dividends. Last year's fourth quarter included recovery of deferred taxes resulting from some reduced foreign statutory tax rates and tax benefits from most of the restructuring charges. All four of Armstrong's industry segments recorded higher sales compared with year-ago levels; operating income was higher in all segments except industry products. Operating income in the floor coverings segment was $44.5 million compared with $8.6 million last year that included restructuring charges of $27.7 million. In the resilient flooring portion of this segment, operating income was higher primarily because of increased sales levels offset in part by the effects of higher raw material costs. The ceramic tile portion recorded a significant turnaround with an operating income versus an operating loss last year. This swing in profitability resulted primarily from the restructuring actions taken to reduce manufacturing costs and some higher sales volume. Worldwide building products had higher sales levels in all areas. The operating income of $16.9 million, compared with a 1993 fourth-quarter loss of $5.2 million that included a $13.7 million restructuring charge, was aided by higher sales and benefited from the impact of the two previous years' restructuring programs that significantly lowered manufacturing costs. Furniture continued its strong sales growth driving operating income to $13.5 million compared with $8.9 million in the same period of 1993. The Thomasville wood division provided the strongest sales and income growth for this segment. Industry products' sales improved with the recovery in the European markets. Operating income of $8.3 million compared with an operating loss of $3.4 million for the similar period in 1993 that included a $12.9 million restructuring charge. The current quarter results were impacted by a higher than usual equipment obsolescence of $3.7 million in the insulation products and gasket businesses. - 48 - Item 9. Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------ Financial Disclosure -------------------- Not applicable. PART III -------- Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------- Directors of the Registrant - ---------------------------- The information appearing in the tabulation in the section captioned "Election of Directors" on pages 1-5 of the Company's 1995 Proxy Statement is incorporated by reference herein. Executive Officers of the Registrant - ------------------------------------- George A. Lorch* -- Age 53; Chairman of the Board since April 25, 1994; and President (Chief Executive Officer) since September 7, 1993; Executive Vice President 1988-1993. E. Allen Deaver* -- Age 59; Executive Vice President since March 1, 1988. Henry A. Bradshaw -- Age 59; President, Worldwide Building Products Operations since November 22, 1994; Group Vice President, Worldwide Building Products Operations, 1993-1994; Group Vice President, Building Products Operations, 1990- 1993. Dennis M. Draeger -- Age 54; President, Worldwide Floor Products Operations since November 22, 1994; Group Vice President, Worldwide Floor Products Operations 1993-1994; Group Vice President, Floor Products Operations 1988-1993. Stephen E. Stockwell -- Age 49; President, Corporate Retail Accounts Division since November 22, 1994; Vice President, Corporate Retail Accounts July 1, 1994, through November 22, 1994; General Manager, Residential Sales, Floor Division January 26, 1994 through July 1, 1994; Field Sales Manager, Floor Division, 1988-1994. Robert J. Shannon, Jr. -- Age 46; President, American Olean Tile Company, Inc. since March 1, 1992; and the following positions with Armstrong World Industries, Inc.: General Manager, Worldwide Gasket Products, International and Industry Product Operations, 1991-1992; Manager, Fiber Products, Industry Products Division, 1989-1991. Frederick B. Starr -- Age 62; President, Thomasville Furniture Industries, Inc. since 1982. Larry A. Pulkrabek -- Age 55; Senior Vice President, Secretary and General Counsel since February 1, 1990. William J. Wimer -- Age 60; Senior Vice President, Finance since January 25, 1993; Senior Vice President, Finance, and Treasurer, 1990-1993. David J. Feight -- Age 52; Vice President and Director of Business Development since May 1, 1994; Team Leader PATH process 1993-1994; General Manager Sales and Marketing, Building Products Operations 1988-1993. - 49 - Stephen C. Hendrix -- Age 54; Treasurer since January 25, 1993; and the following positions with SmithKline Beecham Corporation (Pharmaceuticals, Consumer Products): Vice President and Treasurer, 1989-1991. Bruce A. Leech, Jr. -- Age 52; Controller since February 1, 1990. All information presented above is current as of March 1, 1995. The term of office for each Executive Officer in his present capacity is one year, and each such Executive Officer will serve until reelected or until a successor is elected at the annual meeting of directors which follows the annual shareholders' meeting. Each Executive Officer has been employed by the Company in excess of five continuous years with the exception of Mr. Hendrix. Members of the Executive Committee of the Board of Directors as of March 1, 1995, are designated by an asterisk(*) following each of their names. The Executive Committee consists of those Executive Officers who serve as Directors. Item 11. Executive Compensation - --------------------------------- The information appearing in the sections captioned "Compensation Committee Interlocks and Insider Participation," "Executive Officers' Compensation," (other than the information contained under the subcaption "Performance Graph") and "Retirement Income Plan Benefits," on pages 11-16 of the Company's 1995 Proxy Statement is incorporated by reference herein. Item 12. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------- The information appearing in the sections captioned "Stock Ownership of Certain Beneficial Owners" on page 17 and "Directors' and Executive Officers' Security Ownership" on page 6 of the Company's 1995 Proxy Statement is incorporated by reference herein. Item 13. Certain Relationships and Related Transactions - --------------------------------------------------------- Not applicable. PART IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - --------------------------------------------------------------------------- The financial statements and schedule filed as a part of this Annual Report on Form 10-K are listed in the "Index to Financial Statements and Schedules" on page 31. - 50 - a. The following exhibits are filed as a part of this Annual Report on Form 10-K: Exhibits - -------- No. 3(a) Copy of registrant's By-laws, as amended effective February 27, 1995. No. 3(b) Copy of registrant's restated Articles of Incorporation, as amended. No. 4(a) Copy of registrant's Rights Agreement dated as of March 21, 1986, between the registrant and Morgan Guaranty Trust Company of New York, as Rights Agent, (as to which First Chicago Trust Company of New York has succeeded as Rights Agent,) relating to the registrant's Preferred Stock Purchase Rights. No. 4(b) Registrant's Employee Stock Ownership Plan ("Share In Success Plan") as amended, is incorporated by reference herein from the registrant's 1992 Annual Report on Form 10-K wherein it appears as Exhibit 4(b). No. 4(c) Indenture, dated as of March 15, 1988, between the registrant and Morgan Guaranty Trust Company of New York, as Trustee, as to which The First National Bank of Chicago is successor trustee, is incorporated herein by reference from the registrant's Form 8-K dated February 1, 1991, wherein it appeared as Exhibit 4.1. No. 4(d) Copy of registrant's Supplemental Indenture dated as of October 19, 1990, between the registrant and The First National Bank of Chicago, as Trustee. No. 10(i)(a) Agreement Concerning Asbestos-Related Claims dated June 19, 1985, (the "Wellington Agreement") among the registrant and other companies is incorporated by reference herein from the registrant's 1993 Annual Report on Form 10-K wherein it appeared as Exhibit 10(i)(a). No. 10(i)(b) Producer Agreement concerning Center for Claims Resolution dated September 23, 1988, among the registrant and other companies as amended, is incorporated herein by reference from the registrant's 1992 Annual Report on Form 10-K wherein it appeared as Exhibit 10(i)(b). No. 10(i)(c) Copy of Credit Agreement between the registrant, certain banks listed therein, and Morgan Guaranty Trust Company of New York, as Agent, dated as of February 7, 1995, providing for a $200,000,000 credit facility. No. 10(iii)(a) Registrant's Long-Term Stock Option Plan for Key Employees, as amended, is incorporated by reference herein from the Company's 1991 Annual Report on Form 10-K wherein it appeared as Exhibit 10(iii)(a). * No. 10(iii)(b) Copy of registrant's Deferred Compensation Plan for Nonemployee Directors, as amended. * - 51 - No. 10(iii)(c) Registrant's Directors' Retirement Income Plan, as amended, is incorporated by reference herein from the registrant's 1992 Annual Report on Form 10-K wherein it appears as Exhibit 10(iii)(d). * No. 10(iii)(d) Copy of registrant's Management Achievement Plan for Key Executives, as amended. * No. 10(iii)(e) Registrant's Retirement Benefit Equity Plan (formerly known as the Excess Benefit Plan), as amended, is incorporated by reference herein from the registrant's 1992 Annual Report on Form 10-K wherein it appears as Exhibit 10(iii)(f). * No. 10(iii)(f) Copy of Armstrong Deferred Compensation Plan, as amended. * No. 10(iii)(g) Copy of registrant's Employment Protection Plan for Salaried Employees of Armstrong World Industries, Inc., as amended. * No. 10(iii)(h) Registrant's Restricted Stock Plan For Nonemployee Directors is incorporated by reference herein from the registrant's 1995 Proxy Statement wherein it appeared as Exhibit A. No. 10(iii)(i) Copy of registrant's Severance Pay Plan for Salaried Employees. * No. 10(iii)(j) Thomasville Value Plan of Thomasville Furniture Industries, Inc. * No. 10(iii)(k) Thomasville Achievement Plan of Thomasville Furniture Industries, Inc. * No. 10(iii)(l) Copy of American Olean Turnaround Plan of American Olean Tile Company, Inc. * No. 10(iii)(m) Registrant's 1993 Long-Term Stock Incentive Plan is incorporated by reference herein from the registrant's 1993 Proxy Statement wherein it appeared as Exhibit A. * No. 11 A statement regarding computation of per share earnings on both primary and fully diluted bases is set forth in the Financial Statement Schedules on pages 56 and 57 of this Annual Report on Form 10-K. No. 22 List of the registrant's domestic and foreign subsidiaries. No. 24 Consent of Independent Auditors. No. 25 Powers of Attorney and authorizing resolutions. No. 27 Financial Data Statement No. 28(ii)(a) Copy of Annual Report on Form 11-K for the fiscal year ended September 30, 1994, for the Retirement Savings Plan For Salaried Employees of Armstrong World Industries, Inc. is herewith filed with the Commission. No. 28(ii)(b) Copy of Annual Report on Form 11-K for the fiscal year ended September 30, 1994, for the Retirement Savings Plan For Hourly-Paid Employees of Armstrong World * Compensatory Plan. - 52 - Industries, Inc. is herewith filed with the Commission. No. 28(ii)(c) Copy of Annual Report on Form 11-K for the fiscal year ended September 30, 1994, for the Retirement Savings Plan For Hourly-Paid Employees of Thomasville Furniture, Inc. is herewith filed with the Commission. No. 28(ii)(d) Copy of Annual Report on Form 11-K for the fiscal year ended September 30, 1994, for the Armstrong World Industries, Inc. Employee Stock Ownership Plan ("Share In Success Plan") is herewith filed with the Commission. No. 28(ii)(e) Copy of Annual Report on American Olean Tile Company, Inc. Savings Plan for Production & Maintenance Employees for the fiscal year ended September 30, 1994, is herewith filed with the Commission. No. 28(ii)(f) Copy of Annual Report on American Olean Tile Company, Inc. Savings Plan for Salaried Employees for the fiscal year ended September 30, 1994, is herewith filed with the Commission. - 53 - b. During the last quarter of 1994, no reports on Form 8-K were filed. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ARMSTRONG WORLD INDUSTRIES, INC. -------------------------------- (Registrant) By /s/ George A. Lorch ----------------------------- Chairman Date March 27, 1995 --------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Directors and Principal Officers of the registrant: George A. Lorch Chairman and President (Principal Executive Officer) William J. Wimer Senior Vice President, Finance (Principal Financial Officer) Bruce A. Leech, Jr. Controller (Principal Accounting Officer) Van C. Campbell Director E. Allen Deaver Director Ursula F. Fairbairn Director By /s/George A. Lorch Michael C. Jensen Director ---------------------- James E. Marley Director (George A. Lorch as Robert F. Patton Director attorney-in-fact and J. Phillip Samper Director on his own behalf) Jerre L. Stead Director As of March 27, 1995 - 54 - ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES Index to Financial Statements and Schedules The following consolidated financial statements and Financial Review are filed as part of this Annual Report on Form 10-K: Consolidated Balance Sheet as of December 31, 1994 and 1993 Consolidated Statements of Operations for the Years Ended December 31, 1994, 1993, and 1992 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993, and 1992 The following additional financial data should be read in conjunction with the financial statements. Schedules not included with this additional data have been omitted because they are not applicable or the required information is presented in the financial statements or the financial review. Additional Financial Data Page No. ------------------------- -------- Supplementary information to financial review Computation for Primary Earnings 56 per Share Computation for Fully Diluted 57 Earnings per Share Depreciation Rates 58 Schedule II - Valuation and Qualifying Reserves 59 - 55 - Computation for Primary Earnings Per Share for Years ended December 31 (Amounts in millions except for per-share data)
1994 1993 1992 ---- ---- ---- Common Stock and Common Stock Equivalents - ----------------------------------------- Average number of common shares outstanding including shares issuable under stock options 37.6 37.7 37.2 ==== ==== ==== Earnings (Loss) Per Share Before Cumulative - ------------------------------------------- Effect of Accounting Changes ---------------------------- Earnings (loss) before cumulative effect of accounting changes $210.4 $63.5 $ (59.9) Less: Dividend requirement on Series A convertible preferred stock 19.0 19.2 19.3 Plus: Tax benefit on dividends paid on unallocated preferred shares 4.9 5.3 5.5 ------ ----- ------- Earnings (loss) before cumulative effect of accounting changes applicable to common stock $196.3 $49.6 $ (73.7) Earnings (loss) before cumulative effect of accounting changes per share of common stock $ 5.22 $1.32 $ (1.98) ====== ===== ======= Net Earnings (Loss) Per Share - ----------------------------- Net earnings (loss) $210.4 $63.5 $(227.7) Less: Dividend requirement on Series A convertible preferred stock 19.0 19.2 19.3 Plus: Tax benefit on dividends paid on unallocated preferred shares 4.9 5.3 5.5 ------ ----- ------- Net earnings (loss) applicable to common stock $196.3 $49.6 $(241.5) Net earnings (loss) per share of common stock $ 5.22 $1.32 $ (6.49) ====== ===== =======
- 56 - Computation for Fully Diluted Earnings Per Share for Years ended December 31 (Amounts in millions except for per-share data)
1994 1993 1992(a) ---- ---- ---- Common Stock and Common Stock Equivalents - ----------------------------------------- Average number of common shares outstanding including shares issuable under stock options 37.6 37.7 37.2 Average number of common shares issuable under the Employee Stock Ownership Plan 5.8 5.6 5.9 ---- ---- ---- Average number of common and common equivalent shares outstanding 43.4 43.3 43.1 ==== ==== ==== Pro Forma Adjustment to Earnings (Loss) Before - ---------------------------------------------- Cumulative Effect of Accounting Changes --------------------------------------- Earnings (loss) before cumulative effect of accounting changes as reported $210.4 $63.5 $ (59.9) Less: Increased contribution to the Employee Stock Ownership Plan assuming conversion of preferred shares to common 7.9 8.2 8.3 Net reduction in tax benefits assuming conversion of the Employee Stock Ownership Plan preferred shares to common 1.1 0.9 0.7 ------ ----- ------- Pro forma earnings (loss) before cumulative effect of accounting changes $201.4 $54.4 $ (68.9) Fully diluted earnings (loss) per share before cumulative effect of accounting changes $ 4.64 $1.26 $ (1.98) ====== ===== ======= Pro Forma Adjustment to Net Earnings (Loss) - ------------------------------------------- Net earnings (loss) as reported $210.4 $63.5 $(227.7) Less: Increased contribution to the Employee Stock Ownership Plan assuming conversion of preferred shares to common 7.9 8.2 8.3 Net reduction in tax benefits assuming conversion of the Employee Stock Ownership Plan preferred shares to common 1.1 0.9 0.7 ------ ----- ------- Pro forma net earnings (loss) $201.4 $54.4 $(236.7) Fully diluted net earnings (loss) per share $ 4.64 $1.26 $ (6.49) ====== ===== =======
(a) Fully diluted earnings per share for the year 1992 were antidilutive. - 57 - DEPRECIATION RATES For Years Ended December 31 The approximate average effective rates of depreciation are as follows:
1994 1993 1992 ---- ---- ---- % % % Domestic companies: Buildings 3.2 3.2 3.2 Machinery and Equipment 6.6 6.8 6.8 Foreign companies: Buildings 3.3 3.2 3.0 Machinery and Equipment 9.5 8.0 8.2
- 58 - SCHEDULE II ----------- Valuation and Qualifying Reserves of Accounts Receivable -------------------------------------------------------- For Years Ended December 31 --------------------------- (amounts in millions)
Provision for Losses 1994 1993 1992 - -------------------- ---- ---- ---- Balance at Beginning of Year $19.4 $15.3 $13.3 Additions Charged to Earnings $ 9.1 $12.7 $ 9.4 Deductions (a) $ 8.5 $ 8.6 $ 7.4 Balance at End of Year $20.0 $19.4 $15.3 - --------------------------------------------------------- Provision for Discounts - ----------------------- Balance at Beginning of Year $18.1 $16.9 $16.8 Additions Charged to Earnings $84.6 $71.3 $74.1 Deductions (a) $80.4 $70.1 $74.0 Balance at End of Year $22.3 $18.1 $16.9 - --------------------------------------------------------- Provision for Discounts and Losses - ---------------------------------- Balance at Beginning of Year $37.5 $32.2 $30.1 Additions Charged to Earnings $93.7 $84.0 $83.5 Deductions (a) $88.9 $78.7 $81.4 Balance at End of Year $42.3 $37.5 $32.2
(a) includes discounts granted and uncollectible receivables, less recoveries and valuation reserves related to discontinued businesses that have been classified as other assets - 59 - EXHIBIT INDEX Exhibits - -------- No. 3(a) Copy of registrant's By-laws, as amended, effective February 27, 1995. No. 3(b) Copy of registrant's restated Articles of Incorporation, as amended. No. 4(a) Copy of registrant's Rights Agreement dated as of March 21, 1986, between the registrant and Morgan Guaranty Trust Company of New York, as Rights Agent, (as to which First Chicago Trust Company of New York has succeeded as Rights Agent,) relating to the registrant's Preferred Stock Purchase Rights. No. 4(b) Registrant's Employee Stock Ownership Plan ("Share In Success Plan") as amended is incorporated by reference herein from the registrant's 1992 Annual Report on Form 10-K wherein it appears as Exhibit 4(b). No. 4(c) Indenture, dated as of March 15, 1988, between the registrant and Morgan Guaranty Trust Company of New York, as Trustee, as to which The First National Bank of Chicago is successor trustee, is incorporated herein by reference from the registrant's Form 8-K dated February 1, 1991, wherein it appeared as Exhibit 4.1. No. 4(d) Copy of registrant's Supplemental Indenture dated as of October 19, 1990, between the registrant and The First National Bank of Chicago, as Trustee. No. 10(i)(a) Agreement Concerning Asbestos-Related Claims dated June 19, 1985, (the "Wellington Agreement") among the registrant and other companies is incorporated by reference herein from the registrant's 1993 Annual Report on Form 10-K wherein it appeared as Exhibit 10(i)(a). No. 10(i)(b) Producer Agreement concerning Center for Claims Resolution dated September 23, 1988, among the registrant and other companies as amended is incorporated herein by reference from the registrant's 1992 Annual Report on Form 10-K wherein it appeared as Exhibit 10(i)(b). No. 10(i)(c) Copy of Credit Agreement between the registrant, certain banks listed therein, and Morgan Guaranty Trust Company of New York, as Agent, dated as of February 7, 1995, providing for a $200,000,000 credit facility. No. 10(iii)(a) Registrant's Long-Term Stock Option Plan for Key Employees, as amended, is incorporated by reference herein from the Company's 1991 Annual Report on Form 10-K wherein it appeared as Exhibit 10 (iii)(a). * No. 10(iii)(b) Copy of registrant's Deferred Compensation Plan for Nonemployee Directors, as amended. * - 60 - No. 10(iii)(c) Registrant's Directors' Retirement Income Plan, as amended is incorporated by reference herein from the registrant's 1992 Annual Report on Form 10-K wherein it appeared as Exhibit 10(iii)(d). * No. 10(iii)(d) Copy of registrant's Management Achievement Plan for Key Executives, as amended. * No. 10(iii)(e) Registrant's Retirement Benefit Equity Plan (formerly known as the Excess Benefit Plan), as amended, is incorporated by reference herein from the registrant's 1992 Annual Report on Form 10-K wherein it appeared as Exhibit 10(iii)(f). * No. 10(iii)(f) Copy of Armstrong Deferred Compensation Plan, as amended. * No. 10(iii)(g) Copy of registrant's Employment Protection Plan for Salaried Employees of Armstrong World Industries, Inc., as amended. * No. 10(iii)(h) Registrant's Restricted Stock Plan For Nonemployee Directors is incorporated by reference herein from the registrant's 1995 Proxy Statement wherein it appeared as Exhibit A. * No. 10(iii)(i) Copy of registrant's Severance Pay Plan for Salaried Employees. * No. 10(iii)(j) Thomasville Value Plan of Thomasville Furniture Industries, Inc. * No. 10(iii)(k) Thomasville Achievement Plan of Thomasville Furniture Industries, Inc. * No. 10(iii)(l) Copy of American Olean Turnaround Plan of American Olean Tile Company, Inc. * No. 10(iii)(m) Registrant's 1993 Long-Term Stock Incentive Plan is incorporated by reference herein from the registrant's 1993 Proxy Statement wherein it appears as Exhibit A. * No. 11 A statement regarding computation of per share earnings on both primary and fully diluted bases is set forth in the Financial Statement Schedules on pages 56 and 57 of this Annual Report on Form 10-K. No. 22 List of the registrant's domestic and foreign subsidiaries. No. 24 Consent of Independent Auditors. No. 25 Powers of Attorney and authorizing resolutions. No. 27 Financial Data Schedule No. 28(ii)(a) Copy of Annual Report on Form 11-K for the fiscal year ended September 30, 1994 for the Retirement Savings Plan For Salaried Employees of Armstrong World Industries, Inc. is herewith filed with the Commission. * Compensatory Plan - 61 - No. 28(ii)(b) Copy of Annual Report on Form 11-K for the fiscal year ended September 30, 1994 for the Retirement Savings Plan For Hourly-Paid Employees of Armstrong World Industries, Inc. is herewith filed with the Commission. No. 28(ii)(c) Copy of Annual Report on Form 11-K for the fiscal year ended September 30, 1994 for the Retirement Savings Plan For Hourly-Paid Employees of Thomasville Furniture, Inc. is herewith filed with the Commission. No. 28(ii)(d) Copy of Annual Report on Form 11-K for the fiscal year ended September 30, 1994 for the Armstrong World Industries, Inc. Employee Stock Ownership Plan ("Share In Success Plan") is herewith filed with the Commission. No. 28(ii)(e) Copy of Annual Report on American Olean Tile Company, Inc. Savings Plan for Production & Maintenance Employees for the fiscal year ended September 30, 1994, is herewith filed with the Commission. No. 28(ii)(f) Copy of Annual Report on American Olean Tile Company, Inc. Savings Plan for Salaried Employees for the fiscal year ended September 30, 1994, is herewith filed with the Commission. - 62 - EX-3.A 2 BYLAWS OF ARMSTRONG BYLAWS OF [LOGO OF ARMSTRONG APPEARS HERE] ARMSTRONG WORLD INDUSTRIES, INC. LANCASTER, PENNSYLVANIA EFFECTIVE FEBRUARY 27, 1995 ================================================================================ ARTICLE I Office The principal office of the Company shall be in Lancaster, Pennsylvania. All meetings of directors and stockholders shall be held at the principal office of the Company unless the Board of Directors shall decide otherwise, in which case such meetings may be held within or without the Commonwealth of Pennsylvania as the Board may from time to time direct. ARTICLE II Stockholders' Meetings An annual meeting of stockholders shall be held in each calendar year on such date and at such time as may be fixed by the Board of Directors for the purpose of electing 1 directors and the transaction of such other business as may properly come before the meeting. Special meetings of the stockholders may be called at any time by the President or the Board of Directors. At any time, upon written request of any person or persons who have duly called a special meeting, it shall be the duty of the Secretary to fix the date of the meeting, to be held not more than sixty days after the receipt of the request, and to give due notice thereof. If the Secretary shall neglect or refuse to fix the date of the meeting and give notice thereof, the person or persons calling the meeting may do so. Special meetings of the holders of No Par Preferred Stock for the purpose of electing directors may be called as provided in the Articles of Incorporation, as amended. Written notice of the place, day, and hour of all meetings of stockholders and, in the case of a special meeting, of the general nature of the business to be transacted, shall be given to each stockholder of record entitled to vote at the particular meeting either personally or by sending a copy of the notice through the mail, or by telegram, charges prepaid, to the address of the stockholder appearing on the books of the Company or supplied by him to the Company for the purpose of notice. Except as otherwise provided by these bylaws or by law, such notice shall be given at least five days 2 before the date of the meeting by the President, Vice President, or Secretary. A waiver in writing of any written notice required to be given, signed by the person entitled to such notice, whether before or after the time stated, shall be deemed equivalent to the giving of such notice. Attendance of a person, either in person or by proxy, at any meeting shall constitute a waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. Nominations of candidates for election to the Board of Directors may be made by the Board of Directors or by any stockholder of the Company entitled to notice of, and to vote at, any meeting called for the election of directors. Nominations, other than those made by or on behalf of the Board of Directors of the Company, shall be made in writing and shall be received by the Secretary of the Company not later than (i), with respect to an election of directors to be held at an annual meeting of stockholders, ninety (90) days prior to the anniversary date of the immediately preceding annual meeting and (ii), with respect to an election of directors to be held at a special meeting of stockholders, the close of business on the tenth (10th) day following the date on which notice of such meeting is first given to stockholders or public disclosure of the meet- 3 ing is made, whichever is earlier. Such notification shall contain the following information to the extent known to the notifying stockholder: (a) the name, age, business address, and residence address of each proposed nominee and of the notifying stockholder; (b) the principal occupation of each proposed nominee; (c) a representation that the notifying stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (d) the class and total number of shares of the Company that are beneficially owned by the notifying stockholder and, if known, by the proposed nominee; (e) the total number of shares of the Company that will be voted by the notifying stockholder for each proposed nominee; (f) a description of all arrangements or understandings between the notifying stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the notifying stockholder; (g) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed with the Securities and Exchange Commission pursuant to Rule 14(a) under the Securities Exchange Act of 1934, as amended, had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (h) the consent of each nominee to serve as a director of the Company if so elected. Nominees 4 of the Board of Directors shall, to the extent appropriate, provide the same information about themselves as in (a) through (h) above to the Secretary of the Company. The Company may request any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the qualifications of the proposed nominee to serve as a director of the Company. Within fifteen (15) days following the receipt by the Secretary of a stockholder notice of nomination pursuant hereto, the Board Development and Nominating Committee shall instruct the Secretary of the Company to advise the notifying stockholder of any deficiencies in the notice as determined by the Committee. The notifying stockholder shall cure such deficiencies within fifteen (15) days of receipt of such notice. No persons shall be eligible for election as a director of the Company unless nominated in accordance herewith. Nominations not made in accordance herewith may, in the discretion of the presiding officer at the meeting and with the advice of the Board Development and Nominating Committee, be disregarded by the presiding officer and, upon his or her instructions, all votes cast for each such nominee may be disregarded. The determinations of the presiding officer at the meeting shall be conclusive and binding upon all stockholders of the Company for all purposes. 5 At any meeting of the stockholders, the presence, in person or by proxy, of stockholders entitled to cast at least a majority of the votes which all stockholders are entitled to cast upon any matter shall constitute a quorum for the transaction of business upon such matter, and the stockholders present at a duly organized meeting can continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. If a meeting cannot be organized because a quorum has not attended, those present may, except as otherwise provided by law, adjourn the meeting to such time and place as they may determine, but in the case of any meeting called for the election of directors, those who attend the second of such adjourned meetings, although less than a quorum, shall nevertheless constitute a quorum for the purpose of electing directors. Except as otherwise provided in the Articles of Incorporation, as amended, or by law, every stockholder of record shall have the right, at every stockholders' meeting, to one vote for every share standing in his name on the books of the Company. In each election of directors, every stockholder entitled to vote shall have the right to multiply the number of votes to which he may be entitled by the total number of directors to be elected, and he may cast the whole number of such votes for one candidate or he may distribute them among any two or more candidates. 6 Every stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy. Every proxy shall be executed in writing by the stockholder or by his duly authorized attorney in fact and filed with the Secretary of the Company. All questions shall be decided by the vote of the stockholders present, in person or by proxy, entitled to cast at least a majority of the votes which all stockholders present are entitled to cast, unless otherwise provided by the Articles of Incorporation, as amended, or by law. Elections for directors need not be by ballot except on demand made by a stockholder at the election and before the voting begins. In advance of any meeting of stockholders, the Board of Directors may appoint judges of election who need not be stockholders to act at such meeting or any adjournment thereof, and if such appointment is not made, the chairman of any such meeting may, and on request of any stockholder or his proxy shall, make such appointment at the meeting. The number of judges shall be one or three; and if appointed at a meeting on request of one or more stockholders or proxies, the majority of the shares present and entitled to vote shall determine whether one or three judges are to be appointed. No person who is a candidate for office shall act as a judge. In case any person appointed as judge fails to appear or fails or refuses to act, 7 the vacancy may be filled by appointment made by the Board of Directors in advance of the convening of the meeting or at the meeting by the person or officer acting as chairman. On request of the chairman of the meeting or of any stockholder or his proxy, the judges shall make a report in writing of any challenge or question or matter determined by them and execute a certificate of any fact found by them. ARTICLE III Directors SECTION 1. The business and affairs of the Company shall be managed by a Board of Directors. The directors need not be stockholders of the Company. The Board shall consist of not less than nine (9) nor more than thirteen (13) directors, the exact number to be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority vote of the directors then in office, such number being in addition to any directors that the holders of any class of preferred stock, voting as a class, may be entitled to elect as provided in the Articles of Incorporation, as amended, or in a resolution of the Board establishing any series of preferred stock. The directors, other than the directors to be elected by the holders of No Par Preferred Stock, voting as a class, shall be classified in respect to the time for which they shall sever- 8 ally hold office by dividing them into three classes, each consisting, as nearly as possible, of one-third of the whole number of such directors. At each annual meeting, the successors to the class of directors whose terms expire that year shall be elected to hold office for the term of three years. Each such director shall hold office for the term for which he is elected and until his successor shall have been elected and qualified. Any vacancy in the office of any such director shall be filled by an election by the Board for the unexpired term. Directors to be elected by the holders of No Par Preferred Stock, voting as a class, shall be elected and hold office as provided in the Articles of Incorporation, as amended. SECTION 2. The Board of Directors shall hold an annual meeting, without notice, immediately following the annual meeting of the stockholders and shall elect a President, such number of Vice Presidents and Operation or Division Presidents as the Board may deem advisable, a Secretary, a Treasurer, a Controller, and such Assistant Secretaries and Assistant Treasurers as the Board may deem advisable. The Board may also at its discretion elect a Chairman of the Board. Unless sooner removed by the Board, all officers shall hold office until the next annual meeting of the Board and until their successors shall have been elected. The Board shall also, from time to time, elect such other officers and agents as it deems advisable. 9 The President and the Chairman of the Board, if elected, must be selected from the members of the Board of Directors, but the other officers may but need not be directors. Any two or more offices may be held by the same person except the offices of President and Secretary, but in no case shall the same person act in the same matter in two such official capacities. SECTION 3. All vacancies in office shall be filled by the Board of Directors, and the Board shall have power to define the duties of all officers and agents and fix their compensation and may remove at its discretion any officer or agent. SECTION 4. The Board of Directors shall hold meetings at such times and places as it may determine. Directors may participate in a meeting of the Board or a Committee thereof by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. No notice of regular meetings of the Board need be given. Special meetings of the Board may be called by the President or a Vice President or the Secretary or by any two directors by giving written notice at least twenty-four hours in advance of the time of the meeting to each director, either personally or by telegram, charges prepaid, or by sending a copy of the notice through the mail at least two days before the day of the meeting, to the 10 director's address appearing on the books of the Company or supplied by the director to the Company for the purpose of notice. Attendance at any meeting of the Board shall be a waiver of notice thereof. If all the members of the Board are present at any meeting, no notice shall be required. A majority of the whole number of the directors shall constitute a quorum for the transaction of business, but if at any meeting a quorum shall not be present, the meeting may adjourn from time to time until a quorum shall be present. SECTION 5. The Board of Directors shall cause to be sent to the stockholders, within 120 days after the close of each fiscal year, financial statements which shall include a balance sheet as of the close of such year, together with statements of income and surplus for such year, prepared so as to present fairly its financial condition and results of its operations. Such financial statements shall have been examined in accordance with generally accepted auditing standards by a firm of independent certified public accountants selected by the Board and shall be accompanied by such firm's opinion as to the fairness of the presentation thereof. SECTION 6. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Company. The Board 11 may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee to the extent provided in such resolution shall have and exercise the authority of the Board in the management of the business and affairs of the Company. ARTICLE IV OFFICERS President SECTION 1. The President shall be the chief executive officer of the Company. He shall preside at all meetings of the stockholders and, in the absence of a Chairman of the Board, at all meetings of the Board of Directors at which he is present. He shall be ex-officio a member of all standing committees. He shall have the custody of the corporate seal or may entrust the same to the Secretary. He shall make reports of the Company's business to the Board at such times as the Board shall require. He shall perform all the usual duties incident to the office of President. Vice Presidents and Operation or Division Presidents SECTION 2. In the absence or disability of the President, his duties shall be performed by one or more Vice Presidents or Operation or Division Presidents designated by the Board of Directors. They shall perform such other duties as may be assigned to them by the Board. 12 Chairman of the Board SECTION 3. The Chairman of the Board, if elected, shall preside at all meetings of the Board of Directors at which he is present. He shall perform such other duties as may be assigned to him by the Board. Secretary SECTION 4. The Secretary shall attend the meetings of the stockholders and Board of Directors and keep minutes thereof in suitable books. He shall send out notices of all meetings as required by law or these bylaws. He shall be ex- officio an Assistant Treasurer. He shall perform all the usual duties incident to the office of Secretary. Assistant Secretaries SECTION 5. In the absence or disability of the Secretary, his duties shall be performed by the Assistant Secretaries. They shall perform such other duties as may be assigned to them by the Board of Directors. Treasurer SECTION 6. The Treasurer shall have custody of funds of the Company and keep or cause to be kept accurate accounts of all money received or payments made in books kept for that purpose. He shall deposit all money received by him in the name and to the credit of the Company in such bank or other place or places of deposit as the Board of 13 Directors shall designate. He shall be ex-officio an Assistant Secretary. He shall perform all the usual duties incident to the office of Treasurer. Assistant Treasurers SECTION 7. In the absence or disability of the Treasurer, his duties shall be performed by the Assistant Treasurers. They shall perform such other duties as may be assigned to them by the Board of Directors. Controller SECTION 8. The Controller shall have general charge of the accounting of the Company and shall perform all the usual duties incident to the office of Controller. Bonds SECTION 9. Such officers and employees of the Company as the Board of Directors shall determine shall give bond for the faithful discharge of their duties in such form and for such amount and with such surety or sureties as the Board shall require. The expense of procuring such bonds shall be borne by the Company. ARTICLE V Seal The Company shall have a seal which shall contain the words "Armstrong World Industries, Inc.," in a circle within which the words "Incorporated Dec. 30, 1891" shall be contained. 14 ARTICLE VI Stock Certificates and Transfers Stock certificates shall be in such form as the Board of Directors may from time to time determine and shall either be signed by the President or one of the Vice Presidents or other officer designated by the Board, and countersigned by the Treasurer or an Assistant Treasurer and sealed with the seal of the Company, or, if not so signed and sealed, shall bear the engraved or printed facsimile signatures of the officers authorized to sign and the engraved or printed facsimile of the seal of the Company. The Board of Directors may appoint for any class of stock one or more incorporated banks or trust companies in the city of New York, New York, or elsewhere, to act as Registrar or Registrars, and also one or more incorporated banks or trust companies in the city of New York, New York, or elsewhere, to act as Transfer Agent or Transfer Agents. No certificate of stock of any class for which a Transfer Agent and Registrar have been appointed shall be valid or binding unless countersigned by a Transfer Agent and registered by a Registrar before issue. The shares of the capital stock of the Company shall, upon the surrender and cancellation of the certificate or certificates representing the same, be transferred upon the 15 books of the Company at the request of the holder thereof, named in the surrendered certificate or certificates, in person or by his legal representatives or by his attorney duly authorized by written power of attorney filed with the Company's Transfer Agent. In case of loss or destruction of a certificate of stock, another may be issued in lieu thereof in such manner and upon such terms as the Board shall authorize. The Board of Directors may fix a time, not more than seventy (70) days prior to the date of any meeting of the stockholders, or the date fixed for the payment of any dividend or distribution or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock will be made or go into effect, as a record date for the determination of the stockholders entitled to notice of, or to vote at, any such meeting, or entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect to any such change, conversion, or exchange of capital stock. In such case, only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to notice of, or to vote at, such meeting, or to receive payment of such dividend or distribution, or to receive such allotment of rights, or exercise such rights, as the case may be, notwithstanding any transfer of stock on the books of the Company after any record date fixed as aforesaid. 16 ARTICLE VII Fiscal Year The fiscal year of the Company shall end on the 31st day of December. ARTICLE VIII Amendments Unless otherwise provided in the Articles of Incorporation, as amended, these bylaws may be amended by a vote of two-thirds of the members of the Board of Directors at any regular or special meeting duly convened after notice of that purpose, subject always to the power of stockholders under law and in accordance with the Articles of Incorporation, as amended, to change such action. ARTICLE IX Limitation on Directors' Personal Liability; Indemnification of Directors and Officers SECTION 1. A director of the Company shall not be personally liable for monetary damages for any action taken or failure to take any action unless the director has breached or failed to perform the duties of his or her office under Section 8363 of the Pennsylvania Directors' Liability Act and such breach or failure to perform constitutes self-dealing, willful misconduct or recklessness; provided, however, that the foregoing provision shall not eliminate or limit the liability of a director (i) for any responsibility or liability of such director pursuant to 17 any criminal statute, or (ii) for any liability of a director for the payment of taxes pursuant to local, state or federal law. SECTION 2. The Company shall indemnify to the full extent authorized or permitted by law any person made, or threatened to be made, a party to or otherwise involved in (as a witness or otherwise) an action, suit or proceeding (whether civil, criminal, administrative or investigative, and whether by or in the right of the Company or otherwise) by reason of the fact that the person is or was a director or officer of the Company or while a director or officer of the Company, either serves or served as a director, officer, trustee, employee or agent of any other related enterprise or in connection with a related employee benefit plan at the request of the Company or serves or served as a director, officer, trustee, employee or agent of any other unrelated enterprise at the specific written request of the Company against any expenses and liability actually incurred including without limitation judgments and amounts paid or to be paid in settlement of and in actions brought by or in the right of the Company. Expenses incurred by such a person in defending a civil or criminal action, suit or proceeding or in enforcing any right under this Article shall be paid by the Company in advance of the final disposition of the action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay 18 such amount to the extent it shall ultimately be determined that such person is not entitled to be indemnified by the Company or, in the case of a criminal action, the majority of the Board of Directors so determines. The right to indemnification and advancement of expenses conferred in this Section shall not be deemed exclusive of any other rights to which any person indemnified may be entitled under any agreement, vote of stockholders or directors or otherwise, the Company having the express authority to enter such agreements as the Board of Directors deems appropriate for the indemnification of and advancement of expenses, including the creation of a fund therefor or equivalent guarantee, to present or future directors and officers of the Company in connection with their service as director or officer of the Company or their service as director, officer, trustee, employee or agent of any other enterprise or in connection with an employee benefit plan at the request of the Company. The right to indemnification and the advancement of expenses provided in this Section shall be a contract right, shall continue as to a person who has ceased to serve in the capacities described herein, and shall inure to the benefit of the heirs, executors and administrators of such person. SECTION 3. No amendment, alteration or repeal of this Article IX, nor the adoption of any provision inconsistent with this Article IX, 19 shall adversely affect any limitation on the personal liability of a director or officer, or the rights of a director or officer to indemnification and advancement of expenses, existing at the time of such amendment, modification or repeal, or the adoption of such an inconsistent provision. 20 Printed in United States of America EX-3.B 3 BYLAWS OF ARMSTRONG ARMSTRONG WORLD INDUSTRIES, INC. ARTICLES OF INCORPORATION ARMSTRONG WORLD INDUSTRIES, INC. ARTICLES OF INCORPORATION 1ST. The name of the Corporation is Armstrong World Industries, Inc. 2ND. The location and post office address of its registered office in this Commonwealth is Liberty and Charlotte Streets, Lancaster, Lancaster County, Pennsylvania. 3RD. The purpose or purposes for which the Corporation is incorporated under the Business Corporation Law of the Commonwealth of Pennsylvania are to engage in, and do any lawful act concerning, any or all lawful business for which corporations may be incorporated under the Business Corporation Law, including, but not limited to, manufacturing, purchasing and selling a variety of interior furnishings, interior finish materials and related services for residential, commercial and institutional interiors, including resilient floors and carpeting, ceiling materials and ceiling systems, furniture and related accessory items; as well as insulation materials and industrial specialties; engaging in research and development, furnishing services, and acquiring, owning, using, and disposing of real property of any nature whatsoever. 4TH. The term of its existence is perpetual. 5TH. The authorized capital stock of the Corporation shall be 20,000,000 shares of Class A Preferred Stock (without par value) and 200,000,000 shares of Common Stock of the par value of $1.00 per share. A description of each class of shares and a statement of the preferences, voting powers, qualifications, limitations, restrictions and the special or relative rights granted to or imposed upon the shares of each class and of the authority vested in the Board of Directors of the Corporation to establish series of Class A Preferred Stock and to fix and determine the variations in the relative rights and preferences as between the series of each class are as follows: 1. The holders of Common Stock shall be entitled to receive dividends, when and as declared by the Board of Directors, out of surplus legally available therefor. 2. The holders of Common Stock shall have one vote per share. 3. The Corporation may issues shares of stock, option rights or securities having conversion or option rights, without first offering them to the holders of Class A Preferred Stock or Common Stock. 4. The Board of Directors may in its discretion, at any time or from time to time, issue or cause to be issued all or any part of the authorized and unissued shares of Common Stock for consideration of such character and value as the Board shall from time to time fix or determine. 1 5. The Board of Directors is hereby expressly authorized, at any time or from time to time, to divide any or all of the shares of Class A Preferred Stock into one or more series, and in the resolution or resolutions establishing a particular series, before issuance of any of the shares thereof, to fix and determine the number of shares and the designation of such series, so as to distinguish it from the shares of all other series and classes, and to fix and determine the preferences, voting rights, qualifications, privileges, limitations, options, conversion rights, restrictions and other special or relative rights of the Class A Preferred Stock or of such series, to the fullest extent now or hereafter permitted by the laws of the Commonwealth of Pennsylvania, including, but not limited to, the variations between different series in the following respects: (a) the distinctive designation of such series and the number of shares which shall constitute such series, which number may be increased or decreased (but not below the number of shares thereof then outstanding) from time to time by the Board of Directors; (b) the annual dividend rate for such series, and the date or dates from which dividends shall commence to accrue; (c) the price or prices at which, and the terms and conditions on which, the shares of such series may be made redeemable; (d) the purchase or sinking fund provisions, if any, for the purchase or redemption of shares of such series; (e) the preferential amount or amounts payable upon shares of such series in the event of liquidation, dissolution, or winding up of the Corporation; (f) the voting rights, if any, of shares of such series; (g) the terms and conditions, if any, upon which shares of such series may be converted and the class or classes or series of shares of the corporation or other securities into which such shares may be converted; (h) the relative seniority, priority or junior rank of such series as to dividends or assets with respect to any other classes or series of stock then or thereafter to be issued; and (i) such other terms, qualifications, privileges, limitations, options, restrictions, and special or relative rights and preferences, if any, of shares of such series as the Board of Directors may, at the time of such resolution or resolutions, lawfully fix or determine under the laws of the Commonwealth of Pennsylvania. Unless otherwise provided by law, the Articles of Incorporation, the bylaws of the Corporation or in a resolution or resolutions establishing any particular series of Class A Preferred Stock, 2 the aggregate number of authorized shares of Class A Preferred Stock may be increased by an amendment of the Articles of Incorporation approved solely by a majority vote of the outstanding shares of Common Stock. All shares within each series of Class A Preferred Stock shall be alike in every particular, except with respect to the dates from which dividends shall commence to accrue. The Board of Directors may in its discretion, at any time or from time to time, issue or cause to be issued all or any part of the authorized and unissued shares of Class A Preferred Stock for consideration of such character and value as the Board of Directors shall from time to time fix or determine. SERIES ONE PREFERRED STOCK (A SERIES OF CLASS A PREFERRED STOCK) Section 1. Designation. The shares of such series shall be designated as "Series One Preferred Stock." Shares of this series shall be issued pursuant to the exercise of rights to purchase Series One Preferred Stock distributed to the holders of Common Stock, par value $1.00 per share, of the Corporation (the "Common Stock"). Section 2. Dividends and Distributions. Subject to the rights and preferences of the holders of any shares of any series of Class A Preferred stock ranking senior as to dividends to this Series One Preferred Stock, the holders of shares of Series One Preferred Stock, in preference to the holders of Common Stock and shares of stock ranking junior as to dividends to the Series One Preferred Stock, shall be entitled to receive, when and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the 15th day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series One Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $32.50 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends plus 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock, or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), paid on the Common Stock at any time during the quarter year immediately preceding the quarter year ending on the day immediately preceding such Quarterly Dividend Payment Date. In the event the Corporation shall at any time after March 21, 1986 (the "Rights Declaration Date") during any quarter year immediately preceding the quarter year ending on the day immediately preceding a Quarterly Dividend Payment Date (i) declare any dividend on Common Stock payable in shares of Common Stock, or (ii) subdivide the outstanding Common Stock or combine the outstanding Common Stock into a greater or lesser number of shares 3 of Common Stock, then in each such case the amounts to which holders of shares of Series One Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying each such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Dividends shall begin to accrue and be cumulative on outstanding shares of Series One Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series One Preferred Stock, unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series One Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series One Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series One Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. Except as otherwise provided by law, holders of shares of Series One Preferred Stock shall have no voting rights. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series One Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series One Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or as to assets) to the Series One Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or as to assets) with the Series One Preferred Stock, except dividends paid ratably on the Series One Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or as to assets) to the Series One Preferred Stock, provided 4 that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or as to assets) to the Series One Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series One Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series One Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series of classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under Paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series One Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Class A Preferred Stock and may be reissued as part of a new series of Class A Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. Subject to the rights and preferences of the holders of any shares of any series of Class A Preferred Stock ranking senior as to assets to this Series One Preferred Stock: (A) Upon any involuntary or voluntary liquidation, dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or as to assets) to the Series One Preferred Stock unless, prior thereto, the holders of shares of Series One Preferred Stock shall have received an amount per share equal to the Per Share Series One Liquidation Preference. The Per Share Series One Liquidation Preference shall be equal to the sum of (x) $100.00 plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, plus (y) the Participation Preference. The "Participation Preference" is an amount per each share of Series One Preferred Stock outstanding, equal to the product of (A) the Excess Distribution Amount, as hereinafter defined times (B) a fraction whose numerator is 100 and whose denominator is the sum of (i) the product of 100 times the number of outstanding shares of Series One Preferred Stock, plus (ii) the product of 100 times a fraction whose numerator is the number of outstanding shares of Common Stock and whose denominator is the Adjustment Number; provided, however, if the foregoing computation results in a negative number, then the Participation Preference 5 shall be 0. Following the payment of the full amount of the Series One Liquidation Preference, holders of shares of Common Stock shall receive the remaining assets to be distributed. The "Excess Distribution Amount" is an amount equal to the amount available for distribution to shareholders of the Corporation after payment of all debts and liabilities less the sum of (i) the liquidation preferences in respect of all shares of preferred stock of the Corporation other than the Series One Preferred Stock, (ii) the product of 100 times the number of outstanding shares of Series One Preferred Stock, and (iii) the product of the number of outstanding shares of Common Stock times a fraction whose numerator is 100 and whose denominator is the Adjustment Number. (B) The Adjustment Number shall initially be 100 and shall be subject to adjustment as provided in this subsection (B). In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series One Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time (i) declare any dividend on Common Stock payable in shares of Common Stock, or (ii) subdivide the outstanding Common Stock or combine the outstanding Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series One Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. Redemption. The outstanding shares of Series One Preferred Stock may be redeemed at the option of the Board of Directors as a whole, but not in part, at any time, or from time to time, at a cash price per share equal to (i) the product of the Adjustment Number times the Average Market Value, as such term is hereinafter defined, of the Common Stock, plus (ii) all dividends which on the redemption date have accrued on the shares to be redeemed and have not been paid or declared and a sum sufficient for the payment thereof set apart, without interest; 6 provided, however, that if and whenever any quarter-yearly dividend shall have accrued on the Series One Preferred Stock which has not been paid or declared and a sum sufficient for the payment thereof set apart, the Corporation may not purchase or otherwise acquire any shares of Series One Preferred Stock unless all shares of such stock at the time outstanding are so purchased or otherwise acquired. The "Average Market Value" is the average of the closing sale prices of the Common Stock during the 30-day period immediately preceding the date before the redemption date on the Composite Tape for New York Stock Exchange- Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which such stock is listed, or, if such stock is not listed on any such exchange, the average of the closing bid quotations with respect to a share of Common Stock during such 30-day period on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value of the Common Stock as determined by the Board of Directors in good faith. Section 9. Fractional Shares. Series One Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, if applicable, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series One Preferred Stock. SERIES A ESOP CONVERTIBLE PREFERRED STOCK (A SERIES OF CLASS A PREFERRED STOCK) Section 1. Designation and Amount; Special Purpose Restricted Transfer Issue (A) The shares of this series of Class A Preferred Stock shall be designated as Series A ESOP Convertible Preferred Stock ("ESOP Preferred Stock") and the number of shares constituting such series shall be 5,654,450. (B) Shares of ESOP Preferred Stock shall be issued only to Mellon Bank, N.A., as trustee, or any successor trustee (the "trustee") of the Armstrong World Industries, Inc. Employee Stock Ownership Plan ("Share in Success Plan"), as the same may from time to time be amended, or any successor plan (the "Plan"). In the event of any transfer of shares of ESOP Preferred Stock to any person other than any such Plan trustee (and other than any pledgee of such shares that holds such shares as security for loans made to the Plan or to such trustee on behalf of the Plan), the shares of ESOP Preferred Stock so transferred, upon such transfer and without 7 any further action by the Company or the holder, shall be automatically converted into shares of Common Stock (as hereinafter defined) on the terms otherwise provided for the conversion of shares of ESOP Preferred Stock into shares of Common Stock pursuant to Section 5 hereof and such transferee shall not have any of the preferences, voting rights, privileges, options, conversion or other special rights ascribed to shares of ESOP Preferred Stock hereunder but, rather, shall have only the rights and powers pertaining to the Common Stock into which such shares of ESOP Preferred Stock shall be so converted. Certificates representing shares of ESOP Preferred Stock shall be legended to reflect such restrictions on transfer. Notwithstanding the foregoing provisions of this paragraph (B) of Section 1, shares of ESOP Preferred Stock (i) may be converted into shares of Common Stock as provided in Section 5 hereof and the shares of Common Stock issued upon such conversion may be transferred by the holder thereof as permitted by law and (ii) shall be redeemable by the Company upon the terms and conditions provided by Sections 6, 7 and 8 hereof. For the purposes of this paragraph (B), an allocation of shares of ESOP Preferred Stock to the account of a participant in any employee stock ownership plan or other employee benefit plan of the Company shall not be deemed a "transfer of shares." Section 2. Dividends and Distributions. (A) Subject to the provisions for adjustment hereinafter set forth, and subject to the rights and preferences of any class or series of stock ranking senior as to dividends to this ESOP Preferred Stock, the holders of shares of ESOP Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, cumulative cash dividends ("ESOP Dividends") in an amount per share equal to $3.462 per share per annum, and no more, payable semi-annually in arrears, one-half on the 15th day of June and one-half on the 15th day of December of each year (each a "Dividend Payment Date") commencing on December 15, 1989 to holders of record at the start of business on such Dividend Payment Date, except that the ESOP Dividends payable on December 15, 1989 for the period from the date of issuance of the ESOP Preferred Stock until December 15, 1989 shall be based on the per annum amount hereinbefore set forth and a 360-day year of 30-day months. ESOP Dividends shall begin to accrue on outstanding shares of ESOP Preferred Stock from the date of issuance of such shares of ESOP Preferred Stock. ESOP Dividends shall accrue on a daily basis whether or not the Company may legally declare and pay a dividend at the time. ESOP Dividends accrued after December 15, 1989 on shares of ESOP Preferred Stock for any period less than a full semi-annual period between Dividend Payment Dates shall be computed on the basis of a 360- day year of 30-day months. In the event that a Dividend Payment Date shall be a day other than a Business Day (as hereinafter defined), the ESOP Dividends payable on such Dividend Payment Date shall be paid on the next succeeding Business Day following such Dividend Payment Date. The term "Business Day" shall mean each day that is not a Saturday, Sunday or a day on which state or federally chartered banking institutions in Pittsburgh, Pennsylvania are required or authorized to be closed. Accrued but unpaid ESOP Dividends shall cumulate as of the Dividend Payment Date on which they first become payable, but no interest shall accrue on accumulated but unpaid ESOP Dividends. 8 (B) So long as any ESOP Preferred Stock shall be outstanding, no dividend shall be declared or paid or set apart for payment on any other class or series of stock ranking on a parity with the ESOP Preferred Stock as to dividends, unless there shall also be or have been declared and paid or set apart for payment on the ESOP Preferred Stock, like dividends for all dividend payment periods of the ESOP Preferred Stock ending on or before the dividend payment date of such parity stock, ratably in proportion to the respective amounts of dividends accumulated and unpaid through such dividend payment period on the ESOP Preferred Stock and accumulated and unpaid or payable on such parity stock through the dividend payment period next preceding such dividend payment date. In the event that full cumulative dividends on the ESOP Preferred Stock have not been declared and paid or set apart for payment when due, the Company shall not declare or pay or set apart for payment any dividends or make any other distributions on, or make any payment on account of the purchase, redemption or other retirement of any series or class of stock of the Company ranking, as to dividends or as to distributions in the event of a liquidation, dissolution or winding up of the Company, junior to the ESOP Preferred Stock until full cumulative dividends on the ESOP Preferred Stock shall have been paid or declared and set apart for payment; provided, however, that the foregoing shall not apply to (i) any dividend payable solely in any shares of any stock ranking, as to dividends and as to distributions in the event of a liquidation, dissolution or winding up of the Company, junior to the ESOP Preferred Stock, or (ii) the acquisition of shares, either (a) pursuant to any employee or director incentive or benefit plan or arrangement (including any employment, severance or consulting agreement) of the Company or any subsidiary of the Company heretofore or hereafter adopted or (b) in exchange solely for shares of any other stock ranking junior to the ESOP Preferred Stock, of any stock ranking, as to dividends and as to distributions in the event of a liquidation, dissolution or winding up of the Company, junior to the ESOP Preferred Stock. Section 3. Voting Rights. The holders of shares of ESOP Preferred Stock shall have the following voting rights: (A) The holders of ESOP Preferred Stock shall be entitled to vote on all matters submitted to a vote of the holders of Common Stock of the Company, voting together with the holders of Common Stock as one class. Each share of the ESOP Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of ESOP Preferred Stock could be converted in accordance with Section 5 hereof on the record date for determining the shareholders entitled to vote, rounded to the nearest one- hundredth of a vote; it being understood that whenever the Conversion Ratio (as defined in Section 5 hereof) is adjusted as provided in Section 9 hereof, the voting rights of the ESOP Preferred Stock shall also be similarly adjusted. (B) Except as otherwise required by law or set forth herein, holders of ESOP Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action; provided, however, that the affirmative vote of the holders of at least a majority of the outstanding shares of ESOP Preferred Stock, voting as a series, shall be required 9 for (i) any amendment to the Articles of Incorporation of the Company if the proposed amendment would (a) make any change in the preferences, qualifications, limitations, or special or relative rights of the ESOP Preferred Stock adverse to the ESOP Preferred Stock, or (b) authorize a new class or series of shares ranking as to dividends or as to distributions in the event of a liquidation, distribution or winding up of the Company, senior to the shares of ESOP Preferred Stock, or (c) increase the number of authorized shares of any class or series ranking as to dividends or as to distributions in the event of a liquidation, distribution or winding up of the Company, senior to the shares of ESOP Preferred Stock; and (ii) any proposed merger, consolidation, division or share exchange, or sale, lease or exchange of all or substantially all of the property and assets of the Company, in which the articles of incorporation of the surviving or resulting corporation would effectively change the Articles of Incorporation of the Company in any of the manners set forth in subparagraph (i)(a) through (i)(c) above. Section 4. Liquidation, Dissolution or Winding Up. (A) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of ESOP Preferred Stock shall be entitled to receive out of assets of the Company which are available for payment to shareholders and subject to the rights of the holders of any stock of the Company ranking senior to or on a parity with the ESOP Preferred Stock in respect of distributions upon liquidation, dissolution or winding up of the Company, before any amount shall be paid or distributed among the holders of Common Stock or any other shares ranking junior to the ESOP Preferred Stock in respect of distributions upon liquidation, dissolution or winding up of the Company, liquidating distributions in the amount of $47.75 per share, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for distribution, and no more. If upon any liquidation, dissolution or winding up of the Company, the amounts payable with respect to the ESOP Preferred Stock and any other stock ranking as to any such distribution on a parity with the ESOP Preferred Stock are not paid in full, the holders of the ESOP Preferred Stock and such other stock shall share ratably in any distribution of assets in proportion to the full respective preferential amounts to which they are otherwise entitled. After payment of the full amount to which they are entitled as provided by the foregoing provisions of this paragraph 4(A) (other than pursuant to the immediately preceding sentence), the holders of shares of ESOP Preferred Stock shall not be entitled to any further right or claim to any of the remaining assets of the Company. (B) Neither the merger or consolidation of the Company with or into any other corporation, nor the merger or consolidation of any other corporation with or into the Company, nor the sale, transfer or lease of all or any portion of the assets of the Company, shall be deemed to be a dissolution, liquidation or winding up of the affairs of the Company for purposes of this Section 4, but the holders of ESOP Preferred Stock shall nevertheless be entitled in the event of any such merger or consolidation to the rights provided by Section 8 hereof. (C) Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the Company, stating the payment date or dates when, and the place or places where, the amounts 10 distributable to holders of ESOP Preferred Stock in such circumstances shall be payable, shall be given by first-class mail, postage prepaid, mailed not less than twenty (20) days prior to any payment date stated therein, to each holder of ESOP Preferred Stock, at the address shown on the books of the Company or any transfer agent for the ESOP Preferred Stock. Section 5. Conversion into Common Stock. (A) A holder of shares of ESOP Preferred Stock shall be entitled, at any time prior to the close of business on the date fixed for redemption of such shares pursuant to Section 6, 7 or 8 hereof, to cause any or all of such shares to be converted into shares of Common Stock, initially at a conversion ratio equal to one share of Common Stock for each one share of ESOP Preferred Stock, which shall be adjusted as hereinafter provided in Section 9 hereof (and, as so adjusted, rounded to the nearest thousandth, is hereinafter sometimes referred to as the "Conversion Ratio"). (B) Any holder of shares of ESOP Preferred Stock desiring to convert such shares into shares of Common Stock shall surrender the certificate or certificates representing the shares of ESOP Preferred Stock being converted, duly assigned or endorsed for transfer to the Company (or accompanied by duly executed stock powers relating thereto), at the principal executive office of the Company or the offices of the transfer agent for the ESOP Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the ESOP Preferred Stock by the Company or the transfer agent for the ESOP Preferred Stock, accompanied by written notice of conversion. Such notice of conversion shall specify (i) the number of shares of ESOP Preferred Stock to be converted and the name or names in which such holder wishes the certificate or certificates for Common Stock and for any shares of ESOP Preferred Stock not to be so converted to be issued (subject to compliance with applicable legal requirements, if any, if said certificates are to be issued in a name other than the name of the holder), and (ii) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion. (C) Upon surrender of a certificate representing a share or shares of ESOP Preferred Stock for conversion, the company shall issue and send by hand delivery (with receipt to be acknowledged) or by first-class mail, postage prepaid, to the holder thereof or to such holder's designee, at the address designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion. In the event that there shall have been surrendered a certificate or certificates representing shares of ESOP Preferred Stock, only part of which are to be converted, the Company shall issue and deliver to such holder or such holder's designee a new certificate or certificates representing the number of shares of ESOP Preferred Stock which shall not have been converted. (D) The issuance by the Company of shares of Common Stock upon a conversion of shares of ESOP Preferred Stock into shares of Common Stock made at the option of the holder thereof shall be effective as of the earlier of (i) the delivery to such holder or such holder's designee of the certificates representing the shares of Common Stock issued upon conversion thereof 11 or (ii) the commencement of business on the second Business Day after the surrender of the certificate or certificates for the shares of ESOP Preferred Stock to be converted, duly assigned or endorsed for transfer to the Company (or accompanied by duly executed stock powers relating thereto) as provided by this designation of series. On and after the effective day of conversion, the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock in respect of any period prior to such effective date. Notwithstanding the provisions of Section 2(A) hereof, the Company shall not be obligated to pay any ESOP Dividends which shall have been declared and shall be payable to holders of shares of ESOP Preferred Stock on a Dividend Payment Date if such Dividend Payment Date for such dividend shall coincide with or be on or subsequent to the effective date of conversion of such shares. (E) The Company shall not be obligated to deliver to holders of ESOP Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of ESOP Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner determined by the Board of Directors in its sole determination to be equitable. (F) Whenever the Company shall issue shares of Common Stock upon conversion of shares of ESOP Preferred Stock as contemplated by this Section 5, the Company shall issue together with each such share of Common Stock such number of rights to purchase Series One Preferred Stock of the Company (or other securities in lieu thereof) pursuant to the Rights Agreement dated as of March 21, 1986 between the Company and Morgan Guaranty Trust Company of New York, as Rights Agent, as such agreement may from time to time be amended (the "Rights Agreement"), as may be provided for in such Rights Agreement or any rights issued to holders of Common Stock of the Company in addition thereto or in replacement therefor, whether or not such rights shall be exercisable at such time, but only if such rights are issued and outstanding and held by other holders of Common Stock of the Company at such time and have not expired or been redeemed. (G) The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of ESOP Preferred Stock as herein provided, free from any preemptive rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of ESOP Preferred Stock then outstanding. Notwithstanding the foregoing, the shares of Common Stock issued upon the conversion of shares of ESOP Preferred Stock may be authorized and unissued Common Stock or treasury shares. The Company shall prepare and shall use its best efforts to obtain and keep in force such governmental or regulatory permits or other authorizations as may be required by law, and shall comply with all requirements as to registration or qualification of the Common Stock, in order to enable the Company lawfully to issue and deliver to each holder of record of ESOP Preferred Stock such number of shares of its Common Stock as shall from time to time be sufficient to effect the conversion of all shares of ESOP Preferred Stock then outstanding and convertible into shares of Common Stock. 12 Section 6. Redemption at the Option of the Company. (A) The ESOP Preferred Stock shall be redeemable, in whole or in part, at the option of the Company at any time after June 14, 1992, or on or before June 14, 1992 if permitted by paragraph (C) or (D) of this Section 6, at the following redemption prices per share (or if pursuant to paragraph (C) of this Section 6, at the redemption price set forth therein):
During the Twelve- Month Period Price Per Beginning June 15 Share ------------------ --------- 1989 $51.21 1990 $50.87 1991 $50.52 1992 $50.17 1993 $49.83 1994 $49.48 1995 $49.13 1996 $48.79 1997 $48.44 1998 $48.10
and thereafter at $47.75 per share, plus, in each case, an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption. Payment of the redemption price shall be made by the Company in cash or shares of Common Stock, or a combination thereof, as permitted by paragraph (E) of this Section 6. If less than all of the outstanding shares of ESOP Preferred Stock are to be redeemed, the Company shall either redeem a portion of the shares of each holder determined pro rata based on the number of shares held by each holder or shall select the shares to be redeemed by lot, as may be determined by the Board of Directors of the Company. (B) Unless otherwise required by law, notice of redemption with respect to a redemption under this Section 6 will be sent to each holder of ESOP Preferred Stock at the address shown on the books of the Company or any transfer agent for the ESOP Preferred Stock by first-class mail, postage prepaid, mailed not less than twenty (20) days nor more than sixty (60) days prior to the redemption date. Each such notice shall state: (i) the redemption date; (ii) the total number of shares of the ESOP Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (v) that dividend on the shares to be redeemed will cease to accrue on such redemption date; and (vi) the conversion rights of the shares to be redeemed, the period within which conversion rights may be exercised, and the Conversion Ratio and number of shares of Common Stock issuable upon conversion of a share of ESOP 13 Preferred Stock at the time. Upon surrender of the certificates for any shares so called for redemption and not previously converted (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice so shall state), such shares shall be redeemed by the Company at the dated fixed for redemption and at the redemption price set forth in this Section 6 or in Sections 7 or 8 hereof, as the case may be. (C) In the event (i) of a change in the federal tax law of the United States of America (including any change to any statute, rule, regulation or administrative interpretation) which has the effect of precluding the Company from claiming any of the tax deductions for dividends paid on the ESOP Preferred Stock when such dividends are used as provided under Section 404(k)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), and as in effect on the date shares of ESOP Preferred Stock are initially issued, or (ii) the Plan is determined by the Internal Revenue Service not to be qualified within the meaning of Section 401(a) or 4975(e)(7) of the Code, or (iii) the exclusion from income pursuant to Section 133, or any successor provision, of the Code, of interest received by any lender on any indebtedness of the Plan (or any indebtedness incurred by the trustee for the benefit of the Plan) is reduced to a percentage amount less than fifty percent (50.0%), or (iv) the Company, in good faith after consultation with counsel to the Company, determines that the voting rights of the ESOP Preferred Stock are not in compliance with Rule 19(c)- 4 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or any successor provision, or (v) the Company terminates the Plan or terminates future contributions to the Plan, the Company may, in its sole discretion and notwithstanding anything to the contrary in paragraph (A) of this Section 6, elect to redeem any or all such shares for the amount payable in respect of the shares upon liquidation of the Company pursuant to Section 4 hereof. (D) Notwithstanding anything to the contrary in paragraph (A) of this Section 6, the Company may elect to redeem any or all of the shares of ESOP Preferred Stock at any time on or prior to June 14, 1992, on the terms and conditions set forth in paragraphs (A) and (B) of this Section 6, if the last reported sales price, regular way, of a share of Common Stock, as reported on the New York Stock Exchange Composite Tape or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which such stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or, if the Common Stock is not quoted on such National Market System, the average of the closing bid and asked prices in over-the-counter market as reported by NASDAQ, for at least twenty (20) trading days within a period of thirty (30) consecutive trading days ending within five (5) days of the notice of redemption equals or exceeds one hundred fifty percent (150%) of the product of (i) the Conversion Ratio (giving effect equitably in making such calculation to any adjustments required by Section 9 hereof) and (ii) the amount payable in respect of a share of ESOP Preferred Stock upon liquidation of the Company pursuant to Section 4 hereof (not including accrued and unpaid dividends thereon). 14 (E) The Company, at its option, may make payment of the redemption price required upon redemption of shares of ESOP Preferred Stock pursuant to this Section 6 in cash or in shares of Common Stock, or in a combination of such shares and cash, any such shares to be valued for such purpose at their Fair Market Value (as defined in Paragraph (G) of Section 9 hereof; provided, however, that in calculating their Fair Market Value the Adjustment Period shall be deemed to be the five (5) consecutive trading days preceding the date of redemption). (F) From and after the date fixed for redemption, the shares of ESOP Preferred Stock so called for redemption, notwithstanding that any certificate therefor shall not have been surrendered for cancellation, shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith cease and terminate except only the right of the holders thereof to receive upon surrender of certificates therefor the amount payable upon redemption thereof, but without interest; provided, however, that if the Company shall, after the publication of notice of any such redemption and prior to the redemption date, deposit in trust for the account of the holders of the ESOP Preferred Stock to be redeemed with a bank or trust company in good standing, designated in such notice, organized under the laws of the United States of America or of the State of New York, doing business in the Borough of Manhattan, the City of New York, and having a capital, undivided profits and surplus aggregating at least five million dollars ($5,000,000), all funds necessary for such redemption, then from and after the time of such deposit the shares of ESOP Preferred Stock so called for redemption, notwithstanding that any certificate therefor shall not have been surrendered for cancellation, shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith cease and terminate except the right of the holders thereof to convert such shares prior to the redemption date on the terms set forth in Section 5 and the right of the holders of such shares to receive from such bank or trust company upon surrender of certificates therefor the amount payable upon redemption thereof, but without interest. Section 7. Other Redemption Rights. Shares of ESOP Preferred Stock shall be redeemed by the Company at the option of the holder, at any time and from time to time, upon notice to the Company given not less that five (5) Business Days prior to the date fixed by the holder in such notice for such redemption, when and to the extent necessary (i) for such holder to provide for distributions required to be made under, or to satisfy an investment election provided to participants in accordance with, the Plan or (ii) for such holder to make payment of principal, interest or premium due and payable (whether as scheduled or upon acceleration) on the indebtedness of the Plan, the proceeds of which indebtedness were used to purchase shares of ESOP Preferred Stock from the Company, or any other indebtedness incurred by the holder for the benefit of the Plan (but in either case only if to remedy or prevent a default thereunder) at a redemption price per share equal to $47.75, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption. Upon surrender of the shares to be redeemed, such shares shall be redeemed by the Company on the date fixed for redemption and at the redemption price set forth in this Section 7 within ten (10) days after said date of redemption. The holder may require the Company, 15 at the holder's option, to make payment of the redemption price pursuant to this Section 7 in cash or in shares of Common Stock, or in a combination of such shares and cash, any such shares to be valued for such purpose at their Fair Market Value (as defined in paragraph (G) of Section 9 hereof; provided, however, that in calculating their Fair Market Value the Adjustment Period shall be deemed to be the five (5) consecutive trading days preceding the date of redemption). Section 8. Consolidation, Merger, etc. (A) In the event that the Company shall consummate any consolidation or merger or similar transaction, however named, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into stock of any successor or resulting company (including the Company) that constitutes "qualifying employer securities" with respect to a holder of ESOP Preferred Stock within the meaning of Section 409(l) of the Code and Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, as amended, or any successor provisions of law ("qualifying employer securities") (and, if applicable, cash in lieu of fractional shares), the shares of ESOP Preferred Stock of such holder shall in connection therewith be assumed by and shall become preferred stock of such successor or resulting company, having in respect of such company insofar as possible the same preferences, voting rights, qualifications, privileges, limitations, options, conversion or other special rights (including the redemption rights provided by Sections 6, 7 and 8 hereof), that the ESOP Preferred Stock had immediately prior to such transaction, except that after such transaction each share of the ESOP Preferred Stock shall be convertible, otherwise on the terms and conditions provided by Section 5 hereof, into the number and kind of qualifying employer securities (and, if applicable, cash in lieu of fractional shares) so receivable by a holder of the number of shares of Common Stock into which such shares of ESOP Preferred Stock could have been converted immediately prior to such transaction; provided, however, that if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, which election cannot practicably be made by the holders of ESOP Preferred Stock, then the share of ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in kind) receivable by a holder of the number of shares of Common Stock into which such shares of ESOP Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock had failed to exercise any rights of election to receive any kind or amount of stock, securities, cash or other property (other than such qualifying employer securities and, if applicable, cash in lieu of fractional shares) receivable upon consummation of such transaction (provided that, if the kind or amount of qualifying employer securities receivable upon such transaction is not the same for each nonelecting share, then the kind and amount of qualifying employer securities receivable upon such transaction for each nonelecting share shall be the kind and amount so receivable per share by a plurality of the nonelecting shares). The rights of the ESOP Preferred Stock as preferred stock of such successor or resulting company shall successively be subject 16 to adjustments pursuant to Section 9 hereof after any such transaction as nearly equivalent to the adjustments provided for by such section prior to such transaction. The Company shall not consummate any such consolidation, merger or similar transaction unless all then outstanding shares of ESOP Preferred Stock shall be assumed and authorized by the successor or resulting company as aforesaid. (B) In the event that the Company shall consummate any consolidation or merger or similar transaction, however named, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other stock or securities or cash or any other property, or any combination thereof (other than any such consideration which is constituted solely of qualifying employer securities and, if applicable, cash in lieu of fractional shares), the outstanding shares of ESOP Preferred Stock shall, without any action on the part of the Company or any holder thereof (but subject to paragraph (C) of this Section 8), be deemed converted by virtue of such merger, consolidation or similar transaction immediately prior to such consummation into the number of shares of Common Stock into which such shares of ESOP Preferred Stock could have been converted at such time and each share of ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of ESOP Preferred Stock could have been converted immediately prior to such transaction; provided, however, that if by virtute of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, which election cannot practicably be made by the holders of ESOP Preferred Stock, then the shares of ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in kind) receivable by a holder of the number of shares of Common Stock into which such shares of ESOP Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock had failed to exercise any rights of election as to the kind or amount of stock, securities, cash or other property receivable upon consummation of such transaction (provided that, if the kind or amount of stock, securities, cash or other property receivable upon such transaction is not the same for each nonelecting share, then the kind and amount of stock, securities, cash or other property receivable upon such transaction for each nonelecting share shall be the kind and amount so receivable per share by a plurality of the nonelecting shares). (C) In the event the Company shall enter into any agreement providing for any consolidation, merger or similar transaction described in paragraph (B) of this Section 8, then the Company shall as soon as practicable thereafter (and in any event at least ten (10) Business Days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of the ESOP Preferred Stock and each such holder shall have the right to elect, by written notice to the Company, to receive, upon consummation of such transaction (if and when such transaction is consummated), from the Company or the successor of the Company 17 (in lieu of what such holder would otherwise be entitled to receive under paragraph (B) of this Section 8), in redemption and retirement of such ESOP Preferred Stock, a cash payment equal to the amount payable in respect of shares of ESOP Preferred Stock upon liquidation of the Company pursuant to Section 4 hereof. No such notice of redemption shall be effective unless given to the Company prior to the close of business on the fifth Business Day prior to consummation of such transaction, unless the Company or the successor of the Company shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Company prior to the close of business on the fifth Business Day prior to consummation of such transaction. Section 9. Anti-Dilution Adjustments. (A) In the event the Company shall, at any time or from time to time while any of the shares of the ESOP Preferred Stock are outstanding, (i) pay a dividend or make a distribution in respect of the Common Stock in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding shares of Common Stock into a smaller number of shares, in each case whether by reclassification of shares, recapitalization of the Company (including a recapitalization effected by a merger or consolidation to which Section 8 hereof does not apply) or otherwise, then, subject to the provisions of paragraphs (E) and (F) of this Section 9, the Conversion Ratio in effect immediately prior to such action shall be adjusted by multiplying such Conversion Ratio by the fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock outstanding immediately before such event. An adjustment made pursuant to this paragraph 9(A) shall be given effect, upon payment of such a dividend or distribution, as of the record date for the determination of shareholders entitled to receive such dividend or distribution (on a retroactive basis) and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof. (B) In the event that the Company shall, at any time or from time to time while any of the shares of ESOP Preferred Stock are outstanding, issue to holders of shares of Common Stock as a dividend or distribution, including by way of a reclassification of shares or a recapitalization of the Company, any right or warrant to purchase shares of Common Stock (but not including, as such a right or warrant, any security convertible into or exchangeable for shares of Common Stock or any right issued pursuant to the Rights Agreement or any successor rights agreement to the Rights Agreement which is designated as such by the Board of Directors) at a purchase price per share less than the Fair Market Value (as hereinafter defined) of a share of Common Stock on the date of issuance of such right or warrant, then, subject to the provisions of paragraphs (E) and (F) of this Section 9, the Conversion Ratio in effect immediately prior to such issuance shall be adjusted by multiplying such Conversion Ratio by the fraction the numerator of which shall be the sum of (i) the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants and (ii) the maximum number of shares of Common Stock that could be acquired upon exercise in full of all such rights and warrants, and the denominator of which shall be the sum of (i) the number of shares of Common Stock outstanding immediately 18 before such issuance of rights or warrants and (ii) the number of shares of Common Stock which could be purchased at the Fair Market Value of a share of Common Stock at the time of such issuance for the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (C) In the event the Company shall, at any time or from time to time while any of the shares of ESOP Preferred Stock are outstanding, issue, sell or exchange shares of Common Stock (other than pursuant to (i) any right or warrant to purchase or acquire shares of Common Stock (including, as such a right or warrant, any security convertible into or exchangeable for shares of Common Stock), (ii) the Rights Agreement or any successor rights agreement to the Rights Agreement which is designated as such by the Board of Directors, or (iii) any employee or director incentive or benefit plan or arrangement, including any employment, severance or consulting agreement, of the Company or any subsidiary of the Company heretofore or hereafter adopted) for a consideration having a Fair Market Value on the date of such issuance, sale or exchange less than the Fair Market value of such shares on the date of such issuance, sale or exchange, then, subject to the provisions of paragraphs (E) and (F) of this Section 9, the Conversion Ratio in effect immediately prior to such issuance, sale or exchange shall be adjusted by multiplying such Conversion Ratio by the fraction the numerator of which shall be the product of (i) the Fair Market Value of a share of Common Stock on the day immediately preceding the first public announcement of such issuance, sale or exchange multiplied by (ii) the sum of the number of shares of Common Stock outstanding on such day plus the number of shares of Common Stock so issued, sold or exchanged by the Company, and the denominator of which shall be the sum of (i) the Fair Market Value of all the shares of Common Stock outstanding on the day immediately preceding the first public announcement of such issuance, sale or exchange plus (ii) the Fair Market Value of the consideration received by the Company in respect of such issuance, sale or exchange of shares of Common Stock. In the event the Company shall, at any time or from time to time while any shares of ESOP Preferred Stock are outstanding, issue, sell or exchange any right or warrant to purchase or acquire shares of Common Stock (including, as such a right or warrant, any security convertible into or exchangeable for shares of Common Stock), other than any such issuance to holders of shares of Common Stock as a dividend or distribution (including by way of a reclassification of shares or a recapitalization of the Company) and other than pursuant to (i) the Rights Agreement or any successor rights agreement to the Rights Agreement which is designated as such by the Board of Directors or (ii) any employee or director incentive or benefit plan or arrangement (including any employment, severance or consulting agreement) of the Company or any subsidiary of the Company heretofore or hereafter adopted, for a consideration having a Fair Market Value on the date of such issuance, sale or exchange less than the Non-Dilutive Amount (as hereinafter defined), then, subject to the provisions of paragraphs (E) and (F) of this Section 9, the Conversion Ratio in effect immediately prior to such issuance, sale or exchange shall be adjusted by multiplying such Conversion Ratio by the fraction the numerator of which shall be the product of (i) the Fair Market Value of a share of Common Stock on the day immediately preceding the first public announcement of such issuance, sale or exchange, multiplied by (ii) the sum of the number of shares of Common Stock outstanding on such day plus the maximum number of shares of Common Stock which could 19 be acquired pursuant to such right or warrant at the time of the issuance, sale or exchange of such right or warrant (assuming shares of Common Stock could be acquired pursuant to such right or warrant at such time), and the denominator of which shall be the sum of (i) the Fair Market Value of all the shares of Common Stock outstanding on the day immediately preceding the first public announcement of such issuance, sale or exchange, plus (ii) the Fair Market Value of the consideration received by the Company in respect of such issuance, sale or exchange of such right or warrant, plus (iii) the Fair Market Value at the time of such issuance of the consideration which the Company would receive upon exercise in full of all such rights or warrants. (D) In the event the Company shall, at any time or from time to time while any of the shares of ESOP Preferred Stock are outstanding, make an Extraordinary Distribution (as hereinafter defined) in respect of the Common Stock, whether by dividend, distribution, reclassification of shares or recapitalization of the Company (including a recapitalization or reclassification effected by a merger or consolidation to which Section 8 hereof does not apply) or effect a Pro Rata Repurchase (as hereinafter defined) of Common Stock, then, subject to paragraphs (E) and (F) of this Section 9, the Conversion Ratio in effect immediately prior to such Extraordinary Distribution or Pro Rata Repurchase shall be adjusted by multiplying such Conversion Ratio by the fraction the numerator of which shall be the product of (i) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution or Pro Rata Repurchase minus, in the case of a Pro Rata Repurchase, the number of shares of Common Stock repurchased by the Company, multiplied by (ii) the Fair Market Value of a share of Common Stock on the day before the ex dividend date with respect to an Extraordinary Distribution that is a dividend and on the day before the distribution date with respect to an Extraordinary Distribution that is a distribution, or on the Effective Date (as hereinafter defined) of a Pro Rata Repurchase, as the case may be, and the denominator of which shall be the difference between (i) the product of (x) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution or Pro Rata Repurchase multiplied by (y) the Fair Market Value of a share of Common Stock on the day before the ex dividend date with respect to an Extraordinary Distribution that is a dividend and the day before the distribution date with respect to an Extraordinary Distribution that is a distribution other than cash, or on the Effective Date of a Pro Rata Repurchase, as the case may be, minus (ii) the Fair Market Value of the Extraordinary Distribution or the aggregate purchase price of the Pro Rata Repurchase, as the case may be; provided, however, that no Pro Rata Repurchase shall cause an adjustment to the Conversion Ratio unless the amount of all cash dividends and distributions made during the period of twelve months preceding the Effective Date of such Pro Rata Repurchase, when combined with the aggregate amount of all Pro Rata Repurchases including such Pro Rata Repurchase (for this purpose, including only that portion of the aggregate purchase price of each Pro Rata Repurchase which is in excess of the Fair Market Value of the Common Stock repurchased as determined on the Effective Date of each such Pro Rata Repurchase, the Effective Dates of which fall within such twelve month period) exceeds twelve and one-half percent (12 1/2%) of the aggregate Fair Market Value of all shares of Common Stock outstanding on the Effective Date of such Pro Rata Repurchase. The Company shall send each holder of ESOP Preferred Stock (i) notice of its intent 20 to make any dividend or distribution and (ii) notice of any offer by the Company to make a Pro Rata Repurchase, in each case at the same time as, or as soon as practicable after, such offer is first communicated (including by announcement of a record date in accordance with the rules of any stock exchange on which the Common Stock is listed or admitted to trading) to holders of the Common Stock. Such notice shall indicate the intended record date and the amount and nature of such dividend or distribution, or the number of shares subject to such offer for a Pro Rata Repurchase and the purchase price payable by the Company pursuant to such offer, as well as the Conversion Ratio and the number of shares of Common Stock into which a share of ESOP Preferred Stock may be converted at such time. (E) Notwithstanding any other provisions of this Section 9, the Company shall not be required to make any adjustment of the Conversion Ratio unless such adjustment would require an increase or decrease of at least one percent (1.0%) in the Conversation Ratio. Any lesser adjustment shall be carried forward and shall be made no later than the time of, and together with, the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1.0%) in the Conversation Ratio. (F) If the Company shall make any dividend or distribution on the Common Stock or issue any Common Stock, other capital stock or other security of the Company or any rights or warrants to purchase or acquire any such security, which transaction does not result in an adjustment to the Conversion Ratio pursuant to the foregoing provisions of this Section 9, the Board of Directors of the Company may consider, but shall be under no legal obligation to consider, whether such action is of such a nature that an adjustment to the Conversion Ratio should equitably be made in respect of such transaction. If in such case the Board of Directors of the Company determines that an adjustment to the Conversion Ratio should be made, an adjustment shall be made effective as of such date, as determined by the Board of Directors of the Company. The determination of the Board of Directors of the Company as to whether an adjustment to the Conversion Ratio should be made pursuant to the foregoing provisions of this paragraph 9(F), and, if so, as to what adjustment should be made and when, shall be final and binding on the Company and all shareholders of the Company. The Company shall be entitled to make such additional adjustments in the Conversion Ratio, in addition to those required by the foregoing provisions of this Section 9, as shall be necessary in order that any dividend or distribution in shares of capital stock of the Company, subdivision, reclassification or combination of shares of stock of the Company or any recapitalization of the Company shall not be taxable to holders of the Common Stock. (G) For purposes of this designation of series, the following definitions apply: "Extraordinary Distribution" shall mean any dividend or other distribution in respect of the Common Stock (effected while any of the shares of ESOP Preferred Stock are outstanding) of (i) cash and\or (ii) any shares of capital stock of the Company (other than shares of Common Stock), other securities of the Company (other than securities of the type referred to in paragraph (B) of this Section 9), evidences of indebtedness of the Company or any other person or any 21 other property (including shares of any subsidiary of the Company), or any combination thereof, where the aggregate Fair Market Value of such dividend or distribution together with the Fair Market Value of all dividends and distributions made during the preceding period of twelve months, when combined with the aggregate amount of all Pro Rata Repurchases (for this purpose, including only that portion of the aggregate purchase price of each Pro Rata Repurchase which is in excess of the Fair Market Value of the Common Stock repurchased as determined on the Effective Date of each such Pro Rata Repurchase, the Effective Date of which falls within such twelve-month period) having Effective Dates during such twelve-month period, exceeds twelve and one- half percent (12 1/2%) of the aggregate Fair Market Value of all shares of Common Stock outstanding on the day before the ex dividend date with respect to an Extraordinary Distribution that is a dividend and the day before the distribution date with respect to an Extraordinary Distribution that is a distribution. The Fair Market Value of an Extraordinary Distribution for purposes of paragraph (D) of this Section 9 shall be the sum of the Fair Market Value of such Extraordinary Distribution plus the amount of any cash dividends which are not Extraordinary Distributions made during such twelve-month period and not previously included in the calculation of an adjustment pursuant to paragraph (D) of this Section 9. "Fair Market Value" shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Company or any other issuer which are publicly traded, the average of the Current Market Prices (as hereinafter defined) of such shares or securities for each day of the Adjustment Period (as hereinafter defined). "Current Market Price" of publicly traded shares of Common Stock or any other class of capital stock or other security of the Company or any other issuer for a day shall mean the last reported sales price, regular way, or, in case no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange Composite Tape or, if such security is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which such security is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the NASDAQ National Market System or, if such security is not quoted on such National Market System, the average of the closing bid and asked prices on each such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in such security selected for such purpose by the Board of Directors of the Company or a committee thereof, in each case, on each trading day during the Adjustment Period. "Adjustment Period" shall mean the period of five (5) consecutive trading days, selected by the Board of Directors of the Company or a committee thereof, during the 20 trading days preceding, and including, the date as of which the Fair Market Value of a security is to be determined. The "Fair Market Value" of any security which is not so publicly traded or of any other property shall mean the fair value thereof as determined by an independent investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Board of Directors of the Company or a committee thereof, or, if no such investment banking or appraisal firm is in the good faith judgment of the Board of Directors or such committee available or necessary to make 22 such determination, as determined in good faith by the Board of Directors of the Company or such committee. "Non-Dilutive Amount" in respect of an issuance, sale or exchange by the Company of any right or warrant to purchase or acquire shares of Common Stock (including any security convertible into or exchangeable for shares of Common Stock) shall mean the difference between (i) the product of (a) the Fair Market Value of a share of Common Stock on the trading day preceding the first public announcement of such issuance, sale or exchange, multiplied by (b) the maximum number of shares of Common Stock which could be acquired on such date upon the exercise in full of such rights and warrants (including upon the conversion or exchange of all such convertible or exchangeable securities), whether or not exercisable (or convertible or exchangeable) at such date, minus (ii) the aggregate amount payable pursuant to such right or warrant to purchase or acquire such maximum number of shares of Common Stock; provided, however, that in no event shall the Non-Dilutive Amount be less than zero. For purposes of the foregoing sentence, in the case of a security convertible into or exchangeable for shares of Common Stock, the amount payable pursuant to a right or warrant to purchase or acquire shares of Common Stock shall be the Fair Market Value of such security on the date of the issuance, sale or exchange of such security by the Company. "Pro Rata Repurchase" shall mean any purchase of shares of Common Stock by the Company or any subsidiary thereof, whether for cash, shares of capital stock of the Company, other securities of the Company, evidences of indebtedness of the Company or any other person or any other property (including shares of a subsidiary of the Company), or any combination thereof, effected while any of the shares of ESOP Preferred Stock are outstanding, pursuant to any tender offer or exchange offer subject to Section 13(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision of law, or pursuant to any other offer available to substantially all holders of Common Stock, other than any such purchase effected prior to June 15, 1990 with the proceeds of the sale of the ESOP Preferred Stock; provided, however, that no purchase of shares by the Company or any subsidiary thereof made in open market transactions shall be deemed a Pro Rata Repurchase. For purposes of this paragraph 9(G), shares shall be deemed to have been purchased by the Company or any subsidiary thereof "in open market transactions" if they have been purchased substantially in accordance with Rule 10b-18 as in effect under the Exchange Act on the date shares of ESOP Preferred Stock are initially issued by the Company, or in accordance with such procedures and on such other terms and conditions as the Board of Directors of the Company or a committee thereof shall from time to time have determined are reasonably designed to prevent such purchases from having a material effect on the trading market for the Common Stock. The "Effective Date" of a Pro Rata Repurchase shall mean the applicable expiration date (including all extensions thereof) of any tender offer or exchange offer which is a Pro Rata Repurchase, or the date of purchase with respect to any Pro Rata Repurchase which is not a tender offer or exchange offer. 23 (H) Whenever an adjustment to the Conversion Ratio and the related voting rights of the ESOP Preferred Stock is required pursuant to this designation of series, the Company shall forthwith place on file with the transfer agent for the Common Stock and the ESOP Preferred Stock if there is one, and with the Secretary of the Company, a statement signed by two officers of the Company stating the adjusted Conversion Ratio determined as provided herein, and the voting rights (as appropriately adjusted), of the ESOP Preferred Stock. Such statement shall set forth in reasonable detail such facts as shall be necessary to show the reason and the manner of computing such adjustment, including any determination of Fair Market Value involved in such computation. Promptly after each adjustment to the Conversion Ratio and the related voting rights of the ESOP Preferred Stock, the Company shall mail a notice thereof to each holder of shares of the ESOP Preferred Stock. Section 10. Ranking; Attributable Capital and Adequacy of Surplus; Retirement of Shares. (A) The ESOP Preferred Stock shall rank senior to the Series One Preferred Stock of the Company and the Common Stock as to the payment of dividends and the distribution of assets on liquidation, dissolution and winding up of the Company. (B) The capital of the Company allocable to the ESOP Preferred Stock for purposes of the Pennsylvania Business Corporation Law (the "Corporation Law") shall be $1.00 per share. In addition to any vote of shareholders required by law, the vote of the holders of a majority of the outstanding shares of ESOP Preferred Stock voting as a series shall be required to increase the par value of the Common Stock or otherwise increase the capital of the Company allocable to the Common Stock for the purpose of the Corporation Law if, as a result thereof, the net assets of the Company for purposes of the Corporation Law would be less than the amount of ESOP Dividends that would accrue on the then outstanding shares of ESOP Preferred Stock during the following three years. (C) Any shares of ESOP Preferred Stock acquired by the Company by reason of the conversion or redemption of such shares as provided by this designation of series, or otherwise so acquired, shall be retired as shares of ESOP Preferred Stock and restored to the status of authorized but unissued shares of Class A Preferred Stock, without par value, of the Company, undesignated as to series, and may thereafter be reissued as part of a new series of such Class A Preferred Stock as permitted by law. Section 11. Miscellaneous. (A) All notices referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three (3) Business Days after the mailing thereof if sent by registered mail (unless first-class mail shall be specifically permitted for such notice under the terms of this designation of series) with postage prepaid, addressed: (i) if to the Company, to its office at Liberty and Charlotte Streets, Lancaster, Pennsylvania 17604, Attention: Corporate Secretary, or to the transfer agent for the ESOP Preferred Stock or other 24 agent of the Company designated as permitted by this designation of series or (ii) if to any holder of the ESOP Preferred Stock or Common Stock, as the case may be, to such holder at the address of such holder as listed in the stock record books of the Company (which may include the records of any transfer agent for the ESOP Preferred Stock or Common Stock, as the case may be) or (iii) to such other address as the Company or any such holder, as the case may be, shall have designated by notice similarly given. (B) The term "Common Stock" as used in this designation of series means the Company's Common Stock of the par value of $1.00 per share, as the same exists at the date of filing of a Statement Affecting Class or Series with the Pennsylvania Department of State relating to ESOP Preferred Stock pursuant to the Corporation Law, or any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event that, at any time as a result of an adjustment made pursuant to Section 9 of this designation of series, the holder of any share of the ESOP Preferred Stock upon thereafter surrendering such shares for conversion shall become entitled to receive any shares or other securities of the Company other than shares of Common Stock, the Conversion Ratio in respect of such other shares or securities so receivable upon conversion of shares of ESOP Preferred Stock shall thereafter be adjusted, and shall be subject to further adjustment from time to time, in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in Section 9 hereof, and the provisions of Section 1 through 8 and 10 and 11 of this designation of series with respect to the Common Stock shall apply on like or similar terms to any such other shares or securities. (C) The Company shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of ESOP Preferred Stock or shares of Common Stock or other securities issued on account of ESOP Preferred Stock pursuant hereto or certificates representing such shares or securities. The Company shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issuance or delivery of shares of ESOP Preferred Stock or Common Stock or other securities in a name other than that in which the shares of ESOP Preferred Stock with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any person with respect to any such shares or securities other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the person otherwise entitled to such issuance, delivery or payment has paid to the Company the amount of any such tax or has established to the satisfaction of the Company, that such tax has been paid or is not payable. (D) In the event that a holder of shares of ESOP Preferred Stock shall not by written notice designate the name in which shares of Common Stock to be issued upon conversion of such shares should be registered or to whom payment upon redemption of shares of ESOP Preferred Stock should be made or the address to which the certificate or certificates representing such shares, or such payment, should be sent, the Company shall be entitled to register such shares, 25 and make such payment, in the name of the holder of such ESOP Preferred Stock as shown on the records of the Company and to send the certificate or certificates representing such shares, or such payment, to the address of such holder shown on the records of the Company. (E) Unless otherwise provided in the Articles of Incorporation, as amended, of the Company, all payments in the form of dividends, distributions on voluntary or involuntary dissolution, liquidation or winding up or otherwise made upon the shares of ESOP Preferred Stock and any other stock ranking on a parity with the ESOP Preferred Stock with respect to such dividend or distribution shall be made pro rata, so that amounts paid per share on the ESOP Preferred Stock and such other stock shall in all cases bear to each other the same ratio that the required dividends, distributions or payments, as the case may be, then payable per share on the shares of the ESOP Preferred Stock and such other stock bear to each other. (F) The Company may appoint, and from time to time discharge and change, a transfer agent for the ESOP Preferred Stock. Upon any such appointment or discharge of a transfer agent, the Company shall send notice thereof by first- class mail, postage prepaid, to each holder of record of ESOP Preferred Stock. 6TH. A. In addition to the right of the Board of Directors under law to remove a director for cause, and subject to the rights of the holders of any series of preferred stock then outstanding, any director, any class of directors, or the entire Board of Directors may be removed from office by a vote of the shareholders at any time, with or without assigning any cause, but only if shareholders entitled to cast at least eighty percent (80%) of the votes which all shareholders would be entitled to cast at an annual election of directors or of such class shall vote in favor of such removal; provided, however, that no individual director shall be removed (unless the entire Board of Directors or any class of directors shall be removed) if the votes cast against such removal would be sufficient, if voted cumulatively for such director, to elect him or her to the class of directors of which he or she is a member. B. Notwithstanding any other provision of law, the Articles of Incorporation or the bylaws of the Corporation, the affirmative vote of shareholders entitled to cast at least eighty percent (80%) of the votes which all shareholders would be entitled to cast at an annual election of directors, voting together as a single class, shall be required to amend, alter, or repeal, or to adopt any provision inconsistent with, this Article 6th or any provision of the bylaws of the Corporation relating to the number of directors, the classification of directors, and/or the filling of vacancies on the Board of Directors; provided, however, that this Paragraph B shall not apply to and such eighty percent (80%) vote shall not be required for any such amendment, repeal, or adoption unanimously approved by all of the Directors of the Corporation. 7TH. A. In addition to any affirmative vote required by law, the Articles of Incorporation or the bylaws of the Corporation, Business Combinations with an Interested Shareholder shall require the affirmative vote of the shareholders entitled to cast at least a majority of the votes which 26 all shareholders other than the Interested Shareholder would be entitled to cast in an annual election of directors, without counting the vote of the Interested Shareholder, voting together as a single class; provided, however, that such affirmative vote shall not be required and such Business Combination shall require only the affirmative vote required by law, the Articles of Incorporation or the bylaws of the Corporation if: (1) The Business Combination shall have been approved by a majority of Disinterested Directors; or (2) All of the following six conditions shall have been met: (a) The transaction constituting the Business Combination shall provide for a consideration to be received by holders of Common Stock in exchange for their stock, and the aggregate amount of the cash consideration and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the highest of the following: (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes, and soliciting dealers' fees) paid by the Interested Shareholder in order to acquire any shares of Common Stock beneficially owned by the Interested Shareholder which were acquired (I) within the two-year period immediately prior to the first public announcement of the proposed Business Combination (the "Announcement Date") or (II) in the transaction in which the Interested Shareholder became an Interested Shareholder, whichever is higher; (ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Shareholder became an Interested Shareholder (the "Determination Date"), whichever is higher; (iii) the highest Fair Market Value per share of Common Stock for the two years immediately preceding the Announcement Date, where the closing sale price is determined for each trading day without reference to the 30-day period; and (iv) (if applicable) the price per share equal to the Fair Market Value per share of Common Stock determined pursuant to clause (ii) preceding, multiplied by the ratio of (I) the highest per share price (including any brokerage commissions, transfer taxes, and soliciting dealers' fees) paid in order to acquire any shares of Common Stock beneficially owned by the Interested Shareholder which were acquired within the two-year period immediately prior to the Announcement Date to (II) the Fair Market Value per share of Common Stock on the first day in such two-year period on which the Interested Shareholder beneficially owned any shares of Common Stock. 27 All per share prices shall be adjusted to reflect any intervening stock splits, stock dividends, and reverse stock splits. (b) If the transaction constituting the Business Combination shall provide for a consideration to be received by holders of any class of outstanding Voting Stock other than Common Stock, the aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of such Voting Stock shall be at least equal to the highest of the following (it being intended that the requirements of this clause (2)(b) shall be required to be met with respect to every such class of outstanding Voting Stock whether or not the Interested Shareholder beneficially owns any shares of a particular class of such Voting Stock): (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes, and soliciting dealers' fees) paid by the Interested Shareholder in order to acquire any shares of such class of Voting Stock beneficially owned by the Interested Shareholder which were acquired (I) within the two-year period immediately prior to the Announcement Date or (II) in the transaction in which the Interested Shareholder became an Interested Shareholder, whichever is higher; (ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any liquidation, dissolution, or winding up of the Corporation; (iii) the highest Fair Market Value per share of such class of Voting Stock for the two years immediately preceding the Announcement Date, where the closing sale price is determined for each trading day without reference to the 30-day period; (iv) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher; and (v) (if applicable) the price per share equal to the Fair Market Value per share of such class of Voting Stock determined pursuant to clause (iv) immediately preceding, multiplied by the ratio of (I) the highest per share price (including any brokerage commissions, transfer taxes, and soliciting dealers' fees) paid in order to acquire any shares of such class of Voting Stock beneficially owned by the Interested Shareholder which were acquired within the two-year period immediately prior to the Announcement Date to (II) the Fair Market Value per share of such class of Voting Stock on the first day in such two-year period on which the Interested Shareholder beneficially owned any share of such class of Voting Stock. All per share prices shall be adjusted to reflect any intervening stock splits, stock dividends, and reverse stock splits. 28 (c) The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as was previously paid in order to acquire shares of such class of Voting Stock which are beneficially owned by the Interested Shareholder. If the Interested Shareholder beneficially owns shares of any class of Voting Stock which were acquired with varying forms of consideration, the form of consideration to be received by holders of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock beneficially owned by the Interested Shareholder. (d) After such Interested Shareholder has become an Interested Shareholder and prior to the consummation of such Business Combination: (i) except as approved by a majority of Disinterested Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding preferred stock; (ii) there shall have been (I) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors, and (II) an increase in such annual rate of dividends (as necessary to prevent any such reduction) in the event of any reclassification (including any reverse stock split), recapitalization, reorganization, or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Disinterested Directors; and (iii) such Interested Shareholder shall not have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction in which such Interested Shareholder became an Interested Shareholder. (e) After such Interested Shareholder has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges, or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with a Business Combination or otherwise. (f) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules, or regulations) shall be mailed to public shareholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether 29 or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). B. For the purposes of this Article 7th: (1) The term "Business Combination" shall mean: (a) any merger or consolidation of the Corporation or any Subsidiary with (i) any Interested Shareholder or with (ii) any other corporation (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate or Associate of an Interested Shareholder; (b) any sale, lease, exchange, mortgage, pledge, transfer, or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder and/or any Affiliate or Associate of any Interested Shareholder of all or a Substantial Part of the assets of the corporation or any Subsidiary thereof; (c) the issuance, exchange, sale, or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Shareholder and/or any Affiliate or Associate of any Interested Shareholder in exchange for cash, securities, or other consideration (or a combination thereof) having an aggregate Fair Market Value of, equal to or in excess of a Substantial Part of the assets of the Corporation; (d) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder; or (e) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity securities or securities convertible into equity securities of the Corporation or any Subsidiary which is directly or indirectly owned by an Interested Shareholder or any Affiliate or Associate of any Interested Shareholder. (2) The term "person" shall mean any individual, firm, corporation, or other entity and shall include any group comprised of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement, or understanding, directly or indirectly, for the purpose of acquiring, holding, voting, or disposing of Voting Stock of the Corporation. 30 (3) The term "Interested Shareholder" at any particular time shall mean any person (other than the Corporation or any Subsidiary and other than any profit sharing, employee stock ownership, or other employee benefit plan of the Corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who or which: (a) is at such time the beneficial owner, directly or indirectly, of more than ten percent (10%) of the voting power of the outstanding Voting Stock; (b) was at any time within the two-year period immediately prior to such time the beneficial owner, directly or indirectly, of more than ten percent (10%) of the voting power of the then outstanding Voting Stock; or (c) is at such time an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock which were at any time within the two-year period immediately prior to such time beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended. (4) A person shall be a "beneficial owner" of any shares of Voting Stock: (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; (b) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether or not such right is exercisable immediately) pursuant to any agreement, arrangement, or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement, or understanding; or (c) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement, or understanding for the purpose of acquiring, holding, voting, or disposing of any shares of Voting Stock. (5) For the purposes of determining whether a person is an Interested Shareholder pursuant to Section (B)(3) of this Article 7th the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned by an Interested Shareholder through application of Section (B)(4) immediately preceding but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement, or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise. 31 (6) "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, as in effect on January 1, 1985 (the term "registrant" in said Rule 12b-2 meaning in this case the Corporation). (7) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Shareholder set forth in Section (B)(3) of this Article 7th the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (8) "Disinterested Director" means any member of the Board of Directors of the Corporation who is unaffiliated with, and not a representative of, an Interested Shareholder and who was a member of the Board of Directors prior to the time that the Interested Shareholder became an Interested Shareholder or became a member subsequently to fill a vacancy created by an increase in the size of the Board of Directors and did receive the favorable vote of a majority of the Disinterested Directors in connection with being nominated for election by the shareholders to fill such vacancy or in being elected by the Board of Directors to fill such vacancy, and any successor of a Disinterested Director who is unaffiliated with, and not a representative of, the Interested Shareholder and is recommended or elected to succeed a Disinterested Director by a majority of the disinterested directors then on the Board of Directors. (9) "Fair Market Value" means: (1) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange- Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc., Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board of Directors in good faith with the approval of at least a majority of the Disinterested Directors in the determination made; and (2) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board of Directors in good faith with the approval of at least a majority of the Disinterested Directors in the determination made. (10) In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in Section (A)(2) of this Article 7th shall include the shares of Common Stock and/or the shares of any class of outstanding Voting Stock retained by the holders of such shares. 32 (11) "Substantial Part" of the Corporation shall mean more than ten percent (10%) of the fair market value of the total assets of the Corporation as of the end of its most recent fiscal quarter ending prior to the time the determination is made. (12) The term "Voting Stock" shall mean all outstanding shares of capital stock of the Corporation entitled to vote in an annual election of directors. (13) The term "beneficial owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, as in effect on January 1, 1985. C. A majority of the Disinterested Directors shall have the power and duty to determine for the purposes of this Article 7th, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Article 7th, including without limitation (1) whether a person is an Interested Shareholder, (2) the number of shares of Voting Stock beneficially owned by any person, (3) whether a person is an Affiliate or Associate of another, (4) whether the applicable conditions set forth in Section (A)(2) of this Article 7th have been met with respect to any Business Combination, and (5) whether the assets which are the subject of any Business Combination equal or exceed, or whether the consideration to be received from the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination equals or exceeds, a Substantial Part of the assets of the Corporation. Any such determination made in good faith shall be binding and conclusive on all parties. D. Nothing contained in Article 7th shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. E. Unless otherwise clear from the context, all terms used in this Article 7th shall have the meanings given to them in this Article 7th. The masculine gender shall include the feminine and neuter genders, and vice versa; and the singular shall include the plural, and vice versa. F. Notwithstanding any other provisions of law, the Articles of Incorporation or the bylaws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of shareholders entitled to cast at least eighty percent (80%) of the votes which all shareholders would be entitled to cast at an annual election of directors, voting together as a single class, shall be required to amend, alter, or repeal, or to adopt any provision inconsistent with, this Article 7th. 33 11/90J 34 EX-4.A 4 RIGHTS AGREEMENT ARMSTRONG WORLD INDUSTRIES, INC. and MORGAN GUARANTY TRUST COMPANY OF NEW YORK Rights Agent ---------------- Rights Agreement Dated as of March 21, 1986 ------------------------------------------- TABLE OF CONTENTS
Section Page - ------- ---- 1 Certain Definitions................................................. 1 2 Appointment of Rights Agent......................................... 3 3 Issue of Rights Certificates........................................ 3 4 Form of Rights Certificates......................................... 4 5 Countersignature and Registration................................... 4 6 Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.......... 5 7 Exercise of Rights; Purchase Price; Expiration Date of Rights....... 5 8 Cancellation and Destruction of Rights Certificates................. 6 9 Reservation and Availability of Capital Stock....................... 7 10 Preferred Stock Record Date......................................... 7 11 Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights......................................................... 8 12 Certificate of Adjusted Purchase Price or Number of Shares.......... 13 13 Consolidation, Merger or Sale or Transfer of Assets or Earning Power............................................................. 13 14 Fractional Rights and Fractional Shares............................. 14 15 Rights of Action.................................................... 15 16 Agreement of Rights Holders......................................... 15 17 Rights Certificate Holder Not Deemed a Stockholder.................. 16 18 Concerning the Rights Agent......................................... 16 19 Merger or Consolidation or Change of Name of Rights Agent........... 16 20 Duties of Rights Agent.............................................. 16 21 Change of Rights Agent.............................................. 18 22 Issuance of New Rights Certificates................................. 18 23 Redemption and Termination.......................................... 18 24 Notice of Certain Events............................................ 19 25 Notices............................................................. 20 26 Supplements and Amendments.......................................... 20 27 Successors.......................................................... 20
i
Section Page ------- ---- 28 Determinations and Actions by the Board of Directors, etc......... 21 28 Benefits of this Agreement........................................ 21 30 Severability...................................................... 21 31 Governing Law..................................................... 21 32 Counterparts...................................................... 21 33 Descriptive Headings.............................................. 21
Exhibit A -- Certificate of Designation, Preferences and Rights Exhibit B -- Form of Rights Certificate Exhibit C -- Summary of Rights to Purchase Preferred Stock ii RIGHTS AGREEMENT RIGHTS AGREEMENT, dated as of March 21, 1986 (the "Agreement"), between Armstrong World Industries, Inc., a Pennsylvania corporation (the "Company"), and Morgan Guaranty Trust Company of New York, a New York banking corporation (the "Rights Agent"). WITNESSETH WHEREAS, on March 11, 1986 (The "Rights Declaration Date"), the Board of Directors of the Company authorized and declared a distribution of one Right for each share of common stock, par value $1.00 per share, of the Company (the "Common Stock") outstanding at the close of business on March 21, 1986 (the "Record Date"), and has authorized the issuance of one Right (as such number may hereinafter be adjusted pursuant to the provisions of Section 11(p) hereof) for each share of Common Stock of the Company issued between the Record Date (whether originally issued or delivered from the Company's treasury) and the Distribution Date or the Expiration Date, whichever shall occur first, each Right initially representing the right to purchase one one-hundredth of a share of Series One of Class A Preferred Stock of the Company having the rights, powers and preferences set forth in the form of Certificate of Designation, Preferences and Rights attached hereto as Exhibit A, upon the terms and subject to the conditions hereinafter set forth (the "Rights"); NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth and intending to be legally bound hereby, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Agreement, the following ------------------- terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of outstanding shares of Voting Stock representing 20% or more of the Voting Power, but shall not include the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan. (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended and in effect on the date of this Agreement (the "Exchange Act"). (c) A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own," any securities: (i) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the "Beneficial -------- Owner" of, or to "beneficially own," (A) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange, or (B) securities issuable upon exercise of the Rights at any time prior to the occurrence of a Triggering Event, or (C) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event which Rights were acquired by such Person or any of such Person's Affiliates or Associates prior to the Distribution Date or pursuant to Section 3(a) or Section 22 hereof (the "Original Rights") or pursuant to Section 11(i) in connection with an adjustment made with respect to any Original Rights; (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that -------- a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any security under this subparagraph (ii) as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) is not also then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or 1 (iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subparagraph (ii) of this paragraph (c)) or disposing of any voting securities of the Company. (d) "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (e) "Close of business" on any given date shall mean 5:00 P.M., New York City time, on such date; provided, however, that if such date is not a Business -------- Day it shall mean 5:00 P.M., New York City time, on the next succeeding Business Day. (f) "Common Stock" shall mean the common stock, par value $1.00 per share, of the Company, except that "Common Stock" when used with reference to any Person other than the Company shall mean the capital stock of such Person with the greatest aggregate voting power, or the equity securities or other equity interest having power to control or direct the management, of such Person. (g) "Disinterested Director" shall mean (i) any member of the Board of Directors of the Company, while such Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and was a member of the Board prior to the time that the Acquiring Person became an Acquiring Person, or (ii) any Person who subsequently becomes a member of the Board to fill a vacancy created by an increase in the size of the Board, while such Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, if such Person's nomination for election by the shareholders or election to the Board is recommended or approved by a majority of the Disinterested Directors or (iii) any successor of a Disinterested Director who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, if such Person's nomination for election by the shareholders or election to the Board is recommended or approved by a majority of the Disinterested Directors. (h) "Person" shall mean any individual, firm, corporation, partnership or other entity. (i) "Preferred Stock" shall mean shares of Series One of Class A Preferred Stock, no par value, of the Company. (j) "Section 11(a)(ii) Event" shall mean any event described in Section 11(a)(ii)(A) or (B) hereof. (k) "Section 13 Event" shall mean any event described in clauses (x), (y) or (z) of Section 13(a) hereof. (l) "Stock Acquisition Date" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such. (m) "Subsidiary" shall mean, with reference to any Person, any corporation of which an amount of voting securities sufficient to elect at least a majority of the directors of such corporation is beneficially owned, directly or indirectly, by such Person, or otherwise controlled by such Person. (n) "Triggering Event" shall mean any Section 11(a)(ii) Event or Section 13(a) Event. (o) "Voting Power" shall mean, at any particular point in time, the total number of votes that all holders of the then outstanding shares of capital stock of the Company would be entitled to cast in an annual election of the directors of the Company, voting together as a single class. (p) "Voting Stock" shall mean Common Stock of the Company and all other equity securities of the Company that would entitle the holders thereof to cast votes in an election of directors of the Company. 2 Section 2. Appointment of Rights Agent. The Company hereby appoints the --------------------------- Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable. Section 3. Issue of Rights Certificates. ---------------------------- (a) Until the earlier of (i) the close of business on the tenth day after the Stock Acquisition Date (or, if the tenth day after the Stock Acquisition Date occurs before the Record Date, the close of business on the Record Date), or (ii) the close of business on the tenth business day after the date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Rule 14e-2(a) of the General Rules and Regulations under the Exchange Act, if upon consummation thereof, such Person would be the Beneficial Owner of shares of Voting Stock representing 28% or more of the Voting Power (the earlier of (i) and (ii) being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for the Common Stock registered in the names of the holders of the Common Stock (which certificates for Common Stock shall be deemed also to be certificates for Rights) and not by separate certificates, and (y) the Rights will be transferable only in connection with the transfer of the underlying shares of Common Stock (including a transfer to the Company). As soon as practicable after the Distribution Date, the Rights Agent will send by first-class, insured, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, one or more right certificates, in substantially the form of Exhibit B hereto (the "Rights Certificates"), evidencing one Right for each share of Common Stock so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section 11(p) hereof, at the time of distribution of the Right Certificates, the Company shall make the necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates. (b) As promptly as practicable following the Record Date, the Company will send a copy of a Summary of Rights, in substantially the form attached hereto as Exhibit C (the "Summary of Rights"), by first-class, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for the Common Stock outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates for the Common Stock and the registered holders of the Common Stock shall also be the registered holders of the associated Rights. Until the earlier of the Distribution Date or the Expiration Date (as such term is defined in Section 7 hereof), the transfer of any certificates representing shares of Common Stock in respect of which Rights have been issued shall also constitute the transfer if the Rights associated with such shares of Common Stock. (c) Rights shall be issued in respect of all shares of Common Stock which are issued after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date. Certificates representing such shares of Common Stock shall also be deemed to be certificates for Rights, and shall bear the following legend: This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between Armstrong World Industries, Inc. (the "Company") and Morgan Guaranty Trust Company of New York (the "Rights Agent") dated as of March 21, 1986 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail or cause to be mailed to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associates thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Persons or by any subsequent holder, may become null or void. Rights will expire March 21, 1996 unless earlier redeemed as described in the Rights Agreement. 3 With respect to such certificates containing the foregoing legend, until the earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone and registered holders of Common Stock shall also be the registered holders of the associated Rights, and the transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificates. Section 4. Form of Rights Certificates. --------------------------- (a) The Rights Certificates (and the forms of election to purchase and of assignment to be printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such number of one one-hundredths of a share of Preferred Stock as shall be set forth therein at the price set forth therein (such exercise price per one one-hundredth of a share being hereinafter called the "Purchase Price"), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein. (b) Any Rights Certificate issued pursuant to Section 3(a) or Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom such Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has a primary purpose or effect avoidance of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain (to the extent feasible) the following legend: The Rights represented by this Rights Certificate are or were beneficially owned by a Person who was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement). Accordingly, this Rights Certificate and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) of such Agreement. Section 5. Countersignature and Registration. --------------------------------- (a) The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, its President, any Vice-President or its Treasurer, either manually or by facsimile signature, and shall have affixed thereto the Company's seal or a facsimile thereof which shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Rights Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Rights Certificates had not ceased to be such officer of the Company; and any Rights Certificates may be signed on behalf of the Company by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office or offices designated as the appropriate place for surrender of Rights Certificates upon exercise or transfer, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates, the Certificate Number and the date of each of the Rights Certificates. 4 Section 6. Transfer, Split Up, Combination and Exchange of Rights ------------------------------------------------------ Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates. - ---------------------------------------------------------------------- (a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the Expiration Date, any Rights Certificate or Certificates may be transferred, split up, combined or exchanged for another Rights Certificate or Certificates, entitling the registered holder to purchase a like number of one one-hundredths of a share of Preferred Stock (or, following a Triggering Event, Common Stock, other securities, cash or other assets, as the case may be) as the Rights Certificate or Certificates surrendered then entitled such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate or Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Certificates to be transferred, split up, combined or exchanged at the principal office or offices of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights Certificates. (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. ------------------------------------------------------------- (a) Subject to Section 7(e) hereof, the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein including, without limitation, the restrictions on exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part at any time after the Distribution Date upon surrender of the Rights Certificate, with the form of election to purchase and the certificate on the reverse side thereof duly executed, to the Rights Agent at the principal office or offices of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price with respect to the total number of one one-hundredths of a share of Preferred Stock (or other securities, cash or other assets, as the case may be) as to which such surrendered Rights are then exercisable, at or prior to the earlier of (i) the close of business on March 21, 1996 (the "Final Expiration Date"), or (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the earlier of (i) and (ii) being herein referred to as the "Expiration Date"). (b) The Purchase Price for each one one-hundredth of a share of Preferred Stock pursuant to the exercise of a Right shall initially be $175, and shall be subject to adjustment from time to time as provided in Sections 11 and 13(a) hereof and shall be payable in accordance with paragraph (c) below (the "Purchase Price"). (c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase and the certificate duly executed, accompanied by payment, with respect to each Right so exercised, of the Purchase Price per one one-hundredth of a share of Preferred Stock (or other shares, securities, cash or other assets, as the case may be) to be purchased as set forth below and an amount equal to any applicable transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any transfer agent of the shares of Preferred Stock (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the total number of one one-hundredths of a share of Preferred Stock to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the total number of shares of Preferred Stock issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of one one-hundredths of a share of Preferred Stock as are to be purchased (in which case certificates for the shares of Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) 5 and the Company will direct the depositary agent to comply with such request, (ii) requisition from the Company the amount of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver such cash, if any, to or upon the order of the registered holder of such Rights Certificate. The payment of the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof) may be made (x) in cash or by certified bank check or money order payable to the order of the Company, or (y) if the company shall in its sole discretion so consent, by delivery of a certificate or certificates (with appropriate stock powers executed in blank attached thereto) evidencing a number of shares of Common Stock equal to the then Purchase Price divided by the closing price (as determined pursuant to Section 11(d) hereof) per share of Common Stock on the Trading Date immediately preceding the date of such exercise. In the event that the Company is obligated to issue other securities (including Common Stock) of the Company, pay cash and/or distribute other property pursuant to Section 11(a) hereof, the Company will make all arrangements necessary so that such other securities, cash and/or other property are available for distribution by the Rights Agent, if and when appropriate. (d) In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of, the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e), shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to insure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but shall have no liability to any holder of Rights Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise, and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Section 8. Cancellation and Destruction of Rights Certificates. All Rights --------------------------------------------------- Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Rights Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. 6 Section 9. Reservation and Availability of Capital Stock. --------------------------------------------- (a) The Company convenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock (and, following the occurrence of a Triggering Event, out of its authorized and unissued shares of Common Stock and/or other securities or out of its authorized and issued shares held in its treasury), the number of shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) that, as provided in this Agreement including Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of all outstanding Rights. (b) So long as the shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) issuable and deliverable upon the exercise of the Rights may be listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. (c) The Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a Section 11(a)(iii) Event on which the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with Section 11(a)(iii) hereof, or as soon as is required by law following the Distribution Date, as the case may be, a registration statement under the Securities Act of 1933 (the "Act"), with respect to the securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities, and (B) the date of the expiration of the Rights. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a period of time not to exceed ninety (90) days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction shall have been obtained. (d) The Company convenants and agrees that it will take all such action as may be necessary to ensure that all one one-hundredths of a share of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable. (e) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Rights Certificates and of any certificates for a number of one one-hundredths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or the issuance or delivery of a number of one one-hundredths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) in respect of a name other than that of, registered holder of the Rights Certificates evidencing Rights surrendered for exercise or to issue or deliver any certificates for a number of one one-hundredths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) in a name other than that of the registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. Section 10. Preferred Stock Record Date. Each person in whose name any --------------------------- certificate for a number of one one-hundredths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of such fractional shares of Preferred Stock (or Common Stock and/or other securities, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all applicable transfer taxes) was made; provided, however, that if the -------- date of such surrender and payment is a date upon which the Preferred Stock (or Common Stock and/or 7 other securities, as the case may be) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares (fractional or otherwise) on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate shall not be entitled to any rights of a stockholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section 11. Adjustment of Purchase Price, Number and Kind of Shares or ---------------------------------------------------------- Number of Rights. The Purchase Price, the number and kind of shares covered by - ---------------- each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a)(i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Stock payable in shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller number of shares, or (D) issue any shares of its capital stock in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of Preferred Stock or capital stock, as the case may be, issuable on such date, shall be proportionately adjusted so that the holder of any Rights exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect, the aggregate number and kind of shares of Preferred Stock or capital stock, as the case may be, which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Stock transfer books of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs which would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof. (ii) In the event: (A) any Acquiring Person or any Associate or Affiliate of any Acquiring Person, at any time after the date of this Agreement, directly or indirectly, shall merge into the Company or otherwise combine with the Company and the Company shall be the continuing or surviving corporation of such merger or combination and the Common Stock of the Company shall remain outstanding and unchanged, or (B) any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan), alone or together with its Affiliates and Associates, shall, at any time after the Rights Declaration Date, become the Beneficial Owner of shares of Voting Stock representing 28% or more of the Voting Power, other than pursuant to any transaction set forth in Section 13(a) hereof. then, promptly following five (5) days after the date of the occurrence of an event described in Section 11(a)(ii)(B) hereof and promptly following the occurrence of an event described in Section 11(a)(ii)(A) hereof, proper provision shall be made so that each holder of a Right (except as provided below and in Section 7(e) hereof) shall thereafter have the right to receive upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, in lieu of a number of one one-hundredths of a share of Preferred Stock, such number of shares of Common Stock of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the then number of one one-hundredths of a share of Preferred Stock for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event, and (y) dividing that product (which, following such first occurrence, shall thereafter be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by 50% of the current market price (determined pursuant to Section 11(d) hereof) per share of Common Stock on the date of such first occurrence (such number of shares hereinafter referred to as the "Adjustment Shares"). 8 (iii) In the event that the number of shares of Common Stock which are authorized by the Company's Articles of Incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights are not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) of this Section 11(a), the Company shall: (A) determine the excess of (1) the value of the Adjustment Shares issuable upon the exercise of a Right (the "Current Value") over (2) the Purchase Price (such excess, the "Spread"), and (B) with respect to each Right, make adequate provision to substitute for the Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or other equity securities of the Company (including, without limitation, shares, or units of shares, of preferred stock which the Board of Directors of the Company has deemed to have the same value as shares of Common Stock (such shares of preferred stock, "common stock equivalents")), (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having an aggregate value equal to the Current Value, where such aggregate value has been determined by the Board of Directors of the Company based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company; provided, however, if the Company shall -------- not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company's right of redemption pursuant to Section 23(a) expires (the later of (x) and (y) being referred to herein as the "Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If the Board of Directors of the Company shall determine in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek shareholder approval for the authorization of such additional shares (such period, as it may be extended, the "Substitution Period"). To the extent that the Company determines that same action need be taken pursuant to the first and/or second sentences of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Stock shall be the current market price (as determined pursuant to Section 11(d) hereof) per share of the Common Stock on the Section 11(a)(ii) Trigger Date and the value of any "common stock equivalent" shall be deemed to have the same value as the Common Stock on such date. (b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling them to subscribe for or purchase (for a period expiring within forty-five (45) calendar days after such record date) Preferred Stock (or shares having the same rights, privileges and preferences as the shares of Preferred Stock ("equivalent preferred stock")) or securities convertible into Preferred Stock or equivalent preferred stock at a price per share of Preferred Stock or per share of equivalent preferred stock (or having a conversion price per share, if a security convertible into Preferred Stock or equivalent preferred stock) less than the current market price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of shares of Preferred Stock which the aggregate offering price of the total number of shares of Preferred Stock and/or equivalent preferred stock so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase as such current market price, and the denominator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of additional shares of Preferred Stock and/or equivalent preferred stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid by delivery of consideration part or all of which may be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Shares of Preferred Stock 9 owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be if effect if such record date had not been fixed. (c) In case the Company shall fix a record date for distribution to all holders of Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness, cash (other than a regular quarterly cash dividend out of the earnings or retained earnings of the Company), assets (other than a dividend payable in Preferred Stock, but including any dividend payable in stock other than Preferred Stock) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the current market price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to a share of Preferred Stock and the denominator of which shall be such current market price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Purchase Price shall be adjusted to be the Purchase Price which would have been in effect if such record date had not been fixed. (d)(i) For the purpose of any computation hereunder, other than computations made pursuant to Section 11(a)(iii) hereof, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the thirty (30) consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date, and for purposes of computations made pursuant to Section 11(a)(iii) hereof, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the ten (10) consecutive Trading Days immediately following such date; provided, -------- however, that in the event that the current market price per share of the Common Stock is determined during a period following the announcement by the issuer of such Common Stock of (A) a dividend or distribution on such Common Stock payable in shares of such Common Stock or securities convertible into shares of such Common Stock (other than the Rights), or (B) any subdivision, combination or reclassification of such Common Stock, and prior to the expiration of the requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth above, after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the "current market price" shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last sale price, regular way or in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the shares of Common Stock are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or, if on any such date the shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined in good faith by the Board of Directors of the Company shall be used. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded, "current market price" per share shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. 10 (ii) For the purpose of any computation hereunder, the "current market price" per share of Preferred Stock shall be determined in the same manner as set forth above for the Common Stock in clause (i) of this Section 11(d) (other than the last sentence thereof). If the current market price per share of Preferred Stock cannot be determined in the manner provided above or if the Preferred Stock is not publicly held or listed or traded in a manner described in clause (i) of this Section 11(d), the "current market price" per share of Preferred Stock shall be conclusively deemed to be an amount equal to 100 (as such number may be appropriately adjusted for such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock occurring after the date of this Agreement) multiplied by the current market price per share of the Common Stock. If neither the Common Stock nor the Preferred Stock is publicly held or so listed or traded, "current market price" per share of the Preferred Stock shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. For all purposes of this Agreement, the "current market price" of one-hundredth of a share of Preferred Stock shall be equal to the "current market price" of one share of Preferred Stock divided by 100. (e) Anything-herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) - -------- are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten-thousandth of a share of Common Stock or other share of one-millionth of a share of Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three (3) years from the date of the transaction which mandates such adjustment, or (ii) the Expiration Date. (f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock other than Preferred Stock, thereafter the number of such other shares so receivable upon exercise of any Right and the Purchase Price thereof shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Stock contained in Section 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-hundredths of a share of Preferred Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Section 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-hundredths of a share of Preferred Stock (calculated to the nearest one-millionth) obtained by (i) multiplying (x) the number of one one-hundredths of a share covered by a Right immediately prior to this adjustment, by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price, and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in lieu of any adjustment in the number of one one-hundredths of a share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of one one-hundredths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 14 11 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of one one-hundredths of a share of Preferred Stock issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per one one-hundredth of a share and the number of one one-hundredth of a share which were expressed in the initial Rights Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then stated value, if any, of the number of one one-hundredths of a share of Preferred Stock issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable such number of one one-hundredths of a share of Preferred Stock at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of one one-hundredths of a share of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of one one-hundreths of a share of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price is effect prior to such adjustment; provided, -------- however, that the company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that in their good faith judgment the Board of Directors of the Company shall determine to be advisable in order that any (i) consolidation or subdivision of the Preferred Stock (ii) issuance wholly for cash of any shares of Preferred Stock at less than the current market price. (iii) issuance wholly for cash of shares of Preferred Stock or securities which by their terms are convertible into or exchangeable for shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights, options, or warrants referred to in this Section 11, hereafter made by the Company to holders of its Preferred Stock shall not be taxable to such shareholders. (n) The Company covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Company is a transaction which complies with Section 11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), if (x) at the time of or immediately after such consolidation, merger or sale there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights or (y) prior to, simultaneously with or immediately after such consolidation, merger or sale, the shareholders of the Person who constitutes the "Principal Party" for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates. (o) The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23 or Section 26 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonable foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. 12 (p) Anything in this Agreement to the contrary notwithstanding, in the event that the Company shall at any time after the Rights Declaration Date and prior to the Distribution Date (i) declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding shares of Common Stock into a smaller number of shares, the number of Rights associated with each share of Common Stock then outstanding, or issued or delivered thereafter but prior to the Distribution Date, shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common Stock following any such event shall equal the result obtained by multiplying the number of Rights associated with each share of Common Stock immediately prior to such event by a fraction the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Common Stock outstanding immediately following the occurrence of such event. Section 12. Certificate of Adjusted Purchase Price or Number of Shares. ---------------------------------------------------------- Whenever an adjustment is made as provided in Section 11 and Section 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each transfer agent for the Preferred Stock and the Common Stock, a copy of such certificate, and (c) mail a brief summary thereof to each holder of a Rights Certificate (or, if prior to the Distribution Date, to each holder of a certificate representing shares of Common Stock) in accordance with Section 25 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained. Section 13. Consolidation, Merger of Sale or Transfer of Assets or Earning -------------------------------------------------------------- Power. - ----- (a) In the event that, following the Stock Acquisition Date, directly or indirectly, (x) the Company shall consolidate with, or merge with and into, any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), and the Company shall not be the continuing or surviving corporation of such consolidation or merger, (y) any Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof) shall consolidate with, or merge with or into, the Company, and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company or any Subsidiary of the Company in one or more transactions each of which complies with Section 11(o) hereof), then, and in each such case, proper provision shall be made so that: (i) each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, non-assessable and freely tradeable shares of Common Stock of the Principal Party (as such term is hereinafter defined), not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of one one-hundredths of a share of Preferred Stock for which a Right is exercisable immediately prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section 13 Event, multiplying the number of such one one-hundredths of a share for which a Right was exercisable immediately prior to the first occurrence of a Section 11 (a)(ii) Event by the Purchase Price in effect immediately prior to such first occurrence), and (2) dividing that product (which, following the first occurrence of a Section 13 Event, shall be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by 50% of the current market price (determined pursuant to Section 11(d)(i) hereof) per share of the Common Stock of such Principal Party on the date of consummation of such Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights; and (v) the provisions of Section 11 (a)(ii) hereof shall be of no effect following the first occurrence of any Section 13 Event. 13 (b) "Principal Party" shall mean (i) in the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a), the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted in such merger or consolidation, and if no securities are so issued, the Person that is the other parry to such merger or consolidation; and (ii) in the case of any transaction described in clause (z) of the first sentence of Section 13(a), the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions; provided, however, that in any such case, (1) if the Common Stock of such Person - -------- is not at such time and has not been continuously over the preceding twelve (12) month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, "Principal Party" shall refer to such other Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stocks of two or more of which are and have been so registered, "Principal Party" shall refer to whichever of such Persons is the issuer of the Common Stock having the greatest aggregate market value. (c) The Company shall not consummate any such consolidation, merger, sale or transfer unless the Principal Party shall have a sufficient number of authorized shares of its Common Stock which have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with the Section 13 and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any consolidation, merger or sale of assets mentioned in paragraph (a) of this Section 13, the Principal Party will (i) prepare and file a registration statement under the Act, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Expiration Date; and (ii) will deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 under the Exchange Act. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a). Section 14. Fractional Rights and Fractional Shares. --------------------------------------- (a) The Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11(p) hereof, or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading, or if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional 14 market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. (b) The company shall not be required to issue fractions of shares of Preferred Stock (other than fractions which are integral multiples of one one- hundredth of a share of Preferred Stock) upon exercise of the Rights or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-hundredth of a share of Preferred Stock). In lieu of fractional shares of Preferred Stock that are not integral multiples of one one-hundredth of a share of Preferred Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one one-hundredth of a share of Preferred Stock. For purposes of this Section 14(b), the current market value of one one-hundredth of a share of Preferred Stock shall be one one-hundredth of the closing price of a share of Preferred Stock (as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of such exercise. (c) Following the occurrence of a Triggering Event, the Company shall not be required to issue fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates which evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one (1) share of Common Stock. For purposes of this Section 14(c), the current market value of one share of Common Stock shall be the closing price of one share of Common Stock (as determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise. (d) The holder of a Right by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right, except as permitted by this Section 14. Section 15. Rights of Action. All rights of action in respect of this ---------------- Agreement are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement. Section 16. Agreement of Rights Holders. Every holder of a Right by ---------------------------- accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the earlier of the Distribution Date and the Expiration Date, the Rights will be transferable only in connection with the transfer of Common Stock; (b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates fully executed; (c) subject to Section 6(a) and Section 7(f) hereof, the Company and the Rights Agent may deem and treat the person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent, subject to the last sentence of Section 7(e) hereof, shall be required to be affected by any notice to the contrary; and (d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction of other order, decree 15 or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; provided, however, the Company must use its best efforts to have any such order, - -------- decree or ruling lifted or otherwise overturned as soon as possible. Section 17. Rights Certificate Holder Not Deemed a Stockholder. No holder, -------------------------------------------------- as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the number of one one-hundredths of a share of Preferred Stock or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 24 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions hereof. Section 18. Concerning the Rights Agent. --------------------------- (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. Section 19. Merger or Consolidation or Change of Name of Rights Agent. --------------------------------------------------------- (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust business or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, however, that such corporation -------- would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties ---------------------- and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: 16 (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of "current market price" be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the President, any Vice-President, the Treasurer, or the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization for the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates or be required to verify the same (except as to its countersignature on such Rights Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 or Section 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock or Preferred Stock to be issued pursuant to this Agreement or any Rights Certificate or as to whether any shares of Common Stock or Preferred Stock will, when so issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the President, any Vice-President, the Secretary, or the Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct; provided, however, reasonable care was exercised in the -------- selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. 17 (k) If, with respect to any Right Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise of transfer without first consulting with the Company. Section 21. Change of Rights Agent. The Rights Agent or any successor ---------------------- Rights Agent may resign and be discharged from its duties under this Agreement upon thirty (30) days' notice in writing mailed to the Company, and to each transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon thirty (30) days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his Rights Certificate for inspection by the Company), then any registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a corporation organized and doing business under the laws of the United States or of the State of New York (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the State of New York), in good standing, having a principal office in the State of New York, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $100,000,000 or (b) an Affiliate controlled by a corporation described in clause (a). After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock and the Preferred Stock, and mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Rights Certificates. Notwithstanding any of ----------------------------------- the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind of class of shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock following the Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement, or upon the exercise, conversion or exchange of securities hereinafter issued by the Company, and (b) may, in any other case, if deemed necessary or appropriate by the Board of Directors of the Company, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided, however, that (i) no such Rights Certificate shall be issued if, and - -------- to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued, and (ii) no such Rights Certificate shall be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof. Section 23. Redemption and Termination. -------------------------- (a) The Board of Directors of the Company may, at its option, at any time prior to 5:00 P.M., New York City time, on the earlier of (i) the close of business on the tenth day following the Stock Acquisition Date (or, if the Stock Acquisition Date shall have occurred prior to the Record Date, the close of business on the tenth day following the Record Date), or (ii) the Final Expiration Date, redeem all but not less than all the then outstanding Rights at a redemption price of $.05 per Right, as such amount may be appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"); provided, however, if the Board of -------- Directors of the Company authorizes redemption 18 of the Rights in either of the circumstances set forth in clauses (i) and (ii) below, then there must be Disinterested Directors then in office and such authorization shall require the concurrence of a majority of such Disinterested Directors: (i) such authorization occurs on or after the time a Person becomes an Acquiring Person, or (ii) such authorization occurs on or after the date of a change (resulting from a proxy or consent solicitation) in a majority of the directors in office at the commencement of such solicitation if any Person who is a participant in such solicitation has stated (or, if upon the commencement of such solicitation, a majority of the Board of Directors of the Company has determined in good faith) that such Person (or any of its Affiliates or Associates) intends to take, or may consider taking, any action which would result in such Person becoming an Acquiring Person or which would cause the occurrence of a Triggering Event unless, concurrent with such solicitation, such Person (or one or more of its Affiliates or Associates) is making a cash tender offer pursuant to a Schedule 14D-1 (or any successor form) filed with the Securities and Exchange Commission for all outstanding shares of Common Stock not beneficially owned by such Person (or by its Affiliates or Associates); provided further, however, that if, following the occurrence of a Stock - ---------------- Acquisition Date and following the expiration of the right of redemption hereunder but prior to any Triggering Event, (i) a Person who is an Acquiring Person shall have transferred or otherwise disposed of a number of shares of Common Stock in one transaction, or series of transactions, not directly or indirectly involving the Company or any of its Subsidiaries, which did not result in the occurrence of a Triggering Event such that such Person is not thereafter a Beneficial Owner of shares of Voting Stock representing more than 10% of the Voting Power, and (ii) there are no other Persons, immediately following the occurrence of the event described in clause (i), who are Acquiring Persons,then the right of redemption shall be reinstated and thereafter be subject to the provisions of this Section 23. Notwithstanding anything contained in this Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event until such time as the Company's right of redemption hereunder has expired. (b) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights, evidence of which shall have been filed with the Rights Agent and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. Promptly after the action of the Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to all such holders at each holder's last address as it appears upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the Transfer Agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Section 24. Notice of Certain Events. ------------------------ (a) In case the Company shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of Preferred Stock or to make any other distribution to the holders of Preferred Stock (other than a regular quarterly cash dividend out of earnings or retained earnings or the Company), or (ii) to offer to the holders of Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other securities, rights or options, or (iii) to effect any reclassification of its Preferred Stock (other than a reclassification involving only the subdivision of outstanding shares of Preferred Stock), or (iv) to effect any consolidation or merger into or with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one transaction or a series of related transactions, of more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the shares of Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least twenty (20) days prior to the record date for determining holders of the shares of Preferred Stock for purposes of such action, and in the case of any such other action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the shares of Preferred Stock whichever shall be the earlier. 19 (b) In case any Section 11(a)(ii) Event shall occur, then, in any such case, (i) the Company shall as soon as practicable thereafter give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if appropriate, other securities. Section 25. Notices. Notices or demands authorized by this Agreement to be ------- given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Armstrong World Industries, Inc. P.O. Box 3001 Lancaster, Pennsylvania 17604 Attention: Corporate Secretary Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: Morgan Guaranty Trust Company of New York 30 West Broadway New York, New York 10001 Attention: Tenders and Exchanges Department Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder of certificates representing shares of Common Stock) shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 26. Supplements and Amendments. Prior to the Distribution Date and -------------------------- subject to the penultimate sentence of this Section 26, the Company may and the Rights Agent shall if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holders of certificates representing shares of Common Stock. From and after the Distribution Date, and subject to the penultimate sentence of this Section 26, the Company may, and the Rights Agent shall if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) to change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Rights Certificates (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person), (iv) to suspend the effectiveness of Section 7(e) hereof (which suspension, following the first occurrence of an event set forth in clauses (i) and (ii) of the first proviso to Section 23(a) hereof, shall be effective only if there are Disinterested Directors and shall require the concurrence of a majority of such Disinterested Directors), or (v) to shorten or lengthen any time period hereunder (which lengthening or shortening, following the first occurrence of an event set forth in clauses (i) and (ii) of the first proviso to Section 23(a) hereof, shall be effective only if there are Disinterested Directors and shall require the concurrence of a majority of such Disinterested Directors); provided, this -------- Agreement may not be supplemented or amended to lengthen, pursuant to clause (v) of this sentence, (A) a time period relating to when the Rights may be redeemed at such time as the Rights are not then redeemable or (B) any other time period unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything contained in this Agreement to the contrary, no supplement or amendment shall be made which changes the Redemption Price, the Final Expiration Date, the Purchase Price or the number of one one-hundredths of a share of Preferred Stock for which a Right is exercisable. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock. Section 27. Successors. All the covenants and provisions of this Agreement ---------- by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. 20 Section 28. Determinations and Actions by the Board of Directors, etc. For -------------------------------------------------------- all purposes of this Agreement, any calculation of the number of shares of Common Stock or of any other class of capital stock outstanding at any particular time, including for purposes of determining the particular percentage of outstanding shares of Common Stock or of Voting Power of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13(d)-3(d)(i)(i) of the General Rules and Regulations under the Exchange Act. The Board of Directors of the Company (with, where specifically provided for herein, the concurrence of the Disinterested Directors) shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board (with, where specifically provided for herein, the concurrence of the Disinterested Directors) or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board (with, where specifically provided for herein, by the concurrence of the Disinterested Directors) in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board or the Disinterested Directors to any liability to the holders of the Rights. Section 29. Benefits of this Agreement. Nothing in this Agreement shall be -------------------------- construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock). Section 30. Severability. If any term, provision, covenant or restriction ------------ of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided, however, that notwithstanding anything in this Agreement to the - -------- contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board of Directors of the Company determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the close of business on the tenth day following the date of such determination by the Board of Directors. Section 31. Governing Law. This Agreement, each Right and each Rights ------------- Certificate issued hereunder shall be deemed to be a contract made under the laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed in accordance with the laws of such Commonwealth applicable to contracts made and to be performed entirely within such Commonwealth except for Sections 18, 19, 20, and 21 hereof which for all purposes shall be governed by and construed in accordance with the laws of the State of New York. Section 32. Counterparts. This Agreement may be executed in any number of ------------ counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 33. Descriptive Headings. Descriptive headings of the several -------------------- Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. Attest: ARMSTRONG WORLD INDUSTRIES, INC. By /s/ L. A. Pulkrabek By /s/ Joseph L. Jones --------------------------- -------------------------------- Name: L. A. Pulkrabek Name: Joseph L. Jones Title: Secretary Title: President Attest: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Sal Russo By /s/ John Bambach --------------------------- -------------------------------- Name: Sal Russo Name: John Bambach Title: Assistant Secretary Title: Assistant Vice President 21 EXHIBIT A The resolution duly adopted by the Board of Directors of Armstrong World Industries, Inc. establishing and designating the Series One Preferred Stock, a series of Class A Preferred Stock, and fixing and determining the relative rights and preferences thereof is as follows: RESOLVED that pursuant to the authority conferred upon the Board of Directors by Paragraph 8 of Article 5th of the Articles of Incorporation of the Corporation, as amended, there is hereby established a series of the Class A Preferred Stock of the Corporation to consist initially of 500,000 shares with the designation and relative rights and preferences thereof to be as follows: Section 1. Designation. The shares of such series shall be designated as ----------- "Series One Preferred Stock." Shares of this series shall be issued pursuant to the exercise of rights to purchase Series One Preferred Stock distributed to the holders of Common Stock, par value $1.00 per share, of the Corporation (the "Common Stock"). Section 2. Dividends and Distributions. Subject to the rights and --------------------------- preferences of the holders of any shares of $3.75 Cumulative Preferred Stock and of any series of Class A Preferred Stock ranking senior as to dividends to this Series One Preferred Stock, the holders of shares of Series One Preferred Stock, in preference to the holders of Common Stock and shares of stock ranking junior as to dividends to the Series One Preferred Stock, shall be entitled to receive, when and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the 15th day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or a fraction of a share of Series One Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $32.50 of (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends plus 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock, or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), paid on the Common Stock at any time during the quarter year immediately preceding the quarter year ending on the day immediately preceding such Quarterly Dividend Payment Date. In the event the Corporation shall at any time after March 21, 1986 (the "Rights Declaration Date") during any quarter year immediately preceding the quarter year ending on the day immediately preceding a Quarterly Dividend Payment Date (i) declare any dividend on Common Stock payable in shares of Common Stock, or (ii) subdivide the outstanding Common Stock or combine the outstanding Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the amounts to which holders of shares of Series One Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying each such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Dividends shall begin to accrue and be cumulative on outstanding shares of Series One Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series One Preferred Stock, unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares Series One Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series One Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series One Preferred Stock entitled to receive payment of a dividends or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. Except as otherwise provided by law, holders of ------------- shares of Series One Preferred Stock shall have no voting rights. Section 4. Certain Restrictions. -------------------- (A) Whenever quarterly dividends or other dividends or distributions payable on the Series One Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series One Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or as to assets) to the Series One Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or as to assets) with the Series One Preferred Stock, except dividends paid ratably on the Series One Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or as to assets) to the Series One Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or as to assets) to the Series One Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series One Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series One Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under Paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series One Preferred Stock ----------------- purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Class A Preferred Stock and may be reissued as part of a new series of Class A Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. Subject to the rights -------------------------------------- and preferences of the holders of any shares of $3.75 Cumulative Preferred Stock and of any series of Class A Preferred Stock ranking senior as to assets to this Series One Preferred Stock, (A) Upon any involuntary or voluntary liquidation, dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or as to assets) to the Series One Preferred Stock unless, prior thereto, the holders of shares of Series One Preferred Stock shall have received an amount per share equal to the Per Share Series One Liquidation Preference. The Per Share Series One Liquidation Preference shall be equal to the sum of (x) $100.00 plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, plus (y) the Participation Preference. The "Participation Preference" is an amount per each share of Series One Preferred Stock outstanding, equal to the product of (A) the Excess Distribution Amount, as hereinafter defined times (B) a fraction whose numerator is 100 and whose denominator is the sum of (i) the product of 100 times the number of outstanding shares of Series One Preferred Stock, plus (ii) the product of 100 times a fraction whose numerator is the number of outstanding shares of Common Stock and whose denominator is the Adjustment Number; provided however, if the foregoing computation results in a negative number, then the Participation Preference shall be 0. Following the payment of the full amount of the Series One Liquidation Preference, holders of shares of Common Stock shall receive the remaining assets to be distributed. The "Excess Distribution Amount" is an amount equal to the amount available for distribution to shareholders of the Corporation after payment of all debts and liabilities less the sum of (i) the liquidation preferences in respect of all shares of preferred stock of the Corporation other than the Series One Preferred Stock, (ii) the product of 100 times the number of outstanding shares of Series One Preferred Stock, and (iii) the product of the number of outstanding shares of Common Stock times a fraction whose numerator is 100 and whose denominator is the Adjustment Number. (B) The Adjustment Number shall initially be 100 and shall be subject to adjustment as provided in this subsection (B). In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter -------------------------- into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series One Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time (i) declare any dividend on Common Stock payable in shares of Common Stock, or (ii) subdivide the outstanding Common Stock or combine the outstanding Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series One Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. Redemption. The outstanding shares of Series One Preferred Stock ---------- may be redeemed at the option of the Board of Directors as a whole, but not in part, at any time, or from time to time, at a cash price per share equal to (i) the product of the Adjustment Number times the Average Market Value, as such term is hereinafter defined, of the Common Stock, plus (ii) all dividends which on the redemption date have accrued on the shares to be redeemed and have not been paid or declared and a sum sufficient for the payment thereof set apart, without interest; provided, however, that if and whenever any quarter-yearly dividend shall have accrued on the Series One Preferred Stock which has not been paid or declared and a sum sufficient for the payment thereof set apart, the Corporation may not purchase or otherwise acquire any shares of Series One Preferred Stock unless all shares of such stock at the time outstanding are so purchased or otherwise acquired. The "Average Market Value" is the average of the closing sale prices of the Common Stock during the 30-day period immediately preceding the date before the redemption date on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which such stock is listed, or, if such stock is not listed on any such exchange, the average of the closing bid quotations with respect to a share of Common Stock during such 30- day period on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value of the Common Stock as determined by the Board of Directors in good faith. Section 9. Fractional Shares. Series One Preferred Stock may be issued in ----------------- fractions of a share which shall entitle the holder, in proportion to such holders fractional shares, to exercise voting rights, if applicable, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series One Preferred Stock. The foregoing resolution was duly adopted at a meeting of the Board of Directors of the Corporation duly called and held on March 11, 1986, at which meeting a quorum was present and acting throughout. EXHIBIT B [Form of Rights Certificate] Certificate No. R- ____________ Rights NOT EXERCISABLE AFTER MARCH 21, 1996 OR EARLIER IF REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.05 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]* Rights Certificate ARMSTRONG WORLD INDUSTRIES, INC. This certifies that , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of March 21, 1986 (the "Rights Agreement"), between Armstrong World Industries, Inc., a Pennsylvania corporation (the "Company"), and Morgan Guaranty Trust Company of New York, a New York banking corporation (the "Rights Agent"), to purchase from the Company at any time prior to 5:00 PM (New York City time) on March 21, 1996 at the office or offices of the Rights Agent designated for such purpose, or its successors as Rights Agent, one one-hundredth of a fully paid, non-assessable share of Series One of Class A Preferred Stock (the "Preferred Stock") of the Company, at a purchase price of $175 per one one-hundredth of a share (the "Purchase Price"), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase and related Certificate duly executed. The Purchase Price shall be paid in cash or, if the Company shall in its sole discretion so consent, in shares of Common Stock of the Company having an equivalent value. The number of Rights evidenced by this Rights Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price per share set forth above, are the number and Purchase Price as of March 21, 1986, based on the Preferred Stock as constituted at such date. Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined in the Rights Agreement), if the Rights evidenced by this Rights Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any such Acquiring Person, Associate or Affiliate, or (iii) under certain circumstances specified in the Rights Agreement, a transferee of a person who, after such transfer, became an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such Rights shall become null and void and no holder hereof shall have any right with respect to such Rights from and after the occurrence of such Section 11(a)(ii) Event. ______________ * The portion of the legend in brackets shall be inserted only if applicable and shall replace the preceding sentence. As provided in the Rights Agreement, the Purchase Price and the number and kind of shares of Preferred Stock or other securities, which may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events, including Triggering Events. This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights under the specific circumstances set forth in the Rights Agreement. Copies of the Rights Agreement are on file at the office of the Company and are also available upon written request to the Company. This Rights Certificate, with or without other Rights Certificates, upon surrender at the principal office or offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of one one-hundredths of a share of Preferred Stock as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Company at its option at a redemption price of $.05 per Right at any time prior to the earlier of the close of business on (i) the tenth day following the Stock Acquisition Date (as such number of days may be extended), and (ii) the Final Expiration Date. Under certain circumstances set forth in the Rights Agreement, the decision to redeem shall require the concurrence of a majority of the Disinterested Directors. Thereafter, the Company's right of redemption may be reinstated if an Acquiring Person reduces his beneficial ownership to shares of Voting Stock representing 10% or less of the Voting Power in a transaction or series of transactions not involving the Company. No fractional shares of Preferred Stock will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-hundredth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Rights Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of shares of Preferred Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or, to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement. This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of ,19 ---------------------- -- ATTEST: Armstrong World Industries, Inc. By - ---------------------------------- ------------------------------ Title: Title: Countersigned: Morgan Guaranty Trust Company of New York By --------------------------------- Authorized Signature [Form of Reverse Side of Rights Certificate] FORM OF ASSIGNMENT ------------------ (To be executed by the registered holder if such holder desires to transfer the Rights Certificate.) FOR VALUE RECEIVED _____________________________________________________________ hereby sell, assigns and transfers unto ________________________________________ ________________________________________________________________________________ (Please print name and address of transferee) ________________________________________________________________________________ the Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _________________________________ Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution. Dated: ________________________, 19__ ________________________________________ Signature Signature Guaranteed: Certificate ----------- The undersigned hereby certifies by checking the appropriate boxes that: (1) This Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from and Person who is, was or subsequently became an Acquiring Person. Dated: ________________________, 19__ ________________________________________ Signature Signature Guaranteed: NOTICE ------ The signature to the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. FORM OF ELECTION TO PURCHASE ---------------------------- (To be executed if holder desires to exercise Rights represented by the Rights Certificate.) To: ARMSTRONG WORLD INDUSTRIES, INC. The undersigned hereby irrevocably elects to exercise ______________ Rights represented by this Rights Certificate to purchase the shares of Series One of Class A Preferred Stock issuable upon the exercise of the Rights (or such other securities of the Company or of any other person which may be issuable upon the exercise of the Rights) and requests that certificates for such shares be issued in the name of and delivered to: Please insert social security or other identifying number ________________________________________________________________________________ (Please print name and address) ________________________________________________________________________________ If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number ________________________________________________________________________________ (Please print name and address) ________________________________________________________________________________ ________________________________________________________________________________ Dated: _________________________, 19__ ______________________________________ Signature Signature Guaranteed: Certificate ----------- The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: _________________________, 19__ ______________________________________ Signature Signature Guaranteed: NOTICE ------ The signature to the foregoing Election to Purchase and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. EXHIBIT C SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK On March 11, 1986, the Board of Directors of Armstrong World Industries, Inc. (the "Company") declared a distribution of one Right for each outstanding share of Common Stock of the Company to stockholders of record at the close of business on March 21, 1986 and with respect to each share of Common Stock that may be issued by the Company prior to the "Distribution Date" (or the earlier redemption or expiration of the Rights) described below. Upon the occurrence of certain events described below each Right would entitle the registered holder to purchase from the Company, a unit consisting of one one-hundredth of a share (a "Unit") of Series One of Class A Preferred Stock, without par value (the "Preferred Stock") at a Purchase Price of $175 per Unit, subject to adjustment. The Purchase Price shall be paid in cash or, if the Company shall in its sole discretion so consent, shares of Common Stock having a value at the time of exercise equal to the Purchase Price. The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Company and Morgan Guaranty Trust Company of New York, as Rights Agent. The Rights will be attached to all Common Stock certificates representing shares then outstanding until the occurrence of a Distribution Date or the earlier redemption or expiration of the Rights. No separate Rights Certificates ------------------------------- will be distributed unless and until a Distribution Date occurs. A Distribution - --------------------------------------------------------------- Date will occur and the Rights will separate from the Common Stock upon the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of shares of the Company's capital stock representing 20% or more of the voting power of all outstanding shares of capital stock of the Company (the date of such announcement being referred to as the "Stock Acquisition Date"), or (ii) 10 business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning outstanding shares of the Company's capital stock representing 28% or more of the voting power of all outstanding shares of capital stock of the Company. Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock certificates, (ii) new Common Stock certificates issued after March 21, 1986, will contain a notation incorporating the Rights Agreement by reference, and (iii) the surrender for transfer of any certificates for Common Stock will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. The Rights are not exercisable unless and until a Distribution Date and will expire at the close of business on March 21, 1996, unless earlier redeemed by the Company as described below. As soon as practicable after a Distribution Date occurs, Rights Certificates will be mailed to holders of record of the Common Stock as of the close of business on a Distribution Date and, thereafter, such separate Rights Certificates alone will represent the Rights. In the event that, at any time following the Distribution Date, (i) the Company is the surviving corporation in a merger with an Acquiring Person and its Common Stock is not changed or exchanged, or (ii) a Person becomes the beneficial owner of shares of the Company's capital stock representing 28% or more of the voting power of all outstanding shares of capital stock of the Company, each holder of a Right will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the Right. Notwithstanding any of the foregoing, following the occurrence of any of the events described in item (i) or (ii) in this paragraph, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person will be null and void. However, the Rights are not exercisable following the occurrence of either of the events set forth in this paragraph until such time as the Rights are no longer redeemable by the Company as set forth below. For example, at an exercise price of $175 per Right, each Right not owned by an Acquiring Person (or by certain related parties) following an event set forth in the preceding paragraph would entitle its holder to purchase $350 worth of Common Stock (or other consideration, as noted above) for $175. Assuming that the Common Stock had a per share value of $87 1/2 at such time, the holder of each valid Right would be entitled to purchase four shares of Common Stock for $175. In the event that, at any time following the Stock Acquisition Date, (i) the Company is acquired in certain merger or other business combination transactions (other than a merger described in the second preceding paragraph) or (ii) 50% or more of the Company's assets or earning power is sold or transferred, each holder of a Right (except Rights which previously have been voided as set forth above) shall thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right. The right to purchase Common Stock of the Company or common stock of an acquiring company at a discount in the circumstances described in the preceding paragraphs would not be exercisable if the Right holder has previously exercised the right to purchase Preferred Stock. The Purchase Price payable, and the number of Units of Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Stock, (ii) if holders of the Preferred Stock are granted certain rights or warrants to subscribe for Preferred Stock or convertible securities at less than the current market price of the Preferred Stock, or (iii) upon the distribution to holders of the Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional Units will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Stock on the last trading date prior to the date of exercise. At any time until ten days after the Stock Acquisition Date, the Company may redeem the Rights in whole, but not in part, at a price of $.05 per Right. The redemption period may be extended by the Company's Board of Directors at any time prior to the expiration of such period. Under certain circumstances set forth in the Rights Agreement, the decision to redeem shall require the concurrence of a majority of the Disinterested Directors. After the redemption period has expired, the Company's right of redemption may be reinstated if an Acquiring Person reduces his beneficial ownership to shares of capital stock of the Company representing 10% of less of the voting power of all outstanding shares of capital stock of the Company in a transaction or series of transactions not involving the Company. Immediately upon the action of the Board of Directors ordering redemption of the Rights, with, where required, the concurrence of a majority of the Disinterested Directors, the Rights will terminate and the only right of the holders of Rights will be to receive the $.05 redemption price. The term "Disinterested Directors" means any member of the Board of Directors of the Company who was a member of the Board prior to the time that the Acquiring Person became an Acquiring Person, any person who is subsequently elected to the Board to fill a vacancy created by an increase in the size of the Board if such person is recommended or approved by a majority of the Disinterested Directors, and any successor of a Disinterested Director if such person is recommended or approved by a majority of the Disinterested Directors, but shall not include an Acquiring Person, or an affiliate or associate of an Acquiring Person, or any representative of the foregoing entities. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company arising from the Right itself, including, without limitation, the right to vote or to receive dividends. While the initial declaration and distribution of the Rights will not be taxable to the stockholders or the Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for Common Stock (or other consideration) of the Company or for common stock of an acquiring company as set forth above. Under the Plan, the Board has broad amendatory powers. Other than those provisions relating to the principal economic terms of the Rights, any of the provisions of the Rights Agreement may be amended by the Board of Directors of the Company prior to the Distribution Date. After the Distribution Date, the provisions of the Rights Agreement may be amended by the Board (in certain circumstances with the concurrence of the Disinterested Directors) in order to cure any ambiguity, to make other changes which do not adversely affect the interests of holders of Rights (excluding the interests of any Acquiring Person), or to shorten or lengthen any time period under the Rights Agreement; provided, however, that no amendment to adjust the time period governing - -------- redemption shall be made at such time as the Rights are not redeemable. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A filed on March 21, 1986. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is incorporated herein by reference. EX-4.D 5 SUPPLEMENTAL INDENTURE Exhibit No. 4(d) - ------------------------------------------------------------------------------- ARMSTRONG WORLD INDUSTRIES, INC, and THE FIRST NATIONAL BANK OF CHICAGO Trustee ------------------------------ SUPPLEMENTAL INDENTURE Dated as of October 19, 1990 ------------------------------ Supplemental to Indenture Dated as of March 15, 1988 - ------------------------------------------------------------------------------- SUPPLEMENTAL INDENTURE, dated as of October 19, 1990 (this "Supplement Indenture"), between ARMSTRONG WORLD INDUSTRIES, INC., a corporation duly organized and existing under the laws of the Commonwealth of Pennsylvania (the "Company"), party of the first part, and THE FIRST NATIONAL BANK OF CHICAGO, a national banking association duly organized and existing under the laws of the United States of America, as Trustee (the "Trustee") under the Indenture hereinafter referred to, party of the second part. WITNESSETH: WHEREAS, the Company has heretofore executed and delivered to Morgan Guaranty Trust Company of New York, as predecessor trustee, an indenture dated as of March 15, 1988 (the "Indenture"), to provide for the issuance from time to time of the Company's debt securities (the "Securities") and has heretofore issued $125,000,000 aggregate principal amount of its 9-3/4% Debentures Due 2008; WHEREAS, Section 901 of the Indenture provides, among other things, that the Indenture may be amended and supplemented without the consent of the holders of any of the Securities to add to or change any of the provisions of the Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form; and WHEREAS, all things necessary to constitute this Supplemental Indenture a valid and binding agreement of the Company have been done and performed; NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH: ARTICLE ONE ----------- AMENDMENTS ---------- Section 101. Section 101 of the Indenture is hereby amended by adding the following definition: "'Depositary' means with respect to the Securities of any series issuable or issued in whole or in part in global form, the Person designated as Depositary by the Company pursuant to Section 301 until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depositary" shall mean or include each Person who is then a Depositary hereunder, and if at any time there is more than one such Person, "Depositary" as used with respect to the Securities of any such series shall mean the "Depositary" with respect to the Securities of that series." Section 102. Article Two of the Indenture is hereby amended by adding the following as a new Section 202 and redesignating the Old Section 202 as Section 203: "Section 202. Securities in Global Form. If Securities of a series are ------------------------- issuable in whole or in part in global form, any such Security may provide that it shall represent the aggregate amount of Outstanding Securities from time to time endorsed thereon and may also provide that the aggregate amount of Outstanding Securities represented thereby may from time to time be reduced to reflect exchanges or increased to reflect the issuance of additional securities. Any endorsement of a Security in global form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made in such manner and by such Person or Persons, as shall be specified therein or in Company Order delivered to the Trustee pursuant to Section 303." Section 103. Section 301 of the Indenture is hereby amended by adding the following as new subparagraph 2 (16) and redesignating old subparagraphs (16) and (17) as subparagraphs (17) and (18), respectively: "(16) the issuance of the Securities of such series in whole or in part in global form and, if so, the identity of the Depositary for such Securities in global form, and the terms and conditions, if any, upon which interests in such Securities in global form may be exchanged, in whole or in part, for the individual Securities represented thereby;" Section 104. Section 303 of the Indenture is hereby deleted and replaced in its entirety by the following: "SECTION 303. Execution, Authentication, Delivery and Dating. ---------------------------------------------- The Securities shall be executed on behalf of the Company by its Chairman of the Board, its President, one of its Vice Presidents or its Treasurer, and by its Secretary or one of its Assistant Secretaries or one of its Assistant Treasurers, under its corporate seal or a facsimile thereof reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of the Securities of such series or procedures acceptable to the Trustee set forth in the Company Order, and the Trustee in accordance with the Company Order or such procedures shall either at one time or from time to time pursuant to such instructions as may be described therein authenticate and deliver the Securities of such series. The maturity date, original issue date, interest rate and other terms of such Securities may be determined by or pursuant to such Company Order and procedures. If provided for in such procedures, such Company Order may authorize 3 authentication and delivery pursuant to oral instructions from the Company or its duly authorized agent, which instructions shall be promptly confirmed in writing. In authenticating the Securities of such series and accepting the additional responsibilities under this Indenture in relation to the Securities of such series, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon: (1) an Officers' Certificate complying with Section 102 and stating to the best knowledge of the signers of such certificate that no Event of Default with respect to any series of Securities shall have occurred and be continuing; and (2) an Opinion of Counsel complying with Section 102 and stating: (a) the form of Securities of such series have been established in conformity with the provisions of this Indenture; (b) the terms of the Securities of such series have been established (or, when determined in the manner described in such opinion, will have been established) in conformity with the provisions of this Indenture; and (c) that the Securities of such series, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting the enforcement of creditors' rights and to general equity principles. The Trustee shall have the right to decline to authenticate and deliver the Securities of such series if the Trustee, being advised by counsel, determines that such action may not lawfully be taken, would expose the Trustee to personal liability to existing Holders or would add to the obligations and duties of the Trustee hereunder in any material respect. Each Security shall be dated the date of its authentication. If the Company shall establish pursuant to Section 301 that Securities of a series may be issued in whole or in part in global form, then the Company shall execute and the Trustee shall, in accordance with this Section and the Company Order with respect to such series, authenticate and deliver one or more Securities in global form that (i) shall represent and shall be denominated in an aggregate amount equal to the aggregate principal amount of the Outstanding Securities of such series and tenor to be represented by one or more Securities in global form, (ii) shall be registered, in the name of the Depositary for such Security or Securities in global form or the nominee of such Depositary, (iii) shall be delivered to such Depositary or pursuant to such Depositary's instruction, and (iv) shall bear a legend substantially to the following effect: "Unless and until it is exchanged in whole or in part for Bonds in definitive form, this Bond may not be transferred except as a whole by the Depositary to a nominee of the Depositary, or by a nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such Depositary. Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein." Each Depositary designated pursuant to Section 301 for a Security in global form must, at the time of its designation and at all times while it serves as Depositary, be a clearing agency registered under the Securities Exchange Act of 1934 and any other applicable statute or regulation. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture." 5 Section 105. Section 304 of the Indenture is hereby deleted and replaced in its entirety by the following: "SECTION 304. Temporary Securities. Pending the preparation of -------------------- definitive Securities of any series, the Company may execute, and upon compliance with Section 303 the Trustee shall authenticate and deliver, temporary Securities of such series which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. In the case of Securities of any series, such temporary Securities may be in global form, representing all of the Outstanding Securities of such series and tenor. Except in the case of temporary Securities in global form which shall be exchanged in accordance with the provisions thereof, if temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of the same series of authorized denominations. Such exchange shall be made by the Company at its expense and without any charge therefor. Unless otherwise specified as contemplated by Section 301 with respect to a temporary Security in global form, until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series." 6 Section 106. Section 305 of the Indenture is hereby deleted and replaced in its entirety by the following: "SECTION 305. Registration; Registration of Transfer and Exchange. The ---------------------------------------------------- Company shall cause to be kept for each series of Securities at one of the offices or agencies maintained pursuant to Section 1002 a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of such Securities and of transfers of such Securities. Such office or agency is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security of any series at the office or agency in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series and of like tenor, of any authorized denominations and of a like aggregate principal amount and Stated Maturity. In no case shall there be more than one Security Register for a series of Securities. Notwithstanding any other provision of this Section, unless and until it is exchanged in whole or in part for the individual Securities represented thereby, in definitive form, a Security in global form representing all or a portion of the Securities of a series may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary for such series or a nominee of such successor Depositary. At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series and of like tenor, of any authorized denominations and of a like aggregate principal amount and Stated Maturity, upon surrender of the Securities to be exchanged at such office or agency. Whenever any 7 Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. If at any time the Depositary for the Securities of a series represented by one or more Securities in global form notifies the Company that it is unwilling or unable to continue as Depositary for the Securities of such series or if at any time the Depositary for the Securities of such series shall no longer be eligible under Section 303, the Company, by Company Order, shall appoint a successor Depositary with respect to the Securities of such series. If a successor Depositary for the Securities of such series is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company's election pursuant to Section 301 that such Securities be represented by one or more Securities in global form shall no longer by effective with respect to the Securities of such series and the Company will execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of definitive Securities of such series, will authenticate and deliver, Securities of such series in definitive form, in authorized denominations, in an aggregate principal amount and like terms and tenor equal to the principal amount of the Security or Securities in global form representing such series in exchange for such Security or Securities in global form. The Company may at any time and in its sole discretion determine that individual Securities of any series issued in global form shall no longer be represented by such Security or Securities in global form. In such event the Company will execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of definitive Securities of such series and of the same terms and tenor, will authenticate and deliver Securities of such series in definitive form, in authorized denominations, and in aggregate principal amount equal to the principal amount of the Security or Securities in global form representing such series in exchange for such Security or Securities in global form. If specified by the Company pursuant to Section 301 with respect to a series of Securities issued in global form, the Depositary for such series of Securities may surrender a Security in global form for such series of Securities in exchange in whole or in part for Securities of such series in definitive form and of like terms and tenor on such terms as are 8 acceptable to the Company and such Depositary. Thereupon, the Company shall execute, and the Trustee upon receipt of a Company Order for the authentication and delivery of definitive Securities of such series, shall authenticate and deliver, without service charge: (a) to each Person specified by such Depositary a new definitive Security or Securities of the same series and of the same tenor, in authorized denominations, in aggregate principal amount equal to and in exchange for such Person's beneficial interest in the Security in global form; and (b) to such Depositary a new Security in global form in a denomination equal to the difference, if any, between the principal amount of the surrendered Security in global form and the aggregate principal amount of the definitive Securities delivered to Holders pursuant to clause (a) above. Upon the exchange of a Security in global form for Securities in definitive form, such Security in global form shall be cancelled by the Trustee or an agent of the Company or the Trustee. Securities issued in definitive form in exchange for a Security in global form pursuant to this Section 305 shall be registered in such names and in such authorized denominations as the Depositary for such Security in global form, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee or an agent of the Company or the Trustee in writing. The Trustee or such agent shall deliver such Securities to or as directed by the Persons in whose names such Securities are so registered or to the Depositary. Whenever any securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of 9 transfer in form satisfactory to the Company and the Security Registrar duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of selection of Securities of such series to be redeemed and ending at the close of business on the day of the mailing of a notice of redemption of Securities of such series so elected for redemption, or (ii) to register the transfer of or exchange any Security selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part." Section 107. Section 308 of the Indenture is hereby amended by adding the following paragraph at the end of such Section: "None of the Company, the Trustee, any Authenticating Agent, any Paying Agent, or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Security in global form or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests and each of them may act or refrain from acting without liability on any information relating to such records provided by the Depositary." Section 108. Section 902 of the Indenture is hereby amended by adding the following paragraph at the end of such Section: "The Company may set a record date for purposes of determining the identity of the Holders entitled to give a written consent or waive compliance by the Company as authorized or permitted by this Section. 10 Such record date shall be not more than 30 days prior to the first solicitation of such consent or waiver or the date of the most recent list of holders furnished to the Trustee pursuant to Section 312 of the Trust Indenture Act." ARTICLE TWO ----------- MISCELLANEOUS Section 201. Execution of Supplemental Indenture; Construction. This ------------------------------------------------- Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Indenture and, as provided in the Indenture, this Supplemental Indenture forms a part thereof. The Indenture, as supplemented by this Supplemental Indenture, is in all respects ratified and confirmed, and the Indenture and this Supplemental Indenture shall be read, taken and construed as one and the same instrument. Section 202. Effect of Headings. The Article and Section headings ------------------ herein are for convenience only and shall not affect the construction hereof. Section 203. Successors and Assigns. All covenants and agreements in ---------------------- this Supplemental Indenture by the Company shall bind its successors and assigns, whether so expressed or not. Section 204. Separability Clause. In case any provision in this ------------------- Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 11 Section 205. Benefits of Supplemental Indenture. Nothing in this ---------------------------------- Supplemental Indenture, express or implied, shall give to any person, other than the parties hereto, their successors hereunder and the holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Supplemental Indenture. Section 206. Recitals of the Company. The Trustee shall not be responsible ----------------------- in any manner whatsoever for the correctness of the recitals herein contained, all of which are made by the Company. Section 207. Defined Terms. Terms used in this Supplemental Indenture which ------------- are defined in the Indenture and not otherwise defined herein shall have the meanings set forth in the Indenture. Section 208. Governing Law. This Supplemental Indenture shall be deemed to ------------- be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State. Section 209. Execution and Counterparts. This Supplemental Indenture may be -------------------------- executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. The First National Bank of Chicago, the party of the second part, hereby accepts the trusts in this Supplemental Indenture declared and provided, upon the terms 12 and conditions set hereinbefore set forth and set forth in the Indenture. IN WITNESS WHEREOF, ARMSTRONG WORLD INDUSTRIES, INC., the party of the first part, has caused this Supplemental Indenture to be signed and acknowledged by one of its officers thereunto duly authorized, and its corporate seal to be affixed hereunto, and the same to be attested by the signature of its Secretary or one of its Assistant Secretaries; and THE FIRST NATIONAL BANK OF CHICAGO, the party of the second part, as Trustee, has caused this Supplemental Indenture to be signed and acknowledged by one of its Vice Presidents, and its corporate seal to be affixed hereto, and the same to be attested by the signature of one of its Trust Officers, all as of October 19, 1990. ARMSTRONG WORLD INDUSTRIES, INC. By: /s/ E. A. Deaver --------------------------------- Name: E. A. Deaver Title: Executive Vice-President Attest: By: /s/ J. H. Miller, Jr. ---------------------------- J. H. Miller, Jr., Asst. Secretary [Corporate Seal] THE FIRST NATIONAL BANK OF CHICAGO, as Trustee By: --------------------------------- Name: Title: Attest: By: ------------------- [Corporate Seal] ACKNOWLEDGMENTS COMMONWEALTH STATE OF PENNSYLVANIA ) ------------ ) COUNTY OF LANCASTER ) --------- BEFORE ME, the undersigned authority, on this day personally appeared, E. A. Deaver , the Executive Vice-President of Armstrong --------------------- ------------- World Industries, Inc., known to me to be the person whose name is subscribed to the above and foregoing instrument of writing, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed of said corporation; and, being by me duly sworn, did depose and say that he resides at 121 Windover Turn, ------------ Lancaster, Pennsylvania 17601, that he is the Exec. Vice-Pres. of said - ----------------------------- ---------------- corporation, that he knows the seal of said corporation, that the seal affixed to said instrument is such corporate seal, that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 17th day of ---- October 1990. - --------- /s/ Sherry L. Patterson ----------------------- Notary Public [NOTARIAL SEAL OF SHERRY L. PATTERSON APPEARS HERE] 14 STATE OF Illinois) ) COUNTY OF Cook ) BEFORE ME, the undersigned authority, on this day personally appeared, J.B. Knauar, an Asst. Vice Pres., an officer of The First National Bank of Chicago, known to me to be the person whose name is subscribed to the above and foregoing instrument of writing, and acknowledged to me that she executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed of said corporation; and, being by me duly sworn, did depose and say that she resides at 325 Lincolnwood Rd, Highland Park, IL 60035, that she is an officer of said corporation, that the seal affixed to said instrument is such corporate seal, that it was so affixed by authority of the Board of Directors of said corporation, and that she signed her name thereto by like authority. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 17th day of October 1990. ------------------------- Notary Public 15 EX-10.I.C 6 CREDIT AGREEMENT CONFORMED COPY $200,000,000 CREDIT AGREEMENT dated as of February 7, 1995 among ARMSTRONG WORLD INDUSTRIES, INC. The Banks Listed Herein and Morgan Guaranty Trust Company of New York, as Agent TABLE OF CONTENTS/*/
Page ---- ARTICLE I DEFINITIONS SECTION 1.01 Definitions................................. 1 1.02 Accounting Terms and Determinations......... 12 1.03 Types of Borrowings......................... 12 ARTICLE II THE CREDITS SECTION 2.01 Commitments to Lend......................... 13 2.02 Notice of Committed Borrowing............... 13 2.03 Money Market Borrowings..................... 14 2.04 Notice to Banks; Funding of Loans........... 18 2.05 Notes....................................... 19 2.06 Maturity of Loans........................... 20 2.07 Interest Rates.............................. 20 2.08 Facility Fee................................ 24 2.09 Optional Termination or Reduction of Commitments................... 24 2.10 Scheduled Termination of Commitments............................. 24 2.11 Optional Prepayments........................ 25 2.12 General Provisions as to Payments........... 25 2.13 Funding Losses.............................. 26 2.14 Computation of Interest and Fees............ 26 ARTICLE III CONDITIONS SECTION 3.01 Effectiveness............................... 27 3.02 Borrowings.................................. 28
___________________ /*/The Table Contents is not a part of this Agreement. i
Page ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01 Corporate Existence and Power............... 29 4.02 Corporate and Governmental Authorization; No Contravention............. 29 4.03 Binding Effect.............................. 29 4.04 Financial Information....................... 29 4.05 Litigation.................................. 30 4.06 Environmental Matters....................... 30 4.07 Taxes....................................... 31 4.08 Significant Subsidiaries.................... 31 4.09 Not an Investment Company................... 31 4.10 Full Disclosure............................. 31 ARTICLE V COVENANTS SECTION 5.01 Information................................. 31 5.02 Payment of Obligations..................... 34 5.03 Maintenance of Property; Insurance......... 34 5.04 Conduct of Business and Maintenance of Existence.................. 34 5.05 Compliance with Laws....................... 35 5.06 Inspection of Property, Books and Records............................... 35 5.07 Minimum Consolidated Net Worth............. 35 5.08 Negative Pledge............................ 35 5.09 Consolidations, Mergers and Sales of Assets........................... 36 5.10 Use of Proceeds............................ 36 ARTICLE VI DEFAULTS SECTION 6.01 Events of Default.......................... 37 6.02 Notice of Default.......................... 39
ii
Page ARTICLE VII THE AGENT SECTION 7.01 Appointment and Authorization............... 39 7.02 Agent and Affiliates........................ 40 7.03 Action by Agent............................. 40 7.04 Consultation with Experts................... 40 7.05 Liability of Agent.......................... 40 7.06 Indemnification............................. 41 7.07 Credit Decision............................. 41 7.08 Successor Agent............................. 41 7.09 Agent's Fee................................. 41 ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01 Basis for Determining Interest Rate Inadequate............................ 42 8.02 Illegality.................................. 42 8.03 Increased Cost and Reduced Return........... 43 8.04 Taxes....................................... 44 8.05 Base Rate Loans Substituted for Affected Fixed Rate Loans.................. 46 8.06 Substitution of Bank........................ 47 ARTICLE IX MISCELLANEOUS SECTION 9.01 Notices..................................... 47 9.02 No Waivers.................................. 47 9.03 Expenses; Indemnification................... 48 9.04 Sharing of Set-Offs......................... 48 9.05 Amendments and Waivers...................... 49 9.06 Successors and Assigns...................... 49 9.07 Increased Commitments; Additional Banks........................... 51 9.08 Collateral.................................. 52 9.09 Governing Law; Submission to Juris- diction.................................... 52 9.10 Counterparts; Integration................... 52 9.11 WAIVER OF JURY TRIAL........................ 53
iii Pricing Schedule Schedule I - Existing Credit Agreements Exhibit A - Note Exhibit B - Money Market Quote Request Exhibit C - Invitation for Money Market Quotes Exhibit D - Money Market Quote Exhibit E - Opinion of Counsel for the Borrower Exhibit F - Opinion of Special Counsel for the Agent Exhibit G - Assignment and Assumption Agreement iv CREDIT AGREEMENT AGREEMENT dated as of February 7, 1995 among ARMSTRONG WORLD INDUSTRIES, INC., the BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, ----------- have the following meanings: "Absolute Rate Auction" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03. "Additional Bank" has the meaning set forth in Section 9.07(b). "Adjusted CD Rate" has the meaning set forth in Section 2.07(b). "Adjusted London Interbank Offered Rate" has the meaning set forth in Section 2.07(c). "Administrative Questionnaire" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Borrower) duly completed by such Bank. "Agent" means Morgan Guaranty Trust Company of New York in its capacity as agent for the Banks hereunder, and its successors in such capacity. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "Assessment Rate" has the meaning set forth in Section 2.07(b). "Assignee" has the meaning set forth in Section 9.06(c). "Bank" means each bank listed on the signature pages hereof, each Assignee or Additional Bank which becomes a Bank pursuant to Section 9.06(c) or 9.07(b), and their respective successors. "Base Rate" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "Base Rate Loan" means a Committed Loan to be made by a Bank as a Base Rate Loan in accordance with the applicable Notice of Committed Borrowing or pursuant to Article VIII. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Borrower" means Armstrong World Industries, Inc., a Pennsylvania corporation, and its successors. "Borrower's 1993 Form 10-K" means the Borrower's annual report on Form 10-K for 1993, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "Borrower's Latest Form 10-Q" means the Borrower's quarterly report on Form 10-Q for the quarter ended September 30, 1994, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "Borrowing" has the meaning set forth in Section 1.03. "CD Base Rate" has the meaning set forth in Section 2.07(b). "CD Loan" means a Committed Loan to be made by a Bank as a CD Loan in accordance with the applicable Notice of Committed Borrowing. 2 "CD Margin" has the meaning set forth in Section 2.07(b). "CD Reference Banks" means Bank of America National Trust and Savings Association, Chemical Bank, Citibank, N.A., Westdeutsche Landesbank Girozentrale and Morgan Guaranty Trust Company of New York. "Commitment" means, with respect to each Bank listed on the signature pages hereof, the amount set forth opposite the name of such Bank on the signature pages hereof, and with respect to any Bank which becomes a party to this Agreement pursuant to Section 9.06(c) or 9.07(b), the amount of the Commitment thereby assumed by such Bank, in each case as such amount may from time to time be reduced pursuant to Sections 2.09, 2.10 and 9.06(c) or increased pursuant to Section 9.06(c) or 9.07(b). "Committed Loan" means a loan made by a Bank pursuant to Section 2.01. "Consolidated Net Worth" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries determined as of such date; provided, that for purposes of determining -------- compliance with Section 5.07, up to $50,000,000 in write offs subsequent to the date hereof related to litigation shall be disregarded. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non-contingent obligations (and, for purposes of Section 5.08 and the definitions of Material Debt and Material Financial Obligations, all contingent obligations) of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an 3 obligation of such Person, and (vii) all Debt of others Guaranteed by such Person. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Derivatives Obligations" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Agent; provided that any Bank may so designate -------- separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case all references herein to the Domestic Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Domestic Loans" means CD Loans or Base Rate Loans or both. "Domestic Reserve Percentage" has the meaning set forth in Section 2.07(b). "Effective Date" means the date this Agreement becomes effective in accordance with Section 3.01. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental 4 restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Group" means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located atits address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro- Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Agent. "Euro-Dollar Loan" means a Committed Loan to be made by a Bank as a Euro-Dollar Loan in accordance with the applicable Notice of Committed Borrowing. "Euro-Dollar Margin" has the meaning set forth in Section 2.07(c). "Euro-Dollar Reference Banks" means the principal London offices of Bank of America National Trust and Savings Association, Chemical Bank, Citibank, N.A., Westdeutsche Landesbank Girozentrale and Morgan Guaranty Trust Company of New York. "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.07(c). 5 "Event of Default" has the meaning set forth in Section 6.01. "Existing Credit Agreements" means the respective credit facilities between the Borrower and each of the Banks set forth in Schedule I hereto, as such facilities may have been amended from time to time prior to the Effective Date. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic -------- Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust Company of New York on such day on such transactions as determined by the Agent. "Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) or any combination of the foregoing. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person, provided that the term Guarantee shall not include endorsements -------- for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hazardous Substances" means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics. "Indemnitee" has the meaning set forth in Section 9.03(b). "Interest Period" means: (1) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending one, two, three or six months 6 thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that: - -------- (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (c) below, be extended to the next succeeding Euro-Dollar Business Day unless such Euro- Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (2) with respect to each CD Borrowing, the period commencing on the date of such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that: -------- (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (b) below, be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (3) with respect to each Base Rate Borrowing, the period commencing on the date of such Borrowing and ending 30 days thereafter; provided that: -------- (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (b) below, be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (4) with respect to each Money Market LIBOR Borrowing, the period commencing on the date of such Borrowing and ending 7 such whole number of months thereafter as the Borrower may elect in accordance with Section 2.03; provided that: -------- (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (c) below, be extended to the next succeeding Euro-Dollar Business Day unless such Euro- Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (5) with respect to each Money Market Absolute Rate Borrowing, the period commencing on the date of such Borrowing and ending such number of days thereafter (but not less than 7 days) as the Borrower may elect in accordance with Section 2.03; provided that: -------- (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (b) below, be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "LIBOR Auction" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it 8 has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money Market Loans or any combination of the foregoing. "London Interbank Offered Rate" has the meaning set forth in Section 2.07(c). "Material Debt" means Debt (other than the Notes) of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal or face amount exceeding $20,000,000. "Material Financial Obligations" means a principal or face amount of Debt and/or payment obligations in respect of Derivatives Obligations of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $20,000,000. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $50,000,000. "Money Market Absolute Rate" has the meaning set forth in Section 2.03(d). "Money Market Absolute Rate Loan" means a loan to be made by a Bank pursuant to an Absolute Rate Auction. "Money Market Lending Office" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Agent; provided that any Bank may from time to time by notice to the -------- Borrower and the Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Money Market LIBOR Loan" means a loan to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.01(a)). 9 "Money Market Loan" means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan. "Money Market Margin" has the meaning set forth in Section 2.03(d). "Money Market Quote" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.03. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" means a Notice of Committed Borrowing (as defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in Section 2.03(f)). "Parent" means, with respect to any Bank, any Person controlling such Bank. "Participant" has the meaning set forth in Section 9.06(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding 10 five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Pricing Schedule" means the Schedule attached hereto identified as such. "Prime Rate" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference Banks, as the context may require, and "Reference Bank" means any one of such Reference Banks. "Refunding Borrowing" means a Committed Borrowing which, after application of the proceeds thereof, results in no net increase in the outstanding principal amount of Committed Loans made by any Bank. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Banks" means at any time Banks having at least 66 2/3% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes evidencing at least 66 2/3% of the aggregate unpaid principal amount of the Loans. "Revolving Credit Period" means the period from and including the Effective Date to but excluding the Termination Date. "Significant Subsidiary" means any Subsidiary which satisfies the criteria set forth in subparagraph (b) of the definition of "significant subsidiary" in Rule 1-02 of Regulation S-X of the Securities and Exchange Commission, as in effect on the date hereof. "Subsidiary" means, as to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person; unless otherwise specified, "Subsidiary" means a Subsidiary of the Borrower. 11 "Termination Date" means February 7, 2000, or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "United States" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise ----------------------------------- specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Borrower notifies the Agent that the -------- Borrower wishes to amend any covenant in Article V to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Borrower that the Required Banks wish to amend Article V for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Banks. SECTION 1.03. Types of Borrowings. The term "Borrowing" denotes the ------------------- aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article II on a single date and for a single Interest Period. Borrowings are classified for purposes of this Agreement either by 12 reference to the pricing of Loans comprising such Borrowing (e.g., a "Euro- ---- Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions of Article II under which participation therein is determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in which all ---- Banks participate in proportion to their Commitments, while a "Money Market Borrowing" is a Borrowing under Section 2.03 in which the Bank participants are determined on the basis of their bids in accordance therewith). ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend. During the Revolving Credit ------------------- Period each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time in amounts such that the aggregate principal amount of Committed Loans by such Bank at any one time outstanding shall not exceed the amount of its Commitment. Each Borrowing under this Section shall be in an aggregate principal amount of $5,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.02(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, repay, or to the extent permitted by Section 2.11, prepay Loans and reborrow at any time during the Revolving Credit Period under this Section. SECTION 2.02. Notice of Committed Borrowing. The Borrower shall give ----------------------------- the Agent notice (a "Notice of Committed Borrowing") not later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (b) the aggregate amount of such Borrowing, 13 (c) whether the Loans comprising such Borrowing are to be CD Loans, Base Rate Loans or Euro-Dollar Loans, and (d) in the case of a Fixed Rate Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.03. Money Market Borrowings. ----------------------- (a) The Money Market Option. In addition to Committed Borrowings ----------------------- pursuant to Section 2.01, the Borrower may, as set forth in this Section, request the Banks during the Revolving Credit Period to make offers to make Money Market Loans to the Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) Money Market Quote Request. When the Borrower wishes to request -------------------------- offers to make Money Market Loans under this Section, it shall transmit to the Agent by telex or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit B hereto so as to be received no later than 10:30 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $5,000,000 or a larger multiple of $1,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and 14 (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. (c) Invitation for Money Market Quotes. Promptly upon receipt of a ---------------------------------- Money Market Quote Request, the Agent shall send to the Banks by telex or facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) Submission and Contents of Money Market Quotes. (i) Each Bank ---------------------------------------------- may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 9.01 not later than (x) 4:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market -------- Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles III and VI, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify: 15 (A) the proposed date of Borrowing, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate, (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered for each such Money Market Loan, and (E) the identity of the quoting Bank. A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes. (iii) Any Money Market Quote shall be disregarded if it: (A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or similar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in subsection (d)(i). 16 (e) Notice to Borrower. The Agent shall promptly notify the Borrower ------------------ of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. --------------------------------- (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e). In the case of acceptance, such notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that: -------- (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request, (ii) the principal amount of each Money Market Borrowing must be $5,000,000 or a larger multiple of $1,000,000, (iii) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and 17 (iv) the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement. (g) Allocation by Agent. If offers are made by two or more Banks ------------------- with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. SECTION 2.04. Notice to Banks; Funding of Loans. --------------------------------- (a) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (New York City time) on the date of each Borrowing, each Bank participating therein shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. Unless the Agent determines that any applicable condition specified in Article III has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower at the Agent's aforesaid address. (c) If any Bank makes a new Loan hereunder on a day on which the Borrower is to repay all or any part of an outstanding Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Agent as provided in subsection (b), or remitted by the Borrower to the Agent as provided in Section 2.12, as the case may be. (d) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank's share 18 of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsections (b) and (c) of this Section 2.04 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and, if such Bank fails to do so within three Domestic Business Days of demand therefor, the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.07 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.05. Notes. (a) The Loans of each Bank shall be evidenced ----- by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.01(b), the Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, type and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or - -------- endorsement shall not affect the obligations of the Borrower hereunder or under the 19 Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.06. Maturity of Loans. Each Loan included in any Borrowing ----------------- shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear -------------- interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable for each Interest Period on the last day thereof. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each CD Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to such Interest Period; provided that if any CD Loan shall, -------- as a result of clause (2)(b) of the definition of Interest Period, have an Interest Period of less than 30 days, such CD Loan shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. Any overdue principal of or interest on any CD Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to the Interest Period for such Loan and (ii) the rate applicable to Base Rate Loans for such day. "CD Margin" means a rate per annum determined in accordance with the Pricing Schedule. The "Adjusted CD Rate" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: 20 [ CDBR ]* ACDR = [ ---------- ] + AR [ 1.00 - DRP ] ACDR = Adjusted CD Rate CDBR = CD Base Rate DRP = Domestic Reserve Percentage AR = Assessment Rate __________ * The amount in brackets being rounded upward, if necessary, to the next higher 1/100 of 1% The "CD Base Rate" applicable to any Interest Period is the rate of interest determined by the Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each CD Reference Bank of its certificates of deposit in an amount comparable to the principal amount of the CD Loan of such CD Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. "Domestic Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Domestic Reserve Percentage. "Assessment Rate" means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. (S) 327.3(e) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the 21 United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. "Euro-Dollar Margin" means a rate per annum determined in accordance with the Pricing Schedule. The "Adjusted London Interbank Offered Rate" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "London Interbank Offered Rate" applicable to any Interest Period means the average (rounded to the nearest 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of 22 the effective date of any change in the Euro-Dollar Reserve Percentage. (d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to the Interest Period for such Loan and (ii) the sum of 2% plus the Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded to the nearest 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than six months as the Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day). (e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(c) as if the related Money Market LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the Base Rate for such day. (f) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the participating Banks of 23 each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (g) Each Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. So long as quotations from at least five (or four) Reference Banks are available, the Agent shall disregard the highest two (or one) such quotations in determining the relevant interest rate. SECTION 2.08. Facility Fee. The Borrower shall pay to the Agent for ------------ the account of the Banks ratably a facility fee at the Facility Fee Rate (determined daily in accordance with the Pricing Schedule). Such facility fee shall accrue (i) from and including the Effective Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety), on the daily aggregate amount of the Commitments (whether used or unused) and (ii) from and including the Termination Date or such earlier date of termination to but excluding the date the Loans shall be repaid in their entirety, on the daily aggregate outstanding principal amount of the Loans. Accrued fees under this Section shall be payable quarterly on the last day of each March, June, September and December and upon the date of termination of the Commitments in their entirety (and, if later, the date the Loans shall be repaid in their entirety). SECTION 2.09. Optional Termination or Reduction of Commitments. ------------------------------------------------ During the Revolving Credit Period, the Borrower may, upon at least three Domestic Business Days' notice to the Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $25,000,000 or any larger multiple of $5,000,000, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans. SECTION 2.10. Scheduled Termination of Commitments. The Commitments ------------------------------------ shall terminate on the Termination Date, and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. 24 SECTION 2.11. Optional Prepayments. (a) Subject in the case of any -------------------- Fixed Rate Borrowing to Section 2.13, the Borrower may, upon at least one Domestic Business Day's notice to the Agent, prepay any Base Rate Borrowing (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.01(a)), upon at least three Domestic Business Days' notice to the Agent, prepay any CD Borrowing or upon at least three Euro-Dollar Business Days' notice to the Agent, prepay any Euro-Dollar Borrowing, in each case in whole at any time, or from time to time in part in amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Borrowing. (b) Except as provided in Section 2.11(a), the Borrower may not prepay all or any portion of the principal amount of any Money Market Loan prior to the maturity thereof. (c) Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.12. General Provisions as to Payments. (a) The Borrower --------------------------------- shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro- Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Money Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of 25 principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.13. Funding Losses. If the Borrower makes any payment of -------------- principal with respect to any Fixed Rate Loan (pursuant to Article II, VI or VIII or otherwise) on any day other than the last day of the Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.07(d), or if the Borrower fails to borrow or prepay any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a) or 2.11(c), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or reasonable expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow or prepay, provided that such Bank shall have delivered to the -------- Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 2.14. Computation of Interest and Fees. Interest based on -------------------------------- the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). 26 ARTICLE III CONDITIONS SECTION 3.01. Effectiveness. This Agreement shall become effective ------------- on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05): (a) receipt by the Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (b) receipt by the Agent of a duly executed Note for the account of each Bank dated on or before the Effective Date complying with the provisions of Section 2.05; (c) receipt by the Agent of an opinion of David D. Wilson, Assistant Secretary and Associate General Counsel for the Borrower, substantially in the form of Exhibit E hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (d) receipt by the Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agent, substantially in the form of Exhibit F hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (e) receipt by the Agent of all documents the Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Agent; and (f) receipt by the Agent of evidence satisfactory to it of the payment of all principal of and interest on any loans outstanding under, and of all other amounts payable under, the Existing Credit Agreements; provided that this Agreement shall not become effective or be binding on any - -------- party hereto unless all of the foregoing 27 conditions are satisfied not later than February 21, 1995. The Agent shall promptly notify the Borrower and the Banks of the Effective Date, and such notice shall be conclusive and binding on all parties hereto. The Banks that are parties to the Existing Credit Agreements and the Borrower agree that the commitments under the Existing Credit Agreements shall terminate in their entirety simultaneously with and subject to the effectiveness of this Agreement and that the Borrower shall be obligated to pay all accrued commitment and facility fees thereunder to but excluding the date of such effectiveness. SECTION 3.02. Borrowings. The obligation of any Bank to make a Loan ---------- on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) receipt by the Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be; (b) the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments; (c) the fact that, immediately before and after such Borrowing, no Default shall have occurred and be continuing; and (d) the fact that the representations and warranties of the Borrower contained in this Agreement (except (i) the representation and warranty set forth in Section 4.04(c) and (ii) the representations and warranties set forth in Sections 4.05 and 4.06 as to any matter which has theretofore been disclosed in writing by the Borrower to the Banks or in reports filed with the Securities and Exchange Commission, copies of which reports have been delivered to the Banks) shall be true on and as of the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b), (c) and (d) of this Section. 28 ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a ----------------------------- corporation duly incorporated, validly existing and in good standing under the laws of Pennsylvania, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. Corporate and Governmental Authorization; No -------------------------------------------- Contravention. The execution, delivery and performance by the Borrower of this - ------------- Agreement and the Notes are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the articles of incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and -------------- binding agreement of the Borrower and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms. SECTION 4.04. Financial Information. --------------------- (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 1993 and the related consolidated statements of earnings and cash flows for the fiscal year then ended, reported on by independent public accountants and set forth in the Borrower's 1993 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. 29 (b) The unaudited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of September 30, 1994 and the related unaudited consolidated statements of earnings and cash flows for the nine months then ended, set forth in the Borrower's Latest Form 10-Q, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such nine month period (subject to normal year-end adjustments). (c) Since September 30, 1994 there has been no material adverse change in the business, financial position, operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.05. Litigation. Except as disclosed in the Borrower's 1993 ---------- Form 10-K or in the Borrower's Latest Form 10-Q, there is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, financial position, operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole, or the ability of the Borrower to perform its obligations under this Agreement and the Notes, or which in any manner draws into question the validity of this Agreement or the Notes. SECTION 4.06. Environmental Matters. In the ordinary course of its --------------------- business, the Borrower reviews the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs. On the basis of this review, the Borrower has reasonably concluded that, to the best of its knowledge, except as disclosed in reports filed with the Securities and Exchange Commission, copies of which reports have been delivered to the Banks, such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a material adverse effect on the business, financial condition, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. 30 SECTION 4.07. Taxes. The Borrower and its Subsidiaries have filed ----- all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.08. Significant Subsidiaries. Each of the Borrower's ------------------------ Significant Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.09. Not an Investment Company. The Borrower is not an ------------------------- "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.10. Full Disclosure. All information heretofore furnished --------------- by the Borrower to the Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Borrower to the Agent or any Bank will be, true and accurate in all material respects on the date as of which such information is stated or certified. The Borrower has disclosed to the Banks in writing or in reports filed with the Securities and Exchange Commission, copies of which reports have been delivered to the Banks, any and all facts which materially and adversely affect or may affect (to the extent the Borrower can now reasonably foresee) the business, operations or financial condition of the Borrower and its Consolidated Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under this Agreement. ARTICLE V COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.01. Information. The Borrower will ----------- deliver to each of the Banks: 31 (a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner acceptable to the Securities and Exchange Commission by independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in the case of such statements of income and cash flows in comparative form the figures for the corresponding quarter and the corresponding portion of the Borrower's previous fiscal year, all certified (subject to normal year- end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.07 to 5.08, inclusive, on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) within five days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the 32 action which the Borrower is taking or proposes to take with respect thereto; (e) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (f) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Securities and Exchange Commission; (g) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; and 33 (h) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Agent, at the request of any Bank, may reasonably request. SECTION 5.02. Payment of Obligations. The Borrower will pay and ---------------------- discharge, and will cause each Significant Subsidiary to pay and discharge, at or before maturity, all their respective material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each Significant Subsidiary to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same. Obligations and liabilities in an aggregate amount equal to or less than $20,000,000 will not be deemed "material" for purposes of this Section 5.02. SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower ---------------------------------- will keep, and will cause each Significant Subsidiary to keep, all property material to its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower and its Significant Subsidiaries will maintain insurance with sound and reputable insurers against at least such risks (and in at least such amounts, subject to such risk retentions) as are usually insured against in the same geographic area by companies of established repute engaged in the same or a similar business. SECTION 5.04. Conduct of Business and Maintenance of Existence. The ------------------------------------------------ Borrower will preserve, renew and keep in full force and effect, and will cause each Significant Subsidiary to preserve, renew and keep in full force and effect their respective corporate existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided -------- that nothing in this Section 5.04 shall prohibit (i) the merger of a Subsidiary into the Borrower or the merger or consolidation of a Subsidiary with or into another Person if the corporation surviving such consolidation or merger is a Subsidiary and if, in each case, after giving effect thereto, no Default shall have occurred and be continuing or (ii) the termination of the corporate existence of any Subsidiary if the Borrower in good faith determines that such termination is in the best interest of the Borrower and is not materially disadvantageous to the Banks. 34 SECTION 5.05. Compliance with Laws. The Borrower will comply, and -------------------- cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings and with respect to which adequate reserves have been established in accordance with generally accepted accounting principles. SECTION 5.06. Inspection of Property, Books and Records. The ----------------------------------------- Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Bank at such Bank's expense to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.07. Minimum Consolidated Net Worth. Consolidated Net Worth ------------------------------ will at no time be less than $470,000,000. SECTION 5.08. Negative Pledge. Neither the Borrower nor any --------------- Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing on the date of this Agreement securing Debt outstanding on the date of this Agreement in an aggregate principal or face amount not exceeding $30,000,000; (b) any Lien existing on any asset of any corporation at the time such corporation becomes a Subsidiary and not created in contemplation of such event; (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset, provided that such Lien attaches to such asset concurrently with or within -------- 180 days after the acquisition thereof; 35 (d) any Lien on any asset of any corporation existing at the time such corporation is merged or consolidated with or into the Borrower or a Subsidiary and not created in contemplation of such event; (e) any Lien existing on any asset prior to the acquisition thereof by the Borrower or a Subsidiary and not created in contemplation of such acquisition; (f) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section, provided that such Debt is not increased and is -------- not secured by any additional assets; (g) Liens arising in the ordinary course of its business which (i) do not secure Debt or Derivatives Obligations, (ii) do not secure any obligation in an amount exceeding $25,000,000 and (iii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (h) Liens on cash and cash equivalents securing Derivatives Obligations, provided that the aggregate amount of cash and cash -------- equivalents subject to such Liens may at no time exceed $25,000,000; and (i) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal or face amount at any date not to exceed 10% of Consolidated Net Worth. SECTION 5.09. Consolidations, Mergers and Sales of Assets. The ------------------------------------------- Borrower will not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer, directly or indirectly, in a single transaction or a series of related transactions all or any substantial part of the assets of the Borrower and its Subsidiaries, taken as a whole, to any other Person. For purposes of this Section, a substantial part of the assets of the Borrower and its Subsidiaries, taken as a whole, shall mean 20% or more of the consolidated assets of the Borrower and its Consolidated Subsidiaries. SECTION 5.10. Use of Proceeds. The proceeds of the Loans made under --------------- this Agreement will be used by the Borrower for its general corporate purposes. None of such proceeds will be used in violation of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. 36 ARTICLE VI DEFAULTS SECTION 6.01. Events of Default. If one or more of the following ----------------- events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan or shall fail to pay within three days of the due date thereof any interest on any Loan, any fees or any other amount payable hereunder; (b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.07 to 5.10, inclusive; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after notice thereof has been given to the Borrower by the Agent at the request of any Bank; (d) any representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made); (e) the Borrower or any Subsidiary shall fail to make any payment in respect of any Material Financial Obligations when due or within any applicable grace period; (f) any event or condition shall occur which results in the acceleration of the maturity of any Material Debt or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) the Borrower or any Significant Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its 37 property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Significant Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Significant Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $5,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $20,000,000; (j) judgments or orders for the payment of money in excess of $20,000,000 in the aggregate shall be rendered against the Borrower or any Subsidiary and such judgments or orders shall continue unsatisfied and unstayed for a period of 30 days; or 38 (k) (i) any Person becomes the beneficial owner of 28% or more of the then outstanding Voting Stock of the Borrower and within five years thereafter Disinterested Directors no longer constitute at least a majority of the Board of Directors of the Borrower or (ii) a Business Combination with an Interested Shareholder occurs which has not been approved by a majority of Disinterested Directors. (For purposes of this subsection, the terms Person, beneficial owner, Voting Stock, Disinterested Director, Business Combination, and Interested Shareholder are defined in Article 7 of the Borrower's Articles of Incorporation as in effect as of the date hereof); then, and in every such event, the Agent shall (i) if requested by Banks having more than 66 2/3% in aggregate amount of the Commitments, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding Notes evidencing more than 66 2/3% in aggregate principal amount of the Loans, by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause - -------- (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.02. Notice of Default. The Agent shall give notice to the ----------------- Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE VII THE AGENT SECTION 7.01. Appointment and Authorization. Each Bank irrevocably ----------------------------- appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. 39 SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of -------------------- New York shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Agent hereunder. SECTION 7.03. Action by Agent. The obligations of the Agent --------------- hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article VI. SECTION 7.04. Consultation with Experts. The Agent may consult with ------------------------- legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. Liability of Agent. Neither the Agent nor any of its ------------------ affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article III, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. 40 SECTION 7.06. Indemnification. Each Bank shall, ratably in --------------- accordance with its Commitment, indemnify the Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder. SECTION 7.07. Credit Decision. Each Bank acknowledges that it has, --------------- independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.08. Successor Agent. The Agent may resign at any time by --------------- giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Borrower shall have the right to appoint a successor Agent, subject to the approval of the Required Banks. If no successor Agent shall have been so appointed and approved, and shall have accepted such appointment, within 45 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 7.09. Agent's Fee. The Borrower shall pay to the Agent for ----------- its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Agent. 41 ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate. If on ---------------------------------------------- or prior to the first day of any Interest Period for any Fixed Rate Borrowing, the Agent is advised by all of the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the relevant market for such Interest Period, the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, shall be suspended. Unless the Borrower notifies the Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow such Borrowing on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day. SECTION 8.02. Illegality. If, on or after the date of this ---------- Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any formal request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the 42 judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower shall immediately prepay in full the then outstanding principal amount of each such Euro-Dollar Loan, together with accrued interest thereon. Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loan. SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after --------------------------------- (x) the date hereof, in the case of any Committed Loan or any obligation to make Committed Loans or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any formal request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding (i) with respect to any CD Loan any such requirement included in an applicable Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage), special deposit, insurance assessment (excluding, with respect to any CD Loan, any such requirement reflected in an applicable Assessment Rate) or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such 43 Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any formal request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. SECTION 8.04. Taxes. (a) For purposes of this Section 8.04, the ----- following terms have the following meanings: "Taxes" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Borrower pursuant to this Agreement or under any Note, and all liabilities with respect thereto, excluding (i) in the case of each Bank and the Agent, taxes --------- imposed on its income, and franchise or 44 similar taxes imposed on it, by a jurisdiction under the laws of which such Bank or the Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Bank, in which its Applicable Lending Office is located and (ii) in the case of each Bank, any United States withholding tax imposed on such payments but only to the extent that such Bank is subject to United States withholding tax at the time such Bank first becomes a party to this Agreement. "Other Taxes" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note. (b) Any and all payments by the Borrower to or for the account of any Bank or the Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be required -------- by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Bank or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (c) The Borrower agrees to indemnify each Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Bank or the Agent (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the 45 case of each other Bank, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts the Bank from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Bank or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which such form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.04(b) or (c) with respect to Taxes imposed by the United States; provided that if a Bank, which is -------- otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will change the jurisdiction of its Applicable Lending Office if, in the judgment of such Bank, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank. SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate --------------------------------------------------- Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has been - ----- suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its CD Loans or Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans which would otherwise be made by such Bank as CD Loans or Euro-Dollar Loans, as the case may be, shall be made instead as Base Rate Loans (on 46 which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks), and (b) after each of its CD Loans or Euro-Dollar Loans, as the case may be, has been repaid, all payments of principal which would otherwise be applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans instead. SECTION 8.06. Substitution of Bank. If (i) the obligation of any -------------------- Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04, the Borrower shall have the right, with the assistance of the Agent, to seek a mutually satisfactory substitute bank or banks (which may be one or more of the Banks) to purchase the Note and assume the Commitment of such Bank. ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices. All notices, requests and other ------- communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Agent, at its address, facsimile number or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received or (iii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the -------- Agent under Article II or Article VIII shall not be effective until received. SECTION 9.02. No Waivers. No failure or delay by the Agent or any ---------- Bank in exercising any right, power or 47 privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay ------------------------- (i) all reasonable out-of-pocket expenses of the Agent, including fees and disbursements of special counsel for the Agent, in connection with the preparation and administration of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Agent and each Bank, including (without duplication) the fees and disbursements of outside counsel and the allocated cost of inside counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify the Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that (i) no Indemnitee shall have the -------- right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction, (ii) in the case of an investigation or a proceeding to which an Indemnitee is not a party, such Indemnitee shall be entitled to indemnification only if such Indemnitee is required to respond to process or other formal inquiry in connection therewith and (iii) any claim for indemnification hereunder shall be made not later than three years after the termination of the Commitments and repayment in full of the Loans. SECTION 9.04. Sharing of Set-Offs. The Banks agree among themselves ------------------- that if any Bank shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which 48 is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair -------- the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness hereunder. SECTION 9.05. Amendments and Waivers. Any provision of this ---------------------- Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, - -------- (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for termination of any Commitment or (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. SECTION 9.06. Successors and Assigns. (a) The provisions of this ---------------------- Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans, with (and subject to) the prior written consent of the Borrower. In the event of any such grant by a Bank of a participating interest to a Participant, such Bank shall remain responsible for the performance of its Commitment and its other obligations hereunder, and the Borrower and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement 49 pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank -------- will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), (iii) or (iv) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article VIII with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit G hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower and the Agent, which consent from the Agent will not be unreasonably withheld; provided that such assignment may, but need not, include -------- rights of the transferor Bank in respect of outstanding Money Market Loans. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to 50 exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 9.07. Increased Commitments; Additional Banks. (a) --------------------------------------- Subsequent to the Effective Date, the Borrower may, upon at least 30 days' notice to the Banks and the Agent, propose to increase the aggregate amount of the Commitments to an amount not to exceed $300,000,000 (the amount of such increase, the "Increased Commitments"). Each Bank party to this Agreement at such time shall have the right (but no obligation) for a period of 15 days following receipt of such notice, to elect by notice to the Borrower and the Agent to increase such Bank's Commitment by 50%. If Banks having at least 50% of the aggregate amount of the Commitments so notify the Borrower and the Agents within such 15-day period, then (i) the Commitment of each such electing Bank shall be increased by an amount which bears the same relation to its existing Commitment as the aggregate amount of the Increased Commitments bears to the aggregate amount of the existing Commitments and (ii) the Commitments of the other Banks shall be unchanged, in each case subject to Section 9.07(b). If Banks having less than 50% of the aggregate amount of the Commitments so elect to increase their Commitments, the Commitments of all Banks shall be unchanged. (b) If Banks having at least 66 2/3% but less than 100% of the aggregate amount of the Commitments shall have elected to increase their commitments by 50% in accordance with Section 9.07(a), the Borrower may designate one or more additional banks (which may include, if they are so willing, one or more of the Banks) (in either case, each an "Additional Bank") to assume Commitments hereunder; provided that the initial or incremental -------- Commitments of the Additional Banks shall not in the aggregate exceed the 51 unsubscribed amount of the Increased Commitments. Any Additional Bank not theretofore a Bank shall become a party to this Agreement and be considered a Bank hereunder for all purposes if it shall agree in writing to be bound by all of the terms and provisions of this Agreement, such agreement to specify the amount of the Commitment of such Additional Bank and to be otherwise in form and substance satisfactory to the Agent. (c) An increase in the aggregate amount of the Commitments pursuant to this Section 9.07 shall become effective upon the receipt by the Agent of an agreement in form and substance satisfactory to the Agent signed by the Borrower, by each Additional Bank and by each other Bank whose Commitment is to be increased, setting forth the new Commitments of such Banks and setting forth the agreement of each Additional Bank not theretofore a Bank to become a party to this Agreement and to be bound by all the terms and provisions hereof, together with such evidence of appropriate corporate authorization on the part of the Borrower with respect to the Increased Commitments and such opinions of counsel for the Borrower with respect to the Increased Commitments as the Agent may reasonably request. SECTION 9.08. Collateral. Each of the Banks represents to the Agent ---------- and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.09. Governing Law; Submission to Jurisdiction. This ----------------------------------------- Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 9.10. Counterparts; Integration. This Agreement may be ------------------------- signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes 52 any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 9.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT -------------------- AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 53 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. ARMSTRONG WORLD INDUSTRIES, INC. By /s/ William J. Wimer ---------------------------- Title: Senior Vice President, Finance By /s/ Stephen C. Hendrix ---------------------------- Title: Treasurer 313 West Liberty Street Lancaster, PA 17603 Facsimile number: 717-396-2408 54 Commitments - ----------- $30,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Laura E. Reim ---------------------------- Title: Vice President $20,000,000 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By /s/ John W. Pocalyko ---------------------------- Title: Vice President $20,000,000 CHEMICAL BANK By /s/ William J. Caggiano ---------------------------- Title: Managing Director $20,000,000 CITIBANK, N.A. By /s/ William G. Martens, III ---------------------------- Title: Vice President $20,000,000 MELLON BANK, N.A. By /s/ Gilbert B. Mateer ---------------------------- Title: Assistant Vice President $20,000,000 SOCIETE GENERALE By /s/ Bruce Drossman ---------------------------- Title: Vice President 55 $20,000,000 WACHOVIA BANK OF GEORGIA, N.A. By /s/ Mark S. Rogus ---------------------------- Title: Senior Vice President $20,000,000 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK AND CAYMAN ISLANDS BRANCHES By /s/ Cynthia M. Niesen ---------------------------- Title: Vice President By /s/ Karen Hoplock ---------------------------- Title: Vice President $15,000,000 BARCLAYS BANK PLC By /s/ Peter Yetman ---------------------------- Title: Associate Director $15,000,000 STANDARD CHARTERED BANK By /s/ Marianne R. Murray ---------------------------- Title: Vice President _________________ Total Commitments $200,000,000 ================= 56 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By /s/ Laura E. Reim --------------------------- Title: Vice President 60 Wall Street New York, New York 10260-0060 Attention: Laura E. Reim ------------------- Telex number: 177615 Facsimile number: (212) 648-5336 57 PRICING SCHEDULE The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Status that exists on such day:
============================================================================================================================== Level Level Level Level Level Level Level Level Level Level Level Status I II III IV V VI VII VIII IX X XI ============================================================================================================================== Euro-Dollar Margin 0.1250% 0.1400% 0.1600% 0.1750% 0.1900% 0.2250% 0.2400% 0.2500% 0.3000% 0.3000% 0.5000% - ------------------------------------------------------------------------------------------------------------------------------ CD Margin 0.2500% 0.2650% 0.2850% 0.3000% 0.3150% 0.3500% 0.3650% 0.3750% 0.4250% 0.4250% 0.6250% - ------------------------------------------------------------------------------------------------------------------------------ Facility Fee Rate 0.0750% 0.0850% 0.0900% 0.1000% 0.1100% 0.1250% 0.1350% 0.1500% 0.1750% 0.2000% 0.2500% ==============================================================================================================================
For purposes of this Schedule, the following terms have the following meanings: "Moody's" means Moody's Investors Service, Inc. "S&P" means Standard & Poor's Corporation. "Status" refers to the determination of which of Levels I through XI exists at any date, based on the credit ratings in effect on such date and the table below. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Borrower without third-party credit enhancement, and any rating assigned to any other debt security of the Borrower shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. 2 Pricing Levels --------------
Moody's S&P Level - ------- --- ----- Aa3 AA- I A1 AA- I A2 AA- II A3 AA- II Baa1 AA- III Baa2 AA- III Baa3 AA- IV Ba1 AA- IV Aa3 A+ I A1 A+ II A2 A+ III A3 A+ III Baa1 A+ III Baa2 A+ IV Baa3 A+ IV Ba1 A+ VI Aa3 A II A1 A III A2 A III A3 A III Baa1 A IV Baa2 A IV Baa3 A VI Ba1 A VI Aa3 A- II A1 A- III A2 A- III A3 A- IV Baa1 A- V Baa2 A- VI Baa3 A- VI Ba1 A- VIII Aa3 BBB+ III A1 BBB+ IV A2 BBB+ IV A3 BBB+ V Baa1 BBB+ VI Baa2 BBB+ VII
3 Baa3 BBB+ VIII Ba1 BBB+ VIII Aa3 BBB III A1 BBB IV A2 BBB IV A3 BBB VI Baa1 BBB VII Baa2 BBB VIII Baa3 BBB IX Ba1 BBB X Aa3 BBB- IV A1 BBB- IV A2 BBB- VI A3 BBB- VI Baa1 BBB- VIII Baa2 BBB- IX Baa3 BBB- X Ba1 BBB- XI Aa3 BB+ IV A1 BB+ VI A2 BB+ VI A3 BB+ VIII Baa1 BB+ VIII Baa2 BB+ X Baa3 BB+ XI Ba1 BB+ XI
Note: A rating of Aa3 (Moody's) or AA- (S&P) includes any higher rating. A - ---- rating of Ba1 (Moody's) or BB+ (S&P) includes any lower rating (or the absence of a rating). 4 Schedule I Existing Credit Agreements -------------------------- Letter Agreement for $40,000,000 Credit Facility between Armstrong World Industries, Inc. and Morgan Guaranty Trust Company of New York dated as of September 1, 1993, as amended. Letter Agreement for $30,000,000 Credit Facility between Armstrong World Industries, Inc. and Mellon Bank, N.A. dated as of December 1, 1993. Letter Agreement for $30,000,000 Credit Facility between Armstrong World Industries, Inc. and Wachovia Bank of Georgia, N.A. dated as of September 30, 1993. Letter Agreement for $25,000,000 Credit Facility between Armstrong World Industries, Inc. and Citibank, N.A. dated as of October 1, 1993. Letter Agreement for $20,000,000 Credit Facility between Armstrong World Industries, Inc. and Westdeutsche Landesbank Girozentrale, New York and Cayman Islands Branch dated as of September 22, 1993. Letter Agreement for $15,000,000 Credit Facility between Armstrong World Industries, Inc. and Barclays Bank PLC dated as of September 1, 1994. EXHIBIT A NOTE New York, New York , 19 For value received, Armstrong World Industries, Inc., a Pennsylvania corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the last day of the Interest Period relating to such Loan. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation -------- or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the Credit Agreement dated as of February 7, 1995 among the Borrower, the banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. ARMSTRONG WORLD INDUSTRIES, INC. By________________________ Title: By________________________ Title: 2 EXHIBIT B Form of Money Market Quote Request ---------------------------------- [Date] To: Morgan Guaranty Trust Company of New York (the "Agent") From: Armstrong World Industries, Inc. Re: Credit Agreement (the "Credit Agreement") dated as of February 7, 1995 among the Borrower, the Banks listed on the signature pages thereof and the Agent We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: _________________ Principal Amount* Interest Period** - ---------------- --------------- $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] ____________________ *Amount must be $5,000,000 or a larger multiple of $1,000,000. **Not less than one month (LIBOR Auction) or not less than 7 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL ________________________________________________________________________________ Amount of Amount of Type of Principal Maturity Notation Date Loan Loan Repaid Date Made By ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 3 Terms used herein have the meanings assigned to them in the Credit Agreement. ARMSTRONG WORLD INDUSTRIES, INC. By________________________ Title: EXHIBIT C Form of Invitation for Money Market Quotes ------------------------------------------ To: [Name of Bank] Re: Invitation for Money Market Quotes to Armstrong World Industries, Inc. (the "Borrower") Pursuant to Section 2.03 of the Credit Agreement dated as of February 7, 1995 among the Borrower, the Banks parties thereto and the undersigned, as Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount Interest Period - ---------------- --------------- $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [4:00 P.M.] [9:30 A.M.] (New York City time) on [date]. MORGAN GUARANTY TRUST COMPANY OF NEW YORK By______________________ Authorized Officer 1 EXHIBIT D Form of Money Market Quote -------------------------- To: Morgan Guaranty Trust Company of New York, as Agent Re: Money Market Quote to Armstrong World Industries, Inc. (the "Borrower") In response to your invitation on behalf of the Borrower dated _____________, 19__, we hereby make the following Money Market Quote on the following terms: 1. Quoting Bank: ________________________________ 2. Person to contact at Quoting Bank: _____________________________ 3. Date of Borrowing: ____________________* 4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates: Principal Interest Money Market Amount** Period*** [Margin****] [Absolute Rate*****] - --------- --------- --------------------------------- $ $ [Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $____________.]** __________ * As specified in the related Invitation. ** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger multiple of $1,000,000. (notes continued on following page) We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Credit Agreement dated as of February 7, 1995 among the Borrower, the Banks listed on the signature pages thereof and yourselves, as Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Very truly yours, [NAME OF BANK] Dated:_______________ By:__________________________ Authorized Officer __________ *** Not less than one month or not less than 7 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. **** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%). 2 EXHIBIT E OPINION OF COUNSEL FOR THE BORROWER ------------------------ To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: I have acted as counsel for Armstrong World Industries, Inc. (the "Borrower") in connection with the Credit Agreement (the "Credit Agreement") dated as of February 7, 1995 among the Borrower, the banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of my client pursuant to Section 3.01(c) of the Credit Agreement. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. I am licensed to practice law in the Commonwealth of Pennsylvania. The law covered by this opinion is limited to the laws of the Commonwealth of Pennsylvania and the Federal laws of the United States. I have assumed for the purposes of this opinion that the substantive law of the State of New York is identical in all material respects to the substantive law of the Commonwealth of Pennsylvania. Upon the basis of the foregoing, I am of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Pennsylvania, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 2. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the articles of incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. 3. The Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. 4. Except as disclosed in the Borrower's 1993 Form 10-K or in the Borrower's Latest Form 10-Q, there is no action, suit or proceeding pending against, or to the best of my knowledge threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, financial position, operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole, or the ability of the Borrower to perform its obligations under the Credit Agreement and the Notes, or which in any manner draws into question the validity of the Credit Agreement or the Notes. 5. Each of the Borrower's Significant Subsidiaries is a corporation validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. Very truly yours, 2 EXHIBIT F OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENT -------------------------------------- To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: We have participated in the preparation of the Credit Agreement (the "Credit Agreement") dated as of February 7, 1995 among Armstrong World Industries, Inc., a Pennsylvania corporation (the "Borrower"), the banks listed on the signature pages thereof (the "Banks") and Morgan Guaranty Trust Company of New York, as Agent (the "Agent"), and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that the Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York and the federal laws of the United States of America. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect and we have relied, without independent investigation, as to all matters of Pennsylvania law on the opinion of David D. Wilson, counsel for the Borrower, of even date herewith, copies of which have been delivered to you. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, EXHIBIT G ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), ARMSTRONG WORLD INDUSTRIES, INC. (the "Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H - - - - - - - - - - WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the Credit Agreement dated as of February 7, 1995 among the Borrower, the Assignor and the other Banks party thereto, as Banks, and the Agent (the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $__________; WHEREAS, Committed Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding Committed Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined ----------- herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the ---------- Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee[, the Borrower and the Agent] and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale -------- contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.* It is understood that commitment and/or facility fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. [SECTION 4. Consent of the Borrower and the Agent. This Agreement is ------------------------------------- conditioned upon the consent of the Borrower and the Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by the Borrower and the Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] ______________________ *Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. 2 SECTION 5. Non-Reliance on Assignor. The Assignor makes no ------------------------ representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 6. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of New York. SECTION 7. Counterparts. This Agreement may be signed in any number ------------ of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By_________________________ Title: [ASSIGNEE] By__________________________ Title: ARMSTRONG WORLD INDUSTRIES, INC. By__________________________ Title: 3 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By__________________________ Title: 4 EX-10.III.B 7 DEFERRED COMPENSATION PLAN DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS OF ARMSTRONG WORLD INDUSTRIES, INC. This plan is established to provide a method whereby a nonemployee director (hereinafter referred to as a "director") of Armstrong World Industries, Inc. may elect to defer the receipt of moneys due to him for his services to the Company. 1. Prior to January 1 of any year (or prior to the beginning of a term of a newly elected director), a director may elect to have all or any part of the compensation to be earned by him by virtue of his being a director during such year (or part thereof for a new director), plus interest thereon as provided in paragraph 2 hereof, paid to him or his designated beneficiary in one of the following ways : (a) Payment to him in ten approximately equal annual installments beginning at the earlier of his termination of services as a director or age 65, with any unpaid balance at his death paid in a lump sum to a beneficiary designated by him. (b) Payment to him in ten approximately equal annual installments beginning at the later of age 65 or termination of his services as a director, with any unpaid balance at his death paid in a lump sum to a beneficiary designed by him. (c) Payment upon his death only in a lump sum to a beneficiary designated by him. (d) Any other mode of payment upon which the President of the Company and a director may agree prior to the time when an election is required. 2. Interest will be compounded annually on any amounts deferred under this plan at a rate equal to the ninety (90) day U. S. Treasury Bill rate established at the first auction in each respective year. For convenience, amounts deferred in any current year will be credited with interest for 1/2 of the current year or of the period served by the director, whichever is applicable . 3. An election by a director to defer compensation with respect to any calendar year (or part thereof for a new director) shall be irrevocable after the year (or part-year) begins, and the election and beneficiary designation shall continue to be effective with respect to compensation in each succeeding calendar year until and unless, before the beginning thereof, a director files a new election or informs the President of the Company in writing that he wishes to receive his entire compensation in cash. 4. Designations of beneficiary shall be made only in a writing filed with the Secretary of the Company during a director's lifetime. All designations shall be revocable and may be changed in the same manner at any time unless expressly stated to be irrevocable. A revocable beneficiary designation (other than one designating a trustee as beneficiary) shall be -2- revoked by the death of the beneficiary. The rights of an irrevocably designated beneficiary (other than a trustee) shall inure to his estate. The rights of a trustee beneficiary shall insure to his successor as trustee. If no beneficiary designation is in effect at the death of a director, payments otherwise due a beneficiary shall be paid to the deceased director's estate. 5. Amounts payable under this plan may not be voluntarily or involuntarily assigned by a director or beneficiary. 6. The Company may amend or terminate this plan at any time with respect to directors' compensation not yet earned. EX-10.III.D 8 MANG. ACHIEVEMENT PLAN MANAGEMENT ACHIEVEMENT PLAN PLAN TEXT AND ADMINISTRATIVE GUIDELINES ADOPTED BY BOARD OF DIRECTORS NOVEMBER 28, 1983 AS AMENDED FEBRUARY 25, 1985 AS AMENDED FEBRUARY 23, 1987 AS AMENDED NOVEMBER 30, 1987 AS AMENDED NOVEMBER 28, 1988 AS AMENDED FEBRUARY 25, 1991 AS AMENDED NOVEMBER 25, 1991 AS AMENDED NOVEMBER 30, 1992 AS AMENDED SEPTEMBER 27, 1993 AS AMENDED NOVEMBER 24, 1993 AS AMENDED FEBRUARY 22, 1994 AS AMENDED NOVEMBER 21, 1994 ARMSTRONG WORLD INDUSTRIES, INC. -------------------------------- MANAGEMENT ACHIEVEMENT PLAN FOR KEY EXECUTIVES ---------------------------------------------- (PLAN TEXT) ----------- 1. Purpose ------- The Armstrong World Industries, Inc. (the "Company") Management Achievement Plan (the "Plan") is designed to promote the financial success of the Company by recognizing the significant contributions individual employees can make to the achievement of Company goals. Its objectives are to motivate key Company and subsidiary employees to produce outstanding results by providing the opportunity to earn financial rewards in relation to the attainment of the corporate, business unit and individual goals. The Plan is based on the concept that the Company establishes for each participant at the beginning of the year a target incentive award based on the achievement of specific corporate, business unit and individual goals. When the year is over, the results actually achieved will be evaluated against these goals to determine the amount, if any, of additional compensation earned by individuals participating in the Plan. 2. Administration -------------- The Plan shall be administered by the Management Development and Compensation Committee (the "Committee") of the Board of Directors with the advice and counsel of the Chief Executive Officer of the Company. Designated subsidiary companies may adopt this Plan. 3. Eligibility ----------- The intent of the Plan is to extend participation only to those key employees whose duties and responsibilities give them the opportunity to make a continuing material and substantial impact on the achievement of organization goals. The Chief Executive Officer will annually determine the non-officer participants and recommend officer participants to the Committee. - 2 - 4. Incentive Awards ---------------- A) At the beginning of each year, the Chief Executive Officer shall present to the Committee criteria for evaluating performance against corporate, business unit and individual goals for the purposes of determining the incentive awards which shall be paid for the year. B) At the same time, the Chief Executive Officer shall recommend to the Committee a target award expressed as a percentage of salary for each participant. C) As soon as practical following the close of each year, the Chief Executive Officer shall evaluate the levels of corporate, business unit and individual achievement and recommend to the Committee the incentive amount earned by the participants. D) Absent specific Board authorization to the contrary, no awards under the corporate achievement segment of the Plan shall be authorized as to any year in which the consolidated Company results fail to achieve a minimum return on stockholders' equity of 8.5%. 5. Time of Payment --------------- Awards under this Plan shall be paid as soon as practicable after the yearly financial results have been determined. 6. Miscellaneous Provisions ------------------------ A) Condition of Award - Plan participants who terminate employment for ------------------ reasons other than retirement, disability, death or involuntary termination not for cause prior to the completion of the Plan year are not entitled to receive any awards under this Plan. Plan participants who retire, become disabled, die, are involuntarily terminated for reasons other than cause or are reassigned to a noneligible position on or after the last workday of March may be eligible for awards on a prorated basis. - 3 - B) No Assignment or Transfer - Awards are payable only to the participant, ------------------------- except in the case of death or legal incapacity at the time of payment, award may be paid to his heirs, estate or legal guardian. No awards under the Plan or any rights or interests therein shall be assignable or transferable by a participant. C) No Rights to Awards - No employee or other person shall have any claim ------------------- or right to be granted an award under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the employ of the Company or any of its subsidiaries. D) Withholding Taxes - The Company shall have the right to deduct from all ----------------- awards hereunder paid all taxes required by law to be withheld with respect to such awards. E) Funding of Plan - The Company shall not be required to establish any --------------- special or separate fund or to make any other segregation of assets to assure the payment of any award under the Plan. 7. Effective Date of the Plan -------------------------- The effective date of the Plan shall be November 28, 1983. ARMSTRONG WORLD INDUSTRIES, INC. MANAGEMENT ACHIEVEMENT PLAN FOR KEY EXECUTIVES ADMINISTRATIVE GUIDELINES AMENDED NOVEMBER 21, 1994 1. Purpose ------- The Armstrong World Industries, Inc. (the "Company") Management Achievement Plan (the "Plan") is designed to promote the financial success of the Company by recognizing the significant contributions individual employees can make to the achievement of Company goals. Its objectives are to motivate key Company and subsidiary employees to produce outstanding results by providing the opportunity to earn financial rewards in relation to the attainment of corporate, business unit and individual goals. The Plan is based on the concept that the Company establishes for each participant at the beginning of the year a target incentive award based on the achievement of specific corporate, business unit and individual goals. When the year is over, the results actually achieved will be evaluated against these goals to determine the amount, if any, of additional compensation earned by individuals participating in the Plan. 2. Administration -------------- The Plan shall be administered by the Management Development and Compensation Committee (the "Committee") of the Board of Directors with the advice and counsel of the Chief Executive Officer of the Company. Designated subsidiary companies may adopt and implement the Plan consistent with the above stated purpose. 3. Eligibility ----------- The intent of the Plan is to extend participation only to those key employees whose duties and responsibilities give them the opportunity to make a continuing material and substantial impact on the achievement of organization goals. The Executive Office will annually determine the non-officer participants and recommend officer participants to the Committee. - 2 - As a general rule, only positions graded 800 points and above under the corporate job evaluation program will be considered for participation. To be eligible for an award, an employee must be in an eligible position for at least three full months of the Plan year. However, Plan participants who retire, become disabled, die, are involuntarily terminated for reasons other than cause or are assigned to a noneligible position on or after the last workday of March may be eligible for awards on a prorated basis. 4. Performance Targets ------------------- A) Target Award ------------ A target award, expressed as a percentage of the individual's base salary, will be established for each participant. Target awards will vary with the participant's level of responsibility and will be set with an awareness of competitive practice for comparable positions in similar companies. Target award levels are shown in Schedule A. Target awards for employees eligible to participate in the Plan may be allocated to corporate, unit, and individual goals as illustrated in Schedule D. B) Corporate and Business Unit Performance Segments ------------------------------------------------ Annually, the Executive Office in consultation with the Committee, shall establish financial objectives such as economic value added (EVA) or other appropriate measures for the overall Company and for each business unit. In addition, they shall set a threshold level below which no award under the corporate achievement segment of the Plan is earned. The amount of incentive earned at each level of achievement shall be determined by an award earnings schedule established for the overall Company and for each business unit. C) Individual Performance Segment ------------------------------ Concurrent with the setting of corporate and business unit objectives, the participant and manager shall establish specific goals for the individual for the Plan year. - 3 - At year-end, the participant's manager will evaluate the performance against the predetermined goals, according to the scale shown in Schedule B. 5. Award Determination ------------------- A) Threshold Corporate Performance ------------------------------- A threshold of a minimum Company performance as determined by the Board of Directors has been established at 8.5% return on stockholders' equity. Further, a threshold will be established by the Committee. If actual corporate results are less than either specified minimum: (i) There will be no awards under the corporate achievement segment of the Plan. (ii) Executive officer participants will be ineligible for payment under the business unit segment if the business unit fails to reach or exceed 100% of target. (iii) Payments under the individual segment of the Plan will be made only to non-executive officer participants who achieve a rating of 100% or higher against individual objectives. Executive officer participants will be ineligible for payment under the individual segment unless the Committee decides otherwise. B) Individual Performance Requirement ---------------------------------- An employee whose individual evaluation indicates "unacceptable results" will not be eligible to participate in the corporate and business unit achievement segments of the Plan and thus will not receive a payment under the Plan for that Plan year. C) Calculation of Award -------------------- Unless the minimum corporate or individual performance thresholds established above disqualify awards under the Plan, the actual award payable shall be determined by multiplying each segment of the target award by the appropriate percentage of award earned. The sum of these calculations shall determine an eligible employee's recommended award. This calculation is illustrated in Schedule C. EX-10.III.F 9 DEFERRED COMPENSATION PLAN ARMSTRONG DEFERRED COMPENSATION PLAN PLAN DOCUMENT The Armstrong Deferred Compensation Plan (the "Plan") has been authorized by the Board of Directors of Armstrong World Industries, Inc. to be effective on and after September 30, 1985 to allow certain directors and management employees of the Company to defer receipt of a portion of their Compensation and, as a result, to receive certain supplemental retirement of survivor benefits. 1. DEFINITIONS 1.01 "Company" shall mean Armstrong World Industries, Inc. or any successor by merger, purchase or otherwise. In addition, the term Company shall include any subsidiary corporation controlled by Armstrong World Industries, Inc. that shall have adopted this Plan with the permission of the Board of Directors of Armstrong World Industries, Inc. 1.02 "Committee" shall mean the Deferred Compensation Committee whose membership shall include the Chairman of the Board of Directors of the Company and at least two other employees of the Company selected by the Chairman. 1.03 "Compensation" for an employee Participant shall include salary and any Management Achievement Plan Award received by the employee for services with the Company and, in the case of a non-employee director Participant, shall include payments by the Company to the director in the form of retainer and meeting fees. Upon the prior approval of the Committee and subject to any conditions imposed by the Committee, a Participant may elect to include in "Compensation" an applicable amount of any "severance pay" to be provided to a Participant under the Employment Protection Plan for Salaried Employees or Severance Pay Plan for Salaried Employees. 1.04 "Participant" shall be each non-employee director and employee who has been selected for participation by the Committee, who satisfies all conditions of eligibility, and who elects to participate by entering into a Participation Agreement. 1.05 "Participation Agreement" is the contract between the Company and the Participant covering participation in the Plan. 1.06 "Change in Control" shall occur if and when (i) any person acquires "beneficial ownership" of more than 28% of the then outstanding "voting stock" of the Company and, within five years thereafter, "disinterested directors" no longer constitute at least a majority of the entire Board of Directors, or (ii) there shall occur a "Business Combination" with an "Interested Shareholder." For the purpose of this Section, the terms "person," "beneficial ownership," "voting stock," "disinterested director," "Business Combination," and "Interested Shareholder" shall have the meaning given to them in Article 7 of the Company's Articles of Incorporation as in effect on May 1, 1985. 1.07 "Supplemental Retirement Account Balance" at any date shall mean with respect to any Participant a lump sum amount equal to the amount actually deferred under the Plan by the Participant to such date plus interest at a rate equal to the rate which would be payable if the Participant were eligible for a supplemental retirement benefit pursuant to Section 4.01, compounded monthly on each installment from the date of deferral. 1.08 "Termination Account Balance" at any date shall mean with respect to any Participant a lump sum amount equal to the amount actually deferred under the Plan by the Participant to such date plus interest at a rate of six percent (6%) per annum compounded monthly on each installment from the date of deferral. 2. ELIGIBILITY FOR PARTICIPATION Participation in the Plan is limited to non-employee directors of the Company and those management employees who have been selected for participation by the Committee. 3. DEFERRAL OF COMPENSATION 3.01 Deferral Period: During such period or periods as may, from time to time, be selected by the Committee (the "Deferral Period") each person eligible to participate in the Plan shall be given the opportunity to elect to defer a portion of his or her Compensation. The length of the initial Deferral Period shall be four years, commencing on January 1, 1986. 3.02 Deferral Rules: (a) The minimum amount a Participant may defer shall be $5,000 a year. (b) The maximum amount an employee Participant may defer for each year of the Deferral Period shall be 15 percent of the sum of the Participant's annual base salary and target Management Achievement Plan Award at the time of the deferral election. The maximum amount of Compensation deferred by a non-employee director shall be determined by the director. (c) The amount deferred by an employee Participant shall be deferred by means of reductions in the employee's Compensation. Amounts deferred by a non-employee director shall be made first from directors' retainer fees and then, if necessary, from directors' meeting fees. (d) The decision by a Participant to defer a portion of Compensation must be made by the December 1 prior to the Deferral Period to which an election to defer Compensation relates; provided, however, that in the case of a participant whose eligibility to participate in the Plan initially commences after January 1 of a year, a decision to defer a portion of Compensation earned after such a deferral election and during the remaining part of a Deferral Period must be made no later than thirty (30) days after the Participant's commencement of participation. (e) A Participant's election to defer Compensation shall be irrevocable, except that the Committee may permit a Participant to waive the remainder of the deferral commitment upon a finding based upon uniform standards established by the Committee that the Participant has suffered a severe financial hardship. For these purposes, a severe financial hardship includes a sudden and unexpected illness or accident of the Participant or a dependent (as defined under Section 152(a) of the Internal Revenue Code of 1986, as amended), loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, to the extent not reimbursed by insurance or otherwise, and to the extent the Participant does not have other funds reasonably available to alleviate the hardship. (f) Any Participant receiving a supplemental retirement benefit under Section 4 shall forfeit his or her right to make further - 3 - deferrals under the Plan. (g) Notwithstanding the above or Section 3.02(f), any Participant, after approval of the Committee, may elect to complete the deferral of Compensation as specified in the current Deferral Election from any "severance pay" which the employee is eligible to receive under the Employment Protection Plan for Salaried Employees or Severance Pay Plan for Salaried Employees following the date of termination. 3.03 Manner of Electing Deferral and Payment of Benefits: A Participant shall elect to defer compensation by giving written notice to the Company on forms provided for such purpose, which notice shall include: (a) The amount and manner of compensation to be deferred in a specified deferral period. (b) A Designation of Beneficiary. (c) The date of commencement of payment of deferred compensation and interest thereon. The Designation of the Beneficiary shall continue to be effective until and unless a new election is filed in writing with the Committee. The designation of the date of commencement of benefits shall be irrevocable, except as provided in Section 4.04. 4. SUPPLEMENTAL RETIREMENT BENEFIT 4.01 A Participant who in the case of a non-employee director ceases to be a director following one year of service on the Board of Directors for any reason other than death or, in the case of an employee who retires under any Company Pension Plan, shall be entitled to receive from the Company supplemental retirement benefits as specified in the Participation Agreement or in any amendment thereto or as otherwise agreed upon between the Company and the Participant pursuant to an early retirement opportunity. The normal payment period for non-employee directors shall be 120 months; for employees 180 months, provided however that alternative payment schedules may be established by the Management Development and Compensation Committee of the Board of Directors. 4.02 The Supplemental retirement benefit for a Deferral Period will be paid, but in a lesser amount, if: (a) by the end of a Deferral Period the Compensation payable to a Participant has proved insufficient to accommodate full deferral; (b) prior to the end of a Deferral Period, a non-employee director ceases to be a director following one year of service on the Board of Directors for any reason other than death or, in the case of an employee who is a Participant, the Participant retires under any Company Pension Plan; (c) a Participant ceases to be a Participant within a Deferral Period because his or her employer ceases to be a part of the Company within that period; (d) a Participant discontinues deferrals due to severe financial hardship. 4.03 If a Participant dies after the commencement of supplemental retirement benefit payments but before receipt of the last payment, the - 4 - remaining amounts shall be paid, on their respective due dates, to the Participant's beneficiary designated in the Beneficiary Designation Form provided for such purpose or, failing such designation, to the Participant's estate. 4.04 Payment hereunder shall commence in accordance with an election made by the Participant provided, however, that: (a) For a Participant who is a non-employee director, payment shall commence following termination of service as a director, but in no event earlier than age 65 and not later than the first day of the month following the Participant's 70th birthday, regardless of whether service as a director has terminated. (b) For a Participant who is an employee, payment shall commence subsequent to retirement but not later than the first day of the month following such Participant's 65th birthday regardless of whether the Participant has actually retired. The Company reserves the right to impose conditions, including with respect to payment commencement, in connection with early retirement opportunities or any other severance arrangements which otherwise enhance an employee Participant's retirement income: Subject to the concurrence of the Committee, a Participant may change such election to commence the receipt of supplemental retirement benefits to a date earlier than the date the Participant had elected previously for the commencement of such benefits, provided that such change occurs at least one year prior to the calendar year in which such payments are to commence. 4.05 If an employee Participant resigns without the written approval of the Committee or if a Participant who is a non-employee director terminates service on the Board of Directors prior to the completion of one (1) year of service, then in lieu of the supplemental retirement benefit there shall be paid to the Participant a lump sum, as soon as practical following termination, in an amount equal to the Participant's Termination Account Balance. 4.06 Notwithstanding Section 4.05, an employee Participant shall be entitled to the supplemental retirement benefit if such Participant is terminated, or terminates for good reason as set forth in the Employment Protection Plan for Salaried Employees, within two (2) years following a "Change in Control." In the event of such termination or termination for good reason, or in the event an employee retires pursuant to an early retirement opportunity or any other severance arrangement in which the Participant agrees to commence payment of the supplemental retirement benefit following the Participant's sixty-fifth (65th) birthday and a "Change in Control" precedes commencement of such payments, the Participant shall have the option to be paid a lump sum amount equal to his Supplemental Retirement Account Balance, less a penalty of six percent (6%) of such amount. If, however, the termination shall be in connection with a conviction or admission of dishonesty or fraud, then such Participant shall only be entitled to the benefit described in Section 4.05. 4.07 Notwithstanding any other provision of the Plan, a Participant at any time shall be entitled to receive, upon written request to the Committee, a lump sum distribution of the entire amount owed to the Participant under the Plan subject to penalties determined by the Participant's status in the Plan as set forth below: (a) For a Participant who is a current employee but ineligible to - 5 - retire under the Retirement Income Plan, or for a Participant who is a non-employee director with less than one (1) year of service, the lump sum distribution will be equal to ninety percent (90%) of the Participant's Termination Account Balance. (b) For a Participant who is a current employee eligible to retire under the Retirement Income Plan, the lump sum distribution will be equal to the lesser of (i) ninety percent (90%) of the Participant's Supplemental Retirement Account Balance or (ii) the Participant's Termination Account Balance. (c) For a Participant who is a current non-employee director with at least one (1) year of service, the lump sum distribution will be equal to ninety percent (90%) of the Participant's Supplemental Retirement Account Balance. (d) For a Participant who is an employee or a non-employee director who has terminated service with the Company and has either commenced installment payments or is entitled to such payments in the future, the lump sum distribution will be equal to ninety percent (90%) of the Participant's Supplemental Retirement Account Balance. The remaining balance shall be forfeited by the Participant and the Participant will not be eligible to recommence deferrals until the first of the year that follows a one (1) year period commencing on the date of withdrawal, and then only if otherwise eligible under the terms of the Plan. The amount payable under this section shall be paid within forty-five (45) days following receipt of written notice by the committee. 5. SURVIVOR BENEFIT If a Participant dies prior to commencement of payment of the supplemental retirement benefit, no supplemental retirement benefit shall be payable, but in lieu thereof the survivor benefit specified in the Participation Agreement shall be paid to the Participant's designated beneficiary or, failing such designation, to the Participant's estate. 6. WITHDRAWAL OF DEFERRED AMOUNTS 6.01 Other than pursuant to Section 4.04, 4.07 or termination, a Participant may not receive any amount deferred under this Plan, unless the Committee determines that, based upon uniform, established standards, the Participant has suffered a severe financial hardship. For these purposes, a several financial hardship shall have the same meaning as under Section 3.02(e). 6.02 Upon such determination, the Participant will receive an amount necessary to satisfy the financial hardship but in no event more than the total of amounts deferred plus interest credited to the Participant's account at the date of withdrawal. 6.03 A Participant who has made a withdrawal will not be eligible to recommence deferrals for a new Deferral Period under the Plan until the first of the year that follows a one-year period commencing on the date of withdrawal. 7. AMOUNTS OF SUPPLEMENTAL RETIREMENT AND SURVIVOR BENEFITS The supplemental retirement and survivor benefits shall be prescribed in accordance with a general plan applicable to all Participants which has been established by the Committee and approved by the Management Development and - 6 - Compensation Committee of the Board of Directors. 8. FINANCING The Company may finance obligations under this Plan by the purchase of one or more policies of life insurance upon the lives of Participants, with the Company as owner of and beneficiary under such policies. No Participant shall have any right or interest in any such policy or the proceeds thereof or in any other specific fund or asset of the Company as a result of the Plan. The rights of Participants to benefit payments hereunder shall be no greater than those of an unsecured creditor. Each Participant shall cooperate fully in the application for, and in the maintenance of, any such policy or policies of insurance upon the Participant's life. 9. AMENDMENT OR TERMINATION 9.01 The Board of Directors of the Company may terminate or amend this Plan at any time. However, the Committee may amend this Plan, retroactively if necessary, to bring this Plan into conformity with any law or governmental regulation relating to plans or trusts of this character. The rights of any Participant under a Participation Agreement shall not be impaired by such termination or amendment except as provided under Section 9.02. 9.02 If the reason for termination or amendment is a change in the tax laws adversely affecting the financing of the supplemental retirement benefit or survivor benefit under the Plan, then the Board of Directors of the Company may terminate all (but not less than all) of the then existing Participation Agreements except any under which benefits are then being paid. (a) Each Participant with a terminated Agreement will be paid in lieu of any and all other benefits hereunder an amount equal to the amount actually deferred under such Agreement plus interest credited to the Participant's Supplemental Retirement Account balance to the date of termination. (b) Such amount resulting from termination may be paid in a lump sum within 45 days of the date of such termination or in such other manner and at such other time or times as the Committee may reasonably determine. 10. ADMINISTRATION 10.01 Responsibility for establishing the requirements for participation and for administration of the Plan shall be vested in the Committee, which shall be responsible for any interpretation of the Plan or the Participation Agreement that may be required. The Committee may delegate administrative tasks as necessary to persons who are not Committee members. 10.02 The expenses of administering the Plan shall be borne by the Company. No member of the Committee shall receive any remuneration for service in such capacity. However, expenses of the Committee or its members paid or incurred in connection with administering the Plan shall be reimbursed by the Company. 10.03 The Company shall indemnify and hold harmless the members of the Committee against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to this Plan, except in the case of gross negligence or willful misconduct. 11. CLAIMS PROCEDURE 11.01 Claim. Any person claiming a benefit, requesting an - 7 - interpretation or ruling under the Plan, or requesting information under the Plan shall present the request in writing to the Committee which shall respond in writing as soon as practicable. 11.02 Denial of Claim. If the claim or request is denied, the written notice of denial shall state: (a) The reasons for denial, with specific reference to the Plan provisions on which the denial is based. (b) A description of any additional material or information required and an explanation of why it is necessary. (c) An explanation of the Plan's claim review procedure. 11.03 Review of Claim. Any person whose claim or request is denied or who has not received a response within thirty (30) days may request review by notice given in writing to the Committee. The claim or request shall be reviewed by the Committee who may, but shall not be required to, grant the claimant a hearing. On review, the claimant may have representation, examine pertinent documents, and submit issues and comments in writing. 11.04 Final Decision. The decision on review shall normally be made within sixty (60) days. If an extension of time is required for a hearing or other special circumstances, the claimant shall be notified and the time limit shall be one hundred twenty (120) days. The decision shall be in writing and shall state the reasons and the relevant Plan provisions. All decisions on review shall be final and bind all parties concerned. 12. MISCELLANEOUS 12.01 No amount payable under the Plan or any Participation Agreement shall be subject to assignment, transfer, sale, pledge, encumbrance, alienation or charge by a Participant or the beneficiary of a Participant except as may be required by law. 12.02 Neither the Plan nor any action taken hereunder shall be construed as giving any employee who is a Participant or who becomes a Participant any right to be retained in the employ of the Company. 12.03 "Retirement" under the Company Pension Plan shall mean retirement under the Retirement Income Plan. However, in the event of any retirement arising by reason of a "Change in Control" and which, as set forth in the Retirement Income Plan, results in an enhancement of an employee Participant's retirement income then: (a) "retirement" for purposes of this Plan shall mean the Participant's 65th birthday; or (b) a Participant may elect to treat retirement as "retirement" under the Plan subject to the penalties imposed in an early retirement opportunity. 12.04 The Management Development and Compensation Committee of the Board of Directors may at any time direct the Company to establish an Umbrella Trust to secure part or all of the obligations of the Company with respect to payments and benefits to be paid to Participants under this Plan. Funding of the Umbrella Trust shall be at the direction of the Board of Directors and shall be irrevocable in nature. EX-10.III.G 10 EMPLOYMENT PLAN EMPLOYMENT PROTECTION PLAN FOR SALARIED EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Plan Document (as amended through November 21, 1994) The Employment Protection Plan for Salaried Employees of Armstrong World Industries (the "Plan") has been authorized by the Board of Directors of Armstrong World Industries, Inc. ("Armstrong") to be effective on and after January 26, 1987. It is recognized that in the present atmosphere of hostile tender offers there is an attendant uncertainty among Employees of the possibility of Change of Control of Armstrong which may result in the departure or distraction of Employees to the detriment of the Company and its shareholders. In order to encourage the attraction of new employees and to reinforce and encourage the continued attention and dedication of all salaried members of the organization, and to protect certain rights and benefits of employment, this Employment Protection Plan is established to provide severance benefits for salaried employees of the Company who are terminated or terminate for good reason as a result of such Change in Control. 1. DEFINITIONS ----------- 1.01 A "Change in Control" shall occur if and when (1) any "person" acquires "beneficial ownership" of 28% or more of the then outstanding "voting stock" of Armstrong and within five years thereafter, "disinterested directors" no longer constitute at least a majority of the entire Armstrong Board of Directors or (2) there shall occur a "business combination" with an "interested shareholder" of Armstrong that has not been approved by a majority of disinterested directors. For the purpose of this subsection, the terms "person," "beneficial ownership," "voting stock," "disinterested director," "business combination," and "interested shareholder" shall have the meaning given to them in Article 7 of Armstrong's Articles of Incorporation as in effect on May 1, 1985. 1.02 "Company" shall mean Armstrong World Industries, Inc., (Armstrong) and any subsidiary corporation controlled by Armstrong World Industries, Inc. that shall have adopted this Plan with the permission of the Board of Directors of Armstrong World Industries, Inc. 1.03 "Committee" shall mean the Armstrong Severance Pay Committee where membership shall include at least three employees of the Company who are appointed by the Chairman of the Board of Directors of Armstrong to administer the Plan. 1.04 "Date of Termination" shall mean the date on which an eligible Employee terminates services pursuant to subsection 2.02 hereof. 1.05 "Disability" shall mean such incapacity due to physical or mental illness or injury as causes an Employee to be absent from employment duties for 180 consecutive calendar days. 1.06 "Employee" shall mean an individual who is either a Regular Full-Time Employee or a Regular Part-Time Employee. 1.07 "Incentive Plan Award" shall mean the greater of the actual incentive payments made to the Employee under any formal incentive compensation plan of the Company during each of the two most recent calendar years preceding the Employee's termination of employment. 1.08 "Monthly Base Salary" shall mean the Employee's regular monthly compensation, apart from any Incentive Plan Awards or other bonuses. - 2 - 1.09 "Regular Full-Time Employee" shall mean any individual who is employed by the Company on a salaried basis as an employee on a continuing basis and is expected to work the normal number of work hours for the location as determined by the Company. 1.10 "Regular Part-Time Employee" shall mean any individual who is employed by the Company on a salaried basis as an employee on a continuing basis on a predetermined fixed schedule and is expected to work less than the normal number of work hours for the location as determined by the Company. 1.11 "Length of Service" shall mean all years of employment as an Employee with Armstrong and/or any controlled subsidiary thereof. An Employee who is a key executive as designated by the Board of Directors, or its delegate, will receive credit for years of service for employment prior to such Employee's Company employment. 2. PARTICIPATION AND ELIGIBILITY ----------------------------- 2.01 Participants. The participants in the Plan are all salaried ------------ Employees of the Company. 2.02 Eligibility. In the event of a Change in Control, any participant ----------- becomes eligible for benefits hereunder who terminates service within a 24-month period following the Change in Control, unless the termination is: (a) because of the death or Disability of the Employee; (b) by the Company for Cause (as defined in subsection 2.03); or (c) by the Employee other than for Good Reason (as defined in subsection 2.04). (d) by the Company in connection with the sale or transfer of a plant or unit to a successor, by means of which the Employee continues employment as long as the successor either (1) adopts this Plan, or (2) adopts a plan offering benefits of comparable value for the remainder of the 24-month period. 2.03 Termination for Cause. Termination of an Employee for Cause shall be --------------------- deemed to have occurred if the Employee is terminated by the Company, pursuant to a written Notice of Termination, for one of the following reasons: (a) The deliberate and continued failure by the Employee to devote substantially all the Employee's business time and best efforts to the performance of the Employee's duties after a demand for substantial performance is delivered to the Employee by a supervisor (or, in the case of an Employee who is an officer of the Company, by the Board of Directors) which specifically identifies the manner in which the Employee has not substantially performed such duties; or (b) the deliberate engaging by the Employee in gross misconduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, including but not limited to fraud or embezzlement by the Employee. For the purposes of this subsection 2.03, no act, or failure to act, on the part of the Employee shall be considered "deliberate" unless done, or omitted to be done, by the Employee not in good faith and without reasonable belief that such action or omission was in the best interests of the Company. 2.04 Termination for Good Reason. A Good Reason for termination by the --------------------------- Employee shall mean the occurrence of any of the following events without the express written consent of the Employee: (a) the assignment to the Employee of any duties which constitute a significant reduction in the Employee's responsibilities coupled with any reduction in compensation or any demotion of the Employee by the company from any office or titled managerial position - 3 - (other than as a director of the Company) held by the Employee prior to a Change in Control, except in connection with the termination of the Employee's employment either by the Company for Cause, or as a result of the Employee's Disability; (b) a significant reduction by the Company in the Employee's Monthly Base Salary or total cash compensation opportunity, or a material reduction in the employee's benefits as a whole as in effect immediately prior to the Change in Control; (c) the Company's requiring the Employee to be based more than 30 miles from the Employee's principal place of employment on the date of the Change in Control unless the employee is compensated for costs involved in moving to the new location, including a housing cost differential equal to any increased cost of housing based upon a reasonable real estate value analysis, and in a manner comparable to the Company's moving policy in force on the date of the Change in Control. 3. Benefits. -------- 3.01 Amount and Schedule of Benefit Payments. The Company will provide --------------------------------------- severance pay and benefits, as described in paragraphs (a) through (d) below, to an Employee eligible for benefits under this Plan. (a) Accrued Salary. Any accrued salary not yet paid to the Employee for -------------- services performed prior to the Date of Termination shall be paid not later than 20 calendar days following the Date of Termination; (b) Vacation Pay. The Employee will be reimbursed at a daily salary rate ------------ equal to 3/65 of the greater of the Employee's Monthly Base Salary as of the Date of Termination or the Employee's Monthly Base Salary at the time of the Change in Control for: (1) all vacation days unused during the calendar years prior to the Change in Control and (2) to the extent required either by law or by Company policy, all unused vacation days for the calendar year of the Change in Control (calculated under the assumption that vacation days accrue ratably over the year). Such payments shall be made not later than 20 calendar days following the Date of Termination. (c) Severance Pay. The Employee shall be paid a severance payment related ------------- to the employee's Length of Service and monthly cash compensation (Monthly Base Salary plus 1/12 of the Incentive Plan Award) and calculated on a cumulative basis according to the schedule listed below: For 0 to 5 years ----- 1 week/year with a minimum of 2 weeks 6 to 10 years ----- 2 weeks/year 11 to 15 years ----- 3 weeks/year 16 to 20 years ----- 4 weeks/year 21 to 30 years ----- 5 weeks/year 31 years and up ---- 6 weeks/year with a maximum of 104 weeks Such payment shall be made in a lump sum not later than 20 calendar days following the Date of Termination. (d) Insurance Benefits. The Company shall maintain in full force and ------------------ effect for the continued benefit of the Employee all life and medical benefit plans and programs to the extent that the Employee participated at the time of termination. Such benefit plans will be continued for a length of time commensurate with the number of weeks of severance pay, provided, however, that there will be a minimum of three months and a maximum of 12 months continuation; and further provided that (1) in the event of the Employee's death or re- employment (meaning full-time re-employment by Regular Full-Time Employees) by another company no further insurance or other benefits shall be provided; and (2) a longer period of benefit - 4 - continuation shall be provided if specifically set forth in the benefit plan or program. Any Employee obligation of copayment contributions and/or payments as set forth in the plans and programs prior to termination shall continue following the Date of Termination. 3.02 Maximum Severance Limitation. Notwithstanding the provisions of ---------------------------- subsection 3.01, a participant's severance compensation under this Plan, calculated independent of any other payments which otherwise may be deemed compensation, but not included in subsection 3.01, shall be limited to that amount which will not precipitate for such individuals an excise tax under the Internal Revenue Code (Code) in a Change of Control situation. Payments received under the Armstrong Deferred Compensation Plan or as a result of the exercise, exchange or sale of options or stock received under the Long-Term Stock Option Plan for Key Employees or any payments under any other plan not expressly stated under subsection 3.01 shall not be included for calculation purposes under this subsection (irrespective of the fact that such payments may be included under the Code). 4. AMENDMENT OR TERMINATION ------------------------ 4.01 The Board of Directors of Armstrong may terminate or amend this Plan (1) at any time prior to a Change in Control; or (2) at any time after the conclusion of 24 months following a Change in Control, provided that no subsequent Change in Control has occurred during such 24-month period. Notwithstanding the above, no amendment or termination of the plan may adversely affect the amount, type, or timing of payment of benefits accrued and payable hereunder. 4.02 On or after the date of any Change in Control, this Plan may not be amended in any substantive respect or terminated until the conclusion of a 24- month period during which no additional Change in Control has occurred. 5. ADMINISTRATION -------------- 5.01 Responsibility for administration of the Plan shall be vested in the Committee, which shall be responsible for any interpretation of the Plan that may be required. The Committee may delegate administrative tasks as necessary to persons who are not Committee members. Controversy concerning application of the excise tax shall be referred to impartial outside expert counsel for an opinion. 5.02 All expenses of administering the Plan shall be borne by the Company. No member of the Committee shall receive any remuneration for service in such capacity. However, expenses of the Committee or its members paid or incurred in connection with administering the Plan shall be reimbursed by the Company. 5.03 The Company shall indemnify and hold harmless the members of the Committee against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to this Plan, except in the case of gross negligence or willful misconduct. 6. SUCCESSORS; BINDING AGREEMENT ----------------------------- 6.01 In the event of a Change in Control, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, to expressly assume and agree to maintain this Plan, for a minimum period of two years following any such Change in Control (as reference in Section 4 hereof) in the same manner and to the same extent that the Company would be required to maintain it if no such succession had taken place. Failure of the Company to obtain such Plan assumption agreement prior to the effectiveness of any such succession shall be an unauthorized termination of this Plan and shall entitle an eligible Employee to compensation from the Company in the same amount and on the same terms as would have been paid hereunder if the Employee had terminated employment due to Good Reason for Termination after a Change in Control, on the date on which any such succession becomes effective. As used in this Plan, "Company" shall mean the - 5 - company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 6 or which otherwise becomes bound by all the terms and provisions of this Plan by operation of law. 6.02 All rights of an eligible Employee hereunder shall inure to the benefit of and be enforceable by such Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If an eligible Employee should die prior to receiving all amounts of benefits payable hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to the Employee's devisee, legatee, or other designee or, if there be no such designee, to the Employee's estate. 7. ARBITRATION. Any dispute or controversy arising under or in connection ----------- with this Plan shall be settled exclusively by arbitration in Lancaster County, Pennsylvania, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 8. MISCELLANEOUS ------------- 8.01 No amount payable under the Plan shall be subject to assignment, transfer, sale, pledge, encumbrance, alienation or change by an eligible Employee or the beneficiary of such Employee except as may be required by law. 8.02 Neither the Plan nor any action taken hereunder shall be construed either (1) as giving any Employee any right to be retained in the employ of the Company; or (2) as giving any individual employed by the Company any right to receive severance benefits of a type or in an amount similar to the benefits described in subsection 3.01 above, unless the individual qualifies for benefits under this Plan. 8.03 Payments of benefits under this Plan shall be made in lieu of payments of any severance benefits of a type similar to the benefits described in subsection 3.01 above that may be offered under any written or unwritten severance pay policy maintained by the Company. 8.04 This Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. 8.05 The invalidity or unenforceability of any provisions of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which shall remain in full force and effect. 8.06 Any notice or other communication provided for in this Plan shall be in writing and, unless otherwise expressly stated herein, shall be deemed to have been duly given if mailed by United States registered mail, return receipt requested, postage prepaid addressed in the case of Employee to the Employee's office at the Company with a copy to the Employee's residence and in the case of the Company to its principal executive offices, attention to the Chief Executive Officer. EX-10.III.I 11 SEVERANCE PAY PLAN SEVERANCE PAY PLAN FOR SALARIED EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. The Severance Pay Plan for Salaried Employees of Armstrong World Industries, Inc. (the "Plan") has been authorized by the Executive Committee of the Board of Directors of Armstrong World Industries, Inc. to be effective on and after May 1, 1989. This Plan supersedes, with the exception of the Armstrong Employment Protection Plan, all prior separation pay policies, practices, and plans of the Company whether in writing or otherwise. 1. DEFINITIONS 1.01 "Company" shall mean Armstrong World Industries, Inc., and any subsidiary corporation of Armstrong World Industries, Inc. that shall have adopted this Plan. 1.02 "Committee" shall mean the Severance Pay Committee where membership shall include at least three salaried employees of the Company who are appointed by the President to administer the Plan. 1.03 "Date of Termination" shall mean the date on which an eligible Participant terminates service pursuant to Subsection 2.02 hereof. 1.04 "Disability" shall mean such incapacity due to physical or mental illness or injury as causes an Employee to be absent from employment duties for 180 consecutive calendar days. 1.05 "Employee" shall mean an individual who is either a Regular Full-Time or Regular Part-Time Salaried Employee. 1.06 "Incentive Plan Award" shall mean the greater of the actual incentive payments made to the Employee under any formal incentive compensation plan of the Company during each of the two most recent calendar years preceding the Employee's termination of employment; except that the actual incentive payments for the current calendar year may be used where they are greater than either such payments made to the Employee in either of the two prior calendar years. 1.07 "Monthly Compensation" shall mean the sum of the Employee's base monthly salary plus any pay adjustments. Pay adjustments include the monthly equivalent of incentive awards, shift differential or other amounts attributable to pay for time worked. 1.08 "Regular Full-Time Employee" shall mean any individual who is employed by the Company on a salaried basis as an employee on a continuing basis and is expected to work the normal number of work hours for the location as determined by the Company. 1.09 "Years of Service" shall mean the eligible Participant's period of service with the Company, including partial years. A Participant who is a key executive as designated by the Board of Directors, or its delegate, will receive credit for years of service for employment prior to such Participant's Company employment. 1.10 "Regular Part-Time Employee" shall mean any individual who is employed by the Company on a salaried basis as an employee on a continuing basis and is expected to work for the Company less than the normal number of work hours. 2. PARTICIPATION AND ELIGIBILITY - 2 - 2.01 Participants. The participants in the Plan are all Regular ------------ Full-Time or Regular Part-Time Employees of the Company. Notwithstanding the foregoing, any Employee who was previously employed by the Company and is rehired shall not be entitled to any credit for any prior period(s) of employment for the purpose of calculating Years of Service referenced in Section 1.09 and Section 3.01, in the event that the Employee's reemployment is terminated under conditions which would otherwise entitle the Employee to Benefits under this Plan. 2.02 Eligibility. ----------- (a) Except as otherwise provided in Section 3 of this Plan, any Participant whose employment with the Company is terminated by the Company shall be eligible for benefits under Appendix A, Schedule 1, if the termination occurs prior to July 1, 1994, or under Appendix B, Schedule 1, if the termination occurs on or after July 2, 1994, unless the termination is: (1) because of the death or Disability of the Employee; (2) by the Company for Cause (as defined in Subsection 2.03); (3) by the Employee; (4) by the Company in connection with the sale or transfer of a plant, unit, division, or subsidiary of the Company to a successor (whether by reason of a sale of stock or assets), by means of which the Employee continues employment with the successor organization or is offered employment with the successor organization in essentially the same or a similar position, with comparable compensation, within the same geographical area, even if not at the same plant or office. (5) by the Company and the employee was offered essentially the same or a similar position, with comparable compensation, within the same geographical area, even if not at the same plant, office or location. (b) For the period May 1, 1989 to July 1, 1994, any Participant who is involuntarily terminated, or notified in writing before July 1, 1994, that the Participant will be involuntarily terminated on or after July 1, 1994, as determined by the Committee, due to a reduction in the workforce of the office or manufacturing location at which the Participant is employed, will be eligible for severance benefits set forth in Appendix A, Schedule 2 in lieu of benefits under Schedule 1, provided that the Participant is not otherwise excluded from receiving benefits under paragraph (a) above. This benefit is provided out of concern for employees who lose their jobs during this time of significant technological change and restructuring of the workforce. (c) For the period from September 28, 1993 to July 1, 1994, any Participant who is involuntarily terminated, or notified in writing before July 1, 1994, that the Participant will be involuntarily terminated on or after July 1, 1994, as determined by the Committee, due to a finding of the Executive Committee of the Board of Directors that the requirements of the Participant's position have been fundamentally altered, will be eligible for severance benefits set forth in Appendix A, Schedule 2 in lieu of benefits under Schedule 1, provided that the Participant is not otherwise excluded from receiving benefits under paragraph (a) above. This benefit is provided out of concern for employees who - 3 - lose their jobs because the requirements of their positions have been fundamentally altered due to economic conditions, or present or anticipated structural, procedural or technological change. (d) For the period July 2, 1994, to January 1, 1996, any Participant who is involuntarily terminated, as determined by the Committee, due to a reduction in the workforce of the office or manufacturing location at which the Participant is employed, will be eligible for severance benefits set forth in Appendix B, Schedule 2 in lieu of benefits under Schedule 1, provided that the Participant is not otherwise excluded from receiving benefits under paragraph (a) above. This benefit is provided out of concern for employees who lose their jobs during this time of significant technological change and restructuring of the workforce. (e) For the period July 2, 1994, to January 1, 1996, any Participant who is involuntarily terminated, as determined by the Committee, due to a finding of the Executive Committee of the Board of Directors that the requirements of the Participant's position have been fundamentally altered, will be eligible for severance benefits set forth in Appendix B, Schedule 2 in lieu of benefits under Schedule 1, provided that the Participant is not otherwise excluded from receiving benefits under paragraph (a) above. This benefit is provided out of concern for employees who lose their jobs because the requirements of their positions have been fundamentally altered due to economic conditions, or present or anticipated structural, procedural or technological change. 2.03 Termination for Cause. Termination of a Participant's employment for --------------------- Cause shall be deemed to have occurred if the Participant's employment is terminated by the Company due to the Participant's deliberately engaging in gross misconduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, including but not limited to fraud or embezzlement by the Employee. For purposes of this Section 2.03, no act, or failure to act, on the part of the Participant shall be considered "deliberate" unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that such action or omission was in the best interests of the Company. 2.04 Effect of Participant's Eligibility to Retire. No eligible --------------------------------------------- Participant will be denied severance benefits solely because such Participant is also eligible for retirement benefits under another plan of the Company. 2.05 Reservation of Rights. The Company reserves the right for the --------------------- Committee to depart from Appendix A or Appendix B, Schedules 1 and 2, where the eligible Participant's attendance, job performance, or other job-related conduct appears to the Company to justify an upward or downward adjustment in benefits. However, in no event shall the maximum benefit payable under the Plan exceed twice such Participant's annual compensation, as defined in 29 C.F.R. Section 2510.3-2(b)(2); nor shall the maximum payment period exceed 24 months after the termination of the Participant's employment. 2.06 Classification of Employees to Whom the Plan Does Not Relate. The ------------------------------------------------------------ severance policies and procedures contained in this Plan do not apply to employees classified by the Company as temporary or hourly paid employees. 3. BENEFITS - 4 - 3.01 Amount and Schedule of Benefit Payments. The Company will provide --------------------------------------- severance pay and benefits, as described in paragraphs (a) through (e) below, to a Participant eligible for benefits under this Plan. (a) Accrued Salary. Any accrued salary not yet paid to the Participant -------------- for services performed prior to the Date of Termination shall be paid in compliance with state law, but not later than 20 calendar days following the Date of Termination. (b) Vacation Pay. The Participant will be reimbursed for vacation pay to ------------ the Date of Termination in accordance with Company policy. (c) Severance Pay. The Participant shall be paid a severance payment ------------- related to the Participant's Years of Service and Monthly Compensation. The amount of severance payment shall be calculated using either Schedule 1 or Schedule 2 of the appropriate Appendix A or Appendix B as determined under Sections 2.02 and 2.05. Weeks of Severance for partial years of service will be calculated proportionately. A week's pay shall be 12 times the Monthly Compensation divided by 52. (d) Mode of Payment. After the eligible Participant has satisfied all --------------- conditions precedent to receive severance benefits, such benefits will be paid to the Participant by salary continuation until the severance allowance is exhausted, unless the Plan Administrator approves a lump sum payment or some combination of periodic or lump sum payments. (e) Insurance Benefits. An eligible Participant's insurance benefits ------------------ shall be determined in accordance with the applicable insurance benefit plan. 3.02 Other Circumstances That can Result in Disqualification, Forfeiture, -------------------------------------------------------------------- Reduction or Suspension of Severance Benefits. --------------------------------------------- (a) Elective Deductions. An eligible Participant may elect to have ------------------- insurance premiums for Company-sponsored insurance plans deducted from severance payments. (b) Legally Required Deductions. Appropriate federal, state and local --------------------------- taxes will be withheld from all severance payments. (c) Effect of Rehire or Reinstatement (Or An Offer of Same). If an -------------------------------------------------------- eligible Participant is granted severance benefits and the Participant is either rehired or reinstated as a regular salaried employee on a regular full-time basis by the Company (or is offered rehire or reinstatement on a full-time basis by the Company) before the end of the pay continuation period, then the Participant forfeits any unpaid severance payments for the periods following rehire or reinstatement (or the date of offer of same). (d) Effect of Sale of Portion of Business Assets. Any Participant whose -------------------------------------------- employment with the Company is terminated during or in anticipation of a sale of some, but not all, assets of the Company is not entitled to severance benefits if the purchaser of such assets offers to employ the Participant for substantially the same or greater compensation as the Participant was receiving immediately prior to the Date of Termination, and such offer of employment is made by the purchaser within no later than eight (8) - 5 - weeks after the termination of the Participant's employment by the Company. (e) Effect of Participant Misconduct. Any Participant who accepts -------------------------------- severance benefits is obligated to reimburse the Company for the full amount of such payments if the Participant subsequently discloses any of the Company's trade secrets, violates any written covenants between the Participant and the Company, or otherwise engages in conduct that may adversely affect the Company's reputation or business relations. Likewise, a Participant who engages in such conduct shall forfeit any right to any unpaid severance payments. (f) Effect of Adverse Economic Conditions. The Company may permanently ------------------------------------- suspend benefits under severance allowances in pay status (1) in the event of the Company's insolvency, liquidation, or bankruptcy reorganization or (2) in the event the cost of providing such benefits would lead to the Company's insolvency, liquidation, or bankruptcy reorganization. (g) Effect of Other Severance Pay Laws. Any severance benefits provided ---------------------------------- by the Company under this Plan shall be reduced dollar-for-dollar by any severance, separation, or any other termination pay benefit that the Company or any of its subsidiaries is required to pay to an eligible Participant under any federal or state law. (h) Effect of Catastrophes and Other Extraordinary Events. Severance ----------------------------------------------------- payments will not be made if the Participant's employment is terminated because of fire, flood, explosion, bombing, earthquake or other disaster causing damage to the location facilities or when strikes, work stoppages or civil disturbances prevent continued operations. (i) Effect of Temporary Layoffs. Severance payments will not be made if a --------------------------- layoff is deemed to be temporary and of limited duration, e.g., a need for inventory reduction in a production facility or activities closely aligned with it. During such periods, Participants are encouraged to take any available vacation to which they may be entitled. (j) Non-Compete Agreement. The Participant who has been involuntarily --------------------- terminated because the requirements of the position have been fundamentally altered shall be required to execute a Non-Compete Agreement when the Committee determines that such an Agreement is required to protect the Company. The Non-Compete Agreement must be signed and returned to the Company within 60 days after the Participant's termination date in order for the Participant to receive benefits under this Plan. 3.03 Condition Precedent to Severance Payments. For the Employee who ----------------------------------------- becomes eligible for severance payments under Section 2.02 of the Plan because the Company eliminates the Participant's position or because the Participant's position has been fundamentally altered, severance payments will not be paid under any circumstances until the eligible Participant executes a Company approved release of the Participant's then existing rights and claims against the Company. The release must be signed and re-turned to the Company within 60 days after the Participant's Date of Termination in order for the Participant to receive benefits under this Plan. For the Employee who becomes - 6 - eligible for benefits under the Plan for any other reason, the Committee may but is not required to obtain the release mentioned above. 3.04 Impact of Armstrong Employment Protection Plan. Notwithstanding ---------------------------------------------- anything to the contrary in this Plan, in the event the Participant's Date of Termination coincides with or follows a change in control, as defined in the Armstrong Employment Protection Plan, no benefits will be paid under this Plan. This Plan applies only in the case of an eligible Participant whose employment has been terminated by the Company prior to the change in control and who is otherwise eligible to receive a benefit hereunder. 4. AMENDMENT OR TERMINATION. The Executive Committee of the Board of Directors of the Company may by written resolution terminate or amend this Plan at any time. Notwithstanding the foregoing, no amendment or termination of the Plan may adversely affect the amount, type, or timing of payment of benefits accrued and due and payable hereunder, except as provided in Section 3.02 of this Plan. 5. ADMINISTRATION 5.01 Responsibility for administration of the Plan shall be vested in the Committee, which shall have the sole and exclusive discretionary authority to determine conclusively all questions arising in connection with the administration, interpretation and application of the Plan, either by general rules or by particular decisions, including (but not limited to) questions regarding eligibility for benefits hereunder and the amount, form and timing of payments thereof, and any other matter (including any question of fact) raised by a claimant or identified by the Committee. Any such determination by the Committee shall be binding and conclusive upon all persons. The Committee may correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable by it to carry out the purpose of this Plan. The Committee may delegate administrative tasks as necessary to persons who are not Committee members. 5.02 All expenses of administering the Plan shall be borne by the Company. No member of the Committee shall receive any remuneration for service in such capacity. However, expenses of the Committee or its members paid or incurred in connection with administering the Plan shall be reimbursed by the Company. 5.03 The Company may purchase insurance to cover potential liability of the Plan's fiduciaries. The Plan may purchase insurance for its fiduciaries and/or for itself to cover liability and losses occurring by reason of the act or omission of a fiduciary. 5.04 The Plan is unfunded and all severance payments under the Plan shall be made from the general assets of the Company. 6. SUCCESSORS; BINDING AGREEMENT 6.01 In the event of a sale or transfer of a plant, unit, division, or subsidiary of the Company to a successor (whether by reason of a sale of stock or assets) by means of which any Employee continues employment with the successor organization or is offered employment with the successor organization, the Company shall not be obliged to negotiate with the successor organization over whether to establish any severance pay plan, policy, or practice with respect to such Employees or whether to cover such Employees - 7 - under any existing severance pay plan, policy, or practice already maintained by the successor organization. 6.02 All rights of an eligible Employee hereunder shall inure to the benefit of and be enforceable by such Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If an eligible Employee should die after having satisfied all conditions precedent to the receipt of such benefits, but prior to receiving all amounts of benefits payable hereunder, all such amounts, unless otherwise provided herein, shall be paid in a lump sum accordance with the terms of this Plan to the Employee's devisee, legatee, or other designee or, if there be no such designee, to the Employee's estate. 7. ARBITRATION. Any dispute or controversy arising under or in connection with this Plan shall be settled exclusively by arbitration in Lancaster County, Pennsylvania, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 8. MISCELLANEOUS 8.01 No amount payable under the Plan shall be subject to assignment, transfer, sale, pledge, encumbrance, alienation or change by an eligible Employee or the beneficiary of such Employee except as may be required by law. 8.02 Neither the Plan nor any action taken hereunder shall be construed either (1) as giving any individual employed by the Company any right to receive severance benefits of a type or in any amount similar to the benefits described in Section 3.01 above, unless the individual qualifies for benefits under this Plan; or (2) as giving any Employee any right to be retained in the employ of the Company. 8.03 Payments of benefits under this Plan shall be made in lieu of payments of any severance benefits of a type similar to the benefits described in Section 3.01 above that may be offered under any written or unwritten severance pay policy maintained by the Company and there shall be no duplication of benefits previously paid under any such policy. 8.04 This Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania except to the extent pre-empted by the Employee Retirement Income Security Act or any other federal law. 8.05 The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which shall remain in full force and effect. 8.06 Any notice or other communication provided for in this Plan shall be in writing and, unless otherwise expressly stated herein, shall be deemed to have been duly given if mailed by United States registered mail, return receipt requested, postage prepaid addressed in the case of an Employee to the Employee's office at the Company with a copy to the Employee's residence and in the case of the Company to its principal executive offices, attention of the Severance Plan Administrator. As Amended Through 12/19/94 APPENDIX A Severance Pay Schedules
Years of Number of Weeks Service Schedule 1 Schedule 2 - -------- ---------- ---------- 1 or less 2.0 2.0 2 2.0 2.0 3 3.0 3.0 4 4.0 4.0 5 5.0 5.0 6 7.0 7.0 7 9.0 9.0 8 10.0 11.0 9 12.0 13.0 10 14.0 15.0 11 15.5 18.0 12 17.5 21.0 13 19.5 24.0 14 21.5 27.0 15 23.5 30.0 16 25.5 34.0 17 27.5 38.0 18 30.0 42.0 19 32.0 46.0 20 34.5 50.0 21 36.5 55.0 22 39.0 60.0 23 41.5 65.0 24 44.0 70.0 25 46.5 75.0 26 49.0 80.0 27 51.5 85.0 28 54.5 90.0 29 57.0 95.0 30 59.5 100.0 31 62.5 104.0 32 65.0 104.0 33 68.0 104.0 34 71.0 104.0 35 74.0 104.0 36 76.5 104.0 37 & over 78.0 104.0
APPENDIX B Severance Pay Schedules Effective July 2, 1994
Years of Number of Weeks Service Schedule 1 Schedule 2 - -------- ---------- ---------- 1 or less 2.0 2.0 2 2.0 2.0 3 3.0 3.0 4 4.0 4.0 5 5.0 5.0 6 6.0 7.0 7 7.0 9.0 8 8.0 10.0 9 9.0 12.0 10 10.0 14.0 11 11.0 15.5 12 12.0 17.5 13 13.0 19.5 14 14.0 21.5 15 16.0 23.5 16 18.0 25.5 17 20.0 27.5 18 22.0 30.0 19 24.0 32.0 20 26.0 34.5 21 28.0 36.5 22 30.0 39.0 23 32.0 41.5 24 34.0 44.0 25 36.0 46.5 26 38.0 49.0 27 40.0 51.5 28 44.0 54.5 29 48.0 57.0 30 52.0 59.5 31 52.0 62.5 32 52.0 65.0 33 52.0 68.0 34 52.0 71.0 35 52.0 74.0 36 52.0 76.5 37 & over 52.0 78.0
EX-10.III.L 12 TURN/AROUND PLAN AMERICAN OLEAN TILE COMPANY, INC. --------------------------------- AMERICAN OLEAN TURNAROUND PLAN ------------------------------ Section 1. Purpose ------- The purpose of the American Olean Turnaround Plan (the "Plan") is to enhance the value, growth and profitability of American Olean Tile Company, Inc., a New York corporation ("AO" or the "Company"), by providing the incentive of long-term rewards to key employees who are capable of having a significant impact on the performance of AO. Section 2. Definitions ----------- For the purpose of the Plan, the following terms shall have the meanings indicated: (a) "Armstrong" means Armstrong World Industries, Inc., and any corporation, partnership, or other organization of which Armstrong owns or controls, directly or indirectly, not less than 50 percent of the total combined voting power of all classes of stock or other equity interests. For purposes of this Plan, the term "Armstrong" shall include any successor thereto. (b) "Board" means the Board of Directors of AO. (c) "Committee" means the Compensation Committee of the American Olean Board of Directors. (d) "Common Stock" means the Common Stock, par value $1.00 per share, of Armstrong World Industries, Inc., a Pennsylvania corporation. (e) "Disability" means total and permanent disability within the meaning of Section 22(e)(3) of the Code. (f) "AO Phantom Share" means a stock unit equivalent of American Olean which unit does not convey to the Participant holder any interest, right, or title to American Olean. (g) "Fair Market Value" means the closing price of the Common Stock as reported on the New York Stock Exchange Composite Tape on the applicable date or, if no sales were made on such date, on the next preceding date on which the sales of the Common Stock were made. (h) "Investment Award" means a right to earn an award based upon AO attaining designated performance goals established by the Committee. - 2 - (i) "Investment Period" means one or more Performance Periods during which time AO Phantom Shares earned shall be subject to restrictions. (j) "Participant" means any key employee who has met the eligibility requirements set forth in Section 4 hereof and to whom a grant has been made and is outstanding under the Plan. (k) "Performance Period" means, in relation to an Investment Award, any period for which performance goals have been established. (l) "Retirement" means termination from employment with Armstrong after the Participant has attained age 55 and has completed five years of service with Armstrong or termination of employment under circumstances which the Committee deems equivalent to retirement. Section 3. Administration -------------- The Plan shall be administered by the Committee which shall consist of appointed directors of the Company, none of whom is eligible to participate in the Plan. Subject to the provisions of the Plan and to directions by the Board, the Committee is authorized to interpret the Plan, to adopt administrative rules, regulations, and guidelines for the Plan, and to impose such terms, conditions, and restrictions on grants as it deems appropriate. Section 4. Eligibility and Participation ----------------------------- Participation in the Plan shall be limited to selected members of the management team, who may also be members of the Board of Directors, and other key employees of the Company. The Committee retains the right to discontinue a Participant's participation in the Plan in the event of transfer to a new position within the Company, transfer to an Armstrong affiliate, or under circumstances which the Committee determines to warrant such action. Section 5. Awards Under the Plan --------------------- 5.1 Target Investment Award ----------------------- For each Performance Period, a Participant shall be assigned a target Investment Award. The amount of the Investment Award shall vary depending on the Participant's level of responsibility. Each Participant shall receive a written document indicating the target Investment Award amount for each Performance Period. - 3 - 5.2 Performance Goals ----------------- At any time before or during a Performance Period, the Committee shall establish financial performance goals for such Performance Period. In establishing the performance goals, the Committee shall determine both a minimum performance level, below which no Investment Award shall be earned, and a performance schedule under which the amount of the Investment Award earned may be less than, equal to, or greater than the target amount. 5.3 Determination of Investment Award Amount and Conversion to American -------------------------------------------------------------------- Olean Phantom Shares -------------------- At the conclusion of each Performance Period, the amount of the Investment Award earned will be determined as specified in the Committee approved performance schedule. The Investment Award amount earned shall be converted to AO Phantom Shares in accordance with a method specified by the Committee. The AO Phantom Shares earned shall be credited to an account to be maintained for each Participant until such time the AO Phantom Shares are converted to cash or Common Stock. 5.4 Payment of Awards ----------------- Following the end of an Investment Period specified by the Committee, a Participant shall have the right to convert previously earned AO Phantom Shares into cash or shares of Armstrong Common Stock. The President of AO shall not be permitted to receive payment in Armstrong Common Stock. The value of the AO Phantom Shares shall be determined according to paragraph 5.5. The number of shares of Armstrong Common Stock awarded shall be based on the Fair Market Value on the date of conversion. A Participant may elect to defer receipt of Armstrong Common Stock pursuant to Section 8 hereof. 5.5 AO Phantom Share Conversion Value --------------------------------- The value of the AO Phantom Shares shall be determined in accordance with a share price schedule established by the Committee. The Committee reserves the right to adjust the method by which AO Phantom Shares are valued. Such changes may be triggered by investments, acquisitions, divestitures, distributions, changes in tax or accounting policies, or other unusual or extraordinary events. - 4 - Section 6. Transfer to an Armstrong Affiliate ---------------------------------- In the event a Participant transfers to an Armstrong affiliate: (a) The Committee shall determine if the Participant shall be entitled to receive an Investment Award for the year in which such transfer occurs. (b) All restrictions shall remain in effect on all AO Phantom Shares earned under the Plan unless otherwise provided for by the Committee. (c) At the conclusion of any Investment Period following such transfer, the Committee has the right to require the Participant to take payment in cash or in shares of Armstrong Common Stock. Any Participant who is subject to Section 16 of the Securities Exchange Act of 1934, as amended, shall not have the option to receive Armstrong Common Stock. Section 7. Termination of Employment ------------------------- (a) In the event a Participant terminates employment with Armstrong on or after July 1 by reason of death, Disability, or Retirement, the Participant or the Participant's designated beneficiary, shall be entitled to receive AO Phantom Shares with regard to an outstanding Investment Award prorated for the number of months of employment during the year in which such termination occurs. In the event a Participant terminates employment with Armstrong prior to July 1, the Participant shall not be entitled to receive an Investment Award. (b) In the event a Participant terminates employment with Armstrong by reason of death or Disability, restrictions shall lapse on all AO Phantom Shares earned at the conclusion of the applicable Investment Period. If termination of employment is by reason of death, the Participant's designated beneficiary shall be entitled to receive the Participant's award payment under the Plan. If termination of employment is by reason of Retirement, any applicable Investment Period shall continue in effect, but in no event beyond the end of the calendar year of the three-year period following the Participant's Retirement. (c) In the event a Participant terminates employment with Armstrong for any reason other than death, Disability or Retirement, the Participant shall forfeit all rights to earn an Investment Award and AO Phantom Shares not held for the full duration of the Investment Period unless otherwise provided for by the Committee. - 5 - (d) Notwithstanding Sections 7(a) and 7(b), in the event a Participant's employment with Armstrong is terminated under special circumstances, the Committee may, in its sole discretion, continue a Participant's rights to earn any or all Investment Awards in the year of termination and waive in whole or in part any or all remaining restrictions applicable to outstanding AO Phantom Shares. Section 8. Deferral of Payment ------------------- At the discretion of the Committee, a Participant may be offered the right to defer the receipt of all or any portion of the Participant's award value beyond the conclusion of the Investment Period. Such right shall be exercised by execution of a written agreement by the Participant at least one year in advance of the end of the Investment Period. Award payments may be deferred in the form of shares of Armstrong Common Stock based on the Fair Market Value on the date of conversion. The President of American Olean shall not be permitted to defer payment in the form of Armstrong Common Stock. If a Participant elects to defer in the form of Armstrong Common Stock, the shares of Common Stock subject to the deferral shall remain in the custody of Armstrong. Cash dividends paid with respect to these shares shall be reinvested to purchase additional shares of Common Stock that shall be subject to the same deferral provisions. Section 9. Miscellaneous ------------- 9.1 No Right to Employment ---------------------- Nothing contained in the Plan, nor in any grant pursuant to the Plan, shall confer upon any Participant any right with respect to continuance of employment by the Company or Armstrong, nor interfere in any way with the right of the Company or Armstrong to terminate the employment or change the compensation of any employee at any time. 9.2 Nontransferability ------------------ A Participant's rights under the Plan, including the right to any amounts or shares payable, may not be assigned, pledged or otherwise transferred except, in the event of a Participant's death, to the Participant's designed beneficiary or, in the absence of such a designation, by will or by the laws of descent and distribution. - 6 - 9.3 Designation of Beneficiary -------------------------- A Participant may designate, in writing delivered to the Company before the Participant's death, a person or persons to receive, in the event of the Participant's death, any rights to which the Participant would be entitled under the Plan. If a Participant fails to designate a beneficiary, then the Participant's estate shall be deemed to be the beneficiary. 9.4 Withholding ----------- Armstrong shall have the right to require the Participant to satisfy any federal, state, local or other tax withholding requirements unless the Participant elects to defer receipt of award payments pursuant to Section 8 hereof. 9.5 Governing Law ------------- The Plan shall be construed and its provisions enforced and administered in accordance with the laws of the Commonwealth of Pennsylvania applicable to contracts entered into and performed entirely in such State. 9.6 Rights as a Shareholder ----------------------- The recipient of any grant under the Plan shall have no rights as a shareholder with respect thereto unless and until certificates for shares of Common Stock are issued to such recipient. 9.7 Unfunded Plan ------------- Unless otherwise determined by the Committee, the Plan shall be unfunded and shall not create (or be construed to create) a trust or separate funds. With respect to any payment not yet made to a Participant, nothing contained herein shall give any Participant any rights that are greater than those of a general creditor of Armstrong. 9.8 Other Compensation Plans ------------------------ No payment under the Plan shall be taken into account in determining any benefits under any retirement, group insurance, or other employee benefit plan of Armstrong. Nothing contained in this Plan shall prevent the Company from adopting other or additional compensation arrangements, subject to Armstrong shareholder approval if such approval is required. - 7 - 9.9 Termination of Employment - Certain Forfeitures ----------------------------------------------- Notwithstanding any other provision of the Plan and except for Armstrong Common Stock which would otherwise be free of restrictions and the receipt of which has been deferred pursuant to Section 8, a Participant shall have no right to earn an Investment Award or receive payment of the value of any AO Phantom Shares if: (1) the Participant is discharged for willful, deliberate, or gross misconduct as determined by the Committee in its sole discretion or (2) if following the Participant's termination of employment with Armstrong, and within a period of three years thereafter, the Participant engages in any business or enters into any employment which the Committee in its sole discretion determines to be (a) directly or indirectly competitive with the business of Armstrong or (b) substantially injurious to Armstrong's financial interest. A Participant may request the Committee in writing to determine whether any proposed business or employment activity would justify such a forfeiture. Such a request shall fully describe the proposed activity and the Committee's determination shall be limited to the specific activity so described. Section 10. Amendment and Termination ------------------------- The Board may modify, amend, discontinue or terminate the Plan without the consent of Armstrong shareholders or Participants, except that, without the approval of the shareholders of Armstrong, no amendment, discontinuation or termination shall be made if Armstrong shareholder approval is required by any federal or state law or regulation. Section 11. Shares Subject to the Plan -------------------------- The total number of shares of Armstrong Common Stock that may be distributed under the Plan shall be 100,000. Shares of Armstrong Common Stock distributed under the Plan may be treasury shares or authorized but unissued shares. No fractional shares shall be issued under the Plan. Section 12. Effective Date and Duration of Plan ----------------------------------- The Plan shall become effective on January 1, 1993 and remain in effect until terminated by the Board. EX-22 13 DOMESTIC SUBSIDIARIES EXHIBIT NO. 22 (as of January 1995) Jurisdiction of Domestic Subsidiaries Incorporation - --------------------- --------------- American Olean Tile Company, Inc. Pennsylvania ArmStar (50%-owned unincorporated affiliate) Armstrong Cork Finance Corporation Delaware Armstrong Enterprises, Inc. Vermont Armstrong Realty Group, Inc. Pennsylvania Armstrong Ventures, Inc. Delaware Armstrong World Industries Asia, Inc. Nevada Armstrong World Industries (Delaware) Inc. Delaware A W I (NEVADA), INC. Nevada Charleswater Products, Inc. Delaware Chemline Industries, Inc. Delaware Fayette Enterprises, Inc. Mississippi Gordon's, Inc. Delaware IWF, Inc. Nevada I.W. Insurance Company Vermont The W. W. Henry Company California The Worthington Armstrong Venture (50%-owned unincorporated affiliate) Thomasville Chair Company North Carolina Thomasville Enterprises, Inc. Vermont Thomasville Furniture Industries, Inc. Delaware Thomasville Home Furnishings, Inc. Delaware Thomasville Upholstery, Inc. Delaware WAVE International, Inc. (owned by WAVE) Delaware Foreign Subsidiaries - -------------------- Alphacoustic (UK) Ltd. England Armstrong-ABC Co., Ltd. Japan Armstrong Cork (Ireland) Limited Ireland Armstrong Europa Germany G.m.b.H. Germany Armstrong Europe Services England Armstrong FSC, Ltd. Bermuda Armstrong Insulation (Panyu) Co. Ltd. People's Republic of China Armstrong Insulation Rus. Russia Armstrong (Japan) K.K. Japan Armstrong-Nylex Pty. Ltd. Australia Armstrong (Singapore) Pte. Ltd. Singapore Armstrong Textile Rubber Products Company Shanghai Ltd. People's Republic of China Armstrong World Industries - A.C.I. B.V. Netherlands Armstrong World Industries - Belgium S.A. Belgium Armstrong World Industries Canada Ltd. Canada Armstrong World Industries (China) Ltd. People's Republic of China Armstrong World Industries de Mexico, S.A. de C.V. Mexico Armstrong World Industries - France, S.A. France Armstrong World Industries, G.m.b.H. Germany Armstrong World Industries (H.K.) Limited Hong Kong Armstrong World Industries Italia S.r.l. Italy Armstrong World Industries Korea, Ltd. Korea Armstrong World Industries Ltd. England Armstrong World Industries Netherlands B.V. Netherlands Armstrong World Industries - Pontarlier S.A. France Armstrong World Industries Pty. Ltd. Australia Armstrong World Industries, S.A. Spain Armstrong World Industries (Schweiz) AG Switzerland Armstrong World Industries (Thailand) Ltd. Thailand Inarco Limited (40%-owned affiliate) India ISA Co., Ltd. (25%-owned affiliate) Japan ISO Holding, A.G. Switzerland Liberty Commercial Services Ltd. Bermuda Recubrimientos Interceramic S.A. de C.V. Mexico (49%-owned affiliate) Worthington Armstrong Venture Europe S.A. (owned by WAVE) France EX-24 14 CONSENT OF INDENPENDENT AUDITORS Exhibit No. 24 Consent of Independent Auditors ------------------------------- The Board of Directors Armstrong World Industries, Inc.: We consent to incorporation by reference in Registration Statement No. 33-38837 on Form S-3 and the Registration Statement Nos. 2-50942, 2-77936, 2-91890, 33-18996, 33-18997, 33-18998, 33-29768 and 33-60070 on Form S-8 of Armstrong World Industries, Inc. of our report dated February 20, 1995, relating to the consolidated balance sheets of Armstrong World Industries, Inc., and subsidiaries as of December 31, 1994 and 1993 and the related consolidated statements of operations and cash flows and related supplementary information on depreciation rates and schedule for each of the years in the three-year period ended December 31, 1994, which report appears in the December 31, 1994 Annual Report on Form 10-K of Armstrong World Industries, Inc. The audit report on the consolidated financial statements of Armstrong World Industries, Inc. referred to above contains an explanatory paragraph that states that the company is involved in antitrust litigation, the outcome of which cannot presently be determined. Accordingly, no provision for any liability that may result has been made in the consolidated financial statements. Also, as discussed in the Financial Review section, effective January 1, 1992, the company changed its methods of accounting to adopt the provisions of the Financial Accounting Standards No. 109, "Accounting for Income Taxes", No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" and No. 112, "Employers' Accounting for Postemployment Benefits." KPMG Peat Marwick LLP Philadelphia, Pennsylvania March 23, 1995 EX-25 15 POWER OF ATTORNEY Exhibit No. 25 POWER OF ATTORNEY ----------------- Re: 1994 Annual Report on Form 10-K - I, James E. Marley, as a Director of Armstrong World Industries, Inc., do hereby constitute and appoint, GEORGE A. LORCH or, in the case of his absence or inability to act as such, E. ALLEN DEAVER, my agent, to sign in my name and in my behalf the Company's Annual Report on Form 10-K for the year ended December 31, 1994, and any amendments thereto, to be filed by the Company with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, with the same effect as if such signature were made by me personally. /s/ James E. Marley ----------------------------------- James E. Marley Dated February 27, 1995 ------------------- - 2 - (Exhibit No. 25) All powers of attorney required to be filed are substantially identical in all material respects. Therefore, in accordance with SEC Regulation 229.601(a) Instruction 2, only the foregoing copy is being included except, however, that the manually signed copy filed with the Securities and Exchange Commission includes a complete set of powers of attorney. All powers of attorney differ only from the form of the foregoing in that they are executed by the following parties in the capacities indicated on or about February 22, 1995, and the power by E. Allen Deaver appoints George A. Lorch only as his agent: William J. Wimer Senior Vice-President, Finance, and Treasurer (Principal Financial Officer) Bruce A. Leech, Jr. Controller (Principal Accounting Officer) Van C. Campbell Director E. Allen Deaver Director Ursula F. Fairbairn Director Michael C. Jensen Director James E. Marley Director Robert F. Patton Director J. Phillip Samper Director Jerre L. Stead Director - 3 - (Exhibit No. 25) I, L. A. Pulkrabek, Senior Vice-President and Secretary of Armstrong World Industries, Inc., a corporation organized and existing under the laws of the Commonwealth of Pennsylvania, do hereby certify that, at a meeting of the Board of Directors of said corporation duly held on the 27th day of February, 1995, at which a quorum was present and acting throughout, the following resolutions were adopted and are now in full force and effect: RESOLVED That the 1994 annual report on Form 10-K in the form presented to this meeting has been reviewed by the Board of Directors; and the execution thereof on behalf of the Company by George A. Lorch or E. Allen Deaver, with such changes therein and additions or deletions thereto as either of them and the legal counsel to the Company may approve, and the filing thereof with the Securities and Exchange Commission after being so executed by the requisite number of directors personally or by their respective attorneys-in-fact, are hereby authorized. FURTHER RESOLVED That the execution of the 1994 annual report on Form 10-K by George A. Lorch, Bruce A. Leech, Jr. and the then acting Chief Financial Officer, personally or by their respective attorneys-in- fact, as principal executive officer, principal accounting officer, and principal financial officer, respectively, of the Company, is hereby authorized. IN WITNESS WHEREOF, I have hereunto set my hand and the seal of said corporation this 24th day of March, 1995. /s/ L. A. Pulkrabek -------------------------------------- Sr. Vice President & Secretary EX-27 16 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Registrant's Unaudited Consolidated Financial Statements as of and for December 31, 1994, and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1994 DEC-31-1994 8,200 3,800 362,300 42,300 293,500 691,000 2,168,700 1,098,800 2,232,500 387,300 0 91,200 0 261,600 382,300 2,232,500 2,752,700 2,752,700 1,904,700 2,419,500 400 0 28,300 304,500 94,100 210,400 0 0 0 210,400 5.22 4.64
EX-28.II.A 17 RETIREMENT SAVINGS PLAN - SALARIED Exhibit No. 28(ii)(a) FORM 11-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1994 --------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _______________________ Commission file number 1-2116 ------------------------------------------------------- RETIREMENT SAVINGS PLAN FOR SALARIED EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. (Full title of the Plan) ARMSTRONG WORLD INDUSTRIES, INC. Liberty and Charlotte Streets Lancaster, Pennsylvania 17604 (Name of issuer of the securities held pursuant to the Plan and the address of its principal executive office)
Page No. ------- Item 1. Statements of Net Assets 4 ------------------------ September 30, 1994 and 1993 Item 2. Statements of Changes in Plan Equity 5-7 ------------------------------------ (a) Year ended September 30, 1994 (b) Year ended September 30, 1993 (c) Year ended September 30, 1992 Notes to Financial Statements 8-11 - ----------------------------- Item 3. Independent Auditors' Report 12 ---------------------------- Exhibits - -------- 24. Consent of Independent Auditors
- 2 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the members of the committee constituting the administrator which administers the plan have duly caused this annual report to be signed by the undersigned hereunto duly authorized. RETIREMENT SAVINGS PLAN FOR SALARIED EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. March 24, 1995 By: /s/E. A. Deaver ---------------------------------------- E. Allen Deaver Chairman of the Retirement Committee - 3 - RETIREMENT SAVINGS PLAN FOR SALARIED EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Statements of Net Assets September 30, 1994 and 1993 1994
Commingled Specialized Money Fixed Income Armstrong "OTC" Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fd. ----------- ----------- ----------- ------------ ---------- ------------- Assets: Investments in master trust at fair value (note 3) $20,074,514 $40,885,939 $2,364,783 $108,691,987 $7,203,780 $2,199,833 ----------- ----------- ---------- ------------ ---------- ---------- Total assets $20,074,514 $40,885,939 $2,364,783 $108,691,987 $7,203,780 $2,199,833 ----------- ----------- ---------- ------------ ---------- ---------- Plan equity $20,074,514 $40,885,939 $2,364,783 $108,691,987 $7,203,780 $2,199,833 =========== =========== ========== ============ ========== ========== Asset Asset Mgr. Asset Mgr. Loan Manager Fund Income Fund Growth Fund Portfolio Fund Total ------------ ----------- ----------- -------------- ----- Assets: Investments in master trust at fair value (note 3) $3,488,114 $1,766,979 $4,767,677 $3,159,183 $194,602,789 ---------- ---------- ---------- ---------- ------------ Total assets $3,488,114 $1,766,979 $4,767,677 $3,159,183 $194,602,789 ---------- ---------- ---------- ---------- ------------ Plan equity $3,488,114 $1,766,979 $4,767,677 $3,159,183 $194,602,789 ========== ========== ========== ========== ============
1993
Commingled Specialized Money Fixed Income Armstrong "OTC" Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fd. ----------- ----------- ----------- ------------ ---------- ------------- Assets: Investments in master trust at fair value (note 3) $21,907,057 $38,103,999 $2,664,691 $110,188,428 $7,121,870 $1,601,565 ----------- ----------- ---------- ------------ ---------- ---------- Total assets $21,907,057 $38,103,999 $2,664,691 $110,188,428 $7,121,870 $1,601,565 ----------- ----------- ---------- ------------ ---------- ---------- Plan equity $21,907,057 $38,103,999 $2,664,691 $110,188,428 $7,121,870 $1,601,565 =========== =========== ========== ============ ========== ========== Asset Asset Mgr. Asset Mgr. Loan Manager Fund Income Fund Growth Fund Portfolio Fund Total ------------ ----------- ----------- -------------- ----- Assets: Investments in master trust at fair value (note 3) $ 297,227 $ 85,542 $ 94,578 $3,512,435 $185,577,392 ---------- ---------- ---------- ---------- ------------ Total assets $ 297,227 $ 85,542 $ 94,578 $3,512,435 $185,577,392 ---------- ---------- ---------- ---------- ------------ Plan equity $ 297,227 $ 85,542 $ 94,578 $3,512,435 $185,577,392 ========== ========== ========== ========== ============
See accompanying notes to financial statements. RETIREMENT SAVINGS PLAN FOR SALARIED EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Statements of Changes in Plan Equity Years Ended September 30, 1994, 1993, and 1992 1994
Commingled Specialized Money Fixed Income Armstrong "OTC" Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fd. ----------- ----------- ----------- ------------ ---------- ------------- Plan equity at October 1, 1993 $21,907,057 $38,103,999 $2,664,691 $110,188,428 $7,121,870 $1,601,565 ----------- ----------- ---------- ------------ ---------- ---------- Increases in plan equity: Contributions 1,090,512 3,079,493 152,506 3,385,978 200,709 233,587 Dividends 765,667 3,849,084 81,375 -- 201,625 101,625 Interest 41,595 76,371 12,314 7,807,669 5,530 6,767 Realized gain(loss) on investments (note 3) 874,833 464,049 -- -- 247,166 (17,970) Transfers (to) from other employee benefit plans of Armstrong World Industries, Inc. 863 9,604 11,437 (19,965) 11,126 4,568 Loan activity, net (21,731) 169,552 9,773 135,007 15,947 52,702 ----------- ----------- ---------- ------------ ---------- ---------- 2,751,739 7,648,153 267,405 11,308,689 682,103 381,279 ----------- ----------- ---------- ------------ ---------- ---------- Decreases in plan equity: Unrealized appreciation (depreciation) of investments (931,592) (4,829,281) -- -- 52,533 (86,928) Benefits paid (note 4) (644,466) (1,497,530) (108,573) (5,927,743) (189,656) (60,685) Interfund transfers, net (3,008,224) 1,460,598 (458,740) (6,877,387) (463,070) 364,602 ----------- ----------- ---------- ------------ ---------- ---------- (4,584,282) (4,866,213) (567,313) (12,805,130) (600,193) 216,989 ----------- ----------- ---------- ------------ ---------- ---------- Plan equity at September 30, 1994 $20,074,514 $40,885,939 $2,364,783 $108,691,987 $7,203,780 $2,199,833 =========== =========== ========== ============ ========== ========== Asset Asset Mgr. Asset Mgr. Loan Manager Fund Income Fund Growth Fund Portfolio Fund Total ------------ ----------- ----------- -------------- ----- Plan equity at October 1, 1993 $ 297,227 $ 85,542 $ 94,578 $3,512,435 $185,577,392 ---------- ---------- ---------- ---------- ------------ Increases in plan equity: Contributions 266,340 90,079 536,559 -- 9,035,763 Dividends 153,211 89,541 111,463 -- 5,353,591 Interest 6,495 3,131 10,971 -- 7,970,843 Realized gain(loss) on investments (note 3) (10,039) (23,524) (15,473) -- 1,519,042 Transfers (to) from other employee benefit plans of Armstrong World Industries, Inc. -- -- 1,120 (8,145) 10,608 Loan activity, net 4,329 (68,420) 47,948 (345,107) -- ---------- ---------- ---------- ---------- ------------ 420,336 90,807 692,588 (353,252) 23,889,847 ---------- ---------- ---------- ---------- ------------ Decreases in plan equity: Unrealized appreciation (depreciation) of investments (162,610) (68,890) (82,171) -- (6,108,939) Benefits paid (note 4) (189,598) (61,703) (75,557) -- (8,755,511) Interfund transfers, net 3,122,759 1,721,223 4,138,239 -- -- ---------- ---------- ---------- ---------- ------------ 2,770,551 1,590,630 3,980,511 -- (14,864,450) ---------- ---------- ---------- ---------- ------------ Plan equity at September 30, 1994 $3,488,114 $1,766,979 $4,767,677 $3,159,183 $194,602,789 ========== ========== ========== ========== ============
See accompanying notes to financial statements. (Continued) RETIREMENT SAVINGS PLAN FOR SALARIED EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Statements of Changes in Plan Equity, Continued 1993
Commingled Specialized Money Fixed Income Armstrong "OTC" Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fd. ----------- ----------- ----------- ------------ ---------- ------------- Plan equity at October 1, 1992 $19,886,879 $27,493,135 $2,800,063 $103,489,554 $4,960,888 $ -- ----------- ----------- ---------- ------------ ---------- ---------- Increases in plan equity: Contributions 1,384,117 2,551,576 171,760 4,044,086 164,903 230,659 Dividends 679,115 3,697,160 83,909 -- 203,773 122,231 Interest 60,943 80,967 27,305 8,412,031 5,793 4,072 Realized gain(loss) on investments (note 3) 573,187 319,808 -- -- (23,113) (363) Unrealized appreciation (depreciation) of investments 1,269,718 4,787,209 -- -- 2,081,543 (19,487) Transfers (to) from other employee benefit plans of Armstrong World Industries, Inc. (9,500) (96,958) (7,156) 259,981 7,437 (11,638) Loan activity, net (183,935) (57,356) (6,215) 181,848 16,858 23,420 ----------- ----------- ---------- ------------ ---------- ---------- 3,773,645 11,282,406 269,603 12,897,946 2,457,194 348,894 ----------- ----------- ---------- ------------ ---------- ---------- Decreases in plan equity: Benefits paid (note 4) (719,211) (1,188,862) (249,513) (5,282,177) (162,630) -- Interfund transfers, net (1,034,256) 517,320 (155,462) (916,895) (133,582) 1,252,671 ----------- ----------- ---------- ------------ ---------- ---------- (1,753,467) (671,542) (404,975) (6,199,072) (296,212) 1,252,671 ----------- ----------- ---------- ------------ ---------- ---------- Plan equity at September 30, 1993 $21,907,057 $38,103,999 $2,664,691 $110,188,428 $7,121,870 $1,601,565 =========== =========== ========== ============ ========== ========== Asset Asset Mgr. Asset Mgr. Loan Manager Fund Income Fund Growth Fund Portfolio Fund Total ------------ ----------- ----------- -------------- ----- Plan equity at October 1, 1992 $ -- $ -- $ -- $3,547,189 $162,177,708 ---------- ---------- ---------- ---------- ------------ Increases in plan equity: Contributions 1,055 770 2,970 -- 8,551,896 Dividends 458 -- -- -- 4,786,646 Interest 19 20 22 -- 8,591,172 Realized gain(loss) on investments (note 3) -- -- -- -- 869,519 Unrealized appreciation (depreciation) of investments 205 595 825 -- 8,120,608 Transfers (to) from other employee benefit plans of Armstrong World Industries, Inc. -- -- -- (59,707) 82,459 Loan activity, net 128 124 175 24,953 -- ---------- ---------- ---------- ---------- ------------ 1,865 1,509 3,992 (34,754) 31,002,300 ---------- ---------- ---------- ---------- ------------ Decreases in plan equity: Benefits paid (note 4) -- -- (223) -- (7,602,616) Interfund transfers, net 295,362 84,033 90,809 -- -- ---------- ---------- ---------- ---------- ------------ 295,362 84,033 90,586 -- (7,602,616) ---------- ---------- ---------- ---------- ------------ Plan equity at September 30, 1993 $ 297,227 $ 85,542 $ 94,578 $3,512,435 $185,577,392 ========== ========== ========== ========== ============
See accompanying notes to financial statements. (Continued) RETIREMENT SAVINGS PLAN FOR SALARIED EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Statements of Changes in Plan Equity, Continued 1992
Commingled Specialized Money Fixed Income Armstrong Loan Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fund Total ----------- ----------- ----------- ------------- ---------- -------------- ----- Plan equity at October 1, 1991 $18,728,412 $22,868,411 $2,518,571 $ 94,446,481 $4,978,681 $3,318,457 $146,859,013 ----------- ----------- ---------- ------------ ---------- ---------- ------------ Increases in plan equity: Contributions 1,368,039 2,156,761 177,318 4,156,871 161,102 -- 8,020,091 Dividends 736,870 3,312,128 106,509 -- 191,137 -- 4,346,644 Interest 68,311 77,739 40,178 8,799,164 7,040 -- 8,992,432 Realized gain(loss) on investments (note 3) 547,755 412,818 -- -- (15,536) -- 945,037 Loan activity, net (311,423) (119,816) 31,222 102,779 25,620 271,618 -- ----------- ----------- ---------- ------------ ---------- ---------- ------------ 2,409,552 5,839,630 355,227 13,058,814 369,363 271,618 22,304,204 ----------- ----------- ---------- ------------ ---------- ---------- ------------ Decreases in plan equity: Unrealized appreciation (depreciation) of investments 683,621 (1,511,517) -- -- (539,308) -- (1,367,204) Transfers to other employee benefit plans of Armstrong World Industries, Inc. (74,230) (3,661) (26,147) (44,044) (21,214) -- (169,296) Benefits paid (note 4) (823,104) (894,803) (59,799) (3,558,349) (70,068) (42,886) (5,449,009) Interfund transfers, net (1,037,372) 1,195,075 12,211 (413,348) 243,434 -- -- ----------- ----------- ---------- ------------ ---------- ---------- ------------ (1,251,085) (1,214,906) (73,735) (4,015,741) (387,156) (42,886) (6,985,509) ----------- ----------- ---------- ------------ ---------- ---------- ------------ Plan equity at September 30, 1992 $19,886,879 $27,493,135 $2,800,063 $103,489,554 $4,960,888 $3,547,189 $162,177,708 =========== =========== ========== ============ ========== ========== ============
See accompanying notes to financial statements. RETIREMENT SAVINGS PLAN FOR SALARIED EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Notes to Financial Statements (1) Summary of Significant Accounting Policies ------------------------------------------ (a) Basis of Presentation --------------------- The accompanying financial statements have been prepared on the accrual basis. (b) Investments in Master Trust --------------------------- The fair value of the commingled equity, specialized equity, over-the- counter portfolio, and Asset Manager funds is based on the underlying market value of the investments. The money market fund is stated at cost which approximates fair value. The fixed income fund is stated at contract value which represents contributions plus interest at the contract rate, less benefits paid. The value of the Armstrong stock fund is based on quoted market price. The value of the loan portfolio fund represents the unpaid principal of employee loans. Securities transactions are recognized on the settlement date (the date on which payment for a buy or sell order is made or received), since adjustment to a trade-date basis would not be material. Dividend income is recorded on the ex-dividend date. Realized gains and losses on investments are determined by the average cost method. (c) Expenses -------- All legal, accounting and administrative expenses associated with Plan operations are paid by the Company. (2) Plan Description ---------------- The Plan was established on August 1, 1983, under the name the Savings Investment Plan for Salaried Employees of Armstrong World Industries, Inc. On November 30, 1987, the Board of Directors of Armstrong amended the Plan effective February 1, 1988, to permit investments by participants in an Armstrong Common Stock Fund and to change its name to the Retirement Savings Plan for Salaried Employees of Armstrong World Industries, Inc. During the Plan year ended September 30, 1993, four investment options were added to the Plan. Effective January 1, 1993, an over-the-counter portfolio mutual fund was made available for participant investment and, effective September 1, 1993, three Asset Manager mutual funds became investment options. The plan is a defined contribution plan established for the purpose of providing to eligible salaried employees of Armstrong World Industries, Inc. (the Company) a means for long-term savings intended for the accumulation of retirement income in addition to that provided under other retirement plans maintained for the benefit of employees. Participants may elect to make contributions to the Plan in each of the following methods: 1. Up to 15% of their before-tax compensation, as deferred compensation as permitted under Section 401(k) of the Internal Revenue Code. 2. Up to 10% of their after-tax compensation. Separate accounts are maintained for contributions made by or on behalf of a participant. The accounts in each fund reflect the participants' contributions together with dividends, interest, other income, and realized and unrealized gains and losses allocated thereon. Participants have an immediate 100 percent vested interest with respect to their contributions and are fully vested with regard to any previously made matching company contributions. RETIREMENT SAVINGS PLAN FOR SALARIED EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Notes to Financial Statements, (Continued) (3) Investments in Master Trust --------------------------- Assets are held in a Master Trust administered by Fidelity Management Trust Co., as Trustee, and are segregated into nine investment options: a commingled equity mutual fund (Fidelity U.S. Equity Index Portfolio), a specialized equity mutual fund (Fidelity Magellan), a money market mutual fund (Fidelity Return Money Market Portfolio), three Asset Manager mutual funds, an over-the-counter mutual fund (OTC Portfolio Fund), a fixed income fund, and an Armstrong stock fund. The Plan utilizes the Trustee and associated investment managers to direct investment activity. The Plan participates in all nine investment alternatives. The following is a description of the investment funds to which Plan participants can elect to allocate their contributions. 1. Commingled Equity Fund - This fund is principally a portfolio of common stocks constructed and maintained with the objective of providing investment results which approximate the overall performance of the common stocks included in the Standard & Poor's Composite Index of 500 stocks. At September 30, 1994, there were 1,383 active participants in this investment fund. 2. Specialized Equity Fund - This fund invests in common stocks of companies having substantial growth prospects as determined by independent investment managers. At September 30, 1994, there were 2,120 active participants in this investment fund. 3. Money Market Fund - This fund invests in short-term (less than one year maturity) fixed income instruments such as U.S. Treasury Bills, bank certificates of deposit, and high grade commercial paper. At September 30, 1994, there were 460 active participants in this investment fund. 4. Fixed Income Fund - Contributions to this fund are invested in the general accounts of insurance companies and are credited at contracted interest rates. At September 30, 1994, the interest rates ranged between 5.69% and 12.00%. Invested principal and accumulated interest amounts are guaranteed against loss by the insurance company. At September 30, 1994, there were 3,086 active participants in this investment fund. 5. Armstrong Stock Fund - Amounts invested in this fund, along with dividend earnings thereon, are invested in Armstrong common stock. At September 30, 1994, there were 2,081 active participants in this investment fund. Common stock shares held by the fund at September 30, 1994 and 1993 were 166,081 and 171,096, respectively. 6. OTC Portfolio Fund - This fund invests in securities traded in the over-the-counter securities market with the objective of maximizing capital appreciation. Over-the-counter securities include common and preferred stocks, securities convertible into common stock, warrants, and debt instruments. At September 30, 1994, there were 268 active participants in this investment fund. 7. Asset Manager Fund - An asset allocation fund which invests in a portfolio of stocks, bonds, and short-term instruments. The fund has a balanced investment strategy with a goal of high total return with reduced risk over the long term. At September 30, 1994, there were 300 active participants in this investment fund. 8. Asset Manager Income Fund - An asset allocation fund which invests in a diversified portfolio of stocks, bonds, and short-term instruments. The fund has a conservative investment strategy focusing on bonds and short- term instruments to achieve a high level of current income and capital preservation. At September 30, 1994, there were 103 active participants in this investment fund. 9. Asset Manager Growth Fund - An asset allocation fund invested in a diversified mix of stocks, bonds, and short-term instruments. The fund's investment strategy is an aggressive one emphasizing stocks with the goal of maximum total return over the long term. At September 30, 1994, there were 433 active participants in this investment fund. RETIREMENT SAVINGS PLAN FOR SALARIED EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Notes to Financial Statements, (Continued) 10. Loan Portfolio Fund - The amount in this fund represents the unpaid principal balances of loans made by Plan participants in accordance with established loan provision guidelines. At September 30, 1994, there were 1,600 loans outstanding. The following table presents the cost and fair values of the investments in securities of the Master Trust at September 30, 1994 and 1993:
September 30, 1994 September 30, 1993 ------------------ ------------------ Investment Cost Fair Value Cost Fair Value ---------- ---- ---------- ---- ---------- Commingled equity $ 15,876,898 $ 20,074,514 $ 16,777,849 $ 21,907,057 Specialized equity 37,565,450 40,885,939 29,954,229 38,103,999 Money market 2,364,783 2,364,783 2,664,691 2,664,691 Fixed income 108,691,987 108,691,987 110,188,428 110,188,428 Armstrong stock 5,972,640 7,203,780 5,943,263 7,121,870 OTC portfolio 2,306,248 2,199,833 1,621,052 1,601,565 Asset manager 3,650,519 3,488,114 297,022 297,227 Asset manager income 1,835,274 1,766,979 84,947 85,542 Asset manager growth 4,849,023 4,767,677 93,753 94,578 Loan portfolio 3,159,183 3,159,183 3,512,435 3,512,435 ------------ ------------ ------------ ------------ $186,272,005 $194,602,789 $171,137,669 $185,577,392 ============ ============ ============ ============
The amounts of realized gain (loss) on investments in securities of the Master Trust for the years ended September 30, 1994, 1993, and 1992 are presented below:
Aggregate Aggregate Realized --------- --------- -------- 1994 Proceeds Cost Gain(Loss) ---- -------- ---- ---------- Commingled equity $ 4,197,432 $ 3,322,599 $ 874,833 Specialized equity 4,209,579 3,745,530 464,049 Armstrong stock 827,356 580,190 247,166 OTC portfolio 506,960 524,930 (17,970) Asset manager 428,433 438,472 (10,039) Asset manager income 987,917 1,011,441 (23,524) Asset manager growth 473,242 488,715 (15,473) ----------- ----------- ---------- $11,630,919 $10,111,877 $1,519,042 =========== =========== ========== 1993 ---- Commingled equity $ 3,120,551 $ 2,547,364 $ 573,187 Specialized equity 3,914,772 3,594,964 319,808 Armstrong stock 432,085 455,198 (23,113) OTC portfolio 604,721 605,084 (363) ----------- ----------- ---------- $ 8,072,129 $ 7,202,610 $ 869,519 =========== =========== ==========
RETIREMENT SAVINGS PLAN FOR SALARIED EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Notes to Financial Statements, (Continued)
1992 Aggregate Aggregate Realized ---- --------- --------- -------- Proceeds Cost Gain(Loss) -------- ---- ---------- Commingled equity $ 2,463,737 $ 1,915,982 $ 547,755 Specialized equity 2,348,309 1,935,491 412,818 Armstrong stock 147,651 163,187 (15,536) ----------- ----------- ---------- $ 4,959,697 $ 4,014,660 $ 945,037 =========== =========== ==========
(4) Benefits -------- Under terms of the Plan, a participant (or a beneficiary) is eligible for benefits upon retirement, termination of employment, or death before retirement. Disbursement of the total amount credited to a participant's account is payable (i) in a lump sum or (ii) in the case of retirement, in such other manner as requested by the participant and approved by the Plan Administrator. In addition, a participant may elect to withdraw all or any part of his account attributable to his contributions. If the amount of a withdrawal exceeds the amount of contributions made by the participant and not previously withdrawn, the participant shall be ineligible to make contributions for a specified period, except that a participant may elect to withdraw all or any portion of his account attributable to tax deductible contributions. Under the rules of the Plan, the participant may borrow up to 90 percent of his account, other than amounts attributable to tax deductible contributions or amounts invested in the Armstrong Stock Fund, with the approval of the Plan Administrator. The amount of the loan is transferred to a Loan Reserve pledged as security for the loan and is evidenced by a promissory note payable to the Plan. Interest rates are determined periodically by the Retirement Savings Plan Committee in accordance with prevailing interest rates. The loans are reflected in the Loan Portfolio investment fund. Loan repayments are made by payroll deductions or in a manner agreed to by the employee and the Plan Administrator. (5) Obligation for Benefits ----------------------- All the funds of the Plan are held by investing institutions appointed by the Company under a trust agreement or insurance contract. Benefits under the Plan are payable only out of these funds. The Company has no legal obligation to make any direct payment of benefits accrued under the Plan. Except as may be provided in an insurance contract, neither the Company nor any investing institution guarantees the funds of the Plan against any loss or depreciation or guarantees the payment of any benefit hereunder. Although the Company has not expressed any intent to terminate the Plan, it may do so at any time. In case of termination or partial termination, the total amount in each employee's account will be distributed as the Plan Administrator directs. (6) Federal Income Taxes -------------------- The Internal Revenue Service issued its latest determination letter on November 14, 1989, which stated that the Plan qualifies under the applicable provisions of the Internal Revenue Code and therefore is exempt from federal income taxes. The Plan has been amended to conform with current tax law changes. The amended Plan instruments will be submitted to the Internal Revenue Service for a letter of determination that the Plan continues to qualify as exempt from federal taxes. In the opinion of the Plan administrator, the Plan remains qualified under the applicable provisions of the Internal Revenue Code. INDEPENDENT AUDITORS' REPORT ---------------------------- The Retirement Committee Armstrong World Industries, Inc.: We have audited the accompanying statements of net assets of the Retirement Savings Plan for Salaried Employees of Armstrong World Industries, Inc. as of September 30, 1994 and 1993 and the related statements of changes in plan equity for each of the years in the three-year period ended September 30, 1994. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Retirement Savings Plan for Salaried Employees of Armstrong World Industries, Inc. as of September 30, 1994 and 1993 and the changes in its plan equity for each of the years in the three- year period ended September 30, 1994, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The fund information in the statements of net assets and the statements of changes in plan equity is presented for purposes of additional analysis rather than to present the net assets and changes in plan equity of each fund. The fund information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania January 19, 1995 EXHIBIT INDEX 24 Consent of Independent Auditors Consent of Independent Auditors ------------------------------- The Retirement Committee Armstrong World Industries, Inc.: We consent to incorporation by reference in the Registration Statement No. 33- 18996 on Form S-8 of Armstrong World Industries, Inc. of our report dated January 19, 1995, relating to the statements of net assets of the Retirement Savings Plan for Salaried Employees of Armstrong World Industries, Inc. as of September 30, 1994 and 1993 and the related statements of changes in plan equity for each of the years in the three-year period ended September 30, 1994, which report is included herein. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania March 23, 1995 EX-28.II.B 18 RETIREMENT PLAN - HOURLY Exhibit No. 28(ii)(b) FORM 11-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1994 -------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _______________________ Commission file number 1-2116 ------------------------------------------------------- RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. (Full title of the Plan) ARMSTRONG WORLD INDUSTRIES, INC. Liberty and Charlotte Streets Lancaster, Pennsylvania 17604 (Name of issuer of the securities held pursuant to the Plan and the address of its principal executive office)
Page No. ------- Item 1. Statements of Net Assets 4 ------------------------ September 30, 1994 and 1993 Item 2. Statements of Changes in Plan Equity 5-7 ------------------------------------ (a) Year ended September 30, 1994 (b) Year ended September 30, 1993 (c) Year ended September 30, 1992 Notes to Financial Statements 8-11 - ----------------------------- Item 3. Independent Auditors' Report 12 ---------------------------- Exhibits - -------- 24. Consent of Independent Auditors
- 2 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the members of the committee constituting the administrator which administers the plan have duly caused this annual report to be signed by the undersigned hereunto duly authorized. RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. March 24, 1995 By: /s/ E. Allen Deaver ------------------------------------------- E. Allen Deaver Chairman of the Retirement Committee - 3 - RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Statements of Net Assets September 30, 1994 and 1993 1994
Commingled Specialized Money Fixed Income Armstrong "OTC" Asset Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fd Manager Fund ----------- ----------- ----------- ------------ ---------- ------------ ------------ Assets: Investments in master trust at fair value (note 3) $4,339,507 $8,048,324 $388,854 $46,899,355 $7,897,890 $451,130 $665,191 ---------- ---------- -------- ----------- ---------- -------- -------- Total assets $4,339,507 $8,048,324 $388,854 $46,899,355 $7,897,890 $451,130 $665,191 ---------- ---------- -------- ----------- ---------- -------- -------- Plan equity $4,339,507 $8,048,324 $388,854 $46,899,355 $7,897,890 $451,130 $665,191 ========== ========== ======== =========== ========== ======== ======== Asset Mgr. Asset Mgr. Loan Income Fund Growth Fund Portfolio Fund Total ----------- ----------- -------------- ----- Assets: Investments in master trust at fair value (note 3) $79,890 $813,150 $1,899,989 $71,483,280 ------- -------- ---------- ----------- Total assets $79,890 $813,150 $1,899,989 $71,483,280 ------- -------- ---------- ----------- Plan equity $79,890 $813,150 $1,899,989 $71,483,280 ======= ======== ========== ===========
1993
Commingled Specialized Money Fixed Income Armstrong "OTC" Asset Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fd Manager Fund ----------- ----------- ----------- ------------ ---------- ------------ ------------ Assets: Investments in master trust at fair value (note 3) $4,608,160 $6,627,445 $346,871 $43,948,437 $7,788,330 $134,271 $ 190 ---------- ---------- -------- ----------- ---------- -------- -------- Total assets $4,608,160 $6,627,445 $346,871 $43,948,437 $7,788,330 $134,271 $ 190 ---------- ---------- -------- ----------- ---------- -------- -------- Plan equity $4,608,160 $6,627,445 $346,871 $43,948,437 $7,788,330 $134,271 $ 190 ========== ========== ======== =========== ========== ======== ======== Asset Mgr. Asset Mgr. Loan Income Fund Growth Fund Portfolio Fund Total ----------- ----------- -------------- ----- Assets: Investments in master trust at fair value (note 3) $ -- $ 97 $1,539,245 $64,993,046 ------- -------- ---------- ----------- Total assets $ -- $ 97 $1,539,245 $64,993,046 ------- -------- ---------- ----------- Plan equity $ -- $ 97 $1,539,245 $64,993,046 ======= ======== ========== ===========
See accompanying notes to financial statements. RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Statements of Changes in Plan Equity Years Ended September 30, 1994, 1993, and 1992 1994
Commingled Specialized Money Fixed Income Armstrong "OTC" Asset Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fd Manager Fund ----------- ----------- ----------- ------------ ------------ ------------ ------------ Plan equity at October 1, 1993 $4,608,160 $6,627,445 $346,871 $43,948,437 $ 7,788,330 $134,271 $ 190 ---------- ---------- -------- ----------- ----------- -------- -------- Increases in plan equity: Contributions 383,985 1,144,906 99,580 4,053,152 675,730 87,560 73,860 Dividends 165,531 706,720 16,055 -- 222,608 11,999 32,291 Interest 7,280 18,246 3,130 3,314,709 15,090 1,412 1,530 Realized gain(loss) on investments (note 3) 179,572 41,311 -- -- 438,241 (3,025) (5,237) Loan activity, net (60,846) (77,982) (11,591) (124,939) (62,210) (4,979) (26,984) ---------- ---------- -------- ----------- ----------- -------- -------- 675,522 1,833,201 107,174 7,242,922 1,289,459 92,967 75,460 ---------- ---------- -------- ----------- ----------- -------- -------- Decreases in plan equity: Unrealized depreciation of investments (194,915) (851,126) -- -- (90,070) (11,375) (30,988) Benefits paid (note 4) (361,954) (206,174) (23,618) (3,156,290) (294,971) (1,171) (4,777) Transfers (to) from other employee benefit plans of Armstrong World Industries, Inc. (7,221) (6,518) (21) 11,772 (25,274) -- -- Interfund transfers, net (380,085) 651,496 (41,552) (1,147,486) (769,584) 236,438 625,306 ---------- ---------- -------- ----------- ----------- -------- -------- (944,175) (412,322) (65,191) (4,292,004) (1,179,899) 223,892 589,541 ---------- ---------- -------- ----------- ----------- -------- -------- Plan equity at September 30, 1994 $4,339,507 $8,048,324 $388,854 $46,899,355 $ 7,897,890 $451,130 $665,191 ========== ========== ======== =========== =========== ======== ======== Asset Mgr. Asset Mgr. Loan Income Fund Growth Fund Portfolio Fund Total ----------- ----------- -------------- ----- Plan equity at October 1, 1993 $ -- $ 97 $1,539,245 $64,993,046 ------- -------- ---------- ----------- Increases in plan equity: Contributions 13,085 104,853 -- 6,636,711 Dividends 3,137 14,234 -- 1,172,575 Interest 363 1,727 -- 3,363,487 Realized gain(loss) on investments (note 3) (593) (4,889) -- 645,380 Loan activity, net (13,265) (8,847) 391,643 -- ------- -------- ---------- ----------- 2,727 107,078 391,643 11,818,153 ------- -------- ---------- ----------- Decreases in plan equity: Unrealized depreciation of investments (2,941) (16,454) -- (1,197,869) Benefits paid (note 4) -- (22,934) -- (4,071,889) Transfers (to) from other employee benefit plans of Armstrong World Industries, Inc. -- -- (30,899) (58,161) Interfund transfers, net 80,104 745,363 -- -- ------- -------- ---------- ----------- 77,163 705,975 (30,899) (5,327,919) ------- -------- ---------- ----------- Plan equity at September 30, 1994 $79,890 $813,150 $1,899,989 $71,483,280 ======= ======== ========== ===========
See accompanying notes to financial statements. (Continued) RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Statements of Changes in Plan Equity, Continued 1993
Commingled Specialized Money Fixed Income Armstrong "OTC" Asset Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fd Manager Fund ----------- ----------- ----------- ------------ ------------ ------------ ------------ Plan equity at October 1, 1992 $4,386,260 $4,477,432 $294,327 $39,221,724 $5,092,760 $ -- $ -- ---------- ---------- -------- ----------- ---------- -------- --------- Increases in plan equity: Contributions 432,882 796,749 81,475 4,030,031 702,836 29,497 190 Dividends 142,358 617,693 10,820 -- 214,445 9,814 -- Interest 7,356 11,427 3,128 3,318,955 13,284 374 -- Realized gain(loss) on investments (note 3) 158,379 48,725 -- -- (1,959) (310) -- Unrealized appreciation (depreciation) of investments 224,275 814,731 -- -- 2,214,920 (1,656) -- Loan activity, net (79,125) (92,389) (16,984) (236,907) (22,946) 1,707 -- ---------- ---------- -------- ----------- ---------- -------- --------- 886,125 2,196,936 78,439 7,112,079 3,120,580 39,426 190 ---------- ---------- -------- ----------- ---------- -------- --------- Decreases in plan equity: Benefits paid (note 4) (308,376) (107,764) (40,716) (2,749,830) (216,767) (331) -- Transfers (to) from other employee benefit plans of Armstrong World Industries, Inc. (1,181) (3,817) -- (13,784) (10,008) -- -- Interfund transfers, net (354,668) 64,658 14,821 378,248 (198,235) 95,176 -- ---------- ---------- -------- ----------- ---------- -------- --------- (664,225) (46,923) (25,895) (2,385,366) (425,010) 94,845 -- ---------- ---------- -------- ----------- ---------- -------- --------- Plan equity at September 30, 1993 $4,608,160 $6,627,445 $346,871 $43,948,437 $7,788,330 $134,271 $ 190 ========== ========== ======== =========== ========== ======== ========= Asset Mgr. Loan Growth Fund Portfolio Fund Total ----------- -------------- ----- Plan equity at October 1, 1992 $ -- $ 1,103,257 $54,575,760 --------- ----------- ----------- Increases in plan equity: Contributions 97 -- 6,073,757 Dividends -- -- 995,130 Interest -- -- 3,354,524 Realized gain(loss) on investments (note 3) -- -- 204,835 Unrealized appreciation (depreciation) of investments -- -- 3,252,270 Loan activity, net -- 446,644 -- --------- ----------- ----------- 97 446,644 13,880,516 --------- ----------- ----------- Decreases in plan equity: Benefits paid (note 4) -- -- (3,423,784) Transfers (to) from other employee benefit plans of Armstrong World Industries, Inc. -- (10,656) (39,446) Interfund transfers, net -- -- -- --------- ----------- ----------- -- (10,656) (3,463,230) --------- ----------- ----------- Plan equity at September 30, 1993 $ 97 $ 1,539,245 $64,993,046 ========= =========== ===========
See accompanying notes to financial statements. (Continued) RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Statements of Changes in Plan Equity, Continued
1992 Commingled Specialized Money Fixed Income Armstrong Loan Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fund Total ----------- ----------- ----------- ------------ ---------- -------------- ----- Plan equity at October 1, 1991 $3,758,041 $3,502,807 $ 352,878 $34,293,818 $5,107,265 $ 761,699 $47,776,508 ---------- ---------- --------- ----------- ---------- ---------- ----------- Increases in plan equity: Contributions 429,830 640,502 63,402 3,779,889 748,535 -- 5,662,158 Dividends 157,950 515,922 14,162 -- 190,073 -- 878,107 Interest 5,164 8,723 2,845 3,275,530 13,178 -- 3,305,440 Realized gain(loss) on investments (note 3) 57,980 81,125 -- -- 5,813 -- 144,918 Loan activity, net (62,676) (74,436) (13,006) (186,602) (25,410) 362,130 -- Transfers from other employee benefit plans of Armstrong World Industries, Inc. -- -- 700 818 -- -- 1,518 ---------- ---------- --------- ----------- ---------- ---------- ----------- 588,248 1,171,836 68,103 6,869,635 932,189 362,130 9,992,141 ---------- ---------- --------- ----------- ---------- ---------- ----------- Decreases in plan equity: Unrealized appreciation (depreciation) of investments 203,794 (238,412) -- -- (566,379) -- (600,997) Benefits paid (note 4) (162,993) (176,350) (24,291) (2,080,111) (127,575) (20,572) (2,591,892) Interfund transfers, net (830) 217,551 (102,363) 138,382 (252,740) -- -- ---------- ---------- --------- ----------- ---------- ---------- ----------- 39,971 (197,211) (126,654) (1,941,729) (946,694) (20,572) (3,192,889) ---------- ---------- --------- ----------- ---------- ---------- ----------- Plan equity at September 30, 1992 $4,386,260 $4,477,432 $ 294,327 $39,221,724 $5,092,760 $1,103,257 $54,575,760 ========== ========== ========= =========== ========== ========== ===========
See accompanying notes to financial statements. RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Notes to Financial Statements (1) Summary of Significant Accounting Policies ------------------------------------------ (a) Basis of Presentation The accompanying financial statements have been prepared on the accrual basis. (b) Investments in Master Trust --------------------------- The fair value of the commingled equity, specialized equity, over-the- counter portfolio, and Asset Manager funds is based on the underlying market value of the investments. The money market fund is stated at cost which approximates fair value. The fixed income fund is stated at contract value which represents contributions plus interest at the contract rate, less benefits paid. The value of the Armstrong stock fund is based on quoted market price. The value of the loan portfolio fund represents the unpaid principal of employee loans. Securities transactions are recognized on the settlement date (the date on which payment for a buy or sell order is made or received), since adjustment to a trade-date basis would not be material. Dividend income is recorded on the ex-dividend date. Realized gains and losses on investments are determined by the average cost method. (c) Expenses -------- All legal, accounting and administrative expenses associated with Plan operations are paid by the Company. (2) Plan Description ---------------- Armstrong World Industries, Inc. (the Company) has adopted the Retirement Savings Plan for Hourly-Paid Employees of Armstrong World Industries, Inc. (the Plan). The Plan is a defined contribution plan established for the purpose of providing to eligible hourly-paid employees a means for long- term savings intended for the accumulation of retirement income in addition to that provided under other retirement plans maintained for the benefit of employees. During the Plan year ended September 30, 1993, four investment options were added to the Plan. Effective January 1, 1993, an over-the-counter portfolio mutual fund was made available for participant investment and, effective September 1, 1993, three Asset Manager mutual funds became investment options. Participants may elect to make contributions to the Plan in each of the following methods: 1. Up to 15% of their before-tax compensation, as deferred compensation as permitted under Section 401(k) of the Internal Revenue Code. 2. Up to 10% of their after-tax compensation. Separate accounts are maintained for contributions made by or on behalf of a participant. The accounts in each fund reflect the participants' contributions together with dividends, interest, other income, and realized and unrealized gains and losses allocated thereon. Participants have an immediate 100 percent vested interest with respect to their contributions and are fully vested with regard to any previously made matching company contributions. RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Notes to Financial Statements, (Continued) (3) Investments in Master Trust --------------------------- Assets are held in a Master Trust administered by Fidelity Management Trust Co., as Trustee, and are segregated into nine investment options: a commingled equity mutual fund (Fidelity U.S. Equity Index Portfolio), a specialized equity mutual fund (Fidelity Magellan), a money market mutual fund (Fidelity Return Money Market Portfolio), three Asset Manager mutual funds, an over-the-counter mutual fund (OTC Portfolio Fund), a fixed income fund, and an Armstrong stock fund. The Plan utilizes the Trustee and associated investment managers to direct investment activity. The Plan participates in all nine investment alternatives. The following is a description of the investment funds to which Plan participants can elect to allocate their contributions. 1. Commingled Equity Fund - This fund is principally a portfolio of common stocks constructed and maintained with the objective of providing investment results which approximate the overall performance of the common stocks included in the Standard & Poor's Composite Index of 500 stocks. At September 30, 1994, there were 464 active participants in this investment fund. 2. Specialized Equity Fund - This fund invests in common stocks of companies having substantial growth prospects as determined by independent investment managers. At September 30, 1994, there were 839 active participants in this investment fund. 3. Money Market Fund - This fund invests in short-term (less than one year maturity) fixed income instruments such as U.S. Treasury Bills, bank certificates of deposit, and high grade commercial paper. At September 30, 1994, there were 152 active participants in this investment fund. 4. Fixed Income Fund - Contributions to this fund are invested in the general accounts of insurance companies and are credited at contracted interest rates. At September 30, 1994, the interest rates ranged between 5.69% and 12.00%. Invested principal and accumulated interest amounts are guaranteed against loss by the insurance company. At September 30, 1994, there were 2,503 active participants in this investment fund. 5. Armstrong Stock Fund - Amounts invested in this fund, along with dividend earnings thereon, are invested in Armstrong common stock. At September 30, 1994, there were 1,715 active participants in this investment fund. Common stock shares held by the fund at September 30, 1994 and 1993 were 182,060 and 187,107, respectively. 6. OTC Portfolio Fund - This fund invests in securities traded in the over-the-counter securities market with the objective of maximizing capital appreciation. Over-the-counter securities include common and preferred stocks, securities convertible into common stock, warrants, and debt instruments. At September 30, 1994, there were 87 active participants in this investment fund. 7. Asset Manager Fund - An asset allocation fund which invests in a portfolio of stocks, bonds, and short-term instruments. The fund has a balanced investment strategy with a goal of high total return with reduced risk over the long term. At September 30, 1994, there were 81 active participants in this investment fund. 8. Asset Manager Income Fund - An asset allocation fund which invests in a diversified portfolio of stocks, bonds, and short-term instruments. The fund has a conservative investment strategy focusing on bonds and short- term instruments to achieve a high level of current income and capital preservation. At September 30, 1994, there were 16 active participants in this investment fund. 9. Asset Manager Growth Fund - An asset allocation fund invested in a diversified mix of stocks, bonds, and short-term instruments. The fund's investment strategy is an aggressive one emphasizing stocks with the goal of maximum total return over the long term. At September 30, 1994, there were 119 active participants in this investment fund. RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Notes to Financial Statements, (Continued) 10. Loan Portfolio Fund - The amount in this fund represents the unpaid principal balances of loans made by Plan participants in accordance with established loan provision guidelines. At September 30, 1994, there were 1,009 loans outstanding. The following table presents the cost and fair values of the investments in securities of the Master Trust at September 30, 1994 and 1993:
September 30, 1994 September 30, 1993 ------------------ ------------------ Investment Cost Fair Value Cost Fair Value ---------- ---- ---------- ---- ---------- Commingled equity $ 3,471,594 $ 4,339,507 $ 3,545,332 $ 4,608,160 Specialized equity 7,621,159 8,048,324 5,349,154 6,627,445 Money market 388,854 388,854 346,871 346,871 Fixed income 46,899,355 46,899,355 43,948,437 43,948,437 Armstrong stock 6,418,193 7,897,890 6,218,563 7,788,330 OTC portfolio 464,161 451,130 135,927 134,271 Asset manager 696,179 665,191 190 190 Asset manager income 82,831 79,890 -- -- Asset manager growth 829,604 813,150 97 97 Loan portfolio 1,899,989 1,899,989 1,539,245 1,539,245 ----------- ----------- ----------- ----------- $68,771,919 $71,483,280 $61,083,816 $64,993,046 =========== =========== =========== ===========
The amounts of realized gain (loss) on investments in securities of the Master Trust for the years ended September 30, 1994, 1993, and 1992 are presented below:
Aggregate Aggregate Realized --------- --------- -------- 1994 Proceeds Cost Gain (Loss) ---- --------- ---- ---------- Commingled equity $ 878,672 $ 699,100 $179,572 Specialized equity 2,458,673 2,417,362 41,311 Armstrong stock 1,401,041 962,800 438,241 OTC portfolio 44,812 47,837 (3,025) Asset manager 89,701 94,938 (5,237) Asset manager income 15,000 15,593 (593) Asset manager growth 142,652 147,541 (4,889) ---------- ---------- -------- $5,030,551 $4,385,171 $645,380 ========== ========== ======== 1993 ---- Commingled equity $ 813,795 $ 655,416 $158,379 Specialized equity 2,026,637 1,977,912 48,725 Armstrong stock 577,975 579,934 (1,959) OTC portfolio 74,147 74,457 (310) ---------- ---------- -------- $3,492,554 $3,287,719 $204,835 ========== ========== ========
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF ARMSTRONG WORLD INDUSTRIES, INC. Notes to Financial Statements, (Continued)
1992 Aggregate Aggregate Realized ---- --------- --------- -------- Proceeds Cost Gain (Loss) -------- ---- ---------- Commingled equity $ 261,808 $ 203,828 $ 57,980 Specialized equity 1,604,311 1,523,186 81,125 Armstrong stock 408,429 402,616 5,813 ------- ------- ----- $2,274,548 $2,129,630 $144,918 ========== ========== ========
(4) Benefits -------- Under terms of the Plan, a participant (or a beneficiary) is eligible for benefits upon retirement, termination of employment, or death before retirement. Disbursement of the total amount credited to a participant's account is payable (i) in a lump sum or (ii) in the case of retirement, in such other manner as requested by the participant and approved by the Plan Administrator. In addition, a participant may elect to withdraw all or any part of his account attributable to his contributions. If the amount of a withdrawal exceeds the amount of contributions made by the participant and not previously withdrawn, the participant shall be ineligible to make contributions for a specified period, except that a participant may elect to withdraw all or any portion of his account attributable to tax deductible contributions. Under the rules of the Plan, the participant may borrow up to 90 percent of his account, other than amounts attributable to tax deductible contributions or amounts invested in the Armstrong Stock Fund, with the approval of the Plan Administrator. The amount of the loan is transferred to a Loan Reserve pledged as security for the loan and is evidenced by a promissory note payable to the Plan. Interest rates are determined periodically by the Retirement Savings Plan Committee in accordance with prevailing interest rates. The loans are reflected in the Loan Portfolio investment fund. Loan repayments are made by payroll deductions or in a manner agreed to by the employee and the Plan Administrator. (5) Obligation for Benefits ----------------------- All the funds of the Plan are held by investing institutions appointed by the Company under a trust agreement or insurance contract. Benefits under the Plan are payable only out of these funds. The Company has no legal obligation to make any direct payment of benefits accrued under the Plan. Except as may be provided in an insurance contract, neither the Company nor any investing institution guarantees the funds of the Plan against any loss or depreciation or guarantees the payment of any benefit hereunder. Although the Company has not expressed any intent to terminate the Plan, it may do so at any time. In case of termination or partial termination, the total amount in each employee's account will be distributed as the Plan Administrator directs. (6) Federal Income Taxes -------------------- The Internal Revenue Service issued its latest determination letter on November 14, 1989, which stated that the Plan qualifies under the applicable provisions of the Internal Revenue Code and therefore is exempt from federal income taxes. The Plan has been amended to conform with current tax law changes. The amended Plan instruments will be submitted to the Internal Revenue Service for a letter of determination that the Plan continues to qualify as exempt from federal taxes. In the opinion of the Plan administrator, the Plan remains qualified under the applicable provisions of the Internal Revenue Code. Independent Auditors' Report ---------------------------- The Retirement Committee Armstrong World Industries, Inc.: We have audited the accompanying statements of net assets of the Retirement Savings Plan for Hourly-Paid Employees of Armstrong World Industries, Inc. as of September 30, 1994 and 1993 and the related statements of changes in plan equity for each of the years in the three-year period ended September 30, 1994. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Retirement Savings Plan for Hourly-Paid Employees of Armstrong World Industries, Inc. as of September 30, 1994 and 1993 and the changes in its plan equity for each of the years in the three-year period ended September 30, 1994, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The fund information in the statements of net assets and the statements of changes in plan equity is presented for purposes of additional analysis rather than to present the net assets and changes in plan equity of each fund. The fund information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania January 19, 1995 EXHIBIT INDEX 24 Consent of Independent Auditors Consent of Independent Auditors ------------------------------- The Retirement Committee Armstrong World Industries, Inc.: We consent to incorporation by reference in the Registration Statement No. 33- 18997 on Form S-8 of Armstrong World Industries, Inc. of our report dated January 19, 1995, relating to the statements of net assets of the Retirement Savings Plan for Hourly-Paid Employees of Armstrong World Industries, Inc. as of September 30, 1994 and 1993 and the related statements of changes in plan equity for each of the years in the three-year period ended September 30, 1994, which report is included herein. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania March 23, 1995 EX-28.II.C 19 RETIREMENT SAVINGS HOURLY/SALARIED Exhibit No. 28(ii)(c) FORM 11-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1994 -------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _______________________ Commission file number 1-2116 ------------------------------------------------------- RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF THOMASVILLE FURNITURE, INC. 401 East Main Street Thomasville, N.C. 27360 (Full title and address of the Plan) ARMSTRONG WORLD INDUSTRIES, INC. Liberty and Charlotte Streets Lancaster, Pennsylvania 17604 (Name of issuer of the securities held pursuant to the Plan and the address of its principal executive office)
Page No. -------- Item 1. Statements of Net Assets 4 ------------------------ September 30, 1994 and 1993 Item 2. Statements of Changes in Plan Equity 5-7 ------------------------------------ (a) Year ended September 30, 1994 (b) Year ended September 30, 1993 (c) Year ended September 30, 1992 Notes to Financial Statements 8-11 - ----------------------------- Item 3. Independent Auditors' Report 12 ---------------------------- Exhibits - -------- 24. Consent of Independent Auditor
- 2 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the members of the committee constituting the administrator which administers the plan have duly caused this annual report to be signed by the undersigned hereunto duly authorized. RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF THOMASVILLE FURNITURE INDUSTRIES, INC. March __, 1995 By: /s/ Richard O. Millen ------------------------------------ Richard O. Millen Chairman of Thomasville Hourly-Paid Retirement Committee - 3 - RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF THOMASVILLE FURNITURE INDUSTRIES, INC. Statements of Net Assets September 30, 1994 and 1993 1994
Asset Asset Commingled Specialized Money Fixed Armstrong "OTC" Asset Mgr. Mgr. Loan Equity Equity Market Income Stock Portfolio Manager Income Growth Portfolio Fund Fund Fund Fund Fund Fd. Fund Fund Fund Fund Total -------- ---------- ------- ---------- -------- ------- ------- ------ ------ -------- ---------- Assets: Investments in master trust at fair value (note 3) $465,846 $1,787,904 $20,577 $6,383,024 $850,417 $44,676 $93,661 $1,519 $7,882 $203,387 $9,858,893 -------- ---------- ------- ---------- -------- ------- ------- ------ ------ -------- ---------- Total assets $465,846 $1,787,904 $20,577 $6,383,024 $850,417 $44,676 $93,661 $1,519 $7,882 $203,387 $9,858,893 -------- ---------- ------- ---------- -------- ------- ------- ------ ------ -------- ---------- Plan equity $465,846 $1,787,904 $20,577 $6,383,024 $850,417 $44,676 $93,661 $1,519 $7,882 $203,387 $9,858,893 ======== ========== ======= ========== ======== ======= ======= ====== ====== ======== ==========
1993
Asset Asset Commingled Specialized Money Fixed Armstrong "OTC" Asset Mgr. Mgr. Loan Equity Equity Market Income Stock Portfolio Manager Income Growth Portfolio Fund Fund Fund Fund Fund Fd. Fund Fund Fund Fund Total -------- ---------- ------- ---------- -------- ------- ------- ------ ------ -------- ---------- Assets: Investments in master trust at fair value (note 3) $499,160 $1,803,185 $13,805 $5,900,380 $828,332 $53,964 $ 313 $ -- $ -- $178,401 $9,277,540 -------- ---------- ------- ---------- -------- ------- ------- ------ ------ -------- ---------- Total assets $499,160 $1,803,185 $13,805 $5,900,380 $828,332 $53,964 $ 313 $ -- $ -- $178,401 $9,277,540 -------- ---------- ------- ---------- -------- ------- ------- ------ ------ -------- ---------- Plan equity $499,160 $1,803,185 $13,805 $5,900,380 $828,332 $53,964 $ 313 $ -- $ -- $178,401 $9,277,540 -------- ---------- ------- ---------- -------- ------- ------- ------ ------ -------- ----------
See accompanying notes to financial statements. RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF THOMASVILLE FURNITURE INDUSTRIES, INC. Statements of Changes in Plan Equity Years Ended September 30, 1994, 1993, and 1992 1994
Asset Asset Commingled Specialized Money Fixed Armstrong "OTC" Asset Mgr. Mgr. Loan Equity Equity Market Income Stock Portfolio Manager Income Growth Portfolio Fund Fund Fund Fund Fund Fd. Fund Fund Fund Fund Total -------- ---------- ------- ---------- -------- ------- ------- ------ ------ -------- ---------- Plan equity at October 1, 1993 $499,160 $1,803,185 $13,805 $5,900,380 $828,332 $53,964 $ 313 $ -- $ -- $178,401 $9,277,540 -------- ---------- ------- ---------- -------- ------- ------- ------ ------ -------- ---------- Increases in plan equity: Contributions 5,788 38,612 3,846 348,617 47,582 748 833 554 2,976 -- 449,556 Dividends 18,382 191,388 542 -- 24,484 2,542 2,146 106 194 -- 239,784 Interest 912 2,843 55 433,604 534 -- 9 366 -- -- 438,323 Realized gain(loss) on investments (note 3) 5,887 7,013 -- -- 22,284 186 (696) (513) (274) -- 33,887 Transfers (to) from other employee benefit plans of Armstrong World Industries, Inc. 2,576 (27,694) 2,624 (5,428) 786 -- -- -- -- (10,429) (37,565) Loan activity, net (9,243) (2,792) 154 (26,429) 1,520 -- 298 1,077 -- 35,415 -- -------- ---------- ------- ---------- -------- ------- ------- ------ ------ -------- ---------- 24,302 209,370 7,221 750,364 97,190 3,476 2,590 1,590 2,896 24,986 1,123,985 -------- ---------- ------- ---------- -------- ------- ------- ------ ------ -------- ---------- Decreases in plan equity: Unrealized appreciation (depreciation) of investments (5,171) (224,772) -- -- 11,076 (2,286) (6,216) (9) (73) -- (227,451) Benefits paid (note 4) (45,422) (61,339) -- (148,260) (60,160) -- -- -- -- -- (315,181) Interfund transfers, net (7,023) 61,460 (449) (119,460) (26,021) (10,478) 96,974 (62) 5,059 -- -- -------- ---------- ------- ---------- -------- ------- ------- ------ ------ -------- ---------- (57,616) (224,651) (449) (267,720) (75,105) (12,764) 90,758 (71) 4,986 -- (542,632) -------- ---------- ------- ---------- -------- ------- ------- ------ ------ -------- ---------- Plan equity at September 30, 1994 $465,846 $1,787,904 $20,577 $6,383,024 $850,417 $44,676 $93,661 $1,519 $7,882 $203,387 $9,858,893 ======== ========== ======= ========== ======== ======= ======= ====== ====== ======== ==========
See accompanying notes to financial statements. (Continued) RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF THOMASVILLE FURNITURE INDUSTRIES, INC. Statements of Changes in Plan Equity, Continued 1993
Commingled Specialized Money Fixed Armstrong "OTC" Asset Loan Equity Equity Market Income Stock Portfolio Manager Portfolio Fund Fund Fund Fund Fund Fd. Fund Fund Total -------- ---------- ------- ---------- -------- ------- ------- -------- ---------- Plan equity at October 1, 1992 $ 12,302 $ 52,039 $ 7,626 $1,565,638 $582,701 $ -- $ -- $ 98,931 $2,319,237 -------- ---------- ------- ---------- -------- ------- ------- -------- ---------- Increases in plan equity: Contributions 8,195 24,213 5,157 331,489 48,934 372 12 -- 418,372 Dividends 16,872 141,129 286 -- 23,698 4,081 -- -- 186,066 Interest 938 2,958 34 423,048 595 6 1 -- 427,580 Realized gain(loss) on investments (note 3) 7,012 2,555 -- -- (5,799) 782 -- -- 4,550 Unrealized appreciation (depreciation) of investments 26,902 236,224 -- -- 241,799 (594) 5 -- 504,336 Transfers (to) from other employee benefit plans of Armstrong World Industries, Inc. 490,254 1,208,043 7,584 3,971,275 9,155 -- -- (13,115) 5,673,196 Loan activity, net (32,520) (68,478) (2,493) 11,809 (1,013) 90 20 92,585 -- -------- ---------- ------- ---------- -------- ------- ------- -------- ---------- 517,653 1,546,644 10,568 4,737,621 317,369 4,737 38 79,470 7,214,100 -------- ---------- ------- ---------- -------- ------- ------- -------- ---------- Decreases in plan equity: Benefits paid (note 4) (2,093) (3,363) (3,225) (179,542) (67,091) (483) -- -- (255,797) Interfund transfers, net (28,702) 207,865 (1,164) (223,337) (4,647) 49,710 275 -- -- -------- ---------- ------- ---------- -------- ------- ------- -------- ---------- 30,795 204,502 (4,389) (402,879) (71,738) 49,227 275 -- (255,797) -------- ---------- ------- ---------- -------- ------- ------- -------- ---------- Plan equity at September 30, 1993 $499,160 $1,803,185 $13,805 $5,900,380 $828,332 $53,964 $ 313 $178,401 $9,277,540 ======== ========== ======= ========== ======== ======= ======= ======== ==========
See accompanying notes to financial statements. (Continued) RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF THOMASVILLE FURNITURE INDUSTRIES, INC. Statements of Changes in Plan Equity, Continued 1992
Commingled Specialized Money Fixed Income Armstrong Loan Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fund Total ----------- ----------- ----------- ------------ ---------- -------------- ----- Plan equity at October 1, 1991 $ 6,883 $16,499 $1,741 $1,291,147 $603,178 $ -- $1,919,448 ------- ------- ------ ---------- -------- ------- ---------- Increases in plan equity: Contributions 4,262 20,402 6,209 335,869 52,555 -- 419,297 Dividends 341 4,266 149 -- 22,669 -- 27,425 Interest 49 61 25 128,452 284 -- 128,871 Loan activity, net (535) (2,372) (200) (91,545) (3,521) 98,173 -- Transfers (to) from other employee benefit plans of Armstrong World Industries, Inc. -- -- (700) (10,767) 2,414 758 13,239 ------- ------- ------ ---------- -------- ------- ---------- 4,117 22,357 5,483 383,543 74,401 98,931 588,832 ------- ------- ------ ---------- -------- ------- ---------- Decreases in plan equity: Realized gain (loss) on investments (note 3) 3 809 -- -- (5,305) -- (4,493) Unrealized appreciation (depreciation) of investments 521 (2,518) -- -- (61,619) -- (63,616) Benefits paid (note 4) -- (619) -- (97,882) (22,433) -- (120,934) Interfund transfers, net 778 15,511 402 (11,170) (5,521) -- -- ------- ------- ------ ---------- -------- ------- ---------- 1,302 13,183 402 (109,052) (94,878) -- (189,043) ------- ------- ------ ---------- -------- ------- ---------- Plan equity at September 30, 1992 $12,302 $52,039 $7,626 $1,565,638 $582,701 $98,931 $2,319,237 ======= ======= ====== ========== ======== ======= ==========
See accompanying notes to financial statements. RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF THOMASVILLE FURNITURE INDUSTRIES, INC. Notes to Financial Statements (1) Summary of Significant Accounting Policies ------------------------------------------ (a) Basis of Presentation --------------------- The accompanying financial statements have been prepared on the accrual basis. (b) Investments in Master Trust --------------------------- The fair value of the commingled equity, specialized equity, over-the- counter portfolio, and Asset Manager funds is based on the underlying market value of the investments. The money market fund is stated at cost which approximates fair value. The fixed income fund is stated at contract value which represents contributions plus interest at the contract rate, less benefits paid. The value of the Armstrong stock fund is based on quoted market price. The value of the loan portfolio fund represents the unpaid principal of employee loans. Securities transactions are recognized on the settlement date (the date on which payment for a buy or sell order is made or received), since adjustment to a trade-date basis would not be material. Dividend income is recorded on the ex-dividend date. Realized gains and losses on investments are determined by the average cost method. (c) Expenses -------- All legal, accounting and administrative expenses associated with Plan operations are paid by the Company. (2) Plan Description ---------------- Thomasville Furniture Industries, Inc. (the Company), a wholly-owned subsidiary of Armstrong World Industries, Inc., adopted on February 1, 1988, the Retirement Savings Plan for Hourly-Paid Employees of Thomasville Furniture Industries, Inc. (the Plan). The Plan is a defined contribution plan established for the purpose of providing to eligible hourly-paid employees a means for long-term savings intended for the accumulation of retirement income in addition to that provided under other retirement plans maintained for the benefit of employees. Effective January 1, 1992, the Plan was amended to provide for a participant loan feature. The Company's Board of Directors amended the Plan, effective October 1, 1992, to permit former participants of the Capital Accumulation Plan for Commissioned Sales Representatives of Thomasville Furniture Industries, Inc. (the CAP Plan) to make a rollover contribution into the Plan of their CAP Plan account balances. During the Plan year ended September 30, 1993, rollover contributions made to the Plan totaled $5.9 million. The CAP Plan participants are fully vested with regard to their rollover amounts, but are ineligible to make further contributions to the Plan. CAP Plan participants are treated as members of the Plan with regard to provisions addressing investment, distribution, withdrawal, and loan eligibility. During the Plan year ended September 30, 1993, four investment options were added to the Plan. Effective January 1, 1993, an over-the-counter portfolio mutual fund was made available for participant investment and, effective September 1, 1993, three Asset Manager mutual funds became investment options. Participants may elect to make contributions to the Plan, up to 15 percent of their before-tax compensation, as deferred compensation as permitted under Section 401(k) of the Internal Revenue Code. Separate accounts are maintained for contributions made by or on behalf of a participant. The accounts in each fund reflect the participants' contributions together with dividends, interest, other income, and realized and unrealized gains and losses allocated thereon. RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF THOMASVILLE FURNITURE INDUSTRIES, INC. Notes to Financial Statements, (Continued) Participants have an immediate 100 percent vested interest with respect to their contributions and are fully vested with regard to any previously made matching company contributions. (3) Investments in Master Trust --------------------------- Assets are held in a Master Trust administered by Fidelity Management Trust Co., as Trustee, and are segregated into nine investment options: a commingled equity mutual fund (Fidelity U.S. Equity Index Portfolio), a specialized equity mutual fund (Fidelity Magellan), a money market mutual fund (Fidelity Return Money Market Portfolio), three Asset Manager mutual funds, an over-the-counter mutual fund (OTC Portfolio Fund), a fixed income fund, and an Armstrong stock fund. The Plan utilizes the Trustee and associated investment managers to direct investment activity. The Plan participates in all nine investment alternatives. The following is a description of the investment funds to which Plan participants can elect to allocate their contributions. 1. Commingled Equity Fund - This fund is principally a portfolio of common stocks constructed and maintained with the objective of providing investment results which approximate the overall performance of the common stocks included in the Standard & Poor's Composite Index of 500 stocks. At September 30, 1994, there were 35 active participants in this investment fund. 2. Specialized Equity Fund - This fund invests in common stocks of companies having substantial growth prospects as determined by independent investment managers. At September 30, 1994, there were 87 active participants in this investment fund. 3. Money Market Fund - This fund invests in short-term (less than one year maturity) fixed income instruments such as U.S. Treasury Bills, bank certificates of deposit, and high grade commercial paper. At September 30, 1994, there were 14 active participants in this investment fund. 4. Fixed Income Fund - Contributions to this fund are invested in the general accounts of insurance companies and are credited at contracted interest rates. At September 30, 1994, the interest rates ranged between 5.69% and 12.00%. Invested principal and accumulated interest amounts are guaranteed against loss by the insurance company. At September 30, 1994, there were 533 active participants in this investment fund. 5. Armstrong Stock Fund - Amounts invested in this fund, along with dividend earnings thereon, are invested in Armstrong common stock. At September 30, 1994, there were 458 active participants in this investment fund. Common stock shares held by the fund at September 30, 1994 and 1993 were 19,606 and 19,900, respectively. 6. OTC Portfolio Fund - This fund invests in securities traded in the over-the-counter securities market with the objective of maximizing capital appreciation. Over-the-counter securities include common and preferred stocks, securities convertible into common stock, warrants, and debt instruments. At September 30, 1994, there were 4 active participant in this investment fund. 7. Asset Manager Fund - An asset allocation fund which invests in a portfolio of stocks, bonds, and short-term instruments. The fund has a balanced investment strategy with a goal of high total return with reduced risk over the long term. At September 30, 1994, there were 6 active participant in this investment fund. 8. Asset Manager Income Fund - An asset allocation fund which invests in a diversified portfolio of stocks, bonds, and short-term instruments. The fund has a conservative investment strategy focusing on bonds and short- term instruments to achieve a high level of current income and capital preservation. At September 30, 1994, there were 2 active participants in this investment fund. RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF THOMASVILLE FURNITURE INDUSTRIES, INC. Notes to Financial Statements, (Continued) 9. Asset Manager Growth Fund - An asset allocation fund invested in a diversified mix of stocks, bonds, and short-term instruments. The fund's investment strategy is an aggressive one emphasizing stocks with the goal of maximum total return over the long term. At September 30, 1994, there were 4 active participants in this investment fund. 10. Loan Portfolio Fund - The amount in this fund represents the unpaid principal balances of loans made by Plan participants in accordance with established loan provision guidelines. At September 30, 1994, there were 132 loans outstanding. The following table presents the cost and fair values of the investments in securities of the Master Trust at September 30, 1994 and 1993:
September 30, 1994 September 30, 1993 ------------------ ------------------ Investment Cost Fair Value Cost Fair Value ---------- ---- ---------- ---- ---------- Commingled equity $ 442,376 $ 465,846 $ 470,519 $ 499,160 Specialized equity 1,775,176 1,787,904 1,565,685 1,803,185 Money market 20,577 20,577 13,805 13,805 Fixed income 6,383,024 6,383,024 5,900,380 5,900,380 Armstrong stock 698,694 850,417 687,685 828,332 OTC protfolio 47,556 44,676 54,558 53,964 Asset manager 99,872 93,661 308 313 Asset manager income 1,528 1,519 -- -- Asset manager growth 7,955 7,882 -- -- Loan portfolio 203,387 203,387 178,401 178,401 ---------- ---------- ---------- ---------- $9,680,145 $9,858,893 $8,871,341 $9,277,540 ========== ========== ========== ==========
The amounts of realized gain (loss) on investments in securities of the Master Trust for the years ended September 30, 1994, 1993, and 1992 are presented below:
Aggregate Aggregate Realized --------- --------- -------- Proceeds Cost Gain(Loss) -------- ---- ---------- 1994 ---- Commingled equity $ 64,647 $ 58,760 $ 5,887 Specialized equity 396,430 389,417 7,013 Armstrong stock 87,480 65,196 22,284 OTC portfolio 11,000 10,814 186 Asset manager 9,388 10,084 (696) Asset manger income 14,762 15,275 (513) Asset manager growth 4,726 5,000 (274) ---------- ---------- ---------- $ 588,433 $ 554,546 $ 33,887 ========== ========== ========== 1993 ---- Commingled equity $ 220,464 $ 213,452 $ 7,012 Specialized equity 238,812 236,257 2,555 Armstrong stock 76,506 82,305 (5,799) OTC portfolio 104,846 104,064 782 ---------- ---------- ---------- $ 640,628 $ 636,078 $ 4,550 ========== ========== ==========
RETIREMENT SAVINGS PLAN FOR HOURLY-PAID EMPLOYEES OF THOMASVILLE FURNITURE INDUSTRIES, INC. Notes to Financial Statements
1992 Aggregate Aggregate Realized ---- --------- --------- -------- Proceeds Cost Gain(Loss) -------- ---- ---------- Commingled equity $ 402 $ 399 $ 3 Specialized equity 3,619 2,810 809 Armstrong stock 36,505 41,810 (5,305) ------- ------- ------- $40,526 $45,019 $(4,493) ======= ======= =======
(4) Benefits -------- Under terms of the Plan, a participant (or a beneficiary) is eligible for benefits upon retirement, termination of employment, or death before retirement. Disbursement of the total amount credited to a participant's account is payable (i) in a lump sum or (ii) in the case of retirement, in such other manner as requested by the participant and approved by the Plan Administrator. If the amount of a withdrawal exceeds the amount of contributions made by the participant and not previously withdrawn, the participant shall be ineligible to make contributions for a specified period, except that a participant may elect to withdraw all or any portion of his account attributable to tax deductible contributions. Under the rules of the Plan, the participant may borrow up to 90 percent of his account, other than amounts attributable to tax deductible contributions or amounts invested in the Armstrong Stock Fund, with the approval of the Plan Administrator. The amount of the loan is transferred to a Loan Reserve pledged as security for the loan and is evidenced by a promissory note payable to the Plan. Interest rates are determined periodically by the Retirement Savings Plan Committee in accordance with prevailing interest rates. The loans are reflected in the Loan Portfolio investment fund. Loan repayments are made by payroll deductions or in a manner agreed to by the employee and the Plan Administrator. (5) Obligation for Benefits ----------------------- All the funds of the Plan are held by investing institutions appointed by the Company under a trust agreement or insurance contract. Benefits under the Plan are payable only out of these funds. The Company has no legal obligation to make any direct payment of benefits accrued under the Plan. Except as may be provided in an insurance contract, neither the Company nor any investing institution guarantees the funds of the Plan against any loss or depreciation or guarantees the payment of any benefit hereunder. Although the Company has not expressed any intent to terminate the Plan, it may do so at any time. In case of termination or partial termination, the total amount in each employee's account will be distributed as the Plan Administrator directs. (6) Federal Income Taxes -------------------- The Internal Revenue Service issued its latest determination letter on April 13, 1990, which stated that the Plan qualifies under the applicable provisions of the Internal Revenue Code and therefore is exempt from federal income taxes. The Plan has been amended to conform with current tax law changes. The amended Plan instruments will be submitted to the Internal Revenue Service for a letter of determination that the Plan continues to qualify as exempt from federal taxes. In the opinion of the Plan administrator, the Plan remains qualified under the applicable provisions of the Internal Revenue Code. Independent Auditors' Report ---------------------------- The Retirement Committee Thomasville Furniture Industries, Inc. We have audited the accompanying statements of net assets of the Retirement Savings Plan for Hourly-Paid Employees of Thomasville Furniture Industries, Inc. as of September 30, 1994 and 1993 and the related statements of changes in plan equity for each of the years in the three-year period ended September 30, 1994. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Retirement Savings Plan for Hourly-Paid Employees of Thomasville Furniture Industries, Inc. as of September 30, 1994 and 1993 and the changes in its plan equity for each of the years in the three-year period ended September 30, 1994, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The fund information in the statements of net assets and the statements of changes in plan equity is presented for purposes of additional analysis rather than to present the net assets and changes in plan equity of each fund. The fund information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania January 19, 1995 EXHIBIT INDEX 24 Consent of Independent Auditors Consent of Independent Auditors ------------------------------- The Retirement Committee Thomasville Furniture Industries, Inc.: We consent to incorporation by reference in the Registration Statement No. 33- 18998 on Form S-8 of Armstrong World Industries, Inc. of our report dated January 19, 1995, relating to the statements of net assets of the Retirement Savings Plan for Hourly-Paid Employees of Thomasville Furniture Industries, Inc. as of September 30, 1994 and 1993 and the related statements of changes in plan equity for each of the years in the three-year period ended September 30, 1994, which report is included herein. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania March 23, 1995 EX-28.II.D 20 ESOP PLAN Exhibit No. 28(ii)(d) FORM 11-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1994 -------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _______________________ Commission file number 1-2116 ------------------------------------------------------- ARMSTRONG WORLD INDUSTRIES, INC. EMPLOYEE STOCK OWNERSHIP PLAN ("SHARE IN SUCCESS PLAN") (Full title of the Plan) ARMSTRONG WORLD INDUSTRIES,INC. Liberty and Charlotte Streets Lancaster, Pennsylvania 17604 (Name of issuer of the securities held pursuant to the Plan and the address of its principal executive office)
Page No. ------- Item 1. Statements of Net Assets Available for Plan Benefits ---------------------------------------------------- September 30, 1994 and 1993 4 Item 2. Statements of Changes in Net Assets Available --------------------------------------------- for Plan Benefits ----------------- Years ended September 30, 1994, 1993 and 1992 5 Notes to Financial Statements 6-8 - ----------------------------- Item 3. Independent Auditors' Report 9 ---------------------------- Exhibits - -------- 24. Consent of Independent Auditors
- 2 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the members of the committee constituting the administrator which administers the plan have duly caused this annual report to be signed by the undersigned hereunto duly authorized. ARMSTRONG WORLD INDUSTRIES, INC. EMPLOYEE STOCK OWNERSHIP PLAN ("SHARE IN SUCCESS PLAN") March 24, 1995 By: /s/ E. Allen Deaver ----------------------------------------- E. Allen Deaver Chairman of the Retirement Committee - 3 - ARMSTRONG WORLD INDUSTRIES, INC. EMPLOYEE STOCK OWNERSHIP PLAN Statements of Net Assets Available for Plan Benefits September 30, 1994 and 1993
1994 1993 --------------------------------------- --------------------------------------- Allocated Unallocated Total Allocated Unallocated Total --------- ----------- ----- --------- ----------- ----- Assets - ------ Investment in Armstrong World Industries, Inc. Preferred Stock (note 2) $ 60,224,715 $ 201,433,916 $ 261,658,631 $ 47,543,551 $ 216,483,904 $ 264,027,455 Cash and short-term investments 20,970 994,647 1,015,617 3,261 972,034 975,295 Employee contributions receivable -- 537,086 537,086 -- 505,921 505,921 Employer contributions receivable -- 1,620,924 1,620,924 -- 1,134,655 1,134,655 Dividends receivable 1,275,486 4,270,106 5,545,592 1,007,039 4,587,620 5,594,659 Interest receivable 24 1,127 1,151 2 659 661 ------------- ------------- ------------- ------------- -------------- -------------- Total assets 61,521,195 208,857,806 270,379,001 48,553,853 223,684,793 272,238,646 ------------- ------------- ------------- ------------- -------------- -------------- Liabilities - ----------- Guaranteed ESOP notes (note 6) -- 249,954,403 249,954,403 -- 257,303,403 257,303,403 Accrued interest -- 6,301,726 6,301,726 -- 6,425,906 6,425,906 ------------- ------------- ------------- ------------- -------------- -------------- Total liabilities -- 256,256,129 256,256,129 -- 263,729,309 263,729,309 ------------- ------------- ------------- ------------- -------------- -------------- Net assets available for plan benefits $ 61,521,195 $(47,398,323) $ 14,122,872 $ 48,553,853 $ (40,044,516) $ 8,509,337 - -------------------------------------- ============= ============= ============= ============= ============== ==============
See accompanying notes to financial statements. ARMSTRONG WORLD INDUSTRIES, INC. EMPLOYEE STOCK OWNERSHIP PLAN Statements of Changes in Net Assets Available for Plan Benefits Years Ended September 30, 1994, 1993 and 1992
1994 1993 ------------------------------------ -------------------------------- Allocated Unallocated Total Allocated Unallocated Total --------- ----------- ----- --------- ----------- ----- Increases: - ---------- Employee contributions (note 1) $ -- $6,158,036 $6,158,036 $ -- $5,956,851 $5,956,851 Employer contributions -- 4,533,805 4,533,805 -- 3,274,572 3,274,572 Dividends (note 2) 3,942,264 15,108,800 19,051,064 3,043,702 16,174,289 19,217,991 Interest income -- 29,957 29,957 -- 20,905 20,905 Realized gain (note 4) 156,242 -- 156,242 -- -- -- Allocation of preferred stock of Armstrong World Industries, Inc. 11,377,004 -- 11,377,004 11,570,821 -- 11,570,821 ---------- ---------- ---------- ---------- ---------- ---------- 15,475,510 25,830,598 41,306,108 14,614,523 25,426,617 40,041,140 Decreases: - ---------- Interest expense -- (21,807,401) (21,807,401) -- (22,477,390) (22,477,390) Benefits paid (note 3) (2,508,168) -- (2,508,168) (2,334,716) -- (2,334,716) Allocation of preferred stock of Armstrong World Industries, Inc. -- (11,377,004) (11,377,004) -- (11,570,821) (11,570,821) ---------- ---------- ---------- ---------- ---------- ---------- (2,508,168) (33,184,405) (35,692,573) (2,334,716) (34,048,211) (36,382,927) Net increase (decrease) 12,967,342 (7,353,807) 5,613,535 12,279,807 (8,621,594) 3,658,213 Net assets available for plan benefits: Beginning of year 48,553,853 (40,044,516) 8,509,337 36,274,046 (31,422,922) 4,851,124 ---------- ---------- --------- ---------- ---------- --------- End of year $61,521,195 ($47,398,323) $14,122,872 $48,553,853 ($40,044,516) $8,509,337 =========== ============ =========== =========== ============ ========== 1992 ------------------------------------ Allocated Unallocated Total --------- ----------- ----- Increases - --------- Employee contributions (note 1) $ -- $5,836,465 $5,836,465 Employer contributions -- 2,338,248 2,338,248 Dividends (note 2) 2,170,867 17,192,736 19,363,603 Interest income -- 28,843 28,843 Realized gain (note 4) -- -- -- Allocation of preferred stock of Armstrong World Industries, Inc. 11,743,418 -- 11,743,418 ---------- ---------- ---------- 13,914,285 25,396,292 39,310,577 Decreases: - ---------- Interest expense -- (22,980,291) (22,980,291) Benefits paid (note 3) (1,303,347) -- (1,303,347) Allocation of preferred stock of Armstrong World Industries, Inc. -- (11,743,418) (11,743,418) --------- ---------- ---------- (1,303,347) (34,723,709) (36,027,056) Net increase (decrease) 12,610,938 (9,327,417) 3,283,521 Net assets available for plan benefits: Beginning of year 23,663,108 (22,095,505) 1,567,603 End of year $36,274,046 ($31,422,922) $4,851,124 ----------- ----------- ----------
See accompanying notes to financial statements. ARMSTRONG WORLD INDUSTRIES, INC. EMPLOYEE STOCK OWNERSHIP PLAN Notes to Financial Statements 1. Plan Description ---------------- Armstrong World Industries, Inc. (the Company) established the Armstrong World Industries, Inc. Employee Stock Ownership Plan (the Plan) in 1989. The Plan, which is both a stock bonus plan with a cash or deferred arrangement and an employee stock ownership plan, is designed to attract and keep employees possessing the qualities required for future growth of the Company. The Plan intends to provide such employees with additional incentive for enhanced performance by permitting eligible employees to acquire a proprietary interest in the Company and to accumulate capital for future economic security. All employees of the Company and of certain domestic subsidiaries, who are at least twenty-one years of age and have completed one year of service, are eligible to participate in the Plan except for foreign nationals, leased employees, and those employees in a collective bargaining unit unless the collective bargaining agent for that unit agrees to coverage under the Plan. Under the Plan, participants receive interest in shares of Company preferred stock held by the trust established under the Plan. The shares of Company preferred stock held by the trust were purchased from the Company from the proceeds of the sale of the Guaranteed ESOP notes in a total principal amount of $270,000,000 in 1989. All shares of preferred stock acquired with the proceeds of the notes are held in a suspense account and released to members' accounts as the notes are repaid. The shares are released in proportion to the ratio of the proportion of principal and interest paid down by any debt payment to the total principal and interest to be paid over the life of the notes. The Plan maintains three accounts for each member for contributions and allocations of shares from the suspense account. Participants who elect to reduce their before-tax compensation in amounts ranging from one percent to four percent (exchange contributions) will have such amounts credited to an exchange contribution account. Shares released from the suspense account will be first allocated to members' exchange contribution accounts with a value as of the allocation date equal to the amount of their exchange contributions. Shares released from the suspense account not used for the purpose of exchange allocations will be allocated to members' equity accounts (equity allocations) based on an established shares released schedule. The equity account is intended to provide a source of funds to replace certain retiree medical benefits which were phased-out in conjunction with the adoption of this Plan. The allocation schedule, therefore, is designed to provide greater allocation of shares to older employees. If any shares released from the suspense account remain unallocated after the exchange and equity allocations, such shares will be allocated to members' bonus accounts in proportion to the ratio of exchange contributions made by a member to the exchange contributions made by all members. Participants have an immediate 100 percent vested interest with respect to their exchange contributions. Interest in the Equity and Bonus Accounts vest after five years of service. ARMSTRONG WORLD INDUSTRIES, INC. EMPLOYEE STOCK OWNERSHIP PLAN Notes to Financial Statements, (Continued) 2. Summary of Significant Accounting Policies ------------------------------------------ (a) Basis of Presentation --------------------- The accompanying financial statements have been prepared on an accrual basis. (b) Investment in Armstrong World Industries, Inc., Preferred Stock --------------------------------------------------------------- According to the terms of the trust agreement between Mellon Bank, N.A., the Trustee, and Armstrong World Industries, Inc., the Trustee manages a trust fund that has been created under the Plan and has been granted authority to purchase and sell stock of the Company as is necessary to administer the Plan in accordance with its terms. The investment in Company preferred stock is presented at fair value. Fair value is determined to be the greater of $47.75 per share, the preferred stock s minimum conversion value, or the market price per share of Company common stock. At September 30, 1994 and 1993, the investment in preferred stock represents 5,479,762 and 5,529,371 shares, respectively, purchased at a cost per share of $47.75. Each share of preferred stock is convertible into one share of Company common stock. A dividend of $3.462 per share per annum is payable semi-annually on the preferred stock held in the trust. The preferred stock is redeemable at the option of the holder at a redemption price of $47.75 per share plus accrued but unpaid dividends. (c) Expenses -------- All costs and expenses incurred in administering the Trust and the Plan are paid by the Company. 3. Benefits -------- Upon death or any other separation from service from the Company, participants are entitled to receive a distribution of their vested ESOP account. Distributions are in the form of a lump sum cash payment or, upon request, Company common stock. Participants entitled to a distribution can direct the Trustee to either sell their ESOP Preferred Shares to the Company at a per share price of $47.75 or convert the shares into shares of Company common stock on a one-for-one basis. During the years ended September 30, 1994, 1993 and 1992, distributions were made to participants of $2,508,168 representing 49,609 shares, $2,334,716 representing 48,894 shares, and $1,303,347 representing 27,296 shares, respectively. ARMSTRONG WORLD INDUSTRIES, INC. EMPLOYEE STOCK OWNERSHIP PLAN Notes to Financial Statements, (Continued) 4. Realized Gain ------------- During the year ended September 30, 1994, 21,012 shares of preferred stock were redeemed at prices per share in excess of $47.75. The amount of redemption proceeds in excess of the minimum conversion value totaled $156,242. 5. Plan Termination ---------------- While it is intended to be permanent, the Plan may be terminated at anytime by the Company's Board of Directors. Upon Plan termination, all participants become fully vested in their entire ESOP account balance. Any unallocated shares held by the Trust will be either sold to the Company or converted to Company common stock and then sold to the Company or sold on the open market, whichever produces the greatest cash proceeds. The cash proceeds will be used to satisfy any outstanding Guaranteed ESOP notes, with the balance of any excess proceeds being allocated to individual ESOP account balances on a pro-rated basis. 6. Guaranteed ESOP Notes --------------------- The Company has guaranteed the payment of principal and interest on the notes. The notes must be repaid in semi-annual installments with interest per annum at 8.35% on the Series A Guaranteed Serial ESOP Notes due 1989-2001 ($129,911,403 and $137,260,403 at September 30, 1994 and 1993, respectively) and 8.92% on the Series B Guaranteed Serial ESOP Notes due 2001-2004 ($120,043,000 at September 30, 1994 and 1993). The scheduled amortization of the notes for the next five fiscal years is as follows: 1995 - $9,549,000; 1996 - $12,023,000; 1997 - $14,801,000; 1998 - $17,908,000; 1999 - $21,392,000. 7. Company Contributions --------------------- The Company is obligated to make semi-annual contributions in cash or Company stock to the Plan, on June 15 and December 15 of each year, which when aggregated with all exchange contributions, dividends received by the Trustee on the preferred stock held by the Trust, and trust earnings, is at least equal to the amount necessary to enable the Trustee to pay currently maturing obligations under the Guaranteed ESOP notes. 8. Federal Income Taxes -------------------- The Plan has received a letter of favorable determination for tax qualification from the Internal Revenue Service on August 20, 1991. Accordingly, the Plan qualifies under the provisions of Sections 401(a), 401(k), and 4975(e)(7) of the Internal Revenue Code and is exempt from federal income taxes. INDEPENDENT AUDITORS' REPORT ---------------------------- The Retirement Committee Armstrong World Industries, Inc.: We have audited the accompanying statements of net assets available for plan benefits of the Armstrong World Industries, Inc. Employee Stock Ownership Plan as of September 30, 1994 and 1993 and the related statements of changes in net assets available for plan benefits for each of the years in the three-year period ended September 30, 1994. These financial statements are the responsibility of the plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Armstrong World Industries, Inc. Employee Stock Ownership Plan as of September 30, 1994 and 1993 and the changes in its net assets available for plan benefits for each of the years in the three-year period ended September 30, 1994, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania January 19, 1995 EXHIBIT INDEX 24 Consent of Independent Auditors Consent of Independent Auditors ------------------------------- The Retirement Committee Armstrong World Industries, Inc.: We consent to incorporation by reference in the Registration Statement No. 33- 29768 on Form S-8 of Armstrong World Industries, Inc. of our report dated January 19, 1995, relating to the statements of net assets available for plan benefits of the Armstrong World Industries, Inc. Employee Stock Ownership Plan as of September 30, 1994 and 1993 and the related statements of changes in net assets available for plan benefits for each of the years in the three-year period ended September 30, 1994, which report is included herein. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania March 23, 1995 EX-28.II.E 21 SAVINGS PLAN FOR PROD/MAINT Exhibit No. 28(ii)(e) FORM 11-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1994 -------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _______________________ Commission file number 1-2116 ------------------------------------------------------- SAVINGS PLAN FOR PRODUCTION AND MAINTENANCE EMPLOYEES OF AMERICAN OLEAN TILE COMPANY, INC. 1000 Cannon Avenue Lansdale, PA 19446 (Full title of the Plan) ARMSTRONG WORLD INDUSTRIES, INC. Liberty and Charlotte Streets Lancaster, Pennsylvania 17604 (Name of issuer of the securities held pursuant to the Plan and the address of its principal executive office)
Page No. ------- Item 1. Statements of Net Assets 4 ------------------------ September 30, 1994 and 1993 Item 2. Statements of Changes in Plan Equity ------------------------------------ for Participants 5-7 ---------------- (a) Year ended September 30, 1994 (b) Year ended September 30, 1993 (c) Year ended September 30, 1992 Notes to Financial Statements 8-11 - ----------------------------- Item 3. Independent Auditors' Report 12 ----------------------------
- 2 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the members of the committee constituting the administrator which administers the plan have duly caused this annual report to be signed by the undersigned hereunto duly authorized. AMERICAN OLEAN TILE COMPANY, INC. SAVINGS PLAN FOR PRODUCTION & MAINTENANCE EMPLOYEES March 24, 1995 By: /s/ Michael J. Farley ---------------------------------- Michael J. Farley Chairperson, Employee Benefits Administrative Authority for the American Olean Tile Company, Inc., Savings Plan for Production & Maintenance Employees SAVINGS PLAN FOR PRODUCTION AND MAINTENANCE EMPLOYEES OF AMERICAN OLEAN TILE COMPANY Statements of Net Assets September 30, 1994 and 1993
1994 Commingled Specialized Money Fixed Income Armstrong "OTC" Asset Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fd. Manager ----------- ----------- ----------- ------------ ---------- ------------- ------- Assets: Investments in master trust at fair value (note 3) $271,388 $712,289 $97,112 $3,297,779 $6,365 $39,012 $36,675 -------- -------- ------- ---------- ------ ------- ------- Total assets $271,388 $712,289 $97,112 $3,297,779 $6,365 $39,012 $36,675 -------- -------- ------- ---------- ------ ------- ------- Plan equity $271,388 $712,289 $97,112 $3,297,779 $6,365 $39,012 $36,675 ======== ======== ======= ========== ====== ======= ======= 1994 Asset Mgr. Asset Mgr. Income Fund Growth Fund Total ----------- ----------- ---------- Assets: Investments in master trust at fair value (note 3) $404 $3,377 $4,464,401 ---- ------ ---------- Total assets $404 $3,377 $4,464,401 ---- ------ ---------- Plan equity $404 $3,377 $4,464,401 ==== ====== ==========
1993 Commingled Specialized Money Fixed Income Armstrong "OTC" Asset Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fd. Manager ----------- ----------- ----------- ------------ ---------- ------------- ------- Assets: Investments in master trust at fair value (note 3) $257,638 $668,079 $86,435 $3,122,566 $10,111 $24,959 $ -- -------- -------- ------- ---------- ------- ------- ------- Total assets $257,638 $668,079 $86,435 $3,122,566 $10,111 $24,959 $ -- -------- -------- ------- ---------- ------- ------- ------- Plan equity $257,638 $668,079 $86,435 $3,122,566 $10,111 $24,959 $ -- ======== ======== ======= ========== ======= ======= ======= 1993 Asset Mgr. Asset Mgr. Income Fund Growth Fund Total ----------- ----------- ---------- Assets: Investments in master trust at fair value (note 3) $ -- $ -- $4,169,788 -------- -------- ---------- Total assets $ -- $ -- $4,169,788 -------- -------- ---------- Plan equity $ -- $ -- $4,169,788 ======== ======== ==========
See accompanying notes to financial statements. SAVINGS PLAN FOR PRODUCTION AND MAINTEANCE EMPLOYEES OF AMERICAN OLEAN TILE COMPANY, INC. Statements of Changes in Plan Equity Years Ended September 30, 1994, 1993, and 1992
1994 Commingled Specialized Money Fixed Income Armstrong "OTC" Asset Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fd. Manager Fund ----------- ----------- ----------- ------------ ---------- ------------- ------------ Plan equity at October 1, 1993 $257,638 $668,079 $86,435 $3,122,566 $10,111 $24,959 $ -- -------- -------- ------- ---------- ------- ------- ------- Increases in plan equity: Contributions 17,572 65,968 24,322 221,634 3,365 3,677 1,370 Dividends 10,109 68,515 3,153 -- 116 1,566 747 Interest -- -- -- 231,859 -- -- -- Realized gain(loss) on investments (note 3) 1,632 2,768 -- -- 2,888 (16) -- Transfers from other employee benefit plans of Armstrong World Industries, Inc. -- -- -- 6,329 -- -- -- -------- -------- ------- ---------- ------- ------- ------- 29,313 137,251 27,475 459,822 6,369 5,227 2,117 -------- -------- ------- ---------- ------- ------- ------- Decreases in plan equity: Unrealized depreciation of investments (2,904) (80,050) -- -- (3,088) (1,175) (1,366) Benefits paid (7,627) (27,826) (15,643) (234,772) -- -- -- Interfund transfers, net (5,032) 14,835 (1,155) (49,837) (7,027) 10,001 35,924 -------- -------- ------- ---------- ------- ------- ------- (15,563) (93,041) (16,798) (284,609) (10,115) 8,826 34,558 -------- -------- ------- ---------- ------- ------- ------- Plan equity at September 30, 1994 $271,388 $712,289 $97,112 $3,297,779 $6,365 $39,012 $36,675 ========= ========= ======== ========== ======= ======== ======== Asset Mgr. Asset Mgr. Income Fund Growth Fund Total ----------- ----------- ---------- Plan equity at October 1, 1993 $ -- $ -- $4,169,788 ---- ------ ---------- Increases in plan equity: Contributions 363 1,073 339,344 Dividends 2 84 84,292 Interest -- -- 231,859 Realized gain(loss) on investments (note 3) -- -- 7,272 Transfers from other employee benefit plans of Armstrong World Industries, Inc. -- -- 6,329 ---- ------ ---------- 365 1,157 669,096 ---- ------ ---------- Decreases in plan equity: Unrealized depreciation of investments (2) (30) (88,615) Benefits paid -- -- (285,868) Interfund transfers, net 41 2,250 -- ---- ------ ---------- 39 2,220 (374,483) ---- ------ ---------- Plan equity at September 30, 1994 $404 $3,377 $4,464,401 ==== ====== ==========
See accompanying notes to financial statements. (Continued) SAVINGS PLAN FOR PRODUCTION AND MAINTENANCE EMPLOYEES OF AMERICAN OLEAN TILE COMPANY, INC. Statements of Changes in Plan Equity, Continued
1993 Commingled Specialized Money Fixed Income Armstrong "OTC" Equity Fund Equity Fund Market Fund Fund Stock Fund Portfolio Fd. Total ----------- ----------- ----------- ------------ ---------- ------------- ---------- Plan equity at October 1, 1992 $252,326 $459,743 $72,228 $3,104,287 $18,800 $-- $3,907,384 -------- -------- ------- ---------- ------- ------- ---------- Increases in plan equity: Contributions 17,894 60,637 16,039 261,081 1,290 1,769 358,710 Dividends 7,827 62,000 2,373 -- 524 1,866 74,590 Interest -- -- -- 235,754 -- -- 235,754 Realized gain(loss) on investments (note 3) 2,706 (1,609) -- -- 1,485 -- 2,582 Unrealized appreciation (depreciation) of investments 18,395 90,417 -- -- 2,946 (496) 111,262 -------- -------- ------- ---------- ------- ------- ---------- 46,822 211,445 18,412 496,835 6,245 3,139 782,898 -------- -------- ------- ---------- ------- ------- ---------- Decreases in plan equity: Benefits paid (30,004) (26,158) (9,669) (454,479) (184) -- (520,494) Interfund transfers, net (11,506) 23,049 5,464 (24,077) (14,750) 21,820 -- -------- -------- ------- ---------- ------- ------- ---------- (41,510) (3,109) (4,205) (478,556) (14,934) 21,820 (520,494) -------- -------- ------- ---------- ------- ------- ---------- Plan equity at September 30, 1993 $257,638 $668,079 $86,435 $3,122,566 $10,111 $24,959 $4,169,788 ======== ======== ======= ========== ======= ======= ==========
See accompanying notes to financial statements. (Continued) SAVINGS PLAN FOR PRODUCTION AND MAINTENANCE EMPLOYEES OF AMERICAN OLEAN TILE COMPANY, INC. Statements of Changes in Plan Equity, Continued
1992 Commingled Specialized Money Fixed Income Armstrong Equity Fund Equity Fund Market Fund Fund Stock Fund Total ----------- ----------- ----------- ------------ ---------- ---------- Plan equity at October 1, 1991 $221,922 $415,299 $72,626 $2,818,105 -- $3,527,952 -------- -------- ------- ---------- ------- ---------- Increases in plan equity: Contributions 20,322 60,042 18,321 306,690 263 405,638 Dividends 8,967 58,102 2,931 -- 357 70,357 Interest 271 3,026 45 257,703 -- 261,045 -------- -------- ------- ---------- ------- ---------- 29,560 121,170 21,297 564,393 620 737,040 -------- -------- ------- ---------- ------- ---------- Decreases in plan equity: Benefits paid (16,534) (44,845) (9,228) (225,615) -- (296,222) Fees -- -- (6) (14) -- (20) Realized gain (loss) on investments (note 3) 1,004 (1,094) -- -- -- (90) Unrealized appreciation (depreciation) of investments 13,178 (18,940) -- -- (220) (5,982) Transfers from (to) other employee benefit plans of Armstrong World Industries, Inc. (4,122) (16,970) (1,683) (32,519) -- (55,294) Interfund transfers, net 7,318 5,123 (10,778) (20,063) 18,400 -- -------- -------- ------- ---------- ------- ---------- 844 (76,726) (21,695) (278,211) 18,180 (357,608) -------- -------- ------- ---------- ------- ---------- Plan equity at September 30, 1992 $252,326 $459,743 $72,228 $3,104,287 $18,800 $3,907,384 ======== ======== ======= ========== ======= ==========
See accompanying notes to financial statements SAVINGS PLAN FOR PRODUCTION AND MAINTENANCE EMPLOYEES OF AMERICAN OLEAN TILE COMPANY Notes to Financial Statements (1) Summary of Significant Accounting Policies ------------------------------------------ (a) Basis of Presentation --------------------- The accompanying financial statements have been prepared on the accrual basis. (b) Investments in Master Trust --------------------------- The fair value of the commingled equity, specialized equity, over-the- counter portfolio, and Asset Manager funds is based on the underlying market value of the investments. The money market fund is stated at cost which approximates fair value. The fixed income fund is stated at contract value which represents contributions plus interest at the contract rate, less benefits paid. The value of the Armstrong stock fund is based on quoted market price. The value of the loan portfolio fund represents the unpaid principal of employee loans. Securities transactions are recognized on the settlement date (the date on which payment for a buy or sell order is made or received), since adjustment to a trade-date basis would not be material. Dividend income is recorded on the ex-dividend date. Realized gains and losses on investments are determined by the average cost method. (c) Expenses -------- All legal, accounting and administrative expenses associated with Plan operations are paid by the Company. (2) Plan Description ---------------- The Plan is a defined contribution plan, the purpose of which is to provide a means for long-term savings intended for the accumulation of retirement income in addition to that provided under other retirement plans maintained for the benefit of employees of American Olean Tile Company, Inc. (the Company), a wholly-owned subsidiary of Armstrong World Industries, Inc. (Armstrong). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Participants may contribute to the Plan by electing an amount up to 10%, but not less than 2% of their compensation. Until December 31, 1989, the Company made a matching contribution to the Plan in an amount equal to 50% of a participant's contribution, up to $400 per calendar year. Effective January 1, 1990, the matching Company contribution feature was discontinued. In the event of a withdrawal during employment, a participant will not be permitted to resume making contributions until the first day of the following January, April, July, or October. Separate accounts are maintained for contributions made by or on behalf of a participant. The accounts in each fund reflect the participants' and Company-matching contributions together with allocated dividends, interest, realized gains (losses) on investments, and unrealized appreciation (depreciation) of investments. Participants have an immediate 100 percent vested interest with respect to their contributions and are fully vested with regard to any previously made matching company contributions. SAVINGS PLAN FOR PRODUCTION AND MAINTENANCE EMPLOYEES OF AMERICAN OLEAN TILE COMPANY Notes to Financial Statements, (Continued) (3) Investments in Master Trust --------------------------- Through the Plan year ended September 30, 1991, assets of the Plan were held in a Master Trust administered by Wachovia Bank and Trust Co., N.A., as Trustee. Effective October 1, 1991, the Company appointed the Fidelity Management Trust Co. as the new Trustee of the Plan. The investment options offered to Plan participants by Fidelity are comparable to those which were made available by Wachovia, except that the Plan permitted an investment option in Armstrong common stock effective October 1, 1991. Assets in the Master Trust, administered by Fidelity, are segregated into nine investment options: a commingled equity mutual fund (Fidelity U.S. Equity Index Portfolio), a specialized equity mutual fund (Fidelity Magellan), a money market mutual fund (Fidelity Return Money Market Portfolio), three Asset Manager mutual funds, an over-the-counter mutual fund (OTC Portfolio Fund), a fixed income fund, and an Armstrong stock fund. The Plan utilizes the Trustee and associated investment managers to direct investment activity. The Plan participates in all nine investment alternatives. The following is a description of the investment funds to which Plan participants can elect to allocate their contributions. 1. Commingled Equity Fund - This fund is principally a portfolio of common stocks constructed and maintained with the objective of providing investment results which approximate the overall performance of the common stocks included in the Standard & Poor's Composite Index of 500 stocks. At September 30, 1994, there were 98 active participants in this investment fund. 2. Specialized Equity Fund - This fund invests in common stocks of companies having substantial growth prospects as determined by independent investment managers. At September 30, 1994, there were 169 active participants in this investment fund. 3. Money Market Fund - This fund invests in short-term (less than one year maturity) fixed income instruments such as U.S. Treasury Bills, bank certificates of deposit, and high grade commercial paper. At September 30, 1994, there were 86 active participants in this investment fund. 4. Fixed Income Fund - Contributions to this fund are invested in the general accounts of insurance companies and are credited at contracted interest rates. At September 30, 1994, the interest rates ranged between 5.69% and 12.00%. Invested principal and accumulated interest amounts are guaranteed against loss by the insurance company. At September 30, 1994, there were 489 active participants in this investment fund. 5. Armstrong Stock Fund - Amounts invested in this fund, along with dividend earnings thereon, are invested in Armstrong common stock. At September 30, 1994, there were 13 active participants in this investment fund. Common stock shares held by the fund at September 30, 1994 and 1993 were 147 and 243, respectively. 6. OTC Portfolio Fund - This fund invests in securities traded in the over-the-counter securities market with the objective of maximizing capital appreciation. Over-the-counter securities include common and preferred stocks, securities convertible into common stock, warrants, and debt instruments. At September 30, 1994, there were 11 active participants in this investment fund. 7. Asset Manager Fund - An asset allocation fund which invests in a portfolio of stocks, bonds, and short-term instruments. The fund has a balanced investment strategy with a goal of high total return with reduced risk over the long term. At September 30, 1994, there were 10 active participants in this investment fund. 8. Asset Manager Income Fund - An asset allocation fund which invests in a diversified portfolio of stocks, bonds, and short-term instruments. The fund has a conservative investment strategy focusing on bonds and short- term instruments to achieve a high level of current income and capital preservation. At September 30, 1994, there were 3 active participants in this investment fund. SAVINGS PLAN FOR PRODUCTION AND MAINTENANCE EMPLOYEES OF AMERICAN OLEAN TILE COMPANY Notes to Financial Statements, (Continued) 9. Asset Manager Growth Fund - An asset allocation fund invested in a diversified mix of stocks, bonds, and short-term instruments. The fund's investment strategy is an aggressive one emphasizing stocks with the goal of maximum total return over the long term. At September 30, 1994, there were 9 active participants in this investment fund. The following table presents the cost and fair values of the investments in securities of the Master Trust at September 30, 1994 and 1993:
September 30, 1994 September 30, 1993 ------------------ ------------------ Investment Cost Fair Value Cost Fair Value ---------- ---- ---------- ---- ---------- Commingled equity $242,719 $271,388 $226,065 $257,638 Specialized equity 720,862 712,289 596,602 668,079 Money market 97,112 97,112 86,435 86,435 Fixed income 3,297,779 3,297,779 3,122,566 3,122,566 Armstrong stock 6,727 6,365 7,385 10,111 OTC portfolio 40,683 39,012 25,455 24,959 Asset manager 38,041 36,675 -- -- Asset manager income 406 404 -- -- Asset manager growth 3,407 3,377 -- -- ---------- ---------- ---------- ---------- $4,447,736 $4,464,401 $4,064,508 $4,169,788 ========== ========== ========== ==========
The amounts of realized gain (loss) on investments in securities of the Master Trust for the years ended September 30, 1994, 1993, and 1992 are presented below:
Aggregate Aggregate Realized 1994 Proceeds Cost Gain (Loss) ---- --------- --------- ----------- Commingled equity $15,875 $14,243 $1,632 Specialized equity 80,984 78,216 2,768 Armstrong stock 12,733 9,845 2,888 OTC portfolio 281 297 (16) -------- -------- ------ $109,873 $102,601 $7,272 ======== ======== ====== 1993 ---- Commingled equity $42,010 $39,304 $2,706 Specialized equity 65,167 66,776 (1,609) Armstrong stock 14,934 13,449 1,485 -------- -------- ------ $122,111 $119,529 $2,582 ======== ======== ====== 1992 ---- Commingled equity $18,838 $17,834 $1,004 Specialized equity 65,798 66,892 (1,094) -------- -------- ------ $84,636 $84,726 $(90) ======== ======== ======
SAVINGS PLAN FOR PRODUCTION AND MAINTENANCE EMPLOYEES OF AMERICAN OLEAN TILE COMPANY Notes to Financial Statements, (Continued) (4) Benefits -------- Under terms of the Plan, a participant (or a beneficiary) is eligible for benefits upon retirement, termination of employment, or death before retirement. Disbursement of the total amount credited to a participant's account is payable (i) in a lump sum or (ii) in the case of retirement, in such other manner as requested by the participant and approved by the Plan Administrator. In addition, a participant may elect to withdraw all or any part of his account attributable to his contributions. If the amount of a withdrawal exceeds the amount of contributions made by the participant and not previously withdrawn, the participant shall be ineligible to make contributions for a specified period, except that a participant may elect to withdraw all or any portion of his account attributable to tax deductible contributions. (5) Obligation for Benefits ----------------------- All the funds of the Plan are held by investing institutions appointed by the Company under a trust agreement or insurance contract. Benefits under the Plan are payable only out of these funds. The Company has no legal obligation to make any direct payment of benefits accrued under the Plan. Except as may be provided in an insurance contract, neither the Company nor any investing institution guarantees the funds of the Plan against any loss or depreciation or guarantees the payment of any benefit hereunder. Although the Company has not expressed any intent to terminate the Plan, it may do so at any time. In case of termination or partial termination, the total amount in each employee's account will be distributed as the Plan Administrator directs. (6) Federal Income Taxes -------------------- The Internal Revenue Service has made a determination that the Plan has complied with the requirements of ERISA and, therefore, is qualified under the provisions of Section 401(a) of the Internal Revenue Code and is exempt from federal income tax. Independent Auditors' Report The Executive Committee American Olean Tile Company, Inc.: We have audited the accompanying statements of net assets of the Savings Plan for Production and Maintenance Employees of American Olean Tile Company, Inc. (the Plan) as of September 30, 1994 and 1993, and the related statements of changes in plan equity for each of the years in the three-year period ended September 30, 1994. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Plan as of September 30, 1994 and 1993, and the changes in its plan equity for each of the years in the three-year period ended September 30, 1994, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The fund information in the statements of net assets and the statements of changes in plan equity is presented for purposes of additional analysis rather than to present the net assets and changes in plan equity of each fund. The fund information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania January 20, 1995 EXHIBIT INDEX 24 Consent of Independent Auditors Consent of Independent Auditors ------------------------------- The Executive Committee American Olean Tile Company, Inc.: We consent to incorporation by reference in the Registration Statement No. 33-60070 on Form S-8 of Armstrong World Industries, Inc. of our report dated January 20, 1995 relating to the statements of net assets of the Savings Plan for Production and Maintenance Employees of American Olean Tile Company, Inc. as of September 30, 1994 and 1993 and the related statements of changes in plan equity for each of the years in the three-year period ended September 30, 1994, which report is included herein. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania March 23, 1995 EX-28.II.F 22 SAVINGS PLAN SALARIED/HOURLY Exhibit 28(ii)(f) FORM 11-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1994 -------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _______________________ Commission file number 1-2116 ------------------------------------------------------- SAVINGS PLAN FOR SALARIED EMPLOYEES OF AMERICAN OLEAN TILE COMPANY, INC. 1000 Cannon Avenue Lansdale, PA 19446 (Full title of the Plan) ARMSTRONG WORLD INDUSTRIES, INC. Liberty and Charlotte Streets Lancaster, Pennsylvania 17604 (Name of issuer of the securities held pursuant to the Plan and the address of its principal executive office)
Page No. ------- Item 1. Statements of Net Assets 4 ------------------------ September 30, 1994 and 1993 Item 2. Statements of Changes in Plan Equity ------------------------------------ for Participants 5-7 ---------------- (a) Year ended September 30, 1994 (b) Year ended September 30, 1993 (c) Year ended September 30, 1992 Notes to Financial Statements 8-11 - ----------------------------- Item 3. Independent Auditors' Report 12 ----------------------------
- 2 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the members of the committee constituting the administrator which administers the plan have duly caused this annual report to be signed by the undersigned hereunto duly authorized. AMERICAN OLEAN TILE COMPANY, INC. SAVINGS PLAN FOR SALARIED EMPLOYEES March 24, 1995 By: /s/ Michael J. Farley ------------------------------------- Michael J. Farley Chairperson, Employee Benefits Administrative Authority for the American Olean Tile Company, Inc., Savings Plan for Salaried Employees SAVINGS PLAN FOR SALARIED EMPLOYEES OF AMERICAN OLEAN TILE COMPANY Statements of Net Assets September 30, 1994 and 1993 1994
Asset Asset Commingled Specialized Money Fixed Armstrong "OTC" Asset Mgr. Mgr. Loan Equity Equity Market Income Stock Portfolio Manager Income Growth Portfolio Fund Fund Fund Fund Fund Fd. Fund Fund Fund Fund Total ---------- ---------- -------- ----------- ------- -------- -------- ------- -------- -------- ----------- Assets: Investments in master trust at fair value (note 3) $1,266,140 $2,508,818 $386,345 $10,986,093 $93,825 $231,492 $136,309 $86,261 $114,092 $400,699 $16,210,074 ---------- ---------- -------- ----------- ------- -------- -------- ------- -------- -------- ----------- Total assets $1,266,140 $2,508,818 $386,345 $10,986,093 $93,825 $231,492 $136,309 $86,261 $114,092 $400,699 $16,210,074 ---------- ---------- -------- ----------- ------- -------- -------- ------- -------- -------- ----------- Plan equity $1,266,140 $2,508,818 $386,345 $10,986,093 $93,825 $231,492 $136,309 $86,261 $114,092 $400,699 $16,210,074 ========== ========== ======== =========== ======= ======== ======== ======= ======== ======== ===========
1993
Asset Asset Commingled Specialized Money Fixed Armstrong "OTC" Asset Mgr. Mgr. Loan Equity Equity Market Income Stock Portfolio Manager Income Growth Portfolio Fund Fund Fund Fund Fund Fd. Fund Fund Fund Fund Total ---------- ---------- -------- ----------- ------- -------- -------- ------- -------- -------- ----------- Assets: Investments in master trust at fair value (note 3) $1,344,427 $2,250,245 $379,911 $10,423,771 $47,845 $175,265 $ 80 $ -- $ 17,153 $423,830 $15,062,527 ---------- ---------- -------- ----------- ------- -------- -------- ------- -------- -------- ----------- Total assets $1,344,427 $2,250,245 $379,911 $10,423,771 $47,845 $175,265 $ 80 $ -- $ 17,153 $423,830 $15,062,527 ---------- ---------- -------- ----------- ------- -------- -------- ------- -------- -------- ----------- Plan equity $1,344,427 $2,250,245 $379,911 $10,423,771 $47,845 $175,265 $ 80 $ -- $ 17,153 $423,830 $15,062,527 ========== ========== ======== =========== ======= ======== ======== ======= ======== ======== ===========
See accompanying notes to financial statements. SAVINGS PLAN FOR SALARIED EMPLOYEES OF AMERICAN OLEAN TILE COMPANY, INC. Statements of Changes in Plan Equity Years Ended September 30, 1994, 1993, and 1992 1994
Asset Asset Commingled Specialized Money Fixed Armstrong "OTC" Asset Mgr. Mgr. Loan Equity Equity Market Income Stock Portfolio Manager Income Growth Portfolio Fund Fund Fund Fund Fund Fd. Fund Fund Fund Fund Total ---------- ---------- -------- ----------- ------- -------- --------- ------- -------- -------- ----------- Plan equity at October 1, 1993 $1,344,427 $2,250,245 $379,911 $10,423,771 $47,845 $175,265 $ 80 $ -- $ 17,153 $423,830 $15,062,527 ---------- ---------- -------- ----------- ------- -------- -------- ------- -------- -------- ----------- Increases in plan equity: Contributions 150,243 348,055 97,377 503,274 24,197 49,110 16,577 6,175 26,507 -- 1,221,515 Dividends 49,197 235,582 14,498 -- 2,038 10,178 6,318 3,829 1,546 -- 323,186 Interest 3,485 10,873 2,020 781,273 88 665 77 22 697 -- 799,200 Realized gain (loss) on investments (note 3) 25,528 8,108 -- -- 2,523 (2,385) (1,953) (105) (44) -- 31,672 Unrealized depreciation of investments (28,451) (265,483) -- -- (2,562) (6,072) (6,785) (3,817) (1,196) -- (314,366) Loan activity, net (28,243) (26,926) (30,254) 51,581 1,133 2,884 735 1,041 (645) 28,694 -- Transfers (to) from other employee plans of Armstrong World Industries, Inc. 3,792 24,651 (14,041) 7,226 13,362 (4,555) -- -- (1,119) (51,825) (22,509) ---------- ---------- -------- ----------- ------- -------- -------- ------- -------- -------- ----------- 175,551 334,860 69,600 1,343,354 40,779 49,825 14,969 7,145 25,746 (23,131) 2,038,698 ---------- ---------- -------- ----------- ------- -------- -------- ------- -------- -------- ----------- Decreases in plan equity: Benefits paid (104,101) (284,290) (29,592) (455,164) (6,656) (6,736) (412) -- (4,200) -- (891,151) Interfund transfers, net (149,737) 208,003 (33,574) (325,868) 11,857 13,138 121,672 79,116 75,393 -- -- ---------- ---------- -------- ----------- ------- -------- -------- ------- -------- -------- ----------- (253,838) (76,287) (63,166) (781,032) 5,201 6,402 121,260 79,116 71,193 -- (891,151) ---------- ---------- -------- ----------- ------- -------- -------- ------- -------- -------- ----------- Plan equity at September 30, 1994 $1,266,140 $2,508,818 $386,345 $10,986,093 $93,825 $231,492 $136,309 $86,261 $114,092 $400,699 $16,210,074 ========== ========== ======== =========== ======= ======== ======== ======= ======== ======== ===========
See accompanying notes to financial statements. (Continued) SAVINGS PLAN FOR SALARIED EMPLOYEES OF AMERICAN OLEAN TILE COMPANY, INC. Statements of Changes in Plan Equity, Continued 1993
Asset Commingled Specialized Money Fixed Armstrong "OTC" Asset Mgr. Loan Equity Equity Market Income Stock Portfolio Manager Growth Portfolio Fund Fund Fund Fund Fund Fd. Fund Fund Fund Total ---------- ---------- -------- ----------- ------- -------- -------- -------- -------- ----------- Plan equity at October 1, 1992 $1,205,383 $1,397,522 $461,412 $10,144,449 $21,271 $ -- $ -- $ -- $275,100 $13,505,137 ---------- ---------- -------- ----------- ------- -------- -------- -------- -------- ----------- Increases in plan equity: Contributions 157,397 268,666 76,458 623,188 12,670 27,550 80 591 -- 1,166,600 Dividends 39,894 194,534 12,385 -- 1,054 13,252 -- -- -- 261,119 Interest 4,374 8,879 2,992 828,198 21 915 -- 46 -- 845,425 Realized gain(loss) on investments (note 3) 20,198 919 -- -- (52) 162 -- -- -- 21,227 Unrealized appreciation (depreciation) of investments 90,326 296,726 -- -- 12,140 (3,087) -- 164 -- 396,269 Loan activity, net (26,357) (18,752) (25,237) (71,144) 311 2,548 -- 71 138,560 -- Transfers (to) from other employee benefit plans of Armstrong World Industries Inc. 1,478 76,216 -- 8,930 2,576 11,638 -- -- 10,170 111,008 ---------- ---------- -------- ----------- ------- -------- -------- -------- -------- ----------- 287,310 827,188 66,598 1,389,172 28,720 52,978 80 872 148,730 2,801,648 ---------- ---------- -------- ----------- ------- -------- -------- -------- -------- ----------- Decreases in plan equity: Benefits paid (114,149) (124,922) (72,439) (924,027) (1,051) (7,670) -- -- -- (1,244,258) Interfund transfers, net (34,117) 150,457 (75,660) (185,823) (1,095) 129,957 -- 16,281 -- -- ---------- ---------- -------- ----------- ------- -------- -------- -------- -------- ----------- (148,266) 25,535 (148,099) (1,109,850) (2,146) 122,287 -- 16,281 -- (1,244,258) ---------- ---------- -------- ----------- ------- -------- -------- -------- -------- ----------- Plan equity at September 30, 1993 $1,344,427 $2,250,245 $379,911 $10,423,771 $47,845 $175,265 $ 80 $ 17,153 $423,830 $15,062,527 ========== ========== ======== =========== ======= ======== ======== ======== ======== ===========
See accompanying notes to financial statements. (Continued) SAVINGS PLAN FOR SALARIED EMPLOYEES OF AMERICAN OLEAN TILE COMPANY, INC. Statements of Changes in Plan Equity, Continued 1992
Commingled Specialized Money Fixed Armstrong Loan Equity Fund Equity Fund Market Fund Income Fund Stock Fund Portfolio Fund Total ----------- ----------- ----------- ----------- ---------- -------------- ----------- Plan equity at October 1, 1991 $ 897,517 $1,079,119 $ 437,425 $ 9,247,970 $ -- $ 230,494 $11,892,525 ---------- ---------- ---------- ----------- ------- ---------- ----------- Increases in plan equity: Contributions 144,238 205,304 82,848 708,363 5,387 -- 1,146,140 Dividends 39,528 160,851 17,977 -- 436 -- 218,792 Interest 780 8,144 -- 851,354 -- 42,349 902,627 Realized gain (loss) on investments (note 3) 6,188 (319) -- -- (3) -- 5,866 Unrealized appreciation (depreciation) of investments 60,139 (50,625) -- -- (3,582) -- 5,932 Transfers from (to) other employee benefit plans of Armstrong World Industries, Inc. 78,421 20,620 27,440 58,510 18,779 6,380 210,150 ---------- ---------- ---------- ----------- ------- ---------- ----------- 329,294 343,975 128,265 1,618,227 21,017 48,729 2,489,507 ---------- ---------- ---------- ----------- ------- ---------- ----------- Decreases in plan equity: Benefits paid (76,406) (72,564) (11,693) (716,136) (41) -- (876,840) Fees -- -- (35) (20) -- -- (55) Interfund transfers, net 54,978 46,992 (92,550) (5,592) 295 (4,123) -- ---------- ---------- ---------- ----------- ------- ---------- ----------- (21,428) (25,572) (104,278) (721,748) 254 (4,123) (876,895) ---------- ---------- ---------- ----------- ------- ---------- ----------- Plan equity at September 30, 1992 $1,205,383 $1,397,522 $ 461,412 $10,144,449 $21,271 $ 275,100 $13,505,137 ========== ========== ========== =========== ======= ========== ===========
See accompanying notes to financial statements. SAVINGS PLAN FOR SALARIED EMPLOYEES OF AMERICAN OLEAN TILE COMPANY Notes to Financial Statements (1) Summary of Significant Accounting Policies ------------------------------------------ (a) Basis of Presentation --------------------- The accompanying financial statements have been prepared on the accrual basis. (b) Investments in Master Trust --------------------------- The fair value of the commingled equity, specialized equity, over-the- counter portfolio, and Asset Manager funds is based on the underlying market value of the investments. The money market fund is stated at cost which approximates fair value. The fixed income fund is stated at contract value which represents contributions plus interest at the contract rate, less benefits paid. The value of the Armstrong stock fund is based on quoted market price. The value of the loan portfolio fund represents the unpaid principal of employee loans. Securities transactions are recognized on the settlement date (the date on which payment for a buy or sell order is made or received), since adjustment to a trade-date basis would not be material. Dividend income is recorded on the ex-dividend date. Realized gains and losses on investments are determined by the average cost method. (c) Expenses -------- All legal, accounting and administrative expenses associated with Plan operations are paid by the Company. (2) Plan Description ---------------- The Plan is a defined contribution plan, the purpose of which is to provide a means for long-term savings intended for the accumulation of retirement income in addition to that provided under other retirement plans maintained for the benefit of employees of American Olean Tile Company, Inc. (the Company), a wholly-owned subsidiary of Armstrong World Industries, Inc. (Armstrong). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Participants may contribute to the Plan in each of the following methods: 1. Up to 15%, but not less than 2%, of their compensation as deferred compensation as permitted under Section 401(k) of the Internal Revenue Code. 2. Up to 10%, but not less than 2%, of their compensation. Until December 31, 1989, the Company made a matching contribution to the Plan in an amount equal to 50% of a participant's contribution, up to $400 per calendar year. Effective January 1, 1990, the matching Company contribution feature was discontinued. In the event of a withdrawal during employment of amounts attributable to before-tax contributions, a participant will not be permitted to resume making contributions until the first day of January, April, July, or October which follows twelve months from the date of the withdrawal. In the event of a withdrawal during employment of amounts attributable to after-tax contributions, a participant will not be permitted to resume making contributions until the first day of the following January, April, July, or October. Separate accounts are maintained for contributions made by or on behalf of a participant. The accounts in each fund reflect the participants' and Company-matching contributions together with allocated dividends, interest, realized gains (losses) on investments, and unrealized appreciation (depreciation) of investments. SAVINGS PLAN FOR SALARIED EMPLOYEES OF AMERICAN OLEAN TILE COMPANY Notes to Financial Statements, (Continued) Participants have an immediate 100 percent vested interest with respect to their contributions and are fully vested with regard to any previously made matching company contributions. Under the rules of the Plan, a participant may borrow up to 50% of his or her account other than amounts attributable to after-tax contributions or amounts invested in the Armstrong Stock Fund attributable to Company- matching contributions, subject to a $50,000 maximum, with the approval of the Plan Administrator. The amount of the loan is transferred to a loan portfolio fund pledged as security for the loan and is evidenced by a promissory note payable to the Plan. Interest rates are determined periodically by the Company in accordance with prevailing interest rates. Loan repayments are made by payroll deductions or in a manner agreed to by the participant and the Plan Administrator. (3) Investments in Master Trust --------------------------- Through the Plan year ended September 30, 1991, assets of the Plan were held in a Master Trust administered by Wachovia Bank and Trust Co., N.A., as Trustee. Effective October 1, 1991, the Company appointed the Fidelity Management Trust Co. as the new Trustee of the Plan. The investment options offered to Plan participants by Fidelity are comparable to those which were made available by Wachovia, except that the Plan permitted an investment option in Armstrong common stock effective October 1, 1991. Assets in the Master Trust, administered by Fidelity, are segregated into nine investment options: a commingled equity mutual fund (Fidelity U.S. Equity Index Portfolio), a specialized equity mutual fund (Fidelity Magellan), a money market mutual fund (Fidelity Return Money Market Portfolio), three Asset Manager mutual funds, an over-the-counter mutual fund (OTC Portfolio Fund), a fixed income fund, and an Armstrong stock fund. The Plan utilizes the Trustee and associated investment managers to direct investment activity. The Plan participates in all nine investment alternatives. The following is a description of the investment funds to which Plan participants can elect to allocate their contributions. 1. Commingled Equity Fund - This fund is principally a portfolio of common stocks constructed and maintained with the objective of providing investment results which approximate the overall performance of the common stocks included in the Standard & Poor's Composite Index of 500 stocks. At September 30, 1994, there were 203 active participants in this investment fund. 2. Specialized Equity Fund - This fund invests in common stocks of companies having substantial growth prospects as determined by independent investment managers. At September 30, 1994, there were 292 active participants in this investment fund. 3. Money Market Fund - This fund invests in short-term (less than one year maturity) fixed income instruments such as U.S. Treasury Bills, bank certificates of deposit, and high grade commercial paper. At September 30, 1994, there were 149 active participants in this investment fund. 4. Fixed Income Fund - Contributions to this fund are invested in the general accounts of insurance companies and are credited at contracted interest rates. At September 30, 1994, the interest rates ranged between 5.69% and 12.00%. Invested principal and accumulated interest amounts are guaranteed against loss by the insurance company. At September 30,1994, there were 531 active participants in this investment fund. 5. Armstrong Stock Fund - Amounts invested in this fund, along with dividend earnings thereon, are invested in Armstrong common stock. At September 30, 1994, there were 57 active participants in this investment fund. Common stock shares held by the fund at September 30, 1994 and 1993 were 2,163 and 1,149, respectively. 6. OTC Portfolio Fund - This fund invests in securities traded in the over-the-counter securities market with the objective of maximizing capital appreciation. Over-the counter securities include common and preferred stocks, securities convertible into common stock, warrants, and debt instruments. At September 30, 1994, there were 47 active participants in this investment fund. SAVINGS PLAN FOR SALARIED EMPLOYEES OF AMERICAN OLEAN TILE COMPANY Notes to Financial Statements, (Continued) 7. Asset Manager Fund - An asset allocation fund which invests in a portfolio of stocks, bonds, and short-term instruments. The fund has a balanced investment strategy with a goal of high total return with reduced risk over the long term. At September 30, 1994, there were 19 active participants in this investment fund. 8. Asset Manager Income Fund - An asset allocation fund which invests in a diversified portfolio of stocks, bonds, and short-term instruments. The fund has a conservative investment strategy focusing on bonds and short- term instruments to achieve a high level of current income and capital preservation. At September 30, 1994, there were 3 active participants in this investment fund. 9. Asset Manager Growth Fund - An asset allocation fund invested in a diversified mix of stocks, bonds, and short-term instruments. The fund's investment strategy is an aggressive one emphasizing stocks with the goal of maximum total return over the long term. At September 30, 1994, there were 33 active participants in this investment fund. 10. Loan Portfolio Fund - The amount in this fund represents the unpaid principal balances of loans made by Plan participants in accordance with established loan provision guidelines. At September 30, 1994, there were 134 loans outstanding. The following table presents the cost and fair values of the investments in securities of the Master Trust at September 30, 1994 and 1993:
September 30, 1994 September 30, 1993 ------------------ ------------------ Investment Cost Fair Value Cost Fair Value ---------- ---- ---------- ---- ---------- Commingled equity $ 1,144,126 $ 1,266,140 $ 1,193,962 $ 1,344,427 Specialized equity 2,528,200 2,508,818 2,004,144 2,250,245 Money market 386,345 386,345 379,911 379,911 Fixed income 10,986,093 10,986,093 10,423,771 10,423,771 Armstrong stock 87,829 93,825 39,287 47,845 OTC portfolio 240,651 231,492 178,352 175,265 Asset manager 143,094 136,309 80 80 Asset manager income 90,078 86,261 -- -- Asset manager growth 115,124 114,092 16,989 17,153 Loan portfolio 400,699 400,699 423,830 423,830 ----------- ----------- ----------- ----------- $16,122,239 $16,210,074 $14,660,326 $15,062,527 =========== =========== =========== ===========
The amounts of realized gain (loss) on investments in securities of the Master Trust for the years ended September 30, 1994, 1993, and 1992 are presented below:
Aggregate Aggregate Realized --------- --------- -------- 1994 Proceeds Cost Gain (Loss) ---- -------- ---- ----------- Commingled equity $304,239 $278,711 $ 25,528 Specialized equity 585,116 577,008 8,108 Armstrong stock 8,409 5,886 2,523 OTC portfolio 68,779 71,164 (2,385) Asset manager 36,646 38,599 (1,953) Asset manager income 2,906 3,011 (105) Asset manager growth 23,364 23,408 (44) ---------- -------- -------- $1,029,459 $997,787 $ 31,672 ========== ======== ========
SAVINGS PLAN FOR SALARIED EMPLOYEES OF AMERICAN OLEAN TILE COMPANY Notes to Financial Statements, (Continued)
1993 Aggregate Aggregate Realized ---- --------- --------- -------- Proceeds Cost Gain (Loss) -------- ---- ----------- Commingled equity $233,149 $212,951 $ 20,198 Specialized equity 252,641 251,722 919 Armstrong stock 2,396 2,448 (52) OTC portfolio 16,404 16,242 162 -------- -------- -------- $504,590 $483,363 $ 21,227 ======== ======== ======== 1992 ---- Commingled equity $ 93,842 $ 87,654 $ 6,188 Specialized equity 77,944 78,263 (319) Armstrong stock 41 44 (3) -------- -------- -------- $171,827 $165,961 $ 5,866 ======== ======== ========
(4) Benefits -------- Under terms of the Plan, a participant (or a beneficiary) is eligible for benefits upon retirement, termination of employment, or death before retirement. Disbursement of the total amount credited to a participant's account is payable (i) in a lump sum or (ii) in the case of retirement, in such other manner as requested by the participant and approved by the Plan Administrator. In addition, a participant may elect to withdraw all or any part of his account attributable to his contributions. If the amount of a withdrawal exceeds the amount of contributions made by the participant and not previously withdrawn, the participant shall be ineligible to make contributions for a specified period, except that a participant may elect to withdraw all or any portion of his account attributable to tax deductible contributions. (5) Obligation for Benefits ----------------------- All the funds of the Plan are held by investing institutions appointed by the Company under a trust agreement or insurance contract. Benefits under the Plan are payable only out of these funds. The Company has no legal obligation to make any direct payment of benefits accrued under the Plan. Except as may be provided in an insurance contract, neither the Company nor any investing institution guarantees the funds of the Plan against any loss or depreciation or guarantees the payment of any benefit hereunder. Although the Company has not expressed any intent to terminate the Plan, it may do so at any time. In case of termination or partial termination, the total amount in each employee's account will be distributed as the Plan Administrator directs. (6) Federal Income Taxes -------------------- The Internal Revenue Service has made a determination that the Plan has complied with the requirements of ERISA and, therefore, is qualified under the provisions of Section 401(a) of the Internal Revenue Code and is exempt from federal income tax. Independent Auditors' Report The Executive Committee American Olean Tile Company, Inc.: We have audited the accompanying statements of net assets of the Savings Plan for Salaried Employees of American Olean Tile Company, Inc. (the Plan) as of September 30, 1994 and 1993, and the related statements of changes in plan equity for each of the years in the three-year period ended September 30, 1994. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Plan as of September 30, 1994 and 1993, and the changes in its plan equity for each of the years in the three-year period ended September 30, 1994, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The fund information in the statements of net assets and the statements of changes in plan equity is presented for purposes of additional analysis rather than to present the net assets and changes in plan equity of each fund. The fund information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania January 20, 1995 EXHIBIT INDEX 24 Consent of Independent Auditors Consent of Independent Auditors ------------------------------- The Executive Committee American Olean Tile Company, Inc.: We consent to incorporation by reference in the Registration Statement No. 33-60070 on Form S-8 of Armstrong World Industries, Inc. of our report dated January 20, 1995 relating to the statements of net assets of the Savings Plan for Salaried Employees of American Olean Tile Company, Inc. as of September 30, 1994 and 1993 and the related changes in plan equity for each of the years in the three-year period ended September 30, 1994, which report is included herein. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania March 23, 1995 -----END PRIVACY-ENHANCED MESSAGE-----