<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO +
+COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE +
+SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS +
+PRELIMINARY PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OF +
+ARMSTRONG SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN +
+OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN +
+WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO +
+REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Filed Pursuant to Rule 424(b)5
Registration Number 333-6333
PROSPECTUS SUPPLEMENT (Subject to Completion)
(To Prospectus dated November 1, 1996)
Issued June 4, 1998
7,000,000 PEPS SM
% Participating Exchangeable Premium Securities SM
LOGO
Armstrong World Industries, Inc.
% PEPS SM DUE JULY 1, 2001
----------
(Redeemable in Shares of Common Stock of Dal-Tile International Inc.)
----------
The principal amount of each of the % Participating Exchangeable Premium
Securities due July 1, 2001 (each, a "PEPS") of Armstrong World Industries,
Inc. ("Armstrong") being offered hereby will be $ (the "Initial Price").
The PEPS will mature on July 1, 2001. Interest on the PEPS, at the rate of %
of the principal amount per annum, is payable quarterly in arrears on January
1, April 1, July 1 and October 1, beginning October 1, 1998. The PEPS are not
subject to redemption or any sinking fund prior to maturity.
At maturity (including as a result of acceleration or otherwise), the
principal amount of each PEPS will be mandatorily exchanged by Armstrong into a
number of shares of Dal-Tile common stock, par value $0.01 per share ("Dal-Tile
Common Stock") equal to the Exchange Amount per PEPS or, at Armstrong's option,
cash in an amount equal to the Reference Property Value of the Dal-Tile Common
Stock otherwise deliverable with respect to such PEPS. The Exchange Amount per
PEPS is equal to, subject to adjustment under certain circumstances: (a) if the
Reference Property Value is greater than $ per share of Dal-Tile Common
Stock (the "Threshold Appreciation Price"), shares of Dal-Tile Common
Stock per PEPS, (b) if the Reference Property Value is less than or equal to
the Threshold Appreciation Price but is greater than the Initial Price, a
fractional share of Dal-Tile Common Stock per PEPS so that the value thereof
(determined at the Then-Current Value as of the Exchange Date) is equal to the
Initial Price, and (c) if the Reference Property Value is less than or equal to
the Initial Price, one share of Dal-Tile Common Stock per PEPS. See
"Description of PEPS."
Although Dal-Tile International Inc. ("Dal-Tile") currently does not pay
dividends on the Dal-Tile Common Stock, holders of the PEPS will receive
interest payments on each Interest Payment Date. The opportunity for equity
appreciation afforded by an investment in the PEPS is less than that afforded
by an investment in the Dal-Tile Common Stock because a holder of a PEPS may
receive, in respect of such PEPS on the Exchange Date, less than one share of
Dal-Tile Common Stock (or the Then-Current Value thereof as of the Exchange
Date in cash). The value of the Dal-Tile Common Stock or cash received by a
holder of a PEPS on the Exchange Date may be more or less than the Initial
Price, and therefore an investment in the PEPS may result in a loss.
The PEPS will be unsecured obligations of Armstrong ranking pari passu with
all of its other unsecured and unsubordinated indebtedness. Dal-Tile will have
no obligations with respect to the PEPS. See "Description of the PEPS." In a
concurrent transaction, Armstrong, through its wholly-owned subsidiary
Armstrong Enterprises, Inc. ("AEI"), is offering 9,000,000 shares of Dal-Tile
Common Stock (the "Common Stock Offering") pursuant to a separate prospectus of
Dal-Tile. The Dal-Tile Common Stock is listed on the NYSE under the symbol
"DTL." On June , 1998, the Closing Price of the Dal-Tile Common Stock on the
NYSE was $ per share.
----------
SEE "RISK FACTORS RELATING TO THE PEPS" BEGINNING ON PAGE S-9 FOR
INFORMATION THAT SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE INVESTORS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS OF ARMSTRONG. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
PRICE $ A PEPS
----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC (1) COMMISSIONS (2) ARMSTRONG(1)(3)
---------- --------------- ---------------
<S> <C> <C> <C>
Per PEPS.......................... $ $ $
Total(4).......................... $ $ $
</TABLE>
- - -----
(1) Plus accrued interest, if any, from , 1998.
(2) Armstrong and Dal-Tile have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended.
(3) Before deducting expenses payable by Armstrong, estimated at .
(4) Armstrong has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an additional 1,050,000
PEPS at the price to public, less underwriting discounts and commissions
for the purpose of covering over-allotments, if any. If the Underwriters
exercise such option in full, the total price to public, underwriting
discounts and commissions, and proceeds to Armstrong will be ,
and , respectively. See "Underwriters."
----------
The PEPS are offered, subject to prior sale, when, as and if accepted by the
Underwriters named herein, and subject to approval of certain legal matters by
Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the PEPS will be made on or about June , 1998 at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
----------
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
June , 1998
<PAGE>
NO PERSON IS AUTHORIZED BY ARMSTRONG, DAL-TILE, THE UNDERWRITERS OR ANY
DEALER TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS OF ARMSTRONG, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN SO AUTHORIZED. THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OF ARMSTRONG DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DO THEY CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OF ARMSTRONG NOR ANY OFFER OR SALE
MADE HEREBY SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION
CONTAINED HEREIN OR THEREIN OR INCORPORATED HEREIN OR THEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
----------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT Page
<TABLE>
<S> <C>
Prospectus Supplement Summary............................................. S-4
Risk Factors Relating To The PEPS......................................... S-9
Armstrong................................................................. S-10
Dal-Tile.................................................................. S-11
Price Range Of Dal-Tile Common Stock And Dividends........................ S-11
Relationship Between Armstrong And
Dal-Tile................................................................. S-12
Ratios Of Earnings From Continuing Businesses To Fixed Charges And
Earnings From Continuing Businesses To Combined Fixed Charges And
Preferred Stock Dividends................................................ S-13
Use Of Proceeds........................................................... S-13
Capitalization............................................................ S-14
Accounting Treatment Of Dal-Tile Common Stock and The PEPS................ S-15
Selected Financial Data................................................... S-16
Description Of The PEPS................................................... S-17
Listing................................................................... S-25
United States Taxation.................................................... S-25
Underwriters.............................................................. S-29
Legal Matters............................................................. S-30
Experts................................................................... S-30
Incorporation Of Certain Documents By
Reference................................................................ S-30
</TABLE>
PROSPECTUS Page
<TABLE>
<S> <C>
Available Infor-
mation......... 3
Incorporation of
Certain Docu-
ments by
Reference...... 3
The Company..... 5
Use of Proceeds. 5
Ratios of
Earnings to
Fixed Charges
and Earnings
to Combined
Fixed Charges
and Preferred
Stock Dividends. 5
Description of
Debt Securi-
ties........... 6
Description of
Capital Stock.. 17
Description of
Depositary
Shares......... 22
Plan of Distri-
bution......... 24
Validity of Se-
curities....... 25
Experts......... 25
</TABLE>
----------------
"PEPS" and "Participating Exchangeable Premium Securities" are service marks
of Morgan Stanley & Co. Incorporated.
----------------
Attached hereto as Appendix A is a prospectus of Dal-Tile International Inc.
(the "Dal-Tile Prospectus") covering the shares of Dal-Tile Common Stock that
may be received upon mandatory exchange of the PEPS. The accompanying Dal-Tile
Prospectus was prepared solely by Dal-Tile and Armstrong has made no attempt
to verify the information contained therein. The Dal-Tile Prospectus does not
constitute a part of this Prospectus Supplement and is not incorporated herein
by reference.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PEPS AND THE
DAL-TILE COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN
CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE, THE PEPS AND
SHARES OF DAL-TILE COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITERS."
S-2
<PAGE>
This Prospectus contains or incorporates statements that constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are
subject to the safe harbor created by such sections. Such statements appear in
a number of places in this Prospectus and in the documents incorporated herein
by reference and may include statements regarding, among other matters, the
intent, belief or current expectations of the Company or its officers.
Prospective investors are cautioned that any such forward-looking statements
are not guarantees of future performance, and involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements to differ materially from the future results,
performance or achievements expressed or implied in such forward-looking
statements. Such factors include, but are not limited to, the specific risk
factors described under the caption "Risk Factors."
----------------
All PEPS will be issued as Book-Entry PEPS. Beneficial interests in Book-
Entry PEPS will be shown on, and transfers thereof will be effected only
through, records maintained by The Depository Trust Company ("DTC") or its
nominee, Cede & Co., and its participants.
----------------
S-3
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus Supplement, the accompanying
Prospectus of Armstrong and the Dal-Tile Prospectus attached hereto as Appendix
A, and by the information incorporated by reference. The reader is further
advised that the contents of the Dal-Tile Prospectus, and any documents
incorporated by reference therein, are not incorporated by reference herein or
in any way made a part of this Prospectus Supplement.
ARMSTRONG
Armstrong is a Pennsylvania corporation incorporated in 1891. Armstrong is a
manufacturer of interior furnishings, including floor coverings, and building
products 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.
Armstrong makes and markets a variety of specialty products for the building,
automotive, textile, and other industries. Armstrong is a worldwide
manufacturer of floor coverings for the interiors of homes and commercial and
institutional buildings, with a broad range of resilient flooring together with
adhesives, installation and maintenance materials and accessories.
A major producer of ceiling materials in the United States and abroad,
Armstrong also markets both residential and commercial ceiling systems. Ceiling
materials for the home are offered in a variety of types and designs; most
provide noise reduction and incorporate Armstrong-designed features intended to
permit ease of installation. Ceramic tile for floors, walls and countertops,
together with adhesives, installation and maintenance materials and accessories
are sold through home centers, independent ceramic and floor covering
wholesalers and sales service centers operated by Dal-Tile.
For the quarter ending March 31, 1998, Armstrong's net earnings were $46.5
million (2.3% higher than first-quarter 1997 net earnings of $45.5 million) on
the strength of the floor coverings and industry products segments. Net
earnings per diluted common share increased $0.05 per share, or 4.5%, to $1.15
in the first quarter of 1998, as compared to $1.10 in the first quarter of
1997. This increase is attributable to the increase in net earnings over first
quarter 1997 combined with a reduction in the number of shares outstanding
during such period as a result of Armstrong's stock repurchase program.
Net sales in first quarter 1998 were $543.1 million, $24.8 million (or 4.8%)
higher than $518.3 million for first quarter 1997. Without the negative
currency translation impact of a stronger U.S. dollar, sales would have
increased 6.7%. Net sales in the flooring segment grew 9.5% over the first
quarter of 1997, while first quarter 1998 net sales in the building products
segment grew approximately 3% and first quarter 1998 net sales in the industry
product segment declined approximately 6% over first quarter 1997. Sales were
up sharply in the home center channel and also increased in Europe from new
flooring and ceiling products reflecting 1997 acquisitions.
Armstrong's operating income in the first quarter of 1998 was $77.1 million,
3% higher than the $74.8 million for the first quarter of 1997. Operating
margins decreased from 14.4% for the first quarter of 1997 to 14.2% in first
quarter 1998.
DAL-TILE
Dal-Tile is one of the largest manufacturers, distributors and marketers of
ceramic tile in North America. Dal-Tile produces and distributes a broad line
of wall tile and floor tile products for both residential and commercial
applications, marketed primarily under its Daltile(TM), American Olean(R) and
Home Source(R) brand names. Dal-Tile commenced operations in 1947 as the Dallas
Ceramic Company and established its first wall tile manufacturing facility and
corporate headquarters in Dallas, Texas. On December 29, 1995, Dal-Tile
acquired from Armstrong American Olean Tile Company, Inc. ("AO") and certain
other related assets of the ceramic tile business of Armstrong.
S-4
<PAGE>
THE PEPS OFFERING
Initial Price................... $
PEPS Offered.................... 7,000,000 PEPS. Each PEPS will be a
general, unsecured and unsubordinated
obligation of Armstrong having a
principal amount equal to the Initial
Price.
On July 1, 2001 (the "Exchange Date"),
the principal amount of each PEPS will be
mandatorily exchanged by Armstrong into a
percentage of the number or amount of
each type of Reference Property per PEPS
(as defined herein) (or, at the option of
Armstrong, cash with an equivalent value)
equal to the Exchange Amount per PEPS,
plus any accrued and unpaid interest to,
but excluding, the Exchange Date. The
Exchange Amount per PEPS (as defined
herein) is equal to, subject to
adjustment under certain circumstances:
(a) if the Reference Property Value is
greater than or equal to $ (the
"Threshold Appreciation Price"), % of
the number or amount of each type of
Reference Property per PEPS; (b) if the
Reference Property Value is less than the
Threshold Appreciation Price but is
greater than the Initial Price, a
percentage of the number or amount of
each type of Reference Property per PEPS,
allocated as proportionately as
practicable, so that the aggregate Then-
Current Value (as defined herein) of such
percentage as of the Exchange Date equals
the Initial Price; and (c) if the
Reference Property Value is less than or
equal to the Initial Price, 100% of the
number or amount of each type of
Reference Property per PEPS. See
"Description of the PEPS--Mandatory
Exchange."
No fractional shares of Dal-Tile Common
Stock or other Reference Securities (as
defined herein) will be issued at
maturity. See "Description of the PEPS--
Fractional Shares."
Concurrent Offering............. In a concurrent transaction, Armstrong,
through its wholly-owned direct
subsidiary, Armstrong Enterprises, Inc.
("AEI"), is offering 9,000,000 shares of
Dal-Tile Common Stock pursuant to certain
registration rights under the
Shareholders Agreement (as defined
herein). The 18,365,822 shares
beneficially owned by Armstrong
immediately preceding the Common Stock
Offering represent 34.4% of the
outstanding Dal-Tile Common Stock.
Immediately following the Common Stock
Offering, Armstrong will beneficially own
9,365,822 shares, or approximately 17.5%
of the outstanding Dal-Tile Common Stock
(or 8,050,000 shares, representing 15.1%
of the outstanding Dal-Tile Common Stock,
if the over-allotment option is exercised
in full).
Reference Property Adjustments.. The amount of Dal-Tile Common Stock
and/or the amount or type of other
Reference Property per PEPS deliverable
upon mandatory exchange of the PEPS is
subject to adjustment as a
S-5
<PAGE>
result of certain Adjustment Events (as
defined herein), distributions of certain
rights or warrants, and tender or
exchange offers. See "Description of the
PEPS--Reference Property Adjustments."
Indenture Covenants............. The PEPS are being issued pursuant to a
Senior Debt Securities Indenture between
Armstrong and Mellon Bank, N.A. dated
August 6, 1996 (the "Principal
Indenture") as supplemented by a
supplemental indenture (the "Supplemental
Indenture") dated as of June , 1998
between Armstrong and Chase Manhattan
Bank, formerly known as Chemical Bank, as
Trustee (the "Trustee") (the "Principal
Indenture" as supplemented by the
"Supplemental Indenture," the
"Indenture"). The Indenture will contain
a number of covenants that will limit,
among other things, (i) the incurrence of
certain liens by Armstrong or by certain
designated subsidiaries, (ii) Armstrong's
merger with or consolidation into another
corporation and (iii) the ability of
Armstrong to engage in certain asset
dispositions. In addition, Armstrong will
covenant in the Indenture that so long as
it is subject to Section 16 of the
Exchange Act, it will not engage in any
transaction that will violate paragraph
(c) of Section 16 with respect to the
PEPS. See "Description of the PEPS--
Section 16(c) of the Exchange Act."
Interest Payments............... Each PEPS will entitle the holder thereof
to receive interest at the annual rate of
% (equivalent to $ per annum).
Interest on the PEPS will accrue from the
original date of issuance and will be
payable quarterly in arrears on each of
January 1, April 1, July 1 and October 1,
beginning October 1, 1998. See
"Description of the PEPS--General." The
initial payment to be made on October 1,
1998 will be $ , representing interest
accruing from the date of the initial
issuance of the PEPS to October 1, 1998.
Enhanced Income; Less
Investment Appreciation Than
Dal-Tile Common Stock; No
Assurance of Delivery of Dal-
Tile Common Stock..............
Dividends are not currently paid on the
Dal-Tile Common Stock, therefore the
interest payments on the PEPS may provide
a greater current return on investment
than an investment in Dal-Tile Common
Stock. However, the opportunity for
equity appreciation afforded by an
investment in the PEPS is less than that
afforded by an investment in the Dal-Tile
Common Stock because a holder of a PEPS
may receive, in respect of such PEPS on
the Exchange Date (or any Acceleration
Date (as defined herein)), less than one
share of Dal-Tile Common Stock or the
equivalent value in cash. The value of
the Dal-Tile Common Stock or cash
received by a holder of a PEPS on the
Exchange Date (or any Acceleration
S-6
<PAGE>
Date) may be less than the issue price of
the PEPS, and therefore an investment in
the PEPS may result in a loss. See "Risk
Factors--Relationship of PEPS and Dal-
Tile Common Stock." In addition, as
described herein, Armstrong will have the
option, exercisable in its sole
discretion, to satisfy its obligations
with respect to the principal amount of
each PEPS on the Exchange Date by
delivering to holders of the PEPS either
the specified number of shares of Dal-
Tile Common Stock (or the number or
amount of other Reference Property per
PEPS) or cash in an equivalent amount.
Absence of Trading Market....... Prior to this offering, there has been no
public market for the PEPS, and there can
be no assurance that a market will
develop. It is not possible to predict
how the PEPS will trade in the secondary
market. The PEPS will not be listed for
trading on any national securities
exchange or any automated inter-dealer
quotation system. See "Risk Factors
Relating to the PEPS--Effect of the PEPS
on the Market for Dal-Tile Common Stock"
and "--Possible Illiquidity of the
Secondary Market."
Form of PEPS.................... The PEPS will be issued in the form of
one or more fully registered global notes
(each, a "Global Note"). The Global Notes
will be deposited with, or on behalf of,
DTC and registered in the name of DTC's
nominee, Cede & Co. See "Description of
the PEPS--Book-Entry, Delivery and Form."
United States Taxation.......... The Indenture will provide that the
parties have agreed to characterize the
PEPS for all tax purposes as an
investment unit consisting of two
components: (i) a forward purchase
contract to purchase Dal-Tile Common
Stock at maturity, and (ii) a deposit
with Armstrong of a fixed amount of cash
to secure the holder's obligation under
the forward purchase contract. The
summary below assumes that the PEPS will
be treated as such.
Under the above characterization, for
U.S. federal income tax purposes, a PEPS
holder will be required to include in
income, in accordance with the holder's
method of accounting, amounts denominated
as interest that are payable on the
deposit. A holder's tax basis in a PEPS
will equal the holder's cost for that
PEPS. Upon the sale or other taxable
disposition of a PEPS, a holder will
recognize long- or short-term capital
gain or loss depending on the holding
period of the PEPS. On the Exchange Date,
a holder will recognize no gain or loss
on the purchase of Dal-Tile Common Stock
and the holder's tax basis in such stock
will equal the holder's tax basis in the
PEPS.
Due to the absence of statutory, judicial
or administrative authority regarding the
proper characterization of the PEPS for
S-7
<PAGE>
U.S. federal income tax purposes, there
are substantial uncertainties regarding
the U.S. federal income tax consequences
of an investment in the PEPS. As a
result, there can be no assurance that
the Internal Revenue Service will agree
with, or that a court will uphold, the
treatment of the PEPS for U.S. federal
income tax purposes as described herein.
Each holder of the PEPS should consult
its tax advisor regarding the U.S.
federal income tax consequences of an
investment in the PEPS. See "United
States Taxation."
Use of Proceeds................. To reduce certain of Armstrong's short-
term indebtedness and for other general
corporate purposes.
S-8
<PAGE>
RISK FACTORS RELATING TO THE PEPS
Prospective holders of the PEPS should carefully consider, in addition to
the other information set forth or incorporated by reference in this
Prospectus Supplement and the accompanying Prospectus of Armstrong, the
following information and the information set forth or incorporated by
reference in the Dal-Tile Prospectus, including, without limitation,
information under "Risk Factors." The reader is further advised that the
contents of the Dal-Tile Prospectus, and any documents incorporated by
reference therein, are not incorporated by reference herein or in any way made
a part of this Prospectus Supplement.
RELATIONSHIP OF PEPS AND DAL-TILE COMMON STOCK
The value of the Dal-Tile Common Stock (or other Reference Property per
PEPS) received by a holder of a PEPS on the Exchange Date (or any Acceleration
Date) is not fixed, but is based on the market price of the Dal-Tile Common
Stock (or other Reference Property per PEPS), as specified in the definition
of the Exchange Amount per PEPS. See "Description of PEPS--Mandatory
Exchange." The price of the Dale-Tile Common Stock (or other Reference
Property per PEPS), is subject to market fluctuations, and as a result, the
value of the Dal-Tile Common Stock (or other Reference Property per PEPS) or
cash received by a holder of a PEPS on the Exchange Date (or any Acceleration
Date) may be more or less than the Initial Price of the PEPS. Therefore, no
assurance can be given that an investment in the PEPS will not result in a
loss. For example, if the Reference Property Value on the Exchange Date (or
any Acceleration Date) is less than the Initial Price, an investment in the
PEPS may result in a loss.
The opportunity for equity appreciation afforded by an investment in the
PEPS is less than that afforded by an investment in the Dal-Tile Common Stock
because a holder of a PEPS may receive, in respect of such PEPS on the
Exchange Date (or any Acceleration Date), less than one share of Dal-Tile
Common Stock (or the equivalent amount of other Reference Property per PEPS)
or the Then-Current Market Value thereof as of such date in cash. If Armstrong
elects to exchange the PEPS for cash, the amount of cash delivered will be
determined on the basis of the average of the Closing Price per share of Dal-
Tile Common Stock (or other Reference Securities, if any) over the 20 Trading
Days immediately prior to, but not including, the second Business Day (as
defined herein) immediately preceding such date. The price of the Dal-Tile
Common Stock (or other Reference Property per PEPS) is subject to market
fluctuations, and as a result, the amount of cash delivered on the Exchange
Date (or any Acceleration Date) in respect of each PEPS may be more or less
than the market value on the Exchange Date (or any Acceleration Date) of the
Dal-Tile Common Stock (or other Reference Property per PEPS) that a holder
would otherwise have been entitled to receive.
The market price of PEPS at any time is expected to be affected primarily by
changes in the price of the Dal-Tile Common Stock and by changes in interest
rates, as well as by factors affecting Armstrong. Trading prices of Dal-Tile
Common Stock will be influenced by Dal-Tile's operational results and by
complex and interrelated political, economic, financial and other factors that
can affect the capital markets generally and the specific market segment of
which Dal-Tile is a part. (See the Dal-Tile Prospectus attached hereto as
Appendix A for more information regarding Dal-Tile Common Stock.)
A holder of PEPS will not be entitled to any rights with respect to the Dal-
Tile Common Stock (including, without limitation, voting rights and the rights
to receive any dividends or other distributions in respect thereof) until such
time, if ever, as Armstrong delivers shares of Dal-Tile Common Stock upon
settlement of the PEPS.
EFFECT OF THE PEPS ON THE MARKET FOR DAL-TILE COMMON STOCK
The PEPS will not be listed on the New York Stock Exchange ("NYSE"), any
other national securities exchange or any automated interdealer quotation
system. Any market that develops for the PEPS is likely to influence, and be
influenced by, the market for the Dal-Tile Common Stock. For example, the
price of the Dal-Tile Common Stock could become more volatile and could be
depressed by investors' anticipation of the potential resale in the market of
substantial additional amounts of Dal-Tile Common Stock received at the
S-9
<PAGE>
maturity or acceleration of the PEPS by investors who view the PEPS as a more
attractive means of equity participation in Dal-Tile and by hedging or
arbitrage trading activity that may develop involving the PEPS and Dal-Tile
Common Stock.
ABSENCE OF PLEDGE OR ESCROW
The Indenture contains limited restrictions on the ability of Armstrong to
sell, pledge or otherwise convey all or any portion of the Dal-Tile Common
Stock held by it or its subsidiaries, and no such shares of Dal-Tile Common
Stock will be pledged or otherwise held in escrow for use on the Exchange Date
of the PEPS. Consequently, in the event of a bankruptcy, insolvency or
liquidation of Armstrong or its subsidiaries, the Dal-Tile Common Stock owned
by Armstrong or its subsidiaries will be subject to the claims of the
creditors of Armstrong or its subsidiaries, respectively. In addition,
Armstrong will have the option, exercisable in its sole discretion, to satisfy
its obligations with respect to the principal amount of each PEPS on the
Exchange Date by delivering to holders of the PEPS either the specified number
of shares of Dal-Tile Common Stock (or number or amount of other Reference
Property per PEPS) or cash in an equivalent amount.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
There is currently no secondary market for the PEPS, and the PEPS are not
expected to be listed on any securities exchange or any automated interdealer
quotation system. The Underwriters currently intend, but are not obligated, to
make a market in the PEPS. There can be no assurance that a secondary market
will develop or, if a secondary market does develop, that it will provide the
holders of the PEPS with liquidity of investment or that it will continue for
the life of the PEPS.
NO OBLIGATION ON THE PART OF DAL-TILE WITH RESPECT TO THE PEPS
Dal-Tile has no obligations with respect to the PEPS or amounts to be paid
to holders thereof, including any obligation to take the needs of Armstrong
with respect to the PEPS or the needs of holders of the PEPS into
consideration for any reason. Dal-Tile will not receive any of the proceeds of
the offering of the PEPS made hereby. See "Relationship Between Armstrong and
Dal-Tile."
RISK FACTORS RELATING TO DAL-TILE
Investors in the PEPS should carefully consider the information in the Dal-
Tile Prospectus attached hereto as Appendix A, including the information
contained under "Risk Factors."
ARMSTRONG
Armstrong is a Pennsylvania corporation incorporated in 1891. Armstrong is a
manufacturer of interior furnishings, including floor coverings, and building
products 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.
Armstrong makes and markets a variety of specialty products for the
building, automotive, textile, and other industries. Armstrong is a worldwide
manufacturer of floor coverings for the interiors of homes and commercial and
institutional buildings, with a broad range of resilient flooring together
with adhesives, installation and maintenance materials and accessories.
A major producer of ceiling materials in the United States and abroad,
Armstrong also markets both residential and commercial ceiling systems.
Ceiling materials for the home are offered in a variety of types and designs;
most provide noise reduction and incorporate Armstrong-designed features
intended to permit ease of installation. Ceramic tile for floors, walls and
countertops, together with adhesives, installation and maintenance materials
and accessories are sold through home centers, independent ceramic and floor
covering wholesalers and sales service centers operated by Dal-Tile.
S-10
<PAGE>
For the quarter ending March 31, 1998, Armstrong's net earnings were $46.5
million (2.3% higher than first-quarter 1997 net earnings of $45.5 million) on
the strength of the floor coverings and industry products segments. Net
earnings per diluted common share increased $0.05 per share, or 4.5%, to $1.15
in the first quarter of 1998, as compared to $1.10 in the first quarter of
1997. This increase is attributable to the increase in net earnings over first
quarter 1997 combined with a reduction in the number of shares outstanding
during such period as a result of Armstrong's stock repurchase program.
Net sales in the first quarter 1998 were $543.1 million, $24.8 million (or
4.8%) higher than $518.3 million for first quarter 1997. Without the negative
currency translation impact of a stronger U.S. dollar, sales would have
increased 6.7%. Net sales in the flooring segment grew 9.5% over the first
quarter of 1997, while first quarter 1998 net sales in the building products
segment grew approximately 3% and first quarter 1998 net sales in the industry
product segment declined approximately 6% over first quarter 1997. Sales were
up sharply in the home center channel and also increased in Europe from new
flooring and ceiling products reflecting 1997 acquisitions.
Armstrong's operating income in the first quarter of 1998 was $77.1 million,
3% higher than the $74.8 million for the first quarter of 1997. Operating
margins decreased from 14.4% for the first quarter of 1997 to 14.2% in first
quarter 1998.
DAL-TILE
Dal-Tile is one of the largest manufacturers, distributors and marketers of
ceramic tile in North America. Dal-Tile produces and distributes a broad line
of wall tile and floor tile products for both residential and commercial
applications, marketed primarily under its Daltile(TM), American Olean(R) and
Home Source(R) brand names. Dal-Tile commenced operations in 1947 as the
Dallas Ceramic Company and established its first wall tile manufacturing
facility and corporate headquarters in Dallas, Texas. On December 29, 1995,
Dal-Tile acquired from Armstrong AO and certain other related assets of the
ceramic tile business of Armstrong.
Attached hereto as Appendix A is the Dal-Tile Prospectus covering the shares
of Dal-Tile Common Stock offered in connection with the PEPS.
PRICE RANGE OF DAL-TILE COMMON STOCK AND DIVIDENDS
Dal-Tile Common Stock is listed on the NYSE under the symbol "DTL." The
following table sets forth, for the periods indicated, the high and low
Closing Prices for the shares of Dal-Tile Common Stock on the NYSE as of the
end of the regular session, as reported on the Consolidated Tape, Network A.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Fiscal Year ended January 3, 1997
Third Quarter (from August 14, 1996)..................... $16 3/8 $13 7/8
Fourth Quarter........................................... 21 3/8 16 5/8
Fiscal Year ended January 2, 1998
First Quarter............................................ 19 5/8 14 1/2
Second Quarter........................................... 18 7/8 12
Third Quarter............................................ 18 3/8 14
Fourth Quarter........................................... 14 11/16 9 1/2
Fiscal Year ending January 1, 1999
First Quarter............................................ 14 1/8 10 11/16
Second Quarter (through June 3, 1998).................... 14 7/16 12 7/16
</TABLE>
As of June 3, 1998, there were 107 holders of record of Dal-Tile Common
Stock. The number of record holders may not be representative of the number of
beneficial holders since many shares are held by depositories, brokers or
other nominees.
S-11
<PAGE>
On , 1998, the Closing Price of Dal-Tile Common Stock on the NYSE was
$ . Up to and including the date of this Prospectus Supplement, Dal-Tile
has paid no dividends on the Dal-Tile Common Stock. See "Dividend Policy" in
the Dal-Tile Prospectus attached hereto as Appendix A.
Armstrong makes no representation as to the amount of dividends, if any,
that Dal-Tile will pay in the future and, in any event, holders of the PEPS
will not be entitled to receive any dividends that may be payable on Dal-Tile
Common Stock until such time, if any, as Armstrong shall have mandatorily
exchanged the PEPS for shares of Dal-Tile Common Stock and a record date, if
any, for such dividend occurs after such date. See "Description of the PEPS."
RELATIONSHIP BETWEEN ARMSTRONG AND DAL-TILE
Armstrong currently owns, through AEI, approximately 34% (18,365,822 shares)
of the outstanding shares of Dal-Tile Common Stock. Armstrong's ownership of
Dal-Tile is accounted for under the equity method. On December 29, 1995,
Armstrong sold 100% of the stock in its indirect wholly-owned subsidiary, AO,
and contributed $27.6 million in cash to Dal-Tile in exchange for 37% of Dal-
Tile's common stock (the "AO Business Combination"). The AO Business
Combination was effected pursuant to a Stock Purchase Agreement dated as of
December 21, 1995, by and among Armstrong, two of its wholly-owned
subsidiaries and Dal-Tile. The AO Business Combination included Armstrong's
transfer to Dal-Tile of its 49.99% interest in Recumbrimientos Interceramic,
S.A. de C.V. ("RISA"). In August 1996, Dal-Tile issued new shares in a public
offering and new shares to Armstrong in a private offering, together
decreasing Armstrong's ownership share from 37% to 33%. During 1997, Armstrong
purchased additional shares of Dal-Tile Common Stock, increasing its ownership
to 34%.
Pursuant to a Shareholders Agreement dated December 29, 1995 (as amended as
of July 16, 1996, the "Shareholders Agreement") among Armstrong, two of
Armstrong's wholly-owned subsidiaries, Dal-Tile and DTI Investors, LLC ("DTI
Investors"), Armstrong and DTI Investors have agreed to cause the Board of
Directors of Dal-Tile to be comprised of (i) six individuals designated by DTI
Investors, (ii) three individuals designated by Armstrong, and (iii) the Chief
Executive Officer of Dal-Tile. The rights and obligations of DTI Investors and
Armstrong to designate directors are subject to change in the event of certain
circumstances more particularly described in the Shareholders Agreement. Prior
to the Common Stock Offering, DTI Investors and Armstrong beneficially owned
approximately 87.9% of the outstanding Dal-Tile Common Stock and, as such,
have the voting power to effect the election of the nominees.
Effective February 26, 1998, George A. Lorch, Frank A. Riddick III and
Robert J. Shannon, Jr., the three individuals designated as Dal-Tile directors
by Armstrong, resigned from their positions as directors of Dal-Tile. Dal-
Tile, DTI Investors and Armstrong are in discussions regarding filling the
three director vacancies. On March 13, 1998, Armstrong notified Dal-Tile of
its request, pursuant to the Shareholders Agreement, that Dal-Tile register
for sale under the Securities Act, all of the 18,365,822 shares of Dal-Tile
Common Stock owned by Armstrong through AEI to enable Armstrong to offer the
PEPS offered hereby (the "PEPS Offering") and to make the Common Stock
Offering.
The terms of the Shareholders Agreement will not be affected by the PEPS
Offering, but the number of individuals that Armstrong may designate for the
Board of Directors of Dal-Tile will be ratably reduced by the sale of Dal-Tile
Common Stock by Armstrong pursuant to the Common Stock Offering, and will be
further reduced by any subsequent sales or transfers of Dal-Tile Common Stock
by Armstrong, including at such time, if any, as Armstrong shall have
mandatorily exchanged the PEPS at maturity for shares of Dal-Tile Common
Stock.
S-12
<PAGE>
RATIOS OF EARNINGS FROM CONTINUING BUSINESSES TO FIXED CHARGES AND EARNINGS
FROM CONTINUING BUSINESSES TO COMBINED FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS
The following table sets forth Armstrong's consolidated ratios of earnings
to fixed charges, and to fixed charges and preferred stock dividends for the
indicated periods.(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
---------------------------- -------------------
MARCH 31, MARCH 31,
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings from
continuing businesses to
fixed charges(1)............ 2.49 8.70 1.20 9.22 11.04 9.62 10.05
Ratio of earnings from
continuing businesses to
fixed charges and preferred
stock dividends............. 1.57 4.88 N/A(2) 6.22 11.04 9.62 10.05
</TABLE>
- - --------
(1) Excluding restructuring charges for all periods and the pre-tax loss on
the ceramic tile business combination for 1995, the ratios would have been
4.50, 8.70, 7.40, 10.91 and 11.04 for 1993, 1994, 1995, 1996 and 1997,
respectively.
(2) Earnings for 1995 were inadequate to cover fixed charges plus preferred
stock dividends by approximately $10.6 million.
The ratio of earnings from continuing businesses to fixed charges has been
computed by dividing earnings from continuing businesses by fixed charges. The
ratio of earnings from continuing businesses to fixed charges and preferred
stock dividends has been computed by dividing earnings from continuing
businesses by the sum of fixed charges and preferred stock dividend
requirements. For purposes of calculating these ratios, earnings from
continuing businesses consist of consolidated earnings from continuing
business operations before income taxes plus fixed charges. Fixed charges
consist of interest expense and one-third of rent expense which is deemed to
be representative of interest and amortization of finance costs.
In June 1989, Armstrong established an Employee Stock Ownership Plan (the
"ESOP"). Armstrong is the guarantor of a $270 million loan to the ESOP (the
"ESOP Loan"). Contributions made by Armstrong to the ESOP and dividends paid
by Armstrong on the common stock purchased by the ESOP are used by the ESOP to
pay installments of principal and interest on the ESOP Loan. Such
contributions and dividends are not included in the above ratios of earnings
from continuing businesses to fixed charges or ratios of earnings from
continuing businesses to combined fixed charges and preferred stock dividends.
Interest expense on the ESOP Loan was approximately $22.3 million, $21.7
million, $21.0 million, $20.0 million and $18.8 million for the years ended
December 31, 1993, 1994, 1995, 1996 and 1997, respectively. Part of the
contributions made by Armstrong represent payroll deductions made by
participants in the ESOP.
USE OF PROCEEDS
The net proceeds to be received by Armstrong from the sale of the PEPS will
be used for the repayment of certain short-term indebtedness of Armstrong and
other general corporate purposes.
S-13
<PAGE>
CAPITALIZATION
The following table sets forth at March 31, 1998, (i) the historical
consolidated cash and cash equivalents, short-term debt and capitalization of
the Company and (ii) the consolidated cash and cash equivalents, short-term
debt and capitalization, as adjusted for the Common Stock Offering and the
PEPS Offering. See "Use of Proceeds." The table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's Consolidated Financial Statements, including
the notes thereto, that are incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus of Armstrong.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
Cash and cash equivalents............................... $ 48.9 $ (1)
======== ========
Short-term debt:
Short-term debt........................................ 135.7
Current maturities of long-term debt................... 3.5 3.5
-------- --------
$ 139.2 $
======== ========
Long-term debt:
9 3/4% debentures due 2008............................. $ 125.0 $ 125.0
Medium-term notes 8 3/4-9% due 1998-2001............... 28.1 28.1
Bank loans due 1999-2000............................... 25.0 25.0
Industrial development bonds........................... 19.5 19.5
Other.................................................. 29.7 29.7
PEPS due 2001.......................................... --
-------- --------
227.3
Less: Current maturities.............................. (3.5) (3.5)
-------- --------
Net long-term debt...................................... 223.8
Employee Stock Ownership Plan (ESOP) loan guarantee..... 201.8 201.8
Shareholders' equity:
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......................... 169.0 169.0
Reduction for ESOP loan guarantee (205.8) (205.8)
Retained earnings...................................... 1,369.0 1,369.0
Other comprehensive income (2)......................... (14.5) (14.5)
-------- --------
1,369.6 1,369.6
-------- --------
Less common stock in treasury, at cost:
1997--11,759,510 shares; 1996--10,714,572 shares....... 539.6 539.6
-------- --------
Total shareholders' equity............................. 830.0 830.0
-------- --------
Total capitalization.................................... $1,255.6 $1,255.6
======== ========
</TABLE>
- - --------
(1) Proceeds from the Common Stock Offering and the PEPS Offering will be held
as cash or cash equivalents pending their application. See "Use of
Proceeds."
(2) Includes minimum pension liability adjustment and foreign currency
translation adjustment and hedging activities.
S-14
<PAGE>
ACCOUNTING TREATMENT OF DAL-TILE COMMON STOCK AND THE PEPS
As a result of the Dal-Tile Common Stock offering, Armstrong anticipates
that its ownership of Dal-Tile Common Stock will fall below 20 percent of the
total number of shares outstanding. As a result, Armstrong will change its
accounting for its investment in the remaining Dal-Tile Common Stock from
equity to available-for-sale securities in the financial statements of
Armstrong. Changes in the fair value of these securities will be recognized in
a separate component of stockholders' equity consistent with Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments on
Debt and Equity Securities.
The PEPS will be reflected as a liability in the financial statements of
Armstrong at the aggregate principal amount thereof before the deduction of
unamortized original issue costs. Original issue costs will be amortized over
the life of the PEPS. Interest on the PEPS will be accrued based on the terms
of the PEPS.
Under current accounting principles, the forward purchase contract component
of the PEPS will be considered a forward contract, effectively hedging the
available-for-sale Dal-Tile Common Stock. The value of the forward contract
will be indexed based on a notional amount equal to the principal amount of
the PEPS which has been based upon the Closing Price of the Dal-Tile Common
Stock on , 1998.
Subsequent increases or decreases in the market value of the forward
purchase contract, as indexed to its notional amount, will be recognized in
the separate component of stockholders' equity as well.
S-15
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for
Armstrong for each of the years in the five-year period ended December 31,
1997, and selected unaudited historical financial data for the three-month
periods ended March 31, 1997 and 1998. The historical data for the five full
years shown below has been derived from the audited consolidated financial
statements of Armstrong. The historical data for the three-month periods ended
March 31, 1997 and 1998 has been derived from Armstrong's unaudited
consolidated financial statements and includes, in the opinion of Armstrong's
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the data for such periods. Financial information
for the interim periods presented is not necessarily indicative of the
financial information for the full year. The historical data set forth below
should be read in conjunction with the consolidated financial statements and
notes thereto of Armstrong incorporated by reference herein.
<TABLE>
<CAPTION>
THREE MONTHS
FOR YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ ----------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:.............. $2,075.7 $2,226.0 $2,325.0 $2,156.4 $2,198.7 $518.3 $543.1
Costs of goods sold..... 1,453.7 1,483.9 1,581.1 1,459.9 1,461.7 347.0 362.7
Selling, general and
administrative
expenses............... 435.6 449.2 457.0 413.2 385.3 100.3 104.0
Equity (earnings) loss
from affiliates........ (1.4) (1.7) (6.2) (19.1) 29.7 (3.8) (0.7)
Restructuring charges... 89.3 -- 71.8 46.5 -- -- --
Loss from ceramic tile
business combination... -- -- 177.2 -- -- -- --
Operating income........ 98.5 294.6 44.1 255.9 322.0 74.8 77.1
Interest expense........ 38.0 28.3 34.0 22.6 28.0 6.3 6.6
Other expense (income),
net.................... (6.1) 0.5 1.9 (6.9) (2.2) 0.2 (1.0)
Earnings from continuing
businesses before
income tax(a).......... 66.6 265.8 8.2 240.2 296.2 68.3 71.5
Income taxes............ 17.6 78.6 (5.4) 75.4 111.2 22.8 25.0
Earnings from continuing
businesses............. 49.0 187.2 13.6 164.8 185.0 45.5 46.5
Earnings (loss) from
continuing businesses
applicable to common
stock (b).............. 35.1 173.1 (0.7) 158.0 185.0 45.5 46.5
Per common share--
basic................ 0.95 4.62 (0.02) 4.04 4.55 1.11 1.17
Per common share--
diluted.............. 0.93 4.09 (0.02) 3.82 4.50 1.10 1.15
Net earnings............ 63.5 210.4 123.3 155.9 185.0 45.5 46.5
Net earnings applicable
to common stock (b).... 49.6 196.3 109.0 149.1 185.0 45.5 46.5
Capital expenditures.... 110.3 138.4 182.7 228.0 160.5 30.2 30.4
Depreciation and
amortizations.......... 117.0 120.7 123.1 123.7 132.7 32.3 32.2
Working capital--
continuing businesses.. 279.3 384.4 346.8 243.5 128.5 232.1 106.0
Total assets............ 1,869.2 2,159.0 2,149.8 2,135.6 2,375.5 2,191.0 2,408.6
Net long-term debt...... 256.8 237.2 188.3 219.4 223.1 228.9 223.8
Shareholders' equity.... 569.5 735.1 775.0 790.0 810.6 781.1 830.0
</TABLE>
Notes:
(a) Continuing businesses excludes the results of Thomasville Furniture
Industries, Inc., reclassified as a discontinued business in 1993, 1994
and 1995.
(b) After deducting preferred dividend requirements and adding the tax
benefits for unallocated preferred shares.
Beginning in 1996, ceramic tile results were reported under the equity
method, whereas prior to 1996, ceramic tile operations were reported on a
consolidated or line item basis.
S-16
<PAGE>
DESCRIPTION OF THE PEPS
The following description of the particular terms of the PEPS supplements,
and to the extent inconsistent therewith replaces, the description of the
general terms and conditions of Debt Securities set forth under the caption
"Description of Debt Securities" in the accompanying Prospectus of Armstrong,
to which description reference is hereby made.
GENERAL
The PEPS are a series of Senior Debt Securities (as defined in the
Prospectus of Armstrong accompanying this Prospectus Supplement) to be issued
under the Indenture. In the event of any disparity between the description of
the PEPS contained herein and the description of the Debt Securities contained
in the accompanying Prospectus of Armstrong, the description of the PEPS
contained herein shall be deemed to be controlling. Initially capitalized
terms used herein and not defined herein shall bear the meanings ascribed
thereto in the Indenture or as described in the Prospectus of Armstrong
accompanying this Prospectus Supplement. The PEPS will be general unsecured
and unsubordinated obligations of Armstrong and will rank pari passu with all
other unsecured and unsubordinated indebtedness of Armstrong. The aggregate
number of PEPS to be issued will be 7,000,000, plus such additional number of
PEPS as may be issued pursuant to the over-allotment option granted by
Armstrong to the Underwriters (see "Underwriters"). The PEPS will mature on
the Exchange Date. In the future, Armstrong may issue additional debt
securities or other securities with terms similar to those of the PEPS.
Each PEPS, which will be issued with a principal amount of $ , will bear
interest at the annual rate of % of the principal amount per annum (or
approximately $ per annum) from the date of original issuance, or from
the most recent Interest Payment Date (as defined below) to which interest has
been paid or provided for, until the principal amount thereof is exchanged on
the Exchange Date pursuant to the terms of the PEPS. The PEPS will be issued
in minimum denominations of $ and any integral multiple thereof.
References to payment "per PEPS" refer to each $ principal amount of any
PEPS. Interest on the PEPS will be payable quarterly in arrears on January 1,
April 1, July 1 and October 1, commencing October 1, 1998 (each, an "Interest
Payment Date"), to the persons in whose names the PEPS are registered at the
close of business on the first day of the calendar month in which such
interest payment is due (each, a "Regular Record Date"). Interest on the PEPS
will be computed on the basis of a 360-day year of twelve 30-day months. If an
Interest Payment Date falls on a day that is not a Business Day, the interest
payment to be made on such Interest Payment Date will be made on the next
succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
So long as the PEPS are represented by one or more Global Notes, the
interest payable on the PEPS will be paid, and delivery of the Reference
Property per PEPS (or the cash value thereof) in exchange for each PEPS on the
Exchange Date will be made upon surrender of such PEPS, to Cede & Co., the
nominee of DTC, or its registered assigns as the registered owner of the
Global Notes. Such cash payments will be made by wire transfer of immediately
available funds on each of the applicable Interest Payment Dates or the
Exchange Date, as the case may be, not later than 2:30 p.m., New York City
time. If the PEPS are no longer represented by Global Notes, payment of
interest may, at the option of Armstrong, be made by check mailed to the
persons in whose names the PEPS are registered at the close of business on the
relevant Regular Record Date.
MANDATORY EXCHANGE
On the Exchange Date, the principal amount of each PEPS will be mandatorily
exchanged by Armstrong into a percentage of the number or amount of each type
of Reference Property per PEPS (or, at the option of Armstrong, cash with an
equivalent value) equal to the Exchange Amount per PEPS, plus any accrued and
unpaid interest to, but excluding, the Exchange Date. The "Exchange Amount per
PEPS" is equal to (a) if the Reference Property Value is greater than or equal
to $ (the "Threshold Appreciation Price"), % of the number or
S-17
<PAGE>
amount of each type of Reference Property per PEPS, (b) if the Reference
Property Value is less than the Threshold Appreciation Price but is greater
than the Initial Price, a percentage of the number or amount of each type of
Reference Property per PEPS, allocated as proportionately as practicable, so
that the aggregate Then-Current Value of such percentage as of the Exchange
Date equals the Initial Price and (c) if the Reference Property Value is less
than or equal to the Initial Price, 100% of the number or amount of each type
of Reference Property per PEPS. No fractional shares of Dal-Tile Common Stock
or other Reference Securities will be issued at maturity as provided under
"Fractional Shares" below.
It is Armstrong's current intention to deliver shares of Dal-Tile Common
Stock (or, as a result of the application of the adjustment provisions
described below under "Reference Property Adjustments," other Reference
Property per PEPS) on the Exchange Date. Armstrong may at its option, however,
in lieu of delivering Reference Property, deliver cash in lieu of delivering
all, but not less than all, of the shares of Dal-Tile Common Stock (or other
Reference Property per PEPS) otherwise deliverable on the Exchange Date,
except where such delivery would violate applicable state law. The amount of
cash deliverable in respect of each PEPS shall be equal to the Then-Current
Value as of the Exchange Date of the Exchange Amount per PEPS. If Armstrong
elects to deliver cash in lieu of shares of Dal-Tile Common Stock (or other
Reference Property per PEPS) on the Exchange Date, it nonetheless will be
obligated pursuant to the terms of the PEPS to deliver shares of Dal-Tile
Common Stock (or other Reference Property per PEPS) to those holders of PEPS
with respect to whom Armstrong has determined that delivery of cash may
violate applicable state law. If Armstrong elects to deliver cash, Armstrong
shall have the right, as a condition to delivery of such cash, to require
certification as to the domicile and residency of each beneficial holder of
PEPS. As of the date of this Prospectus Supplement, Armstrong is unable to
predict the circumstances which would cause it to deliver cash to the holders
of PEPS on the Exchange Date in lieu of shares of Dal-Tile Common Stock (or
other Reference Property per PEPS).
On or prior to the twenty-sixth Business Day preceding the Exchange Date,
Armstrong will notify the Trustee and DTC and publish a notice in The Wall
Street Journal or another daily newspaper of national circulation stating
whether the applicable percentage of the number or amount of each type of
Reference Property per PEPS or cash will be delivered in exchange for each
PEPS. At the time such notice is published, the Reference Property Value will
not have been determined. If Armstrong elects to deliver Reference Property,
Holders will be responsible for the payment of any and all brokerage costs
upon any subsequent sale thereof.
REFERENCE PROPERTY ADJUSTMENTS
The Reference Property per PEPS shall be adjusted to include, subject to the
three immediately succeeding paragraphs, all property received in respect of
such Reference Property per PEPS (either directly or upon successive
application of this paragraph) upon the following events: (i) the distribution
of a dividend on Reference Property per PEPS in the same type of property,
(ii) the combination of Reference Property per PEPS into a smaller number of
shares or other units, (iii) the subdivision of outstanding shares or other
units of Reference Property, (iv) the conversion or reclassification of
Reference Property per PEPS by issuance or exchange of other securities, (v)
any consolidation or merger of Dal-Tile, or any surviving entity or subsequent
surviving entity of Dal-Tile (a "Dal-Tile Successor"), with or into another
entity (other than a merger or consolidation in which Dal-Tile is the
continuing corporation and in which the Dal-Tile Common Stock outstanding
immediately prior to the merger or consolidation is not exchanged for cash,
securities or other property of Dal-Tile or another corporation), (vi) any
statutory exchange of securities of Dal-Tile or any Dal-Tile Successor with
another corporation (other than in connection with a merger or acquisition and
other than a statutory exchange of securities in which Dal-Tile is the
continuing corporation and in which the Dal-Tile Common Stock outstanding
immediately prior to the statutory exchange is not exchanged for cash,
securities or other property of Dal-Tile or another corporation), (vii) any
liquidation, dissolution or winding up of Dal-Tile or any Dal-Tile Successor,
(viii) any distribution of cash or other property on Reference Property per
PEPS of a particular type (excluding cash dividends and other cash
distributions other than Extraordinary Cash Dividends (as defined herein)) or
(ix) any tender or exchange offer for Reference Property of a particular type
(any such event described in (i) through (ix) above and subject to the three
immediately succeeding paragraphs shall be referred to herein as an
"Adjustment Event").
S-18
<PAGE>
In the case of a tender or exchange offer for all Reference Securities of a
particular type, the Reference Property per PEPS shall be deemed to include
the amount of cash or other property paid by the offeror in the tender or
exchange offer with respect to such Reference Securities (in an amount
determined on the basis of the rate of exchange in such tender or exchange
offer), whether or not Armstrong tenders or exchanges such Reference
Securities. In the case of a partial tender or exchange offer with respect to
Reference Securities of a particular type, the Reference Property per PEPS
shall be deemed to include the amount of cash or other property paid by the
offeror in such tender or exchange offer with respect to such Reference
Securities in an amount determined as if the offeror had purchased or
exchanged such Reference Securities in the proportion in which all property of
such type was purchased or exchanged from the holders thereof; provided that
if Armstrong tenders all its Reference Securities of such type, the amount of
cash or other property received that will constitute Reference Property per
PEPS will be determined on the basis of the amount of such cash or other
property actually received by Armstrong. Except as provided above, in the
event of a tender or exchange offer with respect to Reference Securities in
which an offeree may elect to receive cash or other property, the Reference
Property per PEPS shall be deemed to include the kind and amount of cash and
other property received by offerees who elect to receive cash.
If an issuer of a Reference Security shall distribute to all holders of such
Reference Security rights, warrants or other securities entitling them, for a
period expiring prior to the fifteenth calendar day following the Exchange
Date, to subscribe for, purchase or exchange such rights, warrants or
securities for any of its securities or other property, then the Reference
Property per PEPS shall be deemed to include (whether or not Armstrong
exercises such rights, warrants or securities) an amount in cash equal to the
Then-Current Value as of the earlier of (x) the expiration date of such
rights, warrants or securities or (y) the Exchange Date (such Business Day,
the "Warrant Valuation Date") of each such right, warrant or security
multiplied by the product of (A) the number of such rights, warrants or
securities issued for each unit of such Reference Security and (B) the number
of units (or fractional units) of such Reference Security constituting
Reference Property per PEPS.
If cash is received, or deemed received, from time to time in respect of any
property consisting of Reference Property per PEPS, the amount of such cash at
any date of determination shall be increased by an amount per annum equal to
the Applicable Treasury Rate (as defined below) on such cash from the date
such cash was received or deemed received, to such date of determination.
CERTAIN DEFINITIONS
"Reference Property per PEPS" initially means one share of Dal-Tile Common
Stock and shall be subject to adjustment from time to time prior to the second
Business Day immediately preceding the Exchange Date to reflect the addition
or substitution of any cash, securities and/or other property resulting from
the application of the adjustment provisions described above under "--
Reference Property Adjustments."
"Reference Property Value" means the aggregate Then-Current Value as of the
Exchange Date of the number or amount of each type of Reference Property per
PEPS.
"Then-Current Value" means for any item of Reference Property per PEPS as of
any date, (a) if such item of Reference Property per PEPS consists of cash,
the amount of such cash, (b) if such item of Reference Property per PEPS
consists of property other than cash or Reference Securities, the fair market
value of such property (as determined by a nationally recognized independent
investment banking firm retained for this purpose by Armstrong) as of 10:00
a.m., New York City time, on the third Business Day immediately preceding such
date, and (c) if such item of Reference Property per PEPS consists of a
Reference Security, an amount equal to the average Closing Price per unit of
such Reference Security on the 20 Trading Days immediately prior to, but not
including, the second Business Day immediately preceding such date.
"Reference Security" means, at any time, any security (as defined in Section
2(1) of the Securities Act) then constituting part of the Reference Property
per PEPS.
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The "Closing Price" of any Reference Security on any date of determination
means the closing sale price (or, if no closing sale price is reported, the
reported last sale price) of such Reference Security on the NYSE as of the end
of the regular session, as reported on the Consolidated Tape, Network A, on
such date or, if such Reference Security is not admitted for quotation on the
NYSE on any such date, as reported in the composite transactions for the
principal United States securities exchange on which such Reference Security
is so listed, or if such Reference Security is not so listed on a United
States national or regional securities exchange, as reported by the Nasdaq
National Market, or if such Reference Security is not so reported, as reported
by the National Association of Securities Dealers, Inc. Automated Quotation
System, or, if such Reference Security is not so reported, the last quoted bid
price for such Reference Security in the over-the-counter market as reported
by the National Quotation Bureau or similar organization, or if such bid price
is not available, the market value of such Reference Security on such date as
determined by a nationally recognized independent investment banking firm
retained for this purpose by Armstrong.
"Trading Day" means any day on which the Reference Security the Closing
Price of which is being determined (a) is not suspended from trading on any
national or regional securities exchange or association or over-the-counter
market at the close of business and (b) has traded at least once on the
national or regional securities exchange or association or over-the-counter
market that is the primary market for the trading of such Reference Security.
"Business Day" means any day that is not a Saturday, a Sunday or a day on
which the NYSE or banking institutions or trust companies in The City of New
York are authorized or obligated by law or executive order to close.
"Extraordinary Cash Dividend" means, with respect to any Reference Security
consisting of capital stock, any distribution consisting of cash on such
Reference Security, excluding any quarterly cash dividend on such Reference
Security to the extent that the aggregate cash dividend per share of such
Reference Security in any quarter does not exceed the greater of (a) the
amount per share of such Reference Security equal to the next preceding
quarterly cash dividend on such Reference Security to the extent that such
preceding quarterly dividend did not constitute an Extraordinary Cash Dividend
and (b) 3.75 percent of the Closing Price of such Reference Security as of the
date of declaration of such dividend, and excluding any dividend or
distribution in connection with the liquidation, dissolution or winding up of
the issuer of such Reference Security.
"Applicable Treasury Rate," with respect to any cash received or deemed
received with respect to Reference Property per PEPS, means the Reference
Treasury Quotation, as of the date such cash was received or deemed received,
on the Reference Treasury Strip. "Reference Treasury Strip" means the stripped
principal Treasury note for which one or more Reference Treasury Quotations
are available with a maturity date on or, if no such stripped principal
Treasury note is then quoted, next preceding the Exchange Date.
"Reference Treasury Quotation" means the average of the bid and asked yields
to maturity for the Reference Treasury Strip as quoted by three primary U.S.
Government securities dealers in New York City selected by Armstrong, one of
which shall be Morgan Stanley & Co. Incorporated.
REDEMPTION
The PEPS are not subject to redemption prior to the Exchange Date.
HYPOTHETICAL EXCHANGE AMOUNTS
For illustrative purposes only, the following table shows the number of
shares of Dal-Tile Common Stock or, where permitted by applicable law, the
amount of cash that a holder would receive for each PEPS at various Reference
Property Values. The table assumes that there will be no Reference Property
adjustments as described above under the caption, "--Reference Property
Adjustments" and, accordingly, that on the Exchange Date the Reference
Property per PEPS will consist of one share of Dal-Tile Common Stock. There
can be no assurance
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that the Reference Property Value will be within the range set forth below.
Given an Initial Price of $ and a Threshold Appreciation Price of $ ,
a holder of PEPS would receive on or shortly after the Exchange Date the
number of shares of Dal-Tile Common Stock (or, if Armstrong were to so elect,
the amount of cash) per PEPS set forth below:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
REFERENCE PROPERTY VALUE DAL-TILE COMMON STOCK AMOUNT OF CASH
- - ------------------------ --------------------- --------------
<S> <C> <C>
$ $
</TABLE>
FRACTIONAL SHARES
No fractional units of any Reference Security will be delivered if Armstrong
exchanges the PEPS for Reference Property. In lieu of any fractional unit
otherwise issuable in respect of all PEPS of any holder which are exchanged at
maturity, such holder shall be entitled to receive an amount in cash equal to
the value of such fractional unit based on the Then-Current Value as of the
third Business Day immediately preceding the Exchange Date.
SECTION 16(C) OF THE EXCHANGE ACT
The terms of the PEPS will provide that so long as Armstrong is subject to
Section 16 of the Exchange Act with respect to the Dal-Tile Common Stock or
any other Reference Securities, it will not engage in any transaction that
will violate paragraph (c) of Section 16 with respect to the PEPS, the Dal-
Tile Common Stock or any other Reference Securities.
NO PLEDGE OR SECURITY INTEREST IN DAL-TILE COMMON STOCK
Other than as set forth above under the caption, "--Section 16(c) of the
Exchange Act," the Indenture does not contain any restriction on the ability
of Armstrong to sell, pledge or otherwise convey all or any portion of the
Dal-Tile Common Stock held by it or its subsidiaries, and no such shares of
Dal-Tile Common Stock will be pledged or otherwise held in escrow for use on
the Exchange Date of the PEPS. Consequently, in the event of a bankruptcy,
insolvency or liquidation of Armstrong or its subsidiaries, the Dal-Tile
Common Stock, if any, owned by Armstrong or its subsidiaries will be subject
to the claims of the creditors of Armstrong or its subsidiaries, respectively.
In addition, as described herein, Armstrong will have the option, exercisable
in its sole discretion, to satisfy its obligations with respect to the
principal amount of each PEPS on the Exchange Date by delivering to holders of
the PEPS either the specified number of shares of Dal-Tile Common Stock (or
the number or amount of other Reference Property per PEPS) or cash in an
equivalent amount.
In the event of any sale, pledge or other conveyance of the Dal-Tile Common
Stock held by Armstrong or its subsidiaries, a holder of the PEPS may be more
likely to receive cash in lieu of Dal-Tile Common Stock (or other Reference
Property). As a result, there can be no assurance that Armstrong will elect to
deliver Dal-Tile Common Stock (or other Reference Property) on the Exchange
Date or, if it does so elect, that it will use all or any portion of its
current holdings of Dal-Tile Common Stock to make such delivery.
Holders of the PEPS will not be entitled to any rights with respect to Dal-
Tile Common Stock (or any other Reference Property), including (without
limitation) voting rights and rights to receive any dividends or other
distributions in respect thereof, until such time, if any, as Armstrong shall
have delivered shares of Dal-Tile Common Stock (or other Reference Property)
to holders of PEPS on the Exchange Date (or earlier maturity) and the
applicable Regular Record Date, if any, for the exercise of such rights occurs
after such date.
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EVENTS OF DEFAULT
Each of the following will constitute an "Event of Default" under the
Indenture with respect to the PEPS: (i) Armstrong's failure to exchange each
PEPS for the Exchange Amount per PEPS of Reference Property per PEPS when due
or, if Armstrong so elected, to pay an amount in cash in lieu thereof when
due, (ii) failure to pay any interest on any PEPS when due, and continuance of
such failure for a period of 30 days, (iii) a court having jurisdiction in the
premises shall enter a decree or order for relief in respect of Armstrong in
an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of Armstrong
or for any substantial part of its property, or ordering the winding-up or
liquidation of its affairs, and such decree shall remain unstayed and in
effect for a period of 60 consecutive days, (iv) Armstrong shall commence a
voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or shall consent to the entry of an order for
relief in an involuntary case under any such law, or shall consent to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or similar official) of Armstrong or for any
substantial part of its property, or shall fail generally to pay its debt as
they become due or shall take any corporate action in futherance of any of the
foregoing (v) failure to observe the covenant of Armstrong regarding
compliance with Section 16(c) of the Exchange Act or (vi) failure to perform
any other covenant of Armstrong in the Indenture (other than a covenant
included in the Indenture solely for the benefit of a series of securities
other than the PEPS) continued for sixty (60) days after written notice has
been given by the Trustee or holders of at least 25% of the aggregate Issue
Price of the PEPS outstanding.
If an Event of Default (other than an Event of Default resulting from
certain events in bankruptcy, insolvency or reorganization (an "Insolvency
Event of Default")) with respect to the PEPS shall occur and be continuing,
either the Trustee or the holders of at least 25% of the aggregate principal
amount of the outstanding PEPS by notice as provided in the Indenture may
declare the principal amount of each PEPS to be immediately due and payable in
an amount equal to the Acceleration Value per PEPS (as defined below). If an
Insolvency Event of Default with respect to the PEPS shall occur, the
principal amount of each PEPS will automatically, and without any action by
the Trustee or any holder, become immediately due and payable in an amount
equal to the Acceleration Value per PEPS.
"Acceleration Value per PEPS" means the aggregate Then-Current Value as of
the date of acceleration of the PEPS of the aggregate number or amount of each
type of Reference Property per PEPS that would be required to be delivered on
such date if the Exchange Date were redefined to be the date of acceleration
of the PEPS.
No holder will have any right to institute any proceeding with respect to
the Indenture, or for the appointment of a receiver or a trustee, or for any
remedy thereunder, unless (i) such holder has previously given written notice
to the Trustee of a continuing Event of Default with respect to the PEPS, (ii)
the holders of at least 25% in aggregate principal amount of the PEPS shall
have made written request, and such holder or holders have offered reasonable
indemnity, to the Trustee to institute such proceeding as Trustee and (iii)
the Trustee has failed to institute such proceeding, and has not received from
the holders of a majority in aggregate principal amount of the PEPS a
direction inconsistent with such request, within 60 days after such notice,
request and offer. However, such limitations do not apply to a suit instituted
by a holder of PEPS for the enforcement of the exchange of the PEPS for
Reference Property (or, if Armstrong so elects, the payment of cash in lieu
thereof) on or after the Exchange Date or for the payment of interest on the
PEPS on or after the due date thereof.
Armstrong further covenants in the Indenture that, if the Exchange Amount
per PEPS, or if Armstrong shall have elected to deliver cash in lieu thereof,
the Then-Current Value as of the Exchange Date of the Exchange Amount per PEPS
in cash, or any interest due on the Exchange Date is not delivered or paid in
respect of any PEPS on the Exchange Date, Armstrong will, upon demand of the
Trustee, pay to it, for the benefit of the holders of such PEPS, the Exchange
Amount per PEPS then due and payable on such PEPS, the whole amount of
interest then due and payable on such PEPS and, to the extent that payment of
such interest shall be legally enforceable, interest on any Exchange Amount
per PEPS or the Then-Current Value as of the Exchange Date of the Exchange
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<PAGE>
Amount per PEPS in cash, as the case may be, that is overdue and on any
overdue interest, at the rate borne by the PEPS, and, in addition thereto,
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
At any time after such a declaration of acceleration has been made or an
Insolvency Event of Default has occurred, and before a judgment or decree for
payment of the money due has been obtained by the Trustee as provided in the
Indenture, the holders of a majority of the aggregate principal amount
outstanding of the PEPS, by written notice to Armstrong and the Trustee, may
rescind and annul such declaration or Event of Default and its consequences
if:
(1) Armstrong has paid or deposited with the Trustee a sum sufficient to
pay
(A) all overdue installments of interest on all PEPS,
(B) to the extent that payment of such interest is lawful, interest
upon overdue installments of interest at the rate borne by the
PEPS, and
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel; and
(2) all Events of Default with respect to the PEPS, other than the non-
payment of an amount equal to the Acceleration Value of the PEPS due
solely by reason of such declaration of acceleration or an Insolvency
Event of Default specified in the Indenture, have been cured or waived
as provided in the Indenture.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SAME DAY FUNDS SETTLEMENT SYSTEM AND PAYMENT
Settlement for the PEPS in cash will be made by the Underwriters in
immediately available funds. All payments of principal and interest with
respect to a PEPS will be made by Armstrong in immediately available funds.
The PEPS will trade in DTC's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the PEPS will therefore be
required by DTC to settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available funds
on trading activity in the PEPS.
BOOK-ENTRY, DELIVERY AND FORM
The PEPS will be issued in the form of one or more fully registered Global
Notes. The Global Notes will be deposited with, or on behalf of, DTC and
registered in the name of DTC's nominee. Except as set forth below, the Global
Notes may be transferred, in whole and not in part, only to another nominee of
DTC or to a successor of DTC or its nominee.
DTC has advised Armstrong and the Underwriters as follows: DTC is a limited-
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities of its participants (as described below) and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. DTC's participants include securities
brokers and dealers (including the Underwriters), banks, trust companies,
clearing corporations, and certain other organizations, some of whom (and/or
their representatives) own DTC. Access to DTC's book-entry system is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
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Upon the issuance of a Global Note, DTC will credit on its book entry
registration and transfer system the respective numbers of the PEPS
represented by such Global Notes to the accounts of institutions that have
accounts with DTC ("participants"). The accounts to be credited upon issuance
shall be designated by the Underwriter through which such PEPS were sold.
Ownership of beneficial interests in such Global Notes will be limited to
participants or persons that may hold interests through participants.
Ownership of beneficial interests in such Global Notes will be shown on, and
the transfer of that ownership will be effected only through, records
maintained by DTC for such Global Notes or by participants or persons that
hold interests through participants. The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Note.
So long as DTC or its nominee, is the owner of the Global Notes, DTC or such
nominee, as the case may be, will be considered the sole owner or holder of
the PEPS represented by such Global Notes for all purposes under the
Supplemental Indenture. Except as set forth below, owners of beneficial
interests in a Global Note will not be entitled to have PEPS represented by
such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of PEPS in definitive form and will not be
considered the owners or holders thereof under the Supplemental Indenture.
DTC has advised Armstrong that it will take any action permitted to be taken
by an owner or holder of PEPS only at the direction of one or more
participants to whose account with DTC such owner's PEPS are credited.
Additionally, DTC has advised Armstrong that it will take such actions with
respect to any percentage of the beneficial interest of owners who hold PEPS
through participants only at the direction of and on behalf of participants
whose account holders include undivided interests that satisfy any such
percentage. DTC may take conflicting actions with respect to other undivided
interests to the extent that such actions are taken on behalf of participants
whose account holders include such undivided interests.
Payments of interest on PEPS registered in the name of or held by DTC or its
nominee will be made to DTC or its nominee, as the case may be, as the
registered owner or the holder of the Global Notes representing such PEPS.
None of Armstrong, the Underwriters, the Trustee, any paying agent or the
security registrar for the PEPS will have any responsibility or liability for
any aspect of the records relating to or payments made on account of
beneficial ownership interests in a Global Note for such PEPS or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests, except with respect to any certifications as may be
required with respect to Armstrong's election to deliver cash in lieu of
Reference Property upon maturity of the PEPS.
Armstrong expects that DTC, upon receipt of any delivery of securities or
other property or payment of cash in respect of a Global Note, will credit
immediately participants' accounts with such delivery or payments in amounts
proportionate to their respective beneficial interests in such Global Notes as
shown on the records of DTC. Armstrong also expects that such delivery or
payments by participants to owners of beneficial interests in such Global
Notes held through such participants will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers in bearer form or registered in "street name," and will
be the responsibility of such participants. Accordingly, although owners who
hold PEPS through participants will not possess PEPS, the participants provide
a mechanism by which holders of PEPS will receive securities or payments and
will be able to transfer their interests.
If DTC is at any time unwilling or unable to continue as depository of the
Global Notes and a successor depository is not appointed by Armstrong within
ninety days, Armstrong will issue PEPS in definitive form in exchange for the
Global Note or Notes representing such PEPS. In addition, Armstrong may at any
time determine not to have the PEPS represented by the Global Notes and, in
such event, will issue PEPS in definitive form in exchange for the Global
Notes. In either instance, an owner of a beneficial interest in a Global Note
will be entitled to have PEPS equal in number to such beneficial interest
registered in its name and will be entitled to physical delivery of such PEPS
in definitive form.
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MODIFICATION AND WAIVER
In addition to the provisions relating to modifications of and amendments to
the Indenture affecting the PEPS set forth under the caption, "Description of
Debt Securities--Modification and Waiver" in the accompanying Prospectus of
Armstrong, no modification or amendment of the Indenture may, without the
consent of the holder of each PEPS affected thereby (a) reduce the amount of
Reference Property to be exchanged for any PEPS on the Exchange Date (or
reduce the amount of cash payable in lieu thereof) or (b) impair the right to
institute suit for the enforcement of the exchange of Reference Property for
any PEPS.
NOTICES
Notice to holders of PEPS will be given by mail to Cede & Co. Conveyance of
notices and other communications by DTC to its participants and by
participants to beneficial owners of the PEPS will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
LISTING
The PEPS will not be listed on any national securities exchange or any
automated inter-dealer quotation system.
UNITED STATES TAXATION
The following discussion is based upon the advice of Armstrong's tax
counsel, Buchanan Ingersoll Professional Corporation, as to certain of the
material U.S. federal income tax consequences that may be relevant to a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized under the laws of the United States and an estate
or trust the income of which is subject to U.S. federal income taxation
regardless of its source (any of the foregoing, a "U.S. Person") who is the
beneficial owner of a PEPS (a "U.S. Holder"). All references to "holders"
(including U.S. Holders) are to beneficial owners of the PEPS. This summary is
based on U.S. federal income tax laws, regulations, rulings and decisions in
effect as of the date of this Prospectus Supplement, all of which are subject
to change at any time (possibly with retroactive effect). Because the law is
technical and complex, the discussion below necessarily represents only a
general summary.
This summary addresses the U.S. federal income tax consequences to U.S.
Holders who are initial holders of the PEPS and who will hold the PEPS and, if
applicable, the Dal-Tile Common Stock as capital assets within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code").
This summary does not address all aspects of federal income taxation that may
be relevant to a particular holder in light of the holder's individual
investment circumstances or to certain types of holders subject to special
treatment under the U.S. federal income tax laws, such as dealers in
securities or foreign currency, financial institutions, insurance companies,
tax-exempt organizations and taxpayers holding the PEPS as part of a
"straddle," "hedge," "conversion transaction," "synthetic security," or other
integrated investment. Moreover, the effect of any applicable state, local or
foreign tax laws is not discussed.
No statutory, judicial or administrative authority directly addresses the
characterization of the PEPS or instruments similar to the PEPS for U.S.
federal income tax purposes. As a result, significant aspects of the U.S.
federal income tax consequences of an investment in the PEPS are not certain.
No ruling is being requested from the Internal Revenue Service (the "IRS")
with respect to the PEPS and no assurance can be given that that the IRS will
agree with the conclusions expressed herein. ACCORDINGLY, A PROSPECTIVE
INVESTOR (INCLUDING A TAX-EXEMPT INVESTOR) IN THE PEPS SHOULD CONSULT ITS TAX
ADVISOR IN DETERMINING THE TAX CONSEQUENCES OF AN INVESTMENT IN THE PEPS,
INCLUDING THE APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
Pursuant to the terms of the Indenture, Armstrong and every holder of a PEPS
will be obligated (in the absence of an administrative determination or
judicial ruling to the contrary) to characterize a PEPS for all tax
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purposes as an investment unit consisting of two components: (i) a forward
purchase contract to purchase Dal-Tile Common Stock on maturity (including as
a result of acceleration or otherwise), and (ii) a deposit securing such
forward purchase contract. Under this characterization: (a) at the time of
issuance of the PEPS the holder deposits irrevocably with Armstrong a fixed
amount of cash equal to the purchase price of the PEPS to assure the
fulfillment of the holder's purchase obligation described in clause (c) below,
(b) until maturity Armstrong will be obligated to pay interest on the deposit
at a rate equal to the stated rate of interest on the PEPS as compensation to
the holder for Armstrong's use of the cash deposit during the term of the
PEPS, and (c) on the Exchange Date the cash deposit unconditionally and
irrevocably will be applied by Armstrong in full satisfaction of the holder's
obligation under the forward purchase contract, and Armstrong will deliver to
the holder the number of shares of Dal-Tile Common Stock that the holder is
entitled to receive at the time pursuant to the terms of the PEPS (subject to
Armstrong's right to deliver cash in lieu of shares of Dal-Tile Common Stock).
Consistent with the above characterization, (i) amounts paid to Armstrong in
respect of the original issue of a PEPS will be treated as allocable in their
entirety to the amount of the cash deposit attributable to such PEPS, and (ii)
amounts denominated as interest that are payable with respect to the PEPS will
be characterized as interest payable on the amount of such deposit, includible
annually in the income of a U.S. Holder as interest income in accordance with
the holder's method of accounting. The allocation to the deposit of all
amounts paid to Armstrong in respect to the original issue of the PEPS is
subject to challenge by the IRS. If as a result of such challenge, any amount
is allocated to the forward contract, the deposit might be treated as having
original issue discount. In addition, if the coupon interest payments on the
PEPS are below the rate (which Armstrong believes to be an annual rate of %,
compounded quarterly) at which Armstrong would issue a fixed-rate debt
instrument having similar terms and conditions (including the level of
subordination, term, timing of payments and general market conditions), the
PEPS will be treated as having original issue discount. In that event, a U.S.
Holder will be required to include in income OID as it accrues, in accordance
with a constant-yield method, in an aggregate amount equal to the difference
between the stated principal amount of the PEPS and the deemed issue price of
the deposit. However, if the total amount of OID attributable to the PEPS is
less than three-fourths of one percent of the stated principal amount of the
PEPS, the amount of OID attributable to the deposit will constitute "de
minimis OID," and a U.S. Holder generally will include such de minimis OID in
income at maturity (and not over the term of the PEPS). A U.S. Holder's tax
basis in the deposit will increase over its term by the amount of OID included
in such holder's income with respect to the PEPS. (Prospective investors
should note that cash proceeds of this offering will not be segregated by
Armstrong during the term of the PEPS, but instead will be commingled with
Armstrong's other assets and applied in a manner consistent with the "Use of
Proceeds" discussion above.) See "Use of Proceeds."
Under the above characterization of the PEPS, a holder's tax basis in a PEPS
generally will equal the holder's cost for that PEPS. Upon the sale or other
taxable disposition of a PEPS, a U.S. Holder generally will recognize gain or
loss equal to the difference between the amount realized on the sale of other
taxable disposition and the U.S. Holder's tax basis in the PEPS. Such gain or
loss realized on a disposition of a PEPS may be long-term capital gain or loss
depending on the holding period of the PEPS. Capital gains of individuals are
eligible for reduced rates of taxation depending upon the holding period of
such capital assets. The deductibility of capital losses is subject to
limitations.
Under the above characterization of the PEPS, if Armstrong delivers Dal-Tile
Common Stock on the Exchange Date, a U.S. Holder will recognize no gain or
loss on the purchase of Dal-Tile Common Stock against application of the
monies received by Armstrong in respect of the PEPS. A U.S. Holder will have a
tax basis in such stock equal to the U.S. Holder's tax basis in the PEPS (less
the portion of the tax basis of the PEPS allocable to any fractional share, as
described below). A U.S. Holder's holding period in such stock will begin the
day after maturity. A U.S. Holder will recognize gain or loss (which will be
short-term capital gain or loss) with respect to cash received in lieu of
fractional shares, in an amount equal to the difference between the cash
received and the portion of the basis of the PEPS allocable to fractional
shares (based on the relative number of fractional shares and full shares
delivered to the holder). If on the Exchange Date Armstrong redeems the PEPS
in cash, a U.S. Holder will recognize capital gain or loss equal to any
difference between the amount of cash received from Armstrong and the U.S.
Holder's tax basis in the PEPS at that time. Such gain or loss may be long-
term capital gain or loss depending on the holding period of the PEPS as
described above.
S-26
<PAGE>
Due to the absence of authority as to the proper characterization of the
PEPS, no assurance can be given that the IRS will accept, or that a court will
uphold, the characterization and tax treatment described above. In particular,
the IRS could seek to analyze the federal income tax consequences of owning a
PEPS under Treasury regulations promulgated in June 1996 governing contingent
payment debt instruments (the "Contingent Payment Regulations"). The
Contingent Payment Regulations apply to debt instruments issued on or after
August 13, 1996. The Contingent Payment Regulations are complex, but very
generally apply the original issue discount rules of the Internal Revenue Code
to a contingent payment debt instrument by requiring that original issue
discount be accrued every year at a "comparable yield" for the issuer of the
instrument, determined at the time of issuance of the obligation. In addition,
the Contingent Payment Regulations require that a projected payment schedule,
resulting in such "comparable yield," be determined, and that adjustments to
income accruals be made to account for differences between actual payments and
projected amounts. To the extent that the comparable yield as so determined
exceeds the interest actually paid on a contingent debt instrument, the holder
of that instrument recognizes ordinary interest income in excess of the cash
the holder receives. In addition, any gain realized on the sale, exchange or
redemption of a contingent payment debt instrument is treated as ordinary
income. Any loss realized on such sale, exchange or redemption is treated as
an ordinary loss to the extent the holder's original issue discount inclusions
with respect to the obligation exceed prior reversals of such inclusions
required by the adjustment mechanism described above. Any loss realized in
excess of such amount generally is treated as a capital loss.
Armstrong believes that the Contingent Payment Regulations do not apply to
the PEPS on the Exchange Date because those Regulations apply only to debt
instruments that provide for contingent payments. The PEPS are redeemed by the
delivery of shares of Dal-Tile Common Stock (unless Armstrong exercises its
option to deliver cash on the Exchange Date) and provide economic returns that
are related to the performance of Dal-Tile Common Stock. The PEPS therefore
offer no assurance that a holder's investment will be returned to the holder
on the Exchange Date. Accordingly, Armstrong believes that the PEPS properly
are characterized for tax purposes, not as debt instruments, but as forward
purchase contracts in respect of which holders have deposited a fixed amount
of cash with Armstrong, on which interest is payable at a fixed rate. If,
however, the IRS were to argue successfully that the Contingent Payment
Regulations applied to the PEPS, then, among other matters, (i) gain realized
by a holder on the sale or other taxable disposition of a PEPS (including as a
result of payments made on the Exchange Date) generally would be characterized
as ordinary income, rather than as short- or long-term capital gain (depending
on the holding period of the PEPS at the time of such disposition), and (ii) a
U.S. Holder would recognize ordinary income, or ordinary or capital loss (as
the case may be, under the rules summarized above) on the receipt of shares of
Dal-Tile Common Stock, rather than capital gain or loss upon the ultimate sale
of such shares.
Even if the Contingent Payment Regulations do not apply to the PEPS, it is
possible that the IRS could seek to characterize the PEPS in a manner that
results in tax consequences to initial holders of the PEPS different from
those reflected in the Indenture and described above.
NON-UNITED STATES PERSONS
Generally, under the above characterization of the PEPS, in the case of a
holder of the PEPS that is not a U.S. Person, payments made with respect to
the PEPS should not be subject to U.S. withholding tax, provided that such
holder complies with applicable certification requirements. However, if
interest payments on the PEPS exceed the rate (which Armstrong believes to be
an annual rate of %, compounded quarterly) at which Armstrong would issue a
fixed-rate debt instrument having similar terms and conditions (including the
level of subordination), amounts received with respect to PEPS by a Non-U.S.
Holder are likely to be treated as ordinary income other than interest to the
extent of such excess. As such, U.S. federal withholding would apply and be
imposed on such amounts. In such event, it is possible that such amounts would
be treated as "other income" exempt from withholding under certain income tax
treaties of the United State if a Form 1001 (or a suitable substitute form)
were furnished by such holder. Moreover, it is possible that the IRS will seek
to recharacterize a PEPS as a pre-paid forward contract, in which case all
interest payments on the PEPS could be subject to U.S.
S-27
<PAGE>
federal withholding tax unless a provision of a relevant income tax treaty
applies. Any capital gain realized upon the sale or other disposition of the
PEPS by a holder that is not a U.S. Person will generally not be subject to
U.S. federal income tax if (i) such gain is not effectively connected with a
U.S. trade or business of such holder and (ii) in the case of an individual,
such individual is not present in the United States for 183 days or more in
the taxable year of the sale or other disposition or the gain is not
attributable to a fixed place of business maintained by such individual in the
United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of the PEPS may be subject to information reporting and to backup
withholding at a rate of 31 percent of certain amounts paid to the holder
unless such holder provides proof of an applicable exemption or a correct
taxpayer identification number, and otherwise complies with applicable
requirements of the backup withholding rules. Any amounts withheld under the
backup withholding rules are not an additional tax and may be refunded or
credited against the U.S. Holder's U.S. federal income tax liability, provided
the required information is furnished to the IRS.
S-28
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the
Underwriters named below have severally agreed to purchase, and Armstrong has
agreed to sell to them, the number of PEPS set forth opposite the names of
such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF PEPS
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated.....................................
Smith Barney Inc......................................................
---------
Total............................................................... 7,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the PEPS offered hereby are
subject to the approval of certain legal matters by counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all the
PEPS offered hereby, if any are taken.
The Underwriters propose to offer part of the PEPS directly to the public at
the public offering price set forth on the cover page hereof and part to
certain dealers at a price that represents a concession not in excess of %
of the public offering price. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of % of the public offering price of
the PEPS to other Underwriters or certain dealers. After the initial offering
of the PEPS, the offering price and other selling terms may from time to time
be varied by the Underwriters.
Dal-Tile, Armstrong and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
Armstrong has granted to the Underwriters an option, exercisable for 30 days
from the date of the Prospectus Supplement, to purchase up to 1,050,000
additional PEPS at the price set forth on the cover page of this Prospectus
Supplement, less underwriting discounts and commissions. The Underwriters may
exercise such option solely for the purpose of covering over-allotments, if
any, incurred in the sale of the PEPS offered hereby. To the extent such
option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional PEPS as the number set forth next to such Underwriter's name in the
preceding table bears to the total number of PEPS set forth next to the names
of all Underwriters in the preceding table.
Each of Armstrong, AEI, Dal-Tile, Dal-Tile's directors and executive
officers (for so long as they remain in such capacities) and DTI Investors has
agreed that without the prior written consent of Morgan Stanley & Co.
Incorporated, it will not during the period ending 90 days after the date of
the Prospectus Supplement (1) offer, pledge, loan, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Dal-Tile Common Stock or any
securities convertible into or exercisable or exchangeable for Dal-Tile Common
Stock (whether such shares or any securities are then owned by such person or
are thereafter acquired directly from Dal- Tile), (2) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of the ownership of the Dal-Tile Common Stock, whether
any such transaction is to be settled by delivery of Dal-Tile Common Stock or
such other securities, in cash or otherwise, (3) in the case of Armstrong, AEI
and DTI Investors, make a demand or exercise any right with respect to a
registration of any shares of Dal-Tile Common Stock or any securities
convertible into, or exercisable or exchangeable for Dal-Tile Common Stock or
(4) in the case of Dal-Tile, file a registration statement with the Commission
for an offering of Dal-Tile Common Stock or any securities convertible into,
or exercisable or exchangeable for, Dal-Tile Common Stock (other than the
registration statement on Form S-8 or equivalent form) other than, with
respect to clauses (1), (2), (3) and (4) above, (i) the PEPS offered hereby,
(ii) the offer and sale of the shares of Dal-Tile Common Stock made in
connection with the Common Stock Offering and hereby and (iii) options to
purchase Dal-Tile Common Stock, or shares of Dal-Tile Common Stock issued upon
exercise of such options, granted under Dal-Tile's existing stock option and
stock purchase plans.
S-29
<PAGE>
In a concurrent transaction, Armstrong is offering 9,000,000 shares of Dal-
Tile Common Stock (plus an additional 1,315,822 shares to cover over-
allotments, if any) pursuant to a separate prospectus of Dal-Tile.
In order to facilitate the offering of the PEPS, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the price of the
PEPS or the Dal-Tile Common Stock. Specifically, the Underwriters may
overallot in connection with the offering, creating a short position in the
PEPS or the Dal-Tile Common Stock for their own account. In addition, to cover
over-allotments or to stabilize the price of the PEPS or the Dal-Tile Common
Stock, the Underwriters may bid for, and purchase, PEPS or shares of Dal-Tile
Common Stock in the open market. Finally, the underwriting syndicate may
reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the PEPS in the offering, if the syndicate repurchases previously
distributed PEPS in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the PEPS or the Dal-Tile Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
The PEPS will be a new issue of securities with no established trading
market and will not be listed on any national securities exchange or admitted
to trading in any automated securities quotation system. The Underwriters
intend to make a market in the PEPS, subject to applicable laws and
regulations. The Underwriters are not obligated to do so, however, and any
such market-making may be discontinued at any time at the sole discretion of
the Underwriters without notice. Accordingly, no assurance can be given as to
the liquidity of the market for the PEPS.
From time to time, certain of the Underwriters have provided, and continue
to provide, investment banking services to Armstrong and Dal-Tile.
LEGAL MATTERS
Certain matters with respect to the validity of the PEPS offered hereby will
be passed upon for Armstrong by Buchanan Ingersoll Professional Corporation,
Pittsburgh, Pennsylvania. Certain legal matters relating to the PEPS will be
passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated financial statements of Armstrong as of December 31, 1997
and 1996, and for each of the years in the three-year period ended December
31, 1997, have been incorporated by reference herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accounts,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the SEC by Armstrong under the
Exchange Act (file number 001-02116) are incorporated herein by reference: (1)
Armstrong's Annual Report on Form 10-K for the year ended December 31, 1997;
(2) Armstrong's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998; (3) Armstrong's Definitive Proxy Statement filed on March 16, 1998, (4)
Amendment No. 2 to Schedule 13D filed on February 27, 1998; and (5) Amendment
No. 3 to Schedule 13D filed on March 17, 1998.
All documents filed by Armstrong with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering or
offerings of the PEPS offered hereby shall be deemed to be incorporated by
reference in this Prospectus Supplement and to be part hereof from the date of
filing of such documents. Any statement incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus
Supplement to the
S-30
<PAGE>
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute part
of this Prospectus Supplement. All information appearing in this Prospectus
Supplement is qualified in its entirety by the information and financial
statements (including the notes thereto) contained in the documents
incorporated by reference herein.
Armstrong will provide without charge, upon written or oral request, to each
person, including any beneficial owner, to whom a copy of this Prospectus
Supplement and accompanying Prospectus of Armstrong is delivered, a copy of
any or all of the documents incorporated by reference in this Prospectus
Supplement and accompanying Prospectus of Armstrong (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into such documents). Requests should be directed to Deborah K. Owen, Senior
Vice-President, Secretary and General Counsel, Armstrong World Industries,
Inc., 313 West Liberty Street, Lancaster, PA 17603-2717 or by telephone at
(717) 397-0611.
S-31
<PAGE>
PROSPECTUS
$500,000,000
LOGO
Armstrong World Industries, Inc.
DEBT SECURITIES
COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES
---------------
Armstrong World Industries, Inc., a Pennsylvania corporation ("Armstrong" or
the "Company"), may offer and sell from time to time, together or separately,
up to an aggregate initial public offering price of $500,000,000 or the
equivalent thereof in other currencies, foreign currency units or composite
currencies such as the European Currency Unit (the "Specified Currency"),
subject to the limitations set forth below, in one or more series (a) debt
securities ("Debt Securities"), which may be either senior debt securities
("Senior Debt Securities") or subordinated debt securities ("Subordinated Debt
Securities"); (b) shares of common stock, $1.00 par value per share ("Common
Stock"), including Preferred Stock Purchase Rights which attach to each share
of Common Stock (the "Rights"); (c) shares of Class A preferred stock, no par
value per share ("Preferred Stock"); and (d) depositary shares ("Depositary
Shares") or any combination of the foregoing, each in amounts, at prices and
on terms to be determined at the time of sale. The Debt Securities, Common
Stock with attached Rights, Preferred Stock, and Depositary Shares are
collectively referred to herein as the "Securities".
All specific terms of the offering and sale of Securities, including the
initial public offering price, aggregate amount, listing on any securities
exchange or quotation system, risk factors, if any, and the agents,
underwriters or dealers, if any, to be utilized in connection with the sale of
the Securities, will be set forth in an accompanying Prospectus Supplement
("Prospectus Supplement"). With respect to the Debt Securities, the related
Prospectus Supplement will set forth the specific designation, rights and
restrictions, whether they are senior or subordinated, the currencies or
currency units or composite currencies in which they are denominated, the
aggregate principal amount, the maturity, rate and time of payment of
interest, any conversion, exchange, redemption or sinking fund provisions, and
any other terms of the Securities offered thereby. With respect to the
Preferred Stock, the related Prospectus Supplement will set forth the specific
designation, rights, preferences, privileges and restrictions thereof,
including dividend rate or rates (or method of ascertaining the same),
dividend payment dates, voting rights, liquidation preference, any conversion,
exchange, redemption or sinking fund provisions, and any other terms of the
Securities offered thereby. The Prospectus Supplement will also contain
information, where applicable, regarding certain United States federal income
tax considerations relating to the Securities offered thereby.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The Company may sell the Securities directly, or through agents,
underwriters or dealers designated from time to time, or through a combination
of such methods, which underwriters may include Morgan Stanley & Co.
Incorporated, Goldman, Sachs & Co. and Merrill Lynch & Co. or may be a group
of underwriters represented by firms including one or more of such firms and
such firms may act as agents. See "Plan of Distribution." If agents of the
Company or underwriters or any dealers are involved in the sale of Securities
in respect of which this Prospectus is being delivered, the name of such
agents, underwriters or dealers, and any applicable commissions or discounts,
will be set forth in or may be calculated from the Prospectus Supplement
relating to such Securities. The Company reserves the sole right to accept
and, together with their respective agents from time to time, to reject in
whole or in part any proposed purchase of Securities to be made directly or
through agents.
---------------
The Prospectus may not be used to consummate the sale of Securities unless
accompanied by a Prospectus Supplement.
November 1, 1996
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SECURITIES DESCRIBED HEREIN OR THEREIN OR AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THE PROSPECTUS
OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
----------------
TABLE OF CONTENTS
PAGE
Available Information....................................................... 3
Incorporation of Certain Documents by Reference............................. 3
The Company................................................................. 5
Use of Proceeds............................................................. 5
Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges
and Preferred Stock Dividends............................................... 5
Description of Debt Securities.............................................. 6
Description of Capital Stock................................................ 17
Description of Depositary Shares............................................ 22
Plan of Distribution........................................................ 24
Validity of Securities...................................................... 25
Experts..................................................................... 25
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK, PACIFIC AND/OR PHILADELPHIA
STOCK EXCHANGES. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
2
<PAGE>
AVAILABLE INFORMATION
Armstrong is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC" or the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Regional Offices of
the SEC located at Citicorp Center, Suite 1400, 500 West Madison Street, Room
1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New
York, New York 10048. Copies of such information can be obtained from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. Such reports, proxy statements and other
information concerning the Company can also be inspected at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, the
offices of the Pacific Stock Exchange, Inc., 301 Pine Street, San Francisco,
California 94104-7098, and the offices of the Philadelphia Stock Exchange,
1900 Market Street, Philadelphia, Pennsylvania 19103, on which exchanges
certain of Armstrong's securities are listed. Armstrong's Common Stock is
listed on the New York, Pacific and Philadelphia Stock Exchanges under the
symbol "ACK."
Armstrong has filed with the SEC two Registration Statements on Form S-3
(the "Registration Statements") under the Securities Act of 1933, as amended
(the "1933 Act"), with respect to the Securities. This Prospectus does not
contain all of the information set forth in the Registration Statements,
certain parts of which are omitted in accordance with the rules and
regulations of the SEC. Reference is hereby made to the Registration
Statements and related exhibits for further information with respect to the
Company and the Securities offered hereby. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the SEC. The Registration
Statements and the exhibits thereto may be inspected without charge at the
office of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies thereof may be obtained from the SEC at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding the Company that is electronically
filed through the Commission's Electronic Data Gathering, Analysis and
Retrieval system. Such information is publicly available through the
Commission's Web site (http://www. sec. gov.).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the SEC by Armstrong under the
1934 Act (file number 001-02116) are incorporated herein by reference: (1) the
Company's Annual Report on Form 10-K for the year ended December 31, 1995,
certain portions of which are superseded by the Company's Current Report on
Form 8-K filed on October 18, 1996; (2) the Company's Current Report on Form
8-K filed on January 16, 1996; (3) the Company's Current Report on Form 8-K
filed on January 16, 1996, as amended by a Form 8-K/A filed on March 13, 1996;
(4) the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, certain portions of which are superseded by the Company's Current
Report on Form 8-K filed on October 18, 1996; (5) the Company's Current Report
on Form 8-K filed on May 13, 1996; (6) the Company's Current Report on Form
8-K filed on July 29, 1996, and any amendments or reports filed for the
purpose of updating the Description of the Company's Capital Stock contained
in such report; (7) the description of the Company's Preferred Stock Purchase
Rights, set forth in the Registration Statement on Form 8-A/A dated March 15,
1996; (8) the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, certain portions of which are superseded by the Company's
Current Report on Form 8-K filed on October 18, 1996; (9) the Company's
Current Report on Form 8-K filed on October 15, 1996; and (10) the Company's
Current Report on Form 8-K filed on October 18, 1996.
All documents filed by Armstrong with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the 1934 Act subsequent to the date of this Prospectus
and prior to the termination of the offering or offerings of the Securities
offered hereby shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof
3
<PAGE>
from the date of filing of such documents. Any statement incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute part of this Prospectus. All information
appearing in this Prospectus is qualified in its entirety by the information
and financial statements (including the notes thereto) contained in the
documents incorporated by reference herein.
Armstrong will provide without charge, upon written or oral request, to each
person, including any beneficial owner, to whom a copy of this Prospectus is
delivered, a copy of any or all of the documents incorporated by reference in
this Prospectus (other than exhibits to such documents unless such exhibits
are specifically incorporated by reference into such documents). Requests
should be directed to L.A. Pulkrabek, Senior Vice-President, Secretary and
General Counsel, Armstrong World Industries, Inc., 313 West Liberty Street,
Lancaster, Pennsylvania 17603-2717 (telephone 717-397-0611).
[Remainder Of This Page Is Intentionally Left Blank]
4
<PAGE>
THE COMPANY
Armstrong World Industries, Inc. is a Pennsylvania corporation incorporated
in 1891. The Company is a manufacturer of interior furnishings, including
floor coverings, and building products 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. In late 1995, Armstrong sold its
furniture business and combined its ceramic tile business with Dal-Tile
International Inc. ("Dal-Tile"), retaining a minority equity interest in the
combined company. Unless the context indicates otherwise, the term "Company"
means Armstrong World Industries, Inc. and its consolidated subsidiaries.
USE OF PROCEEDS
Except as otherwise described in the Prospectus Supplement, Armstrong
intends to use the net proceeds from the sale of the Securities offered hereby
for general corporate purposes, which may include additions to working
capital, refinancing existing indebtedness, capital expenditures and possible
acquisitions. Armstrong has
not allocated a specific portion of the net proceeds for any particular use at
this time. Specific information concerning the use of proceeds from the sale
of any Securities may be included in the Prospectus Supplement relating to
such Securities.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the Company's consolidated ratios of earnings
to fixed charges for the indicated periods.(1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30, 1996
-------------------------------------------------------------------- ----------------
1991 1992 1993 1994 1995
---- ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
2.56 N/A(2) 2.49 8.70 1.20 7.59
</TABLE>
- - --------
(1) Excluding restructuring charges for all periods and the pre-tax loss on
the ceramic tile business combination for 1995, the ratios would have been
2.80, 2.89, 4.50, 8.70 and 7.40 for 1991, 1992, 1993, 1994 and 1995,
respectively.
(2) Earnings were inadequate to cover fixed charges by $66.3 million.
The following table sets forth the Company's consolidated ratio of earnings
to combined fixed charges and preferred dividends for the indicated
periods:(1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30, 1996
--------------------------------------------------------------- ----------------
1991 1992 1993 1994 1995
---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C>
1.88 N/A(2) 1.74 5.61 N/A(3) 4.79
</TABLE>
- - --------
(1) Excluding restructuring charges for all periods and the pre-tax loss on
the ceramic tile business combination for 1995, the ratios would have been
2.05, 2.08, 3.14, 5.61 and 5.04 for 1991, 1992, 1993, 1994 and 1995,
respectively.
(2) Earnings were inadequate to cover fixed charges and preferred stock
dividends by $85.6 million.
(3) Earnings were inadequate to cover fixed charges plus preferred stock
dividends by $10.6 million.
5
<PAGE>
The ratio of earnings to fixed charges has been computed by dividing
earnings by fixed charges. The ratio of earnings to fixed charges and
preferred stock dividends has been computed by dividing earnings by the sum of
fixed charges and preferred stock dividend requirements. For purposes of
calculating these ratios, earnings consist of consolidated earnings from
continuing business operations before income taxes plus fixed charges. Fixed
charges consist of interest expense, one-third of rent expense which is deemed
to be representative of interest and amortization of finance costs. In June
1989, the Company established an Employee Stock Ownership Plan (the "ESOP").
The Company is the guarantor of a $270 million loan to the ESOP. Contributions
made by the Company to the ESOP and dividends paid by the Company on the
convertible preferred stock purchased by the ESOP are used by the ESOP to pay
installments of principal and interest on the ESOP loan. Such contributions
and dividends are not included in the above ratios of earnings to fixed
charges or ratios to combined fixed charges and preferred stock dividends.
Interest expense on the ESOP loan was approximately $23.2 million, $22.9
million, $22.3 million, $21.7 million and $21.0 million for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995, respectively. Part of the
contributions made by the Company represent payroll deductions made by
participants in the ESOP.
DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities are to be issued under an Indenture, dated as of
August 6, 1996 (the "Senior Indenture"), between the Company and Mellon Bank,
N.A. , as Trustee (the "Trustee" or "Mellon"). The Subordinated Debt
Securities are to be issued under a separate Indenture, dated as of August 6,
1996 (the "Subordinated Indenture"), also between the Company and Mellon as
Trustee. The Senior Indenture and Subordinated Indenture are sometimes
referred to collectively as the "Indentures". Copies of the Senior Indenture
and Subordinated Indentures are filed as exhibits to the Registration
Statement of which this Prospectus is a part. The Debt Securities may be
issued from time to time in one or more series. The particular terms of each
series, or of Debt Securities forming a part of a series, which are offered by
a Prospectus Supplement will be described in such Prospectus Supplement.
The following summaries of certain provisions of the Indentures do not
purport to be complete and are subject, and are qualified in their entirety by
reference, to all the provisions of the Indentures, including the definitions
therein of certain terms, and, with respect to any particular Debt Securities,
to the description of the terms thereof included in the Prospectus Supplement
relating thereto. Wherever particular Sections or defined terms of the
Indentures are referred to herein or in a Prospectus Supplement, such Sections
or defined terms are incorporated by reference herein or therein, as the case
may be.
GENERAL
The Indentures will provide that Debt Securities in separate series may be
issued thereunder from time to time without limitation as to aggregate
principal amount. The Company may specify a maximum aggregate principal amount
for the Debt Securities of any series. (Section 301) The Debt Securities are
to have such terms and provisions which are not inconsistent with the
Indentures, including as to maturity, principal and interest, as the Company
may determine. Unless otherwise specified in the applicable Prospectus
Supplement, the Senior Debt Securities when issued will be unsecured and
unsubordinated obligations of the Company and will rank on a parity with all
other unsecured and unsubordinated indebtedness of the Company. The
Subordinated Debt Securities when issued will be subordinated in right of
payment to the prior payment in full of all Senior Debt of the Company, as
described under "Subordination of Subordinated Debt Securities" and in the
applicable Prospectus Supplement.
The applicable Prospectus Supplement will set forth whether the Debt
Securities offered shall be Senior Debt Securities or Subordinated Debt
Securities, the price or prices at which the Debt Securities to be offered
will be issued and will describe the following terms of such offered Debt
Securities: (1) the title of such Debt Securities; (2) any limit on the
aggregate principal amount of such Debt Securities or the series of which they
are a part; (3) the Person to whom any interest on a Debt Security of the
series shall be payable, if other than the
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Person in whose name that Debt Security (or one or more predecessor Debt
Securities) is registered at the close of business on the Regular Record Date
for such interest; (4) the date or dates on which the principal of any of such
Debt Securities will be payable; (5) the rate or rates at which any of such
Debt Securities will bear interest, if any, the date or dates from which any
such interest will accrue, the Interest Payment Dates on which any such
interest will be payable and the Regular Record Date for any such interest
payable on any Interest Payment Date; (6) the place or places where the
principal of and any premium and interest on any of such Debt Securities will
be payable; (7) the period or periods within which, the price or prices at
which and the terms and conditions on which any of such Debt Securities may be
redeemed, in whole or in part, at the option of the Company; (8) the
obligation, if any, of the Company to redeem or purchase any of such Debt
Securities pursuant to any sinking fund or analogous provision or at the
option of the Holder thereof, and the period or periods within which, the
price or prices at which and the terms and conditions on which any of such
Debt Securities will be redeemed or purchased, in whole or in part, pursuant
to any such obligation; (9) the denominations in which any of such Debt
Securities will be issuable, if other than denominations of $1,000 and any
integral multiple thereof; (10) if the amount of principal of or any premium
or interest on any of such Debt Securities may be determined with reference to
an index or pursuant to a formula, the manner in which such amounts will be
determined; (11) if other than the currency of the United States of America,
the currency, currencies or currency units in which the principal of or any
premium or interest on any of such Debt Securities will be payable (and the
manner in which the equivalent of the principal amount thereof in the currency
of the United States of America is to be determined for any purpose, including
for the purpose of determining the principal amount deemed to be Outstanding
at any time); (12) if the principal of or any premium or interest on any of
such Debt Securities is to be payable, at the election of the Company or the
Holder thereof, in one or more currencies or currency units other than those
in which such Debt Securities are stated to be payable, the currency,
currencies or currency units in which payment of any such amount as to which
such election is made will be payable, the periods within which and the terms
and conditions upon which such election is to be made and the amount so
payable (or the manner in which such amount is to be determined); (13) if
other than the entire principal amount thereof, the portion of the principal
amount of any of such Debt Securities which will be payable upon declaration
of acceleration of the Maturity thereof; (14) if the principal amount payable
at the Stated Maturity of any of such Debt Securities will not be determinable
as of any one or more dates prior to the Stated Maturity, the amount which
will be deemed to be such principal amount as of any such date for any
purpose, including the principal amount thereof which will be due and payable
upon any Maturity other than the Stated Maturity or which will be deemed to be
Outstanding as of any such date (or, in any such case, the manner in which
such deemed principal amount is to be determined); (15) if applicable, that
such Debt Securities, in whole or any specified part, are defeasible pursuant
to the provisions of the Indentures described under "Defeasance and Covenant
Defeasance--Defeasance and Discharge" or "Defeasance and Covenant Defeasance--
Covenant Defeasance", or under both such captions; (16) if applicable, the
terms of any right to convert Debt Securities into shares of Common Stock of
the Company or other securities or property; (17) whether any of such Debt
Securities will be issuable, in whole or in part, in the form of one or more
Global Securities, defined below, and, if so, the respective Depositaries for
such Global Securities, the form of any legend or legends to be borne by any
such Global Security in addition to or in lieu of the legend referred to under
"Form, Exchange and Transfer--Global Securities" and, if different from those
described under such caption, any circumstances under which any such Global
Security may be exchanged, in whole or in part, for Debt Securities
registered, and any transfer of such Global Security, in whole or in part, may
be registered, in the names of Persons other than the Depositary for such
Global Security or its nominee; (18) any addition to or change in the Events
of Default applicable to any of such Debt Securities and any change in the
right of the Trustee or the Holders to declare the principal amount of any of
such Debt Securities due and payable; (19) any addition to or change in the
covenants in the Indentures described under "Certain Restrictive Covenants"
applicable to any of such Debt Securities; and (20) any other terms of such
Debt Securities not inconsistent with the provisions of the applicable
Indenture. (Section 301)
Debt Securities, including Original Issue Discount Securities, may be sold
at a substantial discount below their principal amount. Certain special United
States federal income tax considerations (if any) applicable to Debt
Securities sold at an original issue discount will be described in a
Prospectus Supplement under "United States Taxation". In addition, certain
special United States federal income tax or other considerations (if any)
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applicable to any Debt Securities which are denominated in a currency or
currency unit other than United States dollars will be described in a
Prospectus Supplement under "United States Taxation".
Unless otherwise set forth in the applicable Prospectus Supplement, neither
the Indentures nor the Debt Securities will contain provisions which would
afford holders of the Debt Securities protection in the event of a takeover,
recapitalization, or similar restructuring involving the Company that could
adversely affect such holders.
CONVERSION RIGHTS
The terms on which Debt Securities of any series are convertible into Common
Stock or other securities or property will be set forth in the Prospectus
Supplement relating thereto. Such terms shall include provisions as to whether
conversion is mandatory or at the option of the holder and may include
provisions pursuant to which the number of shares of Common Stock or other
securities or property to be received by the Holders of Debt Securities would
be calculated according to the market price of Common Stock or other
securities or property as of a time stated in the applicable Prospectus
Supplement. (Article Fourteen)
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Prospectus Supplement, the following
provisions will apply to the Subordinated Debt Securities.
The Subordinated Debt Securities will, to the extent set forth in the
Subordinated Indenture, be subordinate in right of payment to the prior
payment in full of all Senior Debt, including the Senior Debt Securities. Upon
any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Debt will first be
entitled to receive payment in full of principal of (and premium, if any) and
interest, if any, on such Senior Debt before the Holders of the Subordinated
Debt Securities will be entitled to receive or retain any payment in respect
of the principal of (and premium, if any) or interest, if any, on the
Subordinated Debt Securities. (Section 1502)
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are not holders of Senior Debt or Holders of
Subordinated Debt Securities may recover less, ratably, than holders of Senior
Debt and may recover more, ratably, than the Holders of the Subordinated Debt
Securities.
In the event of the acceleration of the maturity of any Subordinated Debt
Securities, the holders of all Senior Debt outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts
due thereon before the Holders of the Subordinated Debt Securities will be
entitled to receive any payment upon the principal of (or premium, if any) or
interest, if any, on the Subordinated Debt Securities. (Section 1503)
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Subordinated Debt Securities may be made if there shall
have occurred and be continuing a default in any payment with respect to
Senior Debt, or an event of default with respect to any Senior Debt resulting
in the acceleration of the maturity thereof, or if any judicial proceeding
shall be pending with respect to any such default. (Section 1504) For purposes
of the subordination provisions, the payment, issuance and delivery of cash,
property or securities (other than stock and certain subordinated securities
of the Company) upon conversion of a Subordinated Debt Security will be deemed
to constitute payment on account of the principal of such Subordinated Debt
Security.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any, (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company to the extent that
such claim for post-petition interest is allowed in such proceeding) on Debt
(as defined under "Restrictive Covenants--Limitation on Liens"), whether
incurred on or prior to the date of the Subordinated Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Subordinated Debt
Securities or to other Debt which is pari passu with, or subordinated to, the
Subordinated Debt Securities; provided, however, that Senior Debt shall not be
deemed to include the Subordinated Debt Securities.
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The Subordinated Indenture does not limit or prohibit the incurrence of
additional Senior Debt, which may include indebtedness that is senior to the
Subordinated Debt Securities, but subordinate to other obligations of the
Company. The Senior Debt Securities, when issued, will constitute Senior Debt.
The Prospectus Supplement may further describe the provisions, if any,
applicable to the subordination of the Subordinated Debt Securities of a
particular series.
FORM, EXCHANGE AND TRANSFER
The Debt Securities of each series will be issuable only in fully registered
form, without coupons, and, unless otherwise specified in the applicable
Prospectus Supplement, only in denominations of $1,000 and integral multiples
thereof. (Section 302)
At the option of the Holder, subject to the terms of the Indentures and the
limitations applicable to Global Securities, Debt Securities of each series
will be exchangeable for other Debt Securities of the same series of any
authorized denomination and of a like tenor and aggregate principal amount.
(Section 305)
Subject to the terms of the Indentures and the limitations applicable to
Global Securities, Debt Securities may be presented for exchange as provided
above or for registration of transfer (duly endorsed or with the form of
transfer endorsed thereon duly executed) at the office of the Security
Registrar or at the office of any transfer agent designated by the Company for
such purpose. No service charge will be made for any registration of transfer
or exchange of Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. Such transfer or exchange will be effected upon the Security
Registrar or such transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the request. The Company
has appointed the Trustee as Security Registrar. Any transfer agent (in
addition to the Security Registrar) initially designated by the Company for
any Debt Securities will be named in the applicable Prospectus Supplement.
(Section 305) The Company may at any time designate additional transfer agents
or rescind the designation of any transfer agent or approve a change in the
office through which any transfer agent acts, except that the Company will be
required to maintain a transfer agent in each Place of Payment for the Debt
Securities of each series. (Section 1002)
If the Debt Securities of any series (or of any series and specified terms)
are to be redeemed in part, the Company will not be required to (i) issue,
register the transfer of or exchange any Debt Security of that series (or of
that series and specified terms, as the case may be) during a period beginning
at the opening of business 15 days before the day of mailing of a notice of
redemption of any such Debt Security that may be selected for redemption and
ending at the close of business on the day of such mailing or (ii) register
the transfer of or exchange any Debt Security so selected for redemption, in
whole or in part, except the unredeemed portion of any such Debt Security
being redeemed in part. (Section 305)
GLOBAL SECURITIES
Some or all of the Debt Securities of any series may be represented, in
whole or in part, by one or more global securities which will have an
aggregate principal amount equal to that of the Debt Securities represented
thereby (a "Global Security"). Each Global Security will be registered in the
name of a Depositary or a nominee thereof identified in the applicable
Prospectus Supplement, will be deposited with such Depositary or nominee or a
custodian therefor and will bear a legend regarding the restrictions on
exchanges and registration of transfer thereof referred to below and any such
other matters as may be provided for pursuant to the Indentures.
Notwithstanding any provision of the Indentures or any Debt Security
described herein, no Global Security may be exchanged, in whole or in part,
for Debt Securities registered, and no transfer of a Global Security, in whole
or in part, may be registered, in the name of any Person other than the
Depositary for such Global Security or any nominee of such Depositary unless
(i) the Depositary has notified the Company that it is unwilling or unable to
continue as Depositary for such Global Security or has ceased to be qualified
to act as such as required by the Indentures, (ii) there shall have occurred
and be continuing an Event of Default with respect to the Debt Securities
represented by such Global Security or (iii) there shall exist such
circumstances, if any, in addition to
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or in lieu of those described above as may be described in the applicable
Prospectus Supplement. All securities issued in exchange for a Global Security
or any portion thereof will be registered in such names as the Depositary may
direct. (Sections 204 and 305)
As long as the Depositary, or its nominee, is the registered Holder of a
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner and Holder of such Global Security and the Debt
Securities represented thereby for all purposes under the Debt Securities and
the Indentures. Except in the limited circumstances referred to above, owners
of beneficial interests in a Global Security will not be entitled to have such
Global Security or any Debt Securities represented thereby registered in their
names, will not receive or be entitled to receive physical delivery of
certificated Debt Securities in exchange therefor and will not be considered
to be the owners or Holders of such Global Security or any Debt Securities
represented thereby for any purpose under the Debt Securities or the
Indentures. All payments of principal of and any premium and interest on a
Global Security will be made to the Depositary or its nominee, as the case may
be, as the Holder thereof. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of such securities in
definitive form. These laws may impair the ability to transfer beneficial
interests in a Global Security.
Ownership of beneficial interests in a Global Security will be limited to
institutions that have accounts with the Depositary or its nominee
("participants") and to persons that may hold beneficial interests through
participants. In connection with the issuance of any Global Security, the
Depositary will credit, on its book-entry registration and transfer system,
the respective principal amounts of Debt Securities represented by the Global
Security to the accounts of its participants. Ownership of beneficial
interests in a Global Security will be shown only on, and the transfer of
those ownership interests will be effected only through, records maintained by
the Depositary (with respect to participants' interests) or any such
participant (with respect to interests of persons held by such participants on
their behalf). Payments, transfers, exchanges and other matters relating to
beneficial interests in a Global Security may be subject to various policies
and procedures adopted by the Depositary from time to time. None of the
Company, the Trustee or any agent of the Company or the Trustee will have any
responsibility or liability for any aspect of the Depositary's or any
participant's records relating to, or for payments made on account of,
beneficial interests in a Global Security, or for maintaining, supervising or
reviewing any records relating to such beneficial interests.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of interest on a Debt Security on any Interest Payment Date will be made to
the Person in whose name such Debt Security (or one or more Predecessor Debt
Securities) is registered at the close of business on the Regular Record Date
for such interest. (Section 307)
Unless otherwise indicated in the applicable Prospectus Supplement,
principal of and any premium and interest on the Debt Securities of a
particular series will be payable at the office of such Paying Agent or Paying
Agents as the Company may designate for such purpose from time to time, except
that at the option of the Company payment of any interest may be made by check
mailed to the address of the Person entitled thereto as such address appears
in the Security Register. Unless otherwise indicated in the applicable
Prospectus Supplement, the corporate trust office of the Trustee in The City
of New York will be designated as the Company's sole Paying Agent for payments
with respect to Debt Securities of each series. Any other Paying Agents
initially designated by the Company for the Debt Securities of a particular
series will be named in the applicable Prospectus Supplement. The Company may
at any time designate additional Paying Agents or rescind the designation of
any Paying Agent or approve a change in the office through which any Paying
Agent acts, except that the Company will be required to maintain a Paying
Agent in each Place of Payment for the Debt Securities of a particular series.
(Section 1002)
All monies paid by the Company to a Paying Agent for the payment of the
principal of or any premium or interest on any Debt Security which remain
unclaimed at the end of two years after such principal, premium or interest
has become due and payable will be repaid to the Company, and the Holder of
such Debt Security thereafter may look only to the Company for payment
thereof. (Section 1003)
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RESTRICTIVE COVENANTS
Limitation on Liens. The Senior Indenture will provide that, except as
otherwise provided in the next succeeding paragraph, the Company shall not,
and shall not permit any Restricted Subsidiary to, issue, assume or guarantee
any indebtedness for borrowed money ("Debt") secured by any mortgage, pledge,
security interest, lien or other encumbrance (a "Lien") upon any Principal
Property of the Company or of any Restricted Subsidiary or upon any shares of
stock or Debt of any Restricted Subsidiary (whether such Principal Property,
shares of stock or Debt are now owned or hereafter acquired) without in any
such case effectively providing concurrently with the issuance, assumption or
guaranty of any such Debt that the Senior Debt Securities (together with, if
the Company shall so determine, any other indebtedness of or guaranty by the
Company or such Restricted Subsidiary then existing or thereafter created
which is not subordinate to the Senior Debt Securities) shall be secured
equally and ratably with (or, at the option of the Company, prior to) such
Debt, so long as such Debt shall be so secured; provided, however, that the
foregoing restrictions shall not prevent, restrict or apply to (and there
shall be excluded from secured Debt in any computation made for purposes of
the "Limitation on Liens" covenant) Debt secured by (A) Liens on property,
shares of stock or indebtedness of any corporation existing at the time such
corporation becomes a Restricted Subsidiary or arising thereafter (i)
otherwise than in connection with the borrowing of money arranged thereafter
and (ii) pursuant to contractual commitments entered into prior to and not in
contemplation of such corporation's becoming a Restricted Subsidiary; (B)
Liens on any property (including shares of stock or Debt) existing at the time
of acquisition thereof (including acquisition through merger or consolidation)
or securing the payment of all or any part of the purchase price or
construction cost thereof or securing any Debt incurred prior to, at the time
of or within 180 days after, the acquisition of such property, shares of stock
or Debt or the completion of any such construction, whichever is later, for
the purpose of financing all or any part of the purchase price or construction
costs thereof (provided such Liens are limited to such property, improvements
thereon and the land upon which such property and improvements are located and
any other property not then constituting a Principal Property); (C) Liens on
any property to secure all or any part of the cost of development, operations,
construction, alteration, repair or improvement of all or any part of such
property, or to secure Debt incurred prior to, at the time of or within 180
days after, the completion of such development, operation, construction,
alteration, repair or improvement, whichever is later, for the purpose of
financing all or any part of such cost (provided such Liens are limited to
such property, improvements thereon and the land upon which such property and
improvements are located and any other property not then constituting a
Principal Property); (D) Liens which secure Debt owing by a Restricted
Subsidiary to the Company or to another Restricted Subsidiary or by the
Company to a Restricted Subsidiary; (E) Liens securing indebtedness of a
corporation which becomes a successor of the Company in accordance with the
provisions described under "Consolidation, Merger and Sale of Assets"; (F)
Liens on property of the Company or a Restricted Subsidiary in favor of the
United States of America or any State thereof, or any department agency or
instrumentality or political subdivision of the United States of America or
any State thereof, or in favor of any other country or any political
subdivision thereof, to secure partial, progress, advance or other payments
pursuant to any contract or statute or to secure any indebtedness incurred for
the purpose of financing all or any part of the purchase price or the cost of
construction of the property subject to such Liens, or in favor of any trustee
or mortgagee for the benefit of holders of indebtedness of any such entity
incurred for any such purpose; (G) Liens existing at August 6, 1996; and (H)
any extension, renewal or replacement (or successive extension, renewals or
replacements), in whole or in part, of any Lien referred to in the foregoing
clauses (A) to (G), inclusive, or of any Debt secured thereby; provided that
such extension, renewal or replacement Lien shall be limited to all or any
part of the same property that secured the Lien extended, renewed or replaced
(plus any improvements on such property) and shall secure no larger amount of
Debt than that existing at the time of such extension, renewal or replacement.
Notwithstanding the foregoing restrictions, the Company and any one or more
Restricted Subsidiaries may issue, assume or guarantee Debt secured by a Lien
which would otherwise be subject to the foregoing restrictions if at the time
it does so (the "Incurrence Time") the aggregate amount of such Debt plus all
other Debt of the Company and its Restricted Subsidiaries secured by a Lien
which would otherwise be subject to the foregoing
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restrictions (not including Debt permitted to be secured under clauses (A)
through (H) of the next preceding paragraph), plus the aggregate Attributable
Debt (determined as of the Incurrence Time) of Sale and Leaseback Transactions
(other than Sale and Leaseback Transactions permitted by clause (1) under "--
Limitations on Sale and Leaseback Transactions") entered into after August 6,
1996 and in existence at the Incurrence Time (less the aggregate amount of
proceeds of such Sale and Leaseback Transactions which shall have been applied
in accordance with clause (3) under "Limitations on Sale and Leaseback
Transactions"), does not exceed 15% of Consolidated Net Tangible Assets.
Limitations on Sale and Leaseback Transactions. The Senior Indenture will
provide that the Company shall not itself, and shall not permit any Restricted
Subsidiary to, enter into any arrangements after August 6, 1996 with any bank,
insurance company or other lender or investor (other than the Company or
another Restricted Subsidiary) providing for the leasing as lessee by the
Company or by any such Restricted Subsidiary of any Principal Property (except
a lease for a temporary period not to exceed three years by the end of which
it is intended the use of such Principal Property by the lessee will be
discontinued), which was or is owned by the Company or a Restricted Subsidiary
and which has been or is to be sold or transferred by the Company or a
Restricted Subsidiary more than 180 days after the completion of construction
and commencement of full operation thereof by the Company or such Restricted
Subsidiary, to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender or investor on the security of such
Principal Property (herein called a "Sale and Leaseback Transaction") unless
(1) the Company or such Restricted Subsidiary would (at the time of entering
into such arrangement) be entitled pursuant to clauses (A) through (H) above
under "--Limitation on Liens", without equally and ratably securing the Senior
Debt Securities, to issue, assume or guarantee indebtedness secured by a Lien
on such Principal Property; or (2) the Attributable Debt of the Company and
its Restricted Subsidiaries in respect of such Sale and Leaseback Transaction
and all other Sale and Leaseback Transactions entered into after August 6,
1996 (other than such Sale and Leaseback Transactions as are permitted by
clause (1) or clause (3) of this paragraph), plus the aggregate principal
amount of Debt secured by Liens on Principal Properties then outstanding
(excluding any such Debt secured by Liens covered in subdivisions (A) through
(H) under "--Limitation on Liens") which do not equally and ratably secure the
Senior Debt Securities, would not exceed 15% of Consolidated Net Tangible
Assets; or (3) the Company, within 180 days after the sale or transfer,
applies or causes a Restricted Subsidiary to apply an amount equal to the
greater of the net proceeds of such sale or transfer or fair market value of
the Principal Property so sold and leased back at the time of entering into
such Sale and Leaseback Transaction (in either case as determined by the Board
of Directors) to the retirement of Senior Debt Securities or other
indebtedness of the Company (other than indebtedness subordinated to the
Senior Debt Securities) or indebtedness of a Restricted Subsidiary, for money
borrowed, having a stated maturity more than 12 months from the date of such
application or which is extendible at the option of the obligor thereon to a
date more than 12 months from the date of such application, provided that the
amount to be so applied shall be reduced by (i) the principal amount of Senior
Debt Securities delivered within 180 days after such sale or transfer to the
Trustee for retirement and cancellation, and (ii) the principal amount of any
such indebtedness of the Company or a Restricted Subsidiary other than Senior
Debt Securities voluntarily retired by the Company or a Restricted Subsidiary
within 180 days after such sale or transfer; provided, further, that
notwithstanding the foregoing, no retirement referred to in this clause (3)
may be affected by payment at Maturity.
Notwithstanding the foregoing, where the Company or any Restricted
Subsidiary is the lessee in any Sale and Leaseback Transaction, Attributable
Debt shall not include any Debt resulting from the guarantee by the Company or
any other Restricted Subsidiary of the lessee's obligation thereunder.
CERTAIN DEFINITIONS
The term "Attributable Debt" means, in respect of a Sale and Leaseback
Transaction and as of any particular time, the present value (discounted at
the rate of interest implicit in the terms of the lease involved in such Sale
and Leaseback Transaction, as determined in good faith by the Company) of the
obligation of the lessee thereunder for net rental payments (excluding,
however, any amounts required to be paid by such lessee,
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whether or not designated as rent or additional rent, on account of
maintenance and repairs, services, insurance, taxes, assessments, water rates
or similar charges or any amounts required to be paid by such lessee
thereunder contingent upon monetary inflation or the amount of sales,
maintenance and repairs, insurance, taxes, assessments, water rates or similar
charges) during the remaining term of such lease (including any period for
which such lease has been extended or may, at the option of the lessor, be
extended).
The term "Consolidated Net Tangible Assets" means the aggregate amount of
assets (less applicable reserves and other properly deductible items) after
deducting therefrom (a) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, and (b) all
current liabilities, all as reflected in the Company's latest audited
consolidated balance sheet contained in the Company's most recent annual
report to its stockholders under Rule 14a-3 of the Exchange Act prior to the
time as of which "Consolidated Net Tangible Assets" shall be determined.
The term "Maturity", when used with respect to any security, means the date
on which the principal of such security or an installment of principal becomes
due and payable as therein or herein provided, whether at the Stated Maturity
or by declaration of acceleration, call for redemption or otherwise.
The term "Principal Property" means any single manufacturing plant, research
laboratory or other similar facility located within the United States of
America (other than its territories and possessions) and owned by, or leased
to, the Company or any Restricted Subsidiary, the book value of the property,
plant and equipment of which (as shown, net of depreciation, on the books of
the owner or owners) is not less than 2% of the Consolidated Net Tangible
Assets at the end of the most recent fiscal year of the Company, reflected in
the latest audited consolidated statement of financial position contained in
the Company's most recent annual report to its stockholders under Rule 14a-3
of the Exchange Act, except (a) any such plant or facility (i) owned or leased
jointly or in common with one or more Persons other than the Company and its
Subsidiaries, in which the interest of the Company and its Restricted
Subsidiaries does not exceed 50%, or (ii) which the Board of Directors
determines by Board Resolution in good faith is not of material importance to
the total business conducted, or assets owned, by the Company and its
Subsidiaries as an entirety, or (b) any portion of any such plant or facility
which the Board of Directors determines by Board Resolution in good faith not
to be of material importance to the use or operation thereof.
The term "Restricted Subsidiary" means any Subsidiary substantially all the
property of which is located, or substantially all of the business of which is
carried on, within the United States of America (other than its territories
and possessions) which shall at the time, directly or indirectly through one
or more Subsidiaries or in combination with one or more other Subsidiaries,
own or be a lessee of a Principal Property.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indentures will provide that the Company may not consolidate with or
merge into, or convey, transfer or lease its properties and assets
substantially as an entirety to, any Person (a "successor Person"), and may
not permit any Person to merge into, or convey, transfer or lease its
properties and assets substantially as an entirety to, the Company, unless (i)
the successor Person (if any) is a corporation, partnership, trust or other
entity organized and validly existing under the laws of any domestic
jurisdiction and assumes the Company's obligations on the Debt Securities and
under the Indentures, (ii) immediately after giving effect to the transaction,
no Event of Default, and no event which, after notice or lapse of time or
both, would become an Event of Default, shall have occurred and be continuing,
(iii) if, as a result of the transaction, property of the Company or a
Restricted Subsidiary would become subject to a Lien that would not be
permitted under "Restrictive Covenants--Limitations on Liens", the Company
takes such steps as shall be necessary to secure the Senior Debt Securities,
if any, equally and ratably with (or prior to) the indebtedness secured by
such Lien, and (iv) certain other conditions are met. (Section 801)
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
Indentures with respect to Debt Securities of any series: (a) failure to pay
principal of or any premium on any Debt Security of that series when due (with
respect to Subordinated Debt Securities, whether or not such payment is
prohibited by the
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subordination provisions of the Subordinated Indenture); (b) failure to pay
any interest on any Debt Securities of that series when due, continued for 30
days (with respect to Subordinated Debt Securities whether or not such payment
is prohibited by the subordination provision of the Subordinated Indenture);
(c) failure to deposit any sinking fund payment, when due, in respect of any
Debt Security of that series (with respect to Subordinated Debt Securities,
whether or not such deposit is prohibited by the subordination provisions of
the Subordinated Indenture); (d) failure to perform any other covenant of the
Company in the Indentures (other than a covenant included in the Indentures
solely for the benefit of a series other than that series), continued for 60
days after written notice has been given by the Trustee, or the Holders of at
least 25% in principal amount of the Outstanding Debt Securities of that
series, as provided in the Indentures; (e) certain events in bankruptcy,
insolvency or reorganization; and (f) any other Event of Default specified in
the applicable Prospectus Supplement. (Section 501)
If an Event of Default (other than an Event of Default described in clause
(e) above) with respect to the Debt Securities of any series at the time
Outstanding shall occur and be continuing, either the Trustee or the Holders
of at least 25% in aggregate principal amount of the Outstanding Securities of
that series by notice as provided in the Indentures may declare the principal
amount of the Debt Securities of that series (or, in the case of any Debt
Security that is an Original Issue Discount Security or the principal amount
of which is not then determinable, such portion of the principal amount of
such Debt Security, or such other amount in lieu of such principal amount, as
may be specified in the terms of such Debt Security) to be due and payable
immediately. If an Event of Default described in clause (e) above with respect
to the Debt Securities of any series at the time Outstanding shall occur, the
principal amount of all the Debt Securities of that series (or, in the case of
any such Original Issue Discount Security or other Debt Security, such
specified amount) will automatically, and without any action by the Trustee or
any Holder, become immediately due and payable. After any such acceleration,
but before a judgment or decree based on acceleration, the Holders of a
majority in aggregate principal amount of the Outstanding Securities of that
series may, under certain circumstances, rescind and annul such acceleration
if all Events of Default, other than the non-payment of accelerated principal
(or other specified amount), have been cured or waived as provided in the
Indentures. (Section 502) For information as to waiver of defaults, see
"Modification and Waiver".
Subject to the provisions of the Indentures relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indentures at the request or direction of any of the Holders, unless such
Holders shall have offered to the Trustee reasonable indemnity. (Section 603)
Subject to such provisions for the indemnification of the Trustee, the Holders
of a majority in aggregate principal amount of the Outstanding Securities of
any series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to the
Debt Securities of that series. (Section 512)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indentures, or for the appointment of a
receiver or a trustee, or for any other remedy thereunder, unless (i) such
Holder has previously given to the Trustee written notice of a continuing
Event of Default with respect to the Debt Securities of that series, (ii) the
Holders of at least 25% in aggregate principal amount of the Outstanding
Securities of that series have made written request, and such Holder or
Holders have offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee and (iii) the Trustee has failed to institute such
proceeding, and has not received from the Holders of a majority in aggregate
principal amount of the Outstanding Securities of that series a direction
inconsistent with such request, within 60 days after such notice, request and
offer. (Section 507) However, such limitations do not apply to a suit
instituted by a Holder of a Debt Security for the enforcement of payment of
the principal of or any premium or interest on such Debt Security on or after
the applicable due date specified in such Debt Security. (Section 508)
The Company will be required to furnish to the Trustee annually a statement
by certain of its officers as to whether or not the Company, to their
knowledge, is in default in the performance or observance of any of the terms,
provisions and conditions of the Indentures and, if so, specifying all such
known defaults. (Section 1004)
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MODIFICATION AND WAIVER
Modifications and amendments of the Indentures may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Securities of each series affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Debt Security, (b) reduce the
principal amount of, or any premium or interest on, any Debt Security, (c)
reduce the amount of principal of an Original Issue Discount Security or any
other Debt Security payable upon acceleration of the Maturity thereof, (d)
change the place or currency of payment of principal of, or any premium or
interest on, any Debt Security, (e) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security, (f), in
the case of Subordinated Debt Securities, modify the subordination provisions
in a manner adverse to the Holders of the Subordinated Debt Securities, (g)
reduce the percentage in principal amount of Outstanding Securities of any
series, the consent of whose Holders is required for modification or amendment
of the Indentures, (h) reduce the percentage in principal amount of
Outstanding Securities of any series necessary for waiver of compliance with
certain provisions of the Indentures or for waiver of certain defaults, or (i)
modify such provisions with respect to modification and waiver. (Section 902)
The Holders of a majority in principal amount of the Outstanding Securities
of any series may waive compliance by the Company with certain restrictive
provisions of the Indentures. (Sections 1010 and 1008 of the Senior Indenture
and the Subordinated Indenture, respectively.) The Holders of a majority in
principal amount of the Outstanding Securities of any series may waive any
past default under the Indentures, except a default in the payment of
principal, premium or interest and certain covenants and provisions of the
Indentures which cannot be amended without the consent of the Holder of each
Outstanding Security of such series affected. (Section 513)
The Indentures will provide that in determining whether the Holders of the
requisite principal amount of the Outstanding Securities have given or taken
any direction, notice, consent, waiver or other action under the Indentures as
of any date, (i) the principal amount of an Original Issue Discount Security
that will be deemed to be Outstanding will be the amount of the principal
thereof that would be due and payable as of such date upon acceleration of the
Maturity thereof to such date, (ii) if, as of such date, the principal amount
payable at the Stated Maturity of a Debt Security is not determinable (for
example, because it is based on an index), the principal amount of such Debt
Security deemed to be Outstanding as of such date will be an amount determined
in the manner prescribed for such Debt Security, and (iii) the principal
amount of a Debt Security denominated in one or more foreign currencies or
currency units that will be deemed to be Outstanding will be the U.S. dollar
equivalent, determined as of such date in the manner prescribed for such Debt
Security, of the principal amount of such Debt Security (or, in the case of a
Debt Security described in clause (i) or (ii) above, of the amount described
in such clause). Certain Debt Securities, including those for whose payment or
redemption money has been deposited or set aside in trust for the Holders and
those that have been fully defeased pursuant to Section 1302, will not be
deemed to be Outstanding. (Section 101)
Except in certain limited circumstances, the Company will be entitled to set
any day as a record date for the purpose of determining the Holders of
Outstanding Securities of any series entitled to give or take any direction,
notice, consent, waiver or other action under the Indentures, in the manner
and subject to the limitations provided in the Indentures. In certain limited
circumstances, the Trustee will be entitled to set a record date for action by
Holders. If a record date is set for any action to be taken by Holders of a
particular series, such action may be taken only by persons who are Holders of
Outstanding Securities of that series on the record date. To be effective,
such action must be taken by Holders of the requisite principal amount of such
Debt Securities within a specified period following the record date. For any
particular record date, this period will be 180 days or such shorter period as
may be specified by the Company (or the Trustee, if it set the record date),
and may be shortened or lengthened (but not beyond 180 days) from time to
time. (Section 104)
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DEFEASANCE AND COVENANT DEFEASANCE
If and to the extent indicated in the applicable Prospectus Supplement, the
Company may elect, at its option at any time, to have the provisions of
Section 1302, relating to defeasance and discharge of indebtedness, or Section
1303, relating to defeasance of certain restrictive covenants in the
Indentures, applied to the Debt Securities of any series, or to any specified
part of a series. (Section 1301)
Defeasance and Discharge. The Indentures will provide that, upon the
Company's exercise of its option (if any) to have Section 1302 applied to any
Debt Securities, with respect to any Subordinated Debt Securities, the
provisions of Article Fifteen of the Subordinated Indenture relating to
subordination will cease to be effective and, with respect to any Debt
Securities, the Company will be discharged from all its obligations with
respect thereto (except for certain obligations to exchange or register the
transfer of Debt Securities, to replace stolen, lost or mutilated Debt
Securities, to maintain paying agencies and to hold moneys for payment in
trust) upon the deposit in trust for the benefit of the Holders of such Debt
Securities of money or U.S. Government Obligations, or both, which, through
the payment of principal and interest in respect thereof in accordance with
their terms, will provide money in an amount sufficient to pay the principal
of and any premium and interest on such Debt Securities on the respective
Stated Maturities in accordance with the terms of the Indentures and such Debt
Securities. Such defeasance or discharge may occur only if, among other
things, the Company has delivered to the Trustee an Opinion of Counsel to the
effect that the Company has received from, or there has been published by, the
United States Internal Revenue Service a ruling, or there has been a change in
tax law, in either case to the effect that Holders of such Debt Securities
will not recognize gain or loss for federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to federal income
tax on the same amount, in the same manner and at the same times as would have
been the case if such deposit, defeasance and discharge were not to occur.
(Sections 1302 and 1304)
Defeasance of Certain Covenants. The Indentures will provide that, upon the
Company's exercise of its option (if any) to have Section 1303 applied to any
Debt Securities, the Company may omit to comply with certain restrictive
covenants, including those described under "Restrictive Covenants" and in the
last sentence under "Consolidation, Merger and Sale of Assets" and any that
may be described in the applicable Prospectus Supplement, and the occurrence
of certain Events of Default, which are described above in clause (d) (with
respect to such restrictive covenants) under "Events of Default" and any that
may be described in the applicable Prospectus Supplement, will be deemed not
to be or result in an Event of Default, in each case with respect to such Debt
Securities, and, in the case of the Subordinated Indenture, the provisions of
Article Fifteen relating to subordination will cease to be effective with
respect to any Subordinated Debt Securities. The Company, in order to exercise
such option, will be required to deposit, in trust for the benefit of the
Holders of such Debt Securities, money or U.S. Government Obligations, or
both, which, through the payment of principal and interest in respect thereof
in accordance with their terms, will provide money in an amount sufficient to
pay the principal of and any premium and interest on such Debt Securities on
the respective Stated Maturities in accordance with the terms of the
Indentures and such Debt Securities. The Company will also be required, among
other things, to deliver to the Trustee an Opinion of Counsel to the effect
that Holders of such Debt Securities will not recognize gain or loss for
federal income tax purposes as a result of such deposit and defeasance of
certain obligations and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case
if such deposit and defeasance were not to occur. In the event the Company
exercised this option with respect to any Debt Securities and such Debt
Securities were declared due and payable because of the occurrence of any
Event of Default, the amount of money and U.S. Government Obligations so
deposited in trust would be sufficient to pay amounts due on such Debt
Securities at the time of their respective Stated Maturities but may not be
sufficient to pay amounts due on such Debt Securities upon any acceleration
resulting from such Event of Default. In such case, the Company would remain
liable for such payments. (Sections 1303 and 1304)
NOTICES
Notices to Holders of Debt Securities will be given by mail to the addresses
of such Holders as they may appear in the Security Register. (Sections 101 and
106)
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TITLE
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name a Debt Security is registered as the absolute
owner thereof (whether or not such Debt Security may be overdue) for the
purpose of making payment and for all other purposes. (Section 308)
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed in
accordance with, the law of the State of New York. (Section 112)
REGARDING THE TRUSTEE
The Trustee is the trustee for the Debt Securities to be issued. The Trustee
is also trustee under the Company's ESOP, as defined below, as discussed more
fully herein. In addition, Chemical Mellon Shareholder Services, L.L.C., an
affiliate of the Trustee, is the Rights Agent under the Company's Rights Plan,
as defined below, as discussed more fully herein. The Trustee also provides
cash management and other banking and advisory services to the Company in the
normal course of business.
Upon the occurrence of an Event of Default or an event which, after notice
or lapse of time or both, would become an Event of Default, or upon the
occurrence of a default under such other indenture, the Trustee may be deemed
to have a conflicting interest with respect to the Debt Securities for
purposes of the Trust Indenture Act of 1939 and, unless the Trustee is able to
eliminate any such conflicting interest, the Trustee may be required to resign
as Trustee under either the Subordinated Indenture or the Senior Indenture. In
that event, the Company would be required to appoint a successor trustee for
such Indenture.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 200,000,000 shares
of Common Stock, par value $1.00 per share, and 20,000,000 shares of Class A
Preferred Stock, without par value. The following description of the capital
stock of the Company is a summary, and as such, it does not purport to be
complete and is subject, and qualified in its entirety by reference to, the
more complete descriptions contained in (i) the Articles of Incorporation of
the Company, as amended (the "Articles"), the Bylaws of the Company, as
amended (the "Bylaws"), and the Rights Agreement, effective March 21, 1996,
between the Company and Chemical Mellon Shareholder Services, L.L.C., as
Rights Agent (the "Rights Agreement"), copies of each of which are
incorporated by reference as exhibits to the Registration Statement of which
this Prospectus is a part, and (ii) the certificate of designation relating to
each series of Preferred Stock.
COMMON STOCK
Dividends. Subject to the rights and preferences that may be applicable to
any outstanding Preferred Stock, the holders of Common Stock are entitled to
receive dividends, when, if and as declared by the Board of Directors of the
Company, out of funds legally available therefor.
Voting Rights. The holders of Common Stock are entitled to one vote per
share on all matters to be voted upon by shareholders, except that
shareholders are entitled to cumulate their votes in the election of
directors. Under cumulative voting, a shareholder has the right to multiply
the total number of shares which the shareholder is entitled to vote by the
number of directors to be elected and to cast the whole number of votes so
determined for one nominee or to distribute them among different nominees. The
Bylaws require shareholders desiring to nominate persons for election as a
director to give advance notice of such nominations to the Company.
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Other than in the election of directors, whenever any corporate action is to
be taken by vote of the shareholders of the Company, or by a class of such
shareholders of the Company, generally, it shall be authorized upon receiving
the affirmative vote of a majority of the votes cast by such shareholders, or
by such class of shareholders, entitled to vote thereon. The Articles and
Bylaws require, however, the approval by the holders of at least 80% of the
votes which all shareholders of the Company would be entitled to cast at an
annual election of directors, voting together as a single class, for the
removal of any director, class of directors or the entire Board of Directors
(subject to nonremoval if sufficient votes are cast against removal) or for
any change to any provision of the Articles or Bylaws providing for the number
of directors, the classification of directors or the filling of vacancies on
the Board of Directors, unless any such change is unanimously approved by the
Board of Directors of the Company. In addition, the Bylaws of the Company may
be amended only by a vote of two-thirds of the Board of Directors then in
office, subject to the power of the shareholders to change such action.
The Bylaws provide for the Board of Directors to be divided into three
classes of directors, each class as nearly equal in number as possible, with
one class being elected each year for a three-year term. The classification of
the Board helps to ensure continuity and stability of corporate leadership and
policy; however, it also has the effect of making it more difficult for a
person to acquire control of the Company because at least two annual meetings
are necessary to effect a change in a majority of the Company's directors.
Further, while cumulative voting enables minority shareholders to gain
representation on the Board, the existence of a classified Board increases the
number of shares required to elect at least one director.
Liquidation. In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after the payment of the liabilities and the liquidation
preferences of any outstanding preferred stock.
Other Information. The Common Stock does not carry preemptive rights, is not
redeemable, does not have any conversion rights, is not subject to further
calls and is not subject to any sinking fund provisions. The shares of Common
Stock currently outstanding are freely alienable, fully paid and
nonassessable. Except in certain circumstances as discussed below under
"Description of Capital Stock--Certain Provisions Affecting Control of the
Company," the Common Stock is not subject to discriminatory provisions based
on ownership thresholds.
Conversion of Series A ESOP Preferred Stock. On July 31, 1996, the Trustee
appointed by the Company's Employee Stock Ownership Plan, Mellon Bank, N.A.,
converted the shares of Series A ESOP Preferred Stock formerly held by the
trustee for the account of participants in the Employee Stock Ownership Plan
into Company Common Stock.
CLASS A PREFERRED STOCK
The Class A Preferred Stock, other than Series One Preferred Stock as
discussed below, is issuable in one or more series and will have the dividend,
conversion, redemption, voting and liquidation rights set forth below unless
otherwise provided in the Prospectus Supplement relating to a particular
series of the Preferred Stock. Reference is made to the Prospectus Supplement
relating to the particular series of the Preferred Stock offered thereby for
specific terms, including: (i) the title of the series and the number of
shares in the series offered; (ii) the price at which such series will be
issued; (iii) the dividend rate (or method of calculation), the dates on which
dividends shall be payable and the dates from which dividends shall commence
to accumulate for such series; (iv) any redemption or sinking fund provisions
of such series; (v) any conversion provisions of such series; (vi) the voting
rights, if any, of such series; (vii) the liquidation preference of such
series; and (viii) any additional dividend, liquidation, redemption, sinking
fund and other special or relative rights, preferences, qualifications,
privileges, limitations, options and restrictions of such series. The Class A
Preferred Stock is available for possible future financing and acquisition
transactions, to pay stock dividends or make distributions, to fund employee
benefit plans and for other general corporate purposes. Under certain
circumstances, the Class A Preferred Stock could be used to create voting
impediments for persons seeking to gain control of the Company.
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Dividends. The Preferred Stock will be preferred over the Common Stock (but
may be subordinated as to the other series of Preferred Stock) as to the
payment of dividends. Before any dividends or distributions on the Common
Stock shall be declared and set apart for payment or paid, the holders of
shares of each series of Preferred Stock shall be entitled to receive
dividends (either in cash, shares of Common Stock or Preferred Stock, or
otherwise), when, as and if declared by the Board of Directors, at the rate
and on the date or dates as set forth in the Prospectus Supplement. With
respect to each series of Preferred Stock, the dividends on each share of such
series shall be cumulative from the date of issuance of such shares unless
some other date is set forth in the Prospectus Supplement relating to any such
series. Accruals of dividends shall not bear interest.
Conversion. Shares of any series of Preferred Stock will be convertible into
shares of Common Stock or into shares of any other series of Preferred Stock
to the extent set forth in the Prospectus Supplement relating to any such
series.
Redemption. Shares of any series of Preferred Stock will be redeemable to
the extent set forth in the Prospectus Supplement relating to any such series,
which may or may not include any restrictions on the repurchase or redemption
thereof while there is any arrearage in the payment of dividends.
Voting Rights. Unless otherwise provided in the Prospectus Supplement, the
holders of shares of Preferred Stock will be entitled to one vote for each
share of Preferred Stock held by them on all matters presented to
shareholders.
Liquidation. The Preferred Stock will be preferred over the Common Stock
(but may be subordinated as to other series of Preferred Stock, as described
herein) as to assets so that the holders of each series of Preferred Stock
will be entitled to be paid, upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company and before any distribution is made
to the holders of Common Stock, the amount set forth in the Prospectus
Supplement relating to any such series, but in such case the holders of such
series of Preferred Stock will not be entitled to any other or further
payment.
Other Information. Unless otherwise provided in the Prospectus Supplement,
the Preferred Stock will not carry any preemptive rights, will not be, upon
issuance, subject to further calls and will not be, upon issuance, subject to
any sinking fund provisions. The Preferred Stock will be, when issued, fully
paid and nonassessable. Unless otherwise provided in the Prospectus
Supplement, and except in certain circumstances as discussed below under
"Description of Capital Stock--Certain Provisions Affecting Control of the
Company," the Preferred Stock will not be, upon issuance, subject to
discriminatory provisions based on ownership thresholds.
SERIES ONE PREFERRED STOCK AND PREFERRED STOCK PURCHASE RIGHTS
Preferred Stock Purchase Rights. The Series One Preferred Stock, which is a
series of Class A Preferred Stock, is issuable pursuant to the exercise of
rights to purchase Series One Preferred Stock ("Rights"). The Series One
Preferred Stock is not being offered hereby, although the Rights will attach
to any Common Stock which may be sold pursuant to this Prospectus and any
Prospectus Supplement. On March 21, 1996, the Board of Directors of the
Company paid a distribution of one Right for each outstanding share of Common
Stock of the Company to shareholders of record on January 19, 1996, and with
respect to each share of Common Stock that may be issued by the Company prior
to the date on which the Rights first become exercisable (or the earlier
redemption or expiration of the Rights), subject to adjustment in certain
events. In general, the Rights become exercisable ten 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 would result in such person or group beneficially owning shares
representing 28% or more of the voting power of the Company. When the Rights
become exercisable, each Right entitles its holder (other than such 20%
shareholder or tender or exchange offeror) to buy one one-hundredth of a newly
issued share of Series One Preferred Stock at a purchase price of $300,
subject to adjustment. If, after the Rights become exercisable, 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 corporation 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% or 28% shareholder) will be
entitled to purchase
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shares of Armstrong's Common Stock having a value equal to twice the exercise
price of the Right. In addition, if, after the Rights become exercisable, the
Company is a party to a merger and is not the surviving company or 50% or more
of the Company's assets or earnings power are sold in a single or series of
related transactions, then each owner of a Right will be entitled to purchase
shares of the acquiring person having a value equal to twice the exercise
price of the Right. Until the Rights first become exercisable, the Rights
attach to and trade with shares of the Company's Common Stock. Generally, the
Rights are redeemable at the option of the Company for $.05 per Right at any
time prior to the tenth day following a public announcement that a person or
group has acquired beneficial ownership of 20% or more of the voting power of
the Company. The Rights expire by their terms on March 21, 2006, unless
earlier redeemed.
The terms of the Rights are set forth in the Rights Agreement which has been
filed with the SEC as an Exhibit to a Registration Statement on Form 8-A/A
filed on March 15, 1996, file number 001-02116, and is incorporated herein by
reference.
Dividends. Subject to the rights and preferences of the holders of any other
series of Class A Preferred Stock, the holders of Series One Preferred Stock
are entitled to receive cumulative, quarterly dividends, without interest,
when and as declared by the Board of Directors of the Company, out of funds
legally available therefor, in preference to the holders of Common Stock and
in an amount per share equal to the greater of $36.00 or 100 times, as
adjusted, the aggregate per share amount of all cash and non-cash dividends or
other distributions, other than a dividend or distribution payable in shares
of Common Stock, paid on the Common Stock in the immediately preceding
quarter.
Conversion Rights. In the event the Company enters into any consolidation,
merger, combination or other transaction in which the Common Stock is
exchanged for or changed into other stock or securities, cash and/or any other
property, then the Series One Preferred Stock will be at the same time,
similarly exchanged for or converted into an amount per share equal to 100
times, as adjusted, the aggregate amount for or into which the Common Stock is
exchanged or converted.
Voting Rights. Holders of Series One Preferred Stock have no voting rights
except as may be provided by law.
Redemption. The Series One Preferred Stock may be redeemed at the option of
the Board of Directors of the Company, as a whole, but not in part, at any
time, at a cash price per share equal to 100 times, as adjusted, the average
market value, as defined, of the Common Stock, plus all accrued but unpaid
dividends. The Company is not entitled, however, to purchase or otherwise
acquire shares of the Series One Preferred Stock if the quarterly dividend in
respect thereof is accrued and has not been paid or declared and a sum
sufficient for the payment thereof set apart unless all shares of such stock
at the time outstanding are purchased or otherwise acquired.
Liquidation. Subject to the rights and preferences of the holders of any
other series of Class A Preferred Stock, upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of Series
One Preferred Stock are entitled to $100 per share, plus all accrued and
unpaid dividends, plus an amount equal to the holder's pro rata share of
assets that would be available for distribution after payment of all
liabilities, liquidation preferences and distributions on the Common Stock, if
any, as determined according to a formula and subject to adjustment in certain
events. The amount payable to the holders of Series One Preferred Stock as so
determined is prior to any payment or distribution to the holders of Common
Stock.
Other Information. The Series One Preferred Stock does not carry any
preemptive rights, will not be subject, upon issuance, to any sinking fund
provisions and will not be subject, upon issuance, to any further calls. Upon
issuance, the shares of the Series One Preferred Stock will be freely
alienable, fully paid and nonassessable. Except in certain circumstances as
discussed below under "Description of Capital Stock--Certain Provisions
Affecting Control of the Company," the Series One Preferred Stock will be,
upon issuance, freely alienable and not subject to discriminatory provisions
based on ownership thresholds.
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CERTAIN PROVISIONS AFFECTING CONTROL OF THE COMPANY
General. Certain provisions of the Company's Articles, Bylaws and the
Pennsylvania Business Corporation Law (the "PBCL") operate only with respect
to extraordinary corporate transactions, such as mergers, reorganizations,
tender offers, sales or transfers of substantially all of the Company's assets
or the liquidation of the Company, and could have the effect of delaying or
making more difficult a change in control of the Company in certain
circumstances.
Certain Provisions of the Articles. The Articles provide that a Business
Combination (as defined below) with an Interested Shareholder (as defined
below) requires the affirmative vote of shareholders entitled to cast at least
a majority of the votes which all shareholders, other than the Interested
Shareholder, would be entitled to cast at an annual election of directors,
voting together as a single class, unless the transaction is approved by a
majority of the Disinterested Directors (as defined below) or the transaction
meets certain fair price and procedural requirements. An "Interested
Shareholder" is, with certain exceptions, any person, or his assignee or
successor (not including Armstrong or an affiliate of Armstrong), who is (or
was within the previous two years) the beneficial owner of more than ten
percent of the voting power of the outstanding voting stock, together with
such person's affiliates and associates. A "Business Combination" includes,
among other transactions, the following: (i) the merger or consolidation of
the Company with the Interested Shareholder; (ii) the sale of all or
substantially all of the assets of the Company to the Interested Shareholder
or its affiliates or associates; (iii) the issuance of securities of the
Company to an Interested Shareholder having a value equal to greater than ten
percent of the assets of the Company; (iv) the adoption of any plan for the
liquidation or dissolution of the Company proposed by or on behalf of the
Interested Shareholder; or (v) any reclassification or recapitalization of
securities which effectively increases the proportional equity share of the
Interested Shareholder. The term "Disinterested Director" means a director who
is neither affiliated with nor a representative of an Interested Shareholder
and (i) was a director prior to the time an Interested Shareholder became
such, (ii) was recommended or elected to fill a vacancy created by an increase
in the size of the Board of Directors by a majority of the Disinterested
Directors then in office, or (iii) was a successor of a Disinterested Director
and was recommended or elected to succeed a Disinterested Director by a
majority of the Disinterested Directors then in office. Certain other
provisions of the Articles and Bylaws which could have the effect of delaying
or preventing a Change in Control of the Company are described above under the
captions "Description of Capital Stock--Common Stock" and "Description of
Capital Stock--Class A Preferred Stock."
Certain Provisions of the PBCL. The Company is governed by certain "anti-
takeover" provisions in the PBCL which include the following: (i) provisions
which prohibit certain business combinations (as defined in the PBCL)
involving a corporation that has voting shares registered under the Exchange
Act and an "interested shareholder" (generally defined to include a person who
beneficially owns shares representing at least 20% of the votes that all
shareholders would be entitled to cast in an election of directors of the
corporation) unless certain conditions are satisfied or an exemption is
applicable; (ii) provisions concerning a "control-share acquisition" in which
the voting rights of certain shareholders of the corporation (specifically, a
shareholder who acquires 20%, 33 1/3% or 50% or more of the voting power of
the corporation ) are conditioned upon the consent of a majority vote at a
meeting of the independent shareholders of the corporation after disclosure by
such shareholder of certain information, and with respect to which such
shareholder is effectively deprived of voting rights if consent is not
obtained; (iii) provisions pursuant to which any profit realized by a
"controlling person or group," generally defined as a 20% beneficial owner,
from the disposition of any equity securities within twenty-four months prior
to, and eighteen months succeeding, the acquisition of such control is
recoverable by the corporation; (iv) provisions pursuant to which severance
payments are to be made by the corporation to any eligible employee of a
covered corporation whose employment is terminated, other than for willful
misconduct, with ninety days before, or twenty-four months after, a control-
share acquisition; (v) provisions pursuant to which any holder of voting
shares of a registered corporation who objects to a "control transaction"
(generally defined as the acquisition by a person or group (the "controlling
person or group") that would entitle the holders thereof to cast at least 20%
of the votes that all shareholders would be entitled to cast in an election of
the directors of the corporation) is entitled to make a written demand on the
controlling person or group for payment of the fair value of the voting shares
of the corporation held by the shareholder; (vi) a set of interrelated
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provisions which are designed to support the validity of actions taken by the
Board of Directors in response to takeover bids, including specifically the
Board's authority to "accept, reject or take no action" with respect to a
takeover bid, and permitting the unfavorable disparate treatment of a takeover
bidder; and (viii) provisions which allow the directors broad discretion in
considering the best interests of the corporation, including a provision which
permits the Board to consider various corporate interests including the short
and long-term interests of the corporation and the resources, intent and
conduct of any person seeking to acquire the corporation.
DESCRIPTION OF DEPOSITARY SHARES
General. The Company may, at its option, elect to offer fractional shares of
Preferred Stock, rather than full shares of Preferred Stock. In the event such
option is exercised, the Company will issue to purchasers receipts for
Depositary Shares, each of which will represent a fraction (to be set forth in
the Prospectus Supplement relating to a particular series of Preferred Stock)
of a share of a particular series of Preferred Stock.
The shares of any series of the Preferred Stock underlying the Depositary
Shares will be deposited under a separate Deposit Agreement (the "Deposit
Agreement") between the Company and a bank or trust company selected by the
Company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000 (the "Depositary"). The Prospectus
Supplement relating to a series of Depositary Shares will set forth the name
and address of the Depositary. Subject to the terms of the Deposit Agreement,
each owner of a Depositary Share will be entitled, in proportion to the
applicable fractional interest in a share of Preferred Stock underlying such
Depositary Share, to all the rights and preferences of the Preferred Stock
underlying such Depositary Share (including dividend, voting, redemption,
conversion and liquidation rights). The Depositary Shares will be evidenced by
Depositary Receipts issued pursuant to the Deposit Agreement.
Pending the preparation of definitive engraved Depositary Receipts, the
Depositary may, upon the written order of the Company, issue temporary
Depositary Receipts substantially identical to (and entitling the holders
thereof to all the rights pertaining to) the definitive Depositary Receipts
but not in definitive form. Definitive Depositary Receipts will be prepared
thereafter without unreasonable delay, and temporary Depositary Receipts will
be exchangeable for definitive Depositary Receipts at the Company's expense.
Upon surrender of Depositary Receipts at the office of the Depositary and
upon payment of the charges provided in the Deposit Agreement and subject to
the terms thereof, a holder of Depositary Shares is entitled to have the
Depositary deliver to such holder the whole shares of Preferred Stock
underlying the Depositary Shares evidenced by the surrendered Depositary
Receipts.
Dividends. The Depositary will distribute all cash dividends or other cash
distributions received in respect of the Preferred Stock to the record holders
of Depositary Shares relating to such Preferred Stock in proportion to the
numbers of such Depositary Shares owned by such holders on the relevant record
date. The Depositary shall distribute only such amount, however, as can be
distributed without attributing to any holder of Depositary Shares a fraction
of one cent, and any balance not so distributed shall be added to and treated
as part of the next sum received by the Depositary for distribution to record
holders of Depositary Shares.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may, with the approval of
the Company, sell such property and distribute the net proceeds from such sale
to such holders.
Conversion and Exchange. If any Preferred Stock underlying the Depositary
Shares is subject to provisions relating to its conversion or exchange as set
forth in a Prospectus Supplement relating thereto, each record holder of
Depositary Shares will have the right or obligation to convert or exchange
such Depositary Shares into other securities of the Company or rights or
payments pursuant to the terms thereof.
Redemption. After the date fixed for redemption as may be set forth in any
Prospectus Supplement relating to the Depositary Shares, the Depositary Shares
so called for redemption will no longer be deemed to be outstanding, and all
rights of the holders of the Depositary Shares will cease, except the right to
receive the
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moneys payable upon such redemption and any money or other property to which
the holders of such redeemed Depositary Shares were entitled upon surrender to
the Depositary of the Depositary Receipts in respect thereof. Unless otherwise
provided in the Prospectus Supplement or in the Deposit Agreement, the
Depositary Shares will not be subject to any restriction on the repurchase or
redemption thereof while there is any arrearage in the payment of dividends.
Voting Rights. Upon receipt of notice of any meeting at which the holders of
the Preferred Stock are entitled to vote, the Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Shares relating to such Preferred Stock. Each record holder of such
Depositary Shares on the record date (which will be the same date as the
record date for the Preferred Stock) will be entitled to instruct the
Depositary as to the exercise of the voting rights pertaining to the number of
shares of Preferred Stock underlying such holder's Depositary Shares. The
Depositary will endeavor, insofar as practicable, to vote the number of shares
of Preferred Stock underlying such Depositary Shares in accordance with such
instructions, and the Company will agree to take all action which may be
deemed necessary by the Depositary in order to enable the Depositary to do so.
The Depositary will abstain from voting shares of Preferred Stock to the
extent it does not receive specific instructions from the holders of
Depositary Shares relating to such Preferred Stock.
Other Information. Unless otherwise provided in the Prospectus Supplement or
the Deposit Agreement, the Depositary Shares will not carry any conversion
rights, will not be subject, upon issuance, to any sinking fund provisions,
will not carry any liquidation or preemption rights and will not be, upon
issuance, subject to any further calls. The Depositary Shares will be, when
issued, freely alienable, fully paid and nonassessable. Unless otherwise
provided in the Prospectus Supplement or the Deposit Agreement, and except in
certain circumstances as described above under "Description of Capital Stock--
Anti-Takeover Provisions," the Preferred Stock will not be, upon issuance,
subject to discriminatory provisions based on ownership thresholds.
Amendment and Termination of the Deposit Agreement. The form of Depositary
Receipt evidencing the Depositary Shares and any provision of the Deposit
Agreement may at any time be amended by agreement between the Company and the
Depositary. However, any amendment which materially and adversely alters the
rights of the existing holders of Depositary Shares will not be effective
unless such amendment has been approved by the record holders of at least a
majority of the Depositary Shares then outstanding. A Deposit Agreement may be
terminated by the Company Depositary only if (i) all outstanding Depositary
Shares relating thereto have been redeemed or (ii) there has been a final
distribution in respect of the Preferred Stock of the relevant series in
connection with any liquidation, dissolution or winding up of the Company and
such distribution has been distributed to the holders of the related
Depositary Shares.
Charges of Depositary. The Company will pay all transfer and other taxes and
governmental charges arising solely from the existence of the depositary
arrangements. The Company will also pay charges of the Depositary in
connection with the initial deposit of the Preferred Stock and any redemption
of the Preferred Stock. Holders of Depositary Shares will pay transfer and
other taxes and governmental charges and such other charges as are expressly
provided in the Deposit Agreement to be for their accounts.
Miscellaneous. The Depositary will forward to the holders of Depositary
Shares all reports and communications which are delivered to the Depositary
and which are required to be furnished to the holders of the Preferred Stock.
Neither the Depositary nor the Company will be liable if either is prevented
or delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of the Company and
the Depositary under the Deposit Agreement will be limited to performance in
good faith of their duties thereunder and they will not be obligated to
prosecute or defend any legal proceeding in respect of any Depositary Shares
or Preferred Stock unless satisfactory indemnity is furnished. Either may rely
upon written advice of its counsel or accountants, or information provided by
persons presenting Preferred Stock for deposit, holders of Depositary Shares
or other persons believed to be competent and on documents believed to be
genuine.
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Resignation and Removal of Depositary. The Depositary may resign at any time
by delivering to the Company notice of its election to do so, and the Company
may at any time remove the Depositary, any such resignation or removal to take
effect upon the appointment of a successor Depositary and the Company's
acceptance of such appointment. Such successor Depositary must be appointed
within 90 days after delivery of the notice of resignation or removal and must
be a bank or trust company having its principal office in the United States
and having a combined capital and surplus of at least $50,000,000.
PLAN OF DISTRIBUTION
The Company may sell the Securities being offered hereby in any of four
ways: (i) directly to purchasers, (ii) through agents, (iii) through
underwriters, and (iv) through dealers. Offers to purchase Securities may be
made by potential investors or their agents on an unsolicited basis or may be
solicited directly by the Company or agents designated by the Company from
time to time. The applicable Prospectus Supplement or Prospectus Supplements
will set forth the terms of the offering of the Securities, including the name
or names of any agents, underwriters or dealers, the purchase price of the
Securities and the proceeds to be received by the Company from such sale, any
underwriting discounts and other items constituting underwriters' compensation
and any discounts and commissions allowed or reallowed or paid to dealers or
agents. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers or agents may be changed from time to
time.
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company in the form of underwriting discounts or
commissions. Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters. Underwriters, dealers and agents
participating in the distribution of Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions, under the Securities Act of 1933, as
amended. Such underwriters, dealers and agents may be entitled under
agreements which may be entered into by the Company to indemnification by the
Company against and contribution toward certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
The Securities may be distributed in one or more transactions from time to
time at a fixed price or prices, which may be changed, or from time to time at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
If so indicated in the applicable Prospectus Supplement or Prospectus
Supplements, the Company will authorize dealers or other persons acting as the
Company's agents to solicit offers by certain institutions to purchase
Securities from the Company at the public offering price set forth in the
applicable Prospectus Supplement or Prospectus Supplements pursuant to delayed
delivery contracts ("Contracts") providing for payment and delivery on the
future date or dates stated in the applicable Prospectus Supplement or
Prospectus Supplements. Each Contract will be for an amount not less than, and
the aggregate amount of Securities sold pursuant to Contracts shall be not
less nor more than, the respective amounts stated in the applicable Prospectus
Supplement or Prospectus Supplements. Institutions with whom Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions, but will in all cases be subject to the
approval of the Company. The obligations of any purchaser under any Contract
will not be subject to any conditions except (1) the purchase by an
institution of the Securities covered by its Contract shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject and (2) if Securities are being sold to
underwriters, the Company shall have sold to such underwriters the total
principal amount of such Securities less the principal amount thereof covered
by Contracts. Underwriter and such other persons will not have any
responsibility in respect of the validity or performance of Contracts.
The Securities (other than Common Stock) will be a new issue of securities
with no established trading market. If so indicated in the applicable
Prospectus Supplement, any underwriters or agents to or through whom
Securities are sold by the Company for public offering and sale may make a
market in such Securities, but such
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underwriters and agents will not be obligated to do so and may discontinue any
market-making at any time without notice. No assurance can be given as to the
liquidity of the trading market for any Securities, other than Common Stock.
Certain of the underwriters, dealers and/or agents and their associates may
be customers of, engage in transactions with and perform services for the
Company, including its subsidiaries, in the ordinary course of business.
VALIDITY OF SECURITIES
Unless indicated otherwise in a Prospectus Supplement relating thereto, the
validity of the Securities will be passed upon for Armstrong by Buchanan
Ingersoll Professional Corporation, Pittsburgh, Pennsylvania. With the
exception of the Preferred Stock Purchase Rights, the validity of the
Securities will be passed upon for the underwriters or agents, as the case may
be, by Sullivan & Cromwell, New York, New York. Sullivan & Cromwell will rely
upon the opinion of Buchanan Ingersoll Professional Corporation as to all
matters of Pennsylvania law.
EXPERTS
The consolidated financial statements and schedule of the Company and its
subsidiaries as of December 31, 1995 and 1994 and for each of the fiscal years
in the three-year period ended December 31, 1995, have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick L.L.P., independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended June 30, 1996 and 1995, and, March 31, 1996 and 1995, incorporated by
reference herein, the independent certified public accountants have reported
that they applied limited procedures in accordance with professional standards
for a review of such information. However, their separate reports included in
the Company's quarterly report on Form 10-Q for the quarters ended June 30,
1996 and March 31, 1996, certain portions of which are superseded by the
Company's Current Report on Form 8-K filed on October 18, 1996, and
incorporated by reference herein, state that they did not audit and they do
not express an opinion on the interim financial information. Accordingly, the
degree of reliance on such reports should be restricted in light of the
limited nature of the review procedures applied. The accountants are not
subject to the liability provisions of section 11 of the 1933 Act for their
reports on the unaudited interim financial information because those reports
are not "reports" or a "part" of the registration statement prepared or
certified by the accountants within the meaning of sections 7 and 11 of the
1933 Act.
The consolidated financial statements of Dal-Tile International Inc.
incorporated by reference in the Company's Current Report on Form 8-K, as
amended, for the fiscal year ended December 31, 1994, have been audited by
Ernst & Young L.L.P., independent auditors, as set forth in their report
thereon (which contains an explanatory paragraph with respect to a change in
the method of accounting for income taxes as discussed in Note 8 to the
consolidated financial statements) incorporated therein and herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
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