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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-2116
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ARMSTRONG WORLD INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-0366390
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 3001, Lancaster, Pennsylvania 17604
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 397-0611
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock ($1 par value) New York Stock Exchange, Inc. (a)
Preferred Stock Purchase Rights Pacific Stock Exchange, Inc. (b)
9-3/4% Debentures Due 2008 Philadelphia Stock Exchange, Inc. (b)
7.45% Senior Quarterly Interest
Bonds Due 2038
(a) All Classes
(b) Common Stock and Preferred Stock
Purchase Rights only
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
The aggregate market value of the Common Stock of registrant held by non-
affiliates of the registrant based on the closing price ($20.00 per share) on
the New York Stock Exchange on February 18, 2000, was approximately $0.7
billion. As of February 18, 2000, the number of shares outstanding of
registrant's Common Stock was 40,217,225. This amount includes the 2,467,759
shares of Common Stock as of December 31, 1999, held by Chase Manhattan Bank, as
Trustee for the employee stock ownership accounts of the Company's Retirement
Savings and Stock Ownership Plan.
Documents Incorporated by Reference
Portions of the Proxy Statement dated March 22, 2000, relative to the May 1,
2000, annual meeting of the shareholders of registrant (the "Company's 2000
Proxy Statement") have been incorporated by reference into Part III of this Form
10-K Report.
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PART I
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Item 1. Business
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Armstrong World Industries, Inc. (Armstrong, which may be referred to as we, us
or our) is a Pennsylvania corporation incorporated in 1891. We design,
manufacture and sell interior finishings, most notably floor coverings and
ceiling systems, around the world. Our products are sold primarily for use in
the finishing, refurbishing and repair of residential, commercial and
institutional buildings. We also design, manufacture and sell other products,
including kitchen and bathroom cabinets and pipe insulation.
Industry Segments
Financial Information About Industry Segments
See Item 8, Note 2 to Consolidated Financial Statements for financial
information on our reportable industry segments.
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Narrative Description of Business
Armstrong designs, manufactures and sells interior finishings, including floor
coverings, building products (primarily ceiling systems), wood products
(primarily wood flooring and cabinets), and insulation products for the building
and other industries. Our activities extend worldwide.
Floor Coverings
We are 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. Resilient flooring, in both sheet and tile forms, together with
laminate flooring and linoleum, is made in a wide variety of types, designs, and
colors. Included are types of flooring that offer such features as ease of
installation, reduced maintenance (no-wax), and cushioning for greater underfoot
comfort. Floor covering products are sold to the commercial, residential and
institutional market segments through wholesalers, retailers (including large
home centers and buying groups), contractors, and to the hotel/motel and
manufactured homes industries.
Building Products
As a major producer of ceiling materials in the United States and abroad, we
market 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 features intended to permit ease of installation.
These residential ceiling products are sold through wholesalers and retailers
(including large home centers). Commercial
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suspended ceiling systems, designed for use in shopping centers, offices,
schools, hospitals, and other commercial and institutional settings, are
available in numerous colors, performance characteristics and designs and offer
characteristics such as acoustical control, accessibility to the plenum (the
area above the ceiling), rated fire protection, and aesthetic appeal. We sell
commercial ceiling materials and accessories, along with acoustical wall panels,
to ceiling systems contractors and to resale distributors. Framework (grid) for
our suspension ceiling systems products are manufactured and sold through a
joint venture with Worthington Industries.
Wood Products
Armstrong, through our Triangle Pacific subsidiary, manufactures and
sells hardwood flooring and other flooring, kitchen and bathroom cabinets and
related products. These products are used primarily in residential new
construction and remodeling, with some commercial applications such as retail
stores and restaurants. Flooring sales are generally made through independent
wholesale flooring distributors and retailers (including large home centers and
buying groups). Cabinets are sold through both independent or company owned
distributors.
Insulation Products
We manufacture insulation products for the technical insulation market.
Insulation products are made in a wide variety of types and designs to satisfy
various industrial and commercial applications with the majority of the products
comprising closed cell flexible foams. A broad range of cladding and other
related materials for the insulation contracting market are also produced.
Insulation products are sold primarily throughout Europe and North America, with
growing markets in Asia and South America.
All Other
During most of 1999, the "All Other" category in our financial reports included
business units making a variety of specialty products for the automotive,
textile and other industries worldwide. Gasket materials were manufactured for
new and replacement use in the automotive, farm equipment, appliance, small
engine, compressor and other industries. On June 30, 1999, we sold the gaskets
operation, retaining a 35% interest in the business. Since the divestiture, we
have accounted for the gaskets business under the equity method within the "All
Other" segment. Textile products include parts and equipment sold to textile
equipment manufacturers and textile mills. On September 30, 1999, we sold that
business. From 1996 to 1998, we owned an equity interest in Dal-Tile
International, Inc. which manufactured and sold ceramic tile products.
Major Customers
Our businesses principally sell our products through building products
distributors, who re-sell our products to retailers, builders, contractors,
installers and others. We also sell a significant portion of our products to
home center chains and industry buying groups. For example, during 1999, we
sold approximately $348 million of products to The Home Depot, Inc. These sales
included floor coverings, building products, wood products and insulation
products.
Raw Materials
Raw materials essential to our businesses are purchased worldwide in the
ordinary course of business from numerous suppliers. The principal raw materials
used by the Floor Coverings business include synthetic resins, plasticizers,
PVC, latex, linseed oil, limestone, films, pigments and inks. The principal raw
materials used by the Building Products business include mineral fibers and
fillers, clays, starches, newspaper and perlite, as well as steel used in the
ceiling grid manufacturing process. The principal raw materials used by the Wood
Products business include oak lumber, veneer, acrylics, plywood, particleboard
and fiberboard. The principal raw materials used by the Insulation business are
rubber, fillers like antimontryoxid and foaming agents. We also purchase
significant amounts of packaging materials for all of our products. In general,
adequate supplies of raw materials were available to all of our businesses. No
serious shortages or delays were encountered in 1999, and none are expected in
2000. We cannot guarantee that a significant shortage of one raw material or
another will not occur, however.
Customers' orders for our products are typically for immediate shipment. Thus,
in each business group, we keep sufficient inventory on hand to satisfy orders,
or manufacture product to meet delivery dates specified in orders. As a result,
there historically has been no material backlog in any industry segment.
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Patents and Intellectual Property Rights
Patent protection is important to our business in the United States and other
markets. Our competitive position has been enhanced by U.S and foreign patents
on products and processes developed or perfected within Armstrong or obtained
through acquisition or license. In addition, we also benefit from our trade
secrets for certain products and processes.
Patent protection extends for varying periods according to the date of patent
filing or grant and the legal term of a patent in the various countries where
patent protection is obtained. The actual protection afforded by a patent,
which can vary from country to country, depends upon the type of patent, the
scope of its coverage, and the availability of legal remedies in the country.
Although we consider that, in the aggregate, our patents and trade secrets
constitute a valuable asset of material importance to our business, we do not
regard any of our businesses as being materially dependent upon any single
patent or trade secret, or any group of related patents or trade secrets.
Our products are sold around the world under numerous brand-name trademarks we
consider in the aggregate to be of material importance. Certain of our
trademarks, including without limitation house marks Armstrong, Bruce, Hartco,
Robbins, and DLW, and product line marks Armaflex, Cirrus, Corlon, Execlon,
Henry, Medintech, Natural Reflections, Solarian, ToughGuard, Traffic Zone,
Ultima and WearMaster are important to our business because of their
significant brand name recognition. Trademark protection continues in some
countries as long as the mark is used; in other countries, as long as it is
registered. Registrations are generally for fixed, but renewable, terms.
Competition
There is strong competition in all of the industry segments in which we do
business. Competition in each industry segment and each geographic area where
we do business includes numerous companies. Principal methods of competition
include price, product performance and service. In addition, with the exception
of insulation, product styling is a significant component of competition in our
industry segments. Increasing competition in the U.S. from worldwide producers
is apparent in our businesses. There is currently excess production capacity in
various geographic markets, which tends to increase price competition.
Research & Development
Research and development activities are important and necessary in helping us to
improve our products. Principal research and development functions include the
development and improvement of products and manufacturing processes.
We spent $58.5 in 1999, $46.0 million in 1998 and $47.8 million in 1997 on
research and development activities worldwide for our continuing businesses.
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Environmental Matters
Most of Armstrong's manufacturing and certain of Armstrong's research facilities
are affected by federal, state and local environmental laws. These laws relate
to the discharge of materials or otherwise relate to the protection of the
environment. Armstrong has made, and intends to continue to make, necessary
expenditures for compliance with applicable laws. Armstrong incurred capital
expenditures of approximately $5.5 million in 1999, $6.7 million in 1998 and
$1.2 million in 1997 for environmental compliance and control facilities and
anticipates annual expenditures for those purposes to continue within this range
for the years 2000 and 2001. Armstrong does not anticipate that it will incur
significant capital expenditures in order to meet the requirements of the Clean
Air Act of 1990 and the final implementing regulations promulgated by various
state agencies. Until all new regulatory requirements are known, uncertainty
will remain regarding future estimates of capital expenditures.
As with many industrial companies, Armstrong is currently involved in
proceedings under the Comprehensive Environmental Response, Compensation and
Liability Act ("Superfund"), and similar state laws at approximately 22 sites.
In most cases, Armstrong is one of many potentially responsible parties ("PRPs")
who have voluntarily agreed to jointly fund the required investigation and
remediation of each site. With regard to some sites, however, Armstrong disputes
the liability, the proposed remedy or the proposed cost allocation among the
PRPs. Armstrong may also have rights of contribution or reimbursement from other
parties or coverage under applicable insurance policies. Armstrong is also
remediating environmental contamination resulting from past industrial activity
at certain of its current and former plant sites.
Estimates of future liability are based on an evaluation of currently available
facts regarding each individual site and consider factors including existing
technology, presently enacted laws and regulations and prior company experience
in remediation of contaminated sites. Although current law imposes joint and
several liability on all parties at any Superfund site, Armstrong's contribution
to the remediation of these sites is expected to be limited by the number of
other companies also identified as potentially liable for site costs. As a
result, Armstrong's estimated liability reflects only Armstrong's expected
share. In determining the probability of contribution, Armstrong considers the
solvency of the parties, whether responsibility is being disputed, the terms of
any existing agreements and experience regarding similar matters.
Liabilities of $14.7 million at December 31, 1999, and $18.3 million at December
31, 1998, were for potential environmental liabilities that Armstrong considers
probable and for which a reasonable estimate of the probable liability could be
made. Where existing data is sufficient to estimate the amount of the liability,
that estimate has been used; where only a range of probable liability is
available and no amount within that range is more likely than any other, the
lower end of the range has been used. As assessments and remediation activities
progress at each individual site, these liabilities are reviewed to reflect
additional information as it becomes available.
The estimated liabilities do not take into account any claims for recoveries
from insurance or third parties. Such recoveries, where probable, have been
recorded as an asset in the consolidated financial statements and are either
available through settlement or probable of recovery through negotiation or
litigation.
Actual costs to be incurred at identified sites in the future may vary from the
estimates, given the inherent uncertainties in evaluating environmental
liabilities. Subject to the imprecision in estimating environmental remediation
costs, Armstrong believes that any sum it may have to pay in connection with
environmental matters in excess of the amounts noted above would not have a
material adverse effect on its financial condition, liquidity or results of
operations, although the recording of future costs may be material to earnings
in such future period.
Employees
As of December 31, 1999, we had approximately 18,300 employees around the world,
of whom approximately 6,600 are located outside of the United States. About 57%
of our approximately 12,400 hourly or salaried production and maintenance
employees in the United States are represented by labor unions.
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Geographic Areas
See Item 8, Note 2 to Consolidated Financial Statements for financial
information by geographic areas.
Our non-U.S. operations are subject to local government legislation involving
restrictions on and transfers of investments, tariff restrictions, personnel
administration, and other actions by foreign governments. In addition,
consolidated earnings are subject to both U.S. and non-U.S. tax laws where those
earnings originated outside of the U.S., and to the effects of currency
fluctuations.
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CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
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(Cautionary Statements Under the Private Securities Litigation Reform Act of
1995)
Our disclosure and analysis in this report and in our 1999 Annual Report to
Shareholders contain some forward-looking statements. Forward-looking
statements give our current expectations or forecasts of future events. You can
identify these statements by the fact that they do not relate strictly to
historical or current facts. They use words such as "anticipate," "estimate,"
"expect," "project," "intend," "plan," "believe," and other words and terms of
similar meaning in connection with discussions of future operating or financial
performance. In particular, these include statements relating to future
actions, prospective products, future performance or results of current and
anticipated products, sales efforts, expenses, the outcome of contingencies such
as legal proceedings, and financial results. From time to time, we also may
provide oral or written forward-looking statements in other materials we release
to the public.
Any or all of our forward-looking statements in this report, in the 1999 Annual
Report and in any other public statements we make may turn out to be wrong.
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They can be affected by inaccurate assumptions we might make or by known or
unknown risks and uncertainties. Consequently, no forward-looking statement can
be guaranteed. Actual future results may vary materially.
We undertake no obligation to update any forward-looking statements, whether as
a result of new information, future events or otherwise. However, you should
consult any further disclosures we make on related subjects in our 10-Q, 8-K,
10-K or other reports filed with the SEC. Also note that we provide the
following cautionary discussion of risks and uncertainties relevant to our
businesses. These are some of the factors that we think could potentially cause
our actual results to differ materially from expected and historical results.
Other factors besides those listed here could also adversely affect us. This
discussion is provided in accordance with the Private Securities Litigation
Reform Act of 1995.
. Claims have been brought against us and our subsidiaries for various legal,
environmental and tax matters. In particular, claims have been brought
against us for alleged asbestos related personal injury and property damage.
The ultimate outcome and impact of these claims could differ from the amounts
recorded as liabilities on our balance sheet. Resolution of these cases
affects cash flows, and future increases in the recorded liability could
affect future results of operations. For more information on these matters,
see the discussion of Legal Proceedings in Item 3 in this report.
. Balancing investment to create future growth with the constraints of a price
competitive market is a challenge. Our investments in research and
development for future products could exceed corresponding sales growth.
. Revenues and earnings could be affected by the level of success of new
product introductions, as well as potential impacts from announced and
potential future price increases for our exisiting products.
. Much of our revenues and earnings are exposed to changes in foreign
exchange rates. Almost one third of our revenues arise from international
operations, and we expect that revenues and net income in 2000 will be
affected by changes in exchange rates.
Where practical, we try to reduce these effects by matching local currency
revenues with costs and local currency assets with liabilities. We also
manage foreign exchange risk with foreign currency forward contracts, and
with purchased foreign currency options.
We are subject to interest rate risk on our debt. However, we monitor
interest rate trends and try to minimize the impact of rate changes. Due to
our major acquisitions in 1998, and even after our debt reduction
accomplishments since completion of the acquisitions, our debt level is
higher than in prior years, and a good portion of it is financed through
short term borrowings. A significant increase in interest rates would
increase our borrowing costs.
Notwithstanding our efforts to foresee and plan for the effects of
changes in fiscal circumstances, we cannot predict with certainty all
changes in currency and interest rates, inflation or other related
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factors affecting our businesses. For more information on these matters,
see the discussion of Market Risk in Item 7A of this report.
. International operations could be affected by changes in intellectual
property legal protections and remedies, trade regulations, and procedures
and actions affecting production, pricing and marketing of products, as
well as by unstable governments and legal systems, intergovernmental
disputes and possible nationalization.
. Business combinations among our competitors could affect our competitive
position in the hard surface floor covering, ceiling system and wood
products businesses. Similarly, combinations or alliances among our major
customers could increase their purchasing power in dealing with us. And, of
course, if we ourselves should enter into one or more business
combinations, our business, finances and capital structure could be
affected.
. Growth in costs and expenses, raw material price increases (for example
increases in wood prices or in petroleum-based raw materials such as
plasticizers or PVCs), energy cost increases, changes in distribution and
product mix, and the impact of divestitures, restructuring and other
unusual items that could result from evolving business strategies, and
organizational restructuring could affect future results.
. Revenues and earnings could be affected by various worldwide economic and
political factors, including variations in residential and commercial
building rates and economic growth rates in various areas of the world in
which we do business. These factors could affect the end-use markets for
our products in various parts of the world.
. Revenues and earnings could be affected by the extent to which we
successfully realize savings from the continued integration of our 1998
acquisitions of Triangle Pacific and DLW.
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Item 2. Properties
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Our world headquarters are in Lancaster, Pennsylvania. We own a 100 acre,
multi-building campus comprising the site of our corporate headquarters, most
operational headquarters, and our R&D operations. Altogether, our headquarters
operations occupy over 986,000 square feet of floor space.
We produce and market our products and services throughout the world, owning and
operating 58 manufacturing plants in 15 countries. Thirty-eight of these
facilities are located throughout the United States. We also have an interest
through joint ventures in 15 additional plants in 7 countries.
Floor covering products and adhesives are produced at 24 plants, with principal
manufacturing facilities located in Pennsylvania, Illinois, Oklahoma, the U.K.,
and Germany. Building products are produced at 21 plants with principal
facilities in Georgia, the Florida-Alabama Gulf Coast area, Pennsylvania, the
U.K., and China. Wood products are produced at 16 plants, with principal
facilities located in West Virginia, Tennessee and Pennsylvania. Insulation
products are produced at 12 plants with principal facilities located in North
Carolina and Germany.
Sales offices are leased and owned worldwide, and leased facilities are utilized
to supplement Armstrong's owned warehousing facilities.
Productive capacity and the extent of utilization of our facilities are
difficult to quantify with certainty because in any one facility, maximum
capacity and utilization vary periodically depending upon the product that is
being manufactured, and individual facilities manufacture multiple products. In
this context, we estimate that the production facilities in each industry
segment were effectively utilized during 1999 at 80% to 90% of overall
productive capacity. Remaining productive capacity is sufficient to meet
expected customer demands. We believe that our various facilities are adequate
and suitable. Additional incremental investments in plant facilities are made as
appropriate to balance capacity with anticipated demand, improve quality and
service, and reduce costs.
Item 3. Legal Proceedings
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ASBESTOS-RELATED LITIGATION
Armstrong is a defendant in personal injury claims and property damage claims
related to asbestos containing products.
PERSONAL INJURY CLAIMS
Nearly all claims seek general and punitive damages arising from alleged
exposures, at various times, from World War II onward, to asbestos-containing
products. Claims against Armstrong, which can involve allegations of negligence,
strict liability, breach of warranty and conspiracy, primarily relate to
Armstrong's involvement with asbestos-containing insulation products. Armstrong
discontinued the sale of all such insulation products in 1969. In addition,
other Armstrong products, such as gasket materials, have been named in some
litigation. Claims may arise many years after first exposure to asbestos in
light of the long latency period (up to 40 years) for asbestos-related injury.
Product identification and determining exposure periods are difficult and
uncertain. Armstrong believes that many current plaintiffs are unimpaired.
Armstrong is involved in all stages of claims resolution and litigation,
including individual trials, consolidated trials and appeals.
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Over the long history of asbestos litigation involving hundreds of companies,
attention has been given by various parties to securing a comprehensive
resolution of the litigation. In 1991, the Judicial Panel for Multidistrict
Litigation ordered the transfer of federal cases to the Eastern District of
Pennsylvania in Philadelphia for pretrial purposes. Armstrong supported this
transfer. Some cases are periodically released for trial, although the issue of
punitive damages is retained by the transferee court. That court has been
instrumental in having the parties resolve large numbers of cases in various
jurisdictions and has been receptive to different approaches to the resolution
of claims. Claims filed in state courts have not been directly affected by the
transfer.
Asbestos Claims Facility ("Facility") and Center for Claims Resolution
("Center")
The Facility was established to evaluate, settle, pay and defend all personal
injury claims against member companies. Resolution and defense costs were
allocated by formula. The Facility subsequently dissolved, and the Center was
created in October 1988 by 21 former Facility members, including Armstrong. At
December 31, 1999 there were 19 members of the Center. In January 2000,
membership was reduced to 16 members. Insurance carriers, while not members, are
represented ex officio on the Center's governing board and have agreed annually
to provide a portion of the Center's operational costs. The Center adopted many
of the conceptual features of the Facility and has addressed the claims in a
manner consistent with the prompt, fair resolution of meritorious claims.
Resolution and defense costs are allocated by formula to each of the member
companies; adjustments over time have resulted in some increased share for
Armstrong.
Amchem Settlement Class Action
Georgine v. Amchem ("Amchem") was a settlement class action filed in the Eastern
District of Pennsylvania on January 15, 1993, that included essentially all
future personal injury claims against members of the Center for Claims
Resolution ("Center"), including Armstrong. It was designed to establish a
nonlitigation system for the resolution of those claims, and offered a method
for prompt compensation to claimants who were occupationally exposed to asbestos
if they met certain exposure and medical criteria. Compensation amounts were
derived from historical settlement data and no punitive damages were to be paid.
The settlement was designed to, among other things, minimize transactional
costs, including attorneys' fees; expedite compensation to claimants with
qualifying claims; and relieve the courts of the burden of handling future
claims.
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The District Court, after exhaustive discovery and testimony, approved the
settlement class action and issued a preliminary injunction that barred class
members from pursuing claims against Center members in the tort system. The U.S.
Court of Appeals for the Third Circuit reversed that decision, and the reversal
was sustained by the U.S. Supreme Court on September 25, 1997, holding that the
settlement class did not meet the requirements for class certification under
Federal Rule of Civil Procedure 23. The preliminary injunction was vacated on
July 21, 1997, resulting in the immediate reinstatement of enjoined cases and a
loss of the bar against the filing of claims in the tort system.
Post Amchem Claim Developments
Armstrong is a defendant in approximately 175,600 pending personal injury claims
as of December 31, 1999. During 1999, the Center received and verified
approximately 51,000 claims naming Armstrong as a defendant (of which
approximately 10,200 were received and verified in the fourth quarter).
Armstrong continues to seek broad-based settlements of claims through the
Center. The Center has recently reached agreements with several law firms that
cover approximately 82,000 claims (or 41% of current claims) some of which are
currently pending and some of which have yet to be filed. These agreements
typically provide for multiyear payments for settlement of current claims and
establish specific medical and other criteria for the settlement of future
claims as well as annual limits on the number of claims that can be filed by
these firms. These agreements also establish fixed settlement values for
different asbestos-related medical conditions which are subject to periodic
renegotiation over a period of 2 to 5 years. The plaintiff law firms are
required to recommend settlements to their clients although future claimants are
not legally obligated to accept the settlements. These agreements also provide
for nominal payments to future claimants who are unimpaired but who are eligible
for additional compensation if they develop a more serious asbestos-related
illness. The Center can terminate an agreement with an individual law firm if a
significant number of that firm's clients elect not to participate under the
agreement. Negotiations with additional plaintiff law firms engaged in
asbestos-related litigation that would resolve a substantial portion of the
remaining pending claims are ongoing. The ultimate success and timing of those
negotiations is uncertain.
Asbestos-Related Liability
In continually evaluating its estimated asbestos liability, Armstrong reviews,
among other things, its recent and historical settlement amounts, the incidence
of past and recent claims, the mix of the injuries and occupations of the
plaintiffs, the number of cases pending against it and the status and results of
broad-based settlement discussions. Based on this review, Armstrong has
estimated its share of liability to defend and resolve probable asbestos-related
personal injury claims. This estimate is highly uncertain due to the limitations
of the available data and the difficulty of forecasting with any certainty the
numerous variables that can affect the range of the liability. Armstrong will
continue to study the variables in light of additional information in order to
identify trends that may become evident and to assess their impact on the range
of liability that is probable and estimable.
In the fourth quarter of 1999, Armstrong recorded a charge to increase its
estimate of probable asbestos-related liability by $425.4 million. The revision
in the estimated liability is attributable to many factors. The actual number of
claims received in 1999 was higher than anticipated. Although we expect the
number of claims to decrease in future years, we now expect that the total
number of claims received will be higher than previously anticipated. Further,
the Center has recently settled with some law firms at amounts higher than our
original estimates pursuant to our broad-based settlement plan. In consideration
of these factors, management has concluded that an increase in the estimated
probable liability is required. Armstrong's estimate of such liability that is
probable and estimable through 2005 ranges from $681.5 million to $1,337.9
million as of December 31, 1999. The range of probable and estimable liability
reflects uncertainties in the number of future claims that will be filed, the
outcome of the broad-based settlement negotiations and Armstrong's overall
effective share of the Center's liabilities. Armstrong has concluded that no
amount within that range is more likely than any other, and therefore has
reflected $681.5 million as a liability in the consolidated financial statements
in accordance with generally accepted accounting principles. Of this amount,
management expects to incur asbestos liability payments of approximately $175.0
million over the next 12 months and has reflected $175.0 million as a current
liability.
Armstrong's estimated range of liability is primarily based on known claims
and an estimate of future claims that are likely to occur and can be reasonably
estimated through 2005. This estimated range of liability assumes that the
number of new claims filed annually will be less than the number filed in 1999.
For claims that may be filed beyond 2005, management believes that the level of
uncertainty is too great to provide for reasonable estimation of the number of
future claims, the nature of such claims, or the cost to resolve them.
Accordingly, it is reasonably possible that the total exposure to personal
injury claims may be greater than the estimated range of liability.
Although some settlements have already been reached, Armstrong is currently
uncertain as to the ultimate success and timing of the remaining broad-based
settlement discussions. However, if those discussions are unsuccessful or if
unfavorable claims experiences continue, significant changes in the assumptions
used in the estimate of Armstrong's liability may result. Those changes, if any,
could lead to increases in the recorded liability. Because of the uncertainties
related to the number of claims, the ultimate settlement amounts, and similar
matters, it is extremely difficult to obtain reasonable estimates of the amount
of the ultimate liability. As additional experience is gained regarding claims
and such settlement discussions or other new information becomes available
regarding the potential liability, Armstrong will reassess its potential
liability and revise the estimates as appropriate.
Because, among other things, payment of the liability will extend over many
years, management believes that the potential additional costs for claims, net
of any potential insurance recoveries, will not have a material after-tax effect
on the financial condition of Armstrong or its liquidity, although the net
after-tax effect of any future liabilities recorded in excess of insurance
assets could be material to earnings in a future period.
Codefendant Bankruptcies
Certain codefendant companies have filed for reorganization under Chapter 11 of
the Federal Bankruptcy Code. As a consequence, litigation against them (with
some exceptions) has been stayed or restricted. Due to the uncertainties
involved, the long-term effect of these proceedings on the litigation cannot be
predicted.
Letters of Credit
As of December 31, 1999, Armstrong entered into $36.2 million of letters of
credit to meet minimum collateral requirements established by the Center.
Property Damage Litigation
Armstrong is also one of many defendants in five pending claims as of December
31, 1999, that were filed by public and private building owners. These cases
present allegations of damage to the plaintiffs' buildings caused by
asbestos-containing products and generally seek compensatory and punitive
damages and equitable relief, including reimbursement of expenditures, for
removal and replacement of such products. Armstrong vigorously denies the
validity of the allegations against it in these claims. These claims are not
handled by the Center. Insurance coverage has been resolved and is expected to
cover almost all costs of these claims.
-13-
<PAGE>
Insurance Coverage
During relevant time periods, Armstrong purchased primary and excess insurance
policies providing coverage for personal injury claims and property damage
claims. Certain policies also provide coverage to ACandS, Inc., a former
subsidiary of Armstrong. Armstrong and ACandS agreed to share certain coverage
on a first-come first-served basis and to reserve for ACandS a certain amount of
excess coverage.
Wellington Agreement
In 1985, Armstrong and 52 other companies (asbestos defendants and insurers)
signed the Wellington Agreement. This Agreement settled disputes concerning
personal injury insurance coverage with signatory carriers. It provides broad
coverage for both defense and indemnity and applies to both products hazard and
nonproducts (general liability) coverages. Armstrong has resolved most
asbestos-related personal injury products hazard coverage matters with its
solvent carriers through the Wellington Agreement or other settlements.
Insurance Recovery Proceedings
A substantial portion of Armstrong's primary and excess remaining insurance
asset is nonproducts (general liability) insurance for personal injury claims
including, among others, those that involve alleged exposure during Armstrong's
installation of asbestos materials. An alternative dispute resolution ("ADR")
procedure under the Wellington Agreement is under way against certain carriers
to determine the percentage of resolved and unresolved claims that are
nonproducts claims, to establish the entitlement to that coverage and to
determine whether and how much reinstatement of prematurely exhausted products
hazard insurance is warranted. The nonproducts coverage potentially available is
substantial and includes defense costs in addition to limits. The carriers have
raised various defenses, including waiver, laches, statutes of limitations and
contractual defenses. One primary carrier alleges that it is no longer bound by
the Wellington Agreement, and another alleges that Armstrong agreed to limit its
claims for nonproducts coverage against that carrier when the Wellington
Agreement was signed. The ADR process is in the trial phase of binding
arbitration. One insurer has taken the position that it is entitled to litigate
in court certain issues in the ADR proceeding. During 1999, Armstrong received
preliminary decisions in the initial phases of the trial proceeding of the ADR
which were generally favorable to Armstrong on a number of issues related to
insurance coverage. Because of the continuing ADR process and the possibilities
for further proceedings on certain matters, Armstrong has not yet completely
determined the financial implications of the decisions. Armstrong has entered
into settlements with a number of the carriers resolving coverage issues.
-14-
<PAGE>
Other proceedings against non-Wellington carriers may become necessary.
Insurance Asset
As with its estimated asbestos-related liability, Armstrong continually
evaluates the probable insurance asset to be recorded. An insurance asset in the
amount of $296.0 million is recorded as of December 31, 1999. Approximately
$58.7 million was received in 1999 pursuant to existing settlements. The asset
was also increased by $90.0 million in the fourth quarter of 1999 primarily as a
result of insurance coverage in place related to the increase in the probable
and estimable liability and recent settlements with certain carriers. Of the
total insurance asset amount, approximately $78.3 million represents partial
settlement for previous claims which will be paid in a fixed and determinable
flow and is reported at its net present value discounted at 6.70%. The total
amount recorded reflects Armstrong's belief in the availability of insurance in
this amount, based upon Armstrong's success in insurance recoveries, recent
settlement agreements that provide that coverage, the nonproducts recoveries by
other companies and the opinion of outside counsel. This insurance is either
available through settlement or probable of recovery through negotiation,
litigation or resolution of the ADR process that is in the trial phase of
binding arbitration. Depending on further progress of the ADR, and activities
such as settlement discussions with insurance carriers party to the ADR and
those not party to the ADR, Armstrong may revise its estimate and additional
insurance assets may be recorded in a future period. Of the $296.0 million
asset, $26.0 million has been recorded as a current asset reflecting
management's estimate of the minimum insurance payments to be received in the
next 12 months. However, the actual amount of payments to be received in the
next 12 months could increase depending upon the nature and result of settlement
discussions. Management estimates that the timing of future cash payments for
the remainder of the recorded asset may extend beyond 10 years.
Cash Flow Impact
Armstrong paid $173.0 million for asbestos-related claims in 1999 compared to
$101.5 million in 1998. Armstrong received $58.7 million in asbestos-related
insurance recoveries in 1999 compared with $27.1 million in 1998. Armstrong
currently expects to pay approximately $95.0 million to $115.0 million for
asbestos-related claims and expenses in 2000, net of expected insurance
recoveries and taxes.
CONCLUSION
In the fourth quarter of 1999, Armstrong recorded a net pretax charge of $335.4
million. This charge is the net of an increase in its estimated asbestos-related
liability of $425.4 million and a $90.0 million increase in related insurance
recoveries.
While some successful broad-based settlements have been reached with
plaintiff law firms, Armstrong is uncertain as to the timing and number of any
additional settlements to be reached.
Since many uncertainties exist surrounding asbestos litigation, Armstrong
will continue to evaluate its asbestos-related estimated liability and
corresponding estimated insurance recoveries asset as well as the underlying
assumptions used to derive these amounts. The recorded liability and asset
reflect the most recent available information as of this filing. However, it is
reasonably possible that Armstrong's total exposure to personal injury claims
may be greater than the recorded liability, and, accordingly future charges to
income may be necessary. While Armstrong believes that potential future charges
may be material to the periods in which they are taken, Armstrong does not
believe the charges will have a material adverse effect on its financial
position or liquidity.
-15-
<PAGE>
ENVIRONMENTAL MATTERS
Most of Armstrong's manufacturing and certain of Armstrong's research facilities
are affected by federal, state and local environmental laws. These laws relate
to the discharge of materials or otherwise relate to the protection of the
environment. Armstrong has made, and intends to continue to make, necessary
expenditures for compliance with applicable laws. Armstrong incurred capital
expenditures of approximately $5.5 million in 1999, $6.7 million in 1998 and
$1.2 million in 1997 for environmental compliance and control facilities and
anticipates annual expenditures for those purposes to continue within this range
for the years 2000 and 2001. Armstrong does not anticipate that it will incur
significant capital expenditures in order to meet the requirements of the Clean
Air Act of 1990 and the final implementing regulations promulgated by various
state agencies. Until all new regulatory requirements are known, uncertainty
will remain regarding future estimates of capital expenditures.
As with many industrial companies, Armstrong is currently involved in
proceedings under the Comprehensive Environmental Response, Compensation and
Liability Act ("Superfund"), and similar state laws at approximately 22 sites.
In most cases, Armstrong is one of many potentially responsible parties ("PRPs")
who have voluntarily agreed to jointly fund the required investigation and
remediation of each site. With regard to some sites, however, Armstrong disputes
the liability, the proposed remedy or the proposed cost allocation among the
PRPs. Armstrong may also have rights of contribution or reimbursement from other
parties or coverage under applicable insurance policies. Armstrong is also
remediating environmental contamination resulting from past industrial activity
at certain of its current and former plant sites.
Estimates of future liability are based on an evaluation of currently
available facts regarding each individual site and consider factors including
existing technology, presently enacted laws and regulations and prior company
experience in remediation of contaminated sites. Although current law imposes
joint and several liability on all parties at any Superfund site, Armstrong's
contribution to the remediation of these sites is expected to be limited by the
number of other companies also identified as potentially liable for site costs.
As a result, Armstrong's estimated liability reflects only Armstrong's expected
share. In determining the probability of contribution, Armstrong considers the
solvency of the parties, whether responsibility is being disputed, the terms of
any existing agreements and experience regarding similar matters.
Liabilities of $14.7 million at December 31, 1999, and $18.3 million at
December 31, 1998, were for potential environmental liabilities that Armstrong
considers probable and for which a reasonable estimate of the probable liability
could be made. Where existing data is sufficient to estimate the amount of the
liability, that estimate has been used; where only a range of probable liability
is available and no amount within that range is more likely than any other, the
lower end of the range has been used. As assessments and remediation activities
progress at each individual site, these liabilities are reviewed to reflect
additional information as it becomes available.
The estimated liabilities do not take into account any claims for recoveries
from insurance or third parties. Such recoveries, where probable, have been
recorded as an asset in the consolidated financial statements and are either
available through settlement or probable of recovery through negotiation or
litigation.
Actual costs to be incurred at identified sites in the future may vary from
the estimates, given the inherent uncertainties in evaluating environmental
liabilities. Subject to the imprecision in estimating environmental remediation
costs, Armstrong believes that any sum it may have to pay in connection with
environmental matters in excess of the amounts noted above would not have a
material adverse effect on its financial condition, liquidity or results of
operations, although the recording of future costs may be material to earnings
in such future period.
-16-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable.
PART II
-------
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- --------------------------------------------------------------------------
Matters
- -------
Armstrong's Common Stock is traded on the New York Stock Exchange, Inc., the
Philadelphia Stock Exchange, Inc., and the Pacific Stock Exchange, Inc. As of
March 1, 2000, there were approximately 6,500 holders of record of Armstrong's
Common Stock.
During 1999, Armstrong issued a total of 2,400 shares of restricted Common Stock
to nonemployee directors of Armstrong pursuant to Armstrong's Restricted Stock
Plan for Nonemployee Directors. Given the small number of persons to whom these
shares were issued, applicable restrictions on transfer and the information
regarding Armstrong possessed by the directors, these shares were issued without
registration in reliance on Section 4(2) of the Securities Act of 1933, as
amended.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth Total year
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividends per share of common stock 0.48 0.48 0.48 0.48 1.92
Price range of common stock--high 64 5/16 59 11/16 60 7/8 45 1/8 64 5/16
Price range of common stock--low 44 5/8 45 44 1/8 29 29
- --------------------------------------------------------------------------------------------------------------------------
Dividends per share of common stock 0.44 0.48 0.48 0.48 1.88
Price range of common stock--high 87 7/8 90 68 3/8 70 1/4 90
Price range of common stock--low 69 7/8 67 3/8 46 15/16 50 1/2 46 15/16
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 6. Selected Financial Data
- ---------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in millions except for per-share data) For year 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 3,443.8 2,746.2 2,198.7 2,156.4 2,325.0
Cost of goods sold 2,290.3 1,838.6 1,461.7 1,459.9 1,581.1
Total selling, general and administrative expenses and
goodwill amortization 708.5 532.7 385.3 413.2 457.0
Equity (earnings) loss from affiliates, net (16.8) (13.8) 29.7 (19.1) (6.2)
Reorganization and restructuring charges (reversals) (1.4) 74.6 -- 46.5 71.8
Charge for asbestos liability, net 335.4 274.2 -- -- --
Loss from ceramic tile business formation/
(gain) from sales of woodlands -- -- -- -- 177.2
Operating income (loss) 127.8 39.9 322.0 255.9 44.1
Interest expense 105.2 62.2 28.0 22.6 34.0
Other expense (income), net (6.6) (1.7) (2.2) (6.9) 1.9
Earnings (loss) from continuing businesses before
income taxes 29.2 (20.6) 296.2 240.2 8.2
Income tax expense (benefit) 14.9 (11.3) 111.2 75.4 (5.4)
Earnings (loss) from continuing businesses 14.3 (9.3) 185.0 164.8 13.6
As a percentage of sales 0.4% -0.3% 8.4% 7.6% 0.6%
As a percentage of average monthly assets (a) 0.3% -0.3% 9.0% 8.5% 0.7%
Earnings (loss) from continuing businesses
</TABLE>
-17-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
applicable to common stock (b) 14.3 (9.3) 185.0 158.0 (0.7)
Per common share -- basic (c) 0.36 (0.23) 4.55 4.04 (0.02)
Per common share -- diluted (c) 0.36 (0.23) 4.50 3.82 (0.02)
Net earnings (loss) 14.3 (9.3) 185.0 155.9 123.3
As a percentage of sales 0.4% -0.3% 8.4% 7.2% 5.3%
Net earnings (loss) applicable to common stock (b) 14.3 (9.3) 185.0 149.1 109.0
As a percentage of average shareholders' equity 1.8% -1.2% 22.3% 19.6% 15.0%
Per common share -- basic (c) 0.36 (0.23) 4.55 3.81 2.94
Per common share -- diluted (c) 0.36 (0.23) 4.50 3.61 2.68
Dividends declared per share of common stock 1.92 1.88 1.72 1.56 1.40
Capital expenditures 195.2 184.3 160.5 228.0 182.7
Aggregate cost of acquisitions 3.8 1,175.7 4.2 -- 20.7
Total depreciation and amortization 169.2 142.7 132.7 123.7 123.1
Average number of employees -- continuing businesses 18,419 13,881 10,643 10,572 13,433
Average number of common shares outstanding (millions) 39.9 39.8 40.6 39.1 37.1
- --------------------------------------------------------------------------------------------------------------------------
Year-end position
Working capital -- continuing businesses 244.9 367.8 128.5 243.5 346.8
Net property, plant and equipment -- continuing businesses 1,439.1 1,502.0 972.2 964.0 878.2
Total assets 4,164.5 4,273.2 2,375.5 2,135.6 2,149.8
Net long-term debt 1,412.9 1,562.8 223.1 219.4 188.3
Total debt as a percentage of total capital (d) 71.2 73.1% 39.2% 37.2% 38.5%
Shareholders' equity 679.2 709.7 810.6 790.0 775.0
Book value per share of common stock 16.87 17.57 20.20 19.19 20.10
Number of shareholders (e) 6,515 6,868 7,137 7,424 7,084
Common shares outstanding (millions) 40.3 39.8 40.1 41.2 36.9
Market value per common share 33 3/8 60 5/16 74 3/4 69 1/2 62
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(a) Assets exclude insurance recoveries for asbestos-related liabilities.
(b) After deducting preferred dividend requirements and adding the tax benefits
for unallocated preferred shares.
(c) See definition of basic and diluted earnings per share on page 39.
(d) Total debt includes short-term debt, current installments of long-term debt,
long-term debt and ESOP loan guarantee. Total capital includes total debt
and total shareholders' equity.
(e) Includes one trustee who is the shareholder of record on behalf of
approximately 6,000 to 6,500 employees for years 1988 through 1996.
-18-
<PAGE>
From 1996 to July 1998, 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. From July 1998 to November 1998, ceramic tile
operations were reported under the cost method.
Beginning in 1998, consolidated results include Armstrong's acquisitions of
Triangle Pacific and DLW.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- --------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
1999 COMPARED WITH 1998
DIVESTITURES
On May 28, 1999, Armstrong sold DLW Aktiengesellschaft's ("DLW") furniture
business for total cash proceeds of $38.1 million. Armstrong acquired this
business as part of the acquisition of DLW in the third quarter of 1998 and had
classified the business as held for sale. There was no gain or loss on the
transaction.
-19-
<PAGE>
On June 22, 1999, Armstrong sold its interest in the assets of Martin
Surfacing, Inc. Armstrong acquired this interest as part of its acquisition of
DLW during the third quarter of 1998. There was no material gain or loss on the
transaction.
On June 30, 1999, Armstrong sold 65% of its ownership in Armstrong Industrial
Specialties, Inc. ("AISI"), its gasket products subsidiary, to a group of
investors including Citicorp Venture Capital Ltd. and the management of AISI for
a cash purchase price of approximately $36.1 million. The sale resulted in a
gain of approximately $6.0 million, or $0.15 per share, which was recorded in
other income.
On September 30, 1999, Armstrong completed the sale of its Textile Products
Operations to Day International Group, Inc. The sale resulted in a pretax loss
of $5.0 million ($3.2 million after tax, or $0.08 per diluted share) which was
recorded in other income.
-20-
<PAGE>
FINANCING
On March 16, 1999, Armstrong filed a shelf registration statement for $1 billion
of combined debt and equity securities. On May 19, 1999, Armstrong completed an
offering under the shelf registration statement of $200 million aggregate
principal amount of 7.45% Senior Notes due 2029. The net proceeds from this
offering were used to repay other indebtedness of Armstrong.
On October 21, 1999, Armstrong renewed a bank credit facility for $450
million that expires in 364 days and cancelled a $300 million line of credit
which was due to expire in 2001. Armstrong also has a $450 million line of
credit which expires in 2003. There were no borrowings under these facilities at
December 31, 1999.
FINANCIAL CONDITION
As shown on the Consolidated Balance Sheets on page 36, Armstrong had cash and
cash equivalents of $35.6 million at December 31, 1999, compared with $38.2
million recorded at the end of 1998. The ratio of current assets to current
liabilities was 1.31 to 1 as of December 31, 1999, compared with 1.49 to 1 as of
December 31, 1998.
Long-term debt, excluding Armstrong's guarantee of an ESOP loan, decreased
$149.9 million in 1999. At December 31, 1999, long-term debt of $1,412.9
million, or 60.0 percent of total capital, compared with $1,562.8 million, or
59.3 percent of total capital, at the end of 1998. At December 31, 1999, and
December 31, 1998, ratios of total debt (including Armstrong's guarantee of an
ESOP loan) as a percent of total capital were 71.2 percent and 73.1 percent,
respectively.
As shown on the Consolidated Statements of Cash Flows on page 37, net cash
provided by operating activities for the year ended December 31, 1999, was
$344.2 million compared with $240.8 million in 1998. The increase is due to
changes in working capital components, primarily an increase in accounts payable
and accrued expenses.
Net cash used for investing activities was $62.0 million for the year ended
December 31, 1999, compared with $1,198.3 million in 1998. The decrease was
primarily due to expenditures for acquisitions in 1998 and the proceeds from the
sales of businesses in 1999.
Net cash used for financing activities was $281.9 million for the year ended
December 31, 1999, compared with net cash provided by financing activities of
$937.3 million in 1998. The decrease was primarily due to the $202.1 million net
reduction of debt during 1999 compared to the $1,039.5 million net increase in
debt during 1998.
On October 15, 1999, Armstrong's ceiling grid joint venture with Worthington
Industries, WAVE, made a $25 million payment to each partner. Armstrong applied
the proceeds to debt reduction.
-21-
<PAGE>
Armstrong is constantly evaluating its various business units and may from
time to time dispose of, or restructure, those units. Armstrong is currently at
different levels of divestiture discussions and evaluations related to three of
its business units: insulation, floor installation products and its European
carpet business. The anticipated after-tax proceeds from these divestitures is
estimated to be $350 million to $450 million. See Divestitures section for
discussion of businesses sold during 1999.
[GRAPH]
-22-
<PAGE>
ASBESTOS-RELATED LITIGATION
Armstrong is involved in significant asbestos-related litigation which is
described more fully in Note 26 on pages 52-54 and which should be read in
connection with this discussion and analysis. Armstrong is a defendant in
approximately 175,600 pending personal injury claims as of December 31, 1999.
During 1999, the Center for Claims Resolution ("Center") received and verified
approximately 51,000 claims naming Armstrong as a defendant (of which
approximately 10,200 were received and verified in the fourth quarter).
Armstrong continues to seek broad-based settlements of claims through the
Center. The Center has recently reached agreements with several law firms that
cover approximately 82,000 claims (or 41% of current claims) some of which are
currently pending, and some of which have yet to be filed. These agreements
typically provide for multiyear payments for settlement of current claims and
establish specific medical and other criteria for the settlement of future
claims as well as annual limits on the number of claims that can be filed by
these firms. These agreements also establish specific settlement values for
different asbestos-related medical conditions which are subject to periodic
renegotiation over a period of 2 to 5 years. The plaintiff law firms are
required to recommend settlements to their clients although future claimants are
not legally obligated to accept the settlements. These agreements also provide
for nominal payments to future claimants who are unimpaired but who are eligible
for additional compensation if they develop a more serious asbestos-related
illness. The Center can terminate an agreement with an individual law firm if a
significant number of that firm's clients elect not to participate under the
agreement. Negotiations with additional plaintiff law firms engaged in
asbestos-related litigation that would resolve a substantial portion of the
remaining pending claims are ongoing. The ultimate success and timing of those
negotiations is uncertain.
In continually evaluating its estimated asbestos liability, Armstrong
reviews, among other things, its recent and historical settlement amounts, the
incidence of past and recent claims, the mix of the injuries and occupations of
the plaintiffs, the number of cases pending against it and the status and
results of broad-based settlement discussions. Based on this review, Armstrong
has estimated its share of liability to defend and resolve probable
asbestos-related personal injury claims. This estimate is highly uncertain due
to the limitations of the available data and the difficulty of forecasting with
any certainty the numerous variables that can affect the range of the liability.
Armstrong will continue to study the variables in light of additional
information in order to identify trends that may become evident and to assess
their impact on the range of liability that is probable and estimable.
In the fourth quarter of 1999, Armstrong recorded a charge to increase its
estimate of probable asbestos-related liability by $425.4 million. The revision
in the estimated liability is attributable to many factors. The actual number of
claims received in 1999 was higher than anticipated. Although we expect the
number of claims to decrease in future years, we now expect that the total
number of claims received will be higher than previously anticipated. Further,
the Center has recently settled with some law firms at amounts higher than our
original estimates pursuant to our broad-based settlement plan. In consideration
of these factors, management has concluded that an increase in the estimated
probable liability is required. Armstrong's estimate of such liability that is
probable and estimable through 2005 ranges from $681.5 million to $1,337.9
million as of December 31, 1999. The range of probable and estimable liability
reflects uncertainties in the number of future claims that will be filed, the
outcome of the broad-based settlement negotiations and Armstrong's overall
effective share of the Center's liabilities. Armstrong has concluded that no
amount within that range is more likely than any other, and therefore has
reflected $681.5 million as a liability in the consolidated financial statements
in accordance with generally accepted accounting principles. Of this amount,
management expects to incur asbestos liability payments of approximately $175.0
million over the next 12 months and has reflected $175.0 million as a current
liability.
Armstrong's estimated range of liability is primarily based on known claims
and an estimate of future claims that are likely to occur and can be reasonably
estimated through 2005. This estimated range of liability assumes that the
number of new claims filed annually will be less than the number filed in 1999.
For claims that may be filed beyond 2005, management believes that the level of
uncertainty is too great to provide for reasonable estimation of the number of
future claims, the nature of such claims, or the cost to resolve them.
Accordingly, it is reasonably possible that the total exposure to personal
injury claims may be greater than the estimated range of liability. Because of
the uncertainties related to the number of claims, the ultimate settlement
amounts, and similar matters, it is extremely difficult to obtain reasonable
estimates of the amount of the ultimate liability. As additional experience is
gained regarding claims and such settlement discussions or other new information
becomes available regarding the potential liability, Armstrong will reassess its
potential liability and revise the estimates as appropriate.
Although some settlements have already been reached, Armstrong is currently
uncertain as to the ultimate success and timing of the remaining broad-based
settlement discussions. However, if those discussions are unsuccessful or if
unfavorable claims experiences continue, significant changes in the assumptions
used in the estimate of Armstrong's liability may result. Those changes, if any,
could lead to increases in the recorded liability.
Because, among other things, payment of the liability will extend over many
years, management believes that the potential additional costs for claims, net
of any potential insurance recoveries, will not have a material after-tax effect
on the financial condition of Armstrong or its liquidity, although the net
after-tax effect of any future liabilities recorded in excess of insurance
assets could be material to earnings in a future period.
As with its estimated asbestos-related liability, Armstrong continually
evaluates the probable insurance asset to be recorded. An insurance asset in the
amount of $296.0 million is recorded as of December 31, 1999. Approximately
$58.7 million was received in 1999 pursuant to existing settlements. The asset
was also increased by $90.0 million in the fourth quarter of 1999 primarily as a
result of insurance coverage in place related to the increase in the probable
and estimable liability and recent settlements with certain carriers. Of the
total insurance asset amount, approximately $78.3 million represents partial
settlement for previous claims which will be paid in a fixed and determinable
flow and is reported at its net present value discounted at 6.70%. The total
amount recorded reflects Armstrong's belief in the availability of insurance in
this amount, based upon Armstrong's success in insurance recoveries, recent
settlement agreements that provide that coverage, the nonproducts recoveries by
other companies and the opinion of outside counsel. This insurance is either
available through settlement or probable of recovery through negotiation,
litigation or resolution of the Alternative Dispute Resolution ("ADR") process
that is in the trial phase of binding arbitration. Depending on further progress
of the ADR, and activities such as settlement discussions with insurance
carriers party to the ADR and those not party to the ADR, Armstrong may revise
its estimate and additional insurance assets may be recorded in a future period.
Of the $296.0 million asset, $26.0 million has been recorded as a current asset
reflecting management's estimate of the minimum insurance payments to be
received in the next 12 months. However, the actual amount of payments to be
received in the next 12 months could increase depending upon the nature and
result of settlement discussions. Management estimates that the timing of future
cash payments for the remainder of the recorded asset may extend beyond 10
years.
Armstrong paid $173.0 million for asbestos-related claims in 1999 compared to
$101.5 million in 1998. Armstrong received $58.7 million in asbestos-related
insurance recoveries in 1999 compared with $27.1 million in 1998. Armstrong
currently expects to pay approximately $95.0 million to $115.0 million for
asbestos-related claims and expenses in 2000, net of expected insurance
recoveries and taxes.
Since many uncertainties exist surrounding asbestos litigation, Armstrong
will continue to evaluate its asbestos-related estimated liability and
corresponding estimated insurance recoveries asset as well as the underlying
assumptions used to derive these amounts. The recorded liability and asset
reflect the most recent available information as of this filing. However, it is
reasonably possible that Armstrong's total exposure to personal injury claims
may be greater than the recorded liability and, accordingly, future charges to
income may be necessary. While Armstrong believes that potential future charges
may be material to the periods in which they are taken, Armstrong does not
believe the charges will have a material adverse effect on its financial
position or liquidity.
-23-
<PAGE>
CONSOLIDATED RESULTS
Net sales in 1999 of $3.44 billion were 25.4% higher when compared with net
sales of $2.75 billion in 1998. Triangle Pacific contributed $822.6 million and
$346.0 million of sales in 1999 and 1998 respectively, while DLW contributed
$513.1 million and $193.0 million during the same periods.
Excluding these recent acquisitions, Armstrong sales of $2,108.1 million were
$99.1 million, or 4.5%, below prior year of which $45.4 million related to the
absence of gasket and textile sales, following the sale of those units in 1999.
Floor coverings sales decreased 4.0%; Insulation products sales declined 1.9%;
and Building products sales were down 0.6%. Further excluding the impact of the
gaskets and textiles divestitures, Americas sales growth of 1.1% was offset by
the European sales decline of 11.1% and the Pacific Area sales decline of 1.9%.
Armstrong reported net earnings of $14.3 million, or $0.36 per share,
compared to a net loss of $9.3 million, or $0.23 per share in 1998. The 1999 and
1998 results include net after-tax charges of $218.0 million and $178.2 million,
respectively, for increases in the estimated liability for asbestos-related
claims, and the 1998 results include after-tax charges of $48.5 million for
reorganization charges.
Cost of goods sold in 1999 was 66.5% of sales, lower than cost of goods sold
of 67.0% in 1998. Excluding the effect of recent acquisitions, Armstrong's cost
of goods sold was 63.5% in 1999 compared to 65.9% in 1998, due to cost
reductions, manufacturing efficiencies and lower raw material costs.
Selling, general and administrative (SG&A) expenses in 1999 were $683.0
million, or 19.8% of sales. In 1998, SG&A expenses were $522.0 million, or 19.0%
of sales.
Equity earnings from affiliates of $16.8 million improved $3.0 million
reflecting primarily an improvement in the WAVE grid joint venture and the
equity method accounting of AISI for the post sale period in 1999.
Goodwill amortization was $25.5 million for 1999 compared to $10.7 million in
1998 due to a full year of amortization related to the Triangle Pacific and DLW
acquisitions.
Interest expense of $105.2 million in 1999 was higher than interest expense
of $62.2 million in 1998 due to higher levels of short- and long-term debt due
to a full year of acquisition related debt.
Other income includes a gain of $6.0 million on the divestiture of 65% of
AISI and a loss of $5.0 million on the divestiture of Textile Products. Other
income also reflects proceeds from the settlement of various legal actions
totaling $3 million and a gain of $2.6 million resulting from the receipt of
cash and stock in connection with the demutualization of an insurance company
with whom Armstrong has company-owned life insurance policies and other items.
Armstrong's 1999 effective tax rate, excluding the effects of the asbestos
charge, was 36.3% which was affected by nondeductible goodwill amortization.
Armstrong's 1998 tax benefit was generated by the charge for the increase in
asbestos liability, cost reduction and reorganization charges, and a tax benefit
associated with the gain on the sale of the Dal-Tile shares, partially offset by
the nondeductibility of goodwill.
-24-
<PAGE>
INDUSTRY SEGMENT RESULTS
FLOOR COVERINGS
Worldwide floor coverings sales in 1999 of $1,593.0 million included sales of
$513.1 million from DLW. Excluding DLW, sales were $1,079.9 million, or 4.0%
below last year. Sales in the Americas were essentially flat versus 1998 as
increased sales of commercial tile, installation products, and laminate were
almost offset by declines of residential tile and residential and commercial
sheet. The residential sheet decline was primarily due to lower sales in the
manufactured homes channel and Canada. Sales in the traditional retail channel
increased on higher unit volumes and improved product mix resulting from the
success of new product introductions. Both residential and commercial channels
experienced competitive pricing pressures during the year. European sales were
24.3% below prior year reflecting weak economic conditions and residential
pricing pressure resulting from excess capacity and the lack of business in
Russia. Pacific area sales were 2.0% ahead of last year.
[GRAPH]
[GRAPH]
Operating income of $217.4 million in 1999 compared to $176.5 million in
1998, excluding reorganization charges and reversals. Higher operating margins
were primarily due to implementation of actions related to the 1998 cost
reduction activities, lower raw material and other costs, an improved mix of
residential sheet products. Additionally, operating results include $4.8 million
for insurance settlements for past product claims, net of inventory write-offs
mostly offset by $3.3 million of costs associated with changes in the production
location for some product lines. The impact of changes in employee compensation
policies resulted in a net benefit of $3.0 million.
Outlook
Sales in 2000 are expected to increase modestly due to a better mix and new
products in the Americas in sheet flooring and laminates. European sales are
anticipated to be slightly higher than 1999 due to some economic recovery.
Operating income should remain stable as significant raw material price
increases will offset most of the sales increases.
BUILDING PRODUCTS
Building products sales of $752.1 million compared to $756.8 million in 1998 as
strong performance from the U.S. commercial business was offset by lower
European sales and price pressure across most markets.
Operating income of $119.7 million compared to $116.6 million in 1998,
excluding reorganization charges and reversals. The operating income increase
reflected the impact of 1998 cost reduction activities and lower raw material
and other costs. Results from Armstrong's WAVE grid joint venture with
Worthington Industries continue to be strong, showing a 13% improvement over
1998.
Outlook
Sales in 2000 are expected to increase modestly in the Americas and Europe
primarily due to anticipated volume and price increases. Operating income should
increase in 2000 as higher volume offsets increasing manufacturing and SG&A
costs.
WOOD PRODUCTS
Wood products sales of $822.6 million compared to $346.0 million in 1998. The
increase is primarily due to a full year's sales in 1999 compared with about 5
months of sales in 1998 following the acquisition of Triangle Pacific.
Operating income of $85.0 million compared to $38.6 million from the date of
acquisition in 1998.
On a comparable basis, sales and operating income for Triangle Pacific in
1999 were approximately 14.5% and 16.1% above the respective amounts reported by
Triangle Pacific in 1998.
Outlook
Sales in 2000 are expected to increase significantly through a combination of
volume and price increases. Although it is anticipated that lumber cost
increases will exceed sales price increases, operating income should increase
from the leveraging of sales over indirect operating costs.
-25-
<PAGE>
INSULATION PRODUCTS
Sales of $225.7 million decreased from $230.0 million in 1998. Sales in Europe
declined 5.5% while the Americas increased 11.6%. Operating income of $45.7
million decreased from $46.3 million in 1998, excluding reorganization charges,
primarily due to lower sales.
Outlook
Modest sales volume growth is expected despite continuing price pressure.
Operating income should remain close to the 1999 amount as the overall margins
will be negatively impacted by lower prices and inflationary cost increases.
Armstrong continues to pursue divestiture strategies for this business.
ALL OTHER
Sales reported in this segment comprise gasket materials and textile mill
supplies. As discussed previously, Armstrong sold the textiles business and 65%
of the gaskets business during 1999. Sales of $50.4 million decreased 47%
compared to 1998. Operating income of $6.0 million compared with $9.1 million in
1998, excluding reorganization charges.
GEOGRAPHIC AREAS
Net sales in the Americas in 1999 were $2.39 billion, compared to $1.92 billion
recorded in 1998. The increase in sales to customers in the United States and
Canada was primarily due to a full year of Triangle Pacific sales. Net sales in
Europe in 1999 were $905.8 million, compared to $699.3 million in 1998.
Additional sales from DLW were somewhat offset by lower sales to Eastern Europe.
Sales to the Pacific area and other foreign countries of $143.1 million were
higher than sales of $124.9 million in 1998.
Long-lived assets in the Americas in 1999 were $1.00 billion compared to
$1.01 billion in 1998. Long-lived assets in Europe in 1999 were $401.3 million
compared to $451.7 million in 1998. The decrease primarily relates to currency
exchange rate effects on German assets. Long-lived assets in the Pacific area in
1999 were $41.3 million compared to $41.2 million in 1998.
MARKET RISK
Armstrong is exposed to market risk from changes in foreign currency exchange
rates, interest rates and commodity prices that could impact its results of
operations and financial condition. Armstrong uses financial instruments,
including fixed and variable rate debt, as well as swap, forward and option
contracts to finance its operations and to hedge interest rate, currency and
commodity exposures. Swap, forward and option contracts are entered into for
periods consistent with underlying exposure and do not constitute positions
independent of those exposures. Armstrong uses derivative financial instruments
as risk management tools and not for speculative trading purposes. In addition,
derivative financial instruments are entered into with a diversified group of
major financial institutions in order to manage Armstrong's exposure to
nonperformance on such instruments.
-26-
<PAGE>
INTEREST RATE SENSITIVITY
The table below provides information about Armstrong's long-term debt
obligations as of December 31, 1999, and December 31, 1998. The table presents
principal cash flows and related weighted average interest rates by expected
maturity dates. Weighted average variable rates are based on implied forward
rates in the yield curve at the reporting date. The information is presented in
U.S. dollar equivalents, which is Armstrong's reporting currency.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Expected
maturity date After
($ millions) 1999 2000 2001 2002 2003 2004 2004 Total
- ---------------------------------------------------------------------------------------
As of December 31, 1999
- ---------------------------------------------------------------------------------------
Long-term debt:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate -- $31.1 $8.7 $0.8 $202.1 $1.3 $729.5 $973.5
Avg. interest
rate -- 7.73% 8.66% 7.23% 6.36% 3.51% 7.48% 7.26%
- ---------------------------------------------------------------------------------------
Variable rate -- $5.0 $2.0 -- $450.0 -- $18.5 $475.5
Avg. interest
rate -- 7.65% 7.65% -- 6.20% -- 4.89% 6.17%
- ---------------------------------------------------------------------------------------
Expected
maturity date After
($ millions) 1999 2000 2001 2002 2003 2003 Total
- ---------------------------------------------------------------------------------------
As of December 31, 1998
- ---------------------------------------------------------------------------------------
Long-term debt:
Fixed rate $28.9 $46.2 $ 29.7 $5.5 $206.5 $507.9 $824.7
Avg. interest
rate 5.19% 6.38% 5.46% 6.42% 6.36% 7.50% 6.99%
- ---------------------------------------------------------------------------------------
Variable rate $ 4.0 $ 5.0 $302.0 -- $450.0 $ 10.0 $771.0
Avg. interest
rate 7.0% 7.0% 5.71% -- 5.90% 4.00% 5.81%
- ---------------------------------------------------------------------------------------
</TABLE>
Armstrong manages its ratio of fixed to floating rate debt with the objective
of achieving a mix that management believes is appropriate. To manage this mix
in a cost effective manner, Armstrong, from time to time, enters into interest
rate swap agreements, in which it agrees to exchange various combinations of
fixed and/or variable interest rates based on agreed-upon notional amounts. In
order to maintain the ratio of fixed to floating rate debt which management
believes is appropriate, Armstrong entered into $150 million of interest rate
swaps during 1999. Armstrong receives fixed rates and pays floating rates on
these swaps. Details of outstanding swaps as of December 31, 1999 are as
follows:
- --------------------------------------------------------------------------------
Maturity Date Notional Pays Receives Market
($ millions) Amount Value
- --------------------------------------------------------------------------------
Aug. 15, 2005 $100.0 3 mo. LIBOR 6.26% ($3.5)
Aug. 15, 2003 50.0 3 mo. LIBOR 6.54% ($0.6)
- --------------------------------------------------------------------------------
Total $150.0 3 mo. LIBOR 6.35% ($4.1)
- --------------------------------------------------------------------------------
EXCHANGE RATE SENSITIVITY
Armstrong manufactures and sells its products in a number of countries
throughout the world and, as a result, is exposed to movements in foreign
currency exchange rates. To a large extent, Armstrong's global manufacturing and
sales provide a natural hedge of foreign currency exchange rate movement, as
foreign currency revenues are offset by foreign currency expenses. At December
31, 1999, Armstrong's major foreign currency exposures are to the Canadian
dollar, the Euro and the British pound.
Armstrong uses foreign currency forward exchange contracts and purchased
options to reduce its exposure to the risk that the eventual net cash inflows
and outflows, resulting from the sale of product to foreign customers and
purchases from foreign suppliers, will be adversely affected by changes in
exchange rates. These derivative instruments are used for firmly committed or
forecasted transactions. These transactions allow Armstrong to further reduce
its overall exposure to exchange rate movements, since the gains and losses on
these contracts offset losses and gains on the transactions being hedged.
Armstrong also uses foreign currency forward exchange contracts to hedge
exposures created by cross-currency inter-company loans.
The table below details Armstrong's outstanding currency instruments, all of
which mature before December 2000.
- --------------------------------------------------------------------------------
Notional Amount (millions) December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------
Forward Contracts $ 309.8 $ 507.5
Purchased Options 8.3 --
- --------------------------------------------------------------------------------
Fair Value (millions)
- --------------------------------------------------------------------------------
Forward Contracts $8.9 $6.4
Purchased Options 0.2 --
- --------------------------------------------------------------------------------
-27-
<PAGE>
COMMODITY PRICE SENSITIVITY
Armstrong purchases natural gas for use in the manufacture of ceiling tiles and,
as a result, is exposed to movements in the price of natural gas. Armstrong has
a policy of minimizing cost volatility by purchasing natural gas swap contracts.
The table below provides information about Armstrong's natural gas swap
contracts that are sensitive to changes in commodity prices. Notional amounts
are in millions of Btu's (MMBtu) and weighted average contract prices. All
contracts mature in or before December 2000.
- --------------------------------------------------------------------------------
On Balance Sheet Commodity
Related Derivatives 1999 2000 Total
- --------------------------------------------------------------------------------
As of December 31, 1999
- --------------------------------------------------------------------------------
Swap contracts (long):
Contract amounts (MMBtu) -- 950,000 950,000
Weighted average price ($/MMBtu) -- $2.43 $2.43
- --------------------------------------------------------------------------------
As of December 31, 1998
- --------------------------------------------------------------------------------
Swap contracts (long):
Contract amounts (MMBtu) 2,350,000 250,000 2,600,000
Weighted average price ($/MMBtu) $2.15 $2.41 $2.17
- --------------------------------------------------------------------------------
YEAR 2000 ACTIVITIES
As described in the Form 10-Q for the quarter ended September 30, 1999,
Armstrong had developed plans to address potential exposures of its computer
systems related to the year 2000. Since entering the year 2000, Armstrong has
not experienced any significant disruptions to its business nor is it aware of
any significant year 2000-related disruptions impacting its customers and
suppliers. Furthermore, Armstrong did not experience any material impact on
inventories at calendar year end. Armstrong will continue to monitor its systems
and operations until it is reasonably assured that no significant business
interruptions will occur as a result of any year 2000 issues.
Total costs of the year 2000 project were $19.8 million with no significant
additional expense expected in 2000.
-28-
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In September 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement established
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. In May 1999, the FASB delayed the effective date of
this statement to fiscal quarters of fiscal years beginning after June 15, 2000.
Armstrong is currently analyzing the impact of this statement but the adoption
of this statement is not expected to materially impact Armstrong's consolidated
results, financial condition or long-term liquidity.
Beginning in the first quarter of 1999, Armstrong adopted Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities." The adoption of
this statement did not materially impact Armstrong's consolidated results,
financial condition or long-term liquidity.
1998 COMPARED WITH 1997
ACQUISITIONS
On July 22, 1998, Armstrong completed its acquisition of Triangle Pacific Corp.
("Triangle Pacific"). Triangle Pacific is a leading U.S. manufacturer of
hardwood flooring and other flooring and related products and a substantial
manufacturer of kitchen and bathroom cabinets. The acquisition, recorded under
the purchase method of accounting, included the purchase of outstanding shares
of common stock of Triangle Pacific at $55.50 per share which, plus acquisition
costs, resulted in a total purchase price of $911.5 million. The purchase price
was allocated to tangible and identifiable intangible assets acquired and
liabilities assumed based on fair market value at the date of acquisition. The
balance of $831.1 million was recorded as goodwill and is being amortized over
forty years on a straight-line basis. During 1999, purchase price adjustments
increased goodwill by $5.3 million.
Effective August 31, 1998, Armstrong acquired approximately 93% of the total
share capital of DLW Aktiengesellschaft ("DLW"), a leading flooring manufacturer
in Germany. The acquisition, recorded under the purchase method of accounting,
included the purchase of 93% of the total share capital of DLW which, plus
acquisition costs, resulted in a total purchase price of $289.9 million. During
1999, Armstrong increased its ownership percentage of DLW to approximately 96%.
A portion of the purchase price has been allocated to assets acquired and
liabilities assumed based on fair market value at the date of acquisition, while
the balance of $117.2 million was recorded as goodwill and is being amortized
over forty years on a straight-line basis. During 1999, purchase price
adjustments increased goodwill by $5.2 million. In this purchase price
allocation, $49.6 million was allocated to the estimable net realizable value of
DLW's furniture business and of a carpet manufacturing business in the
Netherlands which Armstrong identified as businesses held for sale. Earnings in
these businesses, which have been excluded from Armstrong's operating results,
were $0.4 million in 1998. Interest costs of $1.1 million were allocated to
these businesses in 1998.
The operating results of these acquired businesses have been included in the
Consolidated Statements of Earnings from the dates of acquisition. Triangle
Pacific results are included in Armstrong's wood products segment and DLW
results are included in Armstrong's floor coverings segment.
-29-
<PAGE>
FINANCIAL CONDITION
As shown on the Consolidated Statements of Cash Flows on page 37, net cash
provided by operating activities for the year ended December 31, 1998, was
$240.8 million compared with $240.4 million in 1997.
Net cash used for investing activities was $1,198.3 million for the year
ended December 31, 1998, compared with $146.6 million in 1997. The increase was
primarily due to expenditures for acquisitions and was partially offset by the
sale of Armstrong's investment in Dal-Tile.
Net cash provided by financing activities was $937.3 million for the year
ended December 31, 1998, primarily due to the commercial paper issuance and the
three public debt offerings mentioned above. In the prior year, net cash used
for financing activities, including a net reduction in debt and the repurchase
of common shares, was $98.6 million.
Under plans approved by Armstrong's Board of Directors for the repurchase of
5.5 million shares of common stock, Armstrong had repurchased approximately
4,017,000 shares through June 30, 1998. In June 1998, Armstrong halted open
market purchases of its common shares upon the announcement of its intent to
purchase Triangle Pacific and DLW.
-30-
<PAGE>
CONSOLIDATED RESULTS
Net sales in 1998 of $2.75 billion were 24.9% higher when compared with net
sales of $2.20 billion in 1997. Triangle Pacific contributed $346.0 million of
sales and DLW $193.0 million of sales to Armstrong's business sales figure
before acquisitions of $2.21 billion.
Sales were affected unfavorably by economic developments in emerging markets.
For Armstrong's business before acquisitions, sales increased less than 1% in
each of floor coverings, building products and insulation products. Pacific area
sales were 13.5% below 1997, although insulation products increased both
domestic sales and exports from its Panyu, China, plant. In Europe, despite a
cessation of sales to Russia in August by all business units, floor coverings
increased sales to other customers including those in Eastern Europe. In total,
emerging market turmoil reduced 1998 sales by an estimated $14.7 million versus
last year, with over three-quarters of this total from lower Russian sales.
Armstrong reported a net loss of $9.3 million, or $0.23 per share, including
losses of $1.2 million related to Triangle Pacific and $2.8 million related to
DLW as well as after-tax charges of $178.2 million for an increase in the
estimated liability for asbestos-related claims and $48.5 million for cost
savings and reorganization. These results compare to net earnings of $185.0
million, or $4.50 per diluted share, in 1997.
Cost of goods sold in 1998 was 67.0% of sales, higher than cost of goods sold
of 66.5% in 1997. The change reflected required purchase price accounting
adjustments related to Triangle Pacific and DLW. Armstrong's pre-acquisition
business had a cost of goods sold of 65.9% in 1998 due to manufacturing
efficiencies and lower raw material costs. The cost of goods sold also benefited
from several efficiency and policy savings related to the implementation of the
SAP Corporate Enterprise System, including a change in vacation policy resulting
in a $5.2 million benefit in the fourth quarter.
Selling, general and administrative (SG&A) expenses in 1998 were $522.0
million, or 19% of sales, primarily reflecting higher advertising costs. In
1997, SG&A expenses were $383.5 million, or 17.4% of sales.
In the fourth-quarter 1998, a noncash pretax charge of $274.2 million, or
$178.2 million after tax, was recorded for an increase in the estimated
liability for asbestos-related claims. This change primarily arose from a
greater-than-anticipated increase in personal injury filings since the Amchem
class settlement was invalidated in 1997, Armstrong's assessment of future
claims and recent settlements with plaintiffs' counsels. Armstrong also
recognized cost reduction and reorganization charges of $65.6 million, or $42.6
million after tax. This charge encompassed severance and enhanced retirement
benefits related to the termination of more than 650 positions, approximately
75% of which were salaried positions. In addition, Armstrong recorded an
estimated loss of $9.0 million related to redundant flooring products machinery
and equipment held for disposal. Reorganization actions include corporate and
business unit staff reductions reflecting reorganization of engineering,
research and development and product styling and design; realignment of support
activities in connection with implementation of a new corporate logistics and
financial software system; changes to production processes in Armstrong's
Lancaster flooring plant; and elimination of redundant positions in formation of
a new combined business organization for Floor Products, Corporate Retail
Accounts and Installation Products. Approximately $28.6 million of the pretax
amount is for cash expenditures for severance which will occur over the next 12
months. The remainder is a noncash charge for enhanced retirement benefits.
Management believes that anticipated savings from the reorganization should
permit recovery of these charges in approximately two years. Severance payments
of $10.4 million in 1998 were made for the elimination of 209 positions related
to 1996 and 1998 restructuring and reorganization actions.
Interest expense of $62.2 million in 1998 was higher than interest expense of
$28.0 million in 1997 due to higher levels of short- and long-term debt used to
finance acquisitions.
Armstrong's 1998 tax benefit was generated by the charge for the increase in
asbestos liability, cost reduction and reorganization charges, and a tax benefit
associated with the gain on the sale of the Dal-Tile shares, partially offset by
the nondeductibility of goodwill in Armstrong's reported earnings.
INDUSTRY SEGMENT RESULTS
FLOOR COVERINGS
Worldwide floor coverings sales in 1998 of $1,317.6 million included sales of
$193.0 million from DLW. Excluding DLW, flooring sales grew over 2% in the
Americas due to strong laminate sales that more than offset a decline to
residential vinyl markets. Sales through the home center channel continued to
capture significant volume with sales increases of 16.6% over 1997. In Europe
and the Pacific area, sales were down 8%. Sales for installation products rose
3.8% over 1997.
Operating income of $176.5 million in 1998, which excluded cost reduction and
reorganization charges of $53.5 million and included a loss related to DLW of
$0.7 million, compared to $186.5 million in 1997. Lower operating margins were
due to pricing pressure in North America, an unfavorable product mix, and higher
advertising expenses only partially offset by lower raw material and other
costs. The cost reduction and reorganization charges of $53.5 million relate to
reductions of hourly and salaried staff in the U.S. and foreign operations and
changes to production processes in Armstrong's Lancaster flooring plant.
-31-
<PAGE>
BUILDING PRODUCTS
Building products sales of $756.8 million were slightly higher than the $754.5
million in 1997, as strong sales in the U.S. commercial segments and a favorable
mix were offset by weakness in emerging markets, principally Russia and the
Pacific area, down 29.4% compared to 1997.
Operating income of $116.6 million, which excluded cost reduction and
reorganization charges of $10.1 million, compared to $122.3 million in 1997. The
operating income decline reflected weaker performance by the business's metal
and soft fiber joint ventures in Europe and lower volumes to emerging markets,
partially offset by lower raw material and other costs. Results from Armstrong's
WAVE grid joint venture with Worthington Industries continue to be strong,
showing an 11% improvement over 1997. The cost reduction and reorganization
charges of $10.1 million relate to reductions of hourly and salaried staff in
the U.S. and foreign operations.
WOOD PRODUCTS
This segment contributed $346.0 million to sales for the period from July 22,
1998, from which time Triangle Pacific's results were consolidated in
Armstrong's financial statements. Sales for Triangle Pacific in 1998, although
approximately 11% ahead of sales reported by Triangle Pacific in the comparable
period in 1997, reflected competitive pricing pressures created by falling
lumber prices and imported products.
Operating income from the date of consolidation of $38.6 million included the
amortization of acquisition goodwill and the costs of nonrecurring purchase
price adjustments related to inventory. On a comparable basis, operating income
for Triangle Pacific in 1998 was approximately 35% above operating income
reported by Triangle Pacific in 1997.
INSULATION PRODUCTS
Sales of $230.0 million increased from $228.4 million in 1997. Sales in Europe
and the U.S. were level. Despite difficulties in the Pacific area, sales
increased from last year due to strong performance from the business's Panyu,
China, plant. Operating income of $46.3 million increased from $45.4 million in
1997, excluding cost reduction and reorganization charges of $0.2 million,
primarily due to cost cutting and SG&A expense reductions.
ALL OTHER
Sales reported in this segment comprise gasket materials and textile mill
supplies. Sales of $95.8 million decreased 4% compared to 1997. The major
influence on gasket products sales was the General Motors strike. Textile sales
declined due to slow sales to European textile machinery manufacturers.
Operating income reported in this segment comprises operating income from gasket
and textile products and ceramic tile. Operating income of $9.1 million
excluding cost reduction and reorganization charges of $1.9 million compared
with a loss of $2.6 million in 1997 reflecting the absence of losses from
Dal-Tile.
GEOGRAPHIC AREAS
Net sales in the Americas in 1998 were $1.92 billion, compared to $1.52 billion
recorded in 1997. The increase in sales to customers in the United States and
Canada was primarily due to the addition of Triangle Pacific sales. For
Armstrong's pre-acquisition business, sales growth continued to be strong in the
U.S. home center channel. Net sales in Europe in 1998 were $699.3 million,
compared to $548.5 million in 1997. Additional sales from DLW were somewhat
offset by lower sales to Eastern Europe, most notably Russia. Sales to
Scandinavian countries have continued to grow, reflecting increased sales from
the Swedish flooring and ceiling joint ventures. Sales to the Pacific area and
other foreign countries of $124.9 million were slightly below sales of $132.1
million in 1997.
Long-lived assets in the Americas in 1998 were $1.01 billion compared to
$0.77 billion in 1997. This increase reflects additional assets from the
acquisition of Triangle Pacific. Long-lived assets in Europe in 1998 were $451.7
million compared to $163.1 million in 1997. This increase reflects additional
assets from the acquisition of DLW. Long-lived assets in the Pacific area in
1998 were $41.2 million compared to $42.2 million in 1997.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- -------------------------------------------------------------------
(See pages 26 to 28 under Item 7 above.)
-32-
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
Index to Financial Statements and Schedule
The following consolidated financial statements are filed as part of this Annual
Report on Form 10-K:
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Earnings for the Years Ended December 31, 1999,
1998, and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999,
1998, and 1997
Consolidated Statements of Shareholders' Equity for the Years Ended December
31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule II - Valuation and Qualifying Reserves
The following additional financial data should be read in conjunction with the
financial statements. Schedules not included with this additional data have been
omitted because they are not applicable or the required information is presented
in the financial statements or the financial review.
-33-
<PAGE>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(millions except for per-share data) First Second Third Fourth Total year
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 Net sales $ 829.1 $ 883.0 $ 903.8 $ 827.9 $3,443.8
Gross profit 275.3 307.3 315.4 255.5 1,153.5
Net earnings (loss) 48.3 72.8 71.7 (178.5) 14.3
Per share of common stock:
Basic: Net earnings (loss) 1.21 1.83 1.80 (4.46) 0.36
Diluted: Net earnings (loss) 1.20 1.81 1.78 (4.46) 0.36
Dividends per share of common stock 0.48 0.48 0.48 0.48 1.92
Price range of common stock--high 64 5/16 59 11/16 60 7/8 45 1/8 64 5/16
Price range of common stock--low 44 5/8 45 44 1/8 29 29
- -----------------------------------------------------------------------------------------------------------------------------------
1998 Net sales $ 543.1 $ 555.6 $ 821.6 $ 825.9 $2,746.2
Gross profit 180.4 193.8 271.9 261.5 907.6
Net earnings (loss) 46.5 56.1 61.5 (173.4) (9.3)
Per share of common stock:
Basic: Net earnings (loss) 1.17 1.41 1.55 (4.36) (0.23)
Diluted: Net earnings (loss) 1.15 1.38 1.53 (4.36) (0.23)
Dividends per share of common stock 0.44 0.48 0.48 0.48 1.88
Price range of common stock--high 87 7/8 90 68 3/8 70 1/4 90
Price range of common stock--low 69 7/8 67 3/8 46 15/16 50 1/2 46 15/16
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The sum of the quarterly earnings per-share data does not equal the total
year amounts due to changes in the average shares outstanding and, for diluted
data, the exclusion of the antidilutive effect in certain quarters. The increase
in sales and net earnings from the second to the third quarter in 1998 reflects
the Triangle Pacific and DLW acquisitions.
FOURTH QUARTER 1999 COMPARED
WITH FOURTH QUARTER 1998
Net sales of $827.9 million increased from sales of $825.9 million in the fourth
quarter of 1998. Excluding the divestitures of the gaskets and textiles
businesses, sales increased 3.5%. Wood products sales increased 15.7%. Floor
coverings sales increased 1.8% as strong growth in sales to the Americas was
offset by slower sales to emerging markets and competitive price pressures in
Western Europe. Building products sales decreased 2.3% due to weaker unit volume
in all major channels and lower pricing due to competitive pressures.
An operating loss of $251.6 million compared to an operating loss of $254.0
million in the fourth quarter of 1998. Noncash pretax net charges of $335.4
million and $274.2 million were recorded in the fourth quarter of 1999 and 1998,
respectively, for increases in the estimated liability net of the corresponding
insurance asset for asbestos-related claims. An additional 1998 pretax charge of
$74.6 million related primarily to reorganization of corporate and business unit
staff positions. In 1999, $1.4 million of the 1998 pretax charge was reversed,
related to severance accruals that were no longer necessary.
For the fourth quarter, the cost of goods sold was 69.1% of sales compared to
68.3% in 1998. Excluding the acquisitions, Armstrong's cost of goods sold was
65.0% of sales, or 2.8 percentage points better than 1998, driven primarily by
significant cost reductions in floor coverings and building products primarily
arising from 1998's cost reduction activities.
Other income includes a $1.5 million reduction of the gain on the second
quarter sale of the gaskets business and a $0.7 million reduction of the loss on
the third quarter sale of Textile Products. Other income also reflects proceeds
from the settlement of various legal actions totaling $3 million, net of other
items.
Armstrong's effective tax rate in the fourth quarter of 1999 was (35.3)%
compared to an effective tax rate of (36.6)% in the fourth quarter of 1998.
A net loss of $178.5 million or $4.46 per diluted share compared to a net
loss of $173.4 million or $4.36 per diluted share in fourth quarter 1998.
-34-
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Millions except for per-share data Years ended December 31 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $3,443.8 $2,746.2 $2,198.7
Cost of goods sold 2,290.3 1,838.6 1,461.7
- ---------------------------------------------------------------------------------------------------
Gross profit 1,153.5 907.6 737.0
Selling, general and administrative expenses 683.0 522.0 383.5
Equity (earnings) loss from affiliates, net (16.8) (13.8) 29.7
Reorganization charges (reversals) (1.4) 74.6 --
Charge for asbestos liability, net 335.4 274.2 --
Goodwill amortization 25.5 10.7 1.8
- ---------------------------------------------------------------------------------------------------
Operating income 127.8 39.9 322.0
Interest expense 105.2 62.2 28.0
Other income, net (6.6) (1.7) (2.2)
- ---------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 29.2 (20.6) 296.2
Income tax expense (benefit) 14.9 (11.3) 111.2
- ---------------------------------------------------------------------------------------------------
Net earnings (loss) $ 14.3 $ (9.3) $ 185.0
===================================================================================================
Net earnings (loss) per share of common stock:
Basic $ 0.36 $ (0.23) $ 4.55
===================================================================================================
Diluted $ 0.36 $ (0.23) $ 4.50
===================================================================================================
</TABLE>
The Notes to Consolidated Financial Statements, pages 39-54, are an integral
part of these statements.
-35-
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Millions except for numbers of shares and per-share data As of December 31 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 35.6 $ 38.2
Accounts and notes receivable
(less allowance for discounts and losses: 1999--$47.9; 1998--$49.8) 436.0 440.4
Inventories 429.7 465.1
Deferred income taxes 40.6 43.2
Net assets of businesses held for sale 2.2 55.9
Other current assets 85.8 78.3
- ---------------------------------------------------------------------------------------------------------
Total current assets 1,029.9 1,121.1
- ---------------------------------------------------------------------------------------------------------
Property, plant and equipment
(less accumulated depreciation and amortization: 1999--$1,213.0; 1998--$1,121.9) 1,439.1 1,502.0
Insurance for asbestos-related liabilities, noncurrent 270.0 248.8
Investment in affiliates 34.2 41.8
Goodwill, net 935.1 965.4
Other intangibles, net 56.6 63.2
Other noncurrent assets 399.6 330.9
- ---------------------------------------------------------------------------------------------------------
Total assets $4,164.5 $4,273.2
=========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 70.9 $ 149.9
Current installments of long-term debt 36.1 32.9
Accounts payable and accrued expenses 670.7 544.8
Income taxes 7.3 25.7
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 785.0 753.3
- ---------------------------------------------------------------------------------------------------------
Long-term debt, less current installments 1,412.9 1,562.8
Employee Stock Ownership Plan (ESOP) loan guarantee 155.3 178.6
Deferred income taxes 62.0 107.6
Postretirement and postemployment benefit liabilities 245.2 249.0
Pension benefit liabilities 200.2 235.5
Asbestos-related long-term liabilities, noncurrent 506.5 344.8
Other long-term liabilities 106.4 115.8
Minority interest in subsidiaries 11.8 16.1
- ---------------------------------------------------------------------------------------------------------
Total noncurrent liabilities 2,700.3 2,810.2
- ---------------------------------------------------------------------------------------------------------
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 176.4 173.0
Reduction for ESOP loan guarantee (190.3) (199.1)
Retained earnings 1,196.2 1,257.0
Accumulated other comprehensive loss (16.5) (25.4)
- ---------------------------------------------------------------------------------------------------------
1,217.7 1,257.4
- ---------------------------------------------------------------------------------------------------------
Less common stock in treasury, at cost:
1999--11,628,705 shares; 1998--11,856,721 shares 538.5 547.7
- ---------------------------------------------------------------------------------------------------------
Total shareholders' equity 679.2 709.7
- ---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $4,164.5 $4,273.2
=========================================================================================================
</TABLE>
The Notes to Consolidated Financial Statements, pages 39-54, are an integral
part of these statements.
-36-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Millions Years ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 14.3 $ (9.3) $ 185.0
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 169.2 142.7 132.7
Deferred income taxes (38.3) (27.9) 24.2
Equity (earnings) loss from affiliates, net (16.8) (13.8) 29.7
Gain on sale of business, net (1.0) -- --
Gain on sale of investment in affiliates -- (12.8) --
Reorganization charges (reversals) (1.4) 74.6 --
Reorganization and restructuring payments (16.9) (11.2) (18.6)
Payments for asbestos-related claims, net of recoveries (114.4) (74.4) (41.4)
Charge for asbestos liability 335.4 274.2 --
Changes in operating assets and liabilities net of effects of
reorganizations, restructuring, acquisitions and dispositions:
(Increase) decrease in receivables (22.1) 3.5 (40.8)
(Increase) decrease in inventories (9.9) 44.4 (12.8)
(Increase) decrease in other current assets 29.3 (28.2) 10.5
Increase in other noncurrent assets (54.4) (112.0) (69.0)
Increase (decrease) in accounts payable and accrued expenses 86.7 (19.4) 16.6
Increase (decrease) in income taxes payable (18.5) (2.7) 11.5
Increase in other long-term liabilities 12.1 26.0 23.2
Other, net (9.1) (12.9) (10.4)
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 344.2 240.8 240.4
- -----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (183.6) (159.7) (141.7)
Investment in computer software (11.6) (24.6) (18.8)
Proceeds from sales of businesses 88.3 -- --
Proceeds from sale of land and facilities 7.9 2.7 24.3
Acquisitions, net of cash acquired (3.8) (1,175.7) (4.2)
Distributions from equity affiliates 40.8 11.4 6.2
Investment in affiliates -- 147.6 (12.4)
- -----------------------------------------------------------------------------------------------------
Net cash used for investing activities (62.0) (1,198.3) (146.6)
- -----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in short-term debt (69.7) 24.2 69.3
Issuance of long-term debt 200.0 1,293.9 7.2
Reduction of long-term debt (332.4) (278.6) (17.0)
Cash dividends paid (76.9) (75.3) (70.0)
Purchase of common stock for the treasury, net (1.3) (31.8) (89.2)
Proceeds from exercised stock options 1.2 7.9 7.9
Other, net (2.8) (3.0) (6.8)
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (281.9) 937.3 (98.6)
- -----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (2.9) 0.5 (2.7)
- -----------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents $ (2.6) $ (19.7) $ (7.5)
=====================================================================================================
Cash and cash equivalents at beginning of year $ 38.2 $ 57.9 $ 65.4
=====================================================================================================
Cash and cash equivalents at end of year $ 35.6 $ 38.2 $ 57.9
=====================================================================================================
</TABLE>
The Notes to Consolidated Financial Statements, pages 39-54, are an integral
part of these statements.
-37-
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Millions except for per-share data Years ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK, $1 PAR VALUE:
Balance at beginning and end of year $ 51.9 $ 51.9 $ 51.9
==================================================================================================================================
CAPITAL IN EXCESS OF PAR VALUE:
Balance at beginning of year $ 173.0 $ 169.5 $ 169.5
Stock issuances and other 3.4 3.5 --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 176.4 $ 173.0 $ 169.5
==================================================================================================================================
REDUCTION FOR ESOP LOAN GUARANTEE:
Balance at beginning of year $ (199.1) $ (207.7) $ (217.4)
Principal paid 23.3 23.2 19.6
Loans to ESOP (12.8) (10.1) (5.5)
Interest on loans to ESOP (1.3) (0.8) (0.3)
Accrued compensation (0.4) (3.7) (4.1)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ (190.3) $ (199.1) $ (207.7)
==================================================================================================================================
RETAINED EARNINGS:
Balance at beginning of year $1,257.0 $1,339.6 $1,222.6
Net earnings (loss) for year 14.3 $14.3 (9.3) $ (9.3) 185.0 $185.0
Tax benefit on dividends paid on
unallocated ESOP common shares 1.8 2.0 2.0
- ----------------------------------------------------------------------------------------------------------------------------------
Less: Common stock dividends (per share):
$1.92 in 1999; $1.88 in 1998; $1.72 in 1997 76.9 75.3 70.0
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $1,196.2 $1,257.0 $1,339.6
==================================================================================================================================
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS):
Balance at beginning of year $ (25.4) $ (16.2) $ 9.9
Foreign currency translation adjustments
and hedging activities (3.4) (7.0) (19.1)
Minimum pension liability adjustments 12.3 (2.2) (7.0)
- ----------------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) 8.9 $ 8.9 (9.2) $ (9.2) (26.1) $(26.1)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ (16.5) $ (25.4) $ (16.2)
==================================================================================================================================
COMPREHENSIVE INCOME (LOSS) $23.2 $(18.5) $158.9
- ----------------------------------------------------------------------------------------------------------------------------------
LESS TREASURY STOCK AT COST:
Balance at beginning of year $ 547.7 $ 526.5 $ 446.5
Stock purchases 1.3 31.8 89.2
Stock issuance activity, net (10.5) (10.6) (9.2)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 538.5 $ 547.7 $ 526.5
- ----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 679.2 $ 709.7 $ 810.6
==================================================================================================================================
</TABLE>
The Notes to Consolidated Financial Statements, pages 39-54, are an integral
part of these statements.
-38-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates. These financial statements are prepared in accordance with
- ----------------
generally accepted accounting principles and include management estimates and
judgments, where appropriate. Actual results may differ from these estimates.
Consolidation Policy. The consolidated financial statements and accompanying
- --------------------
data in this report include the accounts of the parent Armstrong World
Industries, Inc., and its domestic and foreign subsidiaries. All significant
intercompany transactions have been eliminated from the consolidated financial
statements. Certain prior year amounts have been reclassified to conform with
the current year presentation.
Revenue Recognition. Armstrong records revenue from the sale of products and the
- -------------------
related accounts receivable as title transfers, generally on the date of
shipment. Provision is made for estimated applicable discounts and losses.
Earnings per Common Share. Basic earnings per share are computed by dividing the
- -------------------------
earnings by the weighted average number of shares of common stock outstanding
during the year. Diluted earnings per common share reflect the potential
dilution of securities that could share in earnings.
Advertising Costs. Armstrong recognizes advertising expenses as they are
- -----------------
incurred.
Pension and Postretirement Benefits. Armstrong has plans that provide for
- -----------------------------------
pension, medical and life insurance benefits to certain eligible employees when
they retire from active service. Generally, Armstrong's practice is to fund the
actuarially determined current service costs and the amounts necessary to
amortize prior service obligations over periods ranging up to 30 years, but not
in excess of the funding limitations.
Taxes. Deferred tax assets and liabilities are recognized using enacted tax
- -----
rates for expected future tax consequences of events recognized in the financial
statements or tax returns. The tax benefit for dividends paid on unallocated
shares of stock held by an ESOP is recognized in shareholders' equity.
Cash and Cash Equivalents. Short-term investments that have maturities of three
- -------------------------
months or less when purchased are considered to be cash equivalents.
Inventories. Inventories are valued at the lower of cost or market.
- -----------
Approximately 43% of inventories at December 31, 1999 are valued using the last
in, first out (LIFO) method. Other inventories are determined on a first in,
first out (FIFO) method.
Long-Lived Assets. Property, plant and equipment values are stated at
- -----------------
acquisition cost less accumulated depreciation and amortization. Depreciation
charges for financial reporting purposes are determined on the straight-line
basis at rates calculated to provide for the retirement of assets at the end of
their useful lives as follows: buildings, 20 to 40 years; machinery and
equipment, 3 to 15 years. Impairment losses are recorded when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. When assets are
disposed of or retired, their costs and related depreciation are removed from
the books, and any resulting gains or losses normally are reflected in "Selling,
general and administrative expenses."
Costs of the construction of certain long-term assets include capitalized
interest which is amortized over the estimated useful life of the related asset.
Capitalized interest was $4.3 million in 1999, $5.8 million in 1998 and $1.8
million in 1997.
Goodwill and Other Intangibles. Goodwill and other intangibles are amortized on
- ------------------------------
a straight-line basis. Goodwill is amortized over periods up to 40 years while
other intangibles are amortized over periods up to 7 years. On a periodic basis,
Armstrong estimates the future undiscounted cash flows of the businesses to
which goodwill relates in order to ensure that the carrying value of goodwill
and other intangibles has not been impaired.
Financial Instruments and Derivatives. Armstrong uses derivatives and other
- -------------------------------------
financial instruments to diversify or offset the effect of currency, interest
rate and commodity price variability.
Armstrong may enter into foreign currency forward contracts to offset the
effect of exchange rate changes on cash flow exposures denominated in foreign
currencies. Such exposures include firm commitments with third parties and
intercompany financial transactions.
Realized gains and losses on contracts are recognized in the Consolidated
Statements of Earnings. Unrealized gains and losses on foreign currency options
that are designated as effective hedges as well as option premium expense are
deferred and included in the statements of earnings as part of the underlying
transactions. Unrealized gains and losses on foreign currency contracts used to
hedge intercompany transactions having the character of long-term investments
are included in other comprehensive income.
Armstrong may enter into interest rate swap agreements to alter the interest
rate risk profile of outstanding debt, thus altering Armstrong's exposure to
changes in interest rates. In these swaps, Armstrong agrees to exchange, at
specified intervals, the difference between fixed and variable interest amounts
calculated by reference to a notional principal amount. Any differences paid or
received on interest rate swap agreements, when terminated, are recognized as
adjustments to interest expense over the life of associated debt.
Armstrong continuously monitors developments in the capital markets and only
enters into currency and swap transactions with established counterparties
having investment-grade ratings. Exposure to individual counterparties is
controlled, and thus Armstrong considers the risk of counterparty default to be
negligible.
-39-
<PAGE>
NOTE 2. NATURE OF OPERATIONS
INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
For year ended 1999
- ------------------------------------------------------------------------------------------------------------------
Floor Building Wood Insulation All
(millions) coverings products products products other Totals
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales to external customers $1,593.0 $752.1 $ 822.6 $225.7 $50.4 $3,443.8
Intersegment sales 2.7 -- -- -- 20.7 23.4
Equity (earnings) loss from affiliates 0.1 (16.1) -- -- (0.8) (16.8)
Segment operating income 217.4 119.7 85.0 45.7 6.0 473.8
Reorganization and restructuring reversals (1.1) (0.3) -- -- -- (1.4)
Segment assets 1,477.6 535.1 1,308.0 155.8 16.0 3,492.5
Depreciation and amortization 74.7 34.1 36.1 10.8 2.8 158.5
Equity investment 3.3 14.9 -- -- 16.0 34.2
Capital additions 79.9 45.5 41.5 9.1 2.7 178.7
- ------------------------------------------------------------------------------------------------------------------
For year ended 1998
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Floor Building Wood Insulation All
(millions) coverings products products products other Totals
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales to external customers $1,317.6 $756.8 $ 346.0 $230.0 $95.8 $2,746.2
Intersegment sales -- -- -- -- 39.5 39.5
Equity (earnings) loss from affiliates 0.2 (14.2) -- -- 0.2 (13.8)
Segment operating income 176.5 116.6 38.6 46.3 9.1 387.1
Reorganization charges 53.5 10.1 -- 0.2 1.9 65.7
Segment assets 1,359.5 550.1 1,279.0 172.0 67.6 3,428.2
Depreciation and amortization 63.6 39.2 15.3 12.1 7.2 137.4
Equity investment 2.2 39.6 -- -- -- 41.8
Capital additions 93.6 42.5 12.4 11.3 5.9 165.7
- ------------------------------------------------------------------------------------------------------------------
For year ended 1997
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Floor Building Wood Insulation All
(millions) coverings products products products other Totals
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales to external customers $1,116.0 $754.5 $ -- $228.4 $99.8 $2,198.7
Intersegment sales -- -- -- -- 35.8 35.8
Equity (earnings) loss from affiliates 0.2 (12.9) -- -- 42.4 29.7
Segment operating income (loss) 186.5 122.3 -- 45.4 (2.6) 351.6
Segment assets 713.8 554.9 -- 165.1 219.2 1,653.0
Depreciation and amortization 65.5 37.5 -- 12.0 9.6 124.6
Equity investment 2.5 36.7 -- -- 135.7 174.9
Capital additions 76.6 54.4 -- 13.4 3.1 147.5
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Segment information has been prepared in accordance with Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No.
131, "Disclosures about Segments of an Enterprise and Related Information."
Segments were determined based on products and services provided by each
segment. Accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Performance of the segments is
evaluated on operating income before income taxes, excluding reorganization and
restructuring charges, unusual gains and losses, and interest expense. Armstrong
accounts for intersegment sales and transfers as if the sales or transfers were
to third parties at current market prices.
The floor coverings segment includes resilient flooring, adhesives,
installation and maintenance materials and accessories sold to commercial and
residential customers through wholesalers, retailers and contractors. To reduce
interchannel conflict, distinctive resilient flooring products have been
introduced to allow exclusive product offerings by our customers. Raw materials,
especially plasticizers and resins, are a significant cost of resilient flooring
products. Armstrong has no influence on the worldwide market prices of these
materials and thus is subject to cost changes.
The building products segment includes commercial and residential ceiling
systems. Grid products, manufactured through Armstrong's WAVE joint venture with
Worthington Industries, have become an important part of this business
worldwide. Earnings from this joint venture are included in this segment's
operating income and in "Equity Earnings from Affiliates" (see "Equity
Investments" note on page 43). The major sales activity in this segment is
commercial ceiling systems sold to resale distributors and contractors
worldwide, with European sales having a significant impact. Ceiling systems for
the residential home segment are sold through wholesalers and retailers, mainly
in the United States. Through a joint venture with a Chinese partner, a plant in
Shanghai manufactures ceilings for the Pacific area.
The wood products segment is composed of Triangle Pacific Corp., a wholly
owned subsidiary, a leading manufacturer of consumer wood products including
hardwood flooring and cabinets. Products in this segment are used primarily in
residential new construction and remodeling and commercial applications such as
retail stores and restaurants. Approximately 35% of sales are from new
construction which is more cyclical than remodeling activity. Triangle Pacific
manufactures hardwood flooring under the brand names of Bruce, Hartco and
Robbins while cabinets are manufactured under the brand names of Bruce and IXL.
The insulation products segment includes flexible pipe insulation used in
construction and in original equipment manufacturing. Sales are primarily in
Europe, with Germany having the largest concentration due to its regulatory
requirements. Strong competition exists in insulation since there are minimal
barriers to entry into this market.
During most of 1999, "all other" included business units making a variety of
specialty products for the building, automotive, textile and other industries
worldwide. Gasket materials are sold for new and replacement use in automotive,
construction and farm equipment, appliance, small engine and compressor
industries. On June 30, 1999, Armstrong sold 65% of the gaskets business. Since
the divestiture, Armstrong has accounted for the gaskets business under the
equity method within the "all other" segment. Textile mill supplies, including
cots and aprons, are sold to equipment manufacturers and textile mills. On
September 30, 1999, Armstrong sold the textiles business. From 1997 to 1998,
Armstrong owned an equity interest in Dal-Tile International Inc. ("Dal-Tile"),
whose ceramic tile products are sold through home centers, Dal-Tile sales
service centers and independent distributors. In 1998, Armstrong sold its
interest in Dal-Tile.
During 1999, Armstrong recognized revenue of approximately $348 million from
The Home Depot, Inc., from sales in the floor coverings, building products, wood
products and insulation products segments.
-40-
<PAGE>
The table below provides a reconciliation of segment information to total
consolidated information.
- --------------------------------------------------------------------------------
(millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Net sales:
Total segment sales $3,443.8 $2,746.2 $2,198.7
Intersegment sales 23.4 39.5 35.8
Elimination of intersegment sales (23.4) (39.5) (35.8)
- --------------------------------------------------------------------------------
Total consolidated sales $3,443.8 $2,746.2 $2,198.7
================================================================================
Operating income:
Total segment operating income $ 473.8 $ 387.1 $ 351.6
Segment reorganization and
restructuring (charges) reversals 1.4 (65.7) --
Corporate reorganization charges -- (8.9) --
Dal-Tile charge -- -- (29.7)
Asbestos liability charge (335.4) (274.2) --
Unallocated corporate (expense) income (12.0) 1.6 0.1
- --------------------------------------------------------------------------------
Total consolidated operating income $ 127.8 $ 39.9 $ 322.0
================================================================================
Assets:
Total assets for reportable segments $3,492.5 $3,428.2 $1,653.0
Assets not assigned to business segments 672.0 845.0 722.5
- --------------------------------------------------------------------------------
Total consolidated assets $4,164.5 $4,273.2 $2,375.5
================================================================================
Other significant items:
Depreciation and amortization expense:
Segment totals $ 158.5 $ 137.4 $ 124.6
Unallocated corporate depreciation
and amortization expense 10.7 5.3 8.1
- --------------------------------------------------------------------------------
Total consolidated depreciation and
amortization expense $ 169.2 $ 142.7 $ 132.7
- --------------------------------------------------------------------------------
Capital additions:
Segment totals $ 178.7 $ 165.7 $ 147.5
Unallocated corporate capital additions 16.5 18.6 13.0
- --------------------------------------------------------------------------------
Total consolidated capital additions $ 195.2 $ 184.3 $ 160.5
================================================================================
GEOGRAPHIC AREAS
- --------------------------------------------------------------------------------
Net trade sales (millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Americas:
United States $2,246.8 $1,803.2 $1,412.2
Canada 119.0 98.6 89.3
Other Americas 29.1 20.2 16.6
- --------------------------------------------------------------------------------
Total Americas $2,394.9 $1,922.0 $1,518.1
================================================================================
Europe:
Germany $ 291.3 $ 182.5 $ 110.2
England 144.1 142.5 130.3
France 90.1 65.9 53.1
Netherlands 101.4 57.0 33.1
Other Europe 278.9 251.4 221.8
- --------------------------------------------------------------------------------
Total Europe $ 905.8 $ 699.3 $ 548.5
================================================================================
Pacific area:
China $ 33.1 $ 35.5 $ 26.1
Australia 30.1 28.5 30.5
Other Pacific area 79.9 60.9 75.5
- --------------------------------------------------------------------------------
Total Pacific area $ 143.1 $ 124.9 $ 132.1
================================================================================
Total net trade sales $3,443.8 $2,746.2 $2,198.7
================================================================================
Sales are attributed to countries based on location of customer.
- --------------------------------------------------------------------------------
Long-lived assets at December 31 (millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Americas:
United States $ 980.3 $ 991.9 $ 746.3
Canada 16.1 17.1 20.5
Other Americas 0.1 0.1 0.1
- --------------------------------------------------------------------------------
Total Americas $ 996.5 $1,009.1 $ 766.9
================================================================================
Europe:
Germany $ 227.0 $ 270.3 $ 47.7
England 52.7 52.7 54.7
Netherlands 45.6 42.3 13.0
Belgium 27.3 34.5 --
France 13.8 15.9 15.1
Sweden 15.2 14.2 11.3
Other Europe 19.7 21.8 21.3
- --------------------------------------------------------------------------------
Total Europe $ 401.3 $ 451.7 $ 163.1
================================================================================
Pacific area:
China $ 33.7 $ 34.0 $ 34.0
Other Pacific area 7.6 7.2 8.2
- --------------------------------------------------------------------------------
Total Pacific area $ 41.3 $ 41.2 $ 42.2
- --------------------------------------------------------------------------------
Total long-lived assets $1,439.1 $1,502.0 $ 972.2
================================================================================
-41-
<PAGE>
NOTE 3. ACQUISITIONS
On July 22, 1998, Armstrong completed its acquisition of Triangle Pacific Corp.
("Triangle Pacific"), a Delaware corporation. Triangle Pacific is a leading U.S.
manufacturer of hardwood flooring and other flooring and related products and a
substantial manufacturer of kitchen and bathroom cabinets. The acquisition,
recorded under the purchase method of accounting, resulted in a total purchase
price of $911.5 million. The purchase price was allocated to tangible and
identifiable intangible assets acquired and liabilities assumed based on
estimated fair market value at the date of acquisition. The balance of $831.1
million was recorded as goodwill and is being amortized over forty years on a
straight-line basis. During 1999, purchase price adjustments increased goodwill
by $5.3 million.
Effective August 31, 1998, Armstrong acquired approximately 93% of the total
share capital of DLW Aktiengesellschaft ("DLW"), a corporation organized under
the laws of the Federal Republic of Germany. DLW is a leading flooring
manufacturer in Germany. The acquisition, recorded under the purchase method of
accounting, resulted in a total purchase price of $289.9 million. During 1999,
Armstrong increased its ownership percentage in DLW to approximately 96%. A
portion of the purchase price was allocated to assets acquired and liabilities
assumed based on the estimated fair market value at the date of acquisition
while the balance of $117.2 million was recorded as goodwill and is being
amortized over forty years on a straight-line basis. During 1999, purchase price
adjustments increased goodwill by $5.2 million. In this purchase price
allocation, $49.6 million was allocated to the estimable net realizable value of
DLW's furniture business and a carpet manufacturing business in the Netherlands,
which Armstrong identified as businesses held for sale. In May 1999, Armstrong
sold the DLW furniture business for $38.1 million. The remaining business held
for sale, a Dutch carpet manufacturing company, remained unsold at December 31,
1999. Armstrong still intends to dispose of this business, but has consolidated
the results of operations from September 1, 1999. The net book value of this
business as of December 31, 1999 is $2.2 million.
The table below reflects the adjustment to the carrying value of the
businesses held for sale relating to interest allocation, profits, cash flow and
the impact of sale proceeds in 1999 and 1998.
- --------------------------------------------------------------------------------
(millions) 1999 1998
- --------------------------------------------------------------------------------
Carrying value at January 1, 1999 and
August 31, 1998 $55.9 $49.6
Interest allocated 1.0 1.1
Adjustment to estimated sales proceeds (9.1) --
Effect of exchange rate change (4.9) 2.8
Losses excluded from consolidated earnings (1.5) (0.4)
Cash flows funded by parent (1.1) 2.8
Proceeds from sale (38.1) --
- --------------------------------------------------------------------------------
Carrying value at December 31 $ 2.2 $55.9
================================================================================
The operating results of these acquired businesses have been included in the
Consolidated Statements of Earnings from the dates of acquisition. Triangle
Pacific's fiscal year ends on the Saturday closest to December 31, which was
January 1, 2000 and January 2, 1999. No events occurred between December 31 and
these dates at Triangle Pacific materially affecting Armstrong's financial
position or results of operations.
The table below reflects unaudited pro forma combined results of Armstrong,
Triangle Pacific and DLW as if the acquisitions had taken place at the beginning
of fiscal 1998 and 1997:
- --------------------------------------------------------------------------------
(millions) 1998 1997
- --------------------------------------------------------------------------------
Net sales $3,479.8 $3,350.0
Net earnings (14.2) 173.2
Net earnings per diluted share (0.36) 4.22
================================================================================
In management's opinion, these unaudited pro forma amounts are not
necessarily indicative of what the actual combined results of operations might
have been if the acquisitions had been effective at the beginning of fiscal 1998
and 1997.
NOTE 4. DIVESTITURES
On May 28, 1999, Armstrong sold DLW's furniture business for total cash proceeds
of $38.1 million. Armstrong acquired this business as part of the acquisition of
DLW in the third quarter of 1998 and had classified the business as held for
sale. There was no gain or loss on the transaction.
On June 22, 1999, Armstrong sold its interest in the assets of Martin
Surfacing, Inc. Armstrong acquired this interest as part of its acquisition of
DLW during the third quarter of 1998. There was no material gain or loss on the
transaction.
On June 30, 1999, Armstrong sold 65% of its ownership in Armstrong Industrial
Specialties, Inc. ("AISI"), its gasket products subsidiary, to a group of
investors including Citicorp Venture Capital Ltd. and the management of AISI for
a cash purchase price of approximately $36.1 million. The sale resulted in a
gain of approximately $6.0 million, or $0.15 per share, which was recorded in
other income.
On September 30, 1999, Armstrong completed the sale of its Textile Products
Operations to Day International Group, Inc. The sale resulted in a pretax loss
of $5.0 million ($3.2 million after tax, or $0.08 per diluted share) which was
recorded in other income.
-42-
<PAGE>
NOTE 5. REORGANIZATION AND OTHER ACTIONS
In 1998, Armstrong recognized charges of $65.6 million, or $42.6 million after
tax, related to severance and enhanced retirement benefits for more than 650
positions, approximately 75% of which were salaried positions. In addition,
Armstrong recorded an estimated loss of $9.0 million, or $5.9 million after tax,
related to redundant flooring products machinery disposed of in 1999.
Approximately $28.6 million of the charge comprised cash expenditures for
severance. The remainder was a noncash charge for enhanced retirement benefits.
The following table summarizes activity in the reorganization and
restructuring accruals for 1999:
- --------------------------------------------------------------------------------
Beginning Cash Charges Ending
(millions) balance payments (reversals) Other balance
- --------------------------------------------------------------------------------
1999 $30.6 ($16.9) ($1.4) ($0.2) $12.1
1998 12.2 (10.4) 28.6 0.2 30.6
================================================================================
The accrual reversal, which was made in the fourth quarter of 1999, was for
future severance payments that were no longer necessary. The amount in "other"
is primarily related to foreign currency translations.
Substantially all of the remaining balance relates to terminated employees
with extended payouts, most of which will be paid during 2000, and a
noncancelable operating lease.
NOTE 6. EQUITY INVESTMENTS
Investments in affiliates were $34.2 million at December 31, 1999, a decrease of
$7.6 million, reflecting the receipt of $25 million from Armstrong's WAVE joint
venture with Worthington Industries, offset by the equity earnings of
Armstrong's 50% interest in its WAVE joint venture and the remaining 35%
interest in the gaskets business. Armstrong continues to purchase certain raw
materials from the gaskets business under a long-term supply agreement.
Equity earnings from affiliates for 1998 primarily comprised income from a
50% interest in the WAVE joint venture, Armstrong's share of a net loss at
Dal-Tile and amortization of the excess of Armstrong's investment in Dal-Tile
over the underlying equity in net assets. Equity losses from affiliates in 1997
included $8.4 million for Armstrong's share of operating losses incurred by
Dal-Tile; a $29.7 million loss for Armstrong's share of a charge incurred by
Dal-Tile, primarily for uncollectible receivables and overstocked inventories;
and $4.3 million for the amortization of Armstrong's initial investment in
Dal-Tile over the underlying equity in net assets.
NOTE 7. RECEIVABLES
- --------------------------------------------------------------------------------
Accounts and notes receivable (millions) 1999 1998
- --------------------------------------------------------------------------------
Customers' receivables $455.8 $462.9
Customers' notes 13.4 15.5
Miscellaneous receivables 14.7 11.8
- --------------------------------------------------------------------------------
483.9 490.2
- --------------------------------------------------------------------------------
Less allowance for discounts and losses 47.9 49.8
- --------------------------------------------------------------------------------
Net $436.0 $440.4
================================================================================
Generally, Armstrong sells its products to select, preapproved customers
whose businesses are directly affected by changes in economic and market
conditions. Armstrong considers these factors and the financial condition of
each customer when establishing its allowance for losses from doubtful accounts.
-43-
<PAGE>
NOTE 8. INVENTORIES
Approximately 43% of Armstrong's total inventory in 1999 and 44% in 1998 were
valued on a LIFO (last-in, first-out) basis. Inventory values were lower than
would have been reported on a total FIFO (first-in, first-out) basis, by $48.3
million at the end of 1999 and $50.5 million at year-end 1998.
- --------------------------------------------------------------------------------
Inventories (millions) 1999 1998
- --------------------------------------------------------------------------------
Finished goods $275.6 $292.9
Goods in process 44.9 52.0
Raw materials and supplies 160.5 176.6
- --------------------------------------------------------------------------------
Less LIFO and other reserves 51.3 56.4
- --------------------------------------------------------------------------------
Total $429.7 $465.1
================================================================================
NOTE 9. PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------------------------------------------------
(millions) 1999 1998
- --------------------------------------------------------------------------------
Land $ 111.8 $ 111.5
Buildings 616.7 549.8
Machinery and equipment 1,827.2 1,759.5
Construction in progress 96.4 203.1
- --------------------------------------------------------------------------------
2,652.1 2,623.9
- --------------------------------------------------------------------------------
Less accumulated depreciation
and amortization 1,213.0 1,121.9
- --------------------------------------------------------------------------------
Net $1,439.1 $1,502.0
================================================================================
NOTE 10. GOODWILL AND OTHER INTANGIBLES
- --------------------------------------------------------------------------------
(millions) 1999 1998
- --------------------------------------------------------------------------------
Goodwill $985.6 $ 993.4
Less accumulated amortization 50.5 28.0
- --------------------------------------------------------------------------------
Total goodwill $935.1 $ 965.4
================================================================================
Other intangibles $ 79.3 $ 78.7
Less accumulated amortization 22.7 15.5
- --------------------------------------------------------------------------------
Total other intangibles $ 56.6 $ 63.2
================================================================================
Goodwill and other intangibles decreased by $36.9 million, reflecting
scheduled amortization of $35.1 million, final allocations of purchase price
related to Triangle Pacific and DLW and foreign currency translations.
Unamortized computer software costs included in other intangibles were $49.4
million at December 31, 1999, and $47.6 million at December 31, 1998.
-44-
<PAGE>
NOTE 11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
- --------------------------------------------------------------------------------
(millions) 1999 1998
- --------------------------------------------------------------------------------
Payables, trade and other $308.4 $235.2
Asbestos-related claims, current portion (note 26) 175.0 80.0
Employment costs 71.3 82.5
Reorganization and severance payments 12.1 30.6
Other 103.9 116.5
- --------------------------------------------------------------------------------
Total $670.7 $544.8
================================================================================
NOTE 12. DEBT
- --------------------------------------------------------------------------------
Average Average
year-end year-end
interest interest
($ millions) 1999 rate 1998 rate
- --------------------------------------------------------------------------------
Short-term debt:
Commercial paper $ 45.9 6.20% $ 104.1 6.20%
Foreign banks 25.0 5.82% 45.8 5.29%
- --------------------------------------------------------------------------------
Total short-term debt $ 70.9 6.07% $ 149.9 5.92%
- --------------------------------------------------------------------------------
Long-term debt:
Bank loans due 2000-2006 $ 66.5 5.32% $ 91.9 4.96%
Medium-term notes
8.95-9% due 2000-2001 25.6 8.96% 25.6 8.96%
6.35% senior notes due 2003 199.9 6.35% 199.8 6.35%
6.50% senior notes due 2005 149.7 6.50% 149.7 6.50%
9.75% debentures due 2008 125.0 9.75% 125.0 9.75%
7.45% senior notes due 2029 199.8 7.45% -- --
7.45% senior quarterly
interest bonds due 2038 180.0 7.45% 180.0 7.45%
Industrial development bonds 29.8 5.27% 31.2 4.67%
Commercial paper, noncurrent 450.0 6.20% 750.0 6.20%
Capital lease obligations 11.4 7.25% 13.3 7.25%
Other 11.3 8.75% 29.2 7.28%
- --------------------------------------------------------------------------------
Total long-term debt $1,449.0 6.90% $1,595.7 6.64%
- --------------------------------------------------------------------------------
Less current installments 36.1 7.72% 32.9 5.54%
- --------------------------------------------------------------------------------
Net long-term debt $1,412.9 6.88% $1,562.8 6.66%
================================================================================
- --------------------------------------------------------------------------------
Scheduled amortization of long-term debt (millions)
- --------------------------------------------------------------------------------
2001 $10.7 2003 $652.1
2002 0.8 2004 1.3
- --------------------------------------------------------------------------------
On March 16, 1999, Armstrong filed a shelf registration statement for $1
billion of combined debt and equity securities. On May 19, 1999, Armstrong
completed an offering under the shelf registration statement of $200 million
aggregate principal amount of 7.45% senior notes due 2029. The net proceeds from
this offering were used to repay other indebtedness of Armstrong.
On October 21, 1999, Armstrong renewed a bank credit facility for $450
million that expires in 364 days and cancelled a $300 million line of credit
which was due to expire in 2001. Armstrong also has a $450 million line of
credit which expires in 2003. There were no borrowings under these facilities at
December 31, 1999.
The 7.45% senior quarterly interest bonds are callable in 2003 and have no
sinking-fund requirements.
Armstrong's 9.75% debentures, senior notes and medium-term notes are not
redeemable until maturity and have no sinking-fund requirements.
The industrial development bonds mature in 2004, 2009 and 2024.
Other debt includes an $18.6 million zero-coupon note due in 2013 that had a
carrying value of $3.2 million at December 31, 1999, and an effective interest
rate of 13.4%.
Armstrong has two unused credit agreements: a $450 million credit agreement
expiring in October 2000 and a $450 million line of credit expiring in 2003. In
addition, Armstrong's foreign subsidiaries have approximately $188.1 million of
unused short-term lines of credit available from banks. The credit lines are
subject to immaterial annual commitment fees. Armstrong intends to refinance a
portion of its outstanding commercial paper balance on a long-term basis. Such
intent is supported by the long-term line of credit. Accordingly, long-term debt
includes $450 million and $750 million of commercial paper reclassified from
short-term debt at December 31, 1999, and December 31, 1998, respectively.
In order to maintain the ratio of fixed to floating rate debt which
management believes is appropriate, Armstrong entered into $150 million of
interest rate swaps during 1999. Armstrong receives fixed rates and pays
floating rates on these swaps. Details of outstanding swaps as of December 31,
1999, are as follows:
- --------------------------------------------------------------------------------
Maturity date Notional Market
($ millions) amount Pays Receives value
- --------------------------------------------------------------------------------
Aug. 15, 2005 $100.0 3 mo. LIBOR 6.26% ($3.5)
Aug. 15, 2003 50.0 3 mo. LIBOR 6.54% ($0.6)
- --------------------------------------------------------------------------------
Total $150.0 3 mo. LIBOR 6.35% ($4.1)
================================================================================
-45-
<PAGE>
NOTE 13. FINANCIAL INSTRUMENTS
Armstrong does not hold or issue financial instruments for trading purposes. The
estimated fair values of Armstrong's financial instruments are as follows:
- --------------------------------------------------------------------------------
1999 Estimated 1998 Estimated
(In millions at carrying fair carrying fair
December 31) amount value amount value
- --------------------------------------------------------------------------------
Liabilities:
Long-term debt $1,412.9 $1,356.9 $1,562.8 $1,606.1
Off-balance sheet financial
instruments:
Foreign currency
contract obligations -- $ 8.9 -- $ 6.4
Foreign currency options -- 0.2 -- --
Letters of credit/financial
guarantees -- 252.2 -- 244.6
Lines of credit -- 1,088.1 -- 1,458.9
Interest rate swaps -- (4.1) -- --
Natural gas contracts -- -- -- (0.5)
- --------------------------------------------------------------------------------
Fair values were determined as follows:
The carrying amounts of cash and cash equivalents, receivables, accounts
payable and accrued expenses, short-term debt and current installments of
long-term debt approximate fair value because of the short-term maturity of
these instruments.
The fair value estimates of long-term debt were based upon quotes from major
financial institutions taking into consideration current rates offered to
Armstrong for debt of the same remaining maturities.
Foreign currency contract obligations and options, as well as interest rate
swaps, are estimated by obtaining quotes from major financial institutions.
Letters of credit, financial guarantees and lines of credit amounts are based
on the estimated cost to settle the obligations.
Natural gas contract amounts are based on estimated cost to settle the
contracts.
NOTE 14. INCOME TAXES
The tax effects of principal temporary differences between the carrying amounts
of assets and liabilities and their tax bases are summarized in the table below.
Management believes it is more likely than not that the results of future
operations will generate sufficient taxable income to realize deferred tax
assets except for certain net operating losses and capital loss carryforwards.
Of the $57.7 million in capital loss carryforwards at December 31, 1999, $49.5
million will expire in 2001 and $8.2 million will expire in 2003. Of the $39.8
million in foreign net operating losses, $3.0 million will expire in 2003 and
the remaining $36.8 million will be carried forward indefinitely. Valuation
allowances decreased $4.0 million in 1999 primarily related to utilization of
capital loss carryforwards in connection with the sale of the gaskets business
(see Note 4).
- --------------------------------------------------------------------------------
Deferred income taxes (millions) 1999 1998
- --------------------------------------------------------------------------------
Postretirement and postemployment benefits $ (86.4) $ (87.7)
Reorganization payments (3.3) (24.2)
Asbestos-related liabilities (238.5) (150.3)
Net operating losses (16.0) (25.1)
Capital loss carryforwards (20.2) (21.3)
Other (64.4) (81.0)
- --------------------------------------------------------------------------------
Total deferred tax assets $(428.8) $(389.6)
- --------------------------------------------------------------------------------
Valuation allowance 25.5 29.5
- --------------------------------------------------------------------------------
Net deferred tax assets $(403.3) $(360.1)
- --------------------------------------------------------------------------------
Accumulated depreciation $ 203.6 $ 224.8
Pension costs 69.3 51.3
Insurance for asbestos-related liabilities 103.6 92.7
Other 48.2 55.7
- --------------------------------------------------------------------------------
Total deferred income tax liabilities $ 424.7 $ 424.5
- --------------------------------------------------------------------------------
Net deferred income tax liabilities $ 21.4 $ 64.4
- --------------------------------------------------------------------------------
Deferred tax asset -- current (40.6) (43.2)
- --------------------------------------------------------------------------------
Deferred income tax liability -- long term $ 62.0 $ 107.6
================================================================================
- --------------------------------------------------------------------------------
Details of taxes (millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Earnings (loss) before income taxes:
Domestic $55.4 $(57.1) $ 236.4
Foreign 93.3 63.5 92.9
Eliminations (119.5) (27.0) (33.1)
- --------------------------------------------------------------------------------
Total $29.2 $(20.6) $ 296.2
================================================================================
Income tax provision (benefit):
- --------------------------------------------------------------------------------
Current:
Federal $15.8 $ 11.2 $ 46.8
Foreign 22.8 21.7 35.7
State 3.0 1.3 1.5
- --------------------------------------------------------------------------------
Total current 41.6 34.2 84.0
- --------------------------------------------------------------------------------
Deferred:
Federal (36.6) (48.2) 30.9
Foreign 9.4 2.3 (3.7)
State 0.5 0.4 --
- --------------------------------------------------------------------------------
Total deferred (26.7) (45.5) 27.2
- --------------------------------------------------------------------------------
Total income taxes $14.9 $(11.3) $ 111.2
================================================================================
At December 31, 1999, unremitted earnings of subsidiaries outside the United
States were $88.2 million (at December 31, 1999, balance sheet exchange rates)
for which no U.S. taxes have been provided. If such earnings were to be remitted
without offsetting tax credits in the United States, withholding taxes would be
$5.3 million. Armstrong's intention, however, is to reinvest unremitted earnings
permanently or to repatriate them only when it is tax effective to do so.
- --------------------------------------------------------------------------------
Reconciliation to
U.S. statutory tax rate (millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Tax expense (benefit) at statutory rate $10.2 $ (7.2) $103.7
State income taxes, net of federal benefit 2.0 1.7 1.0
(Benefit) on ESOP dividend (1.3) (1.2) (0.9)
Tax on foreign and
foreign-source income 2.8 0.6 1.1
Utilization of excess foreign tax credit -- -- (2.9)
Equity in (earnings) loss of affiliates -- (6.2) 9.9
Insurance programs (0.6) (1.0) (0.8)
Goodwill 7.1 3.3 --
Change in valuation allowance (4.0) -- --
Other items (1.3) (1.3) 0.1
- --------------------------------------------------------------------------------
Tax expense (benefit) at effective rate $14.9 $(11.3) $111.2
================================================================================
- --------------------------------------------------------------------------------
Other taxes (millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Payroll taxes $88.6 $65.0 $50.7
Property, franchise and capital
stock taxes $24.3 $20.0 $16.6
- --------------------------------------------------------------------------------
-46-
<PAGE>
NOTE 15. OTHER LONG-TERM LIABILITIES
- --------------------------------------------------------------------------------
(millions) 1999 1998
- --------------------------------------------------------------------------------
Deferred compensation $ 42.8 $ 38.1
Other 63.6 77.7
- --------------------------------------------------------------------------------
Total other long-term liabilities $106.4 $115.8
================================================================================
NOTE 16. RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN (RSSOP)
In 1989, Armstrong established an Employee Stock Ownership Plan (ESOP) that
borrowed $270 million from banks and insurance companies, repayable over 15
years and guaranteed by Armstrong. The ESOP used the proceeds to purchase
5,654,450 shares of a new series of convertible preferred stock issued by
Armstrong. In 1996, the ESOP was merged with the Retirement Savings Plan for
salaried employees (a defined-contribution pension plan) to form the Retirement
Savings and Stock Ownership Plan (RSSOP). On July 31, 1996, the trustee of the
ESOP converted the preferred stock held by the trust into approximately 5.1
million shares of common stock at a one-for-one ratio.
The number of shares released for allocation to participant accounts is based
on the proportion of principal and interest paid to the total amount of debt
service remaining to be paid over the life of the borrowings. Through December
31, 1999, the RSSOP had allocated to participants a total of 2,294,000 shares
and retired 1,126,000 shares. During 1999, Armstrong issued 199,000 treasury
shares and the trustee purchased 33,000 shares on the open market as part of
meeting the necessary funding requirements. As of December 31, 1999, there are
approximately 2,467,000 shares in the RSSOP that have yet to be allocated to
participants.
All RSSOP shares are considered outstanding for earnings per share
calculations. Dividends on allocated shares are credited to employee accounts
while dividends on unallocated shares are used to satisfy debt service payments.
The RSSOP currently covers parent company nonunion employees and some union
employees.
Armstrong's guarantee of the ESOP loan has been recorded as a long-term
obligation and as a reduction of shareholders' equity on its Consolidated
Balance Sheets.
- --------------------------------------------------------------------------------
Details of ESOP debt service
payments (millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Common stock dividends paid $ 8.9 $ 9.0 $ 8.5
Employee contributions 7.7 9.8 9.7
Company contributions 8.9 11.4 14.7
Company loans to ESOP 12.9 10.1 5.5
- --------------------------------------------------------------------------------
Debt service payments made
by ESOP trustee $38.4 $40.3 $38.4
================================================================================
Armstrong recorded costs for the RSSOP of $13.1 million in 1999, $6.9 million
in 1998 and $10.4 million in 1997.
The trustee borrowed from Armstrong $12.9 million in 1999, $10.1 million in
1998 and $5.5 million in 1997. These loans were made to ensure that the
financial arrangements provided to employees remain consistent with the original
intent of the RSSOP.
-47-
<PAGE>
NOTE 17. STOCK-BASED COMPENSATION PLANS
Awards under the 1993 Long-Term Stock Incentive Plan ("1993 Plan") may be in the
form of stock options, stock appreciation rights in conjunction with stock
options, performance restricted shares and restricted stock awards. No
additional shares of common stock may be issued under the 1993 Plan.
During 1999, Armstrong adopted the 1999 Long-Term Incentive Plan ("1999
Plan") which replaced the 1993 Plan. The 1999 Plan is similar to the 1993 Plan
in that it provides for the granting of incentive stock options, nonqualified
stock options, stock appreciation rights, performance restricted shares and
restricted stock awards. The 1999 Plan also incorporates stock awards and cash
incentive awards. No more than 3,250,000 shares of common stock may be issued
under the 1999 Plan, and no more than 300,000 of the shares may be awarded in
the form of performance restricted shares, restricted stock awards or stock
awards. No awards under the 1999 Plan will be granted after April 25, 2009.
Pre-1999 grants made under predecessor plans will be governed under the
provisions of those plans.
Options are granted to purchase shares at prices not less than the closing
market price of the shares on the dates the options were granted. The options
generally become exercisable in one to three years and expire 10 years from the
date of grant.
- --------------------------------------------------------------------------------
Changes in option shares outstanding
(thousands except for share price) 1999 1998 1997
- --------------------------------------------------------------------------------
Option shares at beginning of year 2,783.7 2,161.3 2,161.4
Options granted 829.7 914.8 286.8
Option shares exercised (54.5) (253.3) (265.5)
Stock appreciation rights exercised (0.2) (3.1) (4.7)
Options cancelled (49.2) (36.0) (16.7)
- --------------------------------------------------------------------------------
Option shares at end of year 3,509.5 2,783.7 2,161.3
Option shares exercisable at end
of year 1,828.0 1,372.0 1,262.1
Shares available for grant 3,307.3 789.7 1,585.5
- --------------------------------------------------------------------------------
Weighted average price per share:
Options outstanding $58.48 $60.41 $54.01
Options exercisable 57.12 52.38 46.88
Options granted 50.70 70.43 69.63
Option shares exercised 36.17 41.68 39.10
- --------------------------------------------------------------------------------
The table below summarizes information about stock options outstanding at
December 31, 1999.
- --------------------------------------------------------------------------------
Stock options outstanding as of 12/31/99
(thousands except for life and share price)
- --------------------------------------------------------------------------------
Options outstanding Options exercisable
---------------------------------------- -------------------------
Range Number Weighted- Weighted- Number Weighted-
of outstanding average average exercisable average
exercise at remaining exercise at exercise
prices 12/31/99 contractual life price 12/31/99 price
- --------------------------------------------------------------------------------
$27-49 516.4 4.5 $40.20 474.4 $39.81
49-53 779.9 9.1 50.98 19.6 51.53
53-60 791.7 5.9 58.48 680.2 58.42
60-70 779.5 7.1 65.55 424.5 65.53
70-86 642.0 8.1 73.69 229.3 73.97
- --------------------------------------------------------------------------------
3,509.5 1,828.0
================================================================================
Performance restricted shares issuable under the 1993 and 1999 plans entitle
certain key executive employees to earn shares of Armstrong's common stock, but
only if the total company or individual business units meet certain
predetermined performance measures during defined performance periods (generally
three years). At the end of performance periods, common stock awarded may carry
additional restriction periods, during which time the shares will be held in
custody by Armstrong until the expiration or termination of restrictions.
Compensation expense will be charged to earnings over the performance period.
Within performance periods at the end of 1999 were 6,280 unvested performance
restricted shares outstanding and 535 accumulated dividend equivalent shares. No
performance restricted share awards were earned based on the performance period
ending December 31, 1999. Within restriction periods at the end of 1999 were
147,513 shares of restricted common stock outstanding based on performance
periods ending prior to 1999 with 16,840 accumulated dividend equivalent shares.
Restricted stock awards can be used for the purposes of recruitment, special
recognition and retention of key employees. Awards for 21,700 shares of
restricted stock were granted (excluding performance-based awards discussed
above) during 1999. At the end of 1999, there were 122,935 restricted shares of
common stock outstanding with 10,687 accumulated dividend equivalent shares.
In 1996, Armstrong adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net earnings and pro forma earnings per
share disclosures. Had compensation cost for these plans been determined
consistent with SFAS No. 123, Armstrong's net earnings and earnings per share
would have been reduced to the following pro forma amounts.
- --------------------------------------------------------------------------------
(millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Net earnings (loss):
As reported $14.3 $ (9.3) $185.0
Pro forma 7.0 (16.1) 180.7
Basic earnings (loss) per share:
As reported 0.36 (0.23) 4.55
Pro forma 0.18 (0.40) 4.45
Diluted earnings (loss) per share:
As reported 0.36 (0.23) 4.50
Pro forma 0.17 (0.40) 4.39
- --------------------------------------------------------------------------------
The fair value of grants was estimated on the date of grant using the
Black-Scholes option pricing model with the assumptions for 1999, 1998 and 1997
presented in the table below. The weighted-average fair value of stock options
granted in 1999 was $9.75.
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Risk-free interest rates 6.34% 5.14% 6.21%
Dividend yield 5.75% 3.03% 2.46%
Expected lives 5 years 5 years 5 years
Volatility 28% 28% 19%
- --------------------------------------------------------------------------------
Because the SFAS No. 123 method of accounting has not been applied to grants
prior to January 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
NOTE 18. EMPLOYEE COMPENSATION
Employee compensation is presented in the table below. Charges for severance
costs and early retirement incentives to terminated employees have been
excluded. The increase in employee compensation is primarily due to the
acquisitions of Triangle Pacific and DLW.
- --------------------------------------------------------------------------------
Employee compensation
cost summary (millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Wages and salaries $722.8 $590.4 $494.7
Payroll taxes 88.7 65.0 50.7
Pension credits (29.1) (38.1) (22.2)
Insurance and other benefit costs 64.1 60.0 51.9
Stock-based compensation 4.2 5.0 9.6
- --------------------------------------------------------------------------------
Total $850.7 $682.3 $584.7
================================================================================
-48-
<PAGE>
NOTE 19. PENSION AND OTHER BENEFIT PROGRAMS
Armstrong and a number of its subsidiaries have pension plans and postretirement
medical and insurance benefit plans covering eligible employees worldwide.
Armstrong also has defined-contribution pension plans (including the
Retirement Savings and Stock Ownership Plan, as described on page 47) for
eligible employees. Costs for these plans were $13.1 million in 1999, $6.9
million in 1998 and $10.4 million in 1997. Benefits from pension plans, which
cover substantially all employees, are based on an employee's compensation and
years of service. Pension plans are funded by Armstrong. Postretirement benefits
are funded by Armstrong on a pay-as-you-go basis, with the retiree paying a
portion of the cost for health care benefits by means of deductibles and
contributions. Armstrong announced in 1989 and 1990 a 15-year phaseout of its
health care benefits for certain future retirees. These future retirees include
parent company nonunion employees and some union employees. Shares of RSSOP
common stock are scheduled to be allocated to these employees, based on employee
age and years to expected retirement, to help employees offset their future
postretirement medical costs.
The following tables summarize the balance sheet impact, as well as the
benefit obligations, assets, funded status and rate assumptions associated with
the pension and postretirement benefit plans. The plan assets are primarily
stocks, mutual funds and bonds. Included in these assets were 1,426,751 shares
of Armstrong common stock at year-end 1999 and 1998.
- --------------------------------------------------------------------------------
Retiree Health and Life
U.S. defined-benefit Pension Benefits Insurance Benefits
plans (millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Change in benefit
obligation:
Benefit obligation as of
January 1 $1,163.5 $1,078.1 $ 262.5 $ 262.7
Service cost 16.7 17.5 3.2 3.3
Interest cost 76.6 72.6 17.0 17.2
Plan participants' contributions -- -- 2.6 2.3
Acquisition -- 15.1 -- --
Effect of settlements -- -- (4.1) --
Effect of special termination
benefits 1.7 38.1 -- --
Actuarial loss (gain) (96.4) 15.5 (24.9) (1.0)
Benefits paid (82.7) (73.4) (23.0) (22.0)
- --------------------------------------------------------------------------------
Benefit obligation as
of December 31 $1,079.4 $1,163.5 $ 233.3 $ 262.5
================================================================================
Change in plan assets:
Fair value of plan assets as
of January 1 $1,874.9 $1,754.4 -- --
Actual return (loss)
on plan assets (46.7) 180.3 -- --
Acquisition -- 11.4 -- --
Employer contribution 2.8 2.2 $ 20.5 $ 19.7
Plan participants' contributions -- -- 2.6 2.3
Benefits paid (82.7) (73.4) (23.1) (22.0)
- --------------------------------------------------------------------------------
Fair value of plan assets as
of December 31 $1,748.3 $1,874.9 $ 0.0 $ 0.0
================================================================================
Funded status $ 668.9 $ 711.4 $(233.3) $(262.5)
Unrecognized net actuarial
loss (gain) (483.9) (597.4) 23.0 48.8
Unrecognized transition asset (14.5) (20.7) -- --
Unrecognized prior service
cost (benefit) 72.2 82.2 (5.1) (6.0)
- --------------------------------------------------------------------------------
Net amount recognized $ 242.7 $ 175.5 $(215.4) $(219.7)
================================================================================
The funded status of U.S. defined-benefit plans was determined using the
assumptions presented in the table below.
- --------------------------------------------------------------------------------
Retiree Health and Life
Pension Benefits Insurance Benefits
U.S. defined-benefit plans 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Weighted-average
assumption as of
December 31:
Discount rate 7.75% 6.75% 7.75% 6.75%
Expected return on plan assets 8.75% 8.75% n/a n/a
Rate of compensation increase 4.25% 3.75% 4.25% 3.75%
- --------------------------------------------------------------------------------
Amounts recognized in the Consolidated Balance Sheets consist of:
- --------------------------------------------------------------------------------
Retiree Health and Life
Pension Benefits Insurance Benefits
(millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Prepaid benefit costs $264.2 $187.8 -- --
Accrued benefit liability (30.2) (40.2) $(215.4) $(219.7)
Intangible asset 2.0 2.3 -- --
Other comprehensive income 6.7 25.6 -- --
- --------------------------------------------------------------------------------
Net amount recognized $242.7 $175.5 $(215.4) $(219.7)
================================================================================
- --------------------------------------------------------------------------------
U.S. pension plans with benefit obligations Pension Benefits
in excess of assets (millions) 1999 1998
- --------------------------------------------------------------------------------
Retirement benefit equity plan
Projected benefit obligation, December 31 $34.9 $48.4
Accrued benefit obligation, December 31 30.2 40.2
Fair value of plan assets, December 31 -- --
- --------------------------------------------------------------------------------
The components of pension credit are as follows:
- --------------------------------------------------------------------------------
U.S. defined-benefit Pension Benefits
plans (millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Service cost of benefits earned
during the year $ 16.7 $ 17.5 $ 16.4
Interest cost on projected
benefit obligation 76.6 72.6 72.6
Expected return on plan assets (147.0) (136.2) (122.8)
Amortization of transition asset (6.2) (6.2) (6.2)
Amortization of prior service cost 10.0 10.0 10.0
Recognized net actuarial gain (17.3) (18.4) (13.6)
- --------------------------------------------------------------------------------
Net periodic pension credit $ (67.2) $ (60.7) $ (43.6)
================================================================================
Costs for other funded and unfunded pension plans were $5.9 million in 1999,
$4.0 million in 1998 and $2.8 million in 1997.
The components of postretirement benefit cost are as follows:
- --------------------------------------------------------------------------------
U.S. defined-benefit Retiree Health and Life Insurance Benefits
plans (millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Service cost of benefits earned
during the year $ 3.2 $ 3.3 $ 3.3
Interest cost on accumulated
postretirement benefit obligation 17.0 17.2 17.6
Amortization of prior service benefit (0.9) (0.9) (0.9)
Recognized net actuarial loss 0.6 1.3 1.24
- --------------------------------------------------------------------------------
Net periodic postretirement benefit cost $19.9 $20.9 $21.2
================================================================================
For measurement purposes, a 7% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1999. The rate was assumed to
decrease 1% per year to an ultimate rate of 6% by the year 2000.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
- --------------------------------------------------------------------------------
U.S. retiree health and life One percentage point
insurance benefit plans (millions) Increase Decrease
- --------------------------------------------------------------------------------
Effect on total of service and interest cost
components $ 2.2 $ (1.8)
Effect on postretirement benefit obligation 21.0 (17.6)
- --------------------------------------------------------------------------------
Armstrong has pension plans covering employees in a number of foreign
countries that utilize assumptions that are consistent with, but not identical
to, those of the U.S. plans. The following tables summarize the balance sheet
impact as well as the benefit obligations, assets, funded status and rate
assumptions associated with pension benefits.
- --------------------------------------------------------------------------------
Non-U.S. defined-benefit Pension Benefits
plans (millions) 1999 1998
- --------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation as of January 1 $ 325.1 $ 127.4
Service cost 8.4 6.2
Interest cost 18.1 12.3
Plan participants' contributions 1.6 1.4
Acquisition -- 164.6
Divestitures (2.6) --
Effect of settlements -- (0.5)
Effect of special termination benefits 0.3 0.5
Foreign currency translation adjustment (35.6) 12.8
Actuarial loss 0.9 10.2
Benefits paid (15.6) (9.8)
- --------------------------------------------------------------------------------
Benefit obligation as of December 31 $ 300.6 $ 325.1
================================================================================
Change in plan assets:
Fair value of plan assets as of January 1 $ 147.1 $ 95.5
Actual return on plan assets 24.7 16.7
Acquisition -- 35.1
Employer contribution 13.1 6.2
Plan participants' contribution 1.6 1.4
Foreign currency translation adjustment (7.5) 2.0
Benefits paid (15.6) (9.8)
- --------------------------------------------------------------------------------
Fair value of plan assets as of December 31 $ 163.4 $ 147.1
================================================================================
Funded status $ (137.2) $(178.0)
Unrecognized net actuarial gain (34.5) (21.1)
Unrecognized transition obligation 0.6 1.7
Unrecognized prior service cost 4.7 4.9
- --------------------------------------------------------------------------------
Net amount recognized $ (166.4) $(192.5)
================================================================================
Amounts recognized in the Consolidated Balance Sheets consist of:
- --------------------------------------------------------------------------------
Pension Benefits
(millions) 1999 1998
- --------------------------------------------------------------------------------
Prepaid benefit cost $ 3.0 $ 2.2
Accrued benefit liability (169.5) (195.1)
Intangible asset -- 0.2
Other comprehensive income 0.1 0.2
- --------------------------------------------------------------------------------
Net amount recognized $(166.4) $(192.5)
================================================================================
- --------------------------------------------------------------------------------
Non-U.S. pension plans with benefit obligations Pension Benefits
in excess of assets (millions) 1999 1998
- --------------------------------------------------------------------------------
Projected benefit obligation, December 31 $203.8 $192.3
Accrued benefit obligation, December 31 162.2 186.2
Fair value of plan assets, December 31 2.8 0.6
- --------------------------------------------------------------------------------
The components of pension cost are as follows:
- --------------------------------------------------------------------------------
Non-U.S. defined-benefit Pension Benefits
plans (millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Service cost of benefits earned
during the year $ 8.4 $ 6.2 $ 5.7
Interest cost on projected
benefit obligation 18.1 12.3 8.8
Expected return on plan assets (8.0) (7.4) (6.8)
Amortization of transition obligation 0.2 0.3 0.3
Amortization of prior service cost 0.4 0.4 0.4
Recognized net actuarial gain (0.1) (0.1) (0.2)
- --------------------------------------------------------------------------------
Net periodic pension cost $19.0 $11.7 $ 8.2
================================================================================
The funded status of non-U.S. defined-benefit plans was determined using the
assumptions presented in the table below.
- --------------------------------------------------------------------------------
Pension Benefits
Non-U.S. defined-benefit plans 1999 1998
- --------------------------------------------------------------------------------
Weighted-average assumption
as of December 31:
Discount rate 6.50% 6.25%
Expected return on plan assets 4.25% 6.25%
Rate of compensation increase 3.75% 3.50%
- --------------------------------------------------------------------------------
-49-
<PAGE>
NOTE 20. LEASES
Armstrong rents certain real estate and equipment. Several leases include
options for renewal or purchase and contain clauses for payment of real estate
taxes and insurance. In most cases, management expects that in the normal course
of business, leases will be renewed or replaced by other leases. Rental expense
was $21.4 million in 1999, $26.1 million in 1998 and $15.5 million in 1997.
Triangle Pacific leases a plant and related equipment in Beverly, West
Virginia. The lease agreement contains a purchase option of $1 until 2018. As a
result, the present value of the remaining future minimum lease payments is
recorded as a capitalized lease asset and related capitalized lease obligation.
Assets under this capital lease as included in the Consolidated Balance Sheets
are as follows:
- --------------------------------------------------------------------------------
(millions) 1999 1998
- --------------------------------------------------------------------------------
Land $ 3.8 $ 3.8
Building 4.5 4.5
Machinery and equipment 21.5 21.5
- --------------------------------------------------------------------------------
Total assets $29.8 $29.8
================================================================================
Less accumulated amortization 6.2 4.8
- --------------------------------------------------------------------------------
Net assets $23.6 $25.0
================================================================================
Future minimum payments at December 31, 1999, by year and in the aggregate,
having noncancelable lease terms in excess of one year were as follows:
- --------------------------------------------------------------------------------
Scheduled minimum lease payments Capital Operating
(millions) leases leases
- --------------------------------------------------------------------------------
2000 $ 4.3 $10.3
2001 0.8 7.5
2002 0.8 5.5
2003 2.2 4.5
2004 0.6 3.9
Thereafter 2.6 20.0
- --------------------------------------------------------------------------------
Total $11.3 $51.7
- --------------------------------------------------------------------------------
NOTE 21. SHAREHOLDERS' EQUITY
Treasury share changes for 1999, 1998 and 1997 are as follows:
- --------------------------------------------------------------------------------
Years ended
December 31 (thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Common shares
Balance at beginning of year 11,856.7 11,759.5 10,714.6
Stock purchases(1) 33.8 389.5 1,299.2
Stock issuance activity, net (261.8) (292.3) (254.3)
- --------------------------------------------------------------------------------
Balance at end of year 11,628.7 11,856.7 11,759.5
================================================================================
Note 1: Includes small unsolicited buybacks of shares, shares received under
share tax withholding transactions and open market purchases of stock through
brokers.
In July 1996, the Board of Directors authorized Armstrong to repurchase 3.0
million shares of its common stock through the open market or through privately
negotiated transactions, bringing the total authorized common share repurchases
to 5.5 million shares. Under the total plan, Armstrong repurchased approximately
4,017,000 shares through December 31, 1998, with a total cash outlay of $248.1
million, including 355,000 repurchased in 1998.
In June 1998, Armstrong halted purchases of its common shares under the
common share repurchase program in connection with its announcement to purchase
Triangle Pacific and DLW.
The balance of each component of accumulated other comprehensive loss as of
December 31, 1999, and December 31, 1998, is presented in the table below.
- --------------------------------------------------------------------------------
(millions) 1999 1998
- --------------------------------------------------------------------------------
Foreign currency translation adjustments
and hedging activities $12.1 $ 8.7
Minimum pension liability adjustments 4.4 16.7
- --------------------------------------------------------------------------------
Total $16.5 $25.4
================================================================================
The related tax effects allocated to each component of other comprehensive
income are presented in the table below.
- --------------------------------------------------------------------------------
Before-Tax Tax After-Tax
(millions) Amount Benefit Amount
- --------------------------------------------------------------------------------
Foreign currency translation
adjustments and hedging activities $ (3.4) $0.0 $(3.4)
Minimum pension liability adjustments 18.9 6.6 12.3
- --------------------------------------------------------------------------------
Total $ 15.5 $6.6 $ 8.9
================================================================================
- --------------------------------------------------------------------------------
Other comprehensive income
reclassification adjustments (millions) 1999 1998
- --------------------------------------------------------------------------------
Unrealized holding gains arising during period -- $ 12.8
Less:
Reclassification adjustment for gains
included in net income -- (12.8)
- --------------------------------------------------------------------------------
Net unrealized gains on securities -- $ 0.0
================================================================================
-50-
<PAGE>
NOTE 22. PREFERRED STOCK PURCHASE RIGHTS PLAN
In 1996, the Board of Directors renewed Armstrong's 1986 shareholder rights plan
and in connection therewith declared a distribution of one right for each share
of Armstrong's common stock outstanding on and after January 19, 1996. In
general, the rights become exercisable at $300 per right for a fractional share
of a new series of Class A preferred stock 10 days after a person or group,
other than certain affiliates of Armstrong, either acquires beneficial ownership
of shares representing 20% or more of the voting power of Armstrong or announces
a tender or exchange offer that could result in such person or group
beneficially owning shares representing 28% or more of the voting power of
Armstrong. If thereafter any person or group becomes the beneficial owner of 28%
or more of the voting power of Armstrong or if Armstrong is the surviving
company in a merger with a person or group that owns 20% or more of the voting
power of Armstrong, then each owner of a right (other than such 20% shareholder)
would be entitled to purchase shares of company common stock having a value
equal to twice the exercise price of the right. Should Armstrong be acquired in
a merger or other business combination, or sell 50% or more of its assets or
earnings power, each right would entitle the holder to purchase, at the exercise
price, common shares of the acquirer having a value of twice the exercise price
of the right. The exercise price was determined on the basis of the Board's view
of the long-term value of Armstrong's common stock. The rights have no voting
power nor do they entitle a holder to receive dividends. At Armstrong's option,
the rights are redeemable prior to becoming exercisable at five cents per right.
The rights expire on March 21, 2006.
NOTE 23. SUPPLEMENTAL FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Selected operating expenses (millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Maintenance and repair costs $118.7 $114.0 $107.3
Research and development costs 58.5 46.0 47.8
Advertising costs 49.2 41.2 19.3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other expense (income), net (millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Interest and dividend income $ (2.0) $ (3.3) $ (4.9)
Gain on sale of businesses, net (1.0) -- --
Demutualization proceeds (2.6) -- --
Dal-Tile gain -- (12.8) --
Domco litigation expense -- 12.3 --
Discontinued businesses -- 0.3 0.8
Other (1.0) 1.8 1.9
- --------------------------------------------------------------------------------
Total $ (6.6) $ (1.7) $ (2.2)
================================================================================
NOTE 24. SUPPLEMENTAL CASH FLOW INFORMATION
- --------------------------------------------------------------------------------
(millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Interest paid $105.1 $ 48.6 $ 23.5
Income taxes paid 50.9 $ 35.3 $ 54.5
- --------------------------------------------------------------------------------
Acquisitions:
Fair value of assets acquired $ 3.8 $1,031.9 $ 32.6
Cost in excess of net assets acquired -- 948.3 --
Less:
Liabilities assumed -- 804.5 28.4
- --------------------------------------------------------------------------------
Cash paid, net of cash acquired $ 3.8 $1,175.7 $ 4.2
- --------------------------------------------------------------------------------
NOTE 25. EARNINGS (LOSS) PER SHARE
The table below provides a reconciliation of the numerators and denominators of
the basic and diluted per share calculations for net earnings (loss).
- --------------------------------------------------------------------------------
Earnings Per-Share
Millions except for per-share data (Loss) Shares Amount
- --------------------------------------------------------------------------------
For the year ended 1999
- --------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE
Net earnings $ 14.3 39.9 $ 0.36
- --------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Dilutive options 0.3
Net earnings $ 14.3 40.2 $ 0.36
================================================================================
For the year ended 1998
- --------------------------------------------------------------------------------
BASIC EARNINGS (LOSS) PER SHARE
Net earnings (loss) $ (9.3) 39.8 $(0.23)
- --------------------------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE
Dilutive options 0.6
Net earnings (loss) $ (9.3) 40.4 $(0.23)1
================================================================================
For the year ended 1997
- --------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE
Net earnings $185.0 40.6 $ 4.55
- --------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Dilutive options 0.4
Net earnings $185.0 41.0 $ 4.50
================================================================================
Note 1: Diluted earnings (loss) per share for 1998 was antidilutive.
-51-
<PAGE>
NOTE 26. LITIGATION AND RELATED MATTERS
ASBESTOS-RELATED LITIGATION
Armstrong is a defendant in personal injury claims and property damage claims
related to asbestos containing products.
PERSONAL INJURY CLAIMS
Nearly all claims seek general and punitive damages arising from alleged
exposures, at various times, from World War II onward, to asbestos-containing
products. Claims against Armstrong, which can involve allegations of negligence,
strict liability, breach of warranty and conspiracy, primarily relate to
Armstrong's involvement with asbestos-containing insulation products. Armstrong
discontinued the sale of all such insulation products in 1969. In addition,
other Armstrong products, such as gasket materials, have been named in some
litigation. Claims may arise many years after first exposure to asbestos in
light of the long latency period (up to 40 years) for asbestos-related injury.
Product identification and determining exposure periods are difficult and
uncertain. Armstrong believes that many current plaintiffs are unimpaired.
Armstrong is involved in all stages of claims resolution and litigation,
including individual trials, consolidated trials and appeals.
Over the long history of asbestos litigation involving hundreds of companies,
attention has been given by various parties to securing a comprehensive
resolution of the litigation. In 1991, the Judicial Panel for Multidistrict
Litigation ordered the transfer of federal cases to the Eastern District of
Pennsylvania in Philadelphia for pretrial purposes. Armstrong supported this
transfer. Some cases are periodically released for trial, although the issue of
punitive damages is retained by the transferee court. That court has been
instrumental in having the parties resolve large numbers of cases in various
jurisdictions and has been receptive to different approaches to the resolution
of claims. Claims filed in state courts have not been directly affected by the
transfer.
Asbestos Claims Facility ("Facility") and Center for Claims Resolution
("Center")
The Facility was established to evaluate, settle, pay and defend all personal
injury claims against member companies. Resolution and defense costs were
allocated by formula. The Facility subsequently dissolved, and the Center was
created in October 1988 by 21 former Facility members, including Armstrong. At
December 31, 1999 there were 19 members of the Center. In January 2000,
membership was reduced to 16 members. Insurance carriers, while not members, are
represented ex officio on the Center's governing board and have agreed annually
to provide a portion of the Center's operational costs. The Center adopted many
of the conceptual features of the Facility and has addressed the claims in a
manner consistent with the prompt, fair resolution of meritorious claims.
Resolution and defense costs are allocated by formula to each of the member
companies; adjustments over time have resulted in some increased share for
Armstrong.
Amchem Settlement Class Action
Georgine v. Amchem ("Amchem") was a settlement class action filed in the Eastern
District of Pennsylvania on January 15, 1993, that included essentially all
future personal injury claims against members of the Center for Claims
Resolution ("Center"), including Armstrong. It was designed to establish a
nonlitigation system for the resolution of those claims, and offered a method
for prompt compensation to claimants who were occupationally exposed to asbestos
if they met certain exposure and medical criteria. Compensation amounts were
derived from historical settlement data and no punitive damages were to be paid.
The settlement was designed to, among other things, minimize transactional
costs, including attorneys' fees; expedite compensation to claimants with
qualifying claims; and relieve the courts of the burden of handling future
claims.
The District Court, after exhaustive discovery and testimony, approved the
settlement class action and issued a preliminary injunction that barred class
members from pursuing claims against Center members in the tort system. The U.S.
Court of Appeals for the Third Circuit reversed that decision, and the reversal
was sustained by the U.S. Supreme Court on September 25, 1997, holding that the
settlement class did not meet the requirements for class certification under
Federal Rule of Civil Procedure 23. The preliminary injunction was vacated on
July 21, 1997, resulting in the immediate reinstatement of enjoined cases and a
loss of the bar against the filing of claims in the tort system.
Post Amchem Claim Developments
Armstrong is a defendant in approximately 175,600 pending personal injury claims
as of December 31, 1999. During 1999, the Center received and verified
approximately 51,000 claims naming Armstrong as a defendant (of which
approximately 10,200 were received and verified in the fourth quarter).
Armstrong continues to seek broad-based settlements of claims through the
Center. The Center has recently reached agreements with several law firms that
cover approximately 82,000 claims (or 41% of current claims) some of which are
currently pending and some of which have yet to be filed. These agreements
typically provide for multiyear payments for settlement of current claims and
establish specific medical and other criteria for the settlement of future
claims as well as annual limits on the number of claims that can be filed by
these firms. These agreements also establish fixed settlement values for
different asbestos-related medical conditions which are subject to periodic
renegotiation over a period of 2 to 5 years. The plaintiff law firms are
required to recommend settlements to their clients although future claimants are
not legally obligated to accept the settlements. These agreements also provide
for nominal payments to future claimants who are unimpaired but who are eligible
for additional compensation if they develop a more serious asbestos-related
illness. The Center can terminate an agreement with an individual law firm if a
significant number of that firm's clients elect not to participate under the
agreement. Negotiations with additional plaintiff law firms engaged in
asbestos-related litigation that would resolve a substantial portion of the
remaining pending claims are ongoing. The ultimate success and timing of those
negotiations is uncertain.
Asbestos-Related Liability
In continually evaluating its estimated asbestos liability, Armstrong reviews,
among other things, its recent and historical settlement amounts, the incidence
of past and recent claims, the mix of the injuries and occupations of the
plaintiffs, the number of cases pending against it and the status and results of
broad-based settlement discussions. Based on this review, Armstrong has
estimated its share of liability to defend and resolve probable asbestos-related
personal injury claims. This estimate is highly uncertain due to the limitations
of the available data and the difficulty of forecasting with any certainty the
numerous variables that can affect the range of the liability. Armstrong will
continue to study the variables in light of additional information in order to
identify trends that may become evident and to assess their impact on the range
of liability that is probable and estimable.
In the fourth quarter of 1999, Armstrong recorded a charge to increase its
estimate of probable asbestos-related liability by $425.4 million. The revision
in the estimated liability is attributable to many factors. The actual number of
claims received in 1999 was higher than anticipated. Although we expect the
number of claims to decrease in future years, we now expect that the total
number of claims received will be higher than previously anticipated. Further,
the Center has recently settled with some law firms at amounts higher than our
original estimates pursuant to our broad-based settlement plan. In consideration
of these factors, management has concluded that an increase in the estimated
probable liability is required. Armstrong's estimate of such liability that is
probable and estimable through 2005 ranges from $681.5 million to $1,337.9
million as of December 31, 1999. The range of probable and estimable liability
reflects uncertainties in the number of future claims that will be filed, the
outcome of the broad-based settlement negotiations and Armstrong's overall
effective share of the Center's liabilities. Armstrong has concluded that no
amount within that range is more likely than any other, and therefore has
reflected $681.5 million as a liability in the consolidated financial statements
in accordance with generally accepted accounting principles. Of this amount,
management expects to incur asbestos liability payments of approximately $175.0
million over the next 12 months and has reflected $175.0 million as a current
liability.
Armstrong's estimated range of liability is primarily based on known claims
and an estimate of future claims that are likely to occur and can be reasonably
estimated through 2005. This estimated range of liability assumes that the
number of new claims filed annually will be less than the number filed in 1999.
For claims that may be filed beyond 2005, management believes that the level of
uncertainty is too great to provide for reasonable estimation of the number of
future claims, the nature of such claims, or the cost to resolve them.
Accordingly, it is reasonably possible that the total exposure to personal
injury claims may be greater than the estimated range of liability.
Although some settlements have already been reached, Armstrong is currently
uncertain as to the ultimate success and timing of the remaining broad-based
settlement discussions. However, if those discussions are unsuccessful or if
unfavorable claims experiences continue, significant changes in the assumptions
used in the estimate of Armstrong's liability may result. Those changes, if any,
could lead to increases in the recorded liability. Because of the uncertainties
related to the number of claims, the ultimate settlement amounts, and similar
matters, it is extremely difficult to obtain reasonable estimates of the amount
of the ultimate liability. As additional experience is gained regarding claims
and such settlement discussions or other new information becomes available
regarding the potential liability, Armstrong will reassess its potential
liability and revise the estimates as appropriate.
Because, among other things, payment of the liability will extend over many
years, management believes that the potential additional costs for claims, net
of any potential insurance recoveries, will not have a material after-tax effect
on the financial condition of Armstrong or its liquidity, although the net
after-tax effect of any future liabilities recorded in excess of insurance
assets could be material to earnings in a future period.
-52-
<PAGE>
Codefendant Bankruptcies
Certain codefendant companies have filed for reorganization under Chapter 11 of
the Federal Bankruptcy Code. As a consequence, litigation against them (with
some exceptions) has been stayed or restricted. Due to the uncertainties
involved, the long-term effect of these proceedings on the litigation cannot be
predicted.
Letters of Credit
As of December 31, 1999, Armstrong entered into $36.2 million of letters of
credit to meet minimum collateral requirements established by the Center.
Property Damage Litigation
Armstrong is also one of many defendants in five pending claims as of December
31, 1999, that were filed by public and private building owners. These cases
present allegations of damage to the plaintiffs' buildings caused by
asbestos-containing products and generally seek compensatory and punitive
damages and equitable relief, including reimbursement of expenditures, for
removal and replacement of such products. Armstrong vigorously denies the
validity of the allegations against it in these claims. These claims are not
handled by the Center. Insurance coverage has been resolved and is expected to
cover almost all costs of these claims.
Insurance Coverage
During relevant time periods, Armstrong purchased primary and excess insurance
policies providing coverage for personal injury claims and property damage
claims. Certain policies also provide coverage to ACandS, Inc., a former
subsidiary of Armstrong. Armstrong and ACandS agreed to share certain coverage
on a first-come first-served basis and to reserve for ACandS a certain amount of
excess coverage.
Wellington Agreement
In 1985, Armstrong and 52 other companies (asbestos defendants and insurers)
signed the Wellington Agreement. This Agreement settled disputes concerning
personal injury insurance coverage with signatory carriers. It provides broad
coverage for both defense and indemnity and applies to both products hazard and
nonproducts (general liability) coverages. Armstrong has resolved most
asbestos-related personal injury products hazard coverage matters with its
solvent carriers through the Wellington Agreement or other settlements.
Insurance Recovery Proceedings
A substantial portion of Armstrong's primary and excess remaining insurance
asset is nonproducts (general liability) insurance for personal injury claims
including, among others, those that involve alleged exposure during Armstrong's
installation of asbestos materials. An alternative dispute resolution ("ADR")
procedure under the Wellington Agreement is under way against certain carriers
to determine the percentage of resolved and unresolved claims that are
nonproducts claims, to establish the entitlement to that coverage and to
determine whether and how much reinstatement of prematurely exhausted products
hazard insurance is warranted. The nonproducts coverage potentially available is
substantial and includes defense costs in addition to limits. The carriers have
raised various defenses, including waiver, laches, statutes of limitations and
contractual defenses. One primary carrier alleges that it is no longer bound by
the Wellington Agreement, and another alleges that Armstrong agreed to limit its
claims for nonproducts coverage against that carrier when the Wellington
Agreement was signed. The ADR process is in the trial phase of binding
arbitration. One insurer has taken the position that it is entitled to litigate
in court certain issues in the ADR proceeding. During 1999, Armstrong received
preliminary decisions in the initial phases of the trial proceeding of the ADR
which were generally favorable to Armstrong on a number of issues related to
insurance coverage. Because of the continuing ADR process and the possibilities
for further proceedings on certain matters, Armstrong has not yet completely
determined the financial implications of the decisions. Armstrong has entered
into settlements with a number of the carriers resolving coverage issues.
Other proceedings against non-Wellington carriers may become necessary.
-53-
<PAGE>
Insurance Asset
As with its estimated asbestos-related liability, Armstrong continually
evaluates the probable insurance asset to be recorded. An insurance asset in the
amount of $296.0 million is recorded as of December 31, 1999. Approximately
$58.7 million was received in 1999 pursuant to existing settlements. The asset
was also increased by $90.0 million in the fourth quarter of 1999 primarily as a
result of insurance coverage in place related to the increase in the probable
and estimable liability and recent settlements with certain carriers. Of the
total insurance asset amount, approximately $78.3 million represents partial
settlement for previous claims which will be paid in a fixed and determinable
flow and is reported at its net present value discounted at 6.70%. The total
amount recorded reflects Armstrong's belief in the availability of insurance in
this amount, based upon Armstrong's success in insurance recoveries, recent
settlement agreements that provide that coverage, the nonproducts recoveries by
other companies and the opinion of outside counsel. This insurance is either
available through settlement or probable of recovery through negotiation,
litigation or resolution of the ADR process that is in the trial phase of
binding arbitration. Depending on further progress of the ADR, and activities
such as settlement discussions with insurance carriers party to the ADR and
those not party to the ADR, Armstrong may revise its estimate and additional
insurance assets may be recorded in a future period. Of the $296.0 million
asset, $26.0 million has been recorded as a current asset reflecting
management's estimate of the minimum insurance payments to be received in the
next 12 months. However, the actual amount of payments to be received in the
next 12 months could increase depending upon the nature and result of settlement
discussions. Management estimates that the timing of future cash payments for
the remainder of the recorded asset may extend beyond 10 years.
Cash Flow Impact
Armstrong paid $173.0 million for asbestos-related claims in 1999 compared to
$101.5 million in 1998. Armstrong received $58.7 million in asbestos-related
insurance recoveries in 1999 compared with $27.1 million in 1998. Armstrong
currently expects to pay approximately $95.0 million to $115.0 million for
asbestos-related claims and expenses in 2000, net of expected insurance
recoveries and taxes.
CONCLUSION
In the fourth quarter of 1999, Armstrong recorded a net pretax charge of $335.4
million. This charge is the net of an increase in its estimated asbestos-related
liability of $425.4 million and a $90.0 million increase in related insurance
recoveries.
While some successful broad-based settlements have been reached with
plaintiff law firms, Armstrong is uncertain as to the timing and number of any
additional settlements to be reached.
Since many uncertainties exist surrounding asbestos litigation, Armstrong
will continue to evaluate its asbestos-related estimated liability and
corresponding estimated insurance recoveries asset as well as the underlying
assumptions used to derive these amounts. The recorded liability and asset
reflect the most recent available information as of this filing. However, it is
reasonably possible that Armstrong's total exposure to personal injury claims
may be greater than the recorded liability, and, accordingly future charges to
income may be necessary. While Armstrong believes that potential future charges
may be material to the periods in which they are taken, Armstrong does not
believe the charges will have a material adverse effect on its financial
position or liquidity.
ENVIRONMENTAL MATTERS
Most of Armstrong's manufacturing and certain of Armstrong's research facilities
are affected by federal, state and local environmental laws. These laws relate
to the discharge of materials or otherwise relate to the protection of the
environment. Armstrong has made, and intends to continue to make, necessary
expenditures for compliance with applicable laws. Armstrong incurred capital
expenditures of approximately $5.5 million in 1999, $6.7 million in 1998 and
$1.2 million in 1997 for environmental compliance and control facilities and
anticipates annual expenditures for those purposes to continue within this range
for the years 2000 and 2001. Armstrong does not anticipate that it will incur
significant capital expenditures in order to meet the requirements of the Clean
Air Act of 1990 and the final implementing regulations promulgated by various
state agencies. Until all new regulatory requirements are known, uncertainty
will remain regarding future estimates of capital expenditures.
As with many industrial companies, Armstrong is currently involved in
proceedings under the Comprehensive Environmental Response, Compensation and
Liability Act ("Superfund"), and similar state laws at approximately 22 sites.
In most cases, Armstrong is one of many potentially responsible parties ("PRPs")
who have voluntarily agreed to jointly fund the required investigation and
remediation of each site. With regard to some sites, however, Armstrong disputes
the liability, the proposed remedy or the proposed cost allocation among the
PRPs. Armstrong may also have rights of contribution or reimbursement from other
parties or coverage under applicable insurance policies. Armstrong is also
remediating environmental contamination resulting from past industrial activity
at certain of its current and former plant sites.
Estimates of future liability are based on an evaluation of currently
available facts regarding each individual site and consider factors including
existing technology, presently enacted laws and regulations and prior company
experience in remediation of contaminated sites. Although current law imposes
joint and several liability on all parties at any Superfund site, Armstrong's
contribution to the remediation of these sites is expected to be limited by the
number of other companies also identified as potentially liable for site costs.
As a result, Armstrong's estimated liability reflects only Armstrong's expected
share. In determining the probability of contribution, Armstrong considers the
solvency of the parties, whether responsibility is being disputed, the terms of
any existing agreements and experience regarding similar matters.
Liabilities of $14.7 million at December 31, 1999, and $18.3 million at
December 31, 1998, were for potential environmental liabilities that Armstrong
considers probable and for which a reasonable estimate of the probable liability
could be made. Where existing data is sufficient to estimate the amount of the
liability, that estimate has been used; where only a range of probable liability
is available and no amount within that range is more likely than any other, the
lower end of the range has been used. As assessments and remediation activities
progress at each individual site, these liabilities are reviewed to reflect
additional information as it becomes available.
The estimated liabilities do not take into account any claims for recoveries
from insurance or third parties. Such recoveries, where probable, have been
recorded as an asset in the consolidated financial statements and are either
available through settlement or probable of recovery through negotiation or
litigation.
Actual costs to be incurred at identified sites in the future may vary from
the estimates, given the inherent uncertainties in evaluating environmental
liabilities. Subject to the imprecision in estimating environmental remediation
costs, Armstrong believes that any sum it may have to pay in connection with
environmental matters in excess of the amounts noted above would not have a
material adverse effect on its financial condition, liquidity or results of
operations, although the recording of future costs may be material to earnings
in such future period.
-54-
<PAGE>
Independent auditors' report
The Board of Directors and Shareholders,
Armstrong World Industries, Inc.:
We have audited the consolidated financial statements of Armstrong World
Industries, Inc., and subsidiaries as listed in the accompanying index on page
33. In connection with our audits of the consolidated financial statements, we
also have audited the financial statement schedule as listed in the accompanying
index on page 33. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Armstrong World
Industries, Inc., and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Philadelphia, Pennsylvania
February 2, 2000
-55-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- ---------------------
Not applicable.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- -------------------------------------------------------------
Directors of the Registrant
- ----------------------------
The information appearing in the tabulation in the section captioned "Election
of Directors" on pages 8-11 of the Company's 2000 Proxy Statement is
incorporated by reference herein.
Executive Officers of the Registrant
- -------------------------------------
George A. Lorch -- Age 58; Chairman of the Board since April 25, 1994; and
President (Chief Executive Officer) since September 7, 1993; Member of the
Executive Committee of the Board of Directors since March, 1988; Executive Vice
President, 1988 to 1993; Group Vice President for Carpet Operations, 1983 to
1988.
Marc R. Olivie -- Age 46; President, Worldwide Building Products Operations
since October 15, 1996; and the following positions with Sara Lee Corporation
(branded consumer products): President, Sara Lee Champion Europe, Inc. (Italy),
March 1994-October 1996; Vice President, Corporate Development, Sara Lee/DE
(Netherlands), September 1993-March 1994.
Robert J. Shannon, Jr. -- Age 51, President, Worldwide Floor Products Operations
since February 1, 1997; President Floor Products Operations International
February 1, 1996,-February 1, 1997; President American Olean Tile Company, Inc.
March 1, 1992-December 29, 1995.
Ulrich J. Weimer -- Age 55; President, Armstrong Insulation Products since
February 1, 1996; Managing Director, Armstrong World Industries G.m.b.H. since
December 11, 1995; General Manager, Worldwide Insulation Products Operations,
February 1, 1993-June 1, 1995.
Douglas L. Boles -- Age 42; Executive Vice President, Human Resources since
March 14, 2000; Senior Vice President, Human Resources since March 1, 1996; and
the following positions with PepsiCo (consumer products): Vice President of
Human Resources, Pepsi Foods International Europe Group (U.K.), June 1995-
February 1996; Vice President of Human Resources, Walkers Snack Foods (U.K.),
March 1994-June 1995; Vice President of Human Resources, Snack Ventures Europe
(Netherlands), September 1992-March 1994.
Deborah K. Owen -- Age 48; Senior Vice President, Secretary and General Counsel
since January 1, 1998; Attorney, Law Offices of Deborah K. Owen, Columbia, MD,
September 1996-September 1997; Partner, Arent Fox Kintner Plotkin & Kahn, PLLC,
Washington DC, August 1994-August 1996; Commissioner, Federal Trade Commission,
Washington, DC, October 1989-August 1994.
Frank A. Riddick, III -- Age 43; Executive Vice President and Chief Operating
Officer since March 14, 2000; Senior Vice President, Finance and Chief Financial
Officer since April 1995; Controller FMC Corporation, Chicago, IL (chemicals,
machinery), May 1993-March 1995.
William C. Rodruan -- Age 45; Vice President and Controller since July 26, 1999;
Director, Corporate Transformation and Shared Services from February 1, 1997,
through July 26, 1999; Vice President of Finance, Corporate Retail Accounts from
July 1, 1994 through February 1, 1997.
-56-
<PAGE>
E. Follin Smith -- Age 40; Senior Vice President and Chief Financial Officer
since March 14, 2000; Vice President and Treasurer since August 1998; and the
following positions with General Motors Corporation (automobile manufacturer):
Chief Financial Officer, Delphi Chassis Systems, April 1997-July 1998; Assistant
Treasurer, October, 1994-April 1997; Vice President, Finance, General Motors
Acceptance Corporation, May 1994-September 1994; Treasurer, General Motors of
Canada Limited, June 1992-April 1994.
Dr. Bernd F. Pelz -- Age 56; President DLW Aktiengesellschaft since September
1998; Member of the Executive Board, DLW Aktiengesellschaft since April 1990,
and its Chairman since October 1991.
Floyd F. Sherman -- Age 60; President, Wood Products Operations since July 24,
1998; and the following positions with Triangle Pacific Corp.: Chairman of the
Board and Chief Executive Officer since July 1992; President 1981-November 1994.
Stephen E. Stockwell -- Age 54, Senior Vice President Floor Products, Americas,
Residential Sales, since July 28, 1998; President, Corporate Retail Accounts
Division, November 22, 1994 through July 28, 1998; Vice President, Corporate
Retail Accounts, July 1, 1994 through November 22, 1994; General Manager,
Residential Sales, Floor Division, January 26, 1994 through July 1, 1994; Field
Sales Manager, Floor Division, 1988 through 1994.
All information presented above is current as of March 14, 2000. The term of
office for each Executive Officer in his present capacity is one year, and each
such Executive Officer will serve until reelected or until a successor is
elected at the annual meeting of directors which follows the annual
shareholders' meeting. Each Executive Officer has been employed by us in excess
of five continuous years with the exception of Messrs. Olivie, Boles, Riddick,
Pelz, Sherman and Mses. Owen and Smith.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
The information appearing in the section captioned "Section 16(a) Beneficial
Ownership Reporting Compliance" on page 15 of the Company's 2000 Proxy Statement
is incorporated by reference herein.
Item 11. Executive Compensation
- ---------------------------------
The information appearing in the sections captioned "Compensation of Directors"
on page 12 and "Executive Officers' Compensation," (other than the information
contained under the subcaption "Performance Graph") and "Retirement Income Plan
Benefits," on pages 17-22 of the Company's 2000 Proxy Statement is incorporated
by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------------------------------------------------------------------------
The information appearing in the sections captioned "Stock Ownership of Certain
Beneficial Owners" on pages 22-23 and "Directors' and Executive Officers' Stock
Ownership" on pages 14-15 of the Company's 2000 Proxy Statement is incorporated
by reference herein.
Item 13. Certain Relationships and Related Transactions
- ---------------------------------------------------------
The information appearing under the heading "Transactions with Organizations
Affiliated with Directors" appearing on page 23 of the Company's 2000 Proxy
Statement is incorporated by reference herein.
-57-
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- ---------------------------------------------------------------------------
The financial statements and schedule filed as a part of this Annual Report on
Form 10-K are listed in the "Index to Financial Statements and Schedules" on
page 33.
a. The following exhibits are filed as a part of this Annual Report on Form
10-K:
Exhibits
--------
No. 3(a) Registrant's By-laws, as amended, effective September 20, 1999,
are incorporated by reference herein from registrant's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1999, wherein they appear as Exhibit 3.
No. 3(b) Registrant's restated Articles of Incorporation, as amended,
are incorporated by reference herein from registrant's 1994
Annual Report on Form 10-K wherein they appear as Exhibit 3(b).
No. 4(a) Registrant's Rights Agreement effective as of March 21, 1996,
between the registrant and Chemical Mellon Shareholder
Services, L.L.C., as Rights Agent, relating to the registrant's
Preferred Stock Purchase Rights is incorporated by reference
herein from registrant's registration statement on Form 8-A/A
dated March 15, 1996, wherein it appeared as Exhibit 4.
American Stock Transfer and Trust Company is the successor
Rights Agent under this Agreement.
No. 4(b) Registrant's Retirement Savings and Stock Ownership Plan
effective as of October 1, 1996, as amended November 5, 1999. *
No. 4(c) Registrant's $450,000,000 Credit Agreement (5-year) dated as of
October 29, 1998, among the registrant, The Chase Manhattan
Bank, as administrative agent, and the banks listed therein, is
incorporated herein by reference from registrant's 1998 Annual
Report on Form 10-K, wherein it appeared as Exhibit 4(f).
No. 4(d) Registrant's Indenture, dated as of August 6, 1996, between the
Registrant and The Chase Manhattan Bank, formerly known as
Chemical Bank, as successor to Mellon Bank, N.A., as Trustee,
is incorporated herein by reference from registrant's
registration statement on Form S-3/A dated August 14, 1996,
wherein it appeared as Exhibit 4.1.
No. 4(e) Copy of portions of the registrant's Board of Directors'
Pricing Committee's resolutions establishing the terms and
conditions of $200,000,000 of 6.35% Senior Notes Due 2003 and
$150,000,000 of 6 1/2% Senior Notes Due 2005, is incorporated
herein by reference from registrant's 1998 Annual Report on
Form 10-K, wherein it appeared as Exhibit 4(h).
No. 4(f) Copy of portions of the registrant's Board of Directors'
Pricing Committee's resolutions establishing the terms and
conditions of $180,000,000 of 7.45% Senior Quarterly Interest
Bonds Due 2038, is
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<PAGE>
incorporated herein by reference from registrant's 1998 Annual
Report on Form 10-K, wherein it appeared as Exhibit 4(i).
Registrant agrees to furnish to the Commission upon request
copies of instruments defining the rights of holders of
long-term debt of the registrant and its subsidiaries which are
not filed herewith in accordance with applicable rules of the
Commission because the total amount of securities authorized
thereunder does not exceed 10% of the total assets of the
registrant and its subsidiaries on a consolidated basis.
No. 10(i)(a) Registrant's Agreement Concerning Asbestos-Related Claims dated
June 19, 1985, (the "Wellington Agreement") among the
registrant and other companies is incorporated by reference
herein from registrant's 1997 Annual Report on Form 10-K
wherein it appeared as Exhibit 10(i)(a).
No. 10(i)(b) Producer Agreement concerning Center for Claims Resolution, as
amended, among the registrant and other companies.
No. 10(i)(c) Indenture, dated as of March 15, 1988, between the registrant
and Morgan Guaranty Trust Company of New York, as Trustee, as
to which The First National Bank of Chicago is successor
trustee, (relating to the registrant's $125 million 9-3/4%
Debentures due 2008 and Series A Medium Term Notes) is
incorporated herein by reference from registrant's 1995 Annual
Report on Form 10-K wherein it appeared as Exhibit 4(c).
No. 10(i)(d) Senior Indenture dated as of December 23, 1998 between
Registrant and First National Bank of Chicago, as Trustee, is
incorporated herein by reference from the registrant's
Registration Statement on Form S-3 (File No. 333- 74501) dated
March 16, 1999, wherein it appeared as Exhibit 4.3.
No. 10(i)(e) Global Note representing $200 million of 7.45% Senior Notes due
2029 is incorporated by reference herein from the registrant's
Current Report on Form 8-K which was filed with the Commission
on May 29, 1999, wherein it appeared as Exhibit 4.2.
No. 10(i)(f) Agreement and Plan of Merger dated as of June 12, 1998, among
the registrant, Triangle Pacific Corp., and Sapling
Acquisition, Inc., is incorporated by reference herein from
registrant's Form 8-K filed on June 15, 1998, wherein it
appeared as Exhibit 10.1.
No. 10(i)(g) Agreement and Plan of Merger, dated as of June 30, 1999 by and
among AISI Acquisition Corp. and registrant and Armstrong
Industrial Specialties, Inc. is incorporated by reference
herein from registrant's Current Report on Form 8- K filed on
July 14, 1999, wherein it appeared as Exhibit 1.
No. 10(i)(h) Registrant's $450,000,000 Credit Agreement (364-day) dated as
of October 29, 1998, among the registrant, The Chase Manhattan
Bank as administrative agent, and listed banks, is incorporated
herein by reference from registrant's 1998 Annual Report on
Form 10-K, wherein it appeared as Exhibit 4(e).
-59-
<PAGE>
No. 10(i)(i) Amended and Restated Credit Agreement dated as of October 21,
1999, among the registrant, The Chase Manhattan Bank as
administrative agent, and listed banks, which amends Exhibit
10(i)(h) in certain respects.
No. 10(iii)(a) Registrant's Long-Term Stock Option Plan for Key Employees, as
amended, is incorporated by reference herein from registrant's
1995 Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(a). *
No. 10(iii)(b) Form of agreement between DLW and Dr. Bernd F. Pelz, as
amended. *
No. 10(iii)(c) Registrant's Directors' Retirement Income Plan, as amended, is
incorporated by reference herein from registrant's 1996 Annual
Report on Form 10-K wherein it appeared as Exhibit 10(iii)(c).
*
No. 10(iii)(d) Registrant's Management Achievement Plan for Key Executives, as
amended December 13, 1999 *
No. 10(iii)(e) Registrant's Retirement Benefit Equity Plan (formerly known as
the Excess Benefit Plan), as amended January 1, 2000. *
No. 10(iii)(f) Copy of Registrant's Deferred Compensation Plan, as amended
January 1, 2000. *
No. 10(iii)(g) Registrant's Employment Protection Plan for Salaried Employees
of Armstrong World Industries, Inc., as amended, is
incorporated by reference herein from registrant's 1994 Annual
Report on Form 10-K wherein it appeared as Exhibit 10(iii)(g).
*
No. 10(iii)(h) Registrant's Restricted Stock Plan For Nonemployee Directors,
as amended, is incorporated by reference herein from
registrant's 1996 Annual Report on Form 10-K wherein it
appeared as Exhibit 10(iii)(h).*
No. 10(iii)(i) Registrant's Severance Pay Plan for Salaried Employees, as
amended July 13, 1998, is incorporated by reference herein from
registrant's 1998 Annual Report on Form 10-K wherein it
appeared as Exhibit 10(iii)(i). *
No. 10(iii)(j) Registrant's 1999 Long-Term Stock Incentive Plan*
No. 10(iii)(k) Form of Agreement between the Company and certain of its
Executive Officers, together with a schedule identifying those
executives and the material differences among the agreements to
which each executive is a party. *
No. 10(iii)(l) Form of Indemnification Agreement between the registrant and
each of the registrant's Directors, is incorporated by
reference herein from registrant's 1996 Annual Report on Form
10-K wherein it appeared as Exhibit 10(iii)(l). *
No. 10(iii)(m) Registrant's Bonus Replacement Retirement Plan, dated as of
January 1, 1998, as amended, is incorporated by reference
herein from registrant's 1998 Annual Report on Form 10-K
wherein it appeared as Exhibit 10(iii)(m). *
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<PAGE>
No. 10(iii)(n) Copy of Employment Agreement between the registrant and George
A. Lorch dated as of December 13, 1999. *
No. 11(a) Computation for basic earnings.
No. 11(b) Computation for diluted earnings per share.
No. 12 Ratio of Earnings to Fixed Charges
No. 21 List of the registrant's domestic and foreign subsidiaries.
No. 23 Consent of Independent Auditors.
No. 24 Powers of Attorney and authorizing resolutions.
No. 27 Financial Data Statement
* Compensatory Plan
-61-
<PAGE>
b. The following reports on Form 8-K were filed during the last quarter of
1999:
None.
-62-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ARMSTRONG WORLD INDUSTRIES, INC.
--------------------------------
(Registrant)
By /s/ George A. Lorch
----------------------------
Chairman
Date March 15, 2000
-------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Directors and Principal Officers of the registrant:
George A. Lorch Chairman and President
(Principal Executive Officer)
Frank A. Riddick, III Senior Vice President, Finance
(Principal Financial Officer)
William C. Rodruan Vice President and Controller
(Principal Accounting Officer)
H. Jesse Arnelle Director
Van C. Campbell Director
Donald C. Clark Director
Judith R. Haberkorn Director
John A. Krol Director
David M. LeVan Director
James E. Marley Director
David W. Raisbeck Director
Jerre L. Stead Director
By /s/ George A. Lorch
----------------------------------
(George A. Lorch, as
attorney-in-fact and on his own
behalf)
As of March 15, 2000
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<PAGE>
SCHEDULE II
-----------
Valuation and Qualifying Reserves of Accounts Receivable
--------------------------------------------------------
For Years Ended December 31
---------------------------
(amounts in millions)
<TABLE>
<CAPTION>
Provision for Losses 1999 1998 1997
- -------------------- -------- -------- -------
<S> <C> <C> <C>
Balance at Beginning of Year $ 18.2 $ 12.8 $ 10.9
Additions Charged to Earnings 12.1 7.2 7.3
Deductions (5.0) (11.4) (5.4)
Balances via acquisitions/(divestitures) (0.1) 9.6 --
------- ------- ------
Balance at End of Year $ 25.2 $ 18.2 $ 12.8
======= ======= ======
- -----------------------------------------------------------------------
Provision for Discounts
- -----------------------
Balance at Beginning of Year $ 31.6 $ 24.7 $ 24.0
Additions Charged to Earnings 112.4 93.3 76.7
Deductions (120.8) (88.8) (76.0)
Balance via acquisitions/(divestitures) (0.5) 2.4 --
------- ------- ------
Balance at End of Year $ 22.7 $ 31.6 $ 24.7
======= ======= ======
- -----------------------------------------------------------------------
Total Provision for Discounts and Losses
- ----------------------------------------
Balance at Beginning of Year $ 49.8 $ 37.5 $ 34.9
Additions Charged to Earnings 124.5 100.5 84.0
Deductions (125.8) (100.2) (81.4)
Balances via acquisitions/(divestitures) (0.6) 12.0 --
------- ------- ------
Balance at End of Year $ 47.9 $ 49.8 $ 37.5
======= ======= ======
</TABLE>
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<PAGE>
EXHIBIT INDEX
No. 3(a) Registrant's By-laws, as amended, effective September 20,
1999, are incorporated by reference herein from registrant's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1999, wherein they appear as Exhibit 3.
No. 3(b) Registrant's restated Articles of Incorporation, as amended,
are incorporated by reference herein from registrant's 1994
Annual Report on Form 10-K wherein they appear as Exhibit 3(b).
No. 4(a) Registrant's Rights Agreement effective as of March 21, 1996,
between the registrant and Chemical Mellon Shareholder
Services, L.L.C., as Rights Agent, relating to the registrant's
Preferred Stock Purchase Rights is incorporated by reference
herein from registrant's registration statement on Form 8-A/A
dated March 15, 1996, wherein it appeared as Exhibit 4.
American Stock Transfer and Trust Company is the successor
Rights Agent under this Agreement.
No. 4(b) Registrant's Retirement Savings and Stock Ownership Plan
effective as of October 1, 1996, as amended November 5, 1999. *
No. 4(c) Registrant's $450,000,000 Credit Agreement (5-year) dated as of
October 29, 1998, among the registrant, The Chase Manhattan
Bank, as administrative agent, and the banks listed therein, is
incorporated herein by reference from registrant's 1998 Annual
Report on Form 10-K, wherein it appeared as Exhibit 4(f).
No. 4(d) Registrant's Indenture, dated as of August 6, 1996, between the
Registrant and The Chase Manhattan Bank, formerly known as
Chemical Bank, as successor to Mellon Bank, N.A., as Trustee,
is incorporated herein by reference from registrant's
registration statement on Form S-3/A dated August 14, 1996,
wherein it appeared as Exhibit 4.1.
No. 4(e) Copy of portions of the registrant's Board of Directors'
Pricing Committee's resolutions establishing the terms and
conditions of $200,000,000 of 6.35% Senior Notes Due 2003 and
$150,000,000 of 6 1/2% Senior Notes Due 2005, is incorporated
herein by reference from registrant's 1998 Annual Report on
Form 10-K, wherein it appeared as Exhibit 4(h).
No. 4(f) Copy of portions of the registrant's Board of Directors'
Pricing Committee's resolutions establishing the terms and
conditions of $180,000,000 of 7.45% Senior Quarterly Interest
Bonds Due 2038, is incorporated herein by reference from
registrant's 1998 Annual Report on Form 10-K, wherein it
appeared as Exhibit 4(i).
Registrant agrees to furnish to the Commission upon request
copies of instruments defining the rights of holders of
long-term debt of the registrant and its subsidiaries which are
not filed herewith in accordance with applicable rules of the
Commission because the total amount of securities authorized
thereunder does not exceed 10% of the total assets of the
registrant and its subsidiaries on a consolidated basis.
No. 10(i)(a) Registrant's Agreement Concerning Asbestos-Related Claims dated
June 19, 1985, (the "Wellington Agreement") among the
registrant and other companies is incorporated by reference
herein from registrant's 1997 Annual Report on Form 10-K
wherein it appeared as Exhibit 10(i)(a).
No. 10(i)(b) Producer Agreement concerning Center for Claims Resolution, as
amended, among the registrant and other companies.
No. 10(i)(c) Indenture, dated as of March 15, 1988, between the registrant
and Morgan Guaranty Trust Company of New York, as Trustee, as
to which The First National Bank of Chicago is successor
trustee, (relating to the registrant's $125 million 9-3/4%
Debentures due 2008 and Series A Medium Term Notes) is
incorporated herein by reference from registrant's 1995 Annual
Report on Form 10-K wherein it appeared as Exhibit 4(c).
No. 10(i)(d) Senior Indenture dated as of December 23, 1998 between
Registrant and First National Bank of Chicago, as Trustee, is
incorporated herein by reference from the registrant's
Registration Statement on Form S-3 (File No. 333- 74501) dated
March 16, 1999, wherein it appeared as Exhibit 4.3.
No. 10(i)(e) Global Note representing $200 million of 7.45% Senior Notes due
2029 is incorporated by reference herein from the registrant's
Current Report on Form 8-K which was filed with the Commission
on May 29, 1999, wherein it appeared as Exhibit 4.2.
No. 10(i)(f) Agreement and Plan of Merger dated as of June 12, 1998, among
the registrant, Triangle Pacific Corp., and Sapling
Acquisition, Inc., is incorporated by reference herein from
registrant's Form 8-K filed on June 15, 1998, wherein it
appeared as Exhibit 10.1.
No. 10(i)(g) Agreement and Plan of Merger, dated as of June 30, 1999 by and
among AISI Acquisition Corp. and registrant and Armstrong
Industrial Specialties, Inc. is incorporated by reference
herein from registrant's Current Report on Form 8- K filed on
July 14, 1999, wherein it appeared as Exhibit 1.
No. 10(i)(h) Registrant's $450,000,000 Credit Agreement (364-day) dated as
of October 29, 1998, among the registrant, The Chase Manhattan
Bank as administrative agent, and listed banks, is incorporated
herein by reference from registrant's 1998 Annual Report on
Form 10-K, wherein it appeared as Exhibit 4(e).
No. 10(i)(i) Amended and Restated Credit Agreement dated as of October 21,
1999, among the registrant, The Chase Manhattan Bank as
administrative agent, and listed banks, which amends Exhibit
10(i)(h) in certain respects.
No. 10(iii)(a) Registrant's Long-Term Stock Option Plan for Key Employees, as
amended, is incorporated by reference herein from registrant's
1995 Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(a). *
No. 10(iii)(b) Form of agreement between DLW and Dr. Bernd F. Pelz, as
amended. *
No. 10(iii)(c) Registrant's Directors' Retirement Income Plan, as amended, is
incorporated by reference herein from registrant's 1996 Annual
Report on Form 10-K wherein it appeared as Exhibit
10(iii)(c). *
No. 10(iii)(d) Registrant's Management Achievement Plan for Key Executives, as
amended December 13, 1999 *
No. 10(iii)(e) Registrant's Retirement Benefit Equity Plan (formerly known as
the Excess Benefit Plan), as amended January 1, 2000. *
No. 10(iii)(f) Copy of Registrant's Deferred Compensation Plan, as amended
January 1, 2000. *
No. 10(iii)(g) Registrant's Employment Protection Plan for Salaried Employees
of Armstrong World Industries, Inc., as amended, is
incorporated by reference herein from registrant's 1994 Annual
Report on Form 10-K wherein it appeared as Exhibit
10(iii)(g). *
No. 10(iii)(h) Registrant's Restricted Stock Plan For Nonemployee Directors,
as amended, is incorporated by reference herein from
registrant's 1996 Annual Report on Form 10-K wherein it
appeared as Exhibit 10(iii)(h).*
No. 10(iii)(i) Registrant's Severance Pay Plan for Salaried Employees, as
amended July 13, 1998, is incorporated by reference herein from
registrant's 1998 Annual Report on Form 10-K wherein it
appeared as Exhibit 10(iii)(i). *
No. 10(iii)(j) Registrant's 1999 Long-Term Stock Incentive Plan*
No. 10(iii)(k) Form of Agreement between the Company and certain of its
Executive Officers, together with a schedule identifying those
executives and the material differences among the agreements to
which each executive is a party. *
No. 10(iii)(l) Form of Indemnification Agreement between the registrant and
each of the registrant's Directors, is incorporated by
reference herein from registrant's 1996 Annual Report on Form
10-K wherein it appeared as Exhibit 10(iii)(l). *
No. 10(iii)(m) Registrant's Bonus Replacement Retirement Plan, dated as of
January 1, 1998, as amended, is incorporated by reference
herein from registrant's 1998 Annual Report on Form 10-K
wherein it appeared as Exhibit 10(iii)(m). *
No. 10(iii)(n) Copy of Employment Agreement between the registrant and George
A. Lorch dated as of December 13, 1999. *
No. 11(a) Computation for basic earnings.
No. 11(b) Computation for diluted earnings per share.
No. 12 Ratio of Earnings to Fixed Charges
No. 21 List of the registrant's domestic and foreign subsidiaries.
No. 23 Consent of Independent Auditors.
No. 24 Powers of Attorney and authorizing resolutions.
No. 27 Financial Data Statement
* Compensatory Plan
<PAGE>
EXHIBIT 4(b)
RETIREMENT SAVINGS AND
STOCK OWNERSHIP PLAN OF
ARMSTRONG WORLD INDUSTRIES, INC.
As Amended and Restated
Effective October 1, 1996
THIS WORKING COPY OF THE PLAN
INCORPORATES AMENDMENTS ADOPTED
THROUGH NOVEMBER 5, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PREAMBLE..................................................................... 1
Article 1. Definitions...................................................... 4
1.01 Acquisition Loan...................................................... 4
1.02 Actual Deferral Percentage............................................ 4
1.03 Affiliated Company.................................................... 5
1.04 Beneficiary........................................................... 5
1.05 Board of Directors.................................................... 6
1.06 Break in Service...................................................... 6
1.07 Change in Control..................................................... 6
1.08 Code.................................................................. 6
1.09 Committee............................................................. 6
1.10 Company............................................................... 6
1.11 Company Stock......................................................... 6
1.12 Company Suspense Account.............................................. 7
1.13 Compensation.......................................................... 7
1.14 Contribution Percentage............................................... 8
1.15 Effective Date........................................................ 9
1.16 Eligible Employee..................................................... 9
1.17 Eligible Member....................................................... 9
1.18 Employee.............................................................. 9
1.19 Equity Account........................................................ 10
1.20 Equity Allocations.................................................... 10
1.21 ERISA................................................................. 10
1.22 Excess Exchange Contributions......................................... 10
1.23 Excess Matching Allocations........................................... 11
1.24 Excess Sheltered Contributions........................................ 12
1.25 Excess Standard Contributions......................................... 13
1.26 Exchange Contribution Account......................................... 14
1.27 Exchange Contributions................................................ 14
1.28 Full-Time Employee.................................................... 15
1.29 Highly Compensated Employee........................................... 15
1.30 Hour of Service....................................................... 18
1.31 Investment Fund....................................................... 18
1.32 Leveraged Shares...................................................... 18
1.33 Match Account......................................................... 19
1.34 Matching Allocations.................................................. 19
1.35 Member................................................................ 19
1.36 Member Account or Account............................................. 19
1.37 Parental Leave........................................................ 19
1.38 Participating Company................................................. 19
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<TABLE>
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1.39 Part-Time Employee.................................................... 19
1.40 Plan.................................................................. 20
1.41 Plan Fiduciary........................................................ 20
1.42 Plan Year............................................................. 20
1.43 Qualifying Year of Employment......................................... 20
1.44 Retirement............................................................ 20
1.45 Retirement Savings Account............................................ 20
1.46 Retirement Savings Matching Contributions............................. 21
1.47 Retirement Savings Trustee............................................ 21
1.48 Rollover Contributions................................................ 21
1.49 Service............................................................... 21
1.50 Sheltered Contributions............................................... 21
1.51 Standard Contributions................................................ 22
1.52 Standard Contributions Percentage..................................... 22
1.53 Stock Ownership Account............................................... 23
1.54 Stock Ownership Allocation Period..................................... 23
1.55 Stock Ownership Contributions......................................... 23
1.56 Stock Ownership Plan.................................................. 23
1.57 Stock Ownership Trustee............................................... 24
1.58 Tax Deductible Contributions.......................................... 24
1.59 Trust................................................................. 24
1.60 Trust Agreement....................................................... 24
1.61 Trust Fund............................................................ 24
1.62 Valuation Date........................................................ 24
1.63 Year of Service....................................................... 25
Article 2. Eligibility and Membership........................................ 26
2.01 Eligibility........................................................... 26
2.02 Excluded Employees.................................................... 26
2.03 Membership............................................................ 27
2.04 Events Affecting Membership........................................... 28
2.05 Membership Upon Reemployment.......................................... 29
Article 3. Service.......................................................... 31
3.01 Companies For Whom Credited........................................... 31
3.02 Hours of Service...................................................... 31
3.03 Additional Service Credit............................................. 35
Article 4. Contributions and Dividends...................................... 36
4.01 Member Pre-Tax Contributions.......................................... 36
4.02 Standard Contributions................................................ 38
4.03 Change or Suspension in Member Contributions.......................... 39
4.04 Stock Ownership Contributions......................................... 41
4.05 Manner of Contributions............................................... 43
4.06 Return of Contributions............................................... 43
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
4.07 Dividends on Company Stock.......................................... 43
4.08 Correction of Errors in Contributions............................... 44
4.09 Rollover Contributions.............................................. 45
Article 5. Acquisition Loans.............................................. 47
5.01 Acquisition Loan.................................................... 47
5.02 Allocation of Leveraged Shares...................................... 48
Article 6. Allocations of and Limitations on Contributions................ 50
6.01 Members Eligible for Allocations.................................... 50
6.02 Method of Allocations............................................... 53
6.03 Limitation on Exchange Contributions Affecting Highly Compensated...
Employees...................................................... 57
6.04 Limitation on Sheltered Contributions Affecting Highly Compensated
Employees...................................................... 59
6.05 Maximum Exchange Contributions and Sheltered Contributions.......... 60
6.06 Limitation on Matching Allocations Affecting Highly Compensated
Employees...................................................... 62
6.07 Limitation on Standard Contributions Affecting Highly Compensated
Employees...................................................... 64
6.08 Limitations on Annual Additions..................................... 67
Article 7. Investment of Contributions.................................... 73
7.01 Investment Funds.................................................... 73
7.02 Investment of Contributions......................................... 75
7.03 Change of Election.................................................. 76
7.04 Transfers Among Funds............................................... 76
7.05 Investment Options.................................................. 79
7.06 Valuations.......................................................... 79
7.07 Annual Statements................................................... 80
7.08 Diversification of Stock Ownership Accounts......................... 80
Article 8. In-Service Withdrawals and Loans............................... 83
8.01 In-Service Withdrawals.............................................. 83
8.02 Determination of Financial Hardship................................. 84
8.03 Investment Fund to be Charged with Withdrawal....................... 87
8.04 Loans to Eligible Borrowers......................................... 87
Article 9. Vesting and Distributions...................................... 93
9.01 Vesting............................................................. 93
9.02 Distribution Upon Retirement or Other Termination of Employment..... 94
9.04 Latest Commencement of Payments..................................... 102
9.05 Forfeitures......................................................... 103
9.06 Direct Rollover Distributions....................................... 105
9.07 Inability to Locate Payee........................................... 107
</TABLE>
iii
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<TABLE>
<S> <C>
Article 10. Management of Funds............................................ 108
10.01 Trust Funds......................................................... 108
10.02 Investment of Stock Ownership Contributions......................... 109
10.03 Member Accounts..................................................... 109
10.04 Transfer of Trust Assets............................................ 111
10.05 Voting Rights for Company Stock..................................... 111
10.06 Tender Offer Rights with Respect to Company Stock................... 112
Article 11. Administration of Plan.......................................... 116
11.01 Appointment of Committee............................................ 116
11.02 Organization and Operation of the Committee......................... 116
11.03 Duties and Responsibilities of the Committee........................ 117
11.04 Required Information................................................ 118
11.05 Indemnification..................................................... 119
11.06 Claims and Appeal Procedure......................................... 119
11.07 Expenses of the Plan................................................ 121
Article 12. General Provisions.............................................. 122
12.01 Exclusiveness of Benefits........................................... 122
12.02 Limitation of Rights................................................ 122
12.03 Non-Assignability................................................... 122
12.04 Construction of Agreement........................................... 123
12.05 Severability........................................................ 123
12.06 Titles and Headings................................................. 124
12.07 Counterparts as Original............................................ 124
12.08 Construction........................................................ 124
12.09 Source of Benefits.................................................. 124
12.10 Top-Heavy Provisions................................................ 124
Article 13. Amendment, Merger And Termination.............................. 131
13.01 Amendment........................................................... 131
13.02 Termination, Sale of Assets or Sale of Subsidiary................... 131
13.03 Merger of Plans..................................................... 132
13.04 Additional Participating Companies, Locations, or Divisions......... 133
</TABLE>
iv
<PAGE>
RETIREMENT SAVINGS AND
STOCK OWNERSHIP PLAN OF
ARMSTRONG WORLD INDUSTRIES, INC.
PREAMBLE
The purpose of the Retirement Savings and Stock Ownership Plan of Armstrong
World Industries, Inc. (the "Plan"), formerly known as the "Retirement Savings
Plan for Salaried Employees of Armstrong World Industries, Inc.," is to build a
better and more prosperous Armstrong World Industries, Inc. (the "Company").
The Plan is designed to provide a means for long-term savings while providing
employees with additional incentive to give their best efforts to help the
Company prosper and grow, by permitting eligible employees to acquire a
proprietary interest in the Company and accumulate capital for their future
economic security. The Plan is designed to help provide additional benefits to
eligible employees at the time of retirement, disability or termination of
service, or for their beneficiaries in the event of their death.
The Plan consists of two portions. The first portion is a profit sharing
plan with a cash or deferred arrangement intended to qualify under Code Sections
401(a) and 401(k), under which contributions shall be made regardless of
Armstrong's profits. The second portion (the assets of which are invested in
the "Stock Ownership Fund") is both a stock bonus plan and an employee stock
ownership plan intended to qualify under Sections 401(a), 401(k) and 4975(e)(7)
of the Code, and as such is designed to invest primarily in common stock of
Armstrong. All Trust assets acquired under the Plan as a result of
contributions, income and other additions to the Plan shall be administered,
distributed, forfeited and otherwise governed by the provisions of the Plan.
1
<PAGE>
The Plan was originally established effective August 1, 1983, and has been
amended from time to time since its adoption to comply with changes in the law
and certain design changes. The Plan was amended and restated in order to
comply with the Tax Reform Act of 1986 and other subsequent legislation and
official guidance.
Effective as of the close of business on September 30, 1996, the assets and
liabilities of the Armstrong World Industries, Inc. Employee Stock Ownership
Plan and the portion of the assets and liabilities of the Retirement Savings
Plan for Hourly-Paid Employees of Armstrong World Industries, Inc. attributable
to hourly employees employed at the Company's Mobile Plant and to all hourly
employees of the Affiliated Companies who are not members of a collective
bargaining unit were merged into the Plan. The Plan is hereby amended and
restated to change its name to the "Retirement Savings and Stock Ownership Plan
of Armstrong World Industries, Inc.," to reflect the merger of the Armstrong
World Industries, Inc. Employee Stock Ownership Plan and part of the Retirement
Savings Plan for Hourly-Paid Employees of Armstrong World Industries, Inc., and
to make certain changes in the design of the employee stock ownership portion of
the Plan.
The rights of any Member or former Member whose employment terminates prior
to the effective date of any amendment or restatement of the Plan, and the
rights of the Beneficiary of such Member or former Member, shall be governed by
the provisions of the Plan as in effect at the time of the Member's termination
of employment, except in the event such Member is rehired and except as
otherwise specifically provided herein or as required by law.
2
<PAGE>
Unless a different date is specified for some purpose in the Plan, the
provisions of the Plan are generally effective as of October 1, 1996. However,
any Plan provision necessary to comply with the requirements of the Tax Reform
Act of 1986, other subsequent legislation, or official guidance, which
requirement has an earlier effective date, shall be effective retroactively to
the date required by the applicable law or guidance.
3
<PAGE>
Article 1. Definitions
-----------
1.01 "Acquisition Loan" means a loan or other extension of credit
described in Section 4975(d)(3) of the Code which is used to finance or
refinance the purchase of Company Stock by the Trustee.
1.02 "Actual Deferral Percentage" means, with respect to a specified group
of Employees, any of whom is a Member or eligible to become a Member for a Plan
Year, the average of the ratios, calculated separately for each Employee in that
group, of (1) the amount of Exchange Contributions made on the Employee's behalf
pursuant to Section 4.01(a) for the Plan Year plus the amount of any qualified
nonelective contributions made on the Employee's behalf pursuant to Section
6.03(c) for the Plan Year, to (2) the Employee's Compensation for that Plan
Year. In the case of a Highly Compensated Employee who is subject to the family
aggregation requirements of Section 414(q)(6) of the Code, the combined Actual
Deferral Percentage for the family group (which is treated as one Highly
Compensated Employee) is determined by combining the Exchange Contributions,
Compensation, and amounts treated as Exchange Contributions that are paid to the
Trust Fund on behalf of all eligible family members for such Plan Year. In all
events, Actual Deferral Percentages will be determined in accordance with all of
the applicable requirements (including to the extent applicable, the plan
aggregation and disaggregation requirements) of Section 401(k) of the Code, and
the regulations issued thereunder. The percentage is determined by multiplying
the ratio calculated above by one hundred (100).
Notwithstanding the foregoing provisions, a separate Actual Deferral
Percentage with respect to Sheltered Contributions shall be determined in the
manner
4
<PAGE>
indicated above, but with "Sheltered Contributions" replacing "Exchange
Contributions," "Section 4.01(b)" replacing "Section 4.01(a)," and "Section
6.04(c)" replacing "Section 6.03(c)."
1.03 "Affiliated Company" means any corporation which is a member with the
Company of a controlled group of corporations (determined under Section 1563(a)
of the Code without regard to Section 1563(a)(4) and (e)(3)(C)); any trade or
business (whether or not incorporated) which is under common control (as defined
in Section 414(c) of the Code) with the Company; a member of an affiliated
service group (as defined in Section 414(m) of the Code) which includes the
Company; and any other entity which is required to be aggregated with the
Company pursuant to regulations under Section 414(o) of the Code. Solely for
purposes of applying the Code Section 415 limitations under Section 6.08, when
determining whether an entity is an "Affiliated Company," "more than 50 percent"
shall be substituted for "at least 80 percent" where it appears in Section
1563(a)(1) of the Code.
1.04 "Beneficiary" means the person, persons or entity designated in writing
by a Member (on forms prescribed and filed with the Committee) to receive
benefits payable after the Member's death; provided, however, that the surviving
spouse of a Member who is married on the date of his death automatically shall
be the Beneficiary unless the spouse consents in writing to the Member's
designation of another Beneficiary. Any such consent shall be duly witnessed by
a Plan representative or notary public and shall acknowledge the effect to the
spouse of the Member's designation. If no person or entity is designated as
"Beneficiary" or if no designated person or entity survives the Member, the term
"Beneficiary" shall mean the Member's surviving spouse, or if none, the Member's
estate.
5
<PAGE>
1.05 "Board of Directors" means the Board of Directors of the Company.
1.06 "Break in Service" means a calendar year during which an Employee fails
to complete more than 500 Hours of Service.
1.07 "Change in Control" means the occurrence of any of the following events:
(1) any "person" becomes the "beneficial owner" of twenty-eight percent (28%) or
more of the then outstanding "voting stock" of the Company and within five years
thereafter, "disinterested directors" cease to constitute a majority of the
Company's entire Board of Directors; or (2) a "business combination" with an
"interested shareholder" that has not been approved by a majority of
disinterested directors occurs. The terms "person," "beneficial owner," "voting
stock," "disinterested directors," "business combination," and "interested
shareholder" shall have the meaning given to them in Article 7 of the Company's
Articles of Incorporation as in effect on May 1, 1985.
1.08 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
1.09 "Committee" means the entity appointed to administer and supervise the
Plan as provided in Article 11.
1.10 "Company" means Armstrong World Industries, Inc., a Pennsylvania
corporation, or any successor by merger, purchase, or otherwise with respect to
its employees.
1.11 "Company Stock" means the common stock of the Company which shall
constitute employer securities within the meaning of Section 409(l) of the Code.
Prior to August 1, 1996, Company Stock under the Stock Ownership Plan included
shares of
6
<PAGE>
convertible preferred stock of the Company; on August 1, 1996, all such shares
under the Stock Ownership Plan were converted to shares of common stock of the
Company.
1.12 "Company Suspense Account" means the account under which Leveraged Shares
are held until released and allocated pursuant to Sections 5.02 and 6.02.
1.13 "Compensation" means the total earnings payable to an Employee while a
Member by a Participating Company during a Plan Year. Compensation shall be
determined prior to any elective deferrals made on behalf of the Member under
this Plan or under any other "qualified cash or deferred arrangement" (as
defined under Section 401(k) of the Code and applicable regulations), or under a
cafeteria plan (as defined under Section 125 of the Code and applicable
regulations) maintained by the Company or an Affiliated Company, and shall not
include reimbursements for expenses or any payments made following termination
of employment and resulting from such termination, nor shall it include any
awards, allowances, cost of living payments, payments on account of long-term
disability, payments made in lieu of vacation time, or payments following
layoff. Notwithstanding the foregoing, for purposes of Section 6.08,
Compensation means an Employee's wages as defined in Section 3401(a) of the Code
(without regard to any rules under Section 3401(a) that limit the remuneration
included in wages based on the nature or location of the employment or the
services performed (such as the exception for agricultural labor in Section
3401(a)(2))) and all other payments of compensation to the Employee by his
Participating Company (in the course of the Participating Company's trade or
business) for which the Participating Company is required to furnish the
Employee a written statement under Sections 6041(d), 6051(a)(3) and 6052 of the
Code (a Form W-2), and for purposes of Sections 1.02, 1.14 and 1.52,
Compensation shall be as
7
<PAGE>
defined above for purposes of Section 6.08, plus any elective deferrals made on
behalf of the Member under this Plan or under any other "qualified cash or
deferred arrangement" (as defined under Section 401(k) of the Code and
applicable regulations), or under a cafeteria plan (as defined under Section 125
of the Code and applicable regulations) maintained by the Company or an
Affiliated Company. In the case of a Member who begins, resumes, or ceases to be
eligible to make contributions during a Plan Year, the amount of Compensation
taken into account in determining the Actual Deferral Percentage, Contribution
Percentage, and the Standard Contributions Percentage is the amount of
Compensation received by the Member during the entire Plan Year. Further, for
purposes of Sections 1.02, 1.14 and 1.52, and for purposes of any Equity
Allocations, the amount of Compensation taken into account during any Plan Year
shall not exceed $150,000 (adjusted in accordance with Section 401(a)(17) of the
Code and the regulations and other guidance issued thereunder). In determining a
Member's Compensation for this purpose, the family aggregation rules of Section
414(q)(6) of the Code shall apply, except that in applying such rules, the term
"family" shall include only the Member's spouse and any lineal descendants of
the Member who have not attained age nineteen (19) before the close of the Plan
Year. If any Plan Year consists of fewer than twelve (12) months, the foregoing
annual Compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the Plan Year, and the denominator of which is
twelve (12). The annual Compensation limit that is in effect for a calendar year
shall apply to any Plan Year that begins in such calendar year.
1.14 "Contribution Percentage" means, with respect to a specified group of
Employees, any of whom is a Member or eligible to become a Member, the average
of the
8
<PAGE>
ratios, calculated separately for each Employee in that group, of (1) the value
of Company Stock at the time allocated on behalf of the Employee to his Match
Account for a Plan Year plus the amount of any qualified nonelective
contributions made on the Employee's behalf pursuant to Section 6.06(c) for the
Plan Year, to (2) the Employee's Compensation for that Plan Year. In the case of
a Highly Compensated Employee who is subject to the family aggregation
requirements of Section 414(q)(6) of the Code, the combined Contribution
Percentage for the family group (which is treated as one Highly Compensated
Employee) is determined by combining the Match Allocations, Compensation, and
amounts treated as Match Allocations that are paid to the Stock Ownership Trust
Fund on behalf of all eligible family members for such Plan Year. In all events,
Contribution Percentages will be determined in accordance with all of the
applicable requirements (including to the extent applicable, the plan
aggregation requirements) of Section 401(m) of the Code, and the regulations
issued thereunder. The percentage is determined by multiplying the ratio
calculated above by one hundred (100).
1.15 "Effective Date" means August 1, 1983.
1.16 "Eligible Employee" means an Employee who has satisfied the applicable
eligibility requirements of Section 2.01.
1.17 "Eligible Member" means a Member who is eligible for an allocation to his
Equity Account and/or his Match Account during the Stock Ownership Allocation
Period in accordance with Section 6.01.
1.18 "Employee" means any person (including leased employees within the
meaning of Section 414(n)(2) of the Code) employed by the Company or an
Affiliated Company and paid on an hourly or a salaried basis. Notwithstanding
the foregoing, the term
9
<PAGE>
"Employee" shall not include leased employees covered by a plan described in
Section 414(n)(5)(B) of the Code if leased employees constitute less than twenty
percent (20%) of the Company's nonhighly compensated workforce within the
meaning of Section 414(n)(5)(C)(ii) of the Code.
1.19 "Equity Account" means the account established for each Eligible Member
under Section 6.01(b) to receive and hold Equity Allocations.
1.20 "Equity Allocations" means Company Stock allocated on behalf of an
Eligible Member pursuant to Section 6.02(c).
1.21 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.22 "Excess Exchange Contributions" means, with respect to each Highly
Compensated Employee, the amount of Exchange Contributions made to the Plan on
his behalf during the Plan Year, determined after application of Section 6.03(b)
and prior to application of the leveling procedure described below, minus the
product of the Member's Actual Deferral Percentage, determined after application
of Section 6.03(b) and the leveling procedure described below, multiplied by the
Member's Compensation, as determined for purposes of Section 1.02. In
accordance with the regulations issued under Section 401(k) of the Code, Excess
Exchange Contributions shall be determined by a leveling procedure under which
the Actual Deferral Percentage of the Highly Compensated Employee with the
highest such percentage shall be reduced to the extent required to enable the
limitation of Section 6.03(a) to be satisfied, or, if it results in a lower
reduction, to the extent required to cause such Member's Actual Deferral
Percentage to equal the Actual Deferral Percentage of the Highly Compensated
Employee
10
<PAGE>
with the next highest Actual Deferral Percentage. This leveling procedure shall
be repeated until the limitation of Section 6.03(a) is first satisfied. In no
case shall the amount of Excess Exchange Contributions with respect to any
Highly Compensated Employee exceed the amount of Exchange Contributions made on
behalf of such Member in any Plan Year. The determination and correction of
Excess Exchange Contributions of a Highly Compensated Employee whose Actual
Deferral Percentage is determined under the family aggregation requirements of
Code Sections 401(k) and 414(q)(6) shall be accomplished by reducing the family
unit's Actual Deferral Percentage under the leveling procedure described in this
Section 1.22 and allocating the Exchange Contributions among the family group in
proportion to the Exchange Contributions made on behalf of each family member
that are combined to determine the family unit's Actual Deferral Percentage.
1.23 "Excess Matching Allocations" means, with respect to each Highly
Compensated Employee, the value of Company Stock allocated to his Match Account
during the Plan Year, determined prior to application of the leveling procedure
described below, minus the product of the Member's Contribution Percentage,
determined after application of the leveling procedure described below,
multiplied by the Member's Compensation, as determined for purposes of Section
1.14. In accordance with the regulations issued under Section 401(m) of the
Code, Excess Matching Allocations shall be determined by a leveling procedure
under which the Contribution Percentage of the Highly Compensated Employee with
the highest such percentage shall be reduced to the extent required to enable
the limitation of Section 6.06(a) to be satisfied, or, if it results in a lower
reduction, to the extent required to cause such Highly Compensated Employee's
11
<PAGE>
Contribution Percentage to equal that of the Highly Compensated Employee with
the next highest Contribution Percentage. This leveling procedure shall be
repeated until the limitation of Section 6.06(a) is first satisfied. In no case
shall the amount of Excess Matching Allocations with respect to any Highly
Compensated Employee exceed the amount of Matching Allocations made on behalf of
such Member in such Plan Year. The determination and correction of Excess
Matching Allocations of a Highly Compensated Employee whose Contribution
Percentage is determined under the family aggregation requirements of Code
Sections 401(m) and 414(q)(6) shall be accomplished by reducing the family
unit's Contribution Percentage under the leveling procedure described in this
Section 1.23 and allocating the Excess Matching Allocations among the family
group in proportion to the Matching Allocations made on behalf of each family
member that are combined to determine the family unit's Contribution Percentage.
1.24 "Excess Sheltered Contributions" means, with respect to each Highly
Compensated Employee, the amount of Sheltered Contributions made to the Plan on
his behalf during the Plan Year, determined after application of Section 6.04(b)
and prior to application of the leveling procedure described below, minus the
product of the Member's Actual Deferral Percentage, determined after application
of Section 6.04(b) and the leveling procedure described below, multiplied by the
Member's Compensation, as determined for purposes of Section 1.02. In
accordance with the regulations issued under Section 401(k) of the Code, Excess
Sheltered Contributions shall be determined by a leveling procedure under which
the Actual Deferral Percentage of the Highly Compensated Employee with the
highest such percentage shall be reduced to the extent required to enable the
limitation of Section 6.04(a) to be satisfied, or, if it results in a
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<PAGE>
lower reduction, to the extent required to cause such Member's Actual Deferral
Percentage to equal the Actual Deferral Percentage of the Highly Compensated
Employee with the next highest Actual Deferral Percentage. This leveling
procedure shall be repeated until the limitation of Section 6.04(a) is first
satisfied. In no case shall the amount of Excess Sheltered Contributions with
respect to any Highly Compensated Employee exceed the amount of Sheltered
Contributions made on behalf of such Member in any Plan Year. The determination
and correction of Excess Sheltered Contributions of a Highly Compensated
Employee whose Actual Deferral Percentage is determined under the family
aggregation requirements of Code Sections 401(k) and 414(q)(6) shall be
accomplished by reducing the family unit's Actual Deferral Percentage under the
leveling procedure described in this Section 1.24 and allocating the Sheltered
Contributions among the family group in proportion to the Sheltered
Contributions made on behalf of each family member that are combined to
determine the family unit's Actual Deferral Percentage.
1.25 "Excess Standard Contributions" means, with respect to each Highly
Compensated Employee, the amount equal to his Standard Contributions (including
the amount of any Sheltered Contributions recharacterized pursuant to Section
6.07(c)) during the Plan Year, determined prior to application of the leveling
procedure described below, minus the product of the Member's Standard
Contribution Percentage, determined after the application of the leveling
procedure described below, multiplied by the Member's Compensation, as
determined for purposes of Section 1.52. In accordance with the regulations
issued under Section 401(m) of the Code, Excess Standard Contributions shall be
determined by a leveling procedure under which the Standard Contribution
Percentage
13
<PAGE>
of the Highly Compensated Employee with the highest such percentage shall be
reduced to the extent required to enable the limitation of Section 6.07(a) to be
satisfied, or, if it results in a lower reduction, to the extent required to
cause such Member's Standard Contribution Percentage to equal that of the Highly
Compensated Employee with the next highest Standard Contribution Percentage.
This leveling procedure shall be repeated until the limitation of Section
6.07(a) is first satisfied. In no case shall the amount of Excess Standard
Contributions with respect to any Highly Compensated Employee exceed his
Standard Contributions in any Plan Year. The determination and correction of
Excess Standard Contributions of a Highly Compensated Employee whose Standard
Contribution Percentage is determined under the family aggregation requirements
of Code Sections 401(m) and 414(q)(6) is accomplished by reducing the family
unit's Standard Contribution Percentage under the leveling procedure described
in this Section 1.25 and allocating the Excess Standard Contributions among the
family group in proportion to the Standard Contributions made on behalf of each
family member that are combined to determine the family unit's Standard
Contribution Percentage.
1.26 "Exchange Contribution Account" means the subaccount established for each
Member under his Stock Ownership Account to receive and hold Exchange
Contributions and Stock Ownership Contributions made pursuant to Section
4.04(b)(i).
1.27 "Exchange Contributions" means that portion of a Member's Compensation
which is deferred and contributed to his Stock Ownership Account, in accordance
with Section 401(k) of the Code and as described in Section 4.01(a).
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1.28 "Full-Time Employee" means any Employee who is employed on a continuing
basis and is expected to work the normal number of work hours for the location
as determined by the Participating Company.
1.29 "Highly Compensated Employee" means any Employee who meets the definition
of "Highly Compensated Employee" as determined under Section 414(q) of the Code
and regulations issued thereunder, as set forth herein. The term "Highly
Compensated Employee" includes "Highly Compensated Active Employees" and "Highly
Compensated Former Employees" and shall be determined as follows:
(a) A "Highly Compensated Active Employee" means an Employee who
performs services for the Company or an Affiliated Company during the current
Plan Year (the "determination year") and who, during the preceding Plan Year
(the "look-back year"), was an Employee who:
(i) received Compensation in excess of $75,000 (adjusted at the
same time and in the same manner as under Section 415(d) of the Code),
(ii) received Compensation in excess of $50,000 (adjusted at the
same time and in the same manner as under Section 415(d) of the Code) and was a
member of the "top-paid group", or
(iii) was an officer earning more than fifty percent (50%) of the
dollar limitation under Section 415(b)(1)(A) of the Code.
(b) A "Highly Compensated Active Employee" also includes an Employee
described in the preceding sentence if:
15
<PAGE>
(i) the term "determination year" is substituted for the term
"look-back year" and the Employee was one of the one hundred (100) Employees who
earned the most Compensation during the determination year, or
(ii) the Employee was at any time during the determination year
or the look-back year a five percent (5%) owner of the Company or an Affiliated
Company as defined in Section 416(i)(1) of the Code.
(c) The "top-paid group" for any determination year or look-back year
shall include all Employees who are in the top twenty percent (20%) of all
Employees on the basis of Compensation. For purposes of determining the number
of Employees in the top-paid group, the following Employees shall be excluded:
(i) Employees who have not completed six (6) months of service
by the end of the year;
(ii) Employees who normally work less than seventeen and one-
half (17 1/2) hours per week for the year;
(iii) Employees who normally work during not more than six (6)
months during any year; and
(iv) Employees who have not attained age twenty-one (21) by the
end of such year.
(d) For purposes of determining the number of Employees who will be
considered "officers," no more than fifty (50) Employees (or, if less, the
greater of three Employees or ten percent (10%) of the Employees), excluding
those Employees who are excluded for purposes of determining the top-paid group
under the preceding Subsection, shall be treated as officers. If for any year
no officer has earned more than fifty percent
16
<PAGE>
(50%) of the dollar limitation under Section 415(b)(1)(A) of the Code, the
highest paid officer of the Company or an Affiliated Company shall be treated as
having earned such amount.
(e) A "Highly Compensated Former Employee" means an Employee who
separated from service prior to the determination year, who performed no
services for the Company or an Affiliated Company during the determination year,
and who was a Highly Compensated Active Employee for either such Employee's
separation year or any determination year ending on or after the Employee's 55th
birthday.
(f) If during a determination year a Highly Compensated Employee is a
five percent (5%) owner or one of the ten (10) most Highly Compensated Employees
on the basis of Compensation paid during such determination year, then such
Employee shall be subject to the family aggregation requirements of Section
414(q)(6) of the Code, and the Compensation and contributions paid to or on
behalf of all family members who are Employees shall be aggregated with and
attributable to the Highly Compensated Employee. For this purpose, family
members shall include the Highly Compensated Employee's spouse and lineal
ascendants or descendants and the spouse of such lineal ascendants or
descendants.
(g) For purposes of determining Highly Compensated Employees,
Employees who are nonresident aliens receiving no United States source income
within the meaning of Sections 861(a)(3) and 911(d)(2) of the Code shall be
disregarded.
(h) For purposes of determining Highly Compensated Employees,
"Compensation" for a determination year or a look-back year shall be determined
in the same manner as "Compensation" for purposes of Section 6.08, increased by
pre-tax
17
<PAGE>
amounts described in Sections 125 and 402(e)(3) of the Code under plans
maintained by the Company or an Affiliated Company.
(i) Notwithstanding the foregoing, the determination of Highly
Compensated Employees may be made under the calendar year calculation election
under the regulations issued pursuant to Code Section 414(q). In accordance
with such election, if it is made by the Committee or its designee, each look-
back year calculation shall be based on the calendar year ending within the
applicable determination year. Such election shall apply to all other plans
maintained by an Affiliated Company. The Committee or its designee may elect to
apply the calendar year election for any Plan Year. Further, the Committee or
its designee may elect to apply such other rules for determining Highly
Compensated Employees, including substantiation guidelines, as issued pursuant
to Code Section 414(q).
1.30 "Hour of Service" means each hour credited under Section 3.02.
1.31 "Investment Fund" means any of the separate funds in which contributions
to the Plan are invested in accordance with Article 7.
1.32 "Leveraged Shares" means shares of Company Stock acquired by the Trustee
with the proceeds of an Acquisition Loan pursuant to Section 5.01. Except as
required by Section 409(h) of the Code and by Treasury Regulation Sections
54.4975-7(b)(9) and (10), or as otherwise required by applicable law, no
Leveraged Shares may be subject to a put, call or other option, or buy-sell or
similar arrangement while held by, or when distributed from, the Plan, whether
or not the Plan is an employee stock ownership plan, within the meaning of Code
Section 4975(e)(7), at that time.
18
<PAGE>
1.33 "Match Account" means the subaccount established for each Eligible Member
under his Stock Ownership Account pursuant to Section 6.01(c) to receive and
hold Matching Allocations and to hold bonus allocations made under the Stock
Ownership Plan prior to October 1, 1996.
1.34 "Matching Allocations" means Company Stock allocated on behalf of an
Eligible Member pursuant to Section 6.02(d).
1.35 "Member" means any Eligible Employee included in the membership of the
Plan, as provided in Article 2.
1.36 "Member Account" or "Account" means, as of any Valuation Date, the total
value of each Member's Retirement Savings Account and Stock Ownership Account.
1.37 "Parental Leave" means a period in which the Employee is absent from work
immediately following his active employment because of the Employee's pregnancy,
the birth of the Employee's child or the placement of a child with the Employee
in connection with the adoption of that child by the Employee, or for purposes
of caring for that child for a period beginning immediately following that birth
or placement. Parental leave shall include such periods of leave described in
the Family and Medical Leave Act of 1993 solely to the extent required
thereunder.
1.38 "Participating Company" means the Company and any other Affiliated
Company which adopts the Plan as provided in Section 13.04.
1.39 "Part-Time Employee" means any Employee who is employed on a continuing
basis and is expected to work less than the normal number of work hours for the
location as determined by the Participating Company, or any Employee who is not
employed on a continuing basis as determined by the Participating Company.
19
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1.40 "Plan" means the Retirement Savings and Stock Ownership Plan of Armstrong
World Industries, Inc. (formerly named the Retirement Savings Plan for Salaried
Employees of Armstrong World Industries, Inc.), as set forth in this document or
as amended from time to time.
1.41 "Plan Fiduciary" means the boards of directors of the Participating
Companies, the Committee, the Trustees, and all other persons who exercise
discretionary authority or have responsibility of a fiduciary nature as
described in Title I of ERISA.
1.42 "Plan Year" means a period of twelve consecutive months commencing on
each October 1 and ending on September 30.
1.43 "Qualifying Year of Employment" means the twelve consecutive month period
beginning on a Part-Time Employee's first date of employment (or date of re-
employment, if applicable) or any calendar year commencing after such date,
during which the Part-Time Employee completes at least 1,000 Hours of Service.
1.44 "Retirement" means early, disability, normal or deferred retirement under
the Retirement Income Plan for Employees of Armstrong World Industries, Inc. or
any other retirement plan maintained by an Affiliated Company provided such
retirement results in the Member's separation from the employment of the Company
or Affiliated Company with no continuing employment immediately thereafter with
any Affiliated Company. "Retirement" for Members not covered by any such
retirement plan shall mean separation from Service on or after attaining age 65.
1.45 "Retirement Savings Account" means the portion of a Member's Account that
is attributable to Sheltered Contributions, Standard Contributions, Rollover
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Contributions, Tax Deductible Contributions, and Retirement Savings Matching
Contributions, determined as of any Valuation Date.
1.46 "Retirement Savings Matching Contributions" means those contributions to
the Plan that were made as of no later than December 31, 1989 by Participating
Companies to match Tax Deferred Contributions to the Plan.
1.47 "Retirement Savings Trustee" means the party or parties, individual or
corporate, named in a Trust Agreement who holds the assets of the Plan
determined as of September 30, 1996; amounts attributable to Sheltered
Contributions, Standard Contributions, and Rollover Contributions made
subsequent to September 30, 1996; amounts attributable to Exchange Contributions
invested in a Money Market Fund until the allocation of Leveraged Shares for the
Stock Ownership Allocation Period in which such Exchange Contributions are made;
and amounts attributable to the shares of Company Stock that are diversified in
accordance with Section 7.08, as provided in Article 10.
1.48 "Rollover Contributions" means contributions made by an Eligible Employee
who is eligible to make Sheltered Contributions and Standard Contributions, in
accordance with Section 4.09.
1.49 "Service" means service credited pursuant to Article 3 of the Plan.
1.50 "Sheltered Contributions" means that portion of a Member's Compensation
which is deferred and contributed to the profit sharing portion of the Plan, in
accordance with Section 401(k) of the Code and as described in Section 4.01(b)
and which were referred to as "Tax Deferred Contributions" prior to October 1,
1996.
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1.51 "Standard Contributions" means contributions made by a Member to the
profit sharing portion of the Plan, in accordance with Section 4.02 and which
were, prior to October 1, 1996, referred to as "Additional (After Tax)
Contributions" and included "Catch-Up Contributions," if any, that were made
under the Plan prior to January 1, 1990.
1.52 "Standard Contributions Percentage" means, with respect to a specified
group of Employees, any of whom is a Member or eligible to become a Member, the
average of the ratios, calculated separately for each Employee in that group, of
(1) the sum of (a) Standard Contributions made pursuant to Section 4.02 for such
Plan Year; (b) any Sheltered Contributions that are recharacterized as Standard
Contributions pursuant to Section 6.07(c) for such Plan Year; (c) any Sheltered
Contributions that are utilized in satisfying the requirements of Section
6.07(a) for such Plan Year; and (d) any qualified nonelective contributions made
on the Employee's behalf pursuant to Section 6.07(d) for the Plan Year, to (2)
the Employee's Compensation for that Plan Year. In the case of a Highly
Compensated Employee who is subject to the family aggregation requirements of
Section 414(q)(6) of the Code, the combined Standard Contributions Percentage
for the family group (which is treated as one Highly Compensated Employee) is
determined by combining the Standard Contributions, the recharacterized
Sheltered Contributions, the Sheltered Contributions that are utilized in
satisfying the requirements of Section 6.07(a), qualified nonelective
contributions, and Compensation, on behalf of all eligible family members for
such Plan Year. In all events, Standard Contributions Percentages will be
determined in accordance with all of the applicable requirements (including to
the extent applicable, the plan aggregation requirements) of Section 401(m) of
the Code, and the
22
<PAGE>
regulations issued thereunder. The percentage is determined by multiplying the
ratio calculated above by one hundred (100).
1.53 "Stock Ownership Account" means all Leveraged Shares and other assets
held by the Stock Ownership Trustee under the Plan and allocated for the benefit
of a Member attributable to Exchange Contributions, Matching Allocations and
Equity Allocations, and all amounts attributable to Exchange Contributions
invested in a Money Market Fund until the allocation of Leveraged Shares for the
Stock Ownership Allocation Period in which such Exchange Contributions are made
and all amounts attributable to the shares of Company Stock that are diversified
in accordance with Section 7.08 held by the Retirement Savings Trustee,
determined as of any Valuation Date.
1.54 "Stock Ownership Allocation Period" means the period for which an
allocation of Leveraged Shares released from the Company Suspense Account under
Section 6.02 is made to Members' Stock Ownership Accounts; the Stock Ownership
Allocation Period initially shall be the period beginning July 1, 1996 and
ending December 12, 1996, and thereafter, shall be the approximate six-month
period ending on the second prior day on which the New York Stock Exchange is
open for trading that immediately precedes the scheduled repayment of principal
and interest on the Acquisition Loan.
1.55 "Stock Ownership Contributions" means contributions by a Participating
Company under Section 4.04.
1.56 "Stock Ownership Plan" means the Armstrong World Industries, Inc.
Employee Stock Ownership Plan, which was merged into this Plan on September 30,
1996.
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1.57 "Stock Ownership Trustee" means the party or parties, individual or
corporate, named in a Trust Agreement by whom the funds of the employee stock
ownership portion of the Plan (other than amounts attributable to Exchange
Contributions made in a Stock Ownership Allocation Period invested in a Money
Market Fund until the allocation of Leveraged Shares for such Stock Ownership
Allocation Period and amounts attributable to the shares of Company Stock that
are diversified in accordance with Section 7.08) are held, as provided in
Article 10.
1.58 "Tax Deductible Contributions" means a Member's contributions to the Plan
made prior to January 1, 1987, that were tax deductible, in accordance with
Section 219 of the Code and as described in Section 3.06 of the Plan in effect
immediately preceding the effective date of this amendment and restatement.
1.59 "Trust" means the legal entity resulting from the Trust Agreements
between the Company and the Stock Ownership and Retirement Savings Trustees.
1.60 "Trust Agreement" means the individual agreements entered into between
the Company or the Committee and the Stock Ownership Trustee and the Company or
the Committee and the Retirement Savings Trustee, which fix the rights and
liabilities of each such party with respect to holding and administering the
applicable Trust Fund for the purposes of the Plan.
1.61 "Trust Fund" means, depending on the context in which used, the portion
of the Trust consisting of all Members' Retirement Savings Accounts and/or the
portion of the Trust consisting of all Members' Stock Ownership Accounts.
1.62 "Valuation Date" means each day that the New York Stock Exchange is open
for trading.
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1.63 "Year of Service" means any calendar year in which the Employee has
completed 1,000 or more Hours of Service. For purposes of determining a
Member's vested interest in his Equity Account and Match Account under Section
9.01(b), any calendar year in which the Member was employed by Worthington
Armstrong Venture ("WAVE") shall be recognized, provided the Member commences
employment with the Company or an Affiliated Company directly following his
termination of employment with WAVE.
25
<PAGE>
Article 2. Eligibility and Membership
--------------------------
2.01 Eligibility
-----------
On or after October 1, 1996 and prior to January 1, 1999, each Full-
Time Employee (other than a Full-Time Employee excluded under Section 2.02)
shall become an Eligible Employee on the first date on which he is credited with
an Hour of Service, and each Part-Time Employee (other than a Part-Time Employee
excluded under Section 2.02) shall become an Eligible Employee on the first day
of the month next following the date upon which he completes a Qualifying Year
of Employment. Effective January 1, 1999, any Employee (other than an Employee
excluded under Section 2.02) shall become an Eligible Employee as of the earlier
of January 1, 1999 or the date on which the Employee is first credited with an
Hour of Service. Notwithstanding Section 2.02(a), each hourly Employee employed
at the Company's Mobile Plant also shall be eligible to become a Member in the
manner indicated in the preceding two sentences.
2.02 Excluded Employees
------------------
The following Employees shall be excluded from becoming Eligible
Employees under the Plan:
(a) Any Employee who is (or becomes) a member of a collective
bargaining unit that is a party to a collective bargaining agreement with a
Participating Company unless there is in effect an agreement making the Plan
available to Employees in such unit.
(b) Any Employee who is a leased employee of a Participating Company
and who is employed by a leasing organization (as defined in Code Section
414(n)(2)) which is not an Affiliated Company.
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(c) Any foreign national whose services are performed primarily for
and at a branch facility of the Participating Company outside the United States.
(d) Any citizen of a territorial possession of the United States
whose employment relationship or contract of employment originates at, and whose
services are performed primarily for and at, a branch facility of the
Participating Company outside the United States.
(e) Any person not employed by a Participating Company unless
designated as eligible by the Committee.
(f) Any person employed by a Participating Company at locations
established or acquired after June 1, 1989, unless included pursuant to Section
13.04.
(g) Any person employed on an hourly basis by Armstrong Industrial
Specialties, Inc. or The W.W. Henry Company.
2.03 Membership
----------
An Eligible Employee under Section 2.01 or Section 2.05(a) shall
become a Member under the Plan by designating a percentage of his Compensation
to be contributed to the Plan under Section 4.01(a), 4.01(b) and/or 4.02(a). An
Eligible Employee shall be provided one opportunity at any time during the
calendar year in which he becomes an Eligible Employee to designate the
percentage of his Compensation to be contributed to the Plan under Section
4.01(a); if no such designation is made during such calendar year, the Eligible
Employee shall be provided an opportunity to designate the percentage of his
Compensation to be contributed to the Plan for following calendar years under
Section 4.01(a) only during the annual election period designated by the
Committee. An Eligible Employee may designate the percentage of his Compensation
to be contributed to the Plan
27
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under Sections 4.01(b) and 4.02(a) at any time after becoming an Eligible
Employee. Any designation under the preceding sentences shall become effective
as soon as practicable thereafter, provided the designation is made in the
manner authorized by the Committee and is accompanied by:
(a) an authorization for the Participating Company to make regular
payroll deductions to cover the amount of such contributions elected pursuant to
Section 4.01 and/or 4.02;
(b) an investment election with respect to Sheltered Contributions
under Section 4.01(b), Standard Contributions under Section 4.02(a), and the
remaining portion of his Retirement Savings Account, if any; and
(c) a designation of Beneficiary.
Notwithstanding the foregoing, an Eligible Employee's failure to designate
contribution percentages under Sections 4.01 and 4.02 shall not affect his
status as a Member and his entitlement to an allocation under Section 6.02(c),
in accordance with Section 6.01(b).
2.04 Events Affecting Membership
---------------------------
(a) If a Member is no longer employed by a Participating Company, is
transferred to employment with an Affiliated Company that is not a Participating
Company, or is transferred to a position with the Company or an Affiliated
Company that makes him ineligible to be a Member under Section 2.02, his active
participation under the Plan shall be suspended and, during the period of his
unemployment or his employment in such ineligible position, he shall not be
eligible to have allocated to his Retirement Savings Account or Stock Ownership
Account any contributions made under Section 4.01, 4.02 or 4.04, except as may
be required to satisfy the allocation requirements of Section 6.02(a).
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(b) A Member who is employed by the Company and who is transferred
directly to an Affiliated Company (whether or not a Participating Company) other
than the Company shall not be eligible to have any Company Stock allocated to
his Equity Account during the period of his employment with such Affiliated
Company.
2.05 Membership Upon Reemployment
----------------------------
(a) Each individual described in Section 2.04(a) who is reemployed
by a Participating Company or who ceases to be an excluded Employee under
Section 2.02, shall again be an Eligible Employee on his date of reemployment or
the date he ceases to be an excluded Employee, in accordance with such rules and
regulations which are adopted by the Committee. Any such Eligible Employee shall
again become a Member in accordance with Section 2.03.
(b) Each individual described in Section 2.04(b) who is transferred
to the Company other than as an excluded Employee under Section 2.02, shall
again become eligible to have Company Stock allocated to his Equity Account as
of his date of transfer .
(c) A Part-Time Employee who terminates employment with the Company
or an Affiliated Company prior to becoming an Eligible Employee and who is
rehired by the Company or an Affiliated Company prior to January 1, 1999 and
after a one-year Break in Service, shall be treated as a newly-hired Employee
upon his reemployment. A Part-Time Employee who terminates employment with the
Company or an Affiliated Company prior to becoming an Eligible Employee and who
is rehired prior to January 1, 1999 and before the end of a one-year Break in
Service, shall be eligible to become a Member in accordance with Sections 2.01,
2.02 and 2.03, based on his original date of hire. Effective January 1, 1999,
any Part-Time Employee whose Continuous Employment has terminated and who is
reemployed prior to January 1, 1999 shall be eligible to become a Member as of
January 1, 1999.
29
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Article 3. Service
-------
3.01 Companies For Whom Credited
---------------------------
Service shall mean periods of an Employee's employment with the Company,
an Affiliated Company (on and after the date of affiliation unless determined
otherwise by the Committee), and any predecessor corporation of a Participating
Company, or a corporation merged, consolidated or liquidated into the
Participating Company or a predecessor of the Participating Company, or a
corporation, substantially all of the assets of which have been acquired by the
Participating Company, if the Participating Company maintains a plan of such a
predecessor corporation. If the Participating Company does not maintain a plan
maintained by such a predecessor, periods of employment with such a predecessor
shall be credited as Service only to the extent required under regulations
prescribed by the Secretary of the Treasury pursuant to Section 414(a)(2) of the
Code.
3.02 Hours of Service
----------------
For purposes of determining an Employee's eligibility to participate
under Section 2.01 of the Plan and a Member's vested interest in his Match
Account and Equity Account under Section 9.01, with respect to any applicable
computation period:
(a) An Employee shall be credited with Hours of Service during periods
for which he is directly or indirectly paid by, or entitled to payment from the
Company or an Affiliated Company for the performance of duties;
(b) An Employee shall be credited with Hours of Service during periods
when no duties are performed:
(i) Due to vacation, holiday, layoff, or leave of absence; and during
which he is paid or entitled to payment from the Company or an Affiliated
Company;
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(ii) Because of temporary total disability due to sickness, injury,
or incapacity; for which he receives or is entitled to receive either disability
benefits or Worker's Compensation, directly or indirectly from the Company or an
Affiliated Company;
(iii) Due to total disability for which he receives or is entitled
to receive benefits under a long-term disability income plan maintained by the
Company or an Affiliated Company or under the provisions of Article VI, Section
(8) of the Retirement Income Plan for Employees of Armstrong World Industries,
Inc.; or
(iv) Due to jury duty or military duty in the Armed Forces of the
United States; and during which he is paid or entitled to payment from the
Company or an Affiliated Company.
(c) An Employee shall be credited with Hours of Service during periods
for which back pay, irrespective of mitigation of damages, has been awarded or
agreed to by the Company or an Affiliated Company.
(d) The Committee shall determine whether an Employee is entitled to
credit for an Hour of Service on the basis of records of hours worked and
payments made or due. An exempt salaried Employee shall be credited with 45
Hours of Service for each week for which it is determined that he is entitled to
credit for at least one such Hour of Service.
(e) Hours of Service credited under Section 3.02(b) or (c) hereof for a
period during which the Employee is not performing duties but for which he is
paid or entitled to payment, directly or indirectly, by the Company or an
Affiliated Company shall be subject to the following rules:
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<PAGE>
(i) If payments made for a period of absence are computed with
specific reference to units of time, the number of Hours of Service credited
shall be the number of regularly scheduled working hours included in the units
of time on the basis of which the payment is calculated, consistently determined
with respect to all Employees within the same job classification.
(ii) If payments made for a period of absence are computed without
regard to units of time, the number of Hours credited shall be equal to the
amount of the payment made with respect to such period of absence divided by the
Employee's most recent hourly rate of pay or its equivalent.
(iii) Hours of Service credited hereunder for an absence shall be
credited to the calendar year during which the period of absence occurs;
provided, however, that if the period of absence falls within more than one
calendar year, the Committee, following uniform rules and governmental
regulations, may prorate such Hours between such calendar years. Hours of
Service credited by reason of an award or agreement for back pay shall be
credited to the calendar year to which the award or agreement pertains.
(iv) The Hours of Service credited hereunder for any period of
absence shall not exceed the number of working hours regularly scheduled for the
performance of duties during such period of absence, as determined in accordance
with procedures consistently applied by the Committee with respect to all
Employees within any one job classification. Nothing contained herein shall
result in double credit for the same period.
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(v) No more than 501 Hours of Service shall be credited for a
period described under Section 3.02(b) or (c) on account of any single
continuous period during which the Employee performs no duties (whether or not
such period occurs in a single computation period).
(vi) No credit shall be given under this Section 3.02 during periods
for which payments are made or due under a plan maintained solely to comply with
applicable worker's compensation laws or unemployment compensation laws, for
which payments are made solely to reimburse an Employee for medical or
medically-related expenses incurred by the Employee, or for which payments are
made for the period following retirement.
(vii) The number of Hours of Service credited under the Plan for
military service or for any other period described in Section 3.02(b)(iv) hereof
during which the Employee is not paid or entitled to payment, directly or
indirectly, from the Company or an Affiliated Company shall be determined on the
basis of the number of regularly scheduled hours the Employee was working prior
to the absence.
(f) For the purposes of determining whether an Employee has incurred a
Break in Service, an Employee who is absent from work due to Parental Leave and
who is not entitled to credit for such absence under any of the other provisions
of this Section 3.02 shall be credited with a number of Hours of Service for
such absence equal to the number of Hours of Service that would have been
credited to the Employee had he been performing duties during the absence or, if
the Committee is unable to determine the number of such Hours, eight (8) Hours
of Service per day of such absence; provided, however, that in no event shall
more than 501 Hours of Service be credited for any single
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continuous period of absence described in this Section 3.02(f). If in the year
in which the absence begins, the Employee has not yet been credited with 501
Hours of Service, then the Hours of Service credited by reason of this Section
shall be credited in such year; in any other case, the Hours of Service credited
by reason of this Section shall be credited in the year following the year in
which the absence begins.
3.03 Additional Service Credit
-------------------------
The Committee, in its sole discretion, may provide additional credit for
eligibility or vesting purposes for periods not required to be credited under
this Article 3, provided that the Committee shall act in a nondiscriminatory
manner.
34
<PAGE>
Article 4. Contributions and Dividends
---------------------------
4.01 Member Pre-Tax Contributions
----------------------------
(a) Exchange Contributions
----------------------
Each Member may authorize the Participating Company by which he is
employed, in the manner described in Section 2.03, to reduce his Compensation by
not less than 1% and not more than 6% (or such lower maximum percentage as the
Committee may from time to time determine), in multiples of 1% as elected by the
Member, and have that amount contributed to the Plan by the Participating
Company as Exchange Contributions, subject to the limits of Sections 6.03 and
6.05. The specified portion of the Member's Compensation which would otherwise
be paid to the Member shall be paid by the Participating Company to the Stock
Ownership Trustee as soon as practicable after the end of each payroll period,
and shall be credited to the Member's Exchange Contribution Account. An
Eligible Employee who does not elect to reduce his Compensation under this
Section 4.01(a) as of the first day of the payroll period that begins coincident
with or immediately following the date on which he becomes an Eligible Employee
under Section 2.01, may make an election, in the manner described in Section
2.03, to reduce his Compensation effective for the payroll period coincident
with or immediately following any subsequent January 1.
(b) Sheltered Contributions
-----------------------
Subject to the last sentence of this Subsection (b), each Member may
authorize the Participating Company by which he is employed, in the manner
described in Section 2.03, to reduce his Compensation by not less than 1% and
not more than 15% (or such lower maximum percentage as the Committee may from
time to time determine), in
35
<PAGE>
multiples of 1% as elected by the Member, and have that amount contributed to
the Plan by the Participating Company as Sheltered Contributions, subject to the
limits of Sections 6.04 and 6.05. The specified portion of the Member's
Compensation which would otherwise be paid to the Member shall be paid by the
Participating Company to the Retirement Savings Trustee as soon as practicable
after the end of each payroll period, and will be credited to the Member's
Sheltered Account. Notwithstanding the foregoing, any Member employed by The
W.W. Henry Company shall not be permitted to make Sheltered Contributions.
(c) In the event that Exchange Contributions or Sheltered Contributions
made under this Section are returned to the Employer in accordance with Section
4.06, the elections to reduce Compensation which were made by Members on whose
behalf those contributions were made shall be void retroactively to the
beginning of the period for which those contributions were made.
(d) Notwithstanding anything to the contrary in this Section 4.01, the
Committee may at any time reduce the maximum percentage by which some or all
Members may reduce their Compensation pursuant to Subsection (a) or (b) above.
The duration of such reduction shall be determined by the Committee at such
time.
(e) Notwithstanding any other provision of the Plan to the contrary, in
no event may the Exchange Contributions and Sheltered Contributions under
Subsections (a) and (b) above by any Member exceed in a Plan Year an amount
equal to 15% (or such lower maximum percentage as set by the Committee pursuant
to Sections 6.03 and 6.04) multiplied by the Member's Compensation not in excess
of $150,000 (adjusted in accordance with Section 401(a)(17) of the Code and the
regulations and other guidance
36
<PAGE>
issued thereunder). This limitation shall be applied on a Plan Year basis, shall
not be prorated for any part of such Plan Year, and shall be applied only with
respect to amounts earned after becoming a Member.
4.02 Standard Contributions
----------------------
(a) Subject to the last sentence of this Subsection (a), each Member may
authorize contributions by payroll deduction on an after-tax basis of a stated
whole percentage of Compensation from 1% to 10%, with such amount being rounded
to the next higher multiple of one dollar per pay period and with such amount
being subject to the limits of Section 6.07. The specified portion of the
Member's Compensation shall be paid by the Participating Company to the
Retirement Savings Trustee as soon as practicable after the end of each payroll
period, and will be credited to the Member's Standard Account. Notwithstanding
the foregoing, any Member employed by The W.W. Henry Company shall not be
permitted to make Standard Contributions.
(b) Notwithstanding anything to the contrary in this Section 4.02, the
Committee may at any time reduce the maximum percentage by which some or all
Members may reduce their Compensation pursuant to Subsection (a) above. The
duration of such reduction shall be determined by the Committee at such time.
(c) Notwithstanding any other provision of the Plan to the contrary, in
no event may the Standard Contributions under Subsection (a) above by any Member
in a Plan Year exceed an amount equal to 10% (or such lower maximum percentage
as set by the Committee pursuant to Section 6.07) multiplied by the Member's
Compensation not in excess of $150,000 (adjusted in accordance with Section
401(a)(17) of the Code and the regulations and other guidance issued
thereunder). This limitation shall be applied on a
37
<PAGE>
Plan Year basis, shall not be prorated for any part of such Plan Year, and shall
be applied only with respect to amounts earned after becoming a Member.
4.03 Change or Suspension in Member Contributions
--------------------------------------------
(a) Exchange Contributions
----------------------
Once a Member initially elects to reduce his Compensation under
Section 4.01(a), the Member may elect to change or suspend his rate of Exchange
Contributions only during the annual election period designated by the
Committee. Any such change or suspension shall be effective beginning with the
first payroll period that begins on or immediately following the next January 1.
Once made, a Member may not change his annual election with respect to the
remainder of the calendar year. If the Member does not elect to change or
suspend his Exchange Contributions during the annual election period, the
Member's elected reduction in Compensation shall continue until the earlier of
the end of the next calendar year, or the Member's separation from Service. Any
attempt to change or suspend a Member's Exchange Contributions which does not
comply with the provisions of Section 4.01(a) shall be invalid and the last
election with respect to Exchange Contributions shall be deemed to have remained
fully in effect. In the event a Member becomes an inactive Member, his Exchange
Contributions shall be deemed suspended on the first day of such Member's
payroll period next following the date he becomes an inactive Member and such
suspension shall end on the first day of such Member's payroll period subsequent
to the date he again becomes an active Member. A Member who is granted a
hardship withdrawal under Section 8.02 shall have his Exchange Contributions
automatically suspended for the 12-month period beginning with the first day of
the Member's payroll period next following the date the hardship
38
<PAGE>
withdrawal is granted, and the percentage of Compensation designated by the
Member to measure such Exchange Contributions in effect immediately preceding
such suspension shall automatically be reinstated as soon as practicable
following the end of such 12-month period.
(b) Sheltered Contributions and Standard Contributions
--------------------------------------------------
The percentages of Compensation designated by a Member to measure the
Sheltered Contributions and Standard Contributions made to his Retirement
Savings Account will continue in effect, notwithstanding any change in his
Compensation, until he elects to change or suspend such percentage. A Member
may change or suspend such percentage at any time by applying to make such
change or suspension in the manner prescribed by the Committee (including
telephonic application). Any such change or suspension will become effective as
of the first day of the payroll period that begins as soon as practicable after
the Member applies to make such change or suspension. In the event a Member
becomes an inactive Member, his Sheltered Contributions and Standard
Contributions shall be deemed suspended on the first day of such Member's
payroll period next following the date he becomes an inactive Member and such
suspension shall end on the first day of such Member's payroll period subsequent
to the date he again becomes an active Member. A Member who is granted a
hardship withdrawal shall have his Sheltered Contributions and Standard
Contributions automatically suspended for the 12-month period beginning with the
first day of the Member's payroll period next following the date the hardship
withdrawal is granted, and the percentages of Compensation designated by the
Member to measure such Sheltered Contributions and Standard Contributions in
effect immediately preceding such suspension shall automatically be reinstated
as soon as
39
<PAGE>
practicable following the end of such 12-month period.
4.04 Stock Ownership Contributions
-----------------------------
(a) For each Stock Ownership Allocation Period during which there are
Leveraged Shares in the Company Suspense Account, the Participating Companies
shall make Stock Ownership Contributions which, when aggregated with Exchange
Contributions made pursuant to Section 4.01(a), earnings on such Exchange
Contributions, and any cash dividends received by the Stock Ownership Trustee on
Company Stock (and earnings thereon), will at least equal the amount necessary
to enable the Stock Ownership Trustee to pay any currently maturing obligation
under an Acquisition Loan, without regard to the accumulated earnings and
profits of each Participating Company. To the extent the total of such Stock
Ownership and Exchange Contributions exceeds the amount required to pay any such
currently maturing obligation, such excess amount may then be used to repay any
outstanding Acquisition Loan.
(b) (i) In addition to contributions under Section 4.04(a), each
Participating Company shall contribute for each Plan Year, additional Stock
Ownership Contributions equal to the difference, if any, between: (1) the total
amount equal to the Exchange Contributions credited to the Members employed by
such Participating Company during the Plan Year, plus earnings, and (2) the fair
market value of the Leveraged Shares allocated to each such Member's Exchange
Contribution Account during the Plan Year excluding Leveraged Shares released
and allocated pursuant to Sections 5.02(b) and 6.02(a).
40
<PAGE>
(ii) The Company also shall contribute for each Plan Year additional
Stock Ownership Contributions (in cash or Company Stock) in the amount necessary
to enable the Trustee to acquire such number of shares of Company Stock equal to
the difference, if any, between (1) the number of shares of Company Stock
initially intended to be credited to the Equity Accounts of Eligible Members of
the Company during the Plan Year in accordance with Section 6.02(c), and (2) the
number of Leveraged Shares actually allocated to each Member's Equity Account
during the Plan Year in the absence of this Section 4.04(b)(ii).
(iii) The Company also shall contribute for each Plan Year additional
Stock Ownership Contributions (in cash or Company Stock) in the amount necessary
to enable the Trustee to acquire such number of shares of Company Stock equal to
the difference, if any, between (1) the number of shares of Company Stock
initially intended to be credited as base allocations and supplemental
allocations to the Match Accounts of Eligible Members during the Plan Year in
accordance with Section 6.02(d), and (2) the number of Leveraged Shares actually
allocated as base allocations and supplemental allocations to each Member's
Match Account during the Plan Year in the absence of this Section 4.04(b)(iii).
(c) Notwithstanding anything to the contrary in this Section 4.04, except
as is necessary to satisfy the allocation requirements of Sections 6.02(a) and
6.02(b), each Participating Company's contribution to the Plan shall not exceed
the amount deductible from the Participating Company's income tax return for the
Plan Year under Section 404 of the Code when combined with amounts contributed
by the Participating Company to its
41
<PAGE>
other benefit plans qualified under Section 401 of the Code and each
contribution shall be conditioned upon such deductibility.
4.05 Manner of Contributions
-----------------------
Each Participating Company shall make its contributions for a Plan Year
in cash or Company Stock on any date or dates which the Company may select,
subject to the consent of the Trustee; provided that the total contributions for
any Plan Year shall be paid within the time prescribed by law for filing the
Company's Federal income tax return for such taxable year, including extensions
thereof. Except to the extent applied to the payment of principal and/or
interest on an Acquisition Loan, the Stock Ownership Trustee shall invest cash
contributions in Company Stock or allocate such contributions to Members' Stock
Ownership Accounts in accordance with instructions from the Committee as soon as
practicable after it receives the contribution.
4.06 Return of Contributions
-----------------------
Notwithstanding anything herein to the contrary, a contribution which (i)
was made under a mistake of fact, or (ii) was conditioned upon deduction of the
contributions under Section 404 of the Code and such deduction is disallowed,
shall be returned to the Participating Company within one year after the payment
of the mistaken contribution or the disallowance of the deduction (to the extent
disallowed), whichever is applicable.
4.07 Dividends on Company Stock
--------------------------
All cash dividends on Company Stock held in the Stock Ownership Fund and
earnings thereon shall be utilized to repay an Acquisition Loan and shall be
allocated pursuant to Section 6.02, with such dividends first being utilized to
repay the principal amount of such Acquisition Loan.
42
<PAGE>
4.08 Correction of Errors in Contributions
-------------------------------------
If, with respect to any Plan Year, any Member's Stock Ownership Account
is not credited with the Member's allocable share of Exchange Contributions or
Stock Ownership Contributions (including Matching Allocations or Equity
Allocations), any Member's Retirement Savings Account is not credited with the
Member's designated amount of Sheltered Contributions or Standard Contributions,
or earnings on any such contributions to which such Member is entitled under the
Plan are not credited to the appropriate account, and such failure is due to
administrative error in determining or allocating the proper amount of such
contributions or earnings, or any other error or mistake of fact in determining
an individual's eligibility for a contribution, the Committee may correct such
error by reallocation of amounts among Members' Stock Ownership Accounts and/or
Retirement Savings Accounts, as the case may be, and/or the Participating
Company may make additional contributions to the Stock Ownership Account or
Retirement Savings Account, as the case may be, of any affected Member to place
the affected Member's Stock Ownership Account or Retirement Savings Account, as
the case may be, in the position that would have existed if the error had not
been made; provided that any such reallocations or additional contributions are
made on a uniform and nondiscriminatory basis. In addition to the foregoing, if
an error is made with respect to the investment of the Trust's assets which
results in an error in the amount credited to a Member's Account, the Committee
may correct such error by reallocation of amounts among Members' Accounts and/or
the Participating Company may make additional contributions to the Account of
any affected Member to place the affected Member's Account in the position that
would have existed if the error had not been made; provided
43
<PAGE>
that any such reallocations or additional contributions are made on a uniform
and nondiscriminatory basis.
4.09 Rollover Contributions
----------------------
(a) An Eligible Employee who is eligible to make Sheltered Contributions
and Standard Contributions may, with the permission of the Committee (which
shall be uniformly applied), make a Rollover Contribution. Such Eligible
Employee's Rollover Contribution shall be paid to the Retirement Savings Trustee
as soon as practicable and shall be credited to his "Rollover Contribution
Account" under his Retirement Savings Account.
(b) The term "Rollover Contribution" means the contribution of an
"eligible rollover distribution" to the Trustee by the Eligible Employee on or
before the 60th day immediately following the day such Eligible Employee
receives the "eligible rollover distribution" or a contribution of an "eligible
rollover distribution" to the Trustee by the Eligible Employee or the trustee of
another "eligible retirement plan" (as defined in Section 402(c)(8) of the Code)
in the form of a direct transfer under Section 401(a)(31) of the Code.
(c) The term "eligible rollover distribution" means:
(i) part or all of a distribution to the Eligible Employee from an
individual retirement account or individual retirement annuity (as defined in
Section 408 of the Code) maintained for the benefit of such Employee making the
Rollover Contribution, the funds of which are solely attributable to an eligible
rollover distribution from an employee plan and trust described in Section
401(a) of the Code which is exempt from tax under Section 501(a) of the Code (a
"conduit IRA"); or
44
<PAGE>
(ii) part or all of the amount (other than nondeductible employee
contributions) received by such Eligible Employee or distributed directly to
this Plan on such Employee's behalf from an employee plan and trust described in
Code Section 401(a) which is exempt from tax under Code Section 501(a). In all
events, such amount shall constitute an "eligible rollover distribution" only if
such amount qualifies as such under Code Section 402(c) and the regulations and
other guidance thereunder and is a distribution of all or any portion of the
balance to the credit of the Employee from the distributing plan or conduit IRA
other than any distribution: (i) that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or for a specified period of ten years or more;
(ii) to the extent such distribution is required under Code Section 401(a)(9);
(iii) to the extent such distribution is not includible in gross income
(determined without regard to the exclusion for net unrealized appreciation with
respect to employer securities); or (iv) that is made to a non-spouse
beneficiary.
(d) Once accepted by the Trust, an amount rolled over pursuant to this
Section 4.09 shall be credited to the Member's "Rollover Contributions Account"
under his Retirement Savings Account, and thereafter, such Rollover
Contributions shall be administered and invested in accordance with Article 7
and subject to the withdrawal and distribution provisions set forth in Articles
8 and 9. The limitations of Sections 6.03 through 6.08 shall not apply to
Rollover Contributions. All Rollover Contributions shall be made in cash and
shall be fully vested.
45
<PAGE>
Article 5. Acquisition Loans
-----------------
5.01 Acquisition Loan
----------------
The Company may direct the Trustee to incur Acquisition Loans from time
to time to finance the acquisition of Leveraged Shares or to repay a prior
Acquisition Loan. Any Acquisition Loan shall be primarily for the benefit of
Members and their beneficiaries. The proceeds of any Acquisition Loan shall be
used within a reasonable period of time only to finance the acquisition of
Leveraged Shares or to repay a prior Acquisition Loan. Any Acquisition Loan
shall be for a specific term, shall bear a reasonable rate of interest, and
shall not be payable on demand except in the event of default. In the event of
default upon an Acquisition Loan, the value of Trust assets transferred in
satisfaction of any Acquisition Loan shall not exceed the amount of the default.
Any Acquisition Loan may be secured by collateral pledge of the Leveraged Shares
so acquired. No other Trust assets may be pledged as collateral for an
Acquisition Loan, and no lender shall have recourse against Trust assets other
than any Leveraged Shares remaining subject to pledge. Any pledge of Leveraged
Shares must provide for the release of shares so pledged on a pro rata basis as
principal and interest on the Acquisition Loan are repaid by the Trustee and
such Leveraged Shares are allocated to Members' Stock Ownership Accounts as
provided under Section 6.02. Except upon termination of the Plan as provided
under Section 13.02, repayments of principal and interest on any Acquisition
Loan shall be made by the Trustee (as directed by the Committee) only from Stock
Ownership Contributions or Exchange Contributions paid in cash to enable the
Trustee to repay such Loan, from earnings attributable to such contributions,
from any cash dividends received by the Trustee on Company Stock and earnings
thereon, and from another
46
<PAGE>
Acquisition Loan that refinances such Acquisition Loan. Any Acquisition Loan
that refinances an earlier Acquisition Loan shall bear an interest rate based on
the market conditions at the time such loan is made, and may be prepaid at any
time, without penalty. Any prepayment of an Acquisition Loan within the 30-day
period immediately following the end of the Stock Ownership Allocation Period
shall be deemed to be a repayment of principal and interest on the Acquisition
Loan for such Stock Ownership Allocation Period. In acquiring Leveraged Shares,
the Trustee shall pay no more than "adequate consideration" (as defined in
Section 3(18) of ERISA).
5.02 Allocation of Leveraged Shares
------------------------------
(a) Any Leveraged Shares shall initially be credited to the Company
Suspense Account and shall be allocated to the Members' Stock Ownership Accounts
for each Stock Ownership Allocation Period only as payments of principal and
interest on the Acquisition Loan used to purchase such Leveraged Shares are made
by the Trustee. The number of Leveraged Shares to be released from the Company
Suspense Account following any amortization of an Acquisition Loan shall equal
the number of Leveraged Shares in the Company Suspense Account immediately
before release multiplied by a fraction. The numerator of the fraction shall be
the amount of Stock Ownership Contributions, Exchange Contributions and any
dividends on Company Stock which are applied to the payment of principal and
interest on the Acquisition Loan during the Stock Ownership Allocation Period.
The denominator of the fraction shall be the sum of the numerator plus the
principal and interest to be paid for all future periods over the duration of
the Acquisition Loan repayment period, including the principal and interest to
be paid on an Acquisition Loan that refinances such Acquisition Loan. For this
purpose, the
47
<PAGE>
number of future Allocation Periods under the Acquisition Loan must be
definitely ascertainable and must be determined without taking into account any
possible extensions or renewal periods. If the interest rate under the
Acquisition Loan is variable, the interest to be paid in future Allocation
Periods shall be computed by using the interest rate applicable as of the end of
the Plan Year. Any Leveraged Shares released within thirty (30) days following
the end of the Stock Ownership Allocation Period shall be deemed to be "Released
Leveraged Shares" for purposes of Section 6.02.
(b) In connection with the release of Leveraged Shares from the Company
Suspense Account as a result of a loan amortization payment made in whole or in
part with cash dividends on Company Stock held in Members' Stock Ownership
Accounts ("Allocated Dividends"), a portion of the total number of shares so
released, calculated with respect to each class of Company Stock, shall be
released for allocation to the Members' Accounts as of a date during the Plan
Year which is no later than the last day of the Plan Year in which the Allocated
Dividends are paid, based on the amount of such Allocated Dividends used to make
the loan amortization payment. The number of released shares with respect to
Allocated Dividends shall be the total number of shares released on account of
the loan amortization payment multiplied by a fraction. The numerator of the
fraction shall be the amount of the Allocated Dividends used to make the loan
amortization payment. The denominator of the fraction shall be the fair market
value of the total number of shares released as a result of the loan
amortization payment. The number of released shares with respect to Allocated
Dividends shall be allocated among the Members in the same proportion that each
Member's Allocated Dividends used to
48
<PAGE>
make the loan amortization payment bears to the total amount of such Allocated
Dividends, in accordance with Section 6.02(a).
Article 6. Allocations of and Limitations on Contributions
-----------------------------------------------
6.01 Members Eligible for Allocations
--------------------------------
The Stock Ownership Account maintained for each Member will be credited
as of the last day of each Stock Ownership Allocation Period with his allocable
share of Company Stock released from the Company Suspense Account during the
Stock Ownership Allocation Period as determined under Section 6.02.
(a) Each Member shall be eligible for an allocation under Sections
6.02(a) and 6.02(b).
(b) For purposes of allocations under Section 6.02(c), an Eligible Member
shall be any Member (other than a Member who is a foreign national or a citizen
of a territorial possession of the United States who has been temporarily
assigned to perform services within the United States) who is: (1) employed by
the Company on a permanent full-time basis; (2) employed by the Company at its
Mobile Plant and paid on an hourly basis (regardless of the employment status);
or (3) employed by Armstrong Industrial Specialties, Inc. on a permanent full-
time basis and paid on a salaried basis after having been transferred from the
Company on or after January 1, 1996, provided the Member was an Eligible Member
under clause (1) of this Section 6.01(b) immediately prior to such Member's
transfer of employment; and who:
(i) is employed by a Participating Company on the last day of the
Stock Ownership Allocation Period;
49
<PAGE>
(ii) enters Retirement and commences receipt of his retirement
income if covered under a retirement plan specified in Section 1.44, dies,
becomes totally disabled within the meaning of Section 9.01(c), or commences a
period of long-term military leave, directly from active employment at any time
during, but after the first day of, the Stock Ownership Allocation Period;
(iii) is on a Parental Leave as of the last day of the Stock
Ownership Allocation Period that has been approved by the Participating Company
for which he is employed; or
(iv) terminates employment with a Participating Company during the
Stock Ownership Allocation Period on account of a reduction in the workforce at
the office or manufacturing location at which the Member is employed which the
Committee determines is a result of (1) adverse economic conditions, (2) a
reorganization of the workforce or operating procedures, (3) technological
change, or (4) layoff.
Notwithstanding the above, a Member who becomes totally disabled (within
the meaning of Section 9.01(c)) while actively employed by a Participating
Company or an Affiliated Company shall be eligible for an Equity Allocation
under Section 6.02(c) for each Stock Ownership Allocation Period in which he
receives disability payments under a long-term disability plan sponsored by the
Participating Company for which he was employed or under the provisions of
Article VI, Section (8) of the Retirement Income Plan for Employees of Armstrong
World Industries, Inc., or until he is no longer a Member, if earlier.
Further, notwithstanding the foregoing, any Member who is employed by the
Company at the Sparrows Point, Maryland, Plant on December 31, 1996, and whose
50
<PAGE>
employment is transferred on such day to Worthington Armstrong Venture ("WAVE"),
shall be eligible for an Equity Allocation under Section 6.02(c) for the Stock
Ownership Allocation Period ending June 12, 1997.
Further, notwithstanding the foregoing, any Member who is described in
clause (3) of this Subsection (b) and who is employed by Armstrong Industrial
Specialties, Inc. on June 30, 1999 shall be eligible for an Equity Account
allocation under Section 6.02(c) for the Stock Ownership Allocation Period
ending December 13, 1999.
Further, notwithstanding the foregoing, any Member who is employed by the
Corporation's textile products operations on September 30, 1999 shall be
eligible for an Equity Allocation under Section 6.02(c) for the Stock Ownership
Allocation Period ending December 13, 1999.
(c) For purposes of allocations under Section 6.02(d), an Eligible Member
shall be any Member who satisfies any one of the four conditions described in
Section 6.01(b)(i) - (iv). Notwithstanding the preceding sentence, any Member
who is employed by the Company at the Sparrows Point, Maryland Plant on December
31, 1996, and whose employment is transferred to WAVE, shall be eligible for an
allocation under Section 6.02(d) for the Stock Ownership Allocation Period
ending June 12, 1997. Further, notwithstanding the first sentence of this
Subsection (c), any Member who is employed by Armstrong Industrial Specialists,
Inc. on June 30, 1999 shall be eligible for an allocation under Section 6.02(d)
for the Stock Ownership Allocation Period ending December 13, 1999 based on the
Exchange Contributions made by such member from June 12, 1999 through June 30,
1999. Further, notwithstanding the first sentence of this Subsection (c), any
Member who is employed by the Corporation's textile products
51
<PAGE>
operations on September 30, 1999 shall be eligible for an allocation under
Section 6.02(d) for the Stock Ownership Allocation Period ending December 13,
1999 based on the Exchange Contributions made by such Member from June 12, 1999
through September 30, 1999.
6.02 Method of Allocations
---------------------
(a) For each Plan Year in which Allocated Dividends are paid, Company
Stock with a fair market value equal to the amount of each Member's Allocated
Dividends shall be allocated to the Member's Exchange Contribution Account,
Equity Account and/or Match Account, as the case may be, to the extent such
Allocated Dividends are attributable to Company Stock held in such Accounts.
Each Participating Company shall be authorized to make a special contribution to
the Plan with respect to any Member (as determined by the Committee) to assure
that this requirement is satisfied.
(b) Leveraged Shares released from the Company Suspense Account as a
result of loan amortization payments made with respect to a Stock Ownership
Allocation Period ("Released Leveraged Shares") that have not and will not be
allocated pursuant to Section 6.02(a) and Stock Ownership Contributions made
pursuant to Section 4.04(b)(i) shall be allocated to the Exchange Contribution
Accounts of Members in dollar amounts equal to the Exchange Contributions made
on the Member's behalf pursuant to Section 4.01(a) prior to the end of such
Stock Ownership Allocation Period, plus earnings thereon. For purposes of this
Section 6.02(b), the value of all Company Stock allocated to Members' Exchange
Contribution Accounts shall be based on the closing price of such Company Stock
on the New York Stock Exchange on the last day of the Stock Ownership Allocation
Period.
52
<PAGE>
(c) Released Leveraged Shares that have not and will not be allocated
pursuant to Section 6.02(a) and 6.02(b), and Company Stock acquired with the
Stock Ownership Contributions made pursuant to Section 4.04(b)(ii), shall be
allocated to the Equity Accounts so that each Eligible Member under Section
6.01(b) receives his Equity Allocation. Except as provided below with respect
to each such Eligible Member who (i) is an hourly Employee employed at the
Company's Mobile Plant, (ii) initially became a Member on June 19, 1989, the
effective date of the Stock Ownership Plan, or (iii) was employed by a
Participating Company on June 19, 1989, the effective date of the Stock
Ownership Plan, but who initially became an Eligible Member after such date, the
Equity Allocation shall be the number of shares designated in Schedule A hereof
with respect to individuals who are the same age as the Member was on such
effective date. The Equity Allocation with respect to an Eligible Member who
first is employed by a Participating Company after June 19, 1989, the effective
date of the Stock Ownership Plan, shall be the number of shares designated in
Schedule A hereof with respect to individuals who are age 21 on such effective
date. Notwithstanding the foregoing, with respect to each Eligible Member who
was employed as an hourly Employee at the Company's Mobile Plant and who
initially became a Member on October 1, 1990 or who was employed as an hourly
Employee at the Company's Mobile Plant on October 1, 1990 but who initially
became a Member after October 1, 1990, the Equity Allocation shall be the number
of shares designated in Schedule B hereof with respect to individuals who are
the same age as the Member was on October 1, 1990. The Equity Allocation with
respect to any Eligible Member who first is employed as an hourly Employee at
the Company's Mobile Plant after
53
<PAGE>
October 1, 1990, shall be the number of shares designated in Schedule B hereof
with respect to individuals who are age 21 on October 1, 1990.
(d) Released Leveraged Shares that have not and will not be allocated
pursuant to Section 6.02(a), 6.02(b), or 6.02(c), and Company Stock acquired
with the Stock Ownership Contributions made pursuant to Section 4.04(b)(iii),
shall be allocated to the Match Accounts so that each Eligible Member under
Section 6.01(c) receives a base allocation in accordance with Paragraph (i)
below, and a supplemental allocation in accordance with Paragraph (ii) below.
(i) With respect to each Stock Ownership Allocation Period, each
Eligible Member under Section 6.01(c) shall receive a base allocation equal to
50% of the Exchange Contributions made by such Member for the Stock Ownership
Allocation Period. Such base allocations shall be made from amounts
attributable to Matching Allocations, subject to Sections 6.06 and 6.08, and
shall be credited to the Member's Match Account as of the last day of each Stock
Ownership Allocation Period in which the Member's Exchange Contributions were
made.
(ii) With respect to each Stock Ownership Allocation Period, each
Eligible Member under Section 6.01(c) also may have allocated to his Match
Account a supplemental allocation made from amounts attributable to Matching
Allocations, subject to Sections 6.06 and 6.08. Any supplemental allocation
shall be credited to the Member's Match Account as of the last day of each Stock
Ownership Allocation Period in which the Member's Exchange Contributions were
made. For the Stock Ownership Allocation Periods ending December 12, 1996, June
12, 1997 and December 11, 1997, the supplemental allocation shall equal twenty-
five percent (25%) of the Exchange
54
<PAGE>
Contributions made by such Member for each such Stock Ownership Allocation
Period. For each subsequent Stock Ownership Allocation Period, a twenty-five
percent (25%) supplemental allocation will be made if the fair market value of
the Company Stock on the last business day of such Stock Ownership Allocation
Period is at least equal to the "share price target" as determined by the
Committee for such Stock Ownership Allocation Period. The Committee shall
determine the share price target annually in advance of each open enrollment
period in which Eligible Members under Section 6.01(c) can elect to change or
suspend their Exchange Contributions under Section 4.03(a). Notwithstanding the
foregoing, if Released Leveraged Shares remain at the end of a Stock Ownership
Allocation Period after allocations pursuant to Sections 6.02(a), 6.02(b),
6.02(c), 6.02(d)(i), and the preceding sentences of this Section 6.02(d)(ii)
have been made with respect to such Stock Ownership Allocation Period, all or a
portion of such Released Leveraged Shares shall be used to make additional
supplemental allocations for such Stock Ownership Allocation Period to the Match
Account of each Eligible Member as determined under Section 6.01(c) to the
extent not used to restore the forfeited portion of a Member's Stock Ownership
Account under Subsection (e) below. The Company shall determine whether any
Released Leveraged Shares shall be used for purposes of the preceding sentence.
(e) If Released Leveraged Shares remain after each Eligible Member has
had allocated to his Stock Ownership Account an allocation pursuant to Sections
6.02(a), 6.02(b), 6.02(c), and 6.02(d), all or a portion of such Released
Leveraged Shares may be used to restore the forfeited portion of the Stock
Ownership Account of a Member who is reemployed by a Participating Company,
pursuant to Section 9.05(b). The Company shall
55
<PAGE>
determine whether any Released Leveraged Shares shall be used for purposes of
this Section 6.02(e).
6.03 Limitation on Exchange Contributions Affecting Highly Compensated
-----------------------------------------------------------------
Employees
---------
(a) Notwithstanding anything herein to the contrary, in no event shall
the Exchange Contributions made on behalf of Highly Compensated Employees with
respect to any Plan Year result in an Actual Deferral Percentage for such group
of Highly Compensated Employees that exceeds the greater of:
(i) an amount equal to 125% of the Actual Deferral Percentage for
all Members other than Highly Compensated Employees; or
(ii) an amount equal to the sum of the Actual Deferral Percentage for
all Members other than Highly Compensated Employees and two percent (2%),
provided that such amount does not exceed 200% of the Actual Deferral Percentage
for all Members other than Highly Compensated Employees.
(b) The Committee shall be authorized to implement rules limiting the
Exchange Contributions that may be made on behalf of Highly Compensated
Employees during the Plan Year (prior to any contributions to the Trust) so that
the limitation of Section 6.03(a) is satisfied.
(c) Notwithstanding any reductions pursuant to Section 6.03(b), if the
limitation under Section 6.03(a) is exceeded in any Plan Year, a Participating
Company may, in the sole discretion of the Committee and in accordance with the
regulations issued under Section 401(k) of the Code, make additional
contributions to the Exchange Contribution Accounts of Members who are not
Highly Compensated Employees, which
56
<PAGE>
additional contributions shall be qualified nonelective contributions as
described in Section 401(m)(4)(C) of the Code and the regulations issued
thereunder, up to an amount necessary to assure that the limitation under
Section 6.03(a) is not exceeded in the Plan Year. Qualified nonelective
contributions shall be nonforfeitable when made and are distributable only in
accordance with the distribution and withdrawal provisions that are applicable
to Exchange Contributions under the Plan.
(d) To the extent the limitation under Section 6.03(a) continues to be
exceeded following the contribution of such qualified nonelective contributions,
if any, such Excess Exchange Contributions made on behalf of Highly Compensated
Employees with respect to a Plan Year and income allocable thereto shall be
distributed to such Highly Compensated Employees as soon as practicable after
the close of such Plan Year, but no later than twelve months after the close of
such Plan Year. The amount of income allocable to Excess Exchange Contributions
shall be determined in accordance with the regulations issued under Section
401(k) of the Code. The amount of any Excess Exchange Contributions distributed
to any Member under this Section 6.03(d) shall be reduced by the amount of any
excess deferrals attributable to Exchange Contributions previously distributed
to such Member pursuant to Section 6.05, if any, for such Plan Year.
(e) The Committee is authorized to implement rules under which it may
utilize any combination of the foregoing methods in Sections 6.03(b), (c) or (d)
to assure that the limitation of Section 6.03(a) is satisfied.
57
<PAGE>
6.04 Limitation on Sheltered Contributions Affecting Highly Compensated
------------------------------------------------------------------
Employees
---------
(a) Notwithstanding anything herein to the contrary, in no event shall
the Sheltered Contributions made on behalf of Highly Compensated Employees with
respect to any Plan Year result in an Actual Deferral Percentage for such group
of Highly Compensated Employees that exceeds the greater of:
(i) an amount equal to 125% of the Actual Deferral Percentage for
all Members other than Highly Compensated Employees; or
(ii) an amount equal to the sum of the Actual Deferral Percentage
for all Members other than Highly Compensated Employees and two percent (2%),
provided that such amount does not exceed 200% of the Actual Deferral Percentage
for all Members other than Highly Compensated Employees.
(b) The Committee shall be authorized to implement rules limiting the
Sheltered Contributions that may be made on behalf of Highly Compensated
Employees during the Plan Year (prior to any contributions to the Trust) so that
the limitation of Section 6.04(a) is satisfied.
(c) Notwithstanding any reductions pursuant to Section 6.04(b), if the
limitation under Section 6.04(a) is exceeded in any Plan Year, a Participating
Company may, in the sole discretion of the Committee and in accordance with the
regulations issued under Section 401(k) of the Code, make additional
contributions to the Sheltered Accounts of Members who are not Highly
Compensated Employees, which additional contributions shall be qualified
nonelective contributions as described in Section 401(m)(4)(C) of the Code and
the regulations issued thereunder, up to an amount
58
<PAGE>
necessary to assure that the limitation under Section 6.04(a) is not exceeded in
the Plan Year. Qualified nonelective contributions shall be nonforfeitable when
made and are distributable only in accordance with the distribution and
withdrawal provisions that are applicable to Sheltered Contributions under the
Plan.
(d) To the extent the limitation under Section 6.04(a) continues to be
exceeded following the contribution of such qualified nonelective contributions,
if any, such Excess Sheltered Contributions made on behalf of Highly Compensated
Employees with respect to a Plan Year and income allocable thereto shall be
distributed to such Highly Compensated Employees as soon as practicable after
the close of such Plan Year, but no later than twelve months after the close of
such Plan Year. The amount of income allocable to Excess Sheltered
Contributions shall be determined in accordance with the regulations issued
under Section 401(k) of the Code. The amount of any Excess Sheltered
Contributions distributed to any Member under this Section 6.04(d) shall be
reduced by the amount of any excess deferrals attributable to Sheltered
Contributions previously distributed to such Member pursuant to Section 6.05, if
any, for such Plan Year.
(e) The Committee is authorized to implement rules under which it may
utilize any combination of the foregoing methods in Sections 6.04(b), (c) or (d)
to assure that the limitation of Section 6.04(a) is satisfied.
6.05 Maximum Exchange Contributions and Sheltered Contributions
----------------------------------------------------------
Notwithstanding any other provision of the Plan including the limitations
of Section 6.03(a) and 6.04(a), in no event may the total of Exchange
Contributions and Sheltered Contributions to this Plan on behalf of any Member,
in addition to all such deferrals on behalf of such Member under all other cash
or deferred arrangements (as
59
<PAGE>
defined in Section 401(k) of the Code) maintained by the Company or any
Affiliated Company in which the Member participates, exceed $7,000 (indexed as
provided in Section 402(g)(5) of the Code) in any calendar year of the Member.
If a Member participates in another cash or deferred arrangement in any calendar
year which is not maintained by the Company or an Affiliated Company, and his
total elective deferral contributions under this Plan and such other plan exceed
$7,000 (as indexed) in a calendar year, he may request to receive a distribution
of the amount of the excess deferral (a deferral in excess of $7,000, as
indexed) that is attributable to Exchange Contributions or Sheltered
Contributions in this Plan together with earnings thereon, notwithstanding any
limitations on distributions contained in this Plan. Such distribution shall be
made by the April 15 following the calendar year of the Exchange Contributions
or Sheltered Contributions were made, provided that the Member notifies the
Committee of the amount of the excess deferral that is attributable to Exchange
Contributions or Sheltered Contributions to this Plan and requests such a
distribution. The Member's notice must be received by the Committee no later
than the March 1 following the calendar year of the excess deferral. In the
absence of such notice, the amount of such excess deferral attributable to
Exchange Contributions or Sheltered Contributions to this Plan shall be subject
to all limitations on withdrawals and distributions in this Plan. The amount of
excess deferrals that may be distributed under this Section 6.05 with respect to
any Member for any Plan Year shall be reduced by the amount of any Excess
Exchange Contributions previously distributed pursuant to Section 6.03(a) or any
Excess Sheltered Contributions previously distributed pursuant to Section
6.04(a), if any, for such Plan Year.
60
<PAGE>
6.06 Limitation on Matching Allocations Affecting Highly Compensated Employees
-------------------------------------------------------------------------
(a) Notwithstanding anything herein to the contrary, in no event shall
the Matching Allocations made on behalf of Highly Compensated Employees with
respect to any Plan Year result in a Contribution Percentage for such group of
Highly Compensated Employees that exceeds the greater of:
(i) an amount equal to 125% of the Contribution Percentage for all
Members other than Highly Compensated Employees; or
(ii) an amount equal to the sum of the Contribution Percentage for
all Members other than Highly Compensated Employees and two percent (2%),
provided that such amount does not exceed 200% of the Contribution Percentage
for all Members other than Highly Compensated Employees.
(b) The Committee shall be authorized to implement rules limiting the
Matching Allocations that may be allocated on behalf of Highly Compensated
Employees during the Plan Year (prior to any contributions to the Trust) so that
the limitation of Section 6.06(a) is satisfied.
(c) Notwithstanding any reductions pursuant to Section 6.06(b), if the
limitation under Section 6.06(a) is exceeded in any Plan Year, a Participating
Company may, in the sole discretion of the Committee and in accordance with the
regulations issued under Section 401(m) of the Code, make additional
contributions to the Match Accounts of Members who are not Highly Compensated
Employees, which additional contributions shall either be qualified nonelective
contributions as described in Section 401(m)(4)(C) of the Code and the
regulations issued thereunder, or additional Match Allocations, up to an amount
necessary to assure that the limitation under Section 6.06(a) is not exceeded in
the
61
<PAGE>
Plan Year. Qualified nonelective contributions shall be nonforfeitable when made
and are distributable only in accordance with the distribution and withdrawal
provisions that are applicable to Exchange Contributions under the Plan. In
addition, in accordance with regulations issued under Section 401(m) of the
Code, the Committee may elect to treat amounts attributable to Exchange
Contributions as such additional Match Allocations solely for the purposes of
satisfying the limitation of Section 6.06(a).
(d) To the extent the limitation under Section 6.06(a) continues to be
exceeded following the contribution of such additional Matching Allocations, if
any, such Excess Matching Allocations made on behalf of Highly Compensated
Employees with respect to a Plan Year and income allocable thereto shall then be
distributed to such Highly Compensated Employees to the extent vested pursuant
to Section 9.01, or if not vested, forfeited. Any such forfeitures shall be used
to pay administrative expenses under the Plan in accordance with Section
9.05(a). All Excess Matching Allocations and any income allocable thereto shall
be forfeited or distributed, as described above, as soon as practicable after
the close of the Plan Year in which they occur, but no later than twelve months
after the close of such Plan Year. The amount of income allocable to Excess
Matching Allocations shall be determined in accordance with the regulations
issued under Code Section 401(m).
(e) The Committee is authorized to implement rules under which it may
utilize any combination of the foregoing methods described in Section 6.06(b),
(c) and (d) to assure that the limitation of Section 6.06(a) is satisfied.
(f) Notwithstanding anything to the contrary in Section 6.03 or this
Section 6.06, Exchange Contributions and Matching Allocations may not be made to
this Plan in
62
<PAGE>
violation of the rules prohibiting multiple use of the alternative limitation
described in Sections 401(k)(3)(A)(ii)(II) and 401(m)(2)(A)(ii) of the Code and
the provisions of Treasury Regulation section 1.401(m)-2(b) and any further
guidance issued thereunder. If such multiple use occurs, the Contribution
Percentages for all Highly Compensated Employees (determined after applying the
foregoing provisions of Sections 6.03 and 6.06) shall be reduced in accordance
with Treasury Regulation section 1.401(m)-2(c) and any further guidance issued
thereunder in order to prevent such multiple use of the alternative limitation.
(g) Notwithstanding anything in the Plan to the contrary, if the rate of
Matching Allocations (determined after application of the corrective mechanisms
described in the foregoing provisions of this Section 6.06) discriminates in
favor of Highly Compensated Employees, the Matching Allocations attributable to
any Excess Exchange Contributions, Excess Matching Allocations, or excess
deferrals (as described in Section 6.05) of each affected Highly Compensated
Employee shall be forfeited so that the rate of Matching Allocations is
nondiscriminatory. Any such forfeitures shall be made no later than the end of
the Plan Year following the Plan Year for which the Matching Allocations were
made. Forfeitures, if any, shall be applied as set forth in Section 9.05(a).
6.07 Limitation on Standard Contributions Affecting Highly Compensated
-----------------------------------------------------------------
Employees
---------
(a) Notwithstanding anything herein to the contrary, in no event shall
the Standard Contributions made on behalf of eligible Highly Compensated
Employees with respect to any Plan Year result in a Standard Contribution
Percentage for such group of Highly Compensated Employees that exceeds the
greater of:
63
<PAGE>
(i) an amount equal to 125% of the Standard Contribution
Percentage for all Members other than Highly Compensated Employees; or
(ii) an amount equal to the sum of the Standard Contribution
Percentages for all Members other than Highly Compensated Employees and two
percent (2%), provided that such amount does not exceed 200% of the Standard
Contribution Percentage for all Members other than Highly Compensated Employees.
(b) The Committee shall be authorized to implement rules authorizing or
requiring reductions in the Standard Contributions that may be made by Highly
Compensated Employees during the Plan Year (prior to any contributions to the
Trust) so that the limitation of Section 6.07(a) is satisfied.
(c) Notwithstanding any reductions pursuant to Section 6.07(b), if the
limitation under Section 6.07(a) is exceeded in any Plan Year, the Committee
may, in accordance with the regulations issued under Sections 401(k) and 401(m)
of the Code, elect to treat amounts attributable to Sheltered Contributions as
additional Standard Contributions solely for the purposes of satisfying the
limitation of Section 6.07(a).
(d) Notwithstanding any reductions pursuant to Section 6.07(b), if the
limitation under Section 6.07(a) is exceeded in any Plan Year, a Participating
Company may, in the sole discretion of the Committee and in accordance with the
regulations issued under Section 401(m) of the Code, make additional
contributions to the Standard Accounts of Members who are not Highly Compensated
Employees, which additional contributions shall be qualified nonelective
contributions as described in Section 401(m)(4)(C) of the Code and the
regulations issued thereunder, up to an amount necessary to assure that the
limitation under Section 6.07(a) is not exceeded in the Plan
64
<PAGE>
Year. Qualified nonelective contributions shall be nonforfeitable when made and
are distributable only in accordance with the distribution and withdrawal
provisions that are applicable to Sheltered Contributions under the Plan. In
addition, in accordance with regulations issued under Section 401(m) of the
Code, the Committee may elect to treat amounts attributable to Sheltered
Contributions as such additional Standard Contributions solely for the purposes
of satisfying the limitation of Section 6.07(a).
(e) To the extent the limitation under Section 6.07(a) continues to be
exceeded following the application of Section 6.07(b), the Excess Standard
Contributions made with respect to Highly Compensated Employees with respect to
a Plan Year and income allocable thereto shall then be distributed to such
Highly Compensated Employees in an amount equal to each such Member's Standard
Contributions (including recharacterized Sheltered Contributions), as soon as
practicable after the close of the Plan Year in which they occur, but no later
than twelve months after the close of such Plan Year. The amount of income
allocable to Excess Standard Contributions shall be determined in accordance
with the regulations issued under Code Section 401(m).
(f) The Committee is authorized to implement rules under which it may
utilize any combination of the foregoing methods described in Section 6.07(b),
(c) and (d) to assure that the limitation of Section 6.07(a) is satisfied.
(g) Notwithstanding anything to the contrary in Section 6.04 or this
Section 6.07, Sheltered Contributions and Standard Contributions may not be made
to this Plan in violation of the rules prohibiting multiple use of the
alternative limitation described in Sections 401(k)(3)(A)(ii)(II) and
401(m)(2)(A)(ii) of the Code and the provisions of Treasury Regulation section
1.401(m)-2(b) and any further guidance issued thereunder. If
65
<PAGE>
such multiple use occurs, the Contribution Percentages for all Highly
Compensated Employees (determined after applying the foregoing provisions of
Sections 6.04 and 6.07) shall be reduced in accordance with Treasury Regulation
section 1.401(m)-2(c) and any further guidance issued thereunder in order to
prevent such multiple use of the alternative limitation.
6.08 Limitations on Annual Additions
-------------------------------
(a) Basic Limitation
----------------
Subject to the adjustments hereinafter set forth, the maximum
aggregate Annual Addition allocated to a Member's Account in any calendar year
(which shall be the Limitation Year) shall not exceed the lesser of:
(i) 25% of the Member's Compensation in such Limitation Year, or
(ii) $30,000 or such greater amount in effect as established by
regulations issued pursuant to Section 415(d) of the Code.
(b) Limitation for Members in a Combination of Plans
------------------------------------------------
Notwithstanding the foregoing, effective for Limitation Years
beginning before January 1, 2000, in the case of a Member who participates in
this Plan and a qualified defined benefit plan maintained by the Company or an
Affiliated Company, the sum of the defined contribution plan fraction (as
defined in Section 415(e)(3) of the Code) and the defined benefit plan fraction
(as defined in Section 415(e)(2) of the Code) in any Limitation Year shall not
exceed 1.0.
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<PAGE>
(c) Preclusion of Excess Annual Additions; Reduction of Benefits
------------------------------------------------------------
The Committee shall maintain records showing the contributions
allocated to a Member's Account in any Limitation Year, and prior to the
allocation of any contributions, the Committee shall determine whether the
amount to be allocated would cause the limitations prescribed hereunder to be
exceeded with respect to any Member.
(i) In the event that the Committee determines that the allocation
of a contribution would cause the restrictions imposed by Section 6.08(a) to be
exceeded with respect to this Plan when combined with any other defined
contribution plan pursuant to Section 6.08(e), allocations shall be reduced in
the following order, but only to the extent necessary to satisfy such
restrictions:
(1) First, the Annual Additions under any other qualified
defined contribution plan maintained by the Company or an Affiliated Company;
(2) Second, the Annual Additions under this Plan.
(ii) If it becomes necessary to make an adjustment in Annual
Additions to a Member's Account under this Plan, either because of the
limitations as applied to this Plan alone or as applied to this Plan in
combination with another qualified defined contribution plan, the excess Annual
Addition under this Plan with respect to the affected Member shall be
reallocated proportionately in the same manner as Contributions are allocated to
the Accounts of other Members until the Annual Addition to the Account of each
Member reaches the limits of Section 415 of the Code.
(iii) Notwithstanding Paragraph (i) above, if the combination
limitation prescribed under Section 6.08(b) hereof would be exceeded in any
Limitation Year that begins prior to January 1, 2000, benefits under the defined
benefit plan shall be
67
<PAGE>
frozen, or reduced if necessary, prior to making any reductions in this Plan or
any other qualified defined contribution plan; provided, however, if in a
subsequent year the limitations are increased due to cost of living adjustments
or any other factor, the freeze or reduction of the Member's benefits shall
lapse to the extent that additional benefits may be payable under the increased
limitations.
(iv) The Committee shall advise an affected Member of any
limitation on his Annual Addition required by this Section 6.08.
(d) Disposal of Excess Annual Additions
-----------------------------------
In the event that, notwithstanding the foregoing, the limitations
with respect to Annual Additions prescribed hereunder are exceeded with respect
to any Member, and such excess arises as a consequence of the allocation of
forfeitures, a reasonable error in estimating the Member's Compensation, a
reasonable error in determining the amount of Sheltered Contributions or
Exchange Contributions that may be made with respect to the Member under the
limits of Code Section 415, or under other limited facts and circumstances that
the Commissioner finds justify the availability of the rules set forth in this
Section 6.08(d), such excess amounts shall not be deemed Annual Additions in
that Limitation Year to the extent corrected hereunder. First, Standard
Contributions (together with earnings thereon) shall be returned to each
affected Member to the extent that such distribution would reduce the excess
amounts in the Member's Account. These amounts shall be disregarded in applying
the limitations of Sections 6.07. To the extent excess amounts remain after any
such distribution, Sheltered Contributions (together with earnings thereon)
shall be returned to each affected Member to the extent that such distribution
would reduce the excess amounts in the Member's Account. These amounts shall be
disregarded in applying the limitations of Sections 6.04 and 6.05. To the extent
excess amounts remain after any such distributions, Exchange Contributions
(together with earnings thereon) shall be returned to each affected Member to
the extent that such distribution would reduce the excess amounts in the
Member's Account. These
68
<PAGE>
amounts shall be disregarded in applying the limitations of Sections 6.03 and
6.05. To the extent excess amounts remain after all such distributions, such
excess amounts shall be used to reduce future contributions on behalf of the
Member for the next succeeding Limitation Year and succeeding Limitation Years
as necessary. If the Member is not covered by the Plan as of the end of such
succeeding year, but an excess amount still exists, such excess amount will be
held unallocated in a suspense account. The suspense account will be applied to
reduce future contributions on behalf of the other Members entitled to an
allocation, in that Limitation Year, and succeeding Limitation Years, if
necessary.
(e) Aggregation of Plans
--------------------
For purposes of this Section 6.08, all qualified defined
contribution plans maintained by the Company or any Affiliated Company shall be
treated as a single plan, and all qualified defined benefit plans maintained by
the Company or any Affiliated Company shall be treated as a single plan.
(f) Definition of "Annual Additions"
--------------------------------
For purposes of this Section, the term "Annual Additions" shall mean
the sum for any Limitation Year of the following amounts allocated to an account
on behalf of a Member:
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<PAGE>
(i) Stock Ownership Contributions, and any other Company or
Affiliated Company contributions allocated to the Member's account under any
defined contribution plan maintained by the Company or an Affiliated Company and
qualified under Section 401(a) of the Code;
(ii) Exchange Contributions, Sheltered Contributions, Standard
Contributions, and any other contributions by the Member or on behalf of the
Member to any defined contribution plan maintained by the Company or an
Affiliated Company and qualified under Section 401(a) of the Code;
(iii) Any forfeitures allocated to the Member's account under any
other defined contribution plan maintained by the Company or an Affiliated
Company and qualified under Section 401(a) of the Code; and
(iv) Amounts described in Sections 415(l)(1) and 419A(d)(2) of the
Code.
Notwithstanding the above, any contributions under this Plan which are
applied by the Trustee (not later than the due date, including extension, for
filing the Company's federal income tax return for the taxable year which ends
with or within such Limitation Year) to pay interest on an Acquisition Loan, and
any forfeitures allocated to a Member's Stock Ownership Account shall not be
"Annual Additions."
In any case where an Acquisition Loan has been made to finance the
acquisition of Leveraged Shares for the Trust or to repay a prior Acquisition
Loan, the amount of contributions under this Plan which are considered Annual
Additions for the Limitation Year shall be calculated with respect to the
contributions which are used to repay principal on the Acquisition Loan during
such Limitation Year and not with respect to the Leveraged Shares which are
allocated to a Member's Account during such Limitation Year.
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<PAGE>
Article 7. Investment of Contributions
---------------------------
7.01 Investment Funds
----------------
The Committee shall designate the Investment Funds of the Trust which
shall include, but not be limited to, the following Investment Funds:
(a) Equity Investment Fund
----------------------
One or more diversified equity funds, as may be available from
time to time, invested in equity securities or securities convertible into
equity securities or in a commingled equity trust for the collective investment
of funds of employee benefit plans qualified under Section 401(a) of the Code
(or corresponding provisions of any subsequent Federal revenue law at the time
in effect), excluding, however, any stocks or other securities of the Retirement
Savings Trustee. This exclusion shall not apply to any investment in a
commingled trust or insurance company account not proscribed by applicable law.
Pending the selection and purchase of suitable investments for this Fund, any
part of this Fund may be invested in short-term and medium-term fixed income
securities, such as commercial paper, notes of finance companies, and
obligations of the U.S. Government and any agency or instrumentality thereof.
(b) Fixed Income Investment Fund
----------------------------
One or more fixed income funds, as may be available from time to
time, invested in, but not limited to, guaranteed income contracts, bonds,
notes, debentures, asset-backed securities and fixed income derivatives,
excluding securities of the Retirement Savings Trustee. This exclusion shall not
apply to any investment in a commingled trust or insurance company account not
prescribed by applicable law. Pending the selection and purchase of suitable
investments for this Fund, any part of this
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<PAGE>
Fund may be invested in short-term and medium-term fixed income securities, such
as commercial paper, notes of finance companies, bankers acceptances,
certificates of deposit, and obligations of the U.S. Government and any agency
or instrumentality thereof.
(c) Money Market Fund
-----------------
One or more money market funds, as may be available from time to
time, invested in short-term obligations of the United States Government, bank
certificates of deposit, commercial paper, bankers' acceptances, shares of money
market mutual funds and other similar types of short-term investments which may
include investment in any commingled trust fund qualified under Section 401(a)
of the Code (or corresponding provisions of any subsequent Federal revenue law
at the time in effect) and which is invested primarily in similar types of
securities.
(d) Balanced Fund
-------------
One or more balanced funds, as may be available from time to
time, that invest in a mixture of bonds, equities, and short-term instruments,
as determined by the Fund manager.
(e) Company Stock Fund
------------------
A fund designed solely to invest in Company Stock or to hold
Company Stock contributed to the Plan by the Company. Up to 100% of the assets
of a Member's Retirement Savings Account may be invested in the Company Stock
Fund.
(f) Stock Ownership Fund
--------------------
A fund consisting of Company Stock and cash for fractional
shares and earnings attributable thereto. All amounts credited to a Member's
Stock Ownership
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Account shall be invested in the Stock Ownership Fund (except that a Member's
Exchange Contributions made in each Stock Ownership Allocation Period shall be
invested in a Money Market Fund until the allocation of Leveraged Shares under
Section 6.02(b) for such Stock Ownership Allocation Period) and may not be
transferred from such fund to any of the other Investment Funds, except as
provided in Section 7.08.
If there shall be available for investment at any time more than one
Equity Investment Fund, Fixed Income Investment Fund, Money Market Fund or
Balanced Fund, there shall be separate accounting for each available Fund. To
the extent allowed by applicable law and all other provisions of this Plan, all
or any portion of a Fund identified above in (a) through (d) may be invested in
securities of a foreign corporation or a foreign government and in other
property located outside the United States. Each such Fund may keep such
amounts of cash and cash equivalents as its managers shall deem necessary or
advisable as a part of such Fund, all within the limitations specified in the
applicable Trust Agreement. Dividends, interest and other distributions
received on the assets held in each Fund shall be reinvested in the respective
Fund.
7.02 Investment of Contributions
---------------------------
Each Member, as a part of the application for membership in the Plan,
shall designate the Investment Fund or Funds (other than the Stock Ownership
Fund) in which his Sheltered Contributions, Standard Contributions, and Rollover
Contributions, if any, shall be invested. The designated investments shall be
in 1% increments, provided that the total designated equals 100% of the
contributions to his Retirement Savings Account. In the event a Member fails to
designate the investment of his Retirement Savings Account, the Member's
Sheltered Contribution, Standard Contributions, and Rollover Contributions
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shall be invested in one or more Fixed Income Investment Funds until the Member
properly designates other Funds. Amounts held in a Member's Stock Ownership
Account may not be invested in any Fund other than the Stock Ownership Fund,
provided, however, a Member's Exchange Contributions made in each Stock
Ownership Allocation Period shall be invested in a Money Market Fund until the
allocation of Leveraged Shares under Section 6.02(b) for such Stock Ownership
Allocation Period and all or a portion of a Member's Stock Ownership Account may
be invested in any of the Investment Funds described in Section 7.01(a), (b), or
(d), pursuant to Section 7.08.
7.03 Change of Election
------------------
A Member, by notice to the Retirement Savings Trustee in a format
approved by the Committee, may change the election of the Investment Funds in
which future contributions to his Retirement Savings Account shall be invested.
A Member may change the election of the Investment Funds in which such
contributions are to be invested by designating the percentage of contributions
that shall be invested in each of the Investment Funds, in 1% increments,
provided the total equals 100%. Such change shall be effective as soon as
practicable after such notice is received by the Retirement Savings Trustee.
7.04 Transfers Among Funds
---------------------
(a) An active or inactive Member may elect to transfer all or any
portion of the value of his Retirement Savings Account in one of the Investment
Funds to any other Investment Fund (except the Stock Ownership Fund) at the
following times (and under such uniform rules as the Committee may adopt from
time to time):
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(i) Any election to transfer between and among the Equity
Investment Fund, the Fixed Income Investment Fund, the Money Market Fund and the
Balanced Fund (and any related funds maintained in the Equity Investment Fund,
the Fixed Income Investment Fund, the Money Market Fund and the Balanced Fund)
may be made at any time, to be effective as soon as practicable thereafter; and
(ii) Any election to transfer to or from the Company Stock Fund
may be made at any time, to be effective as follows: elections initiated by the
fifteenth day of the month shall be effective as soon as practicable after the
fifteenth day of the month; elections initiated after the fifteenth day of the
month and by the last day of the month shall be effective as soon as practicable
after the last day of the month. For purposes of the preceding sentence, if the
fifteenth or last day of a month falls on a Saturday, Sunday or holiday, the
fifteenth or last day of such month shall be deemed to be the last business day
preceding the fifteenth or last day, respectively.
(b) An active or inactive Member who has diversified all or part of
his Stock Ownership Account pursuant to Section 7.08 may elect to transfer the
diversified portion of his Stock Ownership Account in one of the Investment
Funds to any other Investment Fund (except the Stock Ownership Fund and the
Money Market Fund) at the following times (and under such uniform rules as the
Committee may adopt from time to time):
(i) Any election to transfer between and among the Equity
Investment Fund, the Fixed Income Investment Fund, and the Balanced Fund (and
any related funds maintained in the Equity Investment Fund, the Fixed Income
Investment
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Fund, and the Balanced Fund) may be made at any time, to be effective as soon as
practicable thereafter; and
(ii) Any election to transfer to or from the Company Stock Fund
may be made at any time, to be effective as follows: elections initiated by the
fifteenth day of the month shall be effective as soon as practicable after the
fifteenth day of the month; elections initiated after the fifteen day of the
month and by the last day of the month shall be effective as soon as practicable
after the last day of the month. For purposes of the preceding sentence, if the
fifteenth or last day of a month falls on a Saturday, Sunday or holiday, the
fifteenth or last day of such month shall be deemed to be the last business day
preceding the fifteenth or last day, respectively.
(c) Notwithstanding the foregoing:
(i) no transfers are permitted to be made from the Company
Stock Fund with respect to that portion of a Member's Account attributable to
his Retirement Savings Matching Contributions prior to the Member's attainment
of age 59 1/2;
(ii) no direct transfers are permitted from the Fixed Income
Investment Fund to the Money Market Fund or the funds maintained in the Balanced
Fund that are designated by the Company as having goals and objectives
comparable to the Fixed Income Investment Fund (collectively the "Balanced
Income Fund");
(iii) amounts transferred from the Fixed Income Investment Fund
to any other Fund may not thereafter be transferred to the Money Market Fund or
any Balanced Income Fund for three(3) months following such transfer; and
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(iv) amounts transferred from the Stock Ownership Fund to the
Equity Investment Fund, the Fixed Income Investment Fund, or any Balanced Income
Fund, in accordance with the diversification rules under Section 7.08, may not
thereafter be transferred to the Money Market Fund.
(d) Except as otherwise provided, transfers pursuant to this Section
7.04 may be made by telephoning notice to the Retirement Savings Trustee, and
shall be effective as soon as practicable following the Retirement Savings
Trustee's receipt of the notice.
7.05 Investment Options
------------------
Each active and inactive Member is solely responsible for the
selection of his investment options with respect to the amounts in his
Retirement Savings Account. The Retirement Savings Trustee, the Committee, the
Participating Companies or any of the officers or supervisors of the
Participating Companies are not empowered to advise a Member as to the manner in
which his Retirement Savings Account shall be invested. The fact that a security
is available to Members for investment under the Plan shall not be construed as
a recommendation for the purchase of that security, nor shall the designation of
any option impose any liability on any Participating Company, its directors,
officers or employees, the Retirement Savings Trustee, the Committee or any
Member of the Plan.
7.06 Valuations
----------
(a) The market value of each Investment Fund (other than the Stock
Ownership Fund) shall be determined by the Retirement Savings Trustee as of each
Valuation Date. The valuation shall reflect all income, as well as the payment
of brokerage fees and transfer taxes applicable to purchases and sales for each
Fund and all
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similar transactions, and any Plan administrative expenses to the extent they
are not paid by a Participating Company, occurring since the last Valuation Date
with respect to each Fund. The value of a Member's interest in each Investment
Fund shall be represented by mutual fund shares, shares of Company stock, or in
dollars, whichever is applicable. Contributions made by a Member for any payroll
period shall be invested based on the value of the Fund as of the last Valuation
Date in that payroll period, regardless of when such contributions are actually
paid to and become part of an Investment Fund. The Trust Fund attributable to
Members' Retirement Savings Accounts, and each Member's allocable share of such
Trust Fund, shall be valued at fair market value periodically as determined
necessary by the Retirement Savings Trustee or as requested by the Committee.
(b) The market value of the Trust Fund attributable to Members'
Stock Ownership Accounts, and each Member's allocable share of such Trust Fund,
shall be determined by the Stock Ownership Trustee as of each Valuation Date.
7.07 Annual Statements
-----------------
At least once each Plan Year, each active and inactive Member shall
be furnished with a statement setting forth the value of his Retirement Savings
Account and Stock Ownership Account.
7.08 Diversification of Stock Ownership Accounts
-------------------------------------------
(a) Eligibility for Diversification
-------------------------------
Each Member who has completed five (5) Years of Service and
attained an age specified in the schedule below shall be permitted to direct the
investment of up to a corresponding percentage of the number of shares of
Company Stock in his Stock
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Ownership Account, as specified in the schedule below and as determined in
Subsection 7.08(b), in any of the Investment Funds described in Section 7.01(a),
(b), or (d).
Maximum Percentage of
Stock Ownership Account
Age Eligible for Diversification
--- ----------------------------
50-54 25%
55-59 50%
60 and older 100%
In addition to the foregoing, a Member who is fully vested in his Stock
Ownership Account upon his termination of employment and who has not received a
distribution of his Stock Ownership Account in accordance with Section 9.02,
shall be permitted to direct the investment of up to 100% of the shares of
Company Stock in his Stock Ownership Account in accordance with any of the
Investment Funds described in Section 7.01(a), (b), or (d).
(b) Maximum Number of Shares Permitted to be Diversified
----------------------------------------------------
The maximum number of shares of Company Stock that may be
directed by a Member under this Section 7.08 shall equal the total number of
shares of Company Stock that have ever been allocated to the Member's Stock
Ownership Account multiplied by the applicable percentage (based on the schedule
in Subsection (a) above), and then reduced by the number of shares of Company
Stock previously directed by the Member under this Section 7.08, rounded to the
nearest whole integer.
(c) Separate Diversification Elections
----------------------------------
A Member who is eligible to diversify his Stock Ownership
Account under Subsection (a) above shall be permitted to designate separately
the percentage of his
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Exchange Contribution Account, Equity Account, and Match Account to be
diversified, in accordance with the maximum percentages specified above.
(d) Direction to Diversify
----------------------
A Member's direction to diversify pursuant to this Section 7.08
may be at any time, to be effective as follows: elections initiated by the
fifteenth day of a month shall be effective as soon as practicable after the
fifteenth day of the month; elections initiated after the fifteenth day of the
month and by the last day of the month shall be effective as soon as practicable
after the last day of the month. If the fifteenth or last day of a month falls
on a Saturday, Sunday or holiday, the fifteenth or last day of the month shall
be deemed to be the last business day preceding the fifteenth or last day of the
month, respectively. Any direction to diversify may be made by telephoning
direction to the Retirement Savings Trustee. Any direction to diversify may be
revoked or modified before the fifteenth or last day of the month next following
the request in the manner authorized by the Committee (including
telephonically). All directions shall be in accordance with any notice, rulings,
or regulations or other guidance issued by the Internal Revenue Service with
respect to Section 401(a)(28)(B) of the Code.
(e) Diversified Shares
------------------
Notwithstanding a Member's direction to diversify under this
Section 7.08, any amounts invested in the Investment Funds described in Section
7.01(a), (b), or (d) as a result of such direction shall continue to be part of
the Member's Stock Ownership Account.
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Article 8. In-Service Withdrawals and Loans
--------------------------------
8.01 In-Service Withdrawals
----------------------
A Member who is actively employed by the Company or any Affiliated
Company may elect in the manner prescribed by the Committee (including
telephonically) to withdraw in cash a portion or all of his Standard
Contributions Account, Tax Deductible Contributions Account, Rollover Account,
or Sheltered Account, less the amount of any outstanding loan, according to the
order in which the following Subsections are presented, as the amounts described
in each successive Subsection are exhausted:
(a) An amount equal to all or part of the Member's before-1987
Standard Contributions (i.e., after-tax contributions made by the Member), but
----
no more than the current value thereof in the event such value is less than the
net amount of such Standard Contributions.
(b) An amount equal to all or part of the Member's after-1986
Standard Contributions and a pro rata portion of the earnings on all Standard
Contributions, but no more than the current value thereof in the event such
value is less than the net amount of such Standard Contributions.
(c) An amount equal to all or part of the Member's Tax Deductible
Contributions Account.
(d) An amount equal to all or part of the Member's Rollover
Contributions, but no more than the current value thereof in the event such
value is less than the net amount of such Rollover Contributions.
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(e) An amount equal to all or part of the Member's Sheltered
Contributions, but no more than the current value thereof in the event such
value is less than the net amount of such Sheltered Contributions, provided:
(i) the Member has attained age 59 1/2;
(ii) the Member demonstrates financial hardship in accordance
with the rules provided under Section 8.02, and only to the extent required to
meet the need created by the financial hardship; or
(iii) the Member becomes disabled in accordance with Code
Section 401(k)(2)(B)(i)(A).
In no event shall a Member who is actively employed be permitted to
withdraw any portion of his Retirement Savings Matching Contributions (and
earnings thereon) or Stock Ownership Account.
8.02 Determination of Financial Hardship
-----------------------------------
(a) In order to demonstrate financial hardship, the Member shall
provide written notice to the Committee setting forth the amount requested and
the facts establishing the existence of such hardship. Upon receipt of such a
request, the Committee shall determine whether an immediate and heavy financial
hardship exists; if the Committee determines that such a hardship exists, it
shall further determine what portion of the amount requested by the Member is
required to meet the immediate and heavy financial need created by the hardship,
taking into account such additional amounts necessary to pay any federal, state,
or local income taxes or penalties reasonably anticipated to result from the
distribution.
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(b) The amount to be withdrawn must not be reasonably available
from other resources of the Member, as determined by the Committee under rules
uniformly applicable to all Members similarly situated. Notwithstanding the
foregoing, a Member shall be deemed to have no other resources reasonably
available only if: (i) the Member has obtained all withdrawals and distributions
currently available to the Member under the Plan and all other qualified defined
contribution plans maintained by the Company or an Affiliated Company; (ii) the
Member has obtained all loans reasonably available to the Member under the Plan
and all other qualified defined contribution plans maintained by the Company or
an Affiliated Company, to the extent any required repayment of such loan would
not itself cause an immediate and heavy financial need; (iii) the Member agrees
to cease all Exchange Contributions, Sheltered Contributions and Standard
Contributions under the Plan as well as all similar contributions to all other
qualified defined contribution plans maintained by the Company or an Affiliated
Company for a period of 12 months from the date of the hardship withdrawal; and
(iv) the amount of pre-tax elective contributions under all qualified defined
contribution plans maintained by the Company or an Affiliated Company for the
year following the year of the withdrawal are limited in accordance with
regulations issued under Section 401(k) of the Code.
(c) The determination of whether an immediate and heavy financial
need exists shall be based on all relevant facts and circumstances, which need
shall not be disqualified because it was reasonably foreseeable or voluntarily
incurred by the Member, and shall be determined in accordance with regulations
(and any other rulings, notices, or documents of general applicability) issued
pursuant to Section 401(k) of the Code and, to the extent permitted by such
authorities, shall be limited to any financial need arising from:
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(i) medical expenses (as defined in Section 213(d) of the
Code) incurred by the Member or a Member's spouse or any dependent of the Member
(as defined in Code Section 152), or expenses necessary for these persons to
obtain medical care (as defined in Section 213(d) of the Code);
(ii) expenses relating to the payment of tuition and related
educational fees for the next 12 months of post-secondary education for the
Member, his spouse, children or dependents (as defined in Code Section 152);
(iii) costs directly related to the purchase (excluding
mortgage payments) of a principal residence for the Member;
(iv) payments necessary to prevent the eviction of the Member
from his principal residence or foreclosure on the mortgage of the Member's
principal residence; or
(v) expenses arising from circumstances of sufficient
severity that a Member is confronted by present or impending financial ruin or
his family is clearly endangered by present or impending want or deprivation. To
demonstrate such a need, the Member must prepare a statement indicating the
reason for the need and the extent to which the Member has other resources
reasonably available to relieve that need.
(d) The amount of Sheltered Contributions that is available for
withdrawal under Section 8.01(c)(ii) shall not exceed the lesser of: (i) the
value of pre-tax contributions as of December 31, 1988 (taking into account
earnings and losses attributable to such amounts), plus the total amount of the
Member's pre-tax contributions (without account earnings) that are made after
December 31, 1988, or (ii) the value of all pre-tax contributions made to the
Plan (taking into account earnings and losses
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attributable to such amounts), reduced by any amounts previously withdrawn from
the Member's Sheltered Account.
(e) Notwithstanding the foregoing, no withdrawal may be made by a
Member during the period in which the Committee is making a determination of
whether a domestic relations order affecting the Member's Account is a qualified
domestic relations order, within the meaning of Section 414(p) of the Code.
Further, if the Committee is in receipt of a qualified domestic relations order
with respect to any Member's Account, it may prohibit such Member from making a
withdrawal until the alternate payee's rights under such order are determined.
8.03 Investment Fund to be Deducted for Withdrawal
---------------------------------------------
The amount withdrawn under Section 8.01 shall be deducted from the
Investment Fund or Funds in which the amounts withdrawn are invested in
accordance with such uniform rules as the Committee shall adopt from time to
time.
8.04 Loans to Eligible Borrowers
---------------------------
Loans from the Plan may be made to any Member who is actively
employed by a Participating Company, or any Member or Beneficiary who is a
"party in interest" within the meaning of Section 3(14) of ERISA. Each such
individual is referred to herein as an "Eligible Borrower."
(a) An application for a loan by an Eligible Borrower shall be made
to the Committee or its designee in the manner prescribed by the Committee
(including telephonic applications), whose action in approving or disapproving
such application shall be final. The decisions by the Committee or its designee
on loan applications shall be made on a reasonably equivalent, uniform and
nondiscriminatory basis and within a
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reasonable period after each loan application is received. In determining
whether to make a loan pursuant to this Section 8.03, the Committee or its
designee shall consider only those factors which would be considered in a normal
commercial setting by an entity in the business of making loans which are
similar to loans made hereunder. Notwithstanding the foregoing, the Committee or
its designee may apply different terms and conditions for loans to Eligible
Borrowers who are not actively employed by an Employer, or for whom payroll
deduction is not available, based on economic and other differences affecting
the individuals' ability to repay any loan. In no event shall loans be made from
a Member's Stock Ownership Account, or from amounts attributable to a Member's
Tax Deductible Contributions or a Member's Retirement Savings Matching
Contributions.
(b) The amount of the loan must be at least $1,000 and shall not
exceed the lesser of:
(i) $50,000, reduced by the highest outstanding balance of
loans from the Plan and any other defined contribution plan maintained by the
Company or an Affiliated Company during the one-year period ending on the day
before the date on which the loan was made, and
(ii) one-half of the value of his Member Account (other than
his Tax Deductible Contributions) as of the Valuation Date coincident with or
immediately following the date the Eligible Borrower applies to the Committee or
its designee for a loan.
(c) The interest rate to be charged on loans made during the Plan
Year shall be a reasonable rate as determined by the Committee from time to
time. For loans granted or renewed after October 18, 1989, and for changes in
the interest rate under an existing
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loan after that date, the interest rate shall not be less than the commercial
rate of interest charged by persons in the business of lending money on loans
which are made under similar circumstances, as determined by the Committee from
time to time.
(d) A loan may be subject to a loan initiation fee, as determined
by the Committee from time to time, which fee shall be obtained from an Eligible
Borrower's Retirement Savings Account at the time of such loan. The amount of
the loan, reduced by such loan initiation fee, is to be transferred from the
Eligible Borrower's Retirement Savings Account invested in the Investment Funds
enumerated in Section 7.01, other than amounts attributable to Tax Deductible
Contributions or amounts invested in the Company Stock Fund that are
attributable to his Retirement Savings Matching Contributions, to a special
"Loan Reserve" for such Eligible Borrower, invested solely in the loan made to
the Eligible Borrower. Such amounts will be transferred from the Investment
Funds in a uniform manner as determined by the Committee from time to time.
Payments of principal on the loan will reduce the amount held in the Eligible
Borrower's Loan Reserve. Such payments, together with the attendant interest
payment, will be credited to the Eligible Borrower's Retirement Savings Account
invested in the Investment Funds in accordance with the Eligible Borrower's
election in effect under Sections 7.02 or 7.03 at the time of such payment. If
an Eligible Borrower has no election in effect, payments will be credited to the
Money Market Fund.
(e) In addition to such rules and regulations as the Committee may
adopt, all loans shall comply with the following terms and conditions:
(i) To the extent required by the Committee, each loan shall
be evidenced by a promissory note payable to the Plan.
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(ii) Loans will be adequately secured, as determined by the
Committee as of the date the loan is originated.
(iii) Loans will be available to all Eligible Borrowers on a
reasonably equivalent basis and will not be made available to Highly Compensated
Employees in an amount greater than the amount made available to Members who are
not Highly Compensated Employees.
(iv) The period of repayment for any loan shall be arrived at
by mutual agreement between the Committee and the Eligible Borrower, but such
period shall not be less than twelve (12) months and greater than five years. In
the event a loan is refinanced, the total cumulative period of repayment for the
initial loan and the refinanced loan also shall not exceed five years.
(v) Payments of principal and interest will be made by level
payments by payroll deductions or in a manner agreed to by the Eligible Borrower
and the Committee. In the case of an Eligible Borrower who is not employed by
the Company or an Affiliated Company, or in the case of any other Eligible
Borrower where at any time during the repayment period, it is not possible to
repay the loan by payroll deduction, the Member and the Committee shall agree to
another form of repayment. In any event, however, such payments will be in an
amount sufficient to amortize the loan over the repayment period and shall be
made at least quarterly.
(vi) A loan may be prepaid in full as of any date without
penalty.
(vii) Only one loan may be outstanding at any given time.
(viii) Outstanding loans may be subject to an annual loan
administration fee, as determined by the Committee from time to time. Loan
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<PAGE>
administration fees shall be obtained from an Eligible Borrower's Retirement
Savings Account on a quarterly basis, in such manner as determined by the
Committee.
(ix) If a loan is outstanding when a Member terminates his
employment with a Participating Company other than on account of (1) Involuntary
Termination (as defined in the Retirement Income Plan for Employees of Armstrong
World Industries, Inc., (2) the sale of substantially all of the assets of a
trade or business, unit or location where the Member is employed, or (3) the
sale by a Participating Company of its interest in a subsidiary where the Member
is employed, the Member shall be considered in default with respect to the loan
unless the Member continues to be a party in interest to the Plan (as defined in
Section 3(14) of ERISA). Any other Eligible Borrower shall be considered in
default on the loan if a required payment of principal or interest thereon is
not paid within 60 days after it is due. If a loan is not repaid in accordance
with the terms contained in the promissory note and a default occurs, the Plan
may execute upon its security interest in the Eligible Borrower's Retirement
Savings Account under the Plan to satisfy the debt. Alternatively, if the
Eligible Borrower has not repaid the loan as of the date benefits are to
commence, the Committee may reduce the Eligible Borrower's distribution by the
amount of the outstanding principal and interest on the loan. However, the Plan
shall not levy against any portion of the Loan Reserve attributable to amounts
held in the Member's Sheltered Account until such time as a distribution of the
Sheltered Account could otherwise be made under the Plan. An Eligible Borrower
must repay any loan prior to distribution of the Eligible Borrower's Retirement
Savings Account.
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(f) Notwithstanding anything herein to the contrary, no loan shall
be made to an Eligible Borrower during a period in which the Committee is making
a determination of whether a domestic relations order affecting the Eligible
Borrower's Account is a qualified domestic relations order, within the meaning
of Section 414(p) of the Code. Further, if the Committee is in receipt of a
qualified domestic relations order with respect to any Eligible Borrower's
Retirement Savings Account, it may prohibit such Eligible Borrower from
obtaining a loan until the alternate payee's rights under such order are
satisfied.
(g) Loan amounts shall be withdrawn from a Member's Retirement
Savings Account in the following order: (i) Sheltered Contributions; (ii)
Rollover Contributions; and (iii) Standard Contributions. Within each category
(i) through (iii), the Investment Fund or Funds in which the Member is invested
will be reduced to reflect the amount of the loan and any applicable set-up or
maintenance charges in accordance with such uniform rules as the Committee shall
adopt from time to time. Payroll deductions made to repay the loan will be
invested in the various Investment Funds in accordance with the Member's
investment election in effect at the time of such repayment.
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Article 9. Vesting and Distributions
-------------------------
9.01 Vesting
-------
(a) A Member shall always have a vested and nonforfeitable
interest in his Retirement Savings Account and his Exchange Contribution
Account.
(b) A Member shall have a vested and nonforfeitable interest in
his Equity Account and Match Account upon his completion of five (5) Years of
Service.
(c) Notwithstanding anything in the Plan to the contrary, a
Member shall have a vested and nonforfeitable interest in his Equity Account and
Match Account upon (i) attaining age 65 provided he is actively employed by the
Company or an Affiliated Company on that date; (ii) Retirement; (iii) death;
(iv) total disability, provided that the Member is eligible to receive
disability benefits under a long-term disability plan sponsored by the
Affiliated Company for which he was employed, under the provisions of Article
VI, Section (8) of the Retirement Income Plan for Employees of Armstrong World
Industries, Inc., or under the Social Security Act; (v) a Change in Control;
(vi) separation from Service from a Participating Company due to a reduction in
the workforce at the office or manufacturing location at which the Member is
employed which the Committee determines is a result of (1) adverse economic
conditions, (2) a reorganization of the workforce or operating procedures, (3)
technological change, or (4) layoff; (vii) the sale of substantially all of the
assets of a trade or business, unit or location where the Member is employed, or
the sale by a Participating Company of its interest in a subsidiary where the
Member is employed; or (viii) the Member's termination of employment with the
Company or an Affiliated Company on account of the Member's transfer to
employment with Worthington Armstrong Venture (WAVE), a Delaware general
partnership.
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9.02 Distribution Upon Retirement or Other Termination of Employment
---------------------------------------------------------------
If a Member terminates employment for any reason other than death, he may
elect, in the manner prescribed by the Committee (including telephonically), at
any time following his termination to receive an "eligible rollover
distribution" (as defined in Code Section 402(c) and the regulations and other
guidance issued thereunder) of the nonforfeitable portion of his Account. The
amount of such eligible rollover distribution shall be determined as follows:
for any request made by the fifteenth day of the month, the amount of such
eligible rollover distribution shall be determined as soon as practicable after
the fifteenth day of the month; for any request made after the fifteenth day of
the month and by the last day of the month, the amount of such eligible rollover
distribution shall be determined as soon as practicable after the last day of
the month. For purposes of the preceding sentence, if the fifteenth or last day
of a month falls on a Saturday, Sunday or holiday, the fifteenth or last day of
such month shall be deemed to be the last business day preceding the fifteenth
or last day, respectively. Such eligible rollover distribution shall be subject
to Section 9.04(b) and the following:
(a) Except as provided in Subsection (b), (c) or (d) below, the portion
of the Member's Account attributable to his Retirement Savings Account that is
not invested in the Company Stock Fund shall be distributed in cash, and the
portion of the Member's Account attributable to his Retirement Savings Account
that is invested in the Company Stock Fund and the nonforfeitable portion of the
Member's Account attributable to his Stock Ownership Account shall be
distributed in a single sum in either cash or Company Stock (with cash for
fractional shares), as elected by the Member. If the Member fails to
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elect to receive the distribution in Company Stock, such distributions shall be
made in cash.
(b) If the Member does not elect to receive an eligible rollover
distribution of the nonforfeitable portion of his Account by a Valuation Date
(specified by the Committee) by the February following the Member's termination
of employment, and his Account (including the amount of any outstanding loan
plus accrued interest, if any) equals $5,000 or less as of such Valuation Date,
as soon as practicable thereafter the Committee or its designee will notify the
Member of his right to elect to make an eligible rollover distribution and his
right to receive all or a portion of such distribution in Company Stock in
accordance with Subsection (a).
(i) If the Member notifies the Committee or its designee of his
elections within forty-five (45) calendar days following the above-described
Valuation Date, the Committee or its designee shall make a distribution or
direct rollover in cash or Company Stock (as elected by the Member) of the
nonforfeitable portion of the Member's Account as soon as practicable following
receipt by the Committee or its designee of the Member's election, in an amount
determined as of the Valuation Date on which the Committee or its designee
receives such election.
(ii) If the Member fails to notify the Committee or its designee of
his elections within such forty-five (45) day period, the Committee or its
designee shall determine the value of the nonforfeitable portion of the Member's
Account as of the Valuation Date that coincides with or immediately follows the
end of such 45-day period, and if the Member's Account (including the amount of
any outstanding loan plus accrued interest, if any) equals $5,000 or less as of
such Valuation Date, the Committee or its
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designee shall make a single lump sum cash distribution (less any mandatory
withholding for federal income tax purposes) of the nonforfeitable portion of
the Member's Account determined as of such Valuation Date.
Notwithstanding the foregoing provisions of this Subsection (b), the Committee
or its designee shall identify each former Member who as of a Valuation Date
(specified by the Committee) in November, 1999 has not commenced receiving
payments under the Plan and has an Account balance (including the amount of any
outstanding loan plus accrued interest) of $5,000 or less. As soon as
practicable after such Valuation Date, the Committee or its designee will notify
each such Member of his right to make an eligible rollover distribution and to
receive all or a portion of such distribution in Company Stock in accordance
with Subsection (a) and will make either a distribution or a direct rollover in
accordance with the procedures described above in paragraphs (i) and (ii),
except that any reference to 45 calendar days shall be replaced with 30 calendar
days.
(c) A married Member whose Account (including the amount of any
outstanding loan plus accrued interest, if any) exceeds $5,000 as of any
Valuation Date following his termination of employment may elect (in the manner
prescribed by the Committee) to have his Retirement Savings Account used to
purchase an annuity under which payments shall commence as soon as practicable
following the Member's attainment of age 65 (unless the Member requests earlier
commencement) and shall be made monthly for the Member's life, with 50% of the
amount payable to the Member continued after his death for the remainder of the
life of the spouse to whom the Member is married on the date payments are due to
commence. If such a married Member obtains the consent of his spouse (which
consent shall be in writing and notarized or witnessed by a member of the
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Committee or its designee), he may instead elect (in the manner prescribed by
the Committee) to have his Retirement Savings Account used to purchase a life
annuity under which payments shall commence as soon as practicable following the
Member's attainment of age 65 (unless the Member requests earlier commencement)
and shall be made monthly for the Member's life.
(d) An unmarried Member whose Account (including the amount of any
outstanding loan plus accrued interest, if any) exceeds $5,000 as of any
Valuation Date following his termination of employment may elect (in the manner
prescribed by the Committee) to have his Retirement Savings Account used to
purchase a life annuity under which payments shall commence as soon as
practicable following the Member's attainment of age 65 (unless the Member
requests earlier commencement) and shall be made monthly for the Member's life.
(e) A Member may revoke the election of an annuity form of benefit under
Subsection (c) or (d) at any time prior to commencing the receipt of benefits.
The Committee, or its designee, shall furnish to each Member who elects an
annuity described in Subsection (c) or (d) above, a written explanation of the
annuity, the circumstances in which it will be provided in that form, the
availability of such an election, and the relative financial effect on a
Member's benefits of such an election. A Member may, at any time, after receipt
of the aforementioned explanation, request a further written explanation of the
terms and conditions of the annuity and the financial effect upon the particular
Member's benefits of making an election not to receive his benefits in such
form. Within 30 days of the date of the Member's request or as soon thereafter
as practicable, the Committee shall furnish to the Member a written explanation
of the effect of such an
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election, given in terms of dollars per payment, calculated on the basis of the
current value of the Member's Retirement Savings Account determined as of the
Valuation Date on which the Committee receives the Member's written election to
receive an annuity form of payment.
(f) The Committee or its designee shall notify each Member, at such time
and in such manner as required by Sections 402(f) and 411(a)(11) of the Code and
the regulations and other guidance issued thereunder, of his right to make a
"direct rollover distribution" in accordance with Section 9.06 below, and his
right to receive an immediate distribution of the nonforfeitable portion of his
Account. Distribution of the nonforfeitable portion of a Member's Account under
the Plan may occur prior to 30 days after the Committee or its designee provides
such notice, provided:
(i) the Member is informed that he has a right to a period of at
least 30 days after receiving the notice to consider the decision of whether to
make a direct rollover distribution and whether to receive an immediate
distribution; and
(ii) the Member, after receiving the notice, requests to receive an
immediate distribution, in the manner prescribed by the Committee (including
telephonically).
(g) In the event an allocation of Company Stock resulting from Stock
Ownership Contributions or dividends is made to a Member's Stock Ownership
Account following the date on which an initial distribution is made or begins
under this Section 9.02, distribution of the nonforfeitable portion of such
allocation shall be made to the Member in a single lump sum payment (in cash or
Company Stock, as elected by the Member with respect to the initial
distribution) as soon as practicable following the
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allocation of such Company Stock and/or dividends in an amount determined as of
the Valuation Date coinciding with or immediately following such allocation.
Further, to the extent a Member is entitled to a distribution under this Section
9.02 and there are dividends on Company Stock which have not been allocated to
the Member's Stock Ownership Account and have not been utilized to pay any
amounts due under an Acquisition Loan, such dividends shall be paid to the
Member in cash.
(h) Notwithstanding any other provision in the Plan to the contrary, in
the event a Member who terminates employment because of his Retirement has not
requested a lump sum distribution of his entire Account under this Section 9.02
or the purchase of an annuity under Subsection (c) or (d), the Member may elect
(in the manner prescribed by the Committee, including telephonically) to
withdraw in cash a portion of his Account and investment income thereon, less
the amount of any outstanding loan, according to the order in which the
following Paragraphs are presented, as the amounts described in each successive
Paragraphs are exhausted:
(i) An amount equal to all or part of the Member's before-1987
Standard Contributions (i.e., after-tax contributions made by the Member), but
----
no more than the current value thereof in the event such value is less than the
net amount of such Standard Contributions.
(ii) An amount equal to all or part of the Member's after-1986
Standard Contributions and a pro rata portion of the earnings on all Standard
Contributions, but no more than the current value thereof in the event such
value is less than the net amount of such Standard Contributions.
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(iii) An amount equal to all or part of the Member's Tax Deductible
Contributions Account.
(iv) An amount equal to all or part of the Member's Rollover
Contributions, but no more than the current value thereof in the event such
value is less than the net amount of such Rollover Contributions.
(v) An amount equal to all or part of the Member's Sheltered
Contributions, but no more than the current value thereof in the event such
value is less than the net amount of such Sheltered Contributions.
(vi) An amount equal to all or part of the Retirement Savings
Matching Contributions made on the Member's behalf, but no more than the current
value thereof in the event such value is less than the net amount of such
Retirement Savings Matching Contributions.
(vii) An amount equal to all or part of the Member's Stock Ownership
Account attributable to his Equity Allocations.
(viii) An amount equal to all or part of the Member's Stock Ownership
Account attributable to his Exchange Contributions, but no more than the current
value thereof in the event such value is less than the net amount of such
Exchange Contributions.
(ix) An amount equal to all or part of the Member's Stock Ownership
Account attributable to his Matching Allocations.
Solely for the calendar quarter beginning October 1, 1996, a Member who
terminates employment for any reason and who has not requested a lump sum
distribution of his entire Account under this Section 9.02 or the purchase of an
annuity under
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Subsection (c) or (d) shall have the right to withdraw in cash all or any
portion of his Account described in Paragraphs (i) through (v).
(i) Notwithstanding any other provision in the Plan to the contrary, in
no event shall any distribution or withdrawal of a Member's Stock Ownership
Account be permitted between October 1, 1996 and December 31, 1996.
9.03 Distribution on Account of Death
--------------------------------
(a) If a Member dies before the distribution of his entire Account under
Section 9.02, the entire amount outstanding in his Account, determined as of the
Valuation Date coinciding with or immediately following the Member's death or
notification of the Member's death, if later, shall be paid to his Beneficiary
in a single lump sum distribution as soon as practicable thereafter. The
portion of the Member's Retirement Savings Account not invested in the Company
Stock Fund shall be distributed to his Beneficiary in cash, and the portion of
the Member's Retirement Savings Account invested in the Company Stock Fund and
the Member's Stock Ownership Account shall be distributed in a single sum in
either cash or Company Stock (with cash for fractional shares), as elected by
the Beneficiary.
(b) In the event an allocation of Company Stock resulting from Stock
Ownership Contributions or dividends is made to the Member's Stock Ownership
Account following the date on which a single lump sum distribution is made to
the Member's Beneficiary under Section 9.03(a), distribution of such allocations
shall be paid to the Member's Beneficiary in a single lump sum distribution (in
cash or Company Stock, as elected by the Beneficiary with respect to the initial
distribution) as soon as practicable following such allocation in an amount
determined as of the Valuation Date coinciding
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with or immediately following the latest of the Member's death, the notification
of the Member's death, or the allocation of such Company Stock or dividends.
Further, to the extent a Member's Beneficiary is entitled to a distribution
under this Section 9.03 and there are dividends on Company Stock which have not
been allocated to the Member's Stock Ownership Account and have not been
utilized to pay any amounts due under an Acquisition Loan, such dividends shall
be paid to the Beneficiary in cash.
(c) Notwithstanding any other provision in the Plan to the contrary, in
no event shall any distribution of a deceased Member's Stock Ownership Account
be permitted under this Section 9.03 between October 1, 1996 and December 31,
1996.
9.04 Latest Commencement of Payments
-------------------------------
(a) Notwithstanding the provisions of Section 9.02 or 9.03, unless the
Member otherwise elects, the vested portion of a Member's Account shall be
distributed not later than the 60th day following the end of the Plan Year in
which the latest of the following occurs:
(i) the Member's 65th birthday,
(ii) the tenth anniversary of the date on which he became a Member,
or
(iii) the date he terminates service with the Company or an
Affiliated Company.
(b) Notwithstanding anything in the Plan to the contrary, distribution
of any Member's Account shall commence not later than the April 1 following the
close of the calendar year in which the Member attains age 70 1/2, regardless of
whether his employment with the Company or an Affiliated Company is terminated
as of that date. If the Member
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is actively employed by the Company or an Affiliated Company as of that date,
the Member shall elect whether to receive the minimum amount required under Code
section 401(a)(9) and the regulations issued thereunder (based on the life
expectancy of such Member), or his entire Account. If the Member is no longer
actively employed, he shall be entitled to elect to receive his distribution in
either manner indicated in the preceding sentence or in accordance with the
other provisions of this Article 9. If the Member elects to receive the minimum
amount required under Code section 401(a)(9), unless otherwise elected by the
Member by the time distributions are required to begin under this Subsection
(b), the Member's life expectancy shall be recalculated annually. Also, any such
election shall be irrevocable and shall apply to all subsequent years. Amounts
required to be paid for each year shall be based on the value of the Member's
Account on the last day of the immediately preceding calendar year, adjusted to
reflect any additional benefits accrued during such immediately preceding
calendar year, and may be subject to an administration fee, which fee shall be
obtained from the Member's Account on a monthly or annual basis. In the event an
actively employed Member elects to receive his entire Account, a distribution of
the total value of his Account shall be made no later than the last day of each
subsequent Plan Year.
9.05 Forfeitures
-----------
(a) Termination of Employment
-------------------------
If a Member terminates employment prior to the date on which he is
fully vested in his Account, the non-vested portion of his Account shall be
forfeited as of the close of the Plan Year in which the earlier of the following
occurs: (i) the terminated Member incurs five (5) consecutive Breaks in Service,
or (ii) the terminated Member
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receives a distribution of the vested portion of his Account. If the non-vested
portion of a Member's Stock Ownership Account is forfeited, Company Stock
allocated pursuant to an Acquisition Loan shall be forfeited only after other
assets. The cash equivalent of any forfeited Company Stock shall be based on the
fair market value of the Company Stock as of the last Valuation Date in such
Plan Year of forfeiture. If interests in more than one class of Company Stock
have been allocated to the Member's Stock Ownership Account, such Member must be
treated as having forfeited the same portion of each such class. Any forfeited
amount under this Section 9.05(a) shall be used first to reduce any future
Participating Company contributions, and then to pay administrative expenses
under the Plan in accordance with Section 11.07 no later than as of the end of
the Plan Year in which the forfeiture occurs.
(b) Restoration of Account Balance
------------------------------
If the non-vested portion of a Member's Account has been forfeited
in accordance with Section 9.05(a), that amount shall be subsequently restored
to his Stock Ownership Account and used to purchase shares of Company Stock,
provided (i) he is reemployed by a Participating Company before he has a period
of five (5) consecutive Breaks in Service, and (ii) he repays to the Plan within
five (5) years of his reemployment a cash lump sum payment equal to the full
amount distributed to him from the Plan on account of his termination of
employment. The fair market value of Company Stock as of the date of restoration
shall be used to determine the number of shares to be restored to the Member's
Stock Ownership Account. Any amounts to be restored to a Member's Stock
Ownership Account shall be taken first from any forfeitures which have not been
used to reduce future Participating Company contributions or to pay
administrative
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expenses, then from Released Leveraged Shares if the Committee determines to use
Released Leveraged Shares for this purpose, and if any amounts remain to be
restored, the Member's Participating Company shall make a special contribution
in an amount necessary to restore such amounts. If Released Leveraged Shares are
used to restore a Member's Stock Ownership Account, the fair market value of
such Released Leveraged Shares as of the date of restoration shall be used to
determine the number of shares to be credited to the Member's Stock Ownership
Account.
9.06 Direct Rollover Distributions
-----------------------------
(a) At the request of a Member, a surviving spouse of a Member, or a
spouse or former spouse of a Member that is an alternate payee under a qualified
domestic relations order as defined in Section 414(p) of the Code (referred to
as the "distributee"), the Retirement Savings Trustee shall effectuate a direct
rollover distribution of the amount requested by the distributee, in accordance
with Section 401(a)(31) of the Code, to an eligible retirement plan (as defined
in Section 402(c)(8)(B) of the Code). Such amount may constitute all or any
whole percent of any distribution from the Plan otherwise to be made to the
distributee, provided that such distribution constitutes an "eligible rollover
distribution" as defined in Section 402(c) of the Code and the regulations and
other guidance issued thereunder. All direct rollover distributions shall be
made in accordance with the following Subsections (b) through (h).
(b) A direct rollover shall only be made to one eligible retirement
plan; a distributee may not elect to have a direct rollover distribution
apportioned between or among more than one eligible retirement plan.
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(c) Direct rollover distributions shall be made, in accordance with such
forms and procedures as may be established by the Committee or its designee and
to the extent any such distribution is to be made in shares of Company stock
otherwise distributable under the Plan to the distributee, such shares shall be
registered in a manner necessary to effectuate a direct rollover under Section
401(a)(31) of the Code.
(d) No direct rollover distribution shall be made unless the distributee
furnishes the Committee or its designee with such information as the Committee
or its designee shall require and deems to be sufficient.
(e) A distributee may elect to divide an eligible rollover distribution
into two components, with one portion paid as a direct rollover distribution and
the remainder paid to the distributee.
(f) No direct rollover distribution may be made unless the distributee
has received a written explanation of the consequences of such a distribution
and such other information required by the Code at such time and in such manner
as required by Sections 402(f) and 411(a)(11) of the Code and the regulations
and other guidance issued thereunder, and in accordance with rules established
by the Committee.
(g) No direct rollover distribution shall be permitted unless the amount
of the distribution exceeds $200.
(h) Direct rollover distributions shall be treated as all other
distributions under the Plan and shall not be treated as a direct trustee-to-
trustee transfer of assets and liabilities.
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9.07 Inability to Locate Payee
-------------------------
If a Member or Beneficiary cannot be located by reasonable efforts of the
Committee within a reasonable period of time after the latest date such benefits
are otherwise payable under the Plan, the amount in such Member's Account shall
be forfeited and used, not later than as of the last day of the Plan Year in
which the forfeiture occurs to reduce future Participating Company
contributions, to defray administrative expenses of the Plan, and to restore
Members' Stock Ownership Accounts in accordance with Section 9.05(b). Such
forfeited amount shall be restored (without earnings) if, at any time, the
Member or Beneficiary who was entitled to receive such benefit when it first
became payable, after furnishing proof of their identity and right to make such
claim to the Committee, files a written request for such benefit with the
Committee.
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Article 10. Management of Funds
-------------------
10.01 Trust Funds
-----------
All contributions and all other cash, securities or other property
received by the Retirement Savings Trustee from time to time and held by it
shall constitute the Retirement Savings Trust Fund; all contributions and all
other cash, securities or other property received by the Stock Ownership Trustee
from time to time and held by it shall constitute the Stock Ownership Trust
Fund. Each Trust Fund shall be held and invested upon such terms and in such
manner as set forth in the Plan and its respective Trust Agreement. The
Retirement Savings Trustee shall have exclusive authority and control to manage
and control the assets of the Plan attributable to: (i) the profit sharing
portion of the Plan, (ii) the initial investment of Exchange Contributions in a
Money Market Fund pursuant to Section 7.02, and (iii) the diversification by
certain Members of a portion of their Stock Ownership Accounts pursuant to
Section 7.08, subject to the terms of the Plan and the Retirement Savings Trust
Agreement; the Stock Ownership Trustee shall have exclusive authority and
control to manage and control the assets of the Plan attributable to the
employee stock ownership portion of the Plan, excluding the initial investment
of Exchange Contributions in a Money Market Fund pursuant to Section 7.02 and
the diversification by certain Members of a portion of their Stock Ownership
Accounts pursuant to Section 7.08, subject to the terms of the Plan and the
Stock Ownership Trust Agreement. All payments of benefits as provided in this
Plan shall be made solely out of, and to the extent of, the assets held in
Trust, and no Participating Company shall be liable, directly or indirectly, for
the payment of any benefits provided in this Plan, nor shall any Participating
Company be liable for any deficiency existing at any time in the Trust.
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10.02 Investment of Stock Ownership Contributions
-------------------------------------------
The investment policy of the employee stock ownership portion of the Plan
is to invest primarily in Company Stock and to that end, up to 100% of the
assets in the Stock Ownership Trust Fund may be so invested, subject to the
initial investment of Exchange Contributions in a Money Market Fund pursuant to
Section 7.02 and the rights of certain Members to transfer to other Investment
Funds pursuant to Section 7.08. Such Company Stock shall be purchased by the
Stock Ownership Trustee through an established securities market or from the
Company, or any other person or entity, at a price not less than fair market
value. Company Stock may be sold by the Stock Ownership Trustee through an
established securities market or to the Company or to any other person or
entity, at a price not less than fair market value. To the extent funds are
available, the Stock Ownership Trustee may invest assets temporarily in savings
accounts, certificates of deposit, U.S. Government obligations, obligations of
agencies of the U.S. Government or in other types of short-term investments
including commercial paper, or other investments deemed desirable for the Stock
Ownership Trust Fund, or the funds may be held in cash or cash equivalents.
10.03 Member Accounts
---------------
(a) Retirement Savings Account
--------------------------
The Committee shall authorize the establishment of the following
subaccounts within each Member's Retirement Savings Account, to provide for the
administration of the profit sharing portion of the Trust, in accordance with
the provisions of this Plan:
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(i) Sheltered Account, to hold the Member's Sheltered
Contributions, and earnings thereon.
(ii) Standard Account, to hold the Member's Standard
Contributions, and earnings thereon.
(iii) Retirement Savings Matching Account, to hold any
Retirement Savings Matching Contributions made on the Member's behalf under the
Plan, and earnings thereon.
(iv) Rollover Contributions Account, to hold any Rollover
Contributions made by the Member, and earnings thereon.
(v) Tax Deductible Contributions Account, to hold the Member's
Tax Deductible Contributions made under the Plan, and earnings thereon.
(b) Stock Ownership Account
-----------------------
The Committee shall authorize the establishment of the following
subaccounts within each Member's Stock Ownership Account, to provide for the
administration of the employee stock ownership portion of the Trust in
accordance with the provisions of this Plan:
(i) Exchange Contribution Account.
(ii) Match Account, which shall include the Bonus Account in
existence under the Stock Ownership Plan prior to October 1, 1996.
(iii) Equity Account.
Each such subaccount shall include any cash dividends received
by the Trustee on shares of Company Stock held in the Members' Stock Ownership
Accounts or in the Stock Ownership Suspense Account (and earnings attributable
thereto), and any
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proceeds of the sale of Leveraged Shares. Funds in this Account may be invested
only in the Stock Ownership Fund, subject to the initial investment of Exchange
Contributions in a Money Market Fund pursuant to Section 7.02 and the rights of
certain Members to transfer to other Investment Funds pursuant to Section 7.08.
10.04 Transfer of Trust Assets
------------------------
(a) The Committee may make a transfer of liabilities and corresponding
assets from the Trust to trusts of other plans qualified under Code Section
401(a). The Committee may accept a transfer of liabilities and corresponding
assets from the trusts of other plans qualified under Code Section 401(a). Any
assets received under the provisions of this Section shall thereafter constitute
part of the corpus of the Trust. All such transfers and allocations shall be
made in accordance with the provisions of ERISA.
(b) Effective as of September 30, 1996, all of the assets and liabilities
under the Stock Ownership Plan were transferred to this Plan and the portion of
the assets and liabilities under the Retirement Savings Plan for Hourly-Paid
Employees of Armstrong World Industries, Inc. attributable to Employees of the
Company employed at its Mobile Plant and Employees who are not subject to any
collective bargaining agreement was transferred to this Plan.
10.05 Voting Rights for Company Stock
-------------------------------
Each Member (or Beneficiary of a deceased Member) is, for purposes of
this Section 10.05, hereby designated as a "named fiduciary" (within the meaning
of ERISA) with respect to the shares of Company Stock allocated to his
Retirement Savings Account, the shares of Company Stock allocated to his Stock
Ownership Account and to a pro rata portion of the unallocated shares of Company
Stock held in the Stock Ownership
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Suspense Account and shall have the right to direct the Retirement Savings
Trustee and/or the Stock Ownership Trustee, as the case may be, with respect to
the vote of the shares of Company Stock allocated to his Retirement Savings
Account and/or his Stock Ownership Account, on each matter brought before any
meeting of the stockholders of the Company. Before each such meeting of
stockholders, the Company shall cause to be furnished to each Member (or
Beneficiary) a copy of the proxy solicitation material, together with a form
requesting confidential directions to the Retirement Savings Trustee and/or the
Stock Ownership Trustee on how such shares of Company Stock allocated to such
Member's (or Beneficiary's) Account shall be voted on each such matter. Upon
timely receipt of such directions the appropriate Trustee shall, on each such
matter, vote as directed the number of shares (including fractional shares) of
Company Stock allocated to such Member's (or Beneficiary's) Retirement Savings
Account or Stock Ownership Account, and the appropriate Trustee shall have no
discretion in such matter. The instructions received by the Retirement Savings
Trustee and/or the Stock Ownership Trustee from Members (or Beneficiaries) shall
be held by them in confidence and shall not be divulged or released to any
person, including the Committee, officers or employees of the Company or an
Affiliated Company. Each Trustee shall vote all Company Stock held by it,
including Company Stock for which it has not received direction, as well as
unallocated shares in the employee stock ownership portion of the Plan, in the
same proportion as directed shares are voted determined by the votes of Members
(or Beneficiaries) on all shares allocated to Members' (or Beneficiaries')
Accounts, and the appropriate Trustee shall have no discretion in such matter.
10.06 Tender Offer Rights with Respect to Company Stock
-------------------------------------------------
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The provisions of this Section 10.06 shall apply in the event a tender or
exchange offer, including, but not limited to, a tender offer or exchange offer
within the meaning of the Securities Exchange Act of 1934, as from time to time
amended and in effect (hereinafter, a "tender offer"), for Company Stock is
commenced by a person or persons. In the event a tender offer for Company Stock
is commenced, the Committee, promptly after receiving notice of the commencement
of any such tender offer, shall transfer certain of the Committee's record-
keeping functions under the Plan to an independent record-keeper (which if one
of the Trustees consents in writing, may be such Trustee). The functions so
transferred shall be those necessary to preserve the confidentiality of any
directions given by the Members (or Beneficiaries) in connection with the tender
offer. The Retirement Savings Trustee and the Stock Ownership Trustee shall
have no discretion or authority to sell, exchange or transfer any of such shares
pursuant to such tender offer except to the extent, and only to the extent, as
provided in this Plan and the applicable Trust Agreement. Each Member (or
Beneficiary) is, for purposes of this Section 10.06, hereby designated as a
"named fiduciary" (within the meaning of ERISA) with respect to the shares of
Company Stock allocated to his Retirement Savings Account, the shares of Company
Stock allocated to his Stock Ownership Account, and to a pro rata portion of the
unallocated shares of Company Stock held in the Stock Ownership Suspense Account
and shall have the right, to the extent of the number of whole shares of Company
Stock allocated to his Retirement Savings Account and/or his Stock Ownership
Account, to direct the Trustee in writing as to the manner in which to respond
to a tender offer with respect to shares of Company Stock. The Company shall
use its best efforts to timely distribute or cause to be
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distributed to each Member (or Beneficiary) such information as will be
distributed to stockholders of the Company in connection with any such tender
offer. Upon timely receipt of such instructions, the Retirement Savings Trustee
and/or the Stock Ownership Trustee shall respond as instructed with respect to
such shares of Company Stock. The instructions received by the appropriate
Trustee from Members (or Beneficiaries) shall be held by such Trustee in
confidence and shall not be divulged or released to any person, including the
Committee, officers or employees of the Company or any Affiliated Company. If
the Retirement Savings Trustee and/or Stock Ownership Trustee shall not receive
timely instructions from a Member (or Beneficiary) as to the manner in which to
respond to such a tender offer, such Trustee shall not tender or exchange any
shares of Company Stock with respect to which such Member (or Beneficiary) has
the right of direction, and such Trustee shall have no discretion in such
matter. Unallocated shares of Company Stock and fractional shares of Company
Stock allocated to Members' (or Beneficiaries') Accounts shall be tendered or
exchanged by such Trustee in the same proportion it tenders or exchanges the
shares with respect to which Members (or Beneficiaries) have the right of
direction, and the Retirement Savings Trustee and/or Stock Ownership Trustee
shall have no discretion in such matter. In determining such proportion, the
Trustee shall under all circumstances include in its calculation the direction
of Members (or Beneficiaries) on all shares of Company Stock allocated to
Members' (or Beneficiaries') Accounts. The independent record-keeper shall
solicit confidentially from each Member (or Beneficiary) the directions
described in this Section 10.06 as to whether shares are to be tendered. The
independent record-keeper, if different from one of the Trustees, shall instruct
the Trustees as to the amount of shares to be tendered, in accordance with the
above provisions.
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Article 11. Administration of Plan
----------------------
11.01 Appointment of Committee
------------------------
(a) The Committee shall be comprised of the members of the Retirement
Committee of the Retirement Income Plan for Employees of Armstrong World
Industries, Inc. The Chairman and Secretary of the Retirement Income Plan's
Committee shall be the Chairman and Secretary of the Committee.
(b) If no members of the Committee are in office, the Company shall be
deemed the Committee.
11.02 Organization and Operation of the Committee
-------------------------------------------
(a) The Committee shall endeavor to act, in carrying out its duties and
responsibilities in the interest of the Members and Beneficiaries, with the
care, skill, prudence and diligence under the prevailing circumstances that a
prudent man, acting in a like capacity and familiar with such matters, would use
in the conduct of an enterprise of like character and aims.
(b) The Committee shall act by a majority of its members or by unanimous
approval of its members if there are two or less members in office at the time,
and any action may be taken either by a vote taken in a meeting or by action
taken in writing without the formality of convening a meeting. In the event of
a deadlock, the Committee shall determine the method for resolving such
deadlock. If there are two or more Committee members, no member shall act upon
any question pertaining solely to himself, and the other member or members shall
alone make any determination required by the Plan in respect thereof.
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(c) The Committee may authorize any one or more of its members, or
members of a separate administrative subcommittee it may form, to execute any
routine administrative document on behalf of the Committee.
(d) The Committee may, in addition to the execution of routine
administrative documents, delegate specific duties and powers to one or more of
its members or to a separate administrative subcommittee it may form. Such
delegation shall remain in effect until rescinded in writing by the Committee.
The members or persons so designated shall be solely liable, jointly and
severally, for their acts or omissions with respect to such delegated
responsibilities.
(e) The Committee shall endeavor not to engage directly or indirectly in
any prohibited transaction, as set forth in ERISA.
11.03 Duties and Responsibilities of the Committee
--------------------------------------------
The Committee, except for such investment and other responsibilities
vested in one of the Trustees, a designated investment manager or the investment
committee of the Board of Directors, shall have full authority and
responsibility for administering the Plan in accordance with its provisions and
under applicable law. The duties and responsibilities of the Committee shall
include, but shall not be limited to, the following:
(a) To appoint such accountants, consultants, administrators, counsel, or
such other persons it deems necessary for the administration of the Plan.
Members of the Committee shall not be precluded from serving the Committee in
one or more of such individual capacities.
(b) To determine, in its full and exclusive discretion, all benefits and
to resolve all questions arising from the administration, interpretation, and
application of Plan
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provisions, either by general rules or by particular decisions, including
determinations as to whether a claimant is eligible for benefits, the amount,
form and timing of benefits, and any other matter (including any question of
fact) raised by a claimant or identified by the Committee.
(c) To advise each Trustee with respect to all benefits which become
payable under the Plan and to direct each Trustee as to the manner in which such
benefits are to be paid.
(d) To adopt such forms and regulations it deems advisable for the
administration of the Plan and the conduct of its affairs.
(e) To take such steps as it considers necessary and appropriate to
remedy any inequity resulting from incorrect information received or
communicated or as a consequence of administrative error
(f) To assure that its members, each Trustee and every other person who
handles funds or other property of the Plan are bonded as required by law.
(g) To settle or compromise any claims or debts arising from the
operation of the Plan and to defend any claims in any legal or administrative
proceeding.
All duties and responsibilities of the Committee shall be carried out in
its sole discretion, and its decisions shall be final and binding upon all
affected persons, except for the right any such persons shall have to appeal
such decisions pursuant to Section 11.06 or through any court proceeding.
11.04 Required Information
--------------------
Each Participating Company and each Member and Beneficiary entitled to
benefits shall furnish the Committee any information or proof requested by the
Committee
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<PAGE>
and required for the proper administration of the Plan. Failure on the part of
any Member or Beneficiary to comply with such request shall be sufficient
grounds for the delay in payment of benefits under the Plan until the requested
information or proof is received.
11.05 Indemnification
---------------
The Company will indemnify and save harmless the members of the Committee
and any person to whom fiduciary responsibilities are delegated under this Plan
against any cost or expense (including attorney's fees) or liability (including
any sum paid in settlement of a claim with the approval of the Company) arising
out of any act or omission to act, except in the case of willful misconduct.
11.06 Claims and Appeal Procedure
---------------------------
(a) Any request or claim for Plan benefits must be made in writing and
shall be deemed to be filed by a Member or Beneficiary when a written request is
made by the claimant or the claimant's authorized representative which is
reasonably calculated to bring the claim to the attention of the Committee.
(b) The Committee shall provide notice in writing to any Member or
Beneficiary where a claim for benefits under the Plan has been denied in whole
or in part. Such notice shall be made within 90 days of the receipt by the
Committee of the Member's or Beneficiary's claim or, if special circumstances
require, and the Member or Beneficiary is so notified in writing, within 180
days of the receipt by the Committee of the Member's or Beneficiary's claim.
The notice shall be written in a manner calculated to be understood by the
claimant and shall:
(i) set forth the specific reasons for the denial of benefits;
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(ii) contain specific references to Plan provisions relative to
the denial;
(iii) describe any material and information, if any, necessary for
the claim for benefits to be allowed, which had been requested, but not received
by the Committee; and
(iv) advise the Member or Beneficiary that any appeal of the
Committee's adverse determination must be made in writing to the Committee,
within 60 days after receipt of the initial denial notification, setting forth
the facts upon which the appeal is based.
(c) If notice of the denial of a claim is not furnished within the time
periods set forth above, the claim shall be deemed denied and the claimant shall
be permitted to proceed to the review procedures set forth below. If the Member
or Beneficiary fails to appeal the Committee's denial of benefits in writing and
within 60 days after receipt by the claimant of written notification of denial
of the claim (or within 60 days after a deemed denial of the claim), the
Committee's determination shall become final and conclusive.
(d) If the Member or Beneficiary appeals the Committee's denial of
benefits in a timely fashion, the Committee shall re-examine all issues relevant
to the original denial of benefits. Any such claimant, or his duly authorized
representative may review any pertinent documents, as determined by the
Committee, and submit in writing any issues or comments to be addressed on
appeal.
(e) The Committee shall advise the Member or Beneficiary and such
individual's representative of its decision which shall be written in a manner
calculated to be understood by the claimant, and include specific references to
the pertinent Plan
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<PAGE>
provisions on which the decision is based. Such response shall be made within 60
days of receipt of the written appeal, unless special circumstances require an
extension of such 60 day period for not more than an additional 60 days. Where
such extension is necessary, the claimant shall be given written notice of the
delay. If the decision on review is not furnished within the time set forth
above, the claim shall be deemed denied on review.
11.07 Expenses of the Plan
--------------------
All reasonable expenses of the Committee and of the Plan (other than
expenses of the Company which relate to settlor functions), including the
expenses of the Trustees, and other reasonable expenses related to the financial
administration of the Plan, shall be approved by the Committee and shall be paid
out of the Trust Fund to the extent they are not paid by the Company.
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Article 12. General Provisions
------------------
12.01 Exclusiveness of Benefits
-------------------------
The Plan has been created for the exclusive benefit of the Members and
their Beneficiaries. No part of the Trust shall ever revert to a Participating
Company nor shall any part of such Trust ever be used other than for the
exclusive benefit of the Members and their Beneficiaries, except as provided in
accordance with Section 12.03(b). No Member or Beneficiary shall have any
interest in or right to any part of the Trust, or any equitable right under the
Trust Agreements except to the extent expressly provided in the Plan or Trust
Agreements.
12.02 Limitation of Rights
--------------------
The establishment of this Plan shall not be considered as giving to any
Member or other employee of a Participating Company the right to be retained in
the employ of a Participating Company, and all Members and other employees shall
remain subject to discharge to the same extent as if the Plan had never been
adopted.
12.03 Non-Assignability
-----------------
(a) No benefit or interest under the Plan shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, and any such action shall be void for purposes of the Plan. No benefit
or interest shall in any manner be subject to the debts, contracts, liabilities,
engagements or torts of any person entitled to such benefit or interest, nor
shall it be subject to attachment or other legal process for or against any
person, except to such extent as may be required by law or permitted by Treasury
Regulation. If any payee or representative of a payee under the Plan becomes
bankrupt or attempts to anticipate, alienate, sell, transfer, assign, pledge,
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<PAGE>
encumber, or charge any such benefit or interest, the Committee may hold or
apply the benefit or interest or any part thereof to or for such person, his
spouse, his children, or other dependents, or any of them in such manner and in
such proportions as the Committee shall determine in its sole discretion.
(b) Notwithstanding any other provisions of the Plan to the contrary, the
Committee and the Trustees shall comply with a "qualified domestic relations
order" as such term in defined in Section 414(p) of the Code and the benefits
otherwise payable to the Member, and to any other person than the payee entitled
to benefits under the order, shall be adjusted accordingly. Benefits payable
under a qualified domestic relations order may be paid prior to the "earliest
retirement age" as such term is defined in Code Section 414(p). The Committee
shall establish reasonable procedures for determining the qualified status of
any domestic relations order and for administering distributions under any such
order.
12.04 Construction of Agreement
-------------------------
The Plan shall be construed according to the laws of the Commonwealth of
Pennsylvania and all provisions hereof shall be administered according to, and
its validity shall be determined under, the laws of such Commonwealth, except
where preempted by Federal law.
12.05 Severability
------------
(a) Should any provision of the Plan be deemed or held to be illegal or
invalid for any reason, such invalidity shall not adversely affect any other
Plan provision and in such case, the appropriate parties shall immediately adopt
a new provision or regulation to take the place of the one deemed or held to be
illegal or invalid.
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(b) If the invalidity inhibits the proper operation of this Plan a new
provision shall be adopted to take the place of the one deemed or held to be
illegal or invalid.
12.06 Titles and Headings
-------------------
The titles and headings of the Sections and any Subsections in this
instrument are for convenience of reference only. In the event of any conflict
between the text of this instrument and the titles or headings, the text rather
than such titles or headings shall control.
12.07 Counterparts as Original
------------------------
The Plan may be prepared in counterparts, each of which so prepared shall
be construed as an original.
12.08 Construction
------------
The singular, where appearing in the Plan shall include the plural and
the plural shall include the singular; and the masculine pronoun, where
appearing in the Plan shall include the feminine and the feminine shall include
the masculine.
12.09 Source of Benefits
------------------
All benefits under the Plan shall be provided solely from the Trust
Funds, and neither the Participating Companies nor their officers, directors or
stockholders shall have any liability or responsibility therefor. Neither the
Participating Companies nor the Trustees guarantee the funds of the Plan against
any loss or depreciation or guarantee the payment of any benefit under the Plan.
No person shall have any rights under the Plan with respect to the funds of the
Plan, or against either Trustee, any Participating Company or any member of the
Committee, except as specifically provided herein.
12.10 Top-Heavy Provisions
--------------------
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<PAGE>
(a) General Rule
------------
The Plan shall meet the requirements of this Section 12.10 in the
event that the Plan is or becomes a Top-Heavy Plan.
(b) Top-Heavy Plan
--------------
Subject to the aggregation rules set forth in Subsection (c), the Plan
shall be considered a Top-Heavy Plan pursuant to Section 416(g) of the Code in
any Plan Year if, as of the Determination Date, the value of the cumulative
Accounts of all Key Employees exceeds sixty percent (60%) of the value of the
cumulative Accounts of all of the Employees as of such Date, excluding former
Key Employees, and excluding any Employee who has not performed services for the
Company or any Affiliated Company during the five (5) consecutive Plan Year
period ending on the Determination Date, but taking into account in computing
the ratio any distributions made during the five (5) consecutive Plan Year
period ending on the Determination Date. For purposes of the above ratio, the
Account of a Key Employee shall be counted only once each Plan Year,
notwithstanding the fact that an individual may be considered a Key Employee for
more than one reason in any Plan Year.
(c) Aggregation Rules
-----------------
For purposes of determining whether the Plan is a Top-Heavy Plan and
for purposes of meeting the requirements of this Section 12.10, the Plan shall
be aggregated and coordinated with other qualified plans, including terminated
plans, in a Required Aggregation Group and may be aggregated or coordinated with
other qualified plans in a Permissive Aggregation Group. If such Required
Aggregation Group is
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<PAGE>
Top-Heavy, this Plan shall be considered a Top-Heavy Plan. If such Permissive
Aggregation Group is not Top-Heavy, this Plan shall not be a Top-Heavy Plan.
(d) Definitions
-----------
For the purpose of determining whether the Plan is Top-Heavy, the
following definitions shall be applicable:
(i) The term "Determination Date" shall mean, in the case of
the first Plan Year, the last day of such Plan Year and in the case of any
subsequent Plan Year, the last day of the preceding Plan Year. The value of an
individual Member's Account shall be determined as of the Determination Date.
(ii) An individual shall be considered a "Key Employee" if he is
an Employee or former Employee who at any time during the current Plan Year or
any of the four (4) preceding Plan Years:
(1) was an officer of the Company who has annual
compensation from the Company in the applicable Plan Year in excess of 50% of
the dollar limitation under Section 415(b)(1)(A) of the Code; provided, however,
that the number of individuals treated as Key Employees by reason of being
officers hereunder shall not exceed the lesser of fifty (50) or ten percent
(10%) of all Employees, and provided further, that if the number of Employees
treated as officers is limited to fifty (50) hereunder, the individuals treated
as Key Employees shall be those who, while officers, received the greatest
annual Compensation in the applicable Plan Year and any of the four preceding
Plan Years; or
(2) was one of the ten (10) Employees owning or considered
as owning the largest interests in the Company who has annual Compensation from
the
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<PAGE>
Company in the applicable Plan Year in excess of the dollar limitation under
Section 415(c)(1)(A) of the Code as increased under Section 415(d) of the Code;
or
(3) was a more than five percent (5%) owner of the
Company; or
(4) was a more than one percent (1%) owner of a
Participating Company whose annual Compensation from the Company in the
applicable Plan Year exceeded $150,000.
For purposes of determining who is a Key Employee, ownership shall
mean ownership of the outstanding stock of the Company or of the total combined
voting power of all stock of the Company, taking into account the constructive
ownership rules of Section 318 of the Code, as modified by Section 416(i)(1) of
the Code. For purposes of Subparagraph (1) but not for purposes of
Subparagraphs (2), (3) and (4) (except for purposes of determining Compensation
under (4)), the term "Company" shall include any entity aggregated with the
Company pursuant to Section 414(b), (c) or (m) of the Code. For purposes of
Subparagraph (2), an Employee (or former Employee) who has some ownership
interest is considered to be one of the top ten (10) owners unless at least ten
(10) other Employees (or former Employees) own a greater interest than such
Employee (or former Employee), provided that if an Employee has the same
ownership interest as another Employee, the Employee having greater annual
Compensation from the Company is considered to have the larger ownership
interest.
(iii) The term "Non-Key Employee" shall mean any Employee who is a
Member and who is not a Key Employee.
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(iv) Whenever the term "Key Employee," "former Key Employee," or
"Non-Key Employee" is used herein, it includes the beneficiary or beneficiaries
of such individual. If an individual is a Key Employee by reason of the
foregoing sentence as well as a Key Employee in his own right, both the value of
his inherited benefit and the value of his own Account will be considered his
Account for purposes of determining whether the Plan is a Top-Heavy Plan.
(v) For purposes of this Section 12.10, except as otherwise
specifically provided, the term "Compensation" shall be determined in the same
manner as "Compensation" for purposes of Section 6.08, increased by pre-tax
amounts described in Sections 125 and 402(e)(3) of the Code under plans
maintained by the Company or an Affiliated Company.
(vi) The term "Required Aggregation Group" shall mean all other
qualified defined benefit and defined contribution plans maintained by the
Company in which a Key Employee participates, and each other plan of the Company
which enables any plan in which a Key Employee participates to meet the
requirements of Sections 401(a)(4) and 410 of the Code.
(vii) The term "Permissive Aggregation Group" shall mean all other
qualified defined benefit and defined contribution plans maintained by the
Company that meet the requirements of Sections 401(a)(4) and 410 of the Code
when considered with a Required Aggregation Group.
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(e) Requirements Applicable If Plan Is Top-Heavy
--------------------------------------------
In the event the Plan is determined to be Top-Heavy for any Plan
Year, the following requirements shall be applicable:
(i) Minimum Allocations shall be as follows:
(1) In the case of a Non-Key Employee who is covered under this
Plan but does not participate in any qualified defined benefit plan maintained
by the Company, the minimum allocation of contributions plus forfeitures
allocated to the account of each Non-Key Employee who has not separated from
service at the end of a Plan Year in which the Plan is Top-Heavy shall equal the
lesser of three percent (3%) of Compensation for such Plan Year or the largest
percentage of Compensation (including Sheltered Contributions and Exchange
Contributions) provided on behalf of any Key Employee for such Plan Year.
Sheltered Contributions and Exchange Contributions may not be used to satisfy
this minimum allocation requirement. The minimum allocation provided hereunder
may not be suspended or forfeited under Section 411(a)(3)(B) or (D) of the Code.
(2) A Non-Key Employee who is covered under this Plan and under
a qualified defined benefit plan maintained by the Company shall not be entitled
to the minimum allocation under this Plan but shall receive the minimum benefit
provided under the terms of the qualified defined benefit plan. If a Non-Key
Employee is covered under one or more qualified defined contribution plans in
addition to this Plan, the minimum allocation requirements may be satisfied
through contributions and forfeitures allocated to his accounts under such other
plans.
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(ii) Effective for Plan Years beginning before January 1, 2000, for
purposes of computing the defined benefit plan fraction and defined contribution
plan fraction as set forth in Section 415(e)(2)(B) and (e)(3)(B) of the Code,
the dollar limitations on benefits and Annual Additions applicable to a
limitation year shall be multiplied by 1.0 rather than by 1.25.
(iii) The Member's nonforfeitable right to a percentage of his
Account shall be determined in accordance with the following table:
Nonforfeitable
Years of Service Percentage
---------------- ----------
2 20
3 40
4 60
5 80
6 or more 100
Notwithstanding the foregoing, in no event will a Member's
nonforfeitable right to a percentage of his Account be less than his
nonforfeitable right determined prior to the Plan's becoming a Top-Heavy Plan.
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<PAGE>
Article 13. Amendment, Merger And Termination
---------------------------------
13.01 Amendment
---------
The Company, by written resolution of the Board of Directors, reserves
the right at any time and from time to time to modify or amend, in whole or in
part, any or all of the provisions of the Plan, provided that:
(a) no modification or amendment shall be made that makes it possible
for any portion of the assets of the Trust to revert to or become the property
of any Participating Company, and
(b) no modification or amendment shall have any retroactive effect so
as to cause any reduction in the Member's Account as of the date of such
amendment or shall deprive any Member or Beneficiary of any benefit accrued
hereunder.
Notwithstanding the foregoing, the Board of Directors has
delegated the authority to amend the Plan to the Committee; provided, however,
that the Board of Directors reserves the right to rescind or modify such
delegation at any time and for any reason and retains the right to amend the
Plan itself at any time. Further notwithstanding the foregoing, any modification
or amendment of the Plan may be made, retroactively if necessary, which the
Board of Directors or its delegate deems necessary or proper to bring the Plan
into conformity with any law or governmental regulation relating to plans or
trusts of this character, including the qualification of any trust or other fund
created under the Plan as exempt from income taxes under the Code.
13.02 Termination, Sale of Assets or Sale of Subsidiary
-------------------------------------------------
While the Plan and Trust are intended to be permanent, they may be
terminated at any time at the discretion of the Board of Directors or its
delegate by written resolution,
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solely as to all or any one Participating Company. Written notification of such
action shall be given to each Participating Company and the Trustees setting
forth the date of termination and such date of termination shall be deemed a
Valuation Date. Thereafter, no further contributions shall be made to any Trust
Fund by a Participating Company involved in the termination.
Upon the complete or partial termination of the Plan, or upon the
complete discontinuance of all contributions by all Participating Companies, the
rights of all affected Members in their Accounts shall be fully vested. Any
unallocated Leveraged Shares shall be sold to the Company or on the open market.
The proceeds of such sale shall be used to satisfy any outstanding Acquisition
Loan and the balance of any funds remaining shall be allocated to each Member's
Account based on the proportion that the balance of each such Member's Account
bears to the total of the balances of all Accounts. Upon termination, a Member's
Account shall not be distributed until such time as otherwise provided under
Article 9 hereof. Upon the sale of substantially all of the assets of a
Participating Company in a trade or business or the sale by a Participating
Company of its interest in a subsidiary, a Member who is employed by such
Participating Company shall be considered to have separated from service for
purposes of determining a Member's entitlement to a distribution pursuant to the
provisions of Section 9.02, to the extent permitted under Sections 401(k)(10)
and 409(d) of the Code. Upon such event, the Members may no longer actively
participate in the Plan.
13.03 Merger of Plans
---------------
Upon the merger or consolidation of this Plan with any other plan or the
transfer of assets or liabilities from the Trust to another trust, all Members
shall be entitled to a
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benefit at least equal to the benefit they would have been entitled to receive
had the Plan been terminated in accordance with Section 13.02 immediately prior
to such merger, consolidation or transfer of assets or liabilities.
13.04 Additional Participating Companies, Locations, or Divisions
-----------------------------------------------------------
Any domestic subsidiary which is now or becomes an Affiliated Company
shall become a Participating Company upon appropriate action by the board of
directors of such subsidiary necessary to adopt the Plan with respect to its
employees. In order for a domestic subsidiary to become a Participating Company
the Board, the Executive Committee of the Board, or the Committee must consent
to such action. The Board, the Executive Committee of the Board, or the
Committee also may approve the inclusion of employees of any newly established
or acquired location or division as Employees eligible for membership under the
Plan. The Committee shall determine to what extent, if any, credit for
eligibility and vesting purposes shall be granted for previous service with the
subsidiary, location or division, but subject to the continued qualification of
the Trust for the Plan as tax-exempt under the Code.
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EXHIBIT 10 (i)(b)
As Amended,
Effective
February 1, 1994
PRODUCER AGREEMENT
CONCERNING
CENTER FOR CLAIMS RESOLUTION
September 28, 1988
<PAGE>
PRODUCER AGREEMENT CONCERNING CENTER FOR CLAIMS RESOLUTION
----------------------------------------------------------
This Agreement, dated September 28, 1988, to provide for the
administration, defense, payment and disposition of asbestos-related claims
(hereinbelow referred to as the "Agreement") is made between and among the
Participating Producers, as defined hereinbelow.
WITNESSETH:
WHEREAS, a substantial number of asbestos-related claims are pending, and
continue to be filed or asserted, against Participating Producers, requiring
appropriate defense and disposition;
WHEREAS, Participating Producers deem it beneficial to have an organization
that will administer and handle asbestos-related claims on behalf of more than
one Producer, that will provide claims-related analysis and reporting and that
will administer the insurance-coverage provisions of the Agreement Concerning
Asbestos-Related Claims dated June 19, 1985 (hereinafter referred to as the
"Wellington Agreement"); and
WHEREAS, although upon the dissolution of the Asbestos Claims Facility
certain aspects of the relationship between the Producer and Insurer signatories
to the Wellington Agreement will continue to be governed thereunder, the
<PAGE>
-2-
relationship among Producer signatories will not be so governed, and there no
longer will be a waiver of certain cross and counter claims among Producers; and
WHEREAS, Participating Producers believe it is important to establish an
organization that will, on behalf of all Participating Producers, resolve
meritorious asbestos-related claims in a fair and expeditious manner and, where
necessary, defend asbestos-related claims efficiently and economically; and
WHEREAS, Participating Producers desire to establish an organization that
will, at least for all Participating Producers, provide claims-related analysis
and reporting and administer the insurance-coverage provisions of the Wellington
Agreement; and
WHEREAS, Participating Producers desire to enter into a constructive
relationship with one another and to resolve any cross or counter claims that
they may have against each other;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and intending to be legally bound hereby, the Participating Producers hereby
agree as follows:
I. DEFINITIONS
-----------
As used in the Agreement and Attachment A hereto, the following terms shall
have the following meanings:
1. Allocated Expenses -- means all fees and expenses incurred for services
------------------
performed outside the Center that can be directly attributed to the defense and
disposition of a particular asbestos-related claim.
<PAGE>
-3-
2. Asbestos-Related Claims -- means any claims or lawsuits against any
-----------------------
Participating Producers or the Center, or against any Supporting Insurer based
solely on the conduct of any Participating Producers, by whomever brought and in
whatever procedural posture such claims or lawsuits may arise, seeking monetary
relief (whether or not such relief is the only relief sought) for bodily injury,
sickness, disease or death, alleged to have been caused in whole or in part by
any asbestos or asbestos-containing product; provided, that asbestos-related
--------
claims shall not include claims for damage to or destruction of property or
statutory claims for compensation by an employee against an employer.
3. Center -- means the Center for Claims Resolution, established under the
------
Agreement.
4. Insurer Agreement -- means the Insurer Agreement Concerning Center for
-----------------
Claims Resolution dated September 23, 1988.
5. Insurers -- means persons that are or were engaged in the business of
--------
providing liability insurance to Producers.
6. Liability Payments -- means the sums paid in settlement of, or in
------------------
satisfaction of a judgment on, any asbestos-related claims, exclusive of
allocated and unallocated expenses for such claims.
7. Participating Producers -- means Producers that have become signatories
-----------------------
to the Agreement.
8. Persons -- means natural persons and organizations of any kind.
-------
<PAGE>
-4-
9. Producers -- means persons that are or were engaged in the mining,
---------
manufacturing, production, processing, fabrication, distribution, installation,
sale or use of asbestos or asbestos-containing products or that may have a
liability with respect to asbestos-related claims.
10. Supporting Insurers -- means Insurers that have become signatories to
-------------------
the Insurer Agreement.
11. Unallocated Expenses -- means the overhead, operating and
--------------------
administrative expenses (other than allocated expenses) of the Center incurred
in administering, defending and disposing of asbestos-related claims, providing
claims-related analysis and reporting and administering the
insurance-coverage provisions of the Wellington Agreement; provided, that
--------
unallocated expenses shall not include any expenses, debts or other obligations
of the Asbestos Claims Facility, whatever previously or hereinafter incurred by
it.
II. ESTABLISHMENT OF CENTER
-----------------------
1. Participating Producers shall establish a non-profit organization to be
known as the Center for Claims Resolution. The Center shall administer and
arrange for the evaluation, settlement, payment or defense of all asbestos-
related claims in accordance with the provisions of the Agreement and Attachment
A hereto, applicable law and professional standards; shall provide claims-
related analysis and reporting;
<PAGE>
-5-
and shall administer the insurance-coverage provisions of the Wellington
Agreement.
2. The Center shall not be a continuation of or a successor to the
Asbestos Claims Facility. The Center shall be established, funded and operated
independently of the Asbestos Claims Facility, and shall not assume or otherwise
be responsible for any of the Asbestos Claims Facility's debts, liabilities or
obligations.
3. The Center shall be governed by a Board of Directors whose members
shall number at least five (5) and whose manner of election, powers and duties
shall be as set forth in the Center's by-laws. The Board of Directors shall
appoint as non-voting ex officio directors one representative selected by
-- -------
Supporting Insurers, who shall serve during the period that Supporting Insurers
are paying unallocated expenses of the Center, and one representative selected
by an affirmative majority of Participating Producers. The Board of Directors
shall have no power to modify any provisions of the Agreement or Attachment A
hereto.
4. The Center shall not sell, lease, exchange, mortgage, pledge, or
otherwise dispose of all or substantially all of its property or assets and
shall not dissolve or wind up its affairs except upon the affirmative vote of
two-thirds of its Participating Producer members with two-thirds interest.
<PAGE>
-6-
III. MEMBERSHIP IN CENTER
--------------------
1. Each Participating Producer shall become a member of the Center upon
becoming a signatory to the Agreement, and shall have all of the rights and
duties of a member, as set forth in the Agreement, Attachment A hereto and the
Center's by-laws.
2. The membership of any Participating Producer in the Center may be
terminated only in the following manner:
a) the Participating Producer may terminate its membership effective
at any time after October 3, 1989, by: i) providing written notice to the Center
at least 60 days prior to the effective date of termination; and ii) obtaining a
determination from the Board of Directors of the Center, which may not be
unreasonably withheld, that such Participating Producer has paid or made
adequate provision for the payment of any amounts due from it under the
Agreement or Attachment A hereto; or
b) the membership of any Participating Producer shall terminate upon
the filing by such Participating Producer for bankruptcy protection or other
protection against creditors under any state or federal law; or
c) the Board of Directors of the Center may terminate or suspend the
membership of any Participating Producer that: i) is involuntarily placed in
bankruptcy under any state or federal law or that has been determined by a court
to be insolvent; or ii) the Board of Directors determines, by an
<PAGE>
-7-
affirmative vote of three-fifths of the directors then in office, has materially
breached the Agreement or Attachment A hereto, including but not limited to a
failure to pay to the Center in a timely manner any amounts due to or incurred
by the Center on such Participating Producer's behalf; provided, that
--------
termination of membership by the Board of Directors for breach of the Agreement
or Attachment A hereto shall not be effective until 30 days after written notice
of the Board's determination is provided to the Participating Producer, to
afford such Producer an opportunity to cure the breach in question and avoid
membership termination.
3. Upon termination of membership and thereafter, a Participating Producer
shall have none of the rights or obligations of a member of the Center, as set
forth in the Agreement, Attachment A hereto and the Center's by-laws. However,
notwithstanding termination of membership, a Participating Producer shall
continue to have and to honor all of the obligations incurred by it hereunder or
on its behalf as a member prior to the effective date of its membership
termination, including any retroactive adjustments of its percentage shares of
liability payments and allocated expenses made pursuant to Attachment A hereto.
IV. SUBMISSION AND WITHDRAWAL OF CLAIMS
-----------------------------------
1. By becoming a signatory to the Agreement and a member of the Center,
each Participating Producer hereby desig-
<PAGE>
-8-
nates the Center as its sole agent to administer and arrange on its behalf for
the evaluation, settlement, payment or defense of all asbestos-related claims
against such Participating Producer. As sole agent, the Center shall have
exclusive authority and discretion to administer, evaluate, settle, pay or
defend all asbestos-related claims, including the right to delegate to any
person, upon consent of the Participating Producer in question, such authority
and discretion with respect to designated asbestos-related claims against such
Participating Producer.
2. The Center shall serve as the sole agent of each Participating Producer
with respect to all asbestos-related claims so long as such Participating
Producer is a member of the Center. Termination of membership of a
Participating Producer pursuant to Paragraph 2 of Section III hereinabove shall
serve immediately as a withdrawal by such Participating Producer of the
designation of the Center as its sole agent made pursuant to Paragraph 1 of this
Section, and shall terminate immediately the Center's right, authority and
obligation to act on behalf of such Participating Producer with respect to any
and all asbestos-related claims, whenever made or filed, but this shall not
prevent reasonable access by such Participating Producer to its claims files.
<PAGE>
-9-
V. COOPERATION WITH CENTER
-----------------------
Each Participating Producer shall comply with the terms and conditions of
the Agreement and Attachment A hereto and shall cooperate with and assist the
Center in the furtherance of such terms and conditions and of its purposes.
Each Participating Producer shall respond fully and in a timely manner to
reasonable requests by the Center for information and shall assist in the
securing and giving of evidence concerning asbestos-related claims. The Center
shall use its best efforts to maintain the confidentiality of confidential or
proprietary information submitted by Participating Producers and Supporting
Insurers.
VI. ALLOCATION OF LIABILITIES AND EXPENSES
--------------------------------------
Liability payments and allocated expenses shall be apportioned to each
Participating Producer from the date such Producer becomes a signatory to the
Agreement and a member of the Center. Such apportionment shall establish the
responsibility of each Participating Producer for a percentage share of
liability payments and a percentage share of allocated expenses attributable to
each claim handled by the Center as sole agent for such Participating Producer
under Section IV hereinabove. Each Subscribing Producer's percentage shares of
liability payments and allocated expenses shall be established as provided in
Attachment A hereto, and shall be subject to modification only in the manner and
to the
<PAGE>
-10-
extent set forth therein. To the extent that a Participating Producer's
percentage shares of liability payments and allocated expenses attributable to a
particular asbestos-related claim are not paid in a timely manner by one or more
of its Insurers, whether pursuant to the Wellington Agreement or any other
agreement, such Participating Producer shall pay in a timely manner the
percentages of liability payments and allocated expenses in question.
VII. PAYMENT OF UNALLOCATED EXPENSES
-------------------------------
Each Participating Producer shall pay, respectively, the percentage share
attributed to it pursuant to Attachment A hereto of any unallocated expenses
incurred by the Center during its first fiscal year of operation not otherwise
paid by Supporting Insurers pursuant to the Insurer Agreement. The manner and
timing of such payments shall be as determined by the Center. The amounts and
timing of unallocated-expense payments, if any, by Participating Producers
concerning the Center's second and subsequent years of operation shall be as
mutually agreed upon by the signatories hereto.
VIII. CENTER CLAIMS HANDLING
----------------------
1. The Center shall administer, evaluate, settle, pay or defend all
asbestos-related claims in a fair, cost-effective and expeditious manner. The
Center shall handle each asbestos-related claim on behalf of all
<PAGE>
-11-
Participating Producer members, and shall not settle an asbestos-related claim
on behalf of fewer than all Participating Producer members. The Center shall
settle each asbestos-related claim so as to extinguish claims for all damages,
including punitive damages, and, in the settlement of asbestos-related claims,
the Center shall not pay punitive damages to claimants.
2. The Center shall hire an adequate number of competent and experienced
claims and legal staff and shall retain the services of competent and
experienced legal counsel to defend asbestos-related claims. The Center shall
retain such counsel, including punitive counsel, as are necessary and
appropriate to defend the interests of Participating Producer members. The
Center may utilize counsel-sharing arrangements on behalf of its members with
Producers not signatories hereto.
3. Actions against third parties may be undertaken by the Center on behalf
of its members, but the Agreement shall neither require nor preclude such
actions.
4. The Center shall require valid evidence to support each claim against
Participating Producer members, and shall require credible medical evidence in
each case prior to making payment to a claimant. Center personnel shall be
responsible for obtaining such evidence from each claimant and verifying it.
5. A claimant shall be paid solely for asbestos-related injury. However,
the Center may provide certain claimants
<PAGE>
-12-
whose claims have not matured with an opportunity to resubmit a claim to the
Center should additional medical evidence become available. The Center may enter
into agreements to suspend the running of statutes of limitations with respect
to claims timely presented and shall adopt uniform, streamlined, expeditious
procedures, including voluntary nonjudicial means of resolving disputed claims.
6. The Center shall not make payments pursuant to a pre-determined
schedule of benefits, but detailed claims guidelines shall be used to evaluate
and settle asbestos-related claims. The Center shall make payments and settle
claims on behalf of Participating Producer members and shall be entitled to
credit for settlements made and judgments paid by Participating Producer members
prior to membership in the Center.
7. The Center shall operate according to annual liability, defense and
operational programs to be established by the Board of Directors. The Center
shall be subject to annual financial and quality control audits by persons
selected by the Board of Directors.
8. The Center may enter into arrangements to administer, evaluate, settle,
pay and defend asbestos-related claims and/or any other kind of claim on behalf
of persons that are not signatories hereto in exchange for appropriate
compensation and upon terms satisfactory to the Center, but the Center shall not
be required to enter into such arrangements. For purposes of such arrangements,
"asbestos-
<PAGE>
-13-
related claims" shall include such claims as defined in Section I, paragraph 2,
even if not brought against any Participating Producer, Supporting Insurer, or
the Center.
IX. CENTER ADMINISTRATIVE SERVICES
------------------------------
1. In addition to the functions to be performed by the Center pursuant to
Section VIII hereinabove, the Center shall perform for Participating Producers,
and for Supporting Insurers that are paying unallocated expenses incurred by the
Center, certain administrative services, including claims analysis and reporting
and insurance allocation and billing.
2. In furtherance of its administrative function the Center shall, among
other things, administer all Center receipts and disbursements; develop,
maintain and keep current an accurate claims database; produce claims-related
analyses, comparisons and reports; clearly communicate Center claims-handling
analyses and results on a periodic basis; administer and implement the
provisions of Attachment A hereto, including the provision of timely evaluation,
analyses and monitoring of the manner in which liability payments and allocated
expenses are apportioned thereunder; administer and implement the insurance-
coverage provisions of the Wellington Agreement in full conformity with that
agreement and also in an accurate, consistent and timely manner, including the
provision of periodic billings and supporting information; administer other
insurance-coverage arrangements of
<PAGE>
-14-
Participating Producers; and administer for Participating Producers any counsel-
sharing arrangements with Producers not signatories hereto.
3. The Center shall perform its administrative function in a timely,
accurate and cost-effective manner, and may retain the services of experienced
and competent third parties and consultants to do so.
4. The Center may enter into arrangements to provide certain
administrative services to persons that are not signatories hereto in exchange
for appropriate compensation and upon terms satisfactory to the Center, but the
Center shall not be required to enter into such arrangements.
X. THIRD-PARTY RIGHTS
------------------
The Agreement is intended to confer rights and benefits only upon
Participating Producers, Supporting Insurers that are paying unallocated
expenses incurred by the Center and the Center, and is not intended to confer
any rights or benefits upon any other persons. No person other than the Center,
a signatory hereto or a Supporting Insurer that is paying unallocated expenses
incurred by the Center shall have any legally enforceable rights under the
Agreement. All rights of action for any breach of this Agreement by any
signatory hereto are hereby reserved to the Center, Participating Producers and
to Supporting Insurers that are paying unallocated expenses incurred by the
Center.
<PAGE>
-15-
XI. EFFECTIVE DATE
--------------
The effective date of this Agreement with respect to each signatory hereto
shall be the date upon which such person executed the Agreement in the manner
set forth in Section XV hereinbelow or September 30, 1988, whichever is later.
XII. ADDITIONAL SIGNATORIES
----------------------
1. A Producer may become a signatory to the Agreement subsequent to
September 30, 1988, only upon application to the Board of Directors of the
Center and approval by an affirmative vote of four-fifths (4/5) of the voting
directors then in office.
2. In determining whether a Producer may become a signatory hereto, the
Board of Directors shall determine whether the best interests of the Center and
of the other signatories would be served thereby, in order to assure that the
compromises herein and commitments of resources hereunder are duly respected,
that such Producer derives no unfair advantage with respect to the other
signatories and that none of the other signatories suffers any unfair
disadvantage by reason of said Producer's failure to become a signatory to the
Agreement prior to September 30, 1988.
3. Pursuant to the foregoing, the Board of Directors shall determine the
terms upon which a Producer may become a signatory to the Agreement subsequent
to September 30, 1988, including the percentage shares of liability payments,
<PAGE>
-16-
allocated expenses and unallocated expenses that are to be attributed to such
Producer. In so doing, the Board of Directors shall consider all relevant
factors, including: (i) what the shares would have been had the Producer became
a signatory to the Agreement prior to September 30, 1988; (ii) the degree of
risk of additional liability or expense that the Producer would bring to the
Center; (iii) the impact of such Producer's participation on the percentage
shares of other Participating Producers; and (iv) the appropriateness of a
minimum share.
XIII. MODIFICATION AND TERM
---------------------
1. The Agreement, including Attachment A hereto, is the entire agreement
between and among Participating Producers for the administration, defense,
payment and disposition of asbestos-related claims. All antecedent or
contemporaneous extrinsic representations, warranties or collateral provisions
concerning the negotiation and preparation of the Agreement or Attachment A
hereto are intended to be discharged and nullified. In any dispute involving
the Agreement or Attachment A hereto, no person shall introduce evidence of or
seek to compel testimony concerning any oral or written communication made
prior to September 30, 1988, with respect to the negotiation and preparation of
the Agreement or Attachment A hereto. Nothing in this Paragraph applies to the
Insurer Agreement, the Wellington Agreement, the Agreement Concerning
<PAGE>
-17-
Asbestos Claims Facility dated June 15, 1988, or the Agreement Concerning the
Insurance Defense Program between certain Supporting Insurers and GAF
Corporation and Keene Corporation.
2. Nothing in the Agreement shall have the effect of relieving any
Supporting Insurer or Participating Producer of any obligation under the
Wellington Agreement that survives dissolution or termination of the Asbestos
Claims Facility, including insurance-related obligations; provided, that as to
--------
Supporting Insurers and all Participating Producers except GAF Corporation and
Keene Corporation, whose rights are the subject of a separate agreement, the
Insurance Defense Program provided for in Section XII and Appendix E to the
Wellington Agreement ("IDP") and all rights thereunder with respect to allocated
expenses incurred after October 3, 1988, shall terminate as of that date.
3. Any modifications to the Agreement or Attachment A hereto may be made
only by mutual agreement of all Participating Producers and in writing.
4. The Agreement and Attachment A hereto shall have perpetual existence,
notwithstanding the failure or invalidation of any particular provision.
XIV. WAIVERS, ADR AND CHOICE OF LAW
------------------------------
1. So long as it is a member of the Center each Participating Producer
shall forego with respect to asbestos-related claims for contribution or
indemnity (other than for
<PAGE>
-18-
contribution or indemnity assumed under written agreement) against all other
Participating Producers that are members of the Center.
2. Each Participating Producer waives, as to the Center and all other
Participating Producers, any claims for conflict of interest that may arise from
the representation of it or the Center in connection with the handling or
defense of asbestos-related claims hereunder during the period of such
Participating Producer's membership in the Center by i) any Center liaison
counsel, ii) joint or special counsel or iii) employees of the Center or of any
Participating Producer.
3. All disputes concerning the validity, interpretation and application of
the Agreement or any provision thereof, and all disputes concerning issues
within the scope of the Agreement shall be resolved through alternative dispute
resolution (ADR) in the manner set forth in Appendix C to the Wellington
Agreement; provided, that the Center for Public Resources, rather than the
--------
Asbestos Claims Facility, shall be requested to administer any alternative
dispute resolution and the parties thereto shall share, on an equal basis and
pending final resolution, any of the fees or expenses of the Center for Public
Resources. All such disputes shall be determined in accordance with applicable
common law of the states of the United States.
4. In the event that any Participating Producer's percentage shares of
liability payments or allocated expenses are not paid in a timely manner, the
Center's Board of
<PAGE>
-19-
Directors may direct the Center to institute an ADR on behalf of the Center's
Participating Producers against such Participating Producer to enforce payment
of such obligations. Any such ADR brought by the Center against a Participating
Producer to enforce payment of such obligations shall be resolved in the manner
set forth in Paragraph 3 of this Section XIV; provided that (a) the Center may
--------
elect to waive the Negotiation stage of such ADR and proceed directly to the
Proceeding stage and such Participating Producer shall have no right to object
to such election; (b) such Participating Producer shall not be permitted to
assert any objection or defense in such ADR except a defense or objection based
on some computational error in the particular Center billing(s) for such
obligations; in particular, the belief on the part of such Participating
Producer that its Participating Producer Shares (as that term is defined in
Attachment A hereto) are inequitable or have been inconsistently or inaccurately
applied shall not be permitted as a defense or objection in such ADR, even if
such belief provides a basis for a separate ADR proceeding with respect to its
Participating Producer Shares; and (c) the Center shall be entitled, if it is
determined to be the prevailing party in such ADR, to recover from such
Participating Producer the costs of instituting and prosecuting such
ADR, including the Center's reasonable attorneys' fees.
<PAGE>
-20-
XV. SIGNATURE
---------
The Agreement may be executed in any number of counterparts and by
different signatories hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Each Participating Producer shall send
one executed counterpart of the Agreement to a depository to be established and
maintained by the Center.
IN WITNESS WHEREOF, the person named below has caused this Agreement to be
signed by its authorized representative on this ______ day of
__________________, 19__.
Name:_________________________________________
By: /s/
------------------------------------------
Title:________________________________________
Signed, sealed and delivered this ______ day of
___________________, 19__, in the presence of
______________________________________________,
Witness to the signature of the above-named
person.
<PAGE>
-21-
As Amended,
Effective
December 1, 1991
ATTACHMENT A
------------
Apportionment of Center Payments and Expenses
---------------------------------------------
All Liability Payments, Allocated Expenses, and Unallocated Expenses shall
be apportioned among Participating Producers based on the individual
Participating Producer shares established as provided in this Section (the
"Participating Producer Shares").
A. Initial Producer Shares
-----------------------
The Participating Producer Shares for Participating Producers as of
December 1, 1991, shall be as provided in this Section A until changed pursuant
to the provisions of Section B. Participating Producer Shares for Producers
becoming Participating Producers subsequent to December 1, 1991, shall be as
determined pursuant to Section XII of the Agreement.
1. Liability Payment Shares
------------------------
Any Liability Payment shall be apportioned among the Participating
Producers based on individual Participating Producer Shares established as
provided herein (the "Liability Payment Shares").
a. Generally. For any Asbestos-Related Claim that is not the subject of a
---------
Special Claim Category as described below, the
<PAGE>
-22-
Liability Payment Share for each Participating Producer will be computed as
follows:
(i) All Asbestos-Related Claims closed by each Participating Producer
prior to its becoming a member of the Asbestos Claims Facility will be placed in
one of twelve occupational categories (the "Twelve Occupational Categories")
using the Guidelines for Occupational Categories attached hereto as Exhibit 1.
The total number of such claims in each Occupational Category for each
Participating Producer will then be divided into the total amount of liability
payments (including punitive damages, if any) made by that Participating
Producer with respect to those claims to derive the "Average Cost Per Closed
Claim" for each Participating Producer for each such Occupational Category.
(ii) These Twelve Occupational Categories will then be grouped into
four occupational groupings (the "Four Occupational Groupings") as shown below.
Twelve Four
------ ----
Occupational Categories Occupational Groupings
----------------------- ----------------------
Shipyard Shipyard
Insulator Insulator
Construction
Plasterer/Spray Construction
Sheetmetal
Bystander/Secondary Exposure
Friction
Maintenance/Repair/Cleaner
Manufacturing All Other
Other
Plantworker
Railroad
<PAGE>
-23-
Each Participating Producer's Average Cost Per Closed Claim for the Twelve
Occupational Categories will then be converted into an Average Cost Per Closed
Claim for each of the Four Occupational Groupings as follows:
(I) Where the Occupational Category is also an Occupational
Grouping (as is the case for the "Shipyard" and "Insulator" Occupational
Categories), each Participating Producer's Average Cost Per Closed Claim for
that Occupational Category will constitute its Average Cost Per Closed Claim for
that Occupational Grouping.
(II) Where the Occupational Grouping is made up of several
Occupational Categories (as is the case for the "Construction" and "All Other"
Occupational Groupings), each Participating Producer's Average Cost Per Closed
Claim for that Occupational Grouping will be derived by taking the weighted
average of the Participating Producer's Average Cost Per Closed Claim for each
constituent Occupational Category, weighted by the total number of Asbestos-
Related Claims filed or brought during the period June 20, 1986, through
September 30, 1990 (the cut-off date for the last recalculation of Liability
Payment Shares for Period IV Claims under the predecessor to this Attachment A)
in which that Participating Producer has been named as a defendant or a third-
party defendant or has otherwise been designated in a claim as responsible for
the injury; provided, that this weighting factor will be subject to periodic
--------
adjustment upon the recommendation of the Special Counsel (established pursuant
to
<PAGE>
-24-
paragraph B.3 below) and with the approval of the Participating Producers
pursuant to paragraph B.2 below.
(III) For any Participating Producer who would otherwise have an
Average Cost Per Closed Claim for any Occupational Grouping of less than four-
hundred dollars ($400), the Average Cost Per Closed Claim for that Occupational
Grouping for that Participating Producer will be four-hundred dollars ($400).
For certain Participating Producers, regardless of what their Average Cost Per
Closed Claim for certain Occupational Groupings would otherwise be, the Average
Cost Per Closed Claim for those Participating Producers for those Occupational
Categories will be an amount greater than four hundred dollars ($400), as set
forth in letters dated November 26, 1991 to such Participating Producers from
the law firm of Shea & Gardner (the Special Counsel established pursuant to
paragraph B.3 below). For any Participating Producer who would otherwise have an
Average Cost Per Closed Claim for any Occupational Grouping of more than ten
thousand dollars ($10,000), but whose Average Cost Per Closed Claim for that
particular Occupational Grouping was derived from fewer than fifteen (15) total
claims closed by that Participating Producer prior to its becoming a member of
the Asbestos Claims Facility, its Average Cost Per Closed Claim for that
Occupational Grouping will be ten-thousand dollars ($10,000).
(iii) For each Asbestos-Related Claim in which any Participating
Producer is named as a defendant or a third-party defendant or is otherwise
designated in the claim as
<PAGE>
-25-
responsible for the injury, that Participating Producer's Average Cost Per
Closed Claim in the corresponding Occupational Grouping will be converted into
an individual Liability Payment Share. For each such claim, the Liability
Payment Share of each Participating Producer so named will be the ratio of its
Average Cost Per Closed Claim for that Occupational Grouping to the sum of the
Average Costs Per Closed Claim for that Occupational Grouping of all
Participating Producers so named in that particular claim.
b. Special Claim Categories. Notwithstanding the foregoing, separate
------------------------
Special Claim Categories, Interim Sharing Arrangements, and Permanent Sharing
Arrangements as described below will be maintained pursuant to paragraph B.5.b
for Asbestos-Related Claims that are already the subject of Special Claim
Categories previously adopted (including, but not limited to, the existing
Special Claim Categories for "Rubber" and "Steel" claims as defined pursuant to
the Guidelines for Occupational Categories attached hereto as Exhibit 1); for
Asbestos-Related Claims that may be the subject of Special Claim Categories
adopted in the future; and for a new category of Asbestos-Related Claims to be
known as "High Dollar" claims, defined as claims not otherwise subject to a
Special Claim Category and for which the Liability Payment attributable to any
such claim equals or exceeds one-hundred thousand dollars ($100,000).
<PAGE>
-26-
(i) Under the previously approved First Permanent Sharing Arrangement
for Rubber claims, any Liability Payments with respect to those claims will be
shared per capita among those Participating Producers named as defendants or
third-party defendants or otherwise designated in the claims as responsible for
the injury in more than four percent (4%) of those claims.
(ii) Under the previously approved New Interim Sharing Arrangement for
Steel claims (and subject to the Special Claim Sub-Category and First Permanent
Sharing Arrangement for Sparrow's Point Steel Claims), any Liability Payments
made with respect to those claims will be shared among those Participating
Producers named as defendants or third-party defendants or otherwise designated
in the claims as responsible for the injury in more than four percent (4%) of
those claims, with each such Participating Producer assigned to one of three
tiers as shown on the chart below based on the percentage of those claims in
which it is so named or designated, and with each Participating Producer on a
given tier having the same Liability Payment Shares for those claims. The
Liability Payment Share for the Participating Producers on a given tier will be
determined by taking the number of Participating Producers on that tier,
multiplying that number by the Weighting Factor for that tier, determining what
percentage that product is of the aggregate of the products of the number of
Participating Producers on each tier multiplied by the Weighting Factor for each
tier, and sharing the resulting percentage equally among the Participating
Producers on that tier. An example follows, assuming the number of
Participating Producers on each tier shown below, which was the number based on
data through September 30, 1987.
<TABLE>
<CAPTION>
# Producers Range of Weighting Share Per
Tier On Tier % Named Factor Producer
---- -------- ------- --------- -------
<S> <C> <C> <C> <C>
l 7 More than 50% 3 10.00%
2 3 Over 20% but 2 6.67%
50% or less
3 3 Over 4% but 1 3.33%
20% or less
</TABLE>
(iii) Under the Interim Sharing Arrangement for High Dollar claims, each
Liability Payment made with respect to
<PAGE>
-27-
each such claim will be shared among those Participating Producers named as
defendants or third-party defendants or otherwise designated in the claim as
responsible for the injury, in the manner that corresponds to the Liability
Payment Shares that would otherwise apply to that claim under paragraph 1.a of
this Section A.
c. Application. The Liability Payment Shares computed pursuant to
-----------
paragraphs 1.a and 1.b of this Section A shall be applied to apportion the
Liability Payments made by the Center after November 30, 1991. Notwithstanding
the foregoing, however, if a Participating Producer shall have closed any claim
prior to becoming a member of the Asbestos Claims Facility, the Center shall not
apportion to that Participating Producer (and that Participating Producer shall
not be obliged to pay) any portion of any Liability Payments with respect to
that claim. The amount of any such payments that would otherwise have been
apportioned to that Participating Producer shall be apportioned among the
remaining Participating Producers in proportion to the Liability Payment Shares
of those Participating Producers applicable to that claim.
d. Definitions. For purposes of the Agreement and this Attachment A,
-----------
"closed claims" with respect to a Participating Producer are Asbestos-Related
Claims in which that Participating Producer was named as a defendant or a third-
party defendant or was otherwise designated in the claim as responsible for the
injury, and of which that Participating Producer has disposed on
<PAGE>
-28-
its own behalf, whether by judgment, settlement, dismissal, or otherwise, prior
to joining the Asbestos Claims Facility. "Closed claims" with respect to the
Center are Asbestos-Related Claims in which at least one Participating Producer
was named as a defendant or a third-party defendant or was otherwise designated
in the claim as responsible for the injury, and had not closed that claim as of
becoming a signatory of the Agreement, but of which the Center has subsequently
disposed (whether by judgment, settlement, dismissal, or otherwise). "Open
claims" or "pending claims" are Asbestos-Related Claims that are not "closed" so
far as the Producer or entity in question is concerned.
2. Allocated Expense Shares
------------------------
Any Allocated Expense shall be apportioned among the Participating
Producers based on individual Participating Producer Shares established as
provided herein (the "Allocated Expense Shares").
a. Derivation. The Allocated Expense Share for each Participating
----------
Producer will be a single share applicable to any Allocated Expense, computed by
determining for that Participating Producer a Partial Allocated Expense Share
for Period I Claims (defined herein as any Asbestos-Related claims filed or
brought on or before September 30, 1983), Period II & III Claims (defined herein
as any Asbestos-Related Claims filed or brought during the period October 1,
1983, through June 19, 1986), and Period IV
<PAGE>
-29-
Claims (defined herein as any Asbestos-Related Claims filed or brought after
June 19, 1986), respectively, and by taking the weighted average of those
Partial Allocated Expense Shares weighted by the total number of open claims the
Center had in each of those periods, as of September 30, 1991. The Partial
Allocated Expense Shares for each Participating Producer will be computed as
follows:
(i) For Period I Claims, the Partial Allocated Expense Share for
each Participating Producer will be the allocated expense share (determined
pursuant to Appendix A-1 of the Agreement Concerning Asbestos-Related Claims
dated May 29, 1985) that each Participating Producer had in the Asbestos Claims
Facility as of September 1, 1987, adjusted upward pro rata to reflect the
absence of the allocated expense shares of those producers who were members of
the Asbestos Claims Facility but were not members of the Center as of September
30, 1991.
(ii) For Period II & III Claims, the Partial Allocated Expense Share
for each Participating Producer will be computed as provided in this paragraph
A.2.a(ii). For Participating Producers that became members of the Asbestos
Claims Facility pursuant to Section H of Appendix A-1 of the Agreement
Concerning Asbestos-Related Claims dated May 29, 1985 (the "New Entrants") their
Partial Allocated Expense Share will be their respective allocated expense
shares as negotiated pursuant to that Section H, with appropriate adjustments to
reflect the absence of the allocated expense shares for Period II & III Claims
of those
<PAGE>
-30-
Producers who were members of the Asbestos Claims Facility but were not members
of the Center as of September 30, 1991. For all other Participating Producers,
the Partial Allocated Expense Share for each Participating Producer will be
computed by taking the number of Period II & III Claims in which that
Participating Producer is named as a defendant or a third-party defendant or is
otherwise designated in a claim as responsible for the injury, and dividing it
by the aggregate of the number of such claims for all Participating Producers
(including a factor for the New Entrants).
(iii) For Period IV Claims, the Partial Allocated Expense Share for
each Participating Producer will be computed in the same manner as for Period II
& III Claims except using Asbestos-Related Claims filed or brought during the
period June 20, 1986, through September 30, 1991, rather than Period II & III
Claims.
b. Application. Subject to the previously approved adjustment of the
-----------
existing Expense Shares with respect to certain Operating Allocated Expenses,
the Allocated Expense Shares computed pursuant to paragraph 2.a of this Section
A shall be applied to apportion the Allocated Expenses incurred by the Center
during the calendar quarter immediately following the calendar quarter ending
September 30, 1991 (excluding claims subject to a Permanent Sharing
Arrangement).
3. Unallocated Expense Shares
--------------------------
<PAGE>
-31-
Any Unallocated Expense for which the Center does not receive reimbursement
from any Supporting Insurer of any Participating Producer shall be apportioned
among the Participating Producers based on individual Participating Producer
Shares established as provided herein (the "Unallocated Expense Shares"). Each
Participating Producer will be assigned to one of four tiers based on where its
Partial Allocated Expense Share for Period IV Claims falls with respect to the
ranges listed in the chart below. Notwithstanding the foregoing, Participating
Producers otherwise on the top tier will be placed on the second tier if more
than fifty percent (50%) of the insurance coverage currently being billed by the
Center to Supporting Insurers of that Participating Producer (and other Insurers
of that Participating Producer that are nonetheless paying on the same basis as
the Supporting Insurers) is primary insurance. The aggregate Period IV Partial
Allocated Expense Shares for all Participating Producers on a given tier will
then be divided equally among all Participating Producers on that tier to give
the Unallocated Expense Share for each Participating Producer on that tier. The
Unallocated Expense Shares as thus established shall be applied to apportion the
Unallocated Expenses incurred while those shares are in effect. An example
follows, assuming the number of Participating Producers on each tier shown
below, which was the number based on data through September 30, 1987.
<PAGE>
-32-
<TABLE>
<CAPTION>
# Producers Range of Share Per
Tier On Tier Period IV Share Producer
---- ----------- --------------- ---------
<S> <C> <C> <C>
1 6 More than 5% 11.97%
2 8 Over 1% but 5% 2.97%
or less
3 8 Over 0.4% but 1% 0.53%
or less
4 3 Less than or equal 0.06%
to 0.4% or $10,000
per year
whichever
is greater
</TABLE>
4. Documentation on Initial Shares
-------------------------------
The data submitted to the Center by Participating Producers generally have
been reviewed for accuracy, consistency, reasonableness, and completeness. Each
Participating Producer, however, is responsible for the accuracy and integrity
of the data it has submitted. No reduction in any Participating Producer's
Liability Payment Share, Allocated Expense Share, or Unallocated Expense Share
shall be made in response to any error or incompleteness in that data that may
come to light more than thirty (30) days after the effective date of the
Agreement. Any error or incompleteness that would result in an increase in any
such share shall promptly be given effect by the Center, after consultation with
the Special Counsel (appointed pursuant to paragraph B.3 below), through an
appropriate adjustment to the appropriate Participating Producer Share, with the
same presumption of retroactive effect as contained in paragraph
<PAGE>
-33-
B.5.c(i) below. There shall be deposited with both the Center and the Special
Counsel a complete list of Liability Payment Shares, Allocated Expense Shares,
and Unallocated Expense Shares for all Participating Producers computed in
accordance with this Section A using data through June 30, 1988. Accompanying
this list shall be a computer tape containing on a claim-by-claim and aggregated
basis all data required for and actually used in the computation of those
shares.
<PAGE>
-34-
B. Future Adjustment of Participating Producer Shares
--------------------------------------------------
1. Shares Subject to Adjustment
----------------------------
The Unallocated Expense Shares, the Allocated Expense Shares, and the
Liability Payment Shares may be adjusted in the future but only in accordance
with the following provisions.
2. Participating Producer Approval
-------------------------------
Any adjustments pursuant to paragraph B.5 below must be approved by an
affirmative vote of the Participating Producers after consideration of the
recommendation of the Special Counsel (established pursuant to paragraph B.3
below) and applying the standards set out in this Section B. Any such
adjustments shall not become effective before sixty (60) days after such
affirmative vote. The affirmative vote must include Participating Producers
representing:
a. At least fifty percent (50%) of the combined dollar contributions by
all Participating Producers to the Center for all purposes during the preceding
calendar year (including contributions made by Participating Producers directly
or on their behalf by their respective Supporting Insurers); and
b. At least forty percent (40%) of the total number of Participating
Producers.
3. Special Counsel
---------------
The Board of Directors of the Center shall retain the services of a Special
Counsel to assist the Center and its Participating Producers in connection with
any future adjustment
<PAGE>
-35-
in the Unallocated Expense Shares, the Allocated Expense Shares, and the
Liability Payment Shares, and in connection with such other matters as the Board
shall deem appropriate. The Special Counsel shall serve at the pleasure of the
Board and shall be compensated by the Center as determined by the Board.
a. Adjustment Proposals. All proposals for adjusting the shares of any
--------------------
Participating Producer pursuant to paragraph B.5 below shall be submitted to the
Special Counsel for its review prior to any consideration of the proposal by the
Participating Producers. The Special Counsel shall provide a recommendation
with respect to any such proposal prior to its consideration by the
Participating Producers. In addition, the Special Counsel may develop its own
proposals with respect to adjusting the shares of any Participating Producer
pursuant to paragraph B.5. Such proposals shall be promptly considered by the
Participating Producers pursuant to paragraph B.2 above and shall not require
prior consideration or approval by the Board.
b. Data Collection. To assist in this work, the Center shall maintain
---------------
information with respect to claims reported to Participating Producers, Liaison
Counsel, or the Center in which a Participating Producer is named as a defendant
or a third-party defendant or is otherwise designated in a claim as responsible
for the injury. This information shall include, without limitation, the
following items:
(i) The Filing Date of the claim.
<PAGE>
-36-
(ii) The Occupational Category of the claim based on the occupation
or status of the person whose exposure to asbestos gave rise to the claim
(hereinafter "Primary Claimant"), as determined by the Center using the
Guidelines for Occupational Categories attached hereto as Exhibit 1.
(iii) The Disease Category of the claim based on the asbestos-related
disease from which the Primary Claimant is suffering as determined by the
Center.
(iv) The Dates of Exposure of the Primary Claimant to asbestos (to
the extent available and deemed appropriate).
(v) The Circumstances of such Exposure, to the extent available and
deemed appropriate (such as, for workplace exposure, the duties and
responsibilities of the Primary Claimant, the job site, the identity of the
Primary Claimant's employer, and the degree of exposure to asbestos or asbestos-
containing products).
(vi) Each Producer that is named as a defendant or a third-party
defendant or is otherwise designated in a claim as responsible for the injury.
(vii) Plaintiff's counsel.
(viii) The Disposition Date (i.e. the date the claim was disposed of
by the Center, whether by dismissal, settlement, judgment, or otherwise).
(ix) The Type of Disposition (i.e. dismissal, settlement, judgment,
or other).
(x) Producers Held Liable.
<PAGE>
-37-
(xi) The Amount Paid or Owed by the Center as Liability Payments.
(xii) Such other information as may be designated by the Center or
Special Counsel.
c. Reports. The Center shall provide monthly reports to the Special
-------
Counsel (at a time and in a form to be agreed upon) displaying on an aggregated
basis the information specified in paragraph B.3.b with respect to:
(i) new claims reported to Participating Producers, Liaison Counsel,
or the Center during the preceding month;
(ii) claims disposed of by the Center during the preceding month;
(iii) all claims reported to Participating Producers, Liaison
Counsel, or the Center as of the end of the preceding month; and
(iv) all claims pending in the Center as of the end of the preceding
month.
d. Outside Assistance. The Special Counsel shall be given access by the
------------------
Center to the information from which the reports described in paragraph B.3.c
are derived (including all information described in paragraph B.3.b. above) and
to such other information as the Special Counsel shall deem necessary in order
for it to perform its responsibilities under this Attachment A (all such
information hereinafter referred to as the "Share Information"). The Center
will perform studies and
<PAGE>
-38-
analyses of the Share Information as directed by the Special Counsel. The
Special Counsel may, with the concurrence of the Board of Directors of the
Center, retain an outside auditor to conduct an independent audit of the Share
Information, or retain an outside consultant to perform studies and analyses of
the Share Information.
4. Identification of Adjustments
-----------------------------
The Center and the Special Counsel shall monitor the reports and
information obtained pursuant to paragraph B.3 above to identify any factors or
trends that tend to suggest that the Participating Producer Shares may not
fairly reflect the relative responsibility of Participating Producers for
Liability Payments, Allocated Expenses, or Unallocated Expenses with respect to
all or an identifiable category of claims. These factors or trends may include,
without limitation, the following:
a. A dramatic increase in the number of claims involving one of the
existing Twelve Occupational Categories (such as, for example, a dramatic
increase in the number of cases within the "Friction" category) or a new
occupational category.
b. A dramatic increase in the number of claims involving a particular
occupation or status presently subsumed within one of the existing Occupational
Categories (such as, for example, a dramatic increase in the number of chemical
plant cases within the "Insulator" category).
<PAGE>
-39-
c. A dramatic increase in the number of cases of a particular type within
a particular state (especially if few cases of this type have previously been
filed in that state or if there are little available data on the disposition of
this type of case in that state).
d. A dramatic increase in the number of cases at a specific location or
place (such as, for workplace exposure, a particular job site).
e. A dramatic increase in the number of cases involving a particular
Disease Category (such as, for example, a dramatic increase in the "Pleural
Disease" category).
f. A dramatic increase in the number of cases involving a particular
disease subsumed by the Center within an existing Disease Category (such as, for
example, a dramatic increase in the number of cases involving a particular form
of cancer currently classified by the Center within the "Other Cancer"
category).
g. Disposition or other data indicating for a particular category of
claims (whether based on occupation or status, location, disease, or some other
basis) that a particular Participating Producer is not liable for those claims
or that the relative responsibility among Participating Producers is
significantly different from what is indicated by the Participating Producer
Shares.
h. Such other factors and trends as may be identified by the Center or
the Special Counsel.
<PAGE>
-40-
5. Adjustments Subject to Participating Producer Approval
------------------------------------------------------
a. General. Adjustments may be made to reflect these factors and trends
-------
in the Participating Producer Shares of any Participating Producer. These
adjustments may include, but are not limited to, the segregation of significant
and identifiable categories of Asbestos-Related Claims into "Special Claim
Categories" (as described in paragraphs B.5.b and c below), the adjustment of
any Participating Producer's Average Cost Per Closed Claim for any of the Four
Occupational Groupings, and the subdivision of Asbestos-Related Claims by time
and the application of different Participating Producer Shares for claims in
each subdivision. These adjustments may also include revision of the Guidelines
for Occupational Categories at Exhibit 1. All adjustments pursuant to this
paragraph B.5 must be approved by the Participating Producers pursuant to
paragraph B.2 above.
b. Interim Sharing Arrangements for Special Claim Categories. Where a
---------------------------------------------------------
Special Claim Category is deemed appropriate, an "Interim Sharing Arrangement"
shall be proposed for apportioning among Participating Producers any Liability
Payments made by the Center with respect to claims falling within this Special
Claim Category.
(i) In developing the Interim Sharing Arrangement, the following
factors may be considered: (i) the relative frequency with which Participating
Producers are named as defendants or third-party defendants or are otherwise
<PAGE>
-41-
designated in claims as responsible for the injury; (ii) any disposition data
with respect to those claims; (iii) information concerning the particular
products, locations, occupations, or employers involved; and (iv) such other
information as the Center or the Special Counsel shall deem relevant.
(ii) The establishment of a Special Claim Category and of an Interim
Sharing Arrangement for that category must be approved by the Participating
Producers pursuant to paragraph B.2. above. Once approved, the Interim Sharing
Arrangement shall be used to apportion all Liability Payments thereafter made
with respect to claims falling within that Special Claim Category (subject,
however, to the provisions of paragraph B.5.c below).
(iii) The Allocated Expenses paid in connection with cases falling
within the Special Claim Category and subject to an Interim Sharing Arrangement
shall be treated no differently than the Allocated Expenses paid in connection
with any other claim.
c. Permanent Sharing Arrangement for Special Claim Categories. The Center
----------------------------------------------------------
shall monitor, in conjunction with Liaison Counsel and the Special Counsel, (i)
relevant pretrial discovery taken in connection with claims falling within a
Special Claim Category subject to an Interim Sharing Arrangement, (ii) relevant
pretrial motions made in connection with such claims, (iii) disposition data
with respect to such claims, and (iv) such other data as the Center or the
Special Counsel shall deem relevant.
<PAGE>
-42-
(i) Once it is concluded that the foregoing data are sufficient to
permit it, a "Permanent Sharing Arrangement" will be proposed for apportioning
among Participating Producers any Liability Payments or Allocated Expenses with
respect to those claims. Such a Permanent Sharing Arrangement must be approved
by the Participating Producers pursuant to paragraph B.2 above. Once so
approved, all Liability Payments made and all Allocated Expenses incurred
thereafter with respect to claims falling within that Special Claim Category
shall be apportioned among Participating Producers pursuant thereto, subject to
any subsequent change in the Permanent Sharing Arrangement approved by the
Participating Producers pursuant to paragraph B.2 above. In addition, it is
presumed that the Permanent Sharing Arrangement shall be given retroactive
effect to apportion all Liability Payments made and all Allocated Expenses
incurred with respect to claims falling within that Special Claim Category from
the date that Special Claim Category was first established, subject to the right
of the Participating Producers to make the application of such Permanent Sharing
Arrangement prospective only to Liability Payments made and/or Allocated
Expenses incurred after the approval of the Permanent Sharing Arrangement if the
benefit in terms of Participating Producer equity from retroactivity is deemed
to be de minimis when compared to the administrative costs of doing so and other
-- -------
factors.
(ii) In the event that a Permanent Sharing Arrangement proposed for
a Special Claim Category is rejected by
<PAGE>
-43-
the Participating Producers, all Liability Payments made by the Center with
respect to claims subject to that category shall continue to be apportioned
among Participating Producers pursuant to the Interim Sharing Arrangement for
that category (and all allocated expenses incurred in connection with such
claims shall continue to be apportioned as provided in paragraph B.5.b.(iii)
above) unless and until either a Permanent Sharing Arrangement is subsequently
approved by the Participating Producers for that category or the Participating
Producers vote to disestablish the Special Claim Category. Any such
disestablishment shall require approval of the Participating Producers pursuant
to paragraph B.2.
6. Adjustments Not Subject to Participating Producer Approval
----------------------------------------------------------
Within twenty (20) days after the end of a calendar quarter (hereinafter
referred to as the "Completed Quarter"), the Partial Allocated Expense Shares
for Period IV Claims shall automatically be recalculated pursuant to paragraph
A.2 above by incorporating all Period IV Claims not previously reflected in
those shares that have been reported to Participating Producers, Liaison
Counsel, or the Center during that calendar quarter (excluding claims subject to
a Permanent Sharing Arrangement). Thereafter the weighted average of the
Partial Allocated Expense Shares shall be recomputed (pursuant to paragraph
A.2), using the total number of open claims the Center had in the corresponding
periods as of the end of the Completed Quarter, to compute new Allocated
<PAGE>
-44-
Expense Shares for all Participating Producers. The Allocated Expense Shares
thus recalculated shall be used by the Center to apportion all Allocated
Expenses incurred by the Center during the calendar quarter immediately
following the Completed Quarter (excluding claims subject to a Permanent Sharing
Arrangement). In addition, the Unallocated Expense Shares shall also
automatically be recalculated pursuant to paragraph A.3 above using the
recalculated Partial Allocated Expense Shares for Period IV claims. The
Unallocated Expense Shares thus recalculated shall be used by the Center to
apportion all Unallocated Expenses incurred during the calendar quarter
immediately following the Completed Quarter.
C. Punitive Damages
----------------
Punitive damage judgments shall not be apportioned among the Participating
Producers according to the Liability Payment Shares provided herein, but shall
be borne by the Participating Producer against which the judgment was rendered
and its Insurers.
D. Separate Counsel
----------------
Any Participating Producer retaining counsel to represent it separately
from the Center (whether in connection with a punitive damage claim, a matter as
to which it has an interest that is not shared by the other Participating
Producers, or for some other reason) shall be entitled to have the cost of such
separate counsel in any calendar year reimbursed by the Center as Allocated
Expense (thereafter to be apportioned among all
<PAGE>
-45-
Participating Producers including the Participating Producer retaining such
counsel based on the applicable Allocated Expense Shares) up to a limit to be
established by the Board of Directors for each calendar year. All other such
Allocated Expenses shall be billed directly to the responsible Insurer or
Insurers for the Participating Producer or, in the absence of such Insurers, to
the Participating Producer itself.
E. Alternative Dispute Resolution
------------------------------
Any Participating Producer that believes that application of any future
adjustment in any Liability Payment Share, any Allocated Expense Share, or any
Unallocated Expense Share pursuant to Section B above is inequitable as applied
to its particular situation, or that the calculation of any particular share
pursuant to such future adjustment has been performed inaccurately or
incorrectly, may cause the matter to be presented to the Participating Producers
pursuant to paragraph B.2 above and, failing receipt of satisfactory action, may
take the matter to alternative dispute resolution within the Center. Such
Participating Producer shall bear the burden of proof.
F. New Entrants and Withdrawals
----------------------------
<PAGE>
-46-
Any Producer that is not a signatory to the Agreement as of December 1,
1991, may become a signatory as provided in Section XII of the Agreement. The
Special Counsel shall provide such support and recommendations as the Board may
request with respect to any request from any Producer to become a signatory to
the Agreement, including the Liability Payment Shares, Allocated Expense Shares,
and the Unallocated Expense Shares to be borne by that Producer. In the event
the Producer becomes a signatory, the corresponding shares of the other
Participating Producers shall be reduced appropriately to make room for the
shares of the new Participating Producer. In the event that a Participating
Producer shall withdraw from membership in the Center pursuant to Section IV of
the Agreement or have its membership terminated pursuant to Paragraph 3 of
Section III, the corresponding shares of the other Participating Producers shall
be increased appropriately to pick up the shares of the withdrawing or
terminating Participating Producer.
<PAGE>
EXHIBIT 10 (i)(i)
AMENDED AND RESTATED CREDIT
AGREEMENT (364-Day) dated as of October 21, 1999
(this "Amendment and Restatement"), among
ARMSTRONG WORLD INDUSTRIES, INC. (the
"Borrower"), each lender listed on the signature pages
hereof (each individually a "Lender" and collectively the
"Lenders") and THE CHASE MANHATTAN BANK, a
New York banking corporation, as administrative agent for
the Lenders (in its capacity as administrative agent, the
"Administrative Agent").
WHEREAS, on October 29, 1998, the Borrower, The Chase Manhattan
Bank, as Administrative Agent, and certain of the Lenders entered into a 364-Day
Credit Agreement (the "Credit Agreement") pursuant to which the Lenders made
available to the Borrower Loans in an aggregate principal amount of
$450,000,000;
WHEREAS, the parties hereto desire to amend and restate the
Credit Agreement as set forth herein; and
WHEREAS, the Borrower and the Lenders have agreed to amend and
restate, on the terms and subject to the conditions set forth herein, the Credit
Agreement, to provide for the foregoing.
NOW THEREFORE, for and in consideration of the premises and the
mutual covenants herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower, the
Administrative Agent and the Lenders hereby agree as follows:
SECTION 1. All capitalized terms which are defined in the Credit
Agreement and not otherwise defined herein or in the recitals hereof shall have
the same meanings herein as in the Credit Agreement.
SECTION 2. All references to Section numbers in this Amended and
Restated Credit Agreement shall, except as the context requires, be references
to the corresponding Sections of the Credit Agreement.
SECTION 3. The Credit Agreement is hereby amended as follows:
(a) the heading is deleted and the following is substituted in lieu
thereof:
"AMENDED AND RESTATED 364-DAY CREDIT
AGREEMENT dated as of October 21, 1999, among
ARMSTRONG WORLD INDUSTRIES, INC. (the
"Borrower"), the lenders listed in Schedule 2.01 (the
"Lenders") and THE CHASE MANHATTAN BANK,
as administrative agent for the Lenders (the
"Administrative Agent").
(b) Section 1.01 of the Credit Agreement is amended as follows:
<PAGE>
(i) The definition of "Borrower's 1997 Form 10-K" is
hereby replaced in its entirety by the following:
"Borrower's 1998 Form 10-K" means the Borrower's annual report on Form
10-K for 1998, as filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934."
(ii) The definition of "Borrower's Latest Form 10-Q" is
hereby replaced in its entirety by the following:
"Borrower's Latest Form 10-Q" means the Borrower's quarterly
report on Form 10-Q for the quarter ended June 30, 1999, as filed with
the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934."
(iii) The definition of "Co-Documentation Agents" is hereby
deleted in its entirety.
(iv) The definition of "Designated Currency" is hereby
replaced in its entirety by the following:
"Designated Currency' means Pounds Sterling, Canadian Dollars,
Australian Dollars, Japanese Yen and the Euro and any other Alternate
Currency that shall be designated by the Borrower in a notice
delivered to the Administrative Agent and approved by the
Administrative Agent and all the Banks as a Designated Currency."
(v) The definition of "Documentation Agent" is hereby
deleted in its entirety.
(vi) The definition of "Existing Credit Agreement" is
hereby replaced in its entirety by the following:
"Existing Credit Agreement' means the Credit Agreement dated as
of October 29, 1998, among the Borrower, the Banks party thereto and
The Chase Manhattan Bank, as Administrative Agent."
(vii) The definition of "Syndication Agent" is hereby
deleted in its entirety:
(viii) The definition of "Termination Date" is hereby
replaced in its entirety by the following:
"Termination Date' means October 19, 2000, or, if such day is not
a Eurocurrency Business Day, the next preceding Eurocurrency Business
Day, as such date may be extended pursuant to Section 2.07."
(c) Section 2.06 of the Credit Agreement is hereby amended by
deleting paragraph (b) thereof.
<PAGE>
(d) Section 4.04(a) of the Credit Agreement is hereby amended by (i)
deleting the date December 31, 1997 therein and inserting the date December
31, 1998 in lieu thereof and (ii) deleting "Borrower's 1997 Form 10-K" and
inserting "Borrower's 1998 Form 10-K" in lieu thereof.
(e) Section 4.04(b) of the Credit Agreement is hereby amended by
deleting the date June 30, 1998 therein and inserting the date June 30,
1999 in lieu thereof.
(f) Section 4.04(c) of the Credit Agreement is hereby amended by
deleting the date June 30, 1998, therein and inserting the date June 30,
1999 in lieu thereof.
(g) Section 4.05 of the Credit Agreement is hereby amended by
deleting "Borrower's 1997 Form 10-K" and inserting "Borrower's 1998 Form
10-K" in lieu thereof.
(h) The Credit Agreement is hereby amended by inserting a new Section
4.11 as follows:
"Section 4.11. Year 2000. Any reprogramming required to
permit the proper functioning, in and following the year 2000, of (a)
the mission critical computer systems of the Borrower and its
Subsidiaries and (b) mission critical equipment containing embedded
microchips (including systems and equipment supplied by others or with
which the Borrower's systems interface) and the testing of all such
systems and equipment, as so reprogrammed, has been completed. The
cost to the Borrower and its Subsidiaries of such reprogramming and
testing and of the reasonably foreseeable consequences of Year 2000 to
the Borrower and its Subsidiaries (including reprogramming errors and
the failure of others' systems or Equipment) will not result in a
Default or a material adverse effect."
(i) The definition of "Commencement of the Third Stage of EMU" in
Section 9.12 of the Credit Agreement is hereby deleted in its entirety.
(j) Section 9.12(b) of the Credit Agreement is hereby deleted in its
entirety.
(k) Section 9.12(c) of the Credit Agreement is hereby replaced in its
entirety by the following:
"(b) Redenomination of Certain Foreign Currencies. Each
obligation of any party to this Credit Agreement to make a
payment denominated in the national currency unit of any member
state of the European Union that adopts the Euro as its lawful
currency after the date hereof shall be redenominated into the
Euro at the time of such adoption (in accordance with the EMU
Legislation).
(l) Section 9.12(d) of the Credit Agreement is deleted in its
entirety.
(m) The Pricing Schedule to the Credit Agreement is hereby amended by
(i) deleting the 6.50 in Category 2 of the Facility Fee Rate and inserting
7.00 in lieu thereof and (ii) deleting the 33.50 in Category 2 of the
Eurocurrency Margin and inserting 33.00 in lieu thereof.
(n) The Commitment Schedule to the Credit Agreement is hereby
replaced in its entirety by the Commitment Schedule attached as Exhibit A
hereto.
<PAGE>
(o) "Effective Date" shall mean the date on which this Amendment and
Restatement shall become effective in accordance with Section 6 below.
SECTION 4. Restatement. The Credit Agreement is hereby
restated in the form in which it currently exists but with the changes
provided for in Section 3 above.
SECTION 5. Representations and Warranties. The Borrower
represents and warrants as of the Effective Date to the Administrative
Agent on behalf of the Lenders that:
(a) Before and after giving effect to this Amendment and Restatement,
the representations and warranties set forth in the Credit Agreement, as
amended hereby, are true and correct in all material respects with the same
effect as if made on the Effective Date hereof.
(b) Immediately before and after giving effect to this Amendment and
Restatement, no Event of Default or Default has occurred and is continuing.
SECTION 6. Conditions to Effectiveness. This Amendment and
Restatement shall become effective as of the date hereof when the following
conditions shall have been satisfied (or waived in accordance with Section
9.05 of the Credit Agreement):
(a) receipt by the Administrative Agent of counterparts hereof signed
by each of the parties hereto (or, in the case of any party as to which an
executed counterpart shall not have been received, receipt by the
Administrative Agent in form satisfactory to it of telegraphic, telex or
other written confirmation from such party of execution of a counterpart
hereof by such party);
(b) receipt by the Administrative Agent of an opinion of Walter T.
Gangl, Esq., Deputy General Counsel and Corporate Assistant Secretary of
the Borrower, substantially in the form of Exhibit A to the Credit
Agreement and covering such additional matters relating to the transactions
contemplated hereby as the Administrative Agent may reasonably request;
(c) receipt by the Administrative Agent of all documents the
Administrative Agent may reasonably request relating to the existence of
the Borrower, the corporate authority for and the validity of this
Amendment and Restatement, and any other matters relevant hereto, all in
form and substance satisfactory to the Administrative Agent;
(d) receipt by the Administrative Agent of all fees and expense; and
(e) termination of the Borrower's existing credit facility dated as
of February 7, 1995 among the Borrower, the lenders party thereto and
Morgan Guaranty Trust Company, as administrative agent.
SECTION 7. Amendment and Restatement. Except as specifically
amended herein, the provisions of the Credit Agreement shall remain
identical in all other respects. As used therein, the terms "Credit
Agreement", "herein", "hereunder", respects. As used therein, the terms
"Credit Agreement", "herein", "hereunder", "hereinafter", "hereto",
"hereof" and words of similar import shall, unless the context otherwise
requires, refer to the Credit Agreement as amended and restated hereby.
<PAGE>
SECTION 8. Counterparts. This Amendment and Restatement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall
be deemed an original, but all such counterparts together shall constitute
but one and the same instrument. Delivery of any executed counterpart of a
signature page of this Amendment and Restatement by facsimile transmission
shall be as effective as delivery of a manually executed counterpart
hereof.
SECTION 9. Applicable Law. THIS AMENDMENT AND RESTATMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
SECTION 10. Headings. The headings of this Amendment and
Restatement are for purposes of reference only and shall not limit or
otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
and Restatement to be duly executed by their duly authorized officers, all
as of the date and year first above written.
ARMSTRONG WORLD INDUSTRIES, INC.,
By
/s/ Jeffrey R. Wittenberg
---------------------------------
Name: Jeffrey R. Wittenberg
Title: Assistant Treasurer
THE CHASE MANHATTAN BANK, individually
and Administrative Agent,
By
/s/ Robert T. Sacks
---------------------------------
Name: Robert T. Sacks
Title: Managing Director
BANK OF AMERICA, NA, formerly known as
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION,
By
/s/ John W. Pocalyko
---------------------------------
Name: John W. Pocalyko
Title: Managing Director
<PAGE>
WACHOVIA BANK, N.A.,
By /s/ James Barwis
------------------------------
Name: James Barwis
Title: Vice President
DEUTSCHE BANK AG NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH,
By /s/ Hans-Josef Thiele
------------------------------
Name: Hans-Josef Thiele
Title: Director
By /s/ Joel Makowsky
------------------------------
Name: Joel Makowsky
Title: Vice President
BARCLAYS BANK PLC,
By /s/ Terance Bullock
------------------------------
Name: Terance Bullock
Title: Vice PresidentBW
CAPITAL MARKETS,
INC.
By /s/ Thomas A. Lowe
------------------------------
Name: Thomas A. Lowe
Title: Vice President
By /s/ Kenneth J. Ward
------------------------------
Name: Kenneth J. Ward
Title: Chief Financial Officer
<PAGE>
BANQUE NATIONALE DE PARIS,
By /s/ Richard L. Sted
-------------------------------
Name: Richard L. Sted
Title: Senior Vice President
By /s/ Thomas George
-------------------------------
Name: Thomas George
Title: Vice President
Corporate Banking
Division
UNICREDITO ITALIANO S.P.A.,
By /s/ Christopher Eldin
-------------------------------
Name: Christopher Eldin
Title: Vice President
By /s/ Saiyed A. Abbos
-------------------------------
Name: Saiyed A. Abbos
Title: Vice President
CITIBANK N.A.,
By /s/ Stuart G. Miller
-------------------------------
Name: Stuart G. Miller
Title: Managing Director
FIRST UNION NATIONAL BANK,
By /s/ Joseph M. Del Tito
-------------------------------
Name: Joseph M. Del Tito
Title: Executive Vice President
BANK ONE, NA (MAIN OFFICE CHICAGO),
By /s/ Stephen E. McDonald
-------------------------------
Name: Stephen E. McDonald
Title: Senior Vice President
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By /s/ Dennis Wilczek
------------------------------------
Name: Dennis Wilczek
Title: Associate
PNC BANK, NATIONAL ASSOCIATION,
By /s/ Brennan T. Danile
------------------------------------
Name: Brennan T. Danile
Title: Assistant Vice President
SOCIETE GENERAL FINANCE (IRELAND) LIMITED,
By /s/ Richard Wanless
------------------------------------
Name: Richard Wanless
Title: Managing Director
By /s/ Aidan Storey
------------------------------------
Name: Aidan Storey
Title: Account Manager
SUNTRUST BANK ATLANTA
By /s/ W. David Wisdom
------------------------------------
Name: W. David Wisdom
Title: Vice President
WESTDEUTSCHE LANDESBANK
By /s/ Alan S. Bookspan
------------------------------------
Name: Alan S. Bookspan
Title: Director
By /s/ Walter T. Duffy, III
------------------------------------
Name: Walter T. Duffy, III
Title: Vice President
<PAGE>
HSBC BANK USA,
By /s/ Anna Yuen
------------------------------------
Name: Anna Yuen
Title: Assistant Vice President
THE BANK OF NEW YORK,
By /s/ Walter C. Parelli
-----------------------------------
Name: Walter C. Parelli
Title: Vice President
SKANDINAVISKA ENSKILDA BANKEN, NEW YORK
BRANCH,
By /s/ Magnus C. Lejstrom
------------------------------------
Name: Magnus C. Lejstrom
Title: Vice President
By /s/ Phillip Montemurro
------------------------------------
Name: Phillip Montemurro
Title: Vice President
FORTIS (USA) FINANCE LLC,
By /s/ David Snyder
------------------------------------
Name: David Snyder
Title: Senior Vice President
By /s/ Eddie Matthews
------------------------------------
Name: Eddie Matthews
Title: Senior Vice President
<PAGE>
COMMITMENT SCHEDULE
BANK COMMITMENT
---- ----------
The Chase Manhattan Bank $ 50,000,000
Bank of America N.A. $ 35,000,000
Deutsche Bank AG New York Branch
and/or Cayman Islands Branch $ 35,000,000
Morgan Guaranty Trust Company
Of New York $ 35,000,000
Wachovia Bank, N.A. $ 35,000,000
Bank One, NA (Main Office Chicago) $ 20,000,000
Barclays Banks PLC $ 20,000,000
Citibank N.A. $ 20,000,000
First Union National Bank $ 20,000,000
Marine Midland Bank $ 20,000,000
Societe Generale Finance (Ireland)
Limited $ 20,000,000
Westdeutsche Landesbank $ 20,000,000
The Bank of New York $ 15,000,000
Banque Nationale De Paris $ 15,000,000
BW Capital Markets, Inc. $ 15,000,000
Fortis (USA) Finance LLC $ 15,000,000
PNC Bank, National Association $ 15,000,000
Skandinaviska Enskilda Banken $ 15,000,000
Suntrust Bank, Atlanta $ 15,000,000
Unicredito Italiano S.p.A. $ 15,000,000
------------
$450,000,000
<PAGE>
PRICING SCHEDULE
"FACILITY FEE RATE" and "EUROCURRENCY MARGIN" mean, for any date, the
applicable rate set forth below in the row opposite such term based upon the
ratings by S&P and Moody's, respectively, applicable on such date to the Index
Debt:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Category 1 Category 2 Category 3 Category 4 Category 5 Category 6
A/A2 or A-/A3 BBB+Baal BBB/Baa2 BBB/Baa2 BBB/Baa3
Higher And A2/P2 And not Or Lower
A2/Ps
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Eurocurrency 30.00 33.00 37.00 45.00 45.00 62.50
Margin (bp)
- -----------------------------------------------------------------------------------------------------------------------------
Facility Fee 5.00 7.00 8.00 10.00 10.00 12.50
Rate (bp)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of the foregoing, (i) if S&P or Moody's shall not have in
effect a rating for the Index Debt, then such rating agency shall be deemed to
have established a rating in Category 5; (ii) if the ratings established or
deemed to have been established by S&P and Moody's for the Index Debt shall fall
within different categories, the applicable rate shall be based on (A) if the
ratings are in adjacent categories, the higher of the two ratings and (B) if the
ratings are in non-adjacent categories, the rating immediately below the higher
of the two ratings; and (iii) if the ratings established or deemed to have been
established by S&P and Moody's for the Index Debt shall be changed (other than
as a result of a change in the rating system of such rating agency), such change
shall be effective as of the date on which it is first announced by the
applicable rate shall apply during the period commencing on the effective date
of such change and ending on the date immediately preceding the effective date
of the next such change.
"MOODY'S" means Moody's Investors Service, Inc.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"INDEX DEBT" means the senior unsecured long-term debt securities of
the Borrower without third-party enhancement, and any rating assigned to any
other debt security of the Borrower shall be disregarded.
<PAGE>
EXHIBIT 10(iii)(b)
[Translation]
[Letterhead]
DLW Aktiengesellschaft August 2, 1999
Dr. Pelz
Stuttgarter Str. 75
74321 Bietigheim-Bissingen
Telefax-No.: 07142/71 270
Dear Dr. Pelz,
Service Agreement
Paragraph 6, section 1 of the service agreement which has already been signed by
me reads as follows:
"If you leave the Company due to (a) permanent disability; (b) at the end of
your 65th year, or (c) termination through no fault of your own,
You will receive a pension according to the following formula...."
This provision is to be interpreted such that its contents are the following:
"According to paragraph 6, section 2 through section 5 you will receive the
agreed upon pension under the following provisions
a) if you leave because of permanent disability
b) if your current contract which expires on March 31, 2002, is terminated by
the Company on or prior to March 31, 2002, and/or if your contract as
member of the board of
<PAGE>
2 [Translation]
the company is terminated prior to March 31, 2002, and thus the service
agreement is automatically terminated (number 1 of the service agreement)
c) if the Company does not extend the service agreement beyond March 31, 2002,
once or several times up to the end of your 65/th/ year or if such
agreement is ended prior to its expiration date due to reasons mentioned
under b)
d) at the end of your 65/th/ year.
There is no entitlement for pension payments prior to the end of your /65th/
year resulting from b) and c), if the prior termination of the service agreement
or its non-extension is deemed to be your fault."
The above explanations are based on a circular decision of the presidial
committee.
This clarification related to the interpretation of paragraph 6, section 1 of
the service agreement is valid only in combination with the service agreement.
May I therefore ask you to sign and return to me the second copy of your service
agreement and the second copy of this contract. Also I am asking you to initial
every page.
Kind regards, Dr. Bernd F. Pelz
/s/ /s/
________________ ___________________
Dr. Dirk Dirksen August 8, 1999
<PAGE>
[Translation]
Private/Confidential
- --------------------
Dr. Bernd F. Pelz
- -Chairman of the Board
of DLW AG -
Stuttgarter Strabe 75
Frankfurt am Main, May 14, 1999
Service Agreement
Dear Dr. Pelz:
The following details the provisions of the transition service agreement that
you discussed with Bob Shannon on December 21, 1998. This is a transition
service agreement between you and DLW AG (the "Company"), a subsidiary of
Armstrong World Industries, Inc., U.S.A., concerning your service as chairman of
the board of the Company. This agreement includes the following provisions:
1. This agreement will be effective from January 1, 1999 until March 31, 2002.
This agreement expires in any event - even before this date - with the end
of your service as member of the board of the Company.
<PAGE>
-2- [Translation]
2. Your annual base salary will be DM 500,000, subject to annual review on
April 1 of each year beginning April 1, 2000.
3. With effect as of January 1, 1999, you will participate in the Management
Achievement Plan of Armstrong as amended from time to time in the sole
discretion of Armstrong. Our target bonus award will be 50% of your annual
actual base salary earnings. The Management Achievement Plan document
contains the rules and parameters of the programs under which a bonus
payment will be made for 1999. Your bonus opportunity will be based 30% on
Armstrong Corporate EVA results and 70% on Floor Products Europe/DLW Floors.
For calendar year 1999, a minimum bonus payment of DM250,000 will be
guaranteed.
Bonus payments in prior years do not give rise to an obligation for bonus
payments in subsequent years.
4. Vacation: Five weeks
--------
5. Illness: Six months of salary continuation, not to extend beyond the end of
-------
this agreement.
Death: Your widow or children shall receive full base salary for a period
-----
of three months, starting the month after death occurred, as well as a
prorated bonus in accordance with Section 3 for the three months.
6. Retirement: If you leave the Company due to (a) permanent disability; (b)
----------
age 65; or (c) termination through no fault of your own, you will receive a
pension according to the following formula:
<PAGE>
-3- [Translation]
45 % of your annual base salary at the time of retirement,
this amount increases at 1% per year for each full year of service, up to
60%.
If you are permanently disabled within the next five years, the amount will
automatically become 60% of your annual base salary.
The pension will increase in the same manner as any increase in the salary of a
senior federal civil servant to account for inflation.
In the case of termination through no fault of your own pursuant to letter (C),
your salary from other professional activities shall be set off against the
pension to the extent the salary exceeds the annual base salary set forth in
paragraph 2.
7. Bonus during retirement: In the cases set out in paragraph 6 you will
-----------------------
receive a bonus in the following manner in addition to your pension. All
payments will be made based upon the actual bonus you received in your
final year of active full time employment:
a) For each year in which you retire, you will receive a full bonus based
upon the prior year's results;
b) For the year following retirement, you will receive a full bonus for
the number of months you worked full time in the previous year, plus
75% of the bonus for months you did not work;
c) For the third year of retirement, you will receive one half of the
full bonus;
d) For the fourth year of retirement, you will receive one quarter of the
full bonus.
8. Widow's Pension: Upon your death, your wife will receive 60% of your
---------------
pension for life. This shall cease upon remarriage or death.
<PAGE>
-4- [Translation]
9. Voluntary resignation: Should you leave the Company voluntarily before you
---------------------
reach age 65 due to reasons not listed in paragraph 6 above, then
compensations and benefits provided under this agreement shall cease. You
shall become entitled to your maintenance settlement if and so far as the
legal requirements for nonforfeitability are met.
10. The undertaking not to compete between you and the Company dated October
13, 1989 shall remain unaffected. Apart from that, this agreement
supersedes all oral statements and prior writings between you and the
Company. Any modifications or additions to this agreement have to be in
writing.
If the above is acceptable, please sign both copies of this letter of agreement
and return one copy to me for our file.
Sincerely,
/s/
_______________________________________________
Dr. Burkhardt Meister
- -President of the Supervisory Board of DLW AG -
Accepted:
Dated: June 10, 1999
---------------
Signature: /s/_________________________
Dr. Bernd F. Pelz
<PAGE>
EXHIBIT 10(iii)(d)
MANAGEMENT ACHIEVEMENT PLAN
PLAN TEXT AND ADMINISTRATIVE GUIDELINES
ADOPTED BY BOARD OF DIRECTORS
NOVEMBER 28, 1983
AS AMENDED DECEMBER 13, 1999
<PAGE>
ARMSTRONG WORLD INDUSTRIES, INC.
--------------------------------
MANAGEMENT ACHIEVEMENT PLAN FOR KEY EXECUTIVES
----------------------------------------------
(PLAN TEXT)
-----------
1. Purpose
-------
The Armstrong World Industries, Inc. (the "Company") Management Achievement
Plan (the "Plan") is designed to promote the financial success of the
Company by recognizing the significant contributions individual employees
can make to the achievement of Company goals. Its objectives are to
motivate key Company and subsidiary employees to produce outstanding
results by providing the opportunity to earn financial rewards in relation
to the attainment of corporate and business unit goals.
The Plan is based on the concept that the Company establishes for each
participant at the beginning of the year a target incentive award based on
the achievement of specific corporate and business unit goals. When the
year is over, the results actually achieved will be evaluated against these
goals to determine the amount, if any, of additional compensation earned by
individuals participating in the Plan.
2. Administration
--------------
The Plan shall be administered by the Management Development and
Compensation Committee (the "Committee") of the Board of Directors with the
advice and counsel of the Chief Executive Officer of the Company.
Designated subsidiary companies may adopt this Plan. Subject to compliance
with the requirements of Section 162(m) of the Internal Revenue Code for
deductibility of awards, the Board may amend or terminate the Plan from
time to time so long as the amendment or termination does not adversely
affect any rights or obligations with respect to awards for the then
current year or any prior year which has not yet been paid.
3. Eligibility
-----------
The intent of the Plan is to extend participation only to those key
employees whose duties and responsibilities give them the opportunity to
make a continuing material and
<PAGE>
-2-
substantial impact on the achievement of organization goals. The Chief
Executive Officer will annually determine the non-officer participants and
recommend officer participants to the Committee.
4. Incentive Awards
----------------
A) At the beginning of each year, the Chief Executive Officer shall
present to the Committee criteria for evaluating performance against
corporate and business unit goals for the purposes of determining the
incentive awards which shall be paid for the year.
B) At the same time, the Chief Executive Officer shall recommend to the
Committee a target award expressed as a percentage of salary for each
participant.
C) As soon as practical following the close of each year, the Chief
Executive Officer shall evaluate the levels of corporate and business
unit achievement and recommend to the Committee the incentive amount
earned by the participants.
D) Absent specific Board authorization to the contrary, no awards under
the corporate achievement segment of the Plan shall be authorized as to
any year in which the consolidated Company results fail to achieve a
minimum return on stockholders' equity of 8.5%.
E) The incentive award determined in accordance with the provisions of
Paragraphs A through D of this Section 4 shall be reduced for such year
as follows for Plan participants who are eligible to participate in the
Bonus Replacement Retirement Plan of Armstrong World Industries, Inc.:
(1) If a Plan participant's grade level is 18 or 19 as of January 1 of
the calendar year for which the incentive award is determined, the
incentive award otherwise payable shall be reduced by the lesser
of (i) 50% of the amount determined
<PAGE>
-3-
under Paragraphs A through D, (ii) $7,500 or (iii) the authorized
contribution to the Bonus Replacement Retirement Plan.
(2) If a Plan participant's grade level is 20 or 21 as of January 1 of
the calendar year for which the incentive award is determined, the
incentive award otherwise payable shall be reduced by the lesser
of (i) 50% of the amount determined under Paragraphs A through D,
(ii) $15,000 or (iii) the authorized contribution to the Bonus
Replacement Retirement Plan.
(3) If a Plan participant's grade level is 22 or higher as of January
1 of the calendar year for which the incentive award is
determined, the incentive award otherwise payable shall be reduced
by the lesser of (i) 50% of the amount determined under Paragraphs
A through D, (ii) $20,000 or (iii) the authorized contribution to
the Bonus Replacement Retirement Plan.
5. Time of Payment
---------------
Awards under this Plan shall be paid as soon as practicable after the
yearly financial results have been determined.
6. Miscellaneous Provisions
------------------------
A) Condition of Award - Plan participants who retire, become disabled, die
------------------
or are involuntarily terminated for reasons other than cause on or
after the last workday of March may be eligible for awards on a
prorated basis. Employees who voluntarily terminate employment at any
time from the beginning of the year until the award for that year is
paid are not eligible for an award unless otherwise approved by the
Committee.
<PAGE>
-4-
B) No Assignment or Transfer - Awards are payable only to the participant,
-------------------------
except in the case of death or legal incapacity at the time of payment,
award may be paid to his heirs, estate or legal guardian. No awards
under the Plan or any rights or interests therein shall be assignable
or transferable by a participant.
C) No Rights to Awards - No employee or other person shall have any claim
-------------------
or right to be granted an award under the Plan. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee
any right to be retained in the employ of the Company or any of its
subsidiaries.
D) Withholding Taxes - The Company shall have the right to deduct from all
-----------------
awards hereunder paid all taxes required by law to be withheld with
respect to such awards.
E) Funding of Plan - The Company shall not be required to establish any
---------------
special or separate fund or to make any other segregation of assets to
assure the payment of any award under the Plan.
7. Effective Date of the Plan
--------------------------
The effective date of the Plan shall be November 28, 1983.
<PAGE>
EXHIBIT 10(iii)(e)
RETIREMENT BENEFIT EQUITY PLAN
OF
ARMSTRONG WORLD INDUSTRIES, INC.
This Retirement Benefit Equity Plan was originally established, pursuant to
the authority of the Board of Directors of Armstrong World Industries, Inc.,
effective January 1, 1976 to pay supplemental retirement benefits to certain
employees of the Company who have qualified or may qualify for benefits under
the Retirement Income Plan for Employees of Armstrong World Industries, Inc.
The Retirement Benefit Equity Plan is hereby amended and restated as of January
1, 2000.
All benefits payable under this Plan shall be paid out of the general
assets of the Company, or from a trust, if any, established by the Company for
the purpose of paying benefits under the Plan, the assets of which shall remain
subject to the claims of judgment creditors of the Company in accordance with
the provisions of any such trust.
Article 1. Definitions
1.01 "Actuarial Equivalent Present Value" shall refer to the present
value of a Member's supplemental benefits. With respect to any
Member who is eligible to retire or has retired under the Retirement
Income Plan, such present value shall be determined using the
immediate Present Value Factors applied to a single life annuity
payable immediately. With respect to any Member who is not eligible
to retire or has not retired under the Retirement Income Plan, such
present value shall be determined using the deferred Present Value
Factors applied to an age 65 single life annuity. The determination
of Actuarial Equivalent Present Value shall reflect future assumed
increases in the limitations under Section 415 of the Internal
Revenue Code, with such future assumed increases being based on the
interest rate that is used by the Committee to determine the amount
of any employment taxes that may be owed under Section 3121(v) of
the Internal Revenue Code.
1.02 "Board of Directors" shall mean the Board of Directors of the
Company.
1.03 "Committee" shall mean the Retirement Committee as provided for in
Article 4.
1.04 "Company" shall mean Armstrong World Industries, Inc. or any
successor by merger, purchase or otherwise, with respect to its
employees. The term Company shall also mean any other company
participating in the Retirement Income Plan with respect to its
employees if such Company adopts this Plan.
1.05 "Compensation" shall mean a Member's "compensation" as determined
under the Retirement Income Plan without regard to limitations under
Section 401(a)(17) of the Internal Revenue Code, plus amounts
deferred by the Member under the Armstrong Deferred Compensation
Plan, if any, and amounts contributed by the Company to the Bonus
Replacement Retirement Plan of Armstrong World Industries, Inc. (the
"Bonus Replacement Retirement Plan") on behalf of the Member in the
year in which such contribution is made.
1.06 "Effective Date" shall mean January 1, 1976.
1.07 "Member" shall mean any person included in the membership of the
Plan as provided in Article 2.
<PAGE>
1.08 "Plan" shall mean the Retirement Benefit Equity Plan of Armstrong
World Industries, Inc. as described herein or as hereafter amended.
1.09 "Present Value Factors" shall refer to the discount rate utilized in
the Company's annual published financial statements in determining
the Company's net credit for its U.S. defined benefit plans for the
calendar year preceding the year in which the supplemental benefits
are determined and the 1983 Group Annuity Mortality Table, based
upon a fixed blend of 50% of the male rates and 50% of the female
rates.
1.10 "Retirement Income Plan" shall mean the Retirement Income Plan for
Employees of Armstrong World Industries, Inc.
Article 2. Membership
2.01 Every person who was a member of the Plan as in effect on December
31, 1999 shall remain a Member of the Plan on or after January 1,
2000.
2.02 Every other employee of the Company shall become a Member of the
Plan on the first day of the calendar year in which the Committee
determines that:
(a) the employee's benefit calculated under the Retirement Income
Plan exceeds the allowed benefit under Section 415 of the
Internal Revenue Code,
(b) the employee's compensation exceeds the maximum allowed under
Section 401(a)(17) of the Internal Revenue Code,
(c) the employee has compensation deferred under the terms of the
Armstrong Deferred Compensation Plan,
(d) the employee is a key executive designated by the Board of
Directors, or its delegate, to receive credit for employment
prior to his Company employment for purposes of calculating his
Retirement Income Plan benefit, as provided under Section
3.01(a)(iii) of this Plan, or
(e) the employee has a contribution made on his behalf to the Bonus
Replacement Retirement Plan.
2.03 Membership under the Plan shall terminate if a Member's employment
with the Company terminates unless at that time the Member is
entitled to retirement income payments pursuant to the Retirement
Income Plan or benefits described in Section 3.04.
Article 3. Amount and Payment of Supplemental Benefits
3.01 The supplemental benefits under this Plan shall be payable by the
Company only with respect to a Member who has retired, died or
otherwise terminated his employment with the Company after becoming
vested under the Retirement Income Plan. Any such supplemental
benefits shall be payable from the general assets of the Company or
from a trust, if any, established by the Company for the purpose of
paying benefits under the Plan, the assets of which shall remain
subject to the claims of judgment creditors of the Company in
accordance with the provisions of any such trust.
2
<PAGE>
The amount of any supplemental benefits payable to or on account of
a Member pursuant to this Plan, expressed as a single life annuity
payable as of the Member's "normal retirement date" (as that term is
defined in the Retirement Income Plan) or in the event the Member
defers his retirement beyond his normal retirement date, his
"deferred retirement date" (as that term is defined in the
Retirement Income Plan), shall be equal to (a) minus (b) minus (c)
minus (d), where:
(a) is the benefit calculated under the provisions of the
Retirement Income Plan, but:
(i) disregarding any reduction in the amount of benefits
under the Retirement Income Plan attributable to any
provision therein incorporating limitations imposed by
Section 415 of the Internal Revenue Code or Section
401(a)(17) of the Internal Revenue Code;
(ii) disregarding any reduction due to compensation deferred
under the Armstrong Deferred Compensation Plan;
(iii) including, for purposes of calculating Total Service
under the Retirement Income Plan, years of employment
for a Member described in Section 2.02(d) which precede
his Company employment to the extent so designated by
the Board of Directors, or its delegate, at the time
such individual is designated as eligible for membership
in the Plan; and
(iv) including, for purposes of determining compensation, any
amounts contributed on the Member's behalf to the Bonus
Replacement Retirement Plan;
(b) is the actual amount of benefits payable to or on account of
the Member as calculated under the Retirement Income Plan;
(c) is the value of the benefit (excluding the portion of such
benefit attributable to employee contributions) which is
payable, which has been paid or which will become payable to a
Member described in Section 2.02(d) from a qualified defined
benefit plan to the extent such plan takes into account the
period of employment described in Section 3.01(a)(iii). In the
event the Member has received, is receiving, or is scheduled to
receive benefits from another such plan in any form other than
a single life annuity or at a time other than when benefits
commence under this Plan, the benefit to be taken into account
under this subsection (c) shall be determined by the Company
based on actuarial assumptions and factors reasonably utilized
under the Retirement Income Plan as of the date of
determination, or to the extent such factors or assumptions do
not contemplate a particular situation which arises under this
Plan, based upon the Present Value Factors; and
(d) is the actuarial equivalent value of any supplemental benefits
previously paid to the Member under this Plan, provided that
the actuarial equivalent value of any supplemental benefits
paid as a single sum shall be determined using the Present
Value Factors.
3
<PAGE>
Notwithstanding the preceding provisions of this Section 3.01, in
the event a retired or terminated Member's benefit calculated under
the Retirement Income Plan is increased for any reason after the
Member's supplemental benefit payments have commenced in an annuity
form, the amount of any supplemental benefits payable to or on
account of such Member under this Plan shall be reduced
correspondingly on a prospective basis, and in the event such
increase is made retroactively resulting in the overpayments of any
or all of the Member's supplemental benefits, future benefit
payments under this Plan shall be reduced to reflect such prior
overpayments in any manner determined by the Committee, in its
discretion, and applied on a consistent basis to all similarly
situated Members, until an amount equal to the total overpayments in
the Member's supplemental benefit payments are recovered.
3.02 Subject to the following rules, an employee of the Company who
becomes a Member under this Plan in accordance with Section 2.02
shall elect in writing the form and timing of payment of the
supplemental benefits payable on behalf of such Member under this
Plan within the thirty (30) day period following the Committee's
determination that such employee has become a Member. Further,
subject to the following rules, each employee of the Company who is
a Member of the Plan on December 31, 1999 shall elect in writing no
later than June 30, 2000 the form and timing of payment of the
supplemental benefits payable on behalf of such Member.
(a) The Member may elect to have his supplemental benefits paid in
the form of any annuity that is offered under the Retirement
Income Plan or in a single sum.
(b) In no event shall the Member elect to have his supplemental
benefits commence or be paid earlier than the later of: (i) the
Member's attainment of age 55, or (ii) the date the Member
first becomes eligible to receive his benefits under the
Retirement Income Plan and in no event shall the Member elect
to have his supplemental benefits commence or be paid later
than the Member's attainment of age 65 or, if later, his actual
retirement from the Company. Notwithstanding the preceding
sentence, if the Member elects a single sum payment, he may
elect to receive such single sum payment at any time following
his termination of employment.
(c) In the event the Member fails to affirmatively elect the form
and timing of payment of his supplemental benefits hereunder,
the Member shall be deemed to have elected to have his
supplemental benefits paid in the form of a single life
annuity, commencing as of the first day of the month next
following his attainment of age 65 or if later, his actual
retirement from the Company.
(d) If the Member elects to have his supplemental benefits paid in
a single sum, the Member shall receive 100% of the Actuarial
Equivalent Present Value of his supplemental benefits
determined under Section 3.01. Notwithstanding the preceding
sentence, if the Member elects a single sum payment date that
is within twelve (12) months of the date of his distribution
election, he shall receive 94% of the Actuarial Equivalent
Present Value of his supplemental benefits determined under
Section 3.01, and the
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remaining six percent (6%) of the Actuarial Equivalent Present
Value shall be permanently forfeited.
(e) Notwithstanding any other provision of the Plan to the
contrary, in the event the Member elects to receive a period
certain annuity or joint and survivor annuity and either the
beneficiary designated by the Member dies prior to the date the
Member commences receiving his supplemental benefits or the
Member designates his spouse as his beneficiary and the Member
is not legally married to such spouse immediately preceding the
date the Member commences receiving his supplemental benefits,
the Member's election to receive such period certain annuity or
joint and survivor annuity shall automatically be converted to
an election to receive a single life annuity.
3.03 Notwithstanding the provisions of Section 3.02, a Member who has not
commenced receiving payment of his supplemental benefits may request
in writing to the Committee to amend the commencement date (in the
case of an annuity) or payment date (in the case of a single sum)
and/or the form of payment of his supplemental benefits elected by
the Member under Section 3.02, in accordance with the following
rules:
(a) A Member who has not commenced receiving payment of his
supplemental benefits may request to amend the timing and/or
form of payment of the supplemental benefits provided: (i) the
commencement date or the payment date in the absence of such
distribution election amendment is not within twelve (12)
months of the date of the amendment; (ii) his amended
commencement date or payment date (if applicable) is at least
twelve (12) months after the date of the distribution election
amendment; and (iii) his amended commencement date or payment
date (if applicable) is otherwise in conformance with the
provisions of Section 3.02(b).
(b) Notwithstanding subsection (a) above and any other provision of
the Plan to the contrary, a Member who has not commenced
receiving payment of his supplemental benefits may request at
any time to change (i) his annuity form of payment to a single
sum payment or (ii) the payment date of the single sum, with
the single sum payment in either case being made within the
twelve (12) month period beginning on the date of the
distribution election amendment and being equal to 94% of the
Actuarial Equivalent Present Value of the Member's supplemental
benefits, and with the remaining six percent (6%) of the
Actuarial Equivalent Present Value being permanently forfeited.
(c) Notwithstanding any other provision of the Plan to the
contrary, a Member who is receiving annuity payments of his
supplemental benefits may request to receive a single sum
payment of the Actuarial Equivalent Present Value of the
remaining supplemental benefits payable to such Member (and if
applicable, to such Member's beneficiary in the case of a
period certain annuity or a joint and survivor annuity) only
under the following circumstances:
(i) Each Member who is receiving payments of his supplemental
benefits immediately prior to March 1, 2000 shall be
given a three (3) month period, beginning with the date
the Committee notifies the Member, during which the
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Member may elect to receive such single sum payment.
(ii) In the event of a change in control (as defined in
Section 5.05(c)), each Member who is receiving payments
of his supplemental benefits immediately prior to the
change in control shall be given a three (3) month
period, beginning with the date of the change in control,
during which the Member may elect to receive such single
sum payment.
The Member's election under (i) or (ii) must be in writing and
must specify the payment date of the single sum; provided,
however, if the Member elects a payment date that is within
twelve (12) months of the date of his single sum election, he
shall receive 94% of the Actuarial Equivalent Present Value of
the remaining supplemental benefits payable to such Member (and
if applicable, to such Member's beneficiary), and the remaining
six percent (6%) of the Actuarial Equivalent Present Value
shall be permanently forfeited.
3.04 Notwithstanding the provisions of Section 3.01 and Section 3.02,
supplemental benefits shall be payable under this Plan to or on
account of a Member described in Section 2.02(d) who: (i) is
involuntarily terminated after completing one year of service but
prior to becoming vested in the Retirement Income Plan, and (ii)
receives severance pay benefits under the Severance Pay Plan for
Salaried Employees of Armstrong World Industries, Inc. or any
individual severance agreement, or who is eligible for severance pay
benefits under the Employment Protection Plan for Salaried Employees
of Armstrong World Industries, Inc. The Member's supplemental
benefits will be calculated using the guaranteed pension schedule
for Salaried Employees of Armstrong World Industries, Inc. under the
Retirement Income Plan multiplied by the total years of service
credited for employment prior to his Company employment, as
determined in Section 2.02(d) and his years of Company employment
and shall be payable in the form of a single life annuity commencing
as of the later of the Member's attainment of age 62 or the Member's
termination date.
3.05 If a Member is restored to employment with the Company after having
retired, any monthly payments under the Plan shall be discontinued
and, upon subsequent retirement or termination of employment with
the Company, the Member's benefits under the Plan shall be
recomputed in accordance with Section 3.01 and shall again become
payable to such Member in accordance with the provisions of the
Plan, including his election under Section 3.02.
3.06 In the event the dollar amount of the maximum benefit under the
Retirement Income Plan pursuant to Section 415 of the Internal
Revenue Code increases because of adjustments in the cost of living,
the supplemental benefits of any Member payable under the Plan,
whether or not in pay status, shall be recalculated to take into
account the higher maximum benefit payable from the Retirement
Income Plan. If payments have already commenced under the Retirement
Income Plan and this Plan, benefit amounts under both plans shall be
adjusted to reflect the higher maximum benefit, by increasing the
amount paid under the Retirement Income Plan and decreasing the
amount paid under this Plan, as soon as administratively possible
after such a change.
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Notwithstanding the above, if the Retirement Income Plan is
terminated, no adjustments shall be made to benefits payable under
this Plan with respect to changes in the maximum benefit after the
date of such termination.
Article 4. Administration
4.01 The administration of the Plan and the responsibility for carrying
out its provisions are vested in a Retirement Committee which shall
be composed of the members of the Retirement Committee provided for
under Article X of the Retirement Income Plan. The provisions of
Article X of the Retirement Income Plan concerning powers of the
Committee shall apply under this Plan. The Retirement Committee
shall have the full and exclusive discretion and authority to
interpret the Plan and to determine all benefits and to resolve all
questions arising from the administration, interpretation, and
application of Plan provisions, either by general rules or by
particular decisions, including determinations as to whether a
claimant is eligible for benefits, the amount, form and timing of
benefits, and any other matter (including any question of fact)
raised by a claimant or identified by the Retirement Committee. All
decisions of the Committee shall be conclusive and binding upon all
affected persons. The expenses of the Committee shall be paid
directly by the Company.
Article 5. General Provisions
5.01 The establishment of the Plan shall not be construed as conferring
any legal rights upon any person for a continuation of employment,
nor shall it interfere with the rights of the Company to discharge
any employee and to treat him without regard to the effect which
such treatment might have upon him as a Member of the Plan. No legal
or beneficial interest in any of the Company's assets is intended to
be conferred by the terms of the Plan.
5.02 In the event that the Committee shall find that a Member or other
person entitled to benefits hereunder is unable to care for his
affairs because of illness or accident, the Committee may direct
that any benefit payment due him, unless claim shall have been made
therefor by a duly appointed legal representative, be paid to his
spouse, a child, a parent or other blood relative, or to a person
with whom he resides, and any such payment so made shall be a
complete discharge of the liabilities of the Company and the Plan
therefor.
5.03 The Company shall have the right to deduct from each payment to be
made under the Plan any required withholding taxes.
5.04 Subject to any applicable law, no benefit under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, any attempt so to do
shall be void, nor shall any such benefit be in any manner liable
for or subject to garnishment, attachment, execution or levy, or
liable for or subject to the debts, contracts, liabilities,
engagements or torts of the Member. In the event that the Committee
shall find that any Member or other person entitled to benefits
hereunder has become bankrupt or has made any such attempt with
respect to any such benefit, such benefit shall cease and terminate,
and in that event the Board shall hold or apply the same to or for
the benefit of such Member or other person entitled to benefits.
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5.05 (a) In the event that a Member (i) is discharged for willful,
deliberate, or gross misconduct as determined by the Board of
Directors or a duly constituted committee thereof; or (ii) if
following the Member's termination of employment with the
Company and, within a period of three years thereafter, the
Member engages in any business or enters into any employment
which the Board of Directors or a duly constituted committee
thereof determines to be either directly or indirectly
competitive with the business of the Company or substantially
injurious to the Company's financial interest (the occurrence
of an event described in (i) or (ii) shall be referred to as
"Injurious Conduct"), all benefits which would otherwise be
payable to him under the Plan shall be forfeited. Further, the
Board of Directors or a duly constituted committee thereof, in
its discretion, may require the Member who has engaged in
Injurious Conduct to return any amounts previously received by
the Member, provided the right to require repayment under this
subsection (a) must be exercised within ninety (90) days after
the Board (or committee, as the case may be) first learns of
the Injurious Conduct, but in no event later than twenty-four
(24) months after the Member's termination of employment with
the Company. A Member may request the Board of Directors or a
duly constituted committee thereof, in writing, to determine
whether any proposed business or employment activity would
constitute Injurious Conduct. Such a request shall fully
describe the proposed activity and the Board's (or the
committee's, as the case may be) determination shall be limited
to the specific activity so described.
(b) Notwithstanding the foregoing, benefits shall not cease or be
forfeited or be required to be repaid merely because the Member
(1) owns publicly traded shares of stock of a corporation which
competes with the Company, or (2)(a) acts as a consultant for,
(b) has an investment in, or (c) is a Board member of a
business where after the Member notifies the Company in writing
in advance of his potential involvement under (2)(a), (b) or
(c), the Company's Board of Directors or a duly constituted
committee thereof determines that the Member will not be in
violation of the Company's Conflicts of Interest policy, or (3)
becomes associated with a business which competes with the
Company within two years following a "change in control" and is
eligible for benefits under the Employment Protection Plan for
Salaried Employees or any individual severance agreement.
(c) A "change in control" shall occur if and when (i) any person
acquires "beneficial ownership" of more than 28% of the then
outstanding "voting stock" of the Company and within five years
thereafter, "disinterested directors" no longer constitute at
least a majority of the entire Board of Directors or (ii) there
shall occur a "business combination" with an "interested
shareholder." For the purpose of this Section, the terms
"person," "beneficial ownership," "voting stock,"
"disinterested director," "business combination," and
"interested shareholder" shall have the meaning given to them
in Article 7 of the Company's Articles of Incorporation as in
effect on May 1, 1985. Notwithstanding the preceding sentence,
for any Member who is covered by an individual severance
agreement, a "change in
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control" shall have the meaning assigned to such term by the
individual severance agreement.
5.06 The Plan shall be constructed, regulated and administered under the
laws of the Commonwealth of Pennsylvania.
5.07 The masculine pronoun shall mean the feminine wherever appropriate.
5.08 The Board of Directors may, through written resolutions adopted by
the Board of Directors, amend or discontinue the Retirement Benefit
Equity Plan at any time; provided, however, that if the Plan is
amended to discontinue or reduce the amount of supplemental benefit
payments (except as may be required pursuant to any plan arising
from insolvency or bankruptcy proceedings) (a) any Member who is
being paid his supplemental benefits immediately prior to the
effective date of the amendment shall continue to be paid his
supplemental benefits in the amount and manner (as provided under
Article 3 hereof) as they were being paid at the time of such
amendment, and (b) any Member who is not being paid his supplemental
benefits immediately prior to the effective date of the amendment
shall be entitled to receive (i) the supplemental benefits accrued
by such Member as of the effective date of the amendment, with such
supplemental benefits being paid in the form and at the time elected
by the Member under Section 3.02, and (ii) any legal fees and
related expenses incurred by the Member in receiving such
supplemental benefits (as permitted under Section 5.09(e)) and
interest under Section 5.09(f) (to the extent applicable).
Notwithstanding the preceding sentence, any written employment
agreement between the Executive Committee and any Member described
in clause (b) of the preceding sentence shall govern to the extent
such agreement either amends or discontinues the Member's
supplemental benefits under the Plan, and Section 5.05 shall govern
to the extent any Member engages in Injurious Conduct as defined
under that section.
In addition, the Board of Directors may by written resolution
delegate to the Executive Committee of the Board of Directors this
authority to amend the Plan. The Executive Committee shall amend the
Plan by means of written resolution in accordance with the
authorization of the Board of Directors, provided, however, that any
such amendment by the Executive Committee also may be made through
the terms of a written employment agreement entered into between a
Member and the Executive Committee.
5.09 (a) Any person claiming a benefit, requesting an interpretation or
ruling under the Plan, or requesting information under the Plan
shall present the request in writing to the Committee which
shall respond in writing as soon as practicable.
(b) If the claim or request is denied, the written notice of denial
shall state:
(i) The reasons for denial, with specific reference to the
Plan provisions on which the denial is based.
(ii) A description of any additional material or information
required and an explanation of why it is necessary.
(iii) An explanation of the Plan's claim review procedure.
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<PAGE>
(c) Any person whose claim or request is denied or who has not
received a response within thirty (30) days may request review
by notice given in writing to the Committee. The claim or
request shall be reviewed by the Committee who may, but shall
not be required to, grant the claimant a hearing. On review,
the claimant may have representation, examine pertinent
documents, and submit issues and comments in writing.
(d) The decision on review shall normally be made within sixty (60)
days. If an extension of time is required for a hearing or
other special circumstances, the claimant shall be notified and
the time limit shall be one hundred twenty (120) days. The
decision shall be in writing and shall state the reasons and
the relevant Plan provisions. All decisions on review shall be
final and bind all parties concerned.
(e) In the event a Member's claim for supplemental benefits under
this Plan is denied and the Member successfully appeals the
denial of such claim under the foregoing procedures, the
Company shall pay or reimburse the legal fees and expenses
directly incurred by the Member in connection with his appeal
subject to a maximum payment or reimbursement of one-third of
the Actuarial Equivalent Present Value of the supplemental
benefits to which the Member is entitled. For purposes of the
preceding sentence, actuarial equivalence shall be determined
using the Present Value Factors. Any such legal fees and
expenses shall be paid by the Company to, or on behalf of, the
Member no later than thirty (30) days following the Member's
written request for the payment of such legal fees and
expenses, provided the Member supplies the Committee with
evidence of the fees and expenses incurred by the Member that
the Committee, in its sole discretion, determines is
sufficient.
(f) Further, in the event a Member's claim for supplemental
benefits under this Plan is denied and the Member successfully
appeals the denial of such claim under the foregoing
procedures, the Company shall pay to the Member interest on the
portion of the Member's supplemental benefits that were not
otherwise paid when due because of the initial denial of the
claim. For purposes of the preceding sentence, interest shall
accrue at an annual rate equal to the prime rate as quoted in
the Wall Street Journal as of the date the supplemental
benefits would otherwise have been paid if the claim had not
initially been denied, plus five percent (5%), and shall be
adjusted as necessary to reflect any partial payment or
payments of the amounts owed to the Member.
As Amended Through December 13, 1999
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EXHIBIT 10(iii)(f)
ARMSTRONG
DEFERRED COMPENSATION PLAN
The Armstrong Deferred Compensation Plan (the "Plan") was initially
established by the Board of Directors of Armstrong World Industries, Inc.
effective September 30, 1985. The Plan allows certain directors and management
employees of the Company to defer receipt of a portion of their Compensation
and, as a result, to receive certain supplemental retirement or survivor
benefits. In addition, effective January 1, 1996, certain directors are
required to defer receipt of a portion of their Compensation until termination
of Board service. The Plan is hereby amended and restated as of January 1,
2000.
1. DEFINITIONS
1.01 "Company" shall mean Armstrong World Industries, Inc. or any
successor by merger, purchase or otherwise. In addition, the term Company shall
include any subsidiary corporation controlled by Armstrong World Industries,
Inc. that shall have adopted this Plan with the permission of the Board of
Directors of Armstrong World Industries, Inc.
1.02 "Committee" shall mean the Deferred Compensation Committee whose
membership shall include the Chief Executive Officer of the Company and at least
two (2) other employees of the Company selected by the Chief Executive Officer.
1.03 "Compensation" for an employee Participant shall include a
Participant's annual base salary and any actual bonus payable under the
Company's annual bonus plan received by the employee for services with the
Company and, in the case of a nonemployee director Participant, shall include
payments by the Company to the director in the form of retainer fees, meeting
fees, and special assignment fees, as well as share awards made by the Company
to the director's Stock Subaccount. Upon the prior approval of the Committee
and subject to any conditions imposed by the Committee, an employee Participant
may elect to include in annual base salary an applicable amount of any
"severance pay" to be provided to a Participant under the Employment Protection
Plan for Salaried Employees, the Severance Pay Plan for Salaried Employees or
any individual agreement.
1.04 "Participant" shall be each nonemployee director and employee who has
been selected for participation by the Committee, who satisfies all conditions
of eligibility, and who elects to participate by entering into a Participation
Agreement.
1.05 "Participation Agreement" is the contract between the Company and the
Participant covering participation in the Plan.
<PAGE>
1.06 "Change in Control" shall occur if and when (i) any person acquires
"beneficial ownership" of more than twenty-eight percent (28%) of the then
outstanding "voting stock" of the Company and, within five (5) years thereafter,
"disinterested directors" no longer constitute at least a majority of the entire
Board of Directors, or (ii) there shall occur a "Business Combination" with an
"Interested Shareholder." For those individuals with individual agreements,
"Change in Control" shall occur as defined within such agreement.
For the purpose of this section, the terms "person," "beneficial
ownership," "voting stock," "disinterested director," "Business Combination,"
and "Interested Shareholder" shall have the meaning given to them in Article 7
of the Company's Articles of Incorporation as in effect on May 1, 1985.
1.07 "Supplemental Retirement Account Balance" at any date shall mean with
respect to any Participant an amount equal to the amounts credited (including
deferrals and earnings thereon) to the Participant's Cash Subaccount, the
Participant's Stock Subaccount, and the Participant's Fund Subaccount, as
determined pursuant to Sections 1.09, 1.10 and 1.11.
1.08 "Termination Account Balance" at any date shall mean with respect to
any Participant the sum of (a) plus (b), where (a) equals one hundred percent
(100%) of the amount credited to the Participant's Cash Subaccount attributable
to deferrals made prior to January 1, 1993, and earnings thereon, as determined
pursuant to Section 1.09; and (b) equals ninety-four percent (94%) of the sum of
(i) the amount credited to the Participant's Cash Subaccount attributable to
deferrals made on or after January 1, 1993, and earnings thereon, as determined
pursuant to Section 1.09, (ii) the amount credited to the Participant's Stock
Subaccount (including deferrals and earnings thereon), as determined pursuant to
Section 1.10, plus (iii) the amount credited to the Participant's Fund
Subaccount (including deferrals and hypothetical earnings thereon), as
determined pursuant to Section 1.11.
1.09 "Cash Subaccount" shall mean with respect to any Participant:
(a) The amount which the Participant actually defers under this Plan
unless such Participant elects in writing that all or a portion of such
deferral be credited to his Stock Subaccount or his Fund Subaccount in
accordance with subsection 3.02(g) or 3.02(h) of this Plan, plus
(b) Interest which is credited on each such deferral at a rate equal
to the rate specified in the Participant's individual Participation
Agreement for purposes of determining the Participant's Supplemental
Retirement Account Balance, for the following period:
(i) From the date on which the deferred Compensation normally
would have been paid in the case of deferrals to the Cash Subaccount
or, in all
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other cases, from the date of transfer from the Stock
Subaccount or the Fund Subaccount pursuant to subsection 3.02(h),
(ii) Until the earlier of the date of payment or the date of
transfer to the Stock Subaccount or the Fund Subaccount pursuant to
subsection 3.02(h).
1.10 "Stock Subaccount" at any date shall mean with respect to any
Participant the amount which the Participant elects to defer and have credited
to his Stock Subaccount in accordance with subsection 3.02(g) of this Plan or,
in the case of a nonemployee director Participant, the share awards made by the
Company which the Participant defers in accordance with Subsection 3.02(i), plus
any amounts the Participant elects to transfer to this Subaccount from the Cash
Subaccount or the Fund Subaccount in accordance with the provisions of Section
3.02(h), reduced by any amounts the Participant elects to transfer from this
Subaccount to the Cash Subaccount or the Fund Subaccount in accordance with the
provisions of Section 3.02(h). A bookkeeping entry shall be made of the number
of whole and fractional shares of Company common stock that were awarded or that
could have been purchased with the amounts actually deferred under or
transferred to the Stock Subaccount by the Participant, based on the fair market
value of such stock on the date the deferral is made or the transfer is credited
to the Participant's Stock Subaccount. The Stock Subaccount also shall be
credited with a bookkeeping entry indicating the number of additional whole or
fractional shares which would be payable as a stock dividend on the shares
previously credited to the Stock Subaccount. Any amounts which would represent
cash dividends on Company common stock credited to a Participant's Stock
Subaccount shall be converted to an entry representing the number of additional
shares of Company common stock which could be purchased at fair market value
with such dividends as of the date such dividends are credited to the
Subaccount.
For purposes of this section, "fair market value" of a share of Company
common stock shall mean the closing price of a single share of Company common
stock as reported by the New York Stock Exchange on the applicable date or, if
no sales were made on such date, on the next preceding date on which sales of
the Company common stock were made. The "applicable date" for deferred amounts
shall be the date on which the deferred Compensation would have been paid. The
"applicable date" for transfers to or from the Stock Subaccount shall be the
effective date of the Participant's conversion election under Section 3.02(h).
In the event of any changes in the outstanding shares of Company common
stock by reason of stock dividends, stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges, or other
relevant changes in capitalization occurring after the date of deferral, the
Committee shall adjust the balance in the Participant's Stock Subaccount
appropriately to reflect such change.
1.11 "Fund Subaccount" at any date shall mean with respect to any
Participant the amount which the Participant elects to defer and have credited
to his Fund Subaccount in accordance with subsection 3.02(g) of this Plan, plus
any amounts the Participant elects to
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transfer to this Subaccount from the Cash Subaccount or the Stock Subaccount in
accordance with the provisions of Section 3.02(h), reduced by any amounts the
Participant elects to transfer from this Subaccount to the Cash Subaccount or
the Stock Subaccount in accordance with the provisions of Section 3.02(h). The
Participant shall designate his preference for the investment of the funds
deferred by him under this Subaccount. Such designation shall be limited to the
selection of one or more investment funds designated on the Participant's
Deferral Election forms for the period in question. The Company and the Trustee,
if a trust is funded, may elect to invest trust assets in such designated
investment funds, but shall not be required to do so. In any event, the
Participant's Fund Subaccount shall be credited with the hypothetical earnings,
gains, losses, and changes in the fair market value of such Fund Subaccount for
the time period that a Participant has amounts credited to the Fund Subaccount
as if the Company had followed such investment designation (such amount being
referred to herein as the "hypothetical earnings"). A bookkeeping entry shall be
made of the amounts deferred or transferred to the Fund Subaccount, along with
the hypothetical earnings on such amounts for each investment fund selected by
the participant.
Deferrals credited to the Fund Subaccount under the Plan may be deemed to
be invested in one or more investment funds as approved by the Committee,
including but not limited to the following:
(a) Equity Investment Fund - One or more diversified equity funds
----------------------
invested in equity securities or securities convertible into equity
securities.
(b) Fixed Income Investment Fund - One or more fixed income funds
----------------------------
invested in, but not limited to, guaranteed income contracts, bonds, notes,
debentures, asset-backed securities and fixed income derivatives.
(c) Money Market Fund - One or more money market funds invested in
-----------------
short-term obligations of the United States Government, bank certificates
of deposit, commercial paper, bankers' acceptances, shares of money market
mutual funds and other similar types of short-term investments.
(d) Balanced Fund - One or more balanced funds, as may be available
-------------
from time to time, that invest in a mixture of bonds, equities, and short-
term instruments.
Dividends, interest and other distributions which would otherwise be
received in respect to each hypothetical investment under the Fund Subaccount
shall be deemed to be reinvested in the respective investment fund.
1.12 "Reporting Person" shall mean a person who is subject to the
provisions of Section 16(a) of the Securities Exchange Act of 1934, as amended.
For purposes of this Plan, a person shall be deemed to be a Reporting Person for
the period he is such a Reporting Person and six (6) months thereafter.
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2. ELIGIBILITY FOR PARTICIPATION
Participation in the Plan is limited to nonemployee directors of the
Company and those management employees who have been selected for participation
by the Committee.
3. DEFERRAL OF COMPENSATION
3.01 Deferral Period: During such period or periods as may, from time to
time, be selected by the Committee (the "Deferral Period"), each person eligible
to participate in the Plan shall be given the opportunity to elect to defer a
portion of his or her Compensation. The length of the current Deferral Period
shall be four (4) years, commencing on January 1, 1997.
3.02 Deferral Rules:
(a) There shall be no minimum amount a Participant is required to
defer.
(b) The maximum amount an employee Participant may defer for each
year of the Deferral Period shall be twenty percent (20%) of the
Participant's annual base salary at the time of the deferral election and
one hundred percent (100%) of the Participant's actual bonus payable under
the Company's annual bonus plan; or, with the approval of the Board of
Directors, up to the sum of twenty percent (20%) of the Participant's
annual base salary and one hundred percent (100%) of the Participant's
target bonus award. The amount of any bonus deferral may not exceed the
gross amount of the bonus reduced by any tax required to be withheld from
such amounts under Sections 3111(a) and (b) of the Internal Revenue Code of
1986, as amended, or any state or local statute. Subject to the above
deferral limitations, the Board of Directors may also approve deferrals
from any payment of cash Compensation to the employee Participant. The
maximum amount of Compensation a nonemployee director may defer for each
year of the Deferral Period shall be determined by the director.
(c) The amount deferred by an employee Participant shall be deferred
by means of reductions in the employee's annual base salary or bonus,
whichever is applicable under the Participant's deferral election. Amounts
deferred by a nonemployee director shall be made from the director's
retainer fees, meeting fees and special assignment fees, and share awards
made by the Company to the director's Stock Subaccount under Section
3.02(i).
(d) The decision by a Participant to defer a portion of Compensation
(other than share awards to nonemployee directors under Section 3.02(i)) is
an election for the full Deferral Period which must be made by the December
1 prior to the Deferral Period to which an election to defer Compensation
relates; provided, however, that in the case of a Participant whose
eligibility to participate in the Plan initially commences after January 1
of a year, a decision to defer a portion of Compensation earned after such
a
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<PAGE>
deferral election and during the remaining part of a Deferral Period must
be made no later than thirty (30) days after the Participant's commencement
of participation.
The decision by a Participant of the amount to be deferred under this
Plan for each calendar year in the Deferral Period (other than share awards
to nonemployee directors under Section 3.02(i)) is an annual election which
must be made by December 1 of the calendar year prior to the year in which
the amount is to be deferred.
Deferrals of share awards to nonemployee directors under Section
3.02(i) shall be automatic at the time such award is made and shall not
require a deferral election other than the initial election described in
Section 3.02(i) for Participants who were directors prior to January 1,
1996.
(e) Except as provided below, a Participant's election to defer
Compensation shall be irrevocable for the Deferral Period and a
Participant's election of the amount to be deferred shall be irrevocable
for the calendar year in which the election is effective. Notwithstanding
the prior sentence, the Committee may permit a Participant to waive the
remainder of the deferral commitment upon a finding based upon uniform
standards established by the Committee that the Participant has suffered a
severe financial hardship.
For these purposes, a severe financial hardship includes a sudden and
unexpected illness or accident of the Participant or a dependent (as
defined under Section 152(a) of the Internal Revenue Code of 1986, as
amended), loss of the Participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant, to the extent not
reimbursed by insurance or otherwise, and to the extent the Participant
does not have other funds reasonably available to alleviate the hardship.
(f) Notwithstanding the above, any employee Participant, after
approval by the Committee, may elect to complete the deferral of annual
base salary as specified in the current Deferral Election from any
"severance pay" which the Participant is eligible to receive following the
Participant's date of termination under the Employment Protection Plan for
Salaried Employees, the Severance Pay Plan for Salaried Employees or any
individual agreement.
(g) At the time a Participant makes an election for the amount to be
deferred for a calendar year during the Deferral Period in accordance with
this Section 3.02, such Participant may elect in writing that a specified
percentage (stated in five percent (5%) increments) of the Compensation he
is deferring pursuant to the Plan for such calendar year be credited to his
Cash Subaccount, to his Stock Subaccount or to the individual investment
funds elected by the Participant in his Fund Subaccount. Such percentage
allocation may be changed with respect to future deferrals at any time. If
the
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Participant's election fails to specify the percentage to be allocated to
each Subaccount or allocates less than one hundred percent (100%) of the
amounts to be deferred, the amounts deferred by the Participant for which
no allocation election has been made for the calendar year shall be
credited to the Participant's Cash Subaccount.
(h) At any time, a Participant may elect to convert all or a portion
of amounts previously deferred under one Subaccount to any other
Subaccount; provided, however, that amounts deferred or otherwise credited
to the Stock Subaccount may not be converted to the Cash Subaccount or the
Fund Subaccount if the Participant is a Reporting Person. The
Participant's election shall be effective on the first day of the month
following the receipt of such election by the Secretary of the Committee,
provided that the Secretary is notified of such election by the twenty-
fifth (25th) day of the month prior to the conversion date. Notice by
telephone or facsimile shall be deemed to constitute notice to the
Secretary of the conversion election, provided that a written form is
submitted immediately subsequent to such notice. The number of shares to
be credited to a Participant's Stock Subaccount, or the number of shares to
be debited from a Participant's Stock Subaccount and the cash to be
credited to the Participant's Cash Subaccount, or an investment fund in the
Fund Subaccount, shall be based on the fair market value of Company common
stock (as determined in Section 1.10 of the Plan) on the date that the
conversion election is effective. The interest rate for amounts
transferred to the Cash Subaccount shall be the rate in effect under the
Participant's individual Participation Agreement in effect during the
Deferral Period in which the conversion election is effective.
Hypothetical earnings credited on amounts transferred to the Fund
Subaccount shall be based on the actual investment performance of each
applicable investment fund for the time period that a Participant has an
account balance in such investment funds.
(i) Effective January 1, 1996, nonemployee directors of the Company
who were Participants of the Board prior to January 1, 1996, were able to
elect to discontinue their participation in the Directors' Retirement
Income Plan ("Directors' Plan") and waive their right to any benefit
accrued under the Directors' Plan. If a nonemployee director made this
election, such director became eligible to receive an annual award
equivalent to the value of two hundred (200) shares of Company common stock
which shall be credited to his Stock Subaccount. The annual share award
shall be made each January 1 up until the time a director attains twelve
(12) years of Board service, including years of Board service prior to
January 1, 1996. The first such award was made on January 1, 1996.
Further, such director received, effective January 1, 1996, a share award
grant to replace the value of the accrued Directors' Plan benefit the
director elected to forfeit. This share award grant was credited to the
director's Stock Subaccount and was the greater of:
(i) Two hundred (200) shares times the number of full years of
Board service as of January 1, 1996, up to a maximum of twelve (12)
years, or
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(ii) The number of shares whose value (based on the fair market
value of Armstrong common stock on January 1, 1996) equated to the
present value of the benefits accrued under the Directors' Plan using
a six and one-half percent (6-1/2%) discount rate and assuming
benefit payments commence on the first day of the month following the
director's sixty-fifth (65th) birthday (January 1, 1996, if the
director was older than sixty-five (65)).
Nonemployee directors who join the Board after January 1, 1996, shall
be eligible to receive an annual award equivalent to two hundred (200)
shares of Armstrong common stock which shall be credited to their Stock
Subaccount unless the director elects to receive stock options in lieu of
this award. The annual share award shall be made each January 1 until such
time as a director attains twelve (12) years of Board service.
3.03 Manner of Electing Deferral and Payment of Benefits: A Participant
shall elect to defer Compensation by giving written notice to the Company on
forms provided for such purposes, which notice shall include:
(a) The amount and manner of Compensation to be deferred in each
calendar year of a specified Deferral Period. An employee Participant
shall make a separate election for amounts of annual base salary to be
deferred and amounts of bonus awards to be deferred.
(b) A Designation of Beneficiary.
(c) The date the installment payments of the Participant's deferred
Compensation and interest thereon are to commence, subject to the
limitations of Section 4.03.
(d) The designation of the Subaccount (Cash, Stock or Fund and, if
applicable, the investment fund or funds under the Fund Subaccount) to
which deferrals are to be credited for each calendar year of the specified
Deferral Period.
The Designation of the Beneficiary shall continue to be effective until and
unless a new election is filed in writing with the Committee. The designation
of the date that the installment payments of the Participant's benefits are to
commence shall be irrevocable, except as provided in Article 4.
4. PAYMENT AND AMOUNT OF BENEFITS
4.01 A Participant's supplemental retirement benefits under this Plan
shall be paid in substantially equal monthly installments under the declining
balances methodology for one hundred twenty (120) months in the case of a
nonemployee director Participant and for one
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hundred eighty (180) months in the case of an employee Participant; provided,
however, that alternative payment schedules may be established by the Management
Development and Compensation Committee of the Board of Directors. The
Participant's installment payments of his supplemental retirement benefits shall
commence in accordance with the election made by the Participant pursuant to
Section 3.03, provided, however, that:
(a) For a Participant who is a nonemployee director, payment may
commence at any time following termination of service as a director, but in
no event earlier than age sixty-five (65) for directors who begin Plan
participation before January 1, 1996; provided that payment will commence
in all events not later than the first day of the month following the
Participant's seventieth (70th) birthday, regardless of whether service as
a director has terminated at that time.
(b) For a Participant who is an employee, payment may commence at any
time subsequent to termination or retirement; provided, however, that
payment will commence in all events not later than the first day of the
month following the Participant's sixty-fifth (65th) birthday, regardless
of whether the Participant has actually retired at that time.
Notwithstanding the foregoing, the Company reserves the right to impose
conditions, including with respect to payment commencement, in connection with
early retirement opportunities or any other severance arrangements which
otherwise enhance an employee Participant's retirement income.
4.02 The supplemental retirement benefits for a Deferral Period will be
paid, but in a lesser amount, if:
(a) By the end of the Deferral Period the Compensation payable to a
Participant has proved insufficient to accommodate full deferral;
(b) Prior to the end of the Deferral Period, a nonemployee director
ceases to be a director after completing one (1) year of service on the
Board of Directors for any reason other than death;
(c) A Participant ceases to be a Participant within the Deferral
Period because his or her employment with the Company ceases or such
Participant retires under any Company Pension Plan within that period;
(d) A Participant discontinues deferrals within the Deferral Period
due to severe financial hardship.
4.03 Notwithstanding any other provision of the Plan (including but not
limited to Sections 4.05 and 4.06), if an employee Participant resigns without
the written approval of the
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Committee or is discharged for willful, deliberate or gross misconduct as
determined by the Committee or if a nonemployee director Participant terminates
service on the Board of Directors prior to the completion of one (1) year of
service, then in lieu of any other benefit under the Plan (including any single
sum previously requested by the Participant under Section 4.05(b) or Section
4.06), the Participant shall be paid a single sum amount, as soon as practical
following such resignation, discharge or termination (as the case may be) equal
to the Participant's Termination Account Balance, and shall permanently forfeit
the amount that represents the difference between the Participant's Supplemental
Retirement Account Balance and Termination Account Balance.
4.04 Notwithstanding Section 4.03, if an employee Participant is
terminated or terminates for good reason as set forth in the Employment
Protection Plan for Salaried Employees or an individual agreement within three
(3) years following a Change in Control or if an employee Participant retires
pursuant to an early retirement opportunity or any other severance arrangement
in which the Participant agrees to commence payment of the supplemental
retirement benefits following the Participant's sixty-fifth (65th) birthday and
a Change in Control precedes the commencement of such payments, the Participant
may request the payment of his Supplemental Retirement Account Balance in a
single sum. Notwithstanding the preceding sentence, if such Participant
requests that the single sum be paid on a date that is less than twelve (12)
months from the date of such request, the Participant shall receive a single sum
payment equal to the Participant's Termination Account Balance, and shall
permanently forfeit the amount that represents the difference between the
Participant's Supplemental Retirement Account Balance and Termination Account
Balance.
4.05 Notwithstanding any other provision of the Plan to the contrary, a
Participant may elect, upon written request to the Committee, to accelerate the
commencement date of the installment payments to be made to the Participant
and/or to receive a specified portion (including one hundred percent (100%)) of
his supplemental retirement benefits under the Plan in a single sum payment, in
accordance with the rules set forth below:
(a) A Participant may accelerate the commencement date upon which the
installment payments of his supplemental retirement benefits are otherwise
scheduled to commence, provided that the accelerated commencement date is
otherwise permissible under Section 4.01 and is at least twelve (12) months
from the date of such request.
(b) A Participant may request at any time the single sum payment of a
specified dollar amount or percentage (including one hundred percent
(100%)) of his supplemental retirement benefits. The Participant's single
sum payment shall equal the specified dollar amount or percentage of the
Participant's Supplemental Retirement Account Balance as of the payment
date. Notwithstanding the preceding sentence, if such Participant requests
that the single sum be paid on a date that is less than twelve (12) months
from the date of such request, the Participant shall receive a single sum
payment equal to the specified dollar amount or percentage of the
Participant's Termination Account Balance as of the payment date and shall
permanently forfeit the proportionate
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amount of his Supplemental Retirement Account Balance that would otherwise
have been paid in a single sum if the Participant had requested that the
single sum be paid on a date that is at least twelve (12) months from the
date of the such request. If a Participant has commenced receiving
installment payments of his supplemental retirement benefits, and the
Participant is paid a single sum payment under this Section 4.05(b), each
subsequent installment payment shall be reduced as necessary to reflect the
single sum payment and the permanent forfeiture. A Participant shall be
limited to two (2) single sum requests in any calendar year.
(c) Notwithstanding any other provision in the Plan to the contrary,
any Participant who is a Reporting Person shall not be entitled to receive
a distribution of any amount owed to the Participant under the Stock
Subaccount.
(d) Notwithstanding any other provision in the Plan to the contrary,
a Participant who has requested, but not received, a single sum payment of
all or part of his supplemental retirement benefits under the Plan may
elect, upon written request to the Committee, to change the payment date of
such single sum or revoke the payment of such single sum provided the
payment date in the absence of such request is not within twelve (12)
months of the date of the request. If the Participant requests an amended
payment date that is less than twelve (12) months from the date of the
request, the Participant shall receive a single sum payment equal to the
specified dollar amount or percentage of the Participant's Termination
Account Balance as of the payment date. Any such single sum paid under
this Section 4.05(d), the forfeiture of a portion of the Participant's
Supplemental Retirement Account, and the Participant's remaining
installment payments in the event the Participant has commenced receiving
installment payments, shall be administered in accordance with the
provisions of Section 4.05(b) above.
4.06 Further, notwithstanding any other provision of the Plan to the
contrary, a Participant may request a single sum payment of an amount necessary
to satisfy a severe financial hardship. The Committee shall determine, based
upon uniform, established standards, whether the Participant has suffered a
severe financial hardship. For these purposes, a severe financial hardship
shall have the same meaning as under Section 3.02(e). Notwithstanding the
foregoing, amounts deferred under the Stock Subaccount shall not be
distributable due to such a severe financial hardship if the Participant is a
Reporting Person. Upon such determination, the Participant will receive an
amount necessary to satisfy such financial hardship but in no event more than
the balance of the Participant's Supplemental Retirement Account Balance as of
the date of payment.
4.07 For purposes of any single sum payment made under Section 4.05(b) or
4.06, the Participant's request for such single sum payment shall designate the
deferral period or periods and the dollar amount or percentage of the
Participant's interest in his Cash Subaccount, Fund Subaccount and/or Stock
Subaccount (to the extent the Participant is not a Reporting Person at the time
of the single sum payment) with respect to each such deferral period that shall
be debited to derive the proceeds of the single sum payment. If the Participant
designates more
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than one deferral period, the actual proceeds of the single sum shall be derived
from the deferral periods in the order designated by the Participant, with the
deferrals and earnings in a deferral period being fully exhausted before
accessing each other deferral period according to the order designated by the
Participant. With respect to each such deferral period, the proceeds shall be
derived first from the Participant's deferrals to the Subaccount or Subaccounts
designated by the Participant on a last deferred, first distributed basis, and
then from earnings thereon.
5. SURVIVOR BENEFIT
5.01 If a Participant dies prior to the full distribution of his
supplemental retirement benefits and prior to the commencement of the
installment payments of his supplemental benefits, the Participant's designated
beneficiary or the Participant's estate (in the event no beneficiary is
designated) shall be entitled to a survivor benefit equal to the greater of (a)
the Participant's Supplemental Retirement Account Balance as of the
Participant's date of death, or (b) an amount equal to three (3) times the
deferrals (but not earnings) credited to the Participant's Cash Subaccount,
Stock Subaccount and Fund Subaccount for each Deferral Period that have not been
previously distributed to the Participant under Article 4. Such survivor
benefit shall be paid to the Participant's designated Beneficiary or estate (as
the case may be) in substantially equal monthly installments under the declining
balances methodology for a period of one hundred twenty (120) months, beginning
as soon as practical after the Participant's death. Notwithstanding the
preceding sentence, the Committee may approve a single sum payment of the
survivor benefit if such single sum is requested by the Beneficiary and
necessitated by severe financial hardship (as defined in Section 3.02(e)).
5.02 If a Participant dies prior to the full distribution of his
supplemental retirement benefits and after the commencement of the installment
payments of his supplemental benefits, the remaining installments shall be paid,
on their respective due dates, to the Participant's designated beneficiary or
the Participant's estate (in the event no beneficiary is designated).
Notwithstanding the preceding sentence, the Participant's designated beneficiary
or the representative of the Participant's estate (as the case may be) may
request a single sum distribution equal to the Participant's Supplemental
Retirement Account Balance as of the payment date; provided, however, if the
beneficiary or the representative of the estate (as the case may be) requests a
payment date within twelve (12) months of the date of such request, the single
sum payment shall equal the Participant's Termination Account Balance as of the
payment date and the amount that represents the difference between the
Participant's Supplemental Retirement Account Balance and Termination Account
Balance shall be permanently forfeited.
6. AMOUNTS OF SUPPLEMENTAL RETIREMENT AND SURVIVOR BENEFITS
The amount of the supplemental retirement and survivor benefits shall be
prescribed in accordance with a general plan applicable to all Participants
which has been established by the Committee and approved by the Management
Development and Compensation Committee of the Board of Directors.
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7. FINANCING
The Company may finance obligations under this Plan by the purchase of one
(1) or more policies of life insurance upon the lives of Participants, with the
Company as owner of and beneficiary under such policies. No Participant shall
have any right or interest in any such policy or the proceeds thereof or in any
other specific fund or asset of the Company as a result of the Plan. The rights
of Participants to benefit payments hereunder shall be no greater than those of
an unsecured creditor. Each Participant shall cooperate fully in the
application for, and in the maintenance of, any such policy or policies of
insurance upon the Participant's life.
8. AMENDMENT OR TERMINATION
8.01 The Board of Directors of the Company may, through written
resolutions, terminate or amend this Plan at any time, including a retroactive
amendment if necessary to bring this Plan into conformity with any law or
governmental regulation relating to plans or trusts of this character; provided,
however, that if the Plan is amended to discontinue or reduce the amount of
supplemental retirement benefits payments (except as may be required pursuant to
any plan arising from insolvency or bankruptcy proceedings) (a) any Participant
who has commenced receiving installment payments of his supplemental retirement
benefits prior to the effective date of the amendment shall continue to be paid
his supplemental retirement benefits in the amount and manner (as provided under
Articles 3 and 4 hereof) as they were being paid at the time of such amendment,
and (b) any Participant who has not commenced receiving installments payment of
his supplemental retirement benefits prior to the effective date of the
amendment shall be entitled to receive (i) the supplemental retirement benefits
accrued by such Participant as of the effective date of the amendment, with such
supplemental retirement benefits being paid in the form and at the time elected
by the Participant under Articles 3 and 4, and (ii) any legal fees and related
expenses incurred by the Participant in receiving such supplemental retirement
benefits (as permitted under Section 10.05) and interest under Section 10.06 (to
the extent applicable). Notwithstanding the preceding sentence, any written
employment agreement between the Executive Committee and any Participant
described in clause (b) of the preceding sentence shall govern to the extent
such agreement either amends or discontinues the Participant's supplemental
retirement benefits under the Plan, and Section 4.03 shall govern to the extent
any Participant is discharged for willful, deliberate or gross misconduct.
8.02 Notwithstanding the preceding provisions of Section 8.01, if the
reason for termination or amendment is a change in the tax laws adversely
affecting the financing of the supplemental retirement benefits or survivor
benefits under the Plan, then the Board of Directors of the Company may
terminate all (but not less than all) of the then existing Participation
Agreements except any under which benefits are then being paid.
(a) Each Participant with a terminated Agreement will be paid in lieu
of any and all other benefits hereunder an amount equal to the
Participant's Supplemental Retirement Account balance as of the date of
termination.
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(b) Such amount resulting from termination may be paid in a single
sum within forty-five (45) days of the date of such termination or in such
other manner and at such other time or times as the Committee may
reasonably determine.
9. ADMINISTRATION
9.01 Responsibility for establishing the requirements for participation
and for administration of the Plan shall be vested in the Committee, which shall
have the full and exclusive discretionary authority to interpret the Plan or the
Participation Agreements, to determine all benefits and to resolve all questions
arising from the administration, interpretation, and application of their
provisions, either by general rules or by particular decisions, including
determinations as to whether a claimant is eligible for benefits, the amount,
form and timing of benefits, and any other matter (including any question of
fact) raised by a claimant or identified by the Committee. The Committee may
delegate administrative tasks as necessary to persons who are not Committee
members. All decisions of the Committee shall be conclusive and binding upon
all affected persons.
9.02 The expenses of administering the Plan shall be borne by the Company.
No member of the Committee shall receive any remuneration for service in such
capacity. However, expenses of the Committee or its members paid or incurred in
connection with administering the Plan shall be reimbursed by the Company.
9.03 The Company shall indemnify and hold harmless the members of the
Committee against any and all claims, loss, damage, expense or liability arising
from any action or failure to act with respect to this Plan, except in the case
of gross negligence or willful misconduct.
10. CLAIMS PROCEDURE
10.01 Claim. Any person claiming a benefit, requesting an interpretation
or ruling under the Plan, or requesting information under the Plan shall present
the request in writing to the Committee which shall respond in writing as soon
as practicable.
10.02 Denial of Claim. If the claim or request is denied, the written
notice of denial shall state:
(a) The reasons for denial, with specific reference to the Plan
provisions on which the denial is based.
(b) A description of any additional material or information required
and an explanation of why it is necessary.
(c) An explanation of the Plan's claim review procedure.
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10.03 Review of Claim. Any person whose claim or request is denied or who
has not received a response within thirty (30) days may request review by notice
given in writing to the Committee. The claim or request shall be reviewed by
the Committee who may, but shall not be required to, grant the claimant a
hearing. On review, the claimant may have representation, examine pertinent
documents, and submit issues and comments in writing.
10.04 Final Decision. The decision on review shall normally be made
within sixty (60) days. If an extension of time is required for a hearing or
other special circumstances, the claimant shall be notified and the time limit
shall be one hundred twenty (120) days. The decision shall be in writing and
shall state the reasons and the relevant Plan provisions. All decisions on
review shall be final and bind all parties concerned.
10.05 Attorney's Fees and Expenses. In the event a Participant's claim for
benefits under this Plan is denied and the Participant successfully appeals the
denial of such claim under the foregoing procedures, the Company shall pay or
reimburse the legal fees and expenses directly incurred by the Participant in
connection with his appeal subject to a maximum payment or reimbursement of
one-third of the supplemental retirement benefits to which the Participant is
entitled. Any such legal fees and expenses shall be paid by the Company to, or
on behalf of, the Participant no later than thirty (30) days following the
Participant's written request for the payment of such legal fees and expenses,
provided the Participant supplies the Committee with evidence of the fees and
expenses incurred by the Participant that the Committee, in its sole discretion,
determines is sufficient.
10.06 Interest on Delayed Payments. Further, in the event a Participant's
claim for supplemental retirement benefits under this Plan is denied and the
Participant successfully appeals the denial of such claim under the foregoing
procedures, the Company shall pay to the Participant interest on the portion of
the Participant's supplemental retirement benefits that were not otherwise paid
when due because of the initial denial of the claim. For purposes of the
preceding sentence, interest shall accrue at an annual rate equal to the prime
rate as quoted in the Wall Street Journal as of the date the supplemental
retirement benefits would otherwise have been paid if the claim had not
initially been denied, plus five percent (5%), and shall be adjusted as
necessary to reflect any partial payment or payments of the amounts owed to the
Participant.
11. MISCELLANEOUS
11.01 No amount payable under the Plan or any Participation Agreement shall
be subject to assignment, transfer, sale, pledge, encumbrance, alienation or
charge by a Participant or the Beneficiary of a Participant except as may be
required by law.
11.02 Neither the Plan nor any action taken hereunder shall be construed as
giving any employee who is a Participant or who becomes a Participant any right
to be retained in the employ of the Company.
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11.03 "Retirement" under the Company Pension Plan shall mean retirement
under the Retirement Income Plan. However, in the event of any retirement
arising by reason of a "Change in Control" and which, as set forth in the
Retirement Income Plan, results in an enhancement of an employee Participant's
retirement income then:
(a) "Retirement" for purposes of this Plan shall mean the
Participant's sixty-fifth (65th) birthday; or
(b) A Participant may elect to treat retirement as "retirement" under
the Plan subject to the penalties imposed in an early retirement
opportunity under Section 4.04 of this Plan.
11.04 The Management Development and Compensation Committee of the Board of
Directors may at any time direct the Company to establish a trust to secure part
or all of the obligations of the Company with respect to payments and benefits
to be paid to Participants under this Plan. Funding of the trust shall be at
the direction of the Board of Directors and shall be irrevocable in nature.
Notwithstanding the foregoing, the assets of such trust shall be subject to the
claims of the general creditors of the Company in the event of bankruptcy or
insolvency of the Company.
11.05 In the event that the Committee shall find that a Participant or
other person entitled to benefits hereunder is unable to care for his or her
affairs because of illness or accident, the Committee may direct that any
benefit payment due him or her, unless claim shall have been made therefor by a
duly appointed legal representative, be paid to the Participant's spouse, child,
parent or other blood relative, or to a person with whom he or she resides, and
any such payment so made shall be a complete discharge of the liabilities of the
Company and the Plan therefor.
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EXHIBIT 10(iii)(j)
1999 LONG-TERM STOCK INCENTIVE PLAN
Article I - GENERAL PROVISIONS
1.1 Purposes
The purposes of the 1999 Long-Term Incentive Plan (the "Plan") are to advance
the long-term success of Armstrong World Industries, Inc. (the "Company"), and
to increase shareholder value by providing long-term incentive awards to
officers, directors and key employees. The Plan is designed to: (i) encourage
stock ownership by Participants to further align their interest in increasing
the value of the Company; and (ii) to assist in the attraction and retention of
key employees vital to the Company's success.
1.2 Definitions
For the purpose of the Plan, the following terms shall have the meanings
indicated:
(a) "Board" means the Board of Directors of the Company.
(b) "Cash Incentive Awards" means a right to receive a cash payment pursuant to
any award made pursuant to Article VI hereof.
(c) "Change in Control" means a situation where: (i) any person acquires
beneficial ownership of 28 percent or more of the then outstanding voting stock
of the Company and within five years thereafter disinterested directors no
longer constitute at least a majority of the Board; or (ii) a business
combination with an interested shareholder occurs which has not been approved by
a majority of disinterested directors. The terms person, beneficial ownership,
voting stock, disinterested director, business combination, and interested
shareholder are defined in Article 7 of the Company's Articles of Incorporation.
(d) "Code" means the Internal Revenue Code of 1986, as amended, including any
successor law thereto.
(e) "Committee" means the Management Development and Compensation Committee of
the Board or the full Board, as the case may be.
(f) "Common Stock" means the Common Stock of the Company, par value $1.00 per
share.
(g) "Company" means Armstrong World Industries, Inc., and solely for purposes
of determining (i) eligibility for participation in the Plan; (ii) employment;
and (iii) the establishment of performance goals, shall include any corporation,
partnership, or other organization of which Armstrong owns or controls, directly
or indirectly, not less than 50 percent of the total combined voting power of
all classes of stock or other equity interests. For purposes of this Plan, the
terms "Armstrong" and "Company" shall include any successor to Armstrong World
Industries, Inc.
(h) "Disability" means total and permanent disability within the meaning of
Section 22(e)(3) of the Code.
(i) "Dividend Equivalent" means an amount equal to the cash dividend paid on
one share of Common Stock for each Performance Restricted Share granted during
the Performance Period. All Dividend Equivalents will be reinvested in
Performance Restricted Shares at a purchase price equal to the Fair Market Value
on the dividend date.
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(j) "Employee or employment" means with respect to any nonemployee director (as
defined herein) service on the Board.
(k) "Fair Market Value" means the closing price of the Common Stock as reported
on the New York Stock Exchange Composite Transactions reporting system on the
applicable date or, if no sales were made on such date, on the next preceding
date on which sales of the Common Stock were made.
(l) "Incentive Stock Option" means a Stock Option which meets the definition
under Section 422 of the Code.
(m) "Nonstatutory Stock Option" means a Stock Option which does not meet the
definition of an Incentive Stock Option.
(n) "Participant" means any officer, director or key employee who has met the
eligibility requirements set forth in Section 1.6 hereof and to whom a grant has
been made and is outstanding under the Plan.
(o) "Performance Measures" shall mean the Performance Measures described in
Section 4.4 of the Plan.
(p) "Performance Period" means, in relation to Performance Restricted Shares or
Cash Incentive Awards, any period for which performance goals have been
established.
(q) "Performance Restricted Share" means a right granted to a Participant
pursuant to Article IV.
(r) "Restricted Stock Award" means an award of Common Stock granted to a
Participant pursuant to Article V which is subject to a Restriction Period.
(s) "Restriction Period" means (i) in relation to Performance Restricted
Shares, the period of time, beginning at the end of the Performance Period,
during which the Participant shall not be permitted to sell, assign, transfer,
pledge, or otherwise dispose of such shares; and (ii) in relation to Restricted
Stock Awards, the period of time during which such shares are subject to
forfeiture pursuant to the Plan and such shares are subject to the restrictions
on transferability described in (i) of this paragraph.
(t) "Retirement" means termination from employment with the Company after the
Participant has attained age 55 and has completed five years of service with the
Company or termination of employment under circumstances which the Committee
deems equivalent to retirement.
(u) "Stock Appreciation Right" means a right granted to a Participant pursuant
to Article III to surrender to the Company all or any portion of the related
Stock Option and to receive in shares of Common Stock an amount equal to the
excess of the Fair Market Value over the option price on the date of such
exercise.
(v) "Stock Award" means an award of Common Stock granted to a Participant
pursuant to Article V which is not subject to a Restriction Period or a
Vesting Period.
(w) "Stock Option" means a right granted to a Participant pursuant to Article
II, to purchase, before a specified date and at a specified price, a specified
number of shares of Common Stock.
(x) "Vesting Period" means the period of time, beginning at the end of the
Performance Period, during which Performance Restricted Shares are subject to
forfeiture pursuant to the Plan.
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1.3 Administration
The Plan shall be administered by the Committee; provided, however, that the
Board shall administer the Plan as it relates to the terms, conditions and grant
of awards to nonemployee directors. A majority of the Committee shall constitute
a quorum, and the acts of a majority of the members present at any meeting at
which a quorum is present, or acts approved in writing by a majority of the
Committee, shall be deemed the acts of the Committee. Subject to the provisions
of the Plan and to directions by the Board, the Committee is authorized to
interpret the Plan, to adopt administrative rules, regulations, and guidelines
for the Plan, and to impose such terms, conditions, and restrictions on grants
as it deems appropriate. The Committee, in its discretion, may allow certain
optionees holding unexercised Incentive Stock Options to convert such options to
Nonstatutory Stock Options. The Committee may, with respect to Participants who
are not subject to Section 16 (b) of the Exchange Act or "covered employees"
within the meaning of Section 162(m) of the Code ("Section 162(m)"), delegate
such of its powers and authority under the Plan as it deems appropriate to
designated officers or employees of the Company. All determinations by the
Committee shall be final and binding.
1.4 Types of Grants Under the Plan
Grants under the Plan may be in the form of any one or more of the following:
(a) Nonstatutory Stock Options;
(b) Incentive Stock Options;
(c) Stock Appreciation Rights;
(d) Performance Restricted Shares;
(e) Restricted Stock Awards;
(f) Stock Awards;
(g) Cash Incentive Awards.
1.5 Shares Subject to the Plan and Individual Award Limitation
(a) A maximum of 3,250,000 shares of Common Stock may be issued under the Plan
provided, however, that no more than 300,000 shares may be granted in the form
of Performance Restricted Shares, Restricted Stock Awards and Stock Awards. The
total number of shares authorized is subject to adjustment as provided in
Section 8.1 hereof. Shares of Common Stock issued under the Plan may be treasury
shares or authorized but unissued shares. No fractional shares shall be issued
under the Plan.
(b) If any Stock Option granted under the Plan expires or terminates, the
underlying shares of Common Stock may again be made available for the purposes
of the Plan. Any shares of Common Stock that have been granted as Restricted
Stock Awards, or that have been reserved for distribution in payment for
Performance Restricted Shares but are later forfeited or for any other reason
are not payable under the Plan, may again be made available for the purposes of
the Plan. Furthermore, shares of Common Stock that are tendered in payment of
the exercise price of any Stock Option or tendered or withheld in satisfaction
of tax withholding obligations arising from any award shall be available for
issuance under the Plan.
(c) In addition to the shares of Common Stock authorized under Sections 1.5(a)
and 1.5(b), shares of Common Stock that are (i) forfeited under the Company's
1993 Long-
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Term Stock Incentive Plan (the "Prior Plan") or for any other reason not paid
under the Prior Plan; or (ii) tendered in payment of the exercise price of a
stock option granted under the Prior Plan or tendered or withheld in
satisfaction of tax withholding obligations arising from awards under the Prior
Plan, shall be available for issuance under the Plan.
(d) The aggregate maximum number of shares of Common Stock that may be granted
to any Participant in the form of Stock Options, Stock Appreciation Rights,
Performance Restricted Shares, Restricted Stock Awards and Stock Awards in any
one calendar year is 400,000.
1.6 Eligibility and Participation
Participation in the Plan shall be limited to officers, who may also be members
of the Board, other key employees of the Company and directors who are not
employees of the Company ("nonemployee directors").
ARTICLE II - STOCK OPTIONS
2.1 Grant of Stock Options
The Committee may from time to time, subject to the provisions of the Plan,
grant Stock Options to such Participants. The Committee shall determine the
number of shares of Common Stock to be covered by each Stock Option and shall
have the authority to grant Incentive Stock Options, Nonstatutory Stock Options
or a combination thereof. Furthermore, the Committee may grant a Stock
Appreciation Right in connection with a Stock Option, as provided in Article
III.
2.2 Incentive Stock Option Exercise Limitations
The aggregate Fair Market Value (determined at the time an Incentive Stock
Option is granted) of the shares of Common Stock with respect to which an
Incentive Stock Option is exercisable for the first time by a Participant during
any calendar year (under all plans of the Company) shall not exceed $100,000 or
such other limit as may be established from time to time under the Code.
2.3 Option Documentation
Each Stock Option shall be evidenced by a written Stock Option agreement between
the Company and the Participant to whom such option is granted, specifying the
number of shares of Common Stock that may be acquired by its exercise and
containing such terms and conditions consistent with the Plan as the Committee
shall determine.
2.4 Exercise Price
The price at which each share covered by a Stock Option may be acquired shall be
determined by the Committee at the time the option is granted and shall not be
less than the Fair Market Value of the underlying shares of Common Stock on the
day the Stock Option is granted. The exercise price will be subject to
adjustment in accordance with the provisions of Section 8.1 of the Plan.
<PAGE>
2.5 Exercise of Stock Options
(a) Exercisability. Stock Options shall become exercisable at such times and
upon the satisfaction of such conditions and in such installments as the
Committee may provide at the time of grant.
(b) Option Period. For each Stock Option granted, the Committee shall specify
the period during which the Stock Option may be exercised, provided that no
Stock Option shall be exercisable after the expiration of ten years from the
date the option was granted.
(c) Exercise in the Event of Termination of Employment.
(i) Death: Unless otherwise provided by the Committee at the time of
grant, in the event of death of the Participant, the option must be exercised by
the Participant's estate or beneficiaries prior to its expiration. Each option
may be exercised as to all or any portion thereof regardless of whether or not
fully exercisable under the terms of the grant.
(ii) Disability: Unless otherwise provided by the Committee at the time of
grant, in the event of the Disability of the Participant, the option must be
exercised prior to its expiration. An unexercised Incentive Stock Option will
cease to be treated as such and will become a Nonstatutory Stock Option twelve
months following the date of termination due to Disability. Each option may be
exercised as to all or any portion thereof regardless of whether or not fully
exercisable under the terms of the grant.
(iii) Retirement: Unless otherwise provided by the Committee at the time
of grant, in the event of the Retirement of the Participant, the option must be
exercised prior to its expiration. An unexercised Incentive Stock Option will
cease to be treated as such and will become a Nonstatutory Stock Option three
months following the date of Retirement.
(iv) Other Terminations: Unless otherwise provided by the Committee at the
time of grant, in the event a Participant ceases to be an employee of the
Company for any reason other than death, Disability, or Retirement, options
which are exercisable on the date of termination must be exercised within three
months after termination. All options which are not exercisable on the date of
termination shall be canceled.
(v) Extension of Exercise Period: Notwithstanding all other provisions
under Section 2.5(c) in the event a Participant's employment is terminated, the
Committee may, in its sole discretion, extend the post termination period during
which the option may be exercised, provided however that such period may not
extend beyond the original option period.
(d) Exercise in the Event of Change in Control. In the event of any Change in
Control, all Stock Options shall immediately become exercisable without regard
to the exercise period set forth in 2.5(a).
2.6 Method of Exercise
The option may be exercised, in whole or in part, from time to time by written
request received by the Treasurer of the Company. The option price of each share
acquired pursuant to an option shall be paid in full at the time of each
exercise of the option either (i) in cash; (ii) by delivering to the Company a
notice of exercise with an irrevocable direction to a broker-dealer registered
under the Securities Exchange Act of 1934 to sell a sufficient portion of the
shares of Common Stock underlying such option having an aggregate Fair Market
Value equal to the option price of the shares being acquired; or (iii)
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by delivering to the Company shares of Common Stock or any combination of shares
and cash having an aggregate Fair Market Value equal to the option price of the
shares being acquired. However, shares of Common Stock previously acquired by
the Participant under the Plan or any other incentive plan of the Company shall
not be utilized for purposes of payment upon the exercise of an option unless
those shares have been owned by the Participant for a six-month period or such
longer period as the Committee may determine.
ARTICLE III - STOCK APPRECIATION RIGHTS
3.1 Grant of Stock Appreciation Rights
The Committee may, in its discretion, grant Stock Appreciation Rights in
connection with all or any part of an option granted under the Plan. Any Stock
Appreciation Right granted in connection with an option shall be governed by the
terms of the Stock Option agreement and the Plan.
3.2 Exercise of Stock Appreciation Rights
Stock Appreciation Rights shall become exercisable under the Stock Option terms
set forth in Section 2.5 but shall be exercisable only when the Fair Market
Value of the shares subject thereto exceeds the option price of the related
option.
3.3 Method of Exercise
(a) Stock Appreciation Rights shall permit the Participant, upon exercise of
such rights, to surrender the related option, or any portion thereof, and to
receive, without payment to the Company (except for applicable withholding
taxes), an amount equal to the excess of the Fair Market Value over the option
price. Such amount shall be paid in shares of Common Stock valued at Fair Market
Value on the date of exercise.
(b) Upon the exercise of a Stock Appreciation Right and surrender of the
related option, or any portion thereof, such option, to the extent surrendered,
shall be terminated, and the shares covered by the option so surrendered shall
no longer be available for purposes of the Plan.
ARTICLE IV - PERFORMANCE RESTRICTED SHARES
4.1 Grant of Performance Restricted Shares
The Committee may from time to time grant Performance Restricted Shares to
Participants under which payment may be made in shares of Common Stock if the
performance of the Company meets certain goals established by the Committee.
Such Performance Restricted Shares shall be subject to the provisions of the
Plan terms and conditions, and, if earned, a Vesting Period and a Restriction
Period as the Committee shall determine.
4.2 Performance Restricted Share Agreement
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Each grant of Performance Restricted Shares shall be evidenced by a written
agreement between the Company and Participant to whom such shares are granted.
The agreement shall specify the number of Performance Restricted Shares granted,
the terms and conditions of the grant, the duration of the Performance Period,
the performance goals to be achieved, and the Vesting Period and the Restriction
Period applicable to shares of Common Stock earned.
4.3 Common Stock Equivalent
Each Performance Restricted Share shall be credited to an account to be
maintained for each such Participant during the Performance Period and shall be
deemed to be the equivalent of one share of Common Stock. At the conclusion of
the Performance Period, Performance Restricted Shares earned, if any, shall be
converted to shares of Common Stock subject to a Vesting Period and a
Restriction Period.
4.4 Performance Measures
Performance Restricted Share awards shall be conditioned upon the Company's
attainment of a specified goal with respect to one or more of the following
performance measures: (i) total shareholder return; (ii) EVA as defined below;
(iii) return on shareholders' equity; (iv) return on capital; (v) earnings per
share; (vi) sales; (vii) earnings; (viii) cash flow; and (ix) operating income.
EVA equals the dollar amount arrived at by taking net operating profit after
taxes and subtracting a charge for the use of the capital needed to generate
that profit. The Committee shall determine a minimum performance level below
which no Performance Restricted Shares shall be payable and a performance
schedule under which the number of shares earned may be less than, equal to, or
greater than the number of Performance Restricted Shares granted based upon the
Company's performance. The Committee may adjust the performance goals and
measurements to reflect significant unforeseen events; provided, however, that
the Committee may not make any such adjustment with respect to any award of
Performance Restricted Shares to an individual who is then a "covered employee"
as such term is defined in Regulation 1.162-27(c)(2) promulgated under Section
162(m), if such adjustment would cause compensation pursuant to such Performance
Restricted Share award to cease to be performance-based compensation under
Section 162(m).
4.5 Performance Period
The Committee shall establish a Performance Period applicable to each grant of
Performance Restricted Shares. Each such Performance Period shall commence on
January 1 of the calendar year in which grants are made. There shall be no
limitation on the number of Performance Periods established by the Committee,
and more than one Performance Period may encompass the same calendar year. The
Committee may shorten any Performance Period if it determines that unusual or
unforeseen events so warrant.
4.6 Dividend Equivalents During Performance Period
Unless otherwise provided by the Committee, a Participant shall be entitled to
receive Dividend Equivalents during the Performance Period which shall be deemed
to have been
<PAGE>
reinvested in additional Performance Restricted Shares at the same time as such
underlying Common Stock cash dividend is paid. Performance Restricted Shares
granted through such reinvestment shall be credited to the Participant's account
and shall be payable to the Participant in the same manner and at the same time
as the Performance Restricted Shares with respect to which such Dividend
Equivalents were issued.
4.7 Right to Payment of Performance Restricted Shares
(a) At the conclusion of the Performance Period, the Committee shall determine
the number of Performance Restricted Shares, if any, which have been earned on
the basis of Company performance in relation to the established performance
goals. In no event shall such number exceed 300% of the shares contingently
granted.
(b) Performance Restricted Shares earned shall be converted to shares of Common
Stock and shall be represented by book entry or by a stock certificate
registered in the name of the Participant. Certificates evidencing such shares
shall be held in custody by the Company until the restrictions thereon are no
longer in effect. After the lapse or waiver of the restrictions imposed, the
Company shall deliver in the Participant's name one or more stock certificates,
free of restrictions, evidencing the shares of Common Stock to which the
restrictions have lapsed or been waived.
4.8 Vesting Period
At the time a Performance Restricted Share grant is made, the Committee shall
establish a period of time (the "Vesting Period") applicable to such shares
earned, if any, which shall begin at the end of the Performance Period. During
the Vesting Period, Performance Restricted Shares shall be subject to the risk
of forfeiture. The Committee may provide for the lapse of such restrictions in
installments and may accelerate or waive such restrictions, in whole or in part,
based on service and such other factors as the Committee may determine.
4.9 Restriction Period
At the time a Performance Restricted Share grant is made, the Committee shall
establish a period of time (the "Restriction Period") applicable to such shares
earned, if any, which shall begin at the end of the Performance Period. During
the Restriction Period, the Participant shall not be permitted to sell, assign,
transfer, pledge or otherwise dispose of Performance Restricted Shares that have
been earned. The Committee may provide for the lapse of such restrictions in
installments, in whole or in part, based on service and such other factors as
the Committee may determine.
4.10 Other Terms and Conditions
Performance Restricted Shares earned and restricted shares received with respect
to such shares shall be subject to the following terms and conditions:
(a) Except as otherwise provided in the Plan or in the Performance Restricted
Share agreement, the Participant shall have all the rights of a shareholder of
the Company, including the right to vote the shares.
(b) Cash dividends paid with respect to Performance Restricted Shares shall be
reinvested to purchase additional shares of Common Stock that shall be subject
to the
<PAGE>
same terms, conditions, and restrictions that apply to the Performance
Restricted Shares with respect to which such dividends were issued.
(c) Except as otherwise provided in the Plan or in the Performance Restricted
Share agreement, upon termination of a Participant's employment, all unvested
shares subject to restriction shall be forfeited by the Participant.
4.11 Termination of Employment Provisions During a Performance Period
(a) In the event a Participant terminates employment during a Performance
Period by reason of death, Disability, or Retirement, the Participant shall be
entitled to the full number of shares earned, if any, as long as the Participant
had completed a minimum of one year of employment during the Performance Period.
If the termination of employment is by reason of death or Disability, all other
restrictions shall lapse and shares of Common Stock shall be issued to the
Participant or the Participant's designated beneficiary following the
Performance Period. If the termination of employment is by reason of Retirement,
any applicable Restriction Period shall continue in effect, but in no event
beyond the end of the three-year period following the Participant's Retirement.
Following the expiration of such Restriction Period, shares of Common Stock
shall be issued to the Participant. In the event the Participant had not
completed one year of employment during the Performance Period, the Participant
shall forfeit all rights to earn such Performance Restricted Shares.
(b) If a Participant terminates employment for any reason other than death,
Disability, or Retirement, the Participant shall forfeit all rights to earn such
Performance Restricted Shares.
(c) Notwithstanding Sections 4.11(a) and 4.11(b), in the event a Participant's
employment is terminated under special circumstances, the Committee may, in its
sole discretion, continue a Participant's rights to earn any or all Performance
Restricted Shares and waive, in whole or in part, any or all remaining
restrictions.
4.12 Termination of Employment Provisions Following a Performance Period
(a) In the event a Participant terminates employment following a Performance
Period by reason of death, Disability, or Retirement, all Performance Restricted
Shares earned shall immediately vest. If the termination of employment is by
reason of death or Disability, all other restrictions shall lapse and shares of
Common Stock shall be issued to the Participant or the Participant's designated
beneficiary. If the termination of employment is by reason of Retirement, any
applicable Restriction Period shall continue in effect, but in no event beyond
the end of the three-year period following the Participant's Retirement.
Following the expiration of such Restriction Period, shares of Common Stock
shall be issued to the Participant.
(b) If a Participant terminates employment for any reason other than death,
Disability, or Retirement, the Participant shall forfeit all Performance
Restricted Shares subject to the Vesting Period. Any applicable Restriction
Period shall continue in effect, but in no event beyond the end of the three-
year period following the Participant's date of termination of employment.
Following the expiration of such Restriction Period, shares of Common Stock
shall be issued to the Participant.
<PAGE>
(c) Notwithstanding Sections 4.12 (a) and 4.12 (b), in the event a
Participant's employment is terminated under special circumstances, the
Committee may, in its sole discretion, waive in whole or in part any or all
remaining restrictions.
4.13 Change in Control Provisions
In the event of any Change in Control, all Performance Restricted Shares earned
shall immediately vest and restrictions shall lapse on all shares subject to
restrictions as of the date of such Change in Control. Further, all Performance
Restricted Shares granted, including those granted pursuant to Dividend
Equivalents, shall be deemed to have been earned to the maximum extent permitted
pursuant to Section 4.4 for any Performance Period not yet completed as of the
effective date of such Change in Control.
ARTICLE V - RESTRICTED STOCK AWARDS AND STOCK AWARDS
5.1 Award of Restricted Stock and Stock Awards
The Committee may grant Restricted Stock Awards to officers and key employees of
the Company subject to such terms and conditions as the Committee shall
determine, provided that each Restricted Stock Award shall be subject to a
Restriction Period. The Committee may also grant Stock Awards. Restricted Stock
Awards and Stock Awards shall be used for the purposes of recruitment,
recognition, and retention of key employees vital to the Company's success and
may be issued independent of or in lieu of other compensation payable to a
Participant. The Committee may, in its sole discretion, require a Participant to
deliver consideration in form of services or cash as a condition to the grant of
a Restricted Stock Award or Stock Award.
5.2 Restricted Stock Award and Stock Award Agreements
Each Restricted Stock Award shall be evidenced by a written agreement between
the Company and the Participant to whom such award is granted and a Stock Award
will be evidenced by a written agreement in the event that the Committee
determines that an agreement is appropriate. The agreement shall specify the
number of shares awarded, the terms and conditions of the award and, in the case
of a Restricted Stock Award, the Restriction Period and the consequences of
forfeiture.
5.3 Awards and Certificates
Shares of Common Stock awarded pursuant to a Restricted Stock Award or a Stock
Award shall be registered in the name of the Participant. Certificates
evidencing Restricted Stock Awards shall be held in custody by the Company until
the restrictions thereon are no longer in effect. After the lapse or waiver of
the restrictions imposed upon the Restricted Stock Award, the Company shall
deliver in the Participant's name one or more stock certificates, free of
restrictions, evidencing the shares of Common Stock subject to the Restricted
Stock Award to which the restrictions have lapsed or been waived.
5.4 Restriction Period
<PAGE>
At the time a Restricted Stock Award is made, the Committee shall establish a
period of time (the "Restriction Period") applicable to such award during which
the shares of restricted stock are subject to the risk of forfeiture and the
Participant shall not be permitted to sell, assign, transfer, pledge, or
otherwise dispose of such shares. The Committee may provide for the lapse of
such restrictions in installments and may accelerate or waive such restrictions,
in whole or in part, based on service and such other factors as the Committee
may determine.
5.5 Other Terms and Conditions of Restricted Stock Awards
Shares of Common Stock subject to Restricted Stock Awards shall be subject to
the following terms and conditions:
(a) Except as otherwise provided in the Plan or in the Restricted Stock Award
agreement, the Participant shall have all the rights of a shareholder of the
Company, including the right to vote the shares.
(b) Cash dividends paid with respect to Common Stock subject to a Restricted
Stock Award shall be reinvested to purchase additional shares of Common Stock
that shall be subject to the same terms, conditions, and restrictions that apply
to the Restricted Stock Award with respect to which such dividends were issued.
(c) Except as otherwise provided in the Plan or in the Restricted Stock Award
agreement, upon termination of a Participant's employment, all shares subject to
restriction shall be forfeited by the Participant.
5.6 Termination of Employment
(a) In the event a Participant terminates employment during the Restriction
Period by reason of death or Disability, restrictions shall lapse on all shares
subject to restriction at the time of such termination.
(b) In the event a Participant terminates employment during the Restriction
Period by reason of Retirement, restrictions shall lapse on a proportion of any
shares subject to restriction at the time of such Retirement. Any applicable
Restriction Period shall continue in effect, but in no event beyond the end of
the three-year period following the Participant's Retirement. The number of
shares upon which the restrictions shall lapse shall be prorated for the number
of months of employment during the Restriction Period prior to the Participant's
termination of employment.
(c) If a Participant terminates employment for any reason other than death,
Disability, or Retirement, the Participant shall forfeit all shares subject to
restriction.
(d) Notwithstanding Sections 5.6 (a), 5.6 (b) and 5.6 (c), in the event a
Participant's employment is terminated under special circumstances, the
Committee may, in its sole discretion, waive in whole or in part any or all
remaining restrictions.
5.7 Change in Control Provisions
In the event of any Change in Control, all restrictions applicable to any
outstanding Restricted Stock Award shall lapse as of the date of such Change in
Control.
ARTICLE VI - CASH INCENTIVE AWARDS
<PAGE>
6.1 Granting of Awards
The Committee, in its discretion, may grant Cash Incentive Awards to
Participants. Each Cash Incentive Award shall be conditioned upon the Company's
attainment of a specified goal with respect to one or more Performance Measures
during the applicable Performance Period. The Committee shall determine a
minimum performance level below which the Cash Incentive Award shall not be
payable. The Committee may adjust the performance goals and measurements to
reflect significant unforeseen events; provided, however, that the Committee may
not make any such adjustment with respect to any Cash Incentive Award to an
individual who is then a "covered employee" as such term is defined under
Section 162(m), if such adjustment would cause compensation pursuant to such
Cash Incentive Award to cease to be performance-based compensation under Section
162(m).
6.2 Other Award Terms
The Committee may, in its sole discretion, establish certain additional
performance-based conditions that must be satisfied by the Company, a business
unit or the Participant as a condition precedent to the payment of all or a
portion of any Cash Incentive Awards. Such conditions precedent may include,
among other things, the receipt by a Participant of a specified annual
performance rating and the achievement of specified performance goals by the
Company, business unit or Participant.
6.3 Maximum Amount Available for Awards
The maximum amount payable to any one Participant pursuant to a Cash Incentive
Award with respect to any one year shall be $3,000,000.
ARTICLE VII - TAX WITHHOLDING AND DEFERRAL OF PAYMENT
7.1 Tax Withholding
(a) The Company may withhold from any payment of cash or Common Stock to a
Participant or other person pursuant to the Plan an amount sufficient to satisfy
any required withholding taxes, including the Participant's Social Security and
Medicare taxes ("FICA") and federal, state and local income tax with respect to
income arising from the payment of the award. The Company shall have the right
to require the payment of any such taxes before delivering payment or issuing
Common Stock pursuant to the award.
(b) At the discretion of the Committee, share tax withholding may be included
as a term of any grant of Stock Options, Stock Appreciation Rights, Performance
Restricted Shares, Restricted Stock Award and Stock Award.
(c) Share tax withholding shall entitle the Participant to elect to satisfy, in
whole or in part, any tax withholding obligations in connection with the
issuance of shares of Common Stock earned under the Plan by requesting that the
Company either:
(i) withhold shares of Common Stock otherwise issuable to the Participant;
or
(ii) accept delivery of shares of Common Stock previously owned by the
Participant.
<PAGE>
In either case, the Fair Market Value of such shares of Common Stock will
generally be determined on the date of exercise for Stock Options and Stock
Appreciation Rights, the date following the Restriction Period for Performance
Restricted Shares and Restricted Stock Awards and on the grant date for Stock
Awards.
(d) Notwithstanding any other provision hereof to the contrary, the Committee,
in its sole discretion may at any time suspend, terminate, or disallow any or
all entitlements to share tax withholding previously granted or extended to any
Participant.
7.2 Deferral of Payment
At the discretion of the Committee, a Participant may be offered the right to
defer the receipt of all or any portion of the Common Stock distributable to
such Participant with respect to Performance Restricted Shares, Restricted Stock
Awards or Stock Awards. Such right shall be exercised by execution of a written
agreement by the Participant: (i) with respect to Restricted Stock Awards, prior
to the expiration of the applicable Restriction Period; (ii) with respect to
Performance Restricted Shares, prior to the expiration of the applicable Vesting
Period; and (iii) with respect to Stock Awards, prior to the deadline
established by the Committee for such award. Upon any such deferral, the number
of shares of Common Stock subject to the deferral shall be converted to stock
units and a stock unit account shall be maintained by the Company on behalf of
the Participant. Such stock units shall represent only a contractual right and
shall not represent any interest in or title to Common Stock. Such units shall
be entitled to earn dividend equivalents. All other terms and conditions of
deferred payments shall be as contained in said written agreement.
ARTICLE VIII - OTHER PROVISIONS
8.1 Adjustment in Number of Shares and Option Prices
Grants of Stock Options, Stock Appreciation Rights, Performance Restricted
Shares, Restricted Stock Awards and Stock Awards shall be subject to adjustment
by the Committee as to the number and price of shares of Common Stock or other
considerations subject to such grants in the event of changes in the outstanding
shares by reason of stock dividends, stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges, or other
relevant changes in capitalization occurring after the date of grant. In the
event of any such change in the outstanding shares, the aggregate number of
shares available under the Plan may be appropriately adjusted by the Committee.
8.2 No Right to Employment
Nothing contained in the Plan, nor in any grant pursuant to the Plan, shall
confer upon any Participant any right with respect to continuance of employment
by the Company or its subsidiaries, nor interfere in any way with the right of
the Company or its subsidiaries to terminate the employment or change the
compensation of any employee at any time.
8.3 Nontransferability
<PAGE>
A Participant's rights under the Plan, including the right to any shares or
amounts payable may not be assigned, pledged, or otherwise transferred except,
in the event of a Participant's death, to the Participant's designated
beneficiary or, in the absence of such a designation, by will or by the laws of
descent and distribution; provided, however, that the Committee may, in its
discretion, at the time of grant of a Nonstatutory Stock Option or by amendment
of an option agreement for an Incentive Stock Option or a Nonstatutory Stock
Option, provide that Stock Options granted to or held by a Participant may be
transferred, in whole or in part, to one or more transferees and exercised by
any such transferee, provided further that (i) any such transfer must be without
consideration; (ii) each transferee must be a member of such Participant's
"immediate family" or a trust, family limited partnership or other estate
planning vehicle established for the exclusive benefit of one or more members of
the Participant's immediate family; and (iii) such transfer is specifically
approved by the Committee following the receipt of a written request for
approval of the transfer; and provided further that any Incentive Stock Option
which is amended to permit transfers during the lifetime of the Participant
shall, upon the effectiveness of such amendment, be treated thereafter as a
Nonstatutory Stock Option. In the event a Stock Option is transferred as
contemplated in this Section, such transfer shall become effective when approved
by the Committee and such Stock Option may not be subsequently transferred by
the transferee other than by will or the laws of descent and distribution. Any
transferred Stock Option shall continue to be governed by and subject to the
terms and conditions of this Plan and the relevant option agreement, and the
transferee shall be entitled to the same rights as the Participant as if no
transfer had taken place. As used in this Section, "immediate family" shall
mean, with respect to any Participant, any spouse, child, stepchild or
grandchild, and shall include relationships arising from legal adoption.
8.4 Compliance with Government Regulations
(a) The Company shall not be required to issue or deliver shares or make
payment upon any right granted under the Plan prior to complying with the
requirements of any governmental authority in connection with the authorization,
issuance, or sale of such shares.
(b) The Plan shall be construed and its provisions enforced and administered in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
contracts entered into and performed entirely in such State.
8.5 Rights as a Shareholder
The recipient of any grant under the Plan shall have no rights as a shareholder
with respect thereto unless and until certificates for shares of Common Stock
are issued to such recipient or such shares are represented by book entry in the
name of such recipient.
8.6 Unfunded Plan
Unless otherwise determined by the Committee, the Plan shall be unfunded and
shall not create (or be construed to create) a trust or separate funds. With
respect to any payment not yet made to a Participant, nothing contained herein
shall give any Participant any rights that are greater than those of a general
creditor of the Company.
<PAGE>
8.7 Foreign Jurisdiction
The Committee shall have the authority to adopt, amend, or terminate such
arrangements, not inconsistent with the intent of the Plan, as it may deem
necessary or desirable to make available tax or other benefits of the laws of
foreign countries in order to promote achievement of the purposes of the Plan.
8.8 Other Compensation Plans
Nothing contained in this Plan shall prevent the Company from adopting other or
additional compensation arrangements, subject to shareholder approval if such
approval is required.
8.9 Termination of Employment - Certain Forfeitures
Notwithstanding any other provision of the Plan (other than provisions regarding
Change in Control, including without limitation Sections 2.5(d), 4.13 and 5.7
which shall apply in all events) and except for Performance Restricted Shares,
Restricted Stock Awards or Stock Awards which would otherwise be free of
restrictions and the receipt of which has been deferred pursuant to Section 7.2,
a Participant shall have no right to exercise any Stock Option or Stock
Appreciation Right or receive payment of any Performance Restricted Share or
Restricted Stock Award if: (i) the Participant is discharged for willful,
deliberate, or gross misconduct as determined by the Committee in its sole
discretion; or (ii) if following the Participant's termination of employment
with the Company and, within a period of three years thereafter, the Participant
engages in any business or enters into any employment which the Committee in its
sole discretion determines to be either directly or indirectly competitive with
the business of the Company or substantially injurious to the Company's
financial interest (the occurrence of an event described above in (i) or (ii) of
this Section 8.9 shall be referred to herein as "Injurious Conduct").
Furthermore, notwithstanding any other provision of the Plan to the contrary, in
the event that a Participant receives or is entitled to cash or the delivery or
vesting of Common Stock pursuant to an award during the 12 month period prior to
the Participant's termination of employment with the Company or during the 24
months following the Participant's termination of employment, then the
Committee, in its sole discretion, may require the Participant to return or
forfeit the cash and/or Common Stock received with respect to such award (or its
economic value as of (i) the date of the exercise of Stock Options or Stock
Appreciation Rights; (ii) the date immediately following the end of the
Restricted Period for Performance Restricted Shares or for Restricted Stock
Awards; and (iii) the date of grant or payment with respect to Stock Awards or
Cash Incentive Awards, as the case may be) in the event that the Participant
engages in Injurious Conduct. A Participant may request the Committee in writing
to determine whether any proposed business or employment activity would
constitute Injurious Conduct. Such a request shall fully describe the proposed
activity and the Committee's determination shall be limited to the specific
activity so described. The Committee's right to require forfeiture under this
Section 8.9 must be exercised within 90 days after the discovery of an
occurrence triggering the Committee's right to require forfeiture but in no
event later than 24 months after the Participant's termination of employment
with the Company.
<PAGE>
ARTICLE IX - AMENDMENT AND TERMINATION
9.1 Amendment and Termination
The Board of Directors may modify, amend, or terminate the Plan at any time
except that, to the extent then required by applicable law, rule, or regulation,
approval of the holders of a majority of shares of Common Stock represented in
person or by proxy at a meeting of the shareholders will be required to increase
the maximum number of shares of Common Stock available for distribution under
the Plan (other than increases due to adjustments in accordance with the Plan).
No modification, amendment, or termination of the Plan shall adversely affect
the rights of a Participant under a grant previously made to him without the
consent of such Participant.
ARTICLE X - EFFECTIVE DATE, DURATION OF PLAN AND TERMINATION OF PRIOR PLAN
10.1 Effective Date and Duration of Plan
The Plan shall become effective immediately upon the approval and adoption
thereof at the Annual Meeting of the shareholders on April 26, 1999. All rights
granted under the Plan must be granted within ten years from its adoption date
by the shareholders of the Company. Any rights outstanding ten years after the
adoption of the Plan may be exercised within the periods prescribed under or
pursuant to the Plan.
10.2 Termination of Grants Under the Prior Plan
Upon the effective date of this Plan, no further grants or awards are permitted
under the Prior Plan. All grants and awards under the Prior Plan that remain
outstanding shall be administered and paid in accordance with the provisions of
the Prior Plan.
<PAGE>
EXHIBIT (10)(iii)(k)
AGREEMENT
---------
THIS AGREEMENT, dated as of October 1, 1999, is made by and between
Armstrong World Industries, Inc., a Pennsylvania corporation (the "Company"),
and ((FirstName)) ((LastName)) (the "Executive").
WHEREAS, the Board considers it essential to the best interests of the
Company to foster the continued employment of key management personnel; and
WHEREAS, the Board recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
-------------
Agreement are provided in the last Section hereof.
2. Term of Agreement. This Agreement shall commence on the date
-----------------
hereof and shall continue in effect through September 30, 2002; provided,
--------
however, that commencing on October 1, 2000 and each October 1 thereafter, the
- -------
term of this Agreement shall automatically be extended for one additional year
unless, not later than June 30 of that year, the Company or the Executive shall
have given notice not to extend this Agreement or a Change in Control shall have
occurred prior to such October 1; and further provided, however, that if a
------- -------- -------
Change in Control shall have occurred during the term of this Agreement, this
Agreement shall continue in effect for a period of not less than thirty-six (36)
months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive
------------------------------
to remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
<PAGE>
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section
10.1 hereof, no amount or benefit shall be payable under this Agreement unless
there shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the term of
this Agreement. This Agreement shall not be construed as creating an express or
implied contract of employment and, except as otherwise agreed in writing
between the Executive and the Company, the Executive shall not have any right to
be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to
-------------------------
the terms and conditions of this Agreement, in the event of a Potential Change
in Control during the term of this Agreement, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
after the date of such Potential Change in Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason or by reason of death or Disability, or (iv) the
termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
------------------------------------------
5.1. Following a Change in Control and during the term of this
Agreement, during any period that the Executive fails to perform the Executive's
full-time duties with the Company as a result of incapacity due to physical or
mental illness, the Company shall pay the Executive's full salary to the
Executive at the rate in effect at the commencement of any such period, together
with all compensation and benefits payable to the Executive under the terms of
any compensation or benefit plan, program or arrangement maintained by the
Company during such period, until the Executive's employment is terminated by
the Company for Disability.
5.2. If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay the Executive's full salary to the Executive through the Date of
Termination at the rate in effect immediately prior to the Change in Control or
at the time the Notice of Termination is given, whichever is greater, together
with all compensation and benefits to which the Executive is entitled in respect
of all periods preceding the Date of Termination under the terms of the
Company's compensation and benefit plans, programs or arrangements.
5.3. If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay to the Executive the Executive's normal post-termination compensation
and benefits as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with, the Company's
retirement, insurance and other compensation or benefit plans, programs and
-2-
<PAGE>
arrangements as in effect immediately prior to the Change in Control or, if more
favorable to the Executive, as in effect immediately prior to the Date of
Termination.
6. Severance Payments.
------------------
6.1. The Company shall pay the Executive the payments described in
this Section 6.1 (the "Severance Payments") upon the termination of the
Executive's employment following a Change in Control and during the term of this
Agreement, in addition to any payments and benefits to which the Executive is
entitled under Section 5 and 8 hereof, unless such termination is (i) by the
Company for Cause, (ii) by reason of death or Disability, or (iii) by the
Executive without Good Reason. For purposes of this Agreement, the Executive's
employment shall be deemed to have been terminated by the Company without Cause
or by the Executive with Good Reason following a Change in Control if (i) the
Executive's employment is terminated without Cause prior to a Change in Control
which actually occurs during the term of this Agreement and such termination was
at the request or direction of a Person who has entered into an agreement with
the Company the consummation of which would constitute a Change in Control, (ii)
the Executive terminates his employment with Good Reason prior to a Change in
Control which actually occurs during the term of this Agreement and the
circumstance or event which constitutes Good Reason occurs at the request or
direction of such Person, (iii) the Executive's employment is terminated by the
Company without Cause or by the Executive for Good Reason prior to a Change in
Control and the Executive reasonably demonstrates that such termination is
otherwise in connection with or in anticipation of a Change in Control which
actually occurs during the term of this Agreement; provided that any termination
of the Executive's employment by the Company without Cause or by the Executive
for Good Reason within the six (6) month period immediately preceding a Change
in Control which actually occurs during the term of this Agreement shall be
presumed to be a termination by the Company without Cause or by the Executive
for Good Reason following a Change in Control, or (iv) the Executive's
employment is terminated without Cause after a Potential Change in Control of
the type described in paragraph (I) of the definition of "Potential Change in
Control".
(A) In lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to three (3) times
the sum of (i) the higher of the Executive's annual base salary in effect
immediately prior to the occurrence of the event or circumstance upon which
the Notice of Termination is based or the Executive's annual base salary in
effect immediately prior to the Change in Control (the "Change in Control
Salary"), and (ii) the higher of the highest annual bonus earned by the
Executive pursuant to any annual bonus or incentive plan maintained by the
Company in respect of the
-3-
<PAGE>
three (3) years immediately preceding that year in which the Date of
Termination occurs or the highest annual bonus so earned in respect of the
three (3) years immediately preceding that in which the Change in Control
occurs (the "Change in Control Bonus").
(B) Notwithstanding any provision of any annual incentive plan to
the contrary, the Company shall pay to the Executive a lump sum amount, in
cash, equal to a pro rata portion to the Date of Termination of the value
of the target incentive award under such plan for the then uncompleted
period under such plan, calculated by multiplying the Executive's target
award by the fraction obtained by dividing the number of full months and
any fractional portion of a month during such performance award period
through the Date of Termination by the total number of months contained in
such performance award period.
(C) The Company shall (i) establish an irrevocable grantor trust
holding an amount of assets sufficient to pay all such remaining premiums
owed by the Company (which trust shall be required to pay such premiums),
under any insurance policy insuring the life of the Executive under any
"split dollar" insurance arrangement in effect between the Executive and
the Company, and (ii) assign its interest in such policy or policies to the
grantor trust.
(D) In addition to the retirement benefits to which the Executive
is entitled under each Pension Plan or any successor plan thereto, the
Company shall pay the Executive a lump sum amount, in cash, equal to the
excess of (i) the actuarial equivalent of the aggregate retirement pension
(taking into account any early retirement subsidies associated therewith
and determined as a straight life annuity commencing at the date (but in no
event earlier than the third anniversary of the Date of Termination) as of
which the actuarial equivalent of such annuity is greatest) which the
Executive would have accrued under the terms of all Pension Plans (without
regard to any amendment to any Pension Plan made subsequent to the earlier
of a Potential Change in Control or a Change in Control and on or prior to
the Date of Termination, which amendment adversely affects in any manner
the computation of retirement benefits thereunder), determined as if the
Executive were fully vested thereunder and had accumulated (after the Date
of Termination) thirty-six (36) additional months of age and service credit
thereunder and had been credited under each Pension Plan during such period
with compensation at the higher of (1) the Executive's compensation (as
defined in such Pension Plan) during the twelve (12) months immediately
preceding the Date of Termination or (2) the Executive's compensation (as
defined in such Pension Plan) during the twelve (12) months immediately
preceding the Change in Control, over (ii) the actuarial equivalent of the
aggregate retirement pension (taking into account any early retirement
subsidies associated therewith and determined as a straight life annuity
commencing at the date (but in no event earlier than the Date of
Termination) as
-4-
<PAGE>
of which the actuarial equivalent of such annuity is greatest) which the
Executive had accrued pursuant to the provisions of the Pension Plans as of
the Date of Termination; provided, that the actuarial equivalent of such
payment shall reduce the amount of the benefit enhancement to which the
Executive may be entitled under the Company's Retirement Benefit Equity
Plan due to enhanced Change in Control benefits under Article I, Section
(35), Article VI, Section (2), Article VI, Section (7), and Article VII,
Section (6) of the Company's Retirement Income Plan. For purposes of this
Section 6.1(D), "actuarial equivalent" shall be determined using the same
assumptions utilized under the Company's Retirement Income Plan immediately
prior to the Change in Control, to determine lump sum present values under
Article VII, Section (7) of the Company's Retirement Income Plan.
(E) For the thirty-six (36) month period immediately following
the Date of Termination, the Company shall arrange to provide the Executive
(which includes the Executive's eligible dependents for purposes of this
paragraph (E)) with life, disability, accident and health insurance
benefits substantially similar to those which the Executive was receiving
immediately prior to the Notice of Termination (without giving effect to
any amendment to such benefits made subsequent to the earlier of a
Potential Change in Control or a Change in Control which amendment
adversely affects in any manner the Executive's entitlement to or the
amount of such benefits); provided, however, that, unless the Executive
-------- -------
consents to a different method, such health insurance benefits shall be
provided through a third-party insurer. Benefits otherwise receivable by
the Executive pursuant to this Section 6.1(E) shall be reduced to the
extent comparable benefits (including continued coverage for any
preexisting medical condition of any person covered by the benefits
provided to the Executive and his eligible dependents immediately prior to
the Notice of Termination) are actually received by or made available to
the Executive by a subsequent employer without cost during the thirty-six
(36) month period following the Executive's termination of employment (and
any such benefits actually received by or made available to the Executive
shall be reported to the Company by the Executive).
(F) If the Executive would have become entitled to benefits under
the Company's post-retirement health care or life insurance plans (as in
effect immediately prior to a Potential Change in Control, the Change in
Control or the Date of Termination, whichever is most favorable to the
Executive) had the Executive's employment terminated at any time during the
period of thirty-six (36) months after the Date of Termination, the Company
shall provide such post-retirement health care or life insurance benefits
to the Executive (subject to any employee contributions required under the
terms of such plans at the level in effect immediately prior to the Change
in Control or the Date of Termination, whichever is more favorable to the
Executive) commencing on the later of (i) the
-5-
<PAGE>
date that such coverage would have first become available or (ii) the date
that benefits described in subsection (E) of this Section 6.1 terminate.
(G) The Company will pay the Executive, at a daily salary rate
calculated from the higher of the Executive's annual base salary in effect
immediately prior to the occurrence of the event or circumstance upon which
the Notice of Termination is based or the Executive's annual base salary in
effect immediately prior to the Change in Control, an amount equal to all
unused vacation days which would have been earned had the Executive
continued employment through December 31 of the year in which the Date of
Termination occurs.
(H) The Company shall pay the reasonable fees and expenses of a
full service nationally recognized executive outplacement firm until the
earlier of the date the Executive secures new employment or the date which
is thirty-six (36) months following the Executive's Date of Termination;
provided, that in no event shall the aggregate amount of such payment be
greater than 20% of the Executive's Change in Control Salary.
6.2. (A) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to the excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed on the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(B) Subject to the provisions of Section 6.2(C), all
determinations required to be made under this Section 6.2, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment, shall be made by a nationally recognized accounting firm
designated by the Company (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive
within fifteen (15) business days after there has been a Payment, or such
earlier time as requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or
group effecting the Change in Control, the Company shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred
-6-
<PAGE>
to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 6, shall be paid by the Company to
the Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-
Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 6.2(C) and the Executive thereafter is required to make a payment
of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(C) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such notification shall
be given as soon as practicable but no later than ten (10) business days
after the Executive is informed in writing of such claim and shall apprise
the Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date any
payment of taxes with respect to such claim is due). If the Company
notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim;
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection
-7-
<PAGE>
with such contest and shall indemnify and hold the Executive harmless, on
an after-tax basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 6.2(C), the Company shall control
all proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
-------- -------
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis, and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(D) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 6.2(C), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section
6.2(C)) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto).
If, after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 6.2(C), a determination is made that the Executive
shall not be entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
6.3. The payments provided for in subsections (A), (B), (C), (D) and
(G) of Section 6.1 hereof shall be made not later than the thirtieth (30th) day
following the Date of Termination; provided, however, that if the amounts of
-------- -------
such payments cannot be finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as determined in good faith
by the Executive of the minimum
-8-
<PAGE>
amount of such payments to which the Executive is clearly entitled and shall pay
the remainder of such payments (together with interest at 120% of the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can
be determined but in no event later than the thirtieth (30th) day after the Date
of Termination; provided, however, that in the event the Executive becomes
--------
entitled to Severance Payments pursuant to the second sentence of Section 6.1
(except for a termination occurring with respect to clause (iv) of such
sentence, which shall be paid as set forth above) such payments shall be due and
payable within thirty (30) days following the actual Change in Control that
triggered the Severance Payments. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand by the Company (together with interest at
120% of the rate provided in Section 1274(b)(2)(B) of the Code). In the event
the Company should fail to pay when due the amounts described in subsections
(A), (B), (C), (D) and (G) of Section 6.1 hereof, the Executive shall also be
entitled to receive from the Company an amount representing interest on any
unpaid or untimely paid amounts from the due date, as determined under this
Section 6.3 (without regard to any extension of the Date of Termination pursuant
to Section 7.3 hereof), to the date of payment at a rate equal to 120% of the
rate provided in Section 1274(b)(2)(B) of the Code.
6.4. The Company also shall pay to the Executive all legal fees
and expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5) business
days after delivery of the Executive's written requests for payment accompanied
with such evidence of fees and expenses incurred as the Company reasonably may
require.
7. Termination Procedures and Compensation During Dispute.
------------------------------------------------------
7.1. Notice of Termination. After a Potential Change in Control
---------------------
or, if there is no Potential Change in Control, after a Change in Control and
during the term of this Agreement, any purported termination of the Executive's
employment (other than by reason of death) shall be communicated by written
Notice of Termination from one party hereto to the other party hereto in
accordance with Section 11 hereof. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. Further, a Notice of
Termination for Cause is required to include a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board which was called and held for
the purpose of considering such termination (after reasonable notice to the
Executive and
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<PAGE>
an opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good-faith opinion of the Board,
the Executive was guilty of conduct set forth in clause (i) or (ii) of the
definition of Cause herein, and specifying the particulars thereof in detail.
7.2. Date of Termination. "Date of Termination," with respect to
-------------------
any purported termination of the Executive's employment after a Change in
Control and during the term of this Agreement, shall mean (i) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
full-time performance of the Executive's duties during such thirty (30) day
period), and (ii) if the Executive's employment is terminated for any other
reason, the date specified in the Notice of Termination (which, in the case of a
termination by the Company, shall not be less than thirty (30) days (except in
the case of a termination for Cause) and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than sixty (60)
days, respectively, from the date such Notice of Termination is given).
7.3. Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the date on which the dispute is finally resolved, either by mutual
written agreement of the parties or by a final judgment, order or decree of an
arbitrator or a court of competent jurisdiction (which is not appealable or with
respect to which the time for appeal therefrom has expired and no appeal has
been perfected); provided, however, that the Date of Termination shall be
-------- -------
extended by a notice of dispute given by the Executive only if such notice is
given in good faith and the Executive pursues the resolution of such dispute
with reasonable diligence.
7.4. Compensation During Dispute. If a purported termination
---------------------------
occurs following a Change in Control and during the term of this Agreement and
the Date of Termination is extended in accordance with Section 7.3 hereof, the
Company shall continue to pay the Executive the full compensation in effect when
the notice giving rise to the dispute was given (including, but not limited to,
salary) and continue the Executive as a participant in all compensation, benefit
and insurance plans in which the Executive was participating when the notice
giving rise to the dispute was given, until the Date of Termination, as
determined in accordance with Section 7.3 hereof. Amounts paid under this
Section 7.4 are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
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<PAGE>
8. Acceleration of Certain Stock-Based Benefits.
--------------------------------------------
(A) Upon the occurrence of a Change in Control, all unvested
options with respect to the Company's stock held by the Executive shall vest and
become immediately exercisable and will be exercisable for a period ending on
the later of (i) the fifth anniversary of such Change in Control or (ii) the
last date that such option would otherwise be exercisable under the terms of the
option agreement or the plan pursuant to which such option was granted;
provided, that in no event shall any option be exercisable after the expiration
of the original term of the option.
(B) Upon the occurrence of a Change in Control, all unearned
performance restricted shares held by the Executive under the Company's Stock
Plan shall be deemed to have been earned to the maximum extent permitted under
the Stock Plan for any performance period not then completed and all earned but
unvested performance restricted shares, including those deemed to be earned
pursuant to this sentence, and all unvested restricted stock awards shall
immediately vest and the restrictions on all shares subject to restriction shall
lapse.
(C) For purposes of the Stock Plan and any stock option plan
pursuant to which any stock options, performance restricted shares or restricted
stock awards have been issued, this Agreement, which has been approved by the
Management Development and Compensation Committee of the Board, shall constitute
an amendment of the agreement or other instruments pursuant to which such stock
options, performance restricted shares and restricted stock awards were issued
in accordance with the terms of such plans. Notwithstanding the foregoing, in
the event that this Section 8(C) is determined for any reason to be inconsistent
with the terms of any plan pursuant to which such stock options, performance
restricted shares and restricted stock awards were issued, the terms of this
Agreement shall supersede the terms of such plan.
9. No Mitigation. The Company agrees that, if the Executive's
-------------
employment with the Company terminates during the term of this Agreement, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Section 6
hereof or Section 7.4 hereof. Further, the amount of any payment or benefit
provided for in this Agreement (other than Section 6.1(E) hereof) shall not be
reduced by any compensation earned by the Executive as the result of employment
by another employer, by retirement benefits, by offset against any amount
claimed to be owed by the Executive to the Company, or otherwise.
10. Successors; Binding Agreement.
-----------------------------
10.1. In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business
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<PAGE>
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same
terms as the Executive would be entitled to hereunder if the Executive were to
terminate the Executive's employment for Good Reason after a Change in Control,
except that, for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination.
10.2. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death of
the Executive) if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or administrators of the
Executive's estate.
11. Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address shown for the Executive in the personnel records of
the Company and, if to the Company, to the address set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
To the Company:
Armstrong World Industries, Inc.
2500 Columbia Avenue
Lancaster, Pennsylvania 17603
Attention: General Counsel
12. Miscellaneous. No provision of this Agreement may be
-------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or of any lack of compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. This
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<PAGE>
Agreement supersedes any other agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof which have been
made by either party. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania. All references to sections of the Exchange Act or the Code
shall be deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law and any additional withholding to
which the Executive has agreed. The obligations of the Company and the
Executive under Sections 6 and 7 hereof shall survive the expiration of the term
of this Agreement. If the Executive elects not to enter into this Agreement, he
will continue to be eligible for change in control benefits provided under the
Company's Employment Protection Plan (if applicable), Retirement Income Plan and
long-term incentive plans. The Executive agrees that this Agreement replaces
the benefits to which he may otherwise be entitled to under the Company's
Employment Protection Plan for salaried employees. The Company agrees that it
will not argue in any form for any purpose that this Agreement constitutes an
"employee benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended.
13. Validity. The invalidity or unenforceability of any
--------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
14. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Settlement of Disputes; Arbitration. All claims by the
-----------------------------------
Executive for benefits under this Agreement shall be directed in writing to and
determined by the Committee, which shall give full consideration to the
evidentiary standards set forth in this Agreement. Any denial by the Committee
of a claim for benefits under this Agreement shall be delivered to the Executive
in writing and shall set forth the specific reasons for the denial and the
specific provisions of this Agreement relied upon. The Committee shall afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive's claim has been denied. Any further dispute or
controversy arising under or in connection with this Agreement shall be settled
exclusively by arbitration in Allegheny County, Pennsylvania in accordance with
the rules of the American Arbitration Association then in effect; provided,
--------
however, that the evidentiary standards set forth in this Agreement shall apply.
- -------
Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Notwithstanding any provision of this Agreement to the contrary,
the Executive shall be entitled to seek
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<PAGE>
specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
16. Definitions. For purposes of this Agreement, the following
-----------
terms shall have the meanings indicated below:
(A) "Accounting Firm" shall have the meaning stated in
Section 6.2(B) hereof.
(B) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the
Company.
(D) "Cause" for termination by the Company of the
Executive's employment shall mean (i) the deliberate and continued failure
by the Executive to devote substantially all the Executive's business time
and best efforts to the performance of the Executive's duties after a
demand for substantial performance is delivered to the Executive by the
Board which specifically identifies the manner in which the Executive has
not substantially performed such duties; (ii) the deliberate engaging by
the Executive in gross misconduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise, including but not
limited to fraud or embezzlement by the Executive; or (iii) the Executive's
conviction (or entering into a plea bargain admitting guilt) of any felony.
For the purposes of this Agreement, no act, or failure to act, on the part
of the Executive shall be considered "deliberate" unless done, or omitted
to be done, by the Executive not in good faith and without reasonable
belief that such action or omission was in the best interests of the
Company. In the event of a dispute concerning the application of this
provision, no claim by the Company that Cause exists shall be given effect
unless the Company establishes to the Committee by clear and convincing
evidence that Cause exists.
(E) A "Change in Control" shall be deemed to have occurred
if the event set forth in any one of the following paragraphs shall have
occurred:
(I) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or
its affiliates) representing 20% or more of either the then
outstanding shares of common stock of the Company or the
combined voting power of the Company's then outstanding
securities, excluding any Person who becomes such a
Beneficial Owner in connection with a transaction described
in clause (i) of paragraph (III) below; or
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<PAGE>
(II) the following individuals cease for any
reason to constitute a majority of the number of directors
then serving: individuals who, on the date hereof,
constitute the Board and any new director (other than a
director whose initial assumption of office is in connection
with an actual or threatened election contest, including but
not limited to a consent solicitation, relating to the
election of directors of the Company) whose appointment or
election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who
either were directors on the date hereof or whose
appointment, election or nomination for election was
previously so approved; or
(III) there is consummated a merger or
consolidation of the Company (including a triangular merger
to which the Company is a party) with any other corporation
other than (i) a merger or consolidation which would result
in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or
any parent thereof) at least 66 2/3% of the combined voting
power of the voting securities of the Company or such
surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not including
in the securities Beneficially Owned by such Person any
securities acquired directly from the Company or its
subsidiaries) representing 20% or more of either the then
outstanding shares of common stock of the Company or the
combined voting power of the Company's then outstanding
securities; or
(IV) the shareholders of the Company approve a
plan of complete liquidation or dissolution of the Company
or there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of
the Company's assets, other than a sale or disposition by
the Company of all or substantially all of the Company's
assets to an entity, at least 75% of the combined voting
power of the voting securities of which are owned by
shareholders of the Company in substantially the same
proportions as their ownership of the Company immediately
prior to such sale. Notwithstanding the foregoing, no
"Change in Control" shall be deemed to have occurred if
there is consummated
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<PAGE>
any transaction or series of integrated transactions
immediately following which the record holders of the common
stock of the Company immediately prior to such transaction
or series of transactions continue to have substantially the
same proportionate ownership in an entity which owns all or
substantially all of the assets of the Company immediately
following such transaction or series of transactions.
(F) "Change in Control Salary" shall have the meaning
stated in Section 6.1 hereof.
(G) "Change in Control Bonus" shall have the meaning stated
in Section 6.1 hereof.
(H) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(I) "Committee" shall mean (i) the individuals (not fewer
than three in number) who, on the date six (6) months before a Change in
Control, constitute the Management Development and Compensation Committee
of the Board, plus (ii) in the event that fewer than three individuals are
available from the group specified in clause (i) above for any reason, such
individuals as may be appointed by the individual or individuals so
available (including for this purpose any individual or individuals
previously so appointed under this clause (ii)).
(J) "Company" shall mean Armstrong World Industries, Inc.
and, except in determining under Section 16(E) hereof whether or not any
Change in Control of the Company has occurred, shall include its
subsidiaries and any successor to its business and/or assets which assumes
and agrees to perform this Agreement by operation of law, or otherwise.
(K) "Date of Termination" shall have the meaning stated in
Section 7.2 hereof.
(L) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a result
of the Executive's incapacity due to physical or mental illness, the
Executive shall have been absent from the full-time performance of the
Executive's duties with the Company for a period of six (6) consecutive
months, the Company shall have given the Executive a Notice of Termination
for Disability, and, within thirty (30) days after such Notice of
Termination is given, the Executive shall not have returned to the full-
time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time.
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<PAGE>
(N) "Excise Tax" shall have the meaning stated in Section
6.2(A) hereof.
(O) "Executive" shall mean the individual named in the
first paragraph of this Agreement.
(P) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) after any Change in Control, or prior to a Change
in Control under the circumstances described in clauses (ii) or (iii) of
the second sentence of Section 6.1 hereof (treating all references in
paragraphs (I) through (VII) below to a "Change in Control" as references
to a "Potential Change in Control"), of any one of the following acts by
the Company, or failures by the Company to act, unless, in the case of any
act or failure to act described in paragraph (I), (V) , (VI) or (VII)
below, such act or failure to act is corrected prior to the Date of
Termination specified in the Notice of Termination given in respect
thereof:
(I) the assignment to the Executive of any
duties inconsistent with the Executive's status as an
executive officer of the Company or a substantial adverse
alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to
the Change in Control;
(II) a reduction by the Company in the
Executive's annual base salary as in effect on the date
hereof or as the same may be increased from time to time
except for (i) across-the-board salary reductions similarly
affecting all salaried employees of the Company or (ii)
across-the-board salary reductions similarly affecting all
senior executive officers of the Company and all senior
executives of any Person in control of the Company;
(III) the relocation of the Executive's principal
place of employment to a location more than 50 miles from
the Executive's principal place of employment immediately
prior to the Change in Control (unless such relocation is
closer to the Executive's principal residence) or the
Company's requiring the Executive to be based anywhere other
than such principal place of employment (or permitted
relocation thereof) except for required travel on the
Company's business to an extent substantially consistent
with the Executive's present business travel obligations;
(IV) the failure by the Company, to pay to the
Executive any portion of the Executive's current
compensation or to pay to the Executive any portion of an
installment of deferred
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<PAGE>
compensation under any deferred compensation program of the
Company, within seven (7) days of the date such compensation
is due;
(V) the failure by the Company to continue in
effect any compensation plan in which the Executive
participates immediately prior to the Change in Control
which is material to the Executive's total compensation,
including but not limited to the Company's Base Salary Plan,
Management Achievement Plan, 1984 Long-Term Stock Option
Plan for Key Employees, 1993 Long-Term Stock Incentive Plan,
1999 Long-Term Incentive Plan, Armstrong Deferred
Compensation Plan, Retirement Income Plan and Retirement
Benefit Equity Plan, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has
been made with respect to such plan, or the failure by the
Company to continue the Executive's participation therein
(or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount or
timing of payment of benefits provided and the level of the
Executive's participation relative to other participants, as
existed immediately prior to the Change in Control;
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to
those enjoyed by the Executive under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control,
the taking of any action by the Company which would directly
or indirectly materially reduce any of such benefits or
deprive the Executive of any material fringe benefit enjoyed
by the Executive at the time of the Change in Control, or
the failure by the Company to provide the Executive with the
number of paid vacation days to which the Executive is
entitled on the basis of years of service with the Company
in accordance with the Company's normal vacation policy in
effect at the time of the Change in Control; or
(VII) any purported termination of the
Executive's employment which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section
7.1 hereof; for purposes of this Agreement, no such
purported termination shall be effective.
Notwithstanding anything herein to the contrary, a
termination of employment by the Executive for any reason during the 30-day
period commencing on the one (1) year anniversary of a Change in Control
shall
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<PAGE>
constitute Good Reason; provided, however, that solely for purposes of this
-------- -------
paragraph, the term Change in Control shall include a merger described by
Section 16(E)(III) in which the Company is the surviving corporation or
parent corporation and the holders of the voting securities of the Company
outstanding immediately prior to such merger represent less than 66 2/3% of
the combined voting power of the securities of the Company outstanding
immediately after such merger, only if an event described in Section
16(E)(II) also occurs.
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder. For purposes of any
determination regarding the existence of Good Reason, any claim by the
Executive that Good Reason exists shall be presumed to be correct unless
the Company establishes to the Committee by clear and convincing evidence
that Good Reason does not exist.
(Q) "Gross-Up Payment" shall have the meaning stated in Section
6.2(A) hereof.
(R) "Notice of Termination" shall have the meaning stated in
Section 7.1 hereof.
(S) "Payment" shall have the meaning stated in Section 6.2(A)
hereof.
(T) "Pension Plan" shall mean any tax-qualified, supplemental or
excess benefit pension plan maintained by the Company and any other
agreement entered into between the Executive and the Company which is
designed to provide the Executive with supplemental retirement benefits.
(U) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, (iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company, or (v) an entity or entities which are
eligible to file and have filed a Schedule 13G under Rule 13d-l(b) of the
Exchange Act, which Schedule indicates beneficial ownership of 15% or more
of the outstanding shares of common stock of the Company or the combined
voting power of the Company's then outstanding securities.
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<PAGE>
(V) "Potential Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following paragraphs
shall have occurred:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change
in Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control; or
(III) any Person becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing 15% or
more of either the then outstanding shares of common stock of the
Company or the combined voting power of the Company's then
outstanding securities (not including in the securities
beneficially owned by such Person any securities acquired
directly from the Company or its affiliates).
(W) "Severance Payments" shall mean those payments described in
Section 6.1 hereof.
(X) "Stock Plan" shall mean the Company's Long-Term Stock
Incentive Plan, as the same may be amended from time to time, and any
successor plan to such plan.
(Y) "Underpayment" shall have the meaning stated in Section
6.2(B) hereof.
ARMSTRONG WORLD INDUSTRIES, INC.
By:___________________________________
Name: ((ByName))
Title: ((ByTitle))
______________________________________
((FirstName)) ((LastName))
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<PAGE>
Exhibit No. 10(iii)(k)
SCHEDULE OF PARTICIPATING OFFICERS
The Company has entered into substantially similar agreements with certain of
its officers, including George A. Lorch, Marc R. Olivie, Robert J. Shannon,
Douglas L. Boles, Deborah K. Owen, Frank A. Riddick, III, William C. Rodruan, E.
Follin Smith, Floyd F. Sherman, and Stephen E. Stockwell. Ms. Owen's agreement
has been modified in that it does not include Section 6.1(C); Mr. Sherman's
agreement has been modified in that it does not include Sections 6.1(C) & (D);
Mr. Rodruan's agreement has been modified in that Section 6.1(A) has been
modified to provide a 2X multiplier, and Section 16(P) has been modified to
remove the "modified single trigger" provision; Ms. Smith's agreement has been
modified in that Section 6.1(A) has been modified to provide a 2X multiplier, it
does not include Section 6.1(C), and Section 16(P) has been modified to remove
the "modified single trigger" provision.
<PAGE>
EXHIBIT 10(iii)(n)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is made as of December 13, 1999 (the
"Agreement"), by and among Armstrong World Industries, Inc., a Pennsylvania
corporation (the "Company"), and George A. Lorch, an individual and resident of
Lancaster County, Pennsylvania (the "Executive").
The Executive is currently serving as the Chairman of the Board, President
and Chief Executive Officer of the Company. The Company desires to provide for
the continued employment of the Executive and the Executive desires to enter
into an employment contract with the Company.
In order to effect the foregoing, the Company and the Executive desire to
enter into an employment agreement on the terms and conditions set forth in this
Agreement. Accordingly, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. DEFINED TERMS.
The definitions of capitalized terms used in this Agreement, unless
otherwise defined herein, are provided in the last Section hereof.
2. EMPLOYMENT.
The Company hereby agrees to employ the Executive, and the Executive hereby
agrees to serve the Company and its subsidiaries and affiliates, on the terms
and conditions set forth herein, during the Term of this Agreement.
3. TERM OF AGREEMENT.
The Term will commence on the date first above written (the "Effective
Date") and shall continue until the fifth anniversary of the Effective Date
Time; provided, that commencing on
<PAGE>
the second anniversary of the Effective Date and on each succeeding anniversary
thereafter, the Term of this Agreement shall automatically be extended for one
(1) additional year unless the Company or the Executive shall have given written
notice to the other at least 180 days prior to any such anniversary date to the
effect that the Term of this Agreement shall not be extended. Notwithstanding
anything in this Agreement to the contrary, the Company may terminate this
Agreement in the event of Executive's Disability; provided, that any such
termination shall not, by itself, terminate the Executive's employment with the
Company.
4. POSITION AND DUTIES.
During the Term of this Agreement, the Executive shall serve as Chairman of
the Board, President and Chief Executive Officer of the Company and a member of
the Board and shall also serve in any other executive officer position of the
Company or its subsidiaries and affiliates as the Board may reasonably request.
The Executive shall be the chief executive officer of the Company and shall have
such duties and responsibilities as are customary for the Executive's position
and such other duties not inconsistent therewith as the Board of Directors may
reasonably assign from time to time. During the Term of this Agreement,
excluding any periods of vacation and sick leave to which the Executive is
entitled under the Company's policies and practices (as the same may be
increased in the future), the Executive shall devote substantially all his
working time and efforts to the business and affairs of the Company and its
subsidiaries and affiliates and shall diligently and faithfully perform his
duties to the best of his ability; provided, however, that the Executive may
engage in activities relating to personal matters (including personal financial
matters) and in such corporate, industry, civic and charitable activities,
including membership on corporate and charitable boards of directors or trustees
of non-
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<PAGE>
affiliated companies and organizations, so long as such service does not
substantially interfere with the performance of his duties hereunder or violate
his obligations under Section 10 hereof.
5. COMPENSATION AND RELATED MATTERS.
5.1 BASE SALARY. The Company shall pay, or cause to be paid, to the
Executive an annual base salary ("Base Salary") during the Term of this
Agreement, which shall be at an initial rate of not less than $800,000 per year.
The Base Salary shall be paid in accordance with the Company's payroll practices
for its senior officers, but not less frequently than monthly, in arrears. For
purposes of this Agreement, "Base Salary" shall include any increases in Base
Salary during the Term of this Agreement. The Base Salary in effect from time to
time shall not be decreased during the Term of this Agreement except in
connection with across-the-board salary reductions similarly affecting all
senior officers of the Company and all senior officers of any person in control
of the Company which have been agreed to by the Executive. Compensation of the
Executive by Base Salary payments shall not be deemed exclusive and shall not
prevent the Executive from participating in any other compensation or benefit
plan of the Company. The Base Salary payments (including any increased Base
Salary payments) shall not in any way limit or reduce any other obligation of
the Company hereunder, and no other compensation, benefit or payment hereunder
shall in any way limit or reduce the obligation of the Company to pay the
Executive's Base Salary.
5.2 BENEFIT PLANS. During the Term, the Executive and his eligible
dependents shall be entitled to participate in and receive benefits under all
"employee benefit plans" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended from time to time ("ERISA")), and
employee benefit arrangements in which senior officers of the Company generally
participate, including without limitation, (i) all savings, deferred
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compensation, profit sharing and retirement plans, practices, policies and
programs and (ii) all welfare benefit plans, practices, policies and programs
(including all medical, prescription, dental, disability, employee life
insurance, group life insurance, group hospitalization, health, accidental death
and travel accident insurance plans and programs) as are made generally
available to senior officers of the Company, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans,
practices, policies and programs, including provisions which permit such plans,
practices, policies and programs to be modified or terminated, provided, that if
the Company reduces the benefits provided under or terminates any such employee
benefit plan, practice, policy or program in which the Executive participates,
the Company shall offer to the Executive participation in another plan or
program that provides the Executive with benefits at least comparable to those
that were reduced or eliminated. The Executive's participation in such employee
benefit plans, practices, policies and programs shall be at a level appropriate
for the Executive's position. Such employee benefit plans, practices, policies
and programs, shall include, without limitation, the plans, programs, policies
and practices in which the Executive participates on the date of this Agreement.
5.3 INCENTIVE COMPENSATION. During the Term of this Agreement, the
Executive shall be entitled to participate in and receive benefits under all
annual incentive (bonus) plans and long-term incentive compensation plans in
which other senior officers of the Company generally participate, including all
restricted share, performance restricted share and stock option plans of the
Company. The Executive's participation in such incentive plans shall be at a
level appropriate for the Executive's position. Without limiting the generality
of the foregoing, the Company shall provide the Executive with an annual
incentive opportunity, as a percentage of the Executive's Base Salary at target
performance levels, that is not less than the
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opportunity provided to the Executive on the date of this Agreement, which
levels shall be reasonable and shall be adjusted for extraordinary events. Such
incentive compensation shall be subject to and on a basis consistent with the
terms, conditions and overall administration of such plans, including provisions
which permit such plans to be modified or terminated, provided, that if the
Company reduces the incentive compensation opportunities provided under or
terminates any such plan in which the Executive participates, the Company shall
offer to the Executive participation in another plan that provides the Executive
with an incentive compensation opportunity at least comparable to that which was
reduced or eliminated. Such incentive compensation plans shall include, without
limitation, the plans in which the Executive participates on the date of this
Agreement.
5.4 OTHER BENEFITS. The Executive shall participate on the same terms and
conditions as all other senior officers of the Company in all other benefit
plans, programs, or arrangements as may be now or hereafter sponsored or
maintained for senior officers of the Company generally and shall participate on
the same terms and conditions as other senior officers generally participate.
5.5 FRINGE BENEFITS. During the Term of this Agreement, the Executive
shall be entitled to receive all perquisites and fringe benefits which the
Company makes available to senior officers of the Company generally, including,
but not limited to, all perquisites and fringe benefits provided to the
Executive on the date of this Agreement.
5.6 EXPENSES. During the Term of this Agreement, the Executive is
authorized to incur, and shall be reimbursed by the Company for all reasonable
and customary business-related expenses, including travel, entertainment, gifts
and similar items, incurred by the Executive in connection with his employment
hereunder.
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5.7 WORKING FACILITIES. During the Term of this Agreement, the Company
shall furnish the Executive with offices and working facilities in the Company's
principal executive offices and shall provide secretarial and other assistance
suitable to Executive's position and adequate for the performance of his duties
hereunder.
5.8 VACATION. During the Term of this Agreement, the Executive shall be
entitled to vacation in accordance with the Company's current policies and
practices, provided that the Executive shall be entitled to not less than six
(6) weeks of vacation during each year of this Agreement, or such greater period
as the Board shall approve, without reduction in salary or other benefits.
5.9 ANNUAL REVIEW. During the Term of this Agreement, the Board (or the
compensation committee of the Board) shall in good faith review the Executive's
total compensation package (including but not limited to the Base Salary
provided for in Section 5.1, the benefit plans provided for in Section 5.2 and
the short and long-term incentive compensation opportunity provided for in
Section 5.3) at least annually for possible increase, taking into account, among
other things, (i) the performance of the Executive, (ii) the performance of the
Company, and (iii) the overall compensation of executives in similar positions
at comparable companies.
6. COMPENSATION IN THE EVENT OF EXECUTIVE'S DISABILITY.
During the Term of this Agreement, during any period that the Executive
fails to perform the Executive's full-time duties hereunder as a result of
incapacity due to physical or mental illness, the Company shall pay, or cause to
be paid, to the Executive his Base Salary at the rate in effect at the
commencement of any such period, together with all compensation and benefits
payable to the Executive under the terms of any compensation or benefit plan,
program or
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arrangement maintained by the Company for the benefit of the Executive during
such period, until this Agreement is terminated by the Company for Disability;
provided, however, that such payments shall be reduced by the sum of the
amounts, if any, payable to the Executive at or prior to the time of any such
payment under disability benefit plans of the Company, which amounts were not
previously applied to reduce any such payment.
7. TERMINATION COMPENSATION AND BENEFITS.
7.1 If the Executive's employment is terminated for any reason during the
Term of this Agreement, the Company shall pay to the Executive (or in accordance
with Section 11.2 in the event of the Executive's death), (i) the Executive's
Base Salary through the Date of Termination at the rate in effect immediately
prior to the time the Notice of Termination is given, (ii) all compensation and
benefits (other than severance compensation and benefits) payable to the
Executive through the Date of Termination or thereafter under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, including any short-term or long-term incentive compensation
to which the Executive is entitled, by virtue of previous awards, in accordance
with the terms of the long-term incentive plans in which Executive participates,
and (iii) any unreimbursed expenses payable pursuant to Section 5.6 of the
Agreement that were incurred before the Date of Termination.
7.2 In the event the Executive's employment is terminated during the Term
of this Agreement by the Executive for Good Reason or by the Company for any
reason other than Cause, death of the Executive or Disability, the Company shall
(i) pay the Executive, in addition to amounts payable under Section 7.1 and 7.3,
a lump sum cash payment to be made within thirty (30) days after the Date of
Termination equal to three times the sum of (x) the higher of the Base Salary in
effect immediately prior to the occurrence of the event or circumstance upon
which the
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Notice of Termination is based or the Base Salary in effect immediately prior to
the date of the Notice of Termination, and (y) the highest of the annual bonus
that may be earned by the Executive if target performance levels are achieved in
the year in which the Date of Termination occurs or the highest annual bonus
earned by the Executive in respect of the three (3) years immediately preceding
the year in which the Date of Termination occurs, in any case, pursuant to any
annual incentive (bonus) plan maintained by the Company, and (ii) continue the
benefits provided for in Section 5.2 of this Agreement for thirty-six (36)
additional months.
7.3 If the Executive's employment is terminated for any reason during the
Term of this Agreement, the Company shall pay the Executive's normal post-
termination compensation and benefits (other than severance compensation and
benefits) to the Executive as such payments become due. Such normal post-
termination compensation and benefits (other than severance compensation and
benefits) shall be determined under, and paid in accordance with the Company's
retirement, insurance and other compensation or benefit plans, programs and
arrangements (other than this Agreement), as applicable.
7.4 (a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment, benefit, or distribution by the
Company or its affiliates to or for the benefit of the Executive, whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Code, or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment ("Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes),
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including, without limitation, any income taxes and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 7.4(c) hereof, all
determinations required to be made under this Section 7.4, including whether a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be used in arriving at such determinations, shall be made by the
Company's principal outside accounting firm (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Board and the Executive
within fifteen (15) business days after the Date of Termination and/or such
earlier date(s) as may be requested by the Company or the Executive (each such
date and the Date of Termination shall be referred to as a "Determination Date"
for purposes of this Section 7.4(b) and Section 7.5 hereof). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. The
initial Gross-Up Payment, if any, as determined pursuant to this Section 7.4(b),
shall be paid by the Company to the Executive within thirty (30) days of the
receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm under this Section 7.4(b) shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment") consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its
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remedies pursuant to Section 7.4(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of an Underpayment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the thirty (30)
day period following the date on which he gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and
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(iv) permit the Company to participate in any proceeding
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 7.4(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income
tax, including interest or penalties with respect thereto, imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and provided, further, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the
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Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 7.4(c) hereof, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's compliance with the requirements of Section 7.4(c) hereof)
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 7.4(c) hereof, a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid.
7.5 The payments provided for in Section 7.4 hereof (other than Section
7.4(c) and (d)) shall be made not later than the thirtieth (30th) day following
each Determination Date; provided, however, that if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined by the Executive, of the
minimum amount of such payments to which the Executive is clearly entitled and
shall pay the remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can
be determined but in no event later than the forty-fifth (45th) day after each
Determination Date. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the fifth
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(5th) business day after demand by the Company (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code).
8. TERMINATION PROCEDURES.
8.1 NOTICE OF TERMINATION. During the Term of this Agreement, any
purported termination of the Executive's employment (other than by reason of
death) shall be communicated by written Notice of Termination from one party
hereto to the other party hereto in accordance with Section 12 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and, in the case of a termination by the Company for Cause or by the Executive
for Good Reason, shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the purpose
of considering such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct set forth in the definition of Cause herein,
and specifying the particulars thereof in detail.
8.2 DATE OF TERMINATION. "Date of Termination," with respect to any
purported termination of the Executive's employment during the Term of this
Agreement, shall mean (i) if the Executive's employment is terminated by his
death, the date of his death, (ii) if the Executive's employment is terminated
by the Executive other than for Good Reason, the date specified in the Notice of
Termination (which shall not be less than one hundred eighty (180)
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days) after such Notice of Termination is given, (iii) if the Executive's
employment is terminated by the Company for Cause, on the date that the Notice
of Termination is sent by the Board in accordance with Section 8.1, and (iv) if
the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which shall not be less than sixty (60)
days) after such Notice of Termination is given.
9. NO MITIGATION.
The Company agrees that, if the Executive's employment hereunder is
terminated during the Term of this Agreement, the Executive is not required to
seek other employment or to attempt in any way to reduce any amounts payable to
the Executive by the Company hereunder. Further, the amount of any payment or
benefit provided for hereunder (other than pursuant to Section 7.4(d) hereof)
shall not be reduced by any compensation earned by the Executive as the result
of employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company, or otherwise.
10. CONFIDENTIALITY AND NONCOMPETITION.
10.1 The Executive shall not, during or after the Term of this Agreement,
without the prior written consent of the Company disclose to any entity or
person any information which is treated as confidential by the Company or any of
their subsidiaries or affiliates (each, a "Company Entity"), and is not
generally known or available in to the public, provided, that the Executive may
make disclosures of such confidential information (i) during the Term of this
Agreement in the course of and to the extent required by and consistent with the
performance of his duties hereunder, and (ii) to the extent required by law or
legal process.
10.2 Except as permitted by the Company with its prior written consent,
the Executive shall not, during the Executive's employment with the Company and
for the period ending
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twenty-four (24) months after the Executive's employment with the Company
terminates for any reason, directly or indirectly, own, enter into the employ of
or render, any services (whether as a consultant or otherwise) to any person,
firm or corporation within the United States or any foreign country in which the
Company is doing or is contemplating doing business on the Date of Termination
which is a competitor of any Company Entity with respect to products which any
Company Entity is then producing or services which any Company Entity is then
providing (a "Competitor"), or approach, canvass, solicit, or otherwise endeavor
to entice away from the Company, any customer in respect of any service or
product in any way competitive with the services or products supplied by any
Company Entity to such customer, or solicit the services of, or endeavor to
entice away from the Company, any director, executive officer or employee of the
Company; provided, that it shall not be a violation of this provision for the
Executive to be employed by, or render services to, a Competitor, if the
Executive renders those services only with respect to those lines of business of
the Competitor which are not directly competitive with a line of business of any
Company Entity or are located in any country in which the Company does not do
business and was not contemplating doing business on the Date of Termination.
10.3 The Executive acknowledges and agrees that any breach of this Section
10 by the Executive will result in immediate and irreparable harm to the
Company, the amount of which will be extremely difficult to ascertain, and that
the Buyer could not be reasonably or adequately compensated by damages in an
action at law. For these reasons, the Company shall have the right to obtain
such preliminary, temporary or permanent mandatory or restraining injunctions,
orders or decrees as may be necessary to protect the Company against or on
account of any breach by the Executive of the provisions of this Section 10
without proof of any actual damage caused to the Company.
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11. SUCCESSORS; BINDING AGREEMENT.
11.1 In addition to any obligations imposed by law upon any successor to
the Company, the Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, as the case may be, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
upon the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for Good
Reason, except that, for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination.
11.2 This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the Executive's
estate.
12. NOTICES.
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered
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or mailed by United States registered mail, return receipt requested, postage
prepaid, addressed to the respective addressees set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
To the Company:
Armstrong World Industries, Inc.
2500 Columbia Avenue
Lancaster, PA 17603
Attention: Senior Vice President, Human Resources
Telecopy: 717-396-6119
To the Executive:
At the Executive's residence address as maintained by the Company
in the regular course of its business for payroll purposes.
13. MISCELLANEOUS.
If the Executive, in his capacity as a director, votes for, or in his
capacity as an officer, approves in writing, any action that will adversely
affect the Executive's rights under this Agreement, such vote or approval shall
be deemed to constitute the Executive's consent to such action under this
Agreement; otherwise, no provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by the Executive and such officers as may be specifically designated
by the Board. No waiver by any party hereto at any time of any breach by any
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by any
party which are not expressly set forth in this Agreement. This Agreement sets
forth the entire agreement of the parties hereto in
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respect of the subject matter contained herein and supersedes all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any officer, employee or
representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein is hereby terminated
and canceled, except as otherwise provided in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the Commonwealth of Pennsylvania, without giving effect to choice
of law principles.
All references to sections of the Code shall be deemed also to refer to any
successor provisions to such sections. There shall be withheld from any
payments provided for hereunder any amounts required to be withheld under
federal, state or local law and any additional withholding amounts to which the
Executive has agreed. The obligations under this Agreement of the Company or
the Executive which by their nature and terms require satisfaction after the end
of the Term shall survive such event and shall remain binding upon such party.
14. VALIDITY.
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
15. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.
16. SETTLEMENT OF DISPUTES; ARBITRATION.
All claims by the Executive for benefits under this Agreement shall be in
writing and shall be directed to and initially determined by the Board. Any
denial by the Board of a claim
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for benefits under this Agreement shall be delivered to the Executive in writing
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Board shall afford a reasonable
opportunity to the Executive for a review of the decision denying a claim and
shall further allow the Executive to appeal to the Board a decision of the Board
within sixty (60) days after notification by the Board that the Executive's
claim has been denied. To the extent permitted by applicable law and subject to
the right of the Company to seek equitable relief in a court pursuant to Section
10.3, any further dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Allegheny County,
Pennsylvania, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
17. FEES AND EXPENSES.
The Company shall pay to the Executive all reasonable legal fees and
expenses incurred by the Executive in disputing any termination or in seeking in
good faith to obtain or enforce any benefit or right provided by this Agreement
or in connection with any tax audit or proceeding to the extent attributable to
the application of Section 4999 of the Code to any payment or benefit provided
hereunder; provided, however, the Company shall not be required to pay to the
Executive legal fees and expenses to the extent such legal fees and expenses
were incurred in connection with a contest controlled by the Company pursuant to
Section 7.4(c) hereof in connection with which the Company complied with its
obligations under said Section 7.4(d). Such payments shall be made within
thirty (30) business days after delivery of the Executive's written request for
payment accompanied with such evidence of fees and expenses incurred as the
Company reasonably may require.
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18. COORDINATION OF BENEFITS. Notwithstanding anything in this Agreement
to the contrary, if the Executive is paid "Severance Payments" under that
certain Agreement dated as of October 1________, 1999 between the Company and
the Executive in connection with a Change of Control (as defined therein), then
this Agreement (including Section 10.2 hereof) shall forthwith terminate and the
Executive shall not be entitled to the payment of any amounts under this
Agreement other than pursuant to Section 7.1 hereof (and any amounts theretofore
paid to the Executive pursuant to Section 7.2, hereof shall be credited against
any "Severance Payments" to which the Executive is entitled under said Change in
Control Agreement).
19. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the meaning
indicated below:
(a) "Base Salary" shall have the meaning stated in Section 5.1
hereof.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" for termination by the Company of the Executive's
employment, for purposes of this Agreement, shall mean (i) the willful and
continued failure by the Executive to substantially perform the Executive's
duties hereunder (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such actual or anticipated
failure after the issuance of a Notice of Termination for Good Reason by the
Executive pursuant to Section 8.1) after a written demand for substantial
performance is delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties, or (ii) the
willful engaging by the Executive in conduct which is demonstrably and
materially injurious to the Company,
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monetarily or otherwise, including but not limited to fraud or embezzlement by
the Executive, or (iii) the Executive's conviction (or entering into a plea
bargain admitting guilt) of any felony, or (iv) a material breach by the
Executive of this Agreement, including a violation of Section 10. For purposes
of clauses (i) and (ii) of this definition, no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or omitted to be done,
by the Executive not in good faith and without reasonable belief that the
Executive's act, or failure to act, was in the best interest of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Date of Termination" shall have the meaning stated in Section
8.2 hereof.
(f) "Disability" shall be deemed the reason for the termination of
this Agreement by the Company, if, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been absent from the
full-time performance of the Executive's duties hereunder for a period of six
(6) consecutive months.
(g) "Excise Tax" shall have the meaning stated in Section 7.4(a)
hereof.
(h) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(i) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent), of any one of the following acts by the Company, or
failures by the Company to act, unless, in the case of any act or failure to act
described in paragraphs (i) or (ii) below, such act or failure to act is
corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
-21-
<PAGE>
(i) the assignment to the Executive of any duties inconsistent
with the Executive's status as an executive officer of the Company or a
substantial alteration in the nature or status of the Executive's
responsibilities consistent with the title set forth in Section 4;
(ii) any material breach of any provision of this Agreement by
the Company;
(iii) the relocation of the Executive's principal place of
employment to a location more than 50 miles from the Executive's principal place
of employment (unless such relocation is closer to the Executive's principal
residence) or the Company's requiring the Executive to be based anywhere other
than such principal place of employment (or permitted relocation thereof) except
for required travel on the Company's business to an extent substantially
consistent with the Executive's present business travel obligations;
(iv) a reduction by the Company in the Executive's Base Salary
as in effect on the date hereof or as the same may be increased from time to
time except for across-the-board salary reductions similarly affecting all
senior officers of the Company and all senior officers of any person in control
of the Company; or
(v) the failure by the Company to continue in effect any
employee benefit plan or incentive compensation plan in which the Executive
currently participates which is material to the Executive's total compensation,
unless such plan or arrangement has been replaced by a new plan on a basis not
materially less favorable, both in terms of the amount or timing of payment of
benefits provided and the level of the Executive's participation relative to
other participants.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's
-22-
<PAGE>
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any act or failure to act constituting Good Reason hereunder.
(j) "Gross-Up Payment" shall have the meaning stated in Section 7.4(a)
hereof.
(k) "Notice of Termination" shall have the meaning stated in Section
8.1 hereof.
(l) "Severance Payments" shall mean those payments described in
Section 7.2 hereof.
(m) "Term" shall have the meaning stated in Section 3 hereof.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
ARMSTRONG WORLD INDUSTRIES, INC.
By: /s/
------------------------------------------
Name: Douglas L. Boles
----------------------------------------
Title: Senior Vice President, Human Resources
---------------------------------------
Executive
/s/
---------------------
-23-
<PAGE>
Exhibit No. 11(a)
COMPUTATION FOR BASIC EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31
(AMOUNTS IN MILLIONS EXCEPT FOR PER-SHARE DATA)
1999 1998 1997
---- ---- ----
Basic Earnings (Loss) Per Share
- -------------------------------
Net Earnings (loss) $14.3 $ (9.3) $185.0
===== ====== ======
Average number of common shares outstanding 39.9 39.8 40.6
----- ------ ------
Basic Earnings (Loss) per share $0.36 $(0.23) $ 4.55
===== ====== ======
<PAGE>
Exhibit No. 11(b)
COMPUTATION FOR DILUTED EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31
(AMOUNTS IN MILLIONS EXCEPT FOR PER-SHARE DATA)
1999 1998 1997
---- ---- ----
Diluted Earnings (Loss) Per Share
- ---------------------------------
Net Earnings (loss) $14.3 $ (9.3) $185.0
===== ====== ======
Average number of common shares outstanding 39.9 39.8 40.6
Average number of common shares issuable
under stock options 0.3 0.6 0.4
--- --- ---
Average number of common and common stock
equivalents outstanding 40.2 40.4 41.0
---- ---- ----
Diluted Earnings (Loss) per share $0.36 $(0.23) $ 4.50
===== ====== ======
Diluted earnings (loss) per share for 1998 was antidilutive.
<PAGE>
EXHIBIT 12
ARMSTRONG WORLD INDUSTRIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ millions, except ratios)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
DETERMINATION OF EARNINGS
Income from continuing operations
before income taxes, minority interests
and equity earnings $ 14.4 $(35.3) $326.5 $221.4 $ 8.2
Add:
Fixed charges 117.3 78.8 35.7 39.3 59.0
Distributed income from affiliates 40.8 11.4 6.2 1.4 0.0
Amortization of capitalized interest 0.9 0.8 0.6 0.0 0.0
Less:
Capitalized interest (4.3) (5.8) (1.8) (2.9) 0.0
Preferred dividends 0.0 0.0 0.0 (8.9) (18.8)
------ ------ ------ ------ ------
Total earnings as defined $169.1 $ 49.9 $367.2 $250.3 $ 42.8
------ ------ ------ ------ ------
FIXED CHARGES
Interest expense 1 $105.9 $ 64.3 $ 28.7 $ 23.1 $ 34.2
Capitalized interest 4.3 5.8 1.8 2.9 0.0
Preferred dividends 0.0 0.0 0.0 8.9 18.8
Estimate of interest included in rent expense 7.1 8.7 5.2 4.4 6.0
------ ------ ------ ------ ------
Total fixed charges $117.3 $ 78.8 $ 35.7 $ 39.3 $ 59.0
------ ------ ------ ------ ------
RATIO OF EARNINGS TO FIXED CHARGES 1.44 0.63 10.29 6.37 0.73
====== ====== ====== ====== ======
</TABLE>
1 Includes amortization of capitalized interest and debt premiums and discounts
In 1995, Adjusted Earnings were inadequate to cover Fixed Charges by $16.2
million. In 1998, Adjusted Earnings were inadequate to cover Fixed Charges by
$28.9 million.
<PAGE>
EXHIBIT NO. 21
(as of January 2000)
Jurisdiction of
Domestic Subsidiaries Incorporation
- --------------------- --------------
Armstrong Cork Finance Corporation Delaware
Armstrong Enterprises, Inc. Vermont
Armstrong Holdings Canada, Inc. Delaware
Armstrong Insulation Products LLC Delaware
Armstrong Realty Group, Inc. Pennsylvania
Armstrong Ventures, Inc. Delaware
Armstrong World Industries Asia, Inc. Nevada
Armstrong World Industries (Delaware) Inc. Delaware
Armstrong World Industries (India) Inc. Nevada
Armstrong World Industries Latin America, Inc. Nevada
Armstrong.com Holding Company Delaware
A W I (NEVADA), INC. Nevada
IWF, Inc. Nevada
I.W. Insurance Company Vermont
The W. W. Henry Company California
Triangle Pacific Corp. Delaware
The Worthington Armstrong Venture (50%-owned unincorporated
affiliate)
Foreign Subsidiaries
- --------------------
A&S (1998) United Kingdom
Alphacoustic (UK) Ltd. United Kingdom
Armstrong (Floor) Holdings, B.V. Netherlands
Armstrong (Floor) Holdings Ltd. United Kingdom
Armstrong (Japan) K.K. Japan
Armstrong (Singapore) Pte. Ltd. Singapore
Armstrong (U.K.) Investments United Kingdom
Armstrong Acquisition Canada, Inc. Canada
Armstrong Architectural Products S.L. Spain
Armstrong Building Products United Kingdom
Armstrong Building Products B.V. Netherlands
Armstrong Building Products Company (Shanghai) Ltd. People's
Republic of
China
Armstrong Building Products G.m.b.H. Germany
Armstrong Building Products S.A. France
Armstrong Building Products S.r.l. Italy
Armstrong Europa G.m.b.H. Germany
Armstrong Europe Services United Kingdom
Armstrong FSC, Ltd. Bermuda
Armstrong Floor Products Europe G.m.b.H. Germany
Armstrong Floor Products Europe Ltd. United Kingdom
Armstrong Floor Products Europe Ltd. (Rep Office) Spain
Armstrong Floor Products Europe S.a.r.l. France
<PAGE>
Armstrong Hunter Douglas Limited United Kingdom
Armstrong Insulation (Panyu) Co. Ltd. People's
Republic of
China
Armstrong Insulation Products A.G. Switzerland
Armstrong Insulation Products Benelux SPRL Belgium
Armstrong Insulation Products G.m.b.H. Germany
Armstrong Insulation Products Limited United Kingdom
Armstrong Insulation Products Ltd. Hong Kong
Armstrong Insulation Products Pty. Ltd. Australia
Armstrong Insulation Products S.A. Spain
Armstrong Insulation Products S.A. France
Armstrong Insulation Products Sp. zo. o. Poland
Armstrong Insulation Products S.r.l. Italy
Armstrong Insulation Products U.K. United Kingdom
Armstrong Insulation Rus. Russia
Armstrong Nova Scotia Unlimited Liability Company Canada
Armstrong Parafon A.B. Sweden
Armstrong World Industries (Australia) Pty. Ltd. (formerly Australia
Armstrong-Nylex Pty. Ltd.)
Armstrong World Industries (China) Ltd. People's
Republic of
China
Armstrong World Industries (H.K.) Limited Hong Kong
Armstrong World Industries (Thailand) Ltd. Thailand
Armstrong World Industries AB Sweden
Armstrong World Industries Canada Ltd. Canada
Armstrong World Industries Holding G.m.b.H. Germany
Armstrong World Industries Ltd. United Kingdom
Armstrong World Industries Mauritius Mauritius
Armstrong World Industries Pty. Ltd. Australia
Armstrong World Industries de Mexico, S.A. de C.V. Mexico
Armstrong World Industries do Brasil Ltda. Brazil
Armstrong World Industries, G.m.b.H. Germany
DLW Aktiengesellschaft Germany
Liberty Commercial Services Ltd. Bermuda
<PAGE>
Exhibit No. 23
Consent of Independent Auditors
-------------------------------
The Board of Directors
Armstrong World Industries, Inc.:
We consent to incorporation by reference in Registration Statement No. 333-74501
on Form S-3 and the Registration Statements No., 2-91890, 33-18996, 33-18997,
33-29768, 33-65768, 333-74633 and 333-79093 on Form S-8 of Armstrong World
Industries, Inc. of our report dated February 2, 2000, relating to the
consolidated balance sheets of Armstrong World Industries, Inc., and
subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of earnings, cash flows and shareholders' equity and the related
financial statement schedule for each of the years in the three-year period
ended December 31, 1999, which report appears in the December 31, 1999 annual
report on Form 10-K of Armstrong World Industries, Inc.
KPMG LLP
Philadelphia, Pennsylvania
March 10, 2000
<PAGE>
Exhibit No. 24
POWER OF ATTORNEY
-----------------
Re: 1999 Annual Report on Form 10-K -
I, James E. Marley, as a Director of Armstrong World Industries, Inc., do
hereby constitute and appoint, GEORGE A. LORCH or, in the case of his absence or
inability to act as such, FRANK A. RIDDICK, III, or, in the case of his absence
or inability to act as such, DEBORAH K. OWEN, my agent, to sign in my name and
on my behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1999, and any amendments thereto, to be filed by the Company with
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, with the same effect as if such signature were made by me
personally.
/s/ James E. Marley
---------------------
James E. Marley
Dated February 28, 2000
--------------------
<PAGE>
- 2 -
(Exhibit No. 24)
All powers of attorney required to be filed are substantially identical in all
material respects. Therefore, in accordance with SEC Regulation 229.601(a)
Instruction 2, only the foregoing copy is being included except, however, that
the manually signed copy filed with the Securities and Exchange Commission
includes a complete set of powers of attorney.
All powers of attorney differ only from the form of the foregoing in that they
are executed by the following parties in the capacities indicated on or about
February 28, 2000, and the power by Frank A. Riddick appoints only George A.
Lorch or Deborah K. Owen as his agent:
Frank A. Riddick, III Senior Vice-President, Finance
(Principal Financial Officer)
William C. Rodruan Vice President and Controller
(Principal Accounting Officer)
H. Jesse Arnelle Director
Van C. Campbell Director
Donald C. Clark Director
Judith R. Haberkorn Director
John A. Krol Director
David M. LeVan Director
James E. Marley Director
David W. Raisbeck Director
Jerre L. Stead Director
<PAGE>
- 3 -
(Exhibit No. 24)
I, Deborah K. Owen, Senior Vice President and Secretary of Armstrong World
Industries, Inc., a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania, do hereby certify that, at a meeting of the Board
of Directors of said corporation duly held on the 28th day of February, 2000, at
which a quorum was present and acting throughout, the following resolutions were
adopted and are now in full force and effect:
RESOLVED That the 1999 annual report on Form 10-K in the form
presented to this meeting has been reviewed by the Board of Directors;
and the execution thereof on behalf of the Company by George A. Lorch,
Frank A. Riddick, III or Deborah K. Owen, with such changes therein and
additions or deletions thereto as any of them and the legal counsel to
the Company may approve, and the filing thereof with the Securities and
Exchange Commission after being so executed by the requisite number of
directors personally or by their respective attorneys-in-fact, are hereby
authorized.
FURTHER RESOLVED That the execution of the 1999 annual report on
Form 10-K by George A. Lorch, Frank A. Riddick, III and William C.
Rodruan, personally or by their respective attorneys-in-fact, as
principal executive officer, principal financial officer and principal
accounting officer, respectively, of the Company, is hereby authorized.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of said corporation
this 15 day of March, 2000.
/s/ Deborah K. Owen
------------------------------------
Sr. Vice President & Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR DECEMBER
31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 436
<ALLOWANCES> 48
<INVENTORY> 430
<CURRENT-ASSETS> 1,030
<PP&E> 1,439
<DEPRECIATION> 1,213
<TOTAL-ASSETS> 4,165
<CURRENT-LIABILITIES> 785
<BONDS> 1,413
0
0
<COMMON> 52
<OTHER-SE> 627
<TOTAL-LIABILITY-AND-EQUITY> 4,165
<SALES> 3,444
<TOTAL-REVENUES> 3,444
<CGS> 2,290
<TOTAL-COSTS> 2,290
<OTHER-EXPENSES> 1,008
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> 29
<INCOME-TAX> 15
<INCOME-CONTINUING> 14
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14
<EPS-BASIC> 0.36
<EPS-DILUTED> 0.36
</TABLE>
