AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1998
REG. NO. 333-67029
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DAL-TILE INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 7834 HAWN FREEWAY 13-3548809
(State or other DALLAS, TX 75217 (I.R.S. Employer
jurisdiction (214) 398-1411 Identification No.)
of incorporation or
organization)
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
-----------------------
JACQUES R. SARDAS
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND CHAIRMAN OF THE BOARD
DAL-TILE INTERNATIONAL
7834 HAWN FREEWAY
DALLAS, TX 75217
(214) 398-1411
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
-----------------------
COPIES TO:
FREDERICK H. FOGEL, ESQ. JOHN M. BRANDOW, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON DAVIS POLK & WARDWELL
ONE NEW YORK PLAZA 450 LEXINGTON AVE.
NEW YORK, NY 10004 NEW YORK, NY 10017
(212) 859-8000 (212) 450-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. |_|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
-----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
[RED HERRING]
The information in this prospectus is not complete and may be changed. The
selling stockholder may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED NOVEMBER 12, 1998
7,822,322 SHARES
DAL-TILE INTERNATIONAL INC.
COMMON STOCK
--------------------------------
ARMSTRONG IS OFFERING 7,822,322 SHARES OF COMMON STOCK OF
DAL-TILE.
-------------------------------------
DAL-TILE'S COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE
SYMBOL "DTL". ON NOVEMBER 12, 1998, THE
REPORTED LAST SALE PRICE OF THE COMMON STOCK
ON THE NEW YORK STOCK EXCHANGE WAS $9 PER SHARE.
-------------------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
-----------------------------------
PRICE $ A SHARE
-----------------------------------------
Underwriting
Price to Discounts and Proceeds to
Public Commissions Armstrong
------ ----------- ---------
Per Share............... $
Total................... $
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares of common
stock to purchasers on November , 1998.
--------------------------------------
MORGAN STANLEY DEAN WITTER
November , 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
Prospectus Summary........................................................3
Risk Factors..............................................................4
Use of Proceeds..........................................................12
Selling Stockholder......................................................12
The Underwriter..........................................................13
Where You Can Find More Information......................................14
Legal Matters............................................................15
Experts..................................................................15
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You should rely only on the information contained in or incorporated
into this prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. This
prospectus is not an offer to sell the common stock and it is not
soliciting an offer to buy common stock in any state where the offer or
sale is not permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.
In this prospectus, "Dal-Tile" refers to Dal-Tile International Inc.
and the "company," "we," "us" and "our" refer to Dal-Tile and its
subsidiaries, including the operations of American Olean Tile Company,
Inc., which Dal-Tile acquired on December 29, 1995. Daltile(R), American
Olean(R), Home Source(R) and Dal-Monte(R) are registered trademarks of the
company. In this prospectus "Armstrong" and the "selling stockholder"
refers to Armstrong World Industries, Inc. and its subsidiaries.
FORWARD-LOOKING STATEMENTS
This prospectus includes or incorporates forward-looking statements.
We have based these forward-looking statements on our current expectations
and projections about future events. These forward-looking statements are
subject to risks, uncertainties, and assumptions including, among other
things, those discussed under "Risk Factors" below and the following:
* the impact of competitive pressures and changing economic
conditions on our business;
* our dependence on residential and commercial construction
activity;
* our high level of indebtedness;
* currency fluctuations and other factors relating to our foreign
manufacturing operations;
* the impact of pending reductions in tariffs and custom duties;
and
* environmental laws and other regulations.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in and incorporated into
this prospectus might not occur.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information incorporated into this prospectus regarding our company, the
common stock being sold in the offering and our financial statements and
notes thereto.
We use the terms "floor" and "wall" tile to identify the most common
uses for a particular size or variety of tile; tile consumers use all sizes
and varieties of the products in all types of applications. When we make
statements in this prospectus or in documents incorporated by reference
about our market share or competitive position, investors should understand
that these statements are only estimates and approximations, and are
inherently imprecise. References to fiscal year 1998 refer to our fiscal
year ending January 1, 1999; references to fiscal year 1997 refer to our
fiscal year ended January 2, 1998; and references to fiscal year 1996 refer
to our fiscal year ended January 3, 1997.
We produce and distribute a broad line of high-quality ceramic wall
tile and floor tile products for both residential and commercial
applications, marketed primarily under our Daltile, American Olean and Home
Source brand names. We believe that we are the largest manufacturer,
distributor and marketer of ceramic tile in the United States, and one of
the largest in the world.
We commenced operations in 1947 as the Dallas Ceramic Company and
established our first wall tile manufacturing facility and corporate
headquarters in Dallas, Texas. On December 29, 1995, we completed the
acquisition of American Olean Tile Company, Inc. from Armstrong World
Industries, Inc.
Our principal executive offices are located at 7834 Hawn Freeway,
Dallas, Texas 75217. Our telephone number at that address is (214)
398-1411.
THE OFFERING
Common stock offered by
Armstrong....................... 7,822,322 shares
Common stock owned by
Armstrong after the offering.... Armstrong will not own any
Dal-Tile shares after the
offering.
Shares outstanding after the
offering........................ 53,552,246 shares
Use of Proceeds.................... We will not receive any of the
proceeds of the offering.
Risk Factors....................... See "Risk Factors" for a
discussion of factors you should
carefully consider before
deciding to invest in shares of
the common stock.
Dividend Policy.................... We do not currently anticipate
paying any cash dividends.
NYSE Symbol........................ DTL
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making
an investment decision. The risks and uncertainties described below are not
the only ones facing our company. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair
our business operations.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected.
In such case, the trading price of our common stock could decline, and you
may lose all or part of your investment.
SIGNIFICANT INDEBTEDNESS; PRINCIPAL AND INTEREST PAYMENT OBLIGATIONS
We have a high level of indebtedness and, as a result, have
significant obligations to repay principal and to pay interest on our debt.
At October 2, 1998, our outstanding debt was approximately $517.6 million,
including borrowings under our bank credit facility.
Our high level of indebtedness has important consequences to our
stockholders, such as:
* we must use a substantial portion of our cash flow from
operations to pay our debt service obligations;
* we are more sensitive to a downturn in general economic
conditions and changes in our industry;
* our ability to respond to market conditions (including
our ability to make capital expenditures) or to meet our
contractual or financial obligations may be limited;
* we are subject to restrictive financial and operating
covenants that could limit our ability to conduct our
business;
* we may have a higher level of indebtedness than our
competitors; and
* we may be limited in our ability to obtain additional
financing to fund our growth strategy, working capital,
capital expenditures, debt service requirements or other
purposes.
Our credit agreement requires us to make the following principal
payments:
* quarterly amortization payments on the remaining portion of
our $275 million Term A Loan starting in the third quarter
of fiscal year 1998 through December 31, 2002, at various
scheduled amounts (including an aggregate of $12.5 million
in fiscal year 1998 and $40 million in fiscal year 1999);
* quarterly amortization payments on our $125
million Term B Loan through December 31, 2003 (including an
aggregate of $1 million in each of fiscal year 1998 and
1999); and
* repayment of all borrowings under our $250 million revolving
credit facility on December 31, 2002.
RESTRICTIONS IN CREDIT AGREEMENT ON OUR OPERATIONS
Our credit agreement contains significant operating and financial
covenants (each of which is more fully described in our credit agreement).
The financial covenants include requirements that we maintain agreed levels
in the following areas:
* consolidated net worth;
* current ratio;
* consolidated interest coverage;
* consolidated leverage ratio; and
* consolidated EBITDA.
A breach of any of the covenants under our credit agreement could result in
an event of default. This would allow our lenders to declare all borrowed
amounts, together with accrued interest, to be immediately due and payable.
During the current fiscal year, certain of these financial covenants
began to become increasingly more stringent. Because of these financial
covenants and the debt service requirements under our credit agreement, we
expect that we will be required to seek to refinance our borrowings or
amend the terms of our credit agreement in 1999, or possibly sooner. We are
currently in discussions with our lenders regarding amending the financial
covenants.
Our ability to satisfy our debt service obligations, to amend or
refinance our borrowings and to raise capital through other means, such as
selling assets or raising equity capital, depends on our financial and
operating performance. Our financial and operating performance is subject
to economic conditions and financial, business and other factors beyond our
control.
If we raise additional funds by issuing equity securities, the
percentage ownership of our stockholders at that time would be diluted.
Also, new equity securities may have rights senior to those of the common
stock. We are uncertain as to whether we will be able to obtain the future
borrowing facilities necessary to repay or refinance our current
borrowings. We also are not sure that our lenders will agree to any
requested modification of the terms of our indebtedness or that our
operating results will allow us to comply with our obligations under any
new or amended credit agreement. We expect that debt incurred as part of a
refinancing would involve higher borrowing costs.
RISKS RELATED TO INTEGRATION OF AMERICAN OLEAN; OPERATING LOSSES AND
NEGATIVE CASH FLOW
We have experienced difficulties in the complex task of integrating
the American Olean operations, which we purchased in December 1995, with
our operations. Delays in bringing the combined companies onto a common,
fully integrated management information system affected many aspects of our
operations, particularly our logistics systems. As a result, we
overproduced some products and underproduced others. Transportation costs
increased because we needed to relocate inventory to meet demand. These
factors adversely affected customer service, and we lost sales. Accounts
receivable and inventory increased significantly, which adversely affected
our cash flow in 1996 and 1997.
The difficulties associated with the integration significantly
affected our financial results. For example:
* sales declined 6.1% in 1997 compared to 1996;
* operating margins declined to 3.0% in 1997 from 14.8% in
1996, excluding the charges described below, and certain
merger integration charges;
* operating income declined $86.4 million to $20.5 million in
1997 from $106.9 million in 1996, excluding the charges
described below, and certain merger integration charges; and
* we experienced negative free cash flow of $(92.9) million in
1997 and $(60.7) million in 1996.
We recorded charges of $24.7 million during the second quarter of 1997
and $65.4 million during the third quarter of 1997. These charges were
principally non-cash charges for the write-down of obsolete and slow moving
inventories, uncollectible trade accounts receivable, and other
non-productive assets, and costs for restructuring of manufacturing, store
operations and corporate administrative functions.
We believe that we have taken adequate charges for the costs
associated with the integration efforts, but we cannot be certain that we
will not incur charges for similar matters in the future. In addition,
although we have taken a number of actions to resolve the difficulties
associated with completing the integration, we are not certain that we have
taken or will be able to take all necessary steps, or that we will maintain
profitability and positive cash flow in the future.
We have substantially completed the conversion of our management
information systems, primarily onto the platform used by American Olean.
While our current information systems platform has allowed us to operate
during the integration, we expect that we will need to make additional
systems investments to improve the performance of our supply chain.
Further, as we grow and our customer service requirements increase in the
future, we expect that we will need to make additional investments in our
information systems. In the second quarter of 1999, we expect to shift from
computer services currently provided by Armstrong to those provided by a
third party. Although we believe we have adequately prepared for this
conversion, it is possible that material disruptions to our operations
could occur.
The continued success of the integration could be affected by a number
of factors beyond our control, including:
* general economic conditions;
* increased operating costs;
* potential loss of sales arising from our cost savings
initiatives or otherwise;
* the response of competitors or customers; and
* further delays or difficulties in implementation.
CYCLICAL BUSINESS
The U.S. ceramic tile industry is highly dependent on residential and
commercial construction activity--new construction as well as remodeling.
This construction activity is cyclical in nature and is significantly
affected by changes in general and local economic conditions. These
conditions include:
* interest rates;
* housing demand;
* employment levels;
* financing availability;
* commercial rental vacancy rates; and
* consumer confidence.
A prolonged decline in residential or commercial construction
activities could result in a significant decrease in our operating
performance.
COMPETITIVE INDUSTRY
We sell our products in a highly competitive marketplace. In the floor
and wall covering businesses, we compete with vendors of carpet, resilient
flooring, wood flooring, laminates, stone, wallpaper, paint and other
products. We also face extensive competition from domestic and foreign
manufacturers and independent distributors of ceramic tile. Although we
believe that we are the largest manufacturer, distributor and marketer of
ceramic tile in the United States, some of our U.S. competitors are
subsidiaries of publicly held companies that may have greater resources and
access to capital than we do. In addition, some of our foreign competitors
may be larger and have greater resources and access to capital than we do.
In 1997, approximately 60% of U.S. ceramic tile sales (by unit volume)
consisted of imports, including the approximately 7% of all ceramic tile
sold in the United States that we manufactured in Mexico. In recent years,
imports have accounted for an increasing proportion of U.S. ceramic tile
sales. Consequently, changes in exchange rates or global economic
conditions could affect our position with respect to our foreign
competitors.
MANAGEMENT TRANSITION
We are experiencing a period of management transition that has placed,
and may continue to place, a significant strain on our organizational
resources and personnel. We hired Jacques R. Sardas as Chief Executive
Officer in July 1997 and he has assembled a new senior management team. Our
ability to manage the integration of Dal-Tile and American Olean operations
and future business initiatives successfully will require our new
management personnel to work together effectively and will require us to
improve our operational, management and financial systems and controls. If
our management is unable to manage this transition effectively, our
business, competitive position, and financial results will be materially
and adversely affected.
DEPENDENCE ON KEY PERSONNEL
We rely on our key management personnel. In particular, we depend on
the continued employment of Jacques R. Sardas, our Chairman, President and
Chief Executive Officer. We have entered into an employment agreement with
Mr. Sardas which extends through December 31, 2001. Our future success will
also depend on our ability to attract and retain highly skilled personnel
in various areas, including technical, marketing, sales and management. If
we do not succeed in retaining and motivating our current employees and
attracting new employees we need, our business could suffer significantly.
IMPACT OF MEXICAN OPERATIONS; CURRENCY FLUCTUATIONS
Forty-three percent of our manufacturing capacity is owned and
operated by our Mexican subsidiaries (exclusive of manufacturing capacity
available from our Mexican joint venture). Accordingly, an event that has a
material adverse impact on our Mexican operations may have a material
adverse impact on our operations as a whole. The marketing, manufacturing
and regulatory environments in Mexico differ somewhat from those in the
United States.
Our Mexican facility primarily provides ceramic tile to our U.S.
operations and in addition sells ceramic tile in Mexico. In fiscal year
1997 and through the third quarter of 1998, sales in Mexico represented
approximately 3% of our consolidated net sales. Our sales in Mexico are
denominated in pesos and primarily all of our Mexican facility's cost of
sales and operating expenses are denominated in pesos. In fiscal year 1997
and through the third quarter of 1998, peso-denominated cost of sales and
operating expenses represented approximately 7% of our consolidated cost of
sales and operating expenses.
Exposure to exchange rate changes is favorable to operating results
when the peso devalues against the U.S. dollar, since our costs relating to
our Mexican operations are primarily denominated in pesos and our revenues
relating to our Mexican operations are primarily denominated in dollars. As
the peso appreciates against the U.S. dollar, the effect is unfavorable to
operating results. In addition to exchange rate changes affecting operating
results, we recognize foreign currency transaction gains or losses in other
income and expense. We recorded a foreign currency transaction gain of
approximately $0.6 million in fiscal 1997 and approximately $1.2 million
through the third quarter of 1998. In addition, the translation of foreign
assets and liabilities into dollars may result in non-cash increases or
reductions to stockholders' equity. We have not historically entered into
peso currency forward contracts.
The Mexican peso has been subject to large devaluations in the past,
and may be subject to significant fluctuations in the future. The peso
devalued 2.65% during 1997 and approximately 28% through the third quarter
of 1998. These devaluations resulted in a reduction of stockholders' equity
of approximately $1.4 million in 1997 and $12.6 million through the third
quarter of 1998 as a result of translating peso-denominated assets and
liabilities into dollars. Any future devaluation of the peso against the
dollar will result in a reduction of stockholders' equity.
Over the last few years, the Mexican government has begun a program of
reform to modify its role in the Mexican economy. Nevertheless, the Mexican
government continues to exercise significant influence over many aspects of
the Mexican economy. Accordingly, Mexican government actions concerning the
economy could have significant effects on private companies, including us.
Future Mexican governmental actions or future developments in the Mexican
economy, including a slowdown of the Mexican economy or the development of
any social unrest, may impair our operations or financial condition or
adversely affect the market price of our common stock.
TARIFFS AND CUSTOMS DUTIES
The United States is a party to the General Agreement on Tariffs and
Trade. Under GATT, the United States currently imposes import duties on
ceramic tile imported from non-North American countries at approximately
15%, to be reduced steadily to 8 1/2% by 2004. Accordingly, GATT may
stimulate competition from non-North American manufacturers who export
ceramic tile to the United States. We are uncertain what effect GATT may
have on our operations.
In 1993, Mexico, the United States and Canada approved the North
American Free Trade Agreement. NAFTA will remove most normal customs duties
imposed on goods traded among the three countries. Although NAFTA lowers
the tariffs imposed on our ceramic tile manufactured in Mexico and sold in
the United States, it also may stimulate competition in the United States
and Canada from manufacturers located in Mexico. The United States
currently imposes import duties on ceramic tile from Mexico of
approximately 13%, although these duties on imports from Mexico are being
phased out steadily under NAFTA through 2008. We are uncertain what effect
NAFTA may have on our operations.
CONTROL BY CERTAIN STOCKHOLDERS
Currently and following the offering, DTI Investors LLC, which is
controlled by AEA Investors Inc., will own approximately 53.4% of our
outstanding common stock. Accordingly, AEA Investors has sufficient voting
power to decide the results of matters submitted to a vote of stockholders.
Furthermore, this control could preclude a non-negotiated takeover attempt
and, consequently, adversely affect the price of our common stock.
REGULATIONS AND ENVIRONMENTAL CONSIDERATIONS
Our operations are subject to various U.S. and Mexican environmental
laws, including laws addressing materials used in our products. In
addition, certain of our operations are subject to U.S. and Mexican
environmental laws that impose limitations on the discharge of pollutants
into the air and water and establish standards for the treatment, storage
and disposal of solid and hazardous wastes. Although we believe that we
have made sufficient capital expenditures to maintain compliance with
existing laws, we may need to increase our spending as compliance standards
and technology change. If changes in law require unforeseen significant
expenditures, our business and financial condition may be adversely
affected.
We have been, and presently are, the subject of administrative
proceedings, litigation and investigations relating to environmental and
related matters. We do not believe that such proceedings, litigation and
investigations will have a material impact on our operations. This belief
is based on a number of factors, including certain indemnification rights
we enjoy. However, it is possible that we will become involved in future
litigation or other proceedings. If we were found to be responsible or
liable in any litigation or proceeding, it is possible that such costs will
be material, or that payment under our indemnification rights will not be
available or sufficient.
LIMITED TRADING MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Our common stock is traded on the New York Stock Exchange. The average
daily trading volume for the common stock as reported by the NYSE for the
third quarter of 1998 was approximately 107,000 shares. Despite the
increase in the number of shares of common stock to be publicly held as a
result of the offering, we are uncertain as to whether a more active
trading market in the common stock will develop. The price of our common
stock may vary significantly as a result of many factors, including:
* our results of operations;
* analyst estimates; and
* general market conditions.
In addition, the securities markets sometimes experience significant
price and volume fluctuations. These fluctuations are often unrelated or
disproportionate to the operating performance of particular companies.
Following the offering, sales or the expectation of sales of substantial
amounts of common stock in the public market by us or our stockholders
could adversely affect the prevailing market prices for the common stock.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our common stock could drop due to sales of a
large number of shares of our common stock in the market after the offering
or the perception that such sales could occur. These factors could also
make it more difficult for us to raise funds through future offerings of
common stock.
We have 53,552,246 shares of common stock outstanding. All of these
shares are freely transferable without restriction or further registration
under the federal securities laws, except for any shares held by
affiliates, including 28,604,811 shares held by DTI Investors LLC. In
connection with the offering, we, our directors and executive officers, and
DTI Investors LLC have each agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated, each will not sell any shares of
common stock. These restrictions only apply until the later of (i) January
1, 1999 or (ii) 45 days after the date of this prospectus, and do not apply
to shares issued under our option plan. See "The Underwriter."
In addition, as of October 15, 1998, there were 10,586,425 shares of
common stock reserved for issuance pursuant to our stock option plans and
options for the purchase of 9,215,356 shares of common stock were
outstanding. These shares will be available for sale in the public market
from time to time upon registration or pursuant to available exemptions
from registration.
IMPORTANCE OF RELATIONSHIP WITH HOME DEPOT
Approximately 10% of our revenues in the first three quarters of
fiscal 1998 consisted of sales to Home Depot. We believe that our
relationship with Home Depot is good, but we cannot be certain that we will
be able to maintain this relationship. The loss of Home Depot as a customer
or a significant reduction in sales to Home Depot could cause our business
to suffer significantly.
IMPACT OF YEAR 2000
Some of our computer programs were written using two digits rather
than four to define the applicable year. As a result, those computer
programs have time-sensitive software that may recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices or engage in similar normal business activities.
We continue to modify and replace portions of our software and
hardware so that our computer systems will function properly with respect
to dates in the year 2000 and thereafter. The total Year 2000 costs are
estimated at approximately $6.0 million and will be recorded as expenses as
they are incurred. To date, we have incurred expenses totaling $2.8 million
and have completed our Year 2000 assessment. In addition, we have developed
a Year 2000 modification plan and completed a significant portion of the
activities called for in the plan.
The project is estimated to be completed no later than the end of the
second quarter of 1999, which is prior to any anticipated impact on our
operating systems. We believe that, with modifications to existing software
and conversions to new software, the Year 2000 issue will not pose
significant operational problems for our computer systems. However, if we
do not make the necessary modifications and conversions or do not complete
them on time, the Year 2000 issue could have a material impact on our
operations.
The cost of the project and the date by which we believe we will
complete the Year 2000 modifications are based on our best estimates, which
were derived utilizing a number of assumptions about future events, such
as:
* the availability and cost of personnel trained in this area;
* the ability to locate and correct all relevant computer
codes;
* the performance of key software and hardware vendors; and
* other similar uncertainties.
However, we are not sure that our estimates will be achieved and
our actual results could differ materially from those we anticipate.
In addition, our operations and financial condition could also suffer
significantly if the Year 2000 issue significantly disrupts the operations
of our major customers or suppliers.
ANTITAKEOVER PROVISIONS
Our certificate of incorporation and bylaws contain certain provisions
that could have the effect of discouraging or making it more difficult for
someone to acquire us through a tender offer, a proxy contest or otherwise,
even though such an acquisition might be economically beneficial to our
stockholders. These provisions include advance notice procedures for
stockholders to nominate candidates for election as members of our board of
directors and for stockholders to submit proposals for consideration at
stockholders' meetings. Our ability to issue preferred stock, in one or
more classes or series, with such powers and rights as may be determined by
our board of directors, also could make such an acquisition more difficult.
In addition, these provisions may make the removal of management more
difficult, even in cases where such removal would be favorable to the
interests of our stockholders.
We are subject to Section 203 of the Delaware General Corporation
Law which limits transactions between a publicly held company and
"interested stockholders" (generally, those stockholders who, together with
their affiliates and associates, own 15% or more of a company's outstanding
capital stock). This provision of Delaware law also may have the effect of
deterring certain potential acquisitions of us.
NO DIVIDEND PAYMENTS ARE EXPECTED
We do not currently anticipate paying any cash dividends. In addition,
our ability to pay dividends on our common stock is restricted under the
terms of our credit agreement.
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the offering.
SELLING STOCKHOLDER
The following table sets forth certain information regarding the
beneficial ownership of common stock that Armstrong is offering to sell
immediately prior to the offering and as adjusted to reflect the sale of
the shares of common stock.
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED
TO THE OFFERING AFTER THE OFFERING
------------------- -------------------
NAME AND ADDRESS OF BENEFICIAL NUMBER (1) PERCENT SHARES NUMBER PERCENT
OWNER OFFERED
- ------------------------------ ---------- ------- ------- ------ -------
Armstrong Enterprises,
Inc.(1)................. 7,822,322 14.6% 7,822,322 -- --
Liberty and Charlotte
Streets
P.O. Box 3001
Lancaster, PA 17604
Armstrong World Industries,
Inc.(1).................. 7,822,322 14.6% 7,822,322 -- --
Liberty and Charlotte
Streets
P.O. Box 3001
Lancaster, PA 17604
- -------------
(1) Based on information supplied to us by Armstrong Enterprises, Inc.,
which is a wholly owned subsidiary of Armstrong World Industries, Inc.
OUR RELATIONSHIP WITH ARMSTRONG WORLD INDUSTRIES; SHAREHOLDERS AGREEMENT
On December 29, 1995, Armstrong World Industries acquired 37% of
Dal-Tile's outstanding capital stock in connection with our acquisition of
American Olean. At that time, we also entered into a shareholders agreement
and agreements with Armstrong relating to our use of certain trademarks
Armstrong owned, and Armstrong's supply to us of certain transition
services, raw materials produced at a mine operated by Armstrong and
computer services. The agreements relating to trademarks, transition
services and raw materials are no longer in effect and the agreement
relating to computer services (for which we pay Armstrong approximately $7
million per year) will expire on May 31, 1999.
In June of 1998, Armstrong sold 10,350,000 shares of our common stock
in a public offering.
Pursuant to the shareholders agreement, as currently in effect,
Armstrong has the right to appoint one member of Dal-Tile's Board of
Directors, although Armstrong has not done so. The shareholders agreement
also provides for registration rights under certain circumstances under the
Securities Act. The shareholders agreement will terminate upon the
completion of the offering.
THE UNDERWRITER
Under the terms and subject to the conditions contained in the
underwriting agreement dated the date hereof (the "underwriting
agreement"), Morgan Stanley & Co. Incorporated as the underwriter has
agreed to purchase, and Armstrong has agreed to sell to the underwriter,
7,822,322 shares of common stock.
Morgan Stanley is offering the shares of common stock subject to its
acceptance of the shares from the selling stockholder and subject to prior
sale. The underwriting agreement provides that the obligation of the
underwriter to pay for and accept delivery of the shares of common stock
offered hereby is subject to the approval of certain legal matters by its
counsel and to certain other conditions. Morgan Stanley is obligated to
take and pay for all of the shares of common stock offered hereby if any
are taken.
Morgan Stanley initially proposes to offer part of the shares of
common stock directly to the public at the public offering price set forth
on the cover page hereof and part to certain dealers at a price that
represents a concession not in excess of $ a share under the public
offering price. Morgan Stanley may allow, and such dealers may reallow, a
concession not in excess of $ a share to certain dealers. After the initial
offering of the shares of common stock, Morgan Stanley may vary the
offering price and other selling terms from time to time.
Dal-Tile will pay the expenses of the offering, expected to be
approximately $172,500, other than underwriting discounts and commissions.
Armstrong will receive all proceeds of the offering and will pay the
underwriting discounts and commissions shown on the cover of the
prospectus.
Each of Dal-Tile, Dal-Tile's directors and executive officers (for so
long as they remain in such capacities) and DTI Investors LLC has agreed
that, without the prior written consent of Morgan Stanley, it will not,
until the later of (i) January 1, 1999 or (ii) 45 days after the date of
this prospectus (1) offer, pledge, loan, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
(whether such shares or any securities are then owned by such person or are
thereafter acquired directly from Dal-Tile), (2) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of
the economic consequences of the ownership of the common stock, whether any
such transaction described in clause (1) or (2) of this paragraph is to be
settled by delivery of common stock or such other securities, in cash or
otherwise, (3) in the case of DTI Investors LLC, make any demand for, or
exercise any right with respect to, registration of any shares of common
stock or (4) in the case of Dal-Tile, file a registration statement with
the SEC for an offering of common stock or any securities convertible into
or exercisable or exchangeable for common stock (other than a registration
statement or Form S-8 or an equivalent form), other than, with respect to
clauses (1), (2), (3) and (4) above, (i) the offer and sale of the shares
of common stock made in connecting with this offering and (ii) options to
purchase common stock, or shares of common stock issued or issuable under
our existing stock option and stock purchase plans.
In order to facilitate the offering of the common stock, Morgan
Stanley may engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock. Specifically, Morgan Stanley may
over-allot in connection with the offering, creating a short position in
the common stock for its own account. In addition, to cover over-allotments
or to stabilize the price of the common stock, Morgan Stanley may bid for,
and purchase, shares of common stock in the open market. Finally, Morgan
Stanley may reclaim selling concessions allowed to a dealer for
distributing the common stock in the offering, if Morgan Stanley
repurchases previously distributed common stock in transactions to cover
short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the common stock
above independent market levels. Morgan Stanley is not required to engage
in these activities, and may end any of these activities at any time.
Dal-Tile, Armstrong and Morgan Stanley have agreed to indemnify each
other against certain liabilities, including liabilities under the
Securities Act.
From time to time, Morgan Stanley has provided, and may continue to
provide, investment banking services to Dal-Tile and Armstrong.
More than 10% of the net proceeds of the offering may be paid to
affiliates of Morgan Stanley. Accordingly, the offering is being made
pursuant to the provisions of section (c)(8) of Rule 2710 of the NASD
Conduct Rules.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file
at the SEC's public reference rooms in Washington, D.C., New York, N.Y. and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also
available to the public from the SEC's web site at http://www.sec.gov.
Reports, proxy and information statements and other information concerning
us can also be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you
by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be part of this
prospectus, and later information that we file with the SEC will
automatically update this prospectus. We incorporate by reference the
following documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, prior to the termination of the offering:
* Annual Report on Form 10-K and Form 10-K/A for the year
ended January 2, 1998;
* Quarterly Reports on Form 10-Q for the quarters ended April
3, 1998, July 3, 1998 and October 2, 1998;
* The Proxy Statement dated April 3, 1998 relating to the 1998
Annual Meeting of Stockholders held April 30, 1998; and
* The description of the common stock contained in our
registration statement on Form 8-A, dated July 16, 1996
(File No. 1-11939).
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Mark A. Solls
Vice President, General
Counsel and Secretary
Dal-Tile International Inc.
7834 Hawn Freeway
Dallas, Texas 75217
(214) 398-1411
LEGAL MATTERS
Certain legal matters will be passed upon for the company by Fried,
Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York, for Morgan Stanley by Davis Polk &
Wardwell, New York, New York, and for the selling stockholder by Buchanan
Ingersoll Professional Corporation, Pittsburgh, Pennsylvania.
EXPERTS
The Consolidated Financial Statements and consolidated financial
statement schedule of Dal-Tile at January 2, 1998 and January 3, 1997 and
for each of the three years in the period ended January 2, 1998, are
included in Dal-Tile's annual report on Form 10-K and Form 10-K/A and are
hereby incorporated by reference and have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon
incorporated by reference herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The following table sets forth the estimated expenses to be borne by
us, in connection with the issuance and distribution of the securities
being registered hereby, other than underwriting and commissions.
SEC registration fee.......................... $19,368
NASD filing fee............................... 7,467
Accounting fees and expenses.................. 50,000
Legal fees and expenses....................... 75,000
Blue Sky expenses and counsel fees............ 3,000
Printing and engraving expenses............... 10,000
Transfer Agent and Registrar's fees and
expenses...................................... 2,500
Miscellaneous expenses........................ 5,165
--------
Total..................................... $172,500
========
- -------------
* Except for the SEC registration fee and the NASD filing fee, all the
foregoing expenses have been estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article SEVENTH of the Second Amended and Restated Certificate of
Incorporation of Dal-Tile provides as follows:
"To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or may hereafter be amended, a Director of the
Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a Director."
Section 145 of the General Corporation Law of the State of Delaware
provides as follows:
Under certain circumstances a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was
serving at its request in such capacity in another corporation or business
association, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by a director, officer, employee or agent of the
corporation, or a person who is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation or business association in connection with the defense or
settlement of an action or suit, if such person has acted in good faith and
in a manner that he or she reasonably believed to be in or not opposed to
the best interests of the corporation, except that no indemnification shall
be made if such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the court in which the
action or suit was brought shall determine upon application that the
defendant is fairly and reasonably entitled to indemnity for such expenses
despite such adjudication of liability.
Dal-Tile has entered into agreements to provide indemnification for
its directors in addition to the indemnification provided for in the
Restated Bylaws of Dal-Tile. These agreements, among other things,
indemnify the directors, to the fullest extent provided by Delaware law,
for certain expenses (including attorney's fees), losses, claims,
liabilities, judgments, fines and settlement amounts incurred by such
indemnitee in any action or proceeding, including any action by or in the
right of Dal-Tile, on account of services as a director or officer of any
affiliate of Dal-Tile, or as a director or officer of any other company or
enterprise that the indemnitee provides services to at the request of
Dal-Tile.
The form of Indemnification Agreement filed as Exhibit 1.1 provides
for the indemnification of Dal-Tile, its controlling persons, its directors
and certain of its officers by Morgan Stanley against certain liabilities,
including liabilities under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS. The following is a list of exhibits filed as part of the
Registration Statement.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1 Form of Indemnification Agreement between Morgan Stanley &
Co. Incorporated and Dal-Tile International Inc.
1.2. Form of Underwriting Agreement, among Morgan Stanley & Co.
Incorporated and Armstrong World Industries, Inc. and
Armstrong Enterprises, Inc.
2.1. Stock Purchase Agreement, dated as of December 21, 1995, by
and among Dal-Tile International Inc., Armstrong Enterprises,
Inc., Armstrong Cork Finance Corporation and Armstrong World
Industries, Inc. (Filed as Exhibit 2 to Dal-Tile's Current
Report on Form 8-K filed on January 16, 1996 and incorporated
herein by reference.)
4.1. Specimen form of certificate for common stock. (Filed as
Exhibit 4.1 to Dal-Tile's Registration Statement on Form S-1
(No. 333-5069) and incorporated herein by reference.)
5.1. Opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel
to the company, as to the legality of the securities being
offered.
23.1 Consent of Fried, Frank, Harris, Shriver & Jacobson (included
in Exhibit 5.1).
23.2. Consent of Ernst & Young LLP.
24.1. Powers of Attorney (included on pages II-4 and II-5 of the
Registration Statement).
- -------------
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the company pursuant to the foregoing provisions, or otherwise,
the company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
company will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, each filing of the company's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(2) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the company pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT
MEETS ALL REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF
TEXAS ON THE 12TH DAY OF NOVEMBER, 1998.
DAL-TILE INTERNATIONAL INC.
By: /s/ Mark A. Solls
-----------------------------------------
Name: Mark A. Solls
Title: Vice President, General
Counsel and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE FIRST ABOVE INDICATED:
Signature Title
--------- -----
*
- --------------------------- President, Chief Executive
Jacques R. Sardas Officer and Chairman of the
Board of Directors
*
- --------------------------- Executive Vice President, Chief
William C. Wellborn Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
*
- --------------------------- Director
John M. Goldsmith
*
- --------------------------- Director
Charles J. Pilliod, Jr.
*
- --------------------------- Director
Henry F. Skelsey
*
- --------------------------- Director
Douglas D. Danforth
*
- --------------------------- Director
Vincent A. Mai
*
- --------------------------- Director
Norman E. Wells, Jr.
*
- --------------------------- Director
John F. Fiedler
By: /s/ Mark A. Solls
-----------------------
Mark A. Solls
ATTORNEY-IN-FACT
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1 Form of Indemnification Agreement between Morgan Stanley & Co.
Incorporated and Dal-Tile International Inc.
1.2. Form of Underwriting Agreement, among Morgan Stanley & Co.
Incorporated and Armstrong World Industries, Inc. and
Armstrong Enterprises, Inc.
2.1. Stock Purchase Agreement, dated as of December 21, 1995, by
and among Dal-Tile International Inc., Armstrong Enterprises,
Inc., Armstrong Cork Finance Corporation and Armstrong World
Industries, Inc. (Filed as Exhibit 2 to the Dal-Tile's
Current Report on Form 8-K filed on January 16, 1996 and
incorporated herein by reference.)
4.1. Specimen form of certificate for common stock. (Filed as
Exhibit 4.1 to the Dal-Tile's Registration Statement on Form
S-1 (No. 333-5069) and incorporated herein by reference.)
5.1. Opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel
to the company, as to the legality of the securities being
offered.
23.1 Consent of Fried, Frank, Harris, Shriver & Jacobson (included
in Exhibit 5.1).
23.2. Consent of Ernst & Young LLP.
24.1. Powers of Attorney (included on pages II-4 and II-5 of the
Registration Statement).
- -------------
Exhibit 1.1
DRAFT
DAL-TILE INTERNATIONAL INC.
7,822,322
Shares of Common Stock, Par Value $.01 per Share
of Dal-Tile International Inc.
INDEMNIFICATION AGREEMENT
<PAGE>
November __, 1998
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
In order to induce Morgan Stanley & Co. Incorporated (the
"UNDERWRITER") to enter into the Underwriting Agreement with Armstrong
World Industries, Inc. ("AWI") and Armstrong Enterprises, Inc. ("AEI")
dated November __, 1998 (the "UNDERWRITING AGREEMENT"), and in
consideration of good and valuable consideration, receipt of which is
hereby acknowledged, Dal-Tile International Inc., a Delaware corporation
("DAL-TILE"), enters into this Agreement with the Underwriter in connection
with the filing for registration under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), of up to 7,822,322 shares of Common Stock,
par value $.01, of Dal-Tile ("COMMON STOCK") being offered for sale by AWI
and AEI as selling shareholders (the "SHARES").
Dal-Tile has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement, including a prospectus, relating to
the Shares. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A
under the Securities Act, is hereinafter referred to as the "REGISTRATION
STATEMENT" and the prospectus in the form first used to confirm sales of
Shares (the "PROSPECTUS"). The term "PRELIMINARY PROSPECTUS" means a
preliminary prospectus relating to the Shares. As used herein, the terms
"PROSPECTUS" and "PRELIMINARY PROSPECTUS" shall include in each case the
documents, if any, incorporated by reference therein. If Dal-Tile has filed
an abbreviated registration statement to register additional shares of
Common Stock pursuant to Rule 462(b) under the Securities Act (the "RULE
462 REGISTRATION STATEMENT"), then any reference herein to the term
"REGISTRATION STATEMENT" shall be deemed to include such Rule 462
Registration Statement.
The terms "SUPPLEMENT," "AMENDMENT" and "AMEND" as used herein shall
include all documents subsequently filed by Dal-Tile with the Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT") that are deemed to be incorporated by reference in the Dal-Tile
Prospectus.
1. Representations and Warranties of Dal-Tile. Dal-Tile represents and
warrants to and agrees with the Underwriter that:
a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or, to
the knowledge of Dal-Tile, threatened by the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to
the Exchange Act and incorporated by reference in the Prospectus
complied or will comply when so filed in all material respects with
the Exchange Act and the applicable rules and regulations of the
Commission thereunder, (ii) the Registration Statement, when it became
effective, did not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (iii) the
Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with
the Securities Act and the applicable rules and regulations of the
Commission thereunder and (iv) the Prospectus does not contain and, as
amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this paragraph do not
apply to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to the Underwriter
furnished to Dal-Tile in writing by the Underwriter through you
expressly for use therein.
(c) Dal-Tile has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on Dal-Tile and its
subsidiaries, taken as a whole.
(d) (i) Each "significant subsidiary" (as that term is used in
Rule 1.02(w) of Regulation S-X under the Securities Act) of Dal-Tile,
which for purposes of this Agreement shall be deemed to include,
without limitation, Dal-Tile Group Inc., Dal-Tile Corporation and
Dal-Tile Mexico S.A. de C.V., (each, a "MATERIAL SUBSIDIARY") has been
duly incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has
the corporate power and authority to own its property and to conduct
its business as described in the Prospectus and, to the extent
applicable under foreign law, is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on Dal-Tile and its subsidiaries, taken as a whole; (ii) all of
the issued shares of capital stock of each Material Subsidiary of
Dal-Tile (x) have been duly and validly authorized and issued, are
fully paid and non-assessable and (y) except for the pledge of 100% of
the capital stock of Dal-Tile Group Inc. and certain of its domestic
subsidiaries and of 65% of the capital stock of Dal-Tile Mexico S.A.
de C.V. pursuant to the Bank Credit Agreement dated August 14, 1996
and as amended June 19, 1997 and September 30, 1997, among Dal-Tile
and the banks signatory thereto (the "CREDIT AGREEMENT"), are owned
directly or indirectly by Dal-Tile, free and clear of all liens,
encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and
delivered by Dal-Tile.
(f) The authorized capital stock of Dal-Tile conforms as to legal
matters to the description thereof contained in Form 8-A incorporated
by reference into the Prospectus.
(g) The outstanding shares of Common Stock (including the Shares)
have been duly authorized and are validly issued, fully paid and
non-assessable and are not subject to any preemptive or similar
rights.
(h) The execution and delivery by Dal-Tile of, and the
performance by Dal-Tile of its obligations under, this Agreement will
not contravene any provision of (i) applicable law or (ii) the
certificate of incorporation or by-laws of Dal-Tile or (iii) any
agreement or other instrument binding upon Dal-Tile or any of its
subsidiaries, or (iv) any judgment, order or decree of any
governmental body, agency or court having jurisdiction over Dal-Tile
or any subsidiary, except where, in the case of clauses (i), (iii) and
(iv), such contravention would not, individually or in the aggregate,
have a material adverse effect on Dal-Tile and its subsidiaries, taken
as a whole, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by Dal-Tile of its obligations under this Agreement,
except such as have been obtained under the Securities Act and as may
be required by the securities or Blue Sky laws of the various states
in connection with the offer and sale of the Shares.
(i) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of Dal-Tile and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(j) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending or, to the knowledge of Dal-Tile,
threatened to which Dal-Tile or any of its subsidiaries is a party or
to which any of the properties of Dal-Tile or any of its subsidiaries
is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or any contracts
or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as
required.
(k) Each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
(l) Dal-Tile is not an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(m) Dal-Tile and its subsidiaries are in compliance with any and
all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
("ENVIRONMENTAL LAWS"), have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to
conduct their respective businesses and are in compliance with all
terms and conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to receive
required permits, licenses or other approvals or failure to comply
with the terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a material adverse effect
on Dal-Tile and its subsidiaries, taken as a whole.
To the best of Dal-Tile's knowledge, there are no costs or
liabilities associated with Environmental Laws (including, without
limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws
or any permit, license or approval, any related constraints on
operating activities and any potential liabilities to third parties)
which would, singly or in the aggregate, have a material adverse
effect on Dal-Tile and its subsidiaries, taken as a whole.
(n) Other than the Shareholders Agreement dated December 29, 1995
(as amended July 15, 1996, the "SHAREHOLDERS AGREEMENT") by and among
Dal-Tile, AEA Investors Inc., DTI Investors LLC ("DTI INVESTORS"),
AWI, AEI and Armstrong Cork Finance Corporation, there are no
contracts, agreements or understandings between Dal-Tile and any
person granting such person the right to require Dal-Tile to file a
registration statement under the Securities Act with respect to any
securities of Dal-Tile or to require Dal-Tile to include such
securities with the Shares registered pursuant to the Registration
Statement. No such rights, if any, were exercised in connection with
the sale of the Shares by DTI Investors.
(o) Except as disclosed in the Registration Statement and the
Prospectus, subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, (i)
Dal-Tile and its subsidiaries have not incurred any liability or
obligation, direct or contingent that is material to Dal-Tile and its
subsidiaries, taken as a whole, nor entered into any material
transaction not in the ordinary course of business that is material to
Dal-Tile and its subsidiaries, taken as a whole; (ii) Dal-Tile has not
purchased any of its outstanding capital stock, nor declared, paid or
otherwise made any dividend or distribution of any kind on its capital
stock other than ordinary and customary dividends; (iii) there has not
been any material change in the capital stock, short-term debt or
long-term debt of Dal-Tile and its consolidated subsidiaries; and (iv)
there has not been any development having or which could reasonably be
expected to have a material adverse effect on Dal-Tile and its
subsidiaries, taken as a whole.
(p) Dal-Tile and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to
all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except for liens created for the
benefit of the lenders pursuant to the Credit Agreement and except
such as do not materially adversely affect Dal-Tile and its
subsidiaries, taken as a whole, and do not materially interfere with
the use made and proposed to be made of such property by Dal-Tile and
its subsidiaries taken as a whole; and any real property and buildings
held under lease by Dal-Tile and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as
are not material and do not materially interfere with the use made and
proposed to be made of such property and buildings by Dal-Tile and its
subsidiaries, taken as a whole.
(q) No material labor dispute with the employees of Dal-Tile or
any of its subsidiaries exists, or, to the knowledge of Dal-Tile, is
imminent; and Dal-Tile is not aware of any existing, threatened or
imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors that could result in any
material adverse effect on Dal-Tile and its subsidiaries, taken as a
whole.
(r) Dal-Tile and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities ("PERMITS") necessary to conduct their
respective businesses, and neither Dal-Tile nor any such subsidiary
has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect on
Dal-Tile and its subsidiaries, taken as a whole.
(s) Dal-Tile maintains with respect to itself and each of its
subsidiaries a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
2. Agreements of Dal-Tile (Conditions to the Underwriter's Obligations
under the Underwriting Agreement).
(a) Dal-Tile agrees that it will not, for a period ending on the
later of (i) January 1, 1999 or (ii) 45 days following the date of the
Prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated, (i) offer, pledge, loan, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock (except through gifts to
persons who agree in writing to be bound by the restrictions of this
paragraph), or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic
consequences of the ownership of shares of Common Stock, whether any
such transaction described in clause (i) or (ii) above is to be
settled by delivery of shares of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not
apply to the issuance by Dal-Tile of shares of Common Stock or options
to purchase Common Stock under existing stock option and stock
purchase plans. Dal-Tile agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated (which consent shall not
be unreasonably withheld), during the period ending on the later of
(i) January 1, 1999 or (ii) 45 days following the date of the
Prospectus, it will not file a registration statement with the
Commission for an offering of Common Stock or any securities
convertible into, or exercisable or exchangeable for Common Stock
other than the filing of a registration statement on Form S-8 or an
equivalent form.
(b) Dal-Tile shall deliver to the Underwriter on the Closing Date
(as defined in the Underwriting Agreement) a certificate, dated the
Closing Date and signed by an executive officer of Dal-Tile, to the
effect that the representations and warranties of Dal-Tile contained
in this Agreement are true and correct as of the Closing Date and that
Dal-Tile has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied hereunder on
or before the Closing Date (with such exceptions and modifications as
such officer may deem appropriate).
The officer signing and delivering such certificate may rely upon
the best of his or her knowledge as to proceedings threatened.
(c) Dal-Tile shall use reasonable efforts to ensure that the
Underwriter shall have received on the Closing Date an opinion of
Fried, Frank, Harris, Shriver & Jacobson, counsel for Dal-Tile, dated
the Closing Date, to the effect that:
(i) Dal-Tile is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation,
has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus;
(ii) Dal-Tile Group Inc., a Delaware corporation ("DAL-TILE
GROUP"), is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to conduct
its business as described in the Prospectus;
(iii) the Shares have been duly authorized and are validly
issued, fully paid and non-assessable;
(iv) all of the outstanding shares of capital stock of
Dal-Tile Group have been duly authorized and validly issued, and
are fully paid and non-assessable;
(v) this Agreement has been duly authorized, executed and
delivered by Dal-Tile;
(vi) the execution and delivery by Dal-Tile of, and the
performance by Dal-Tile of its obligations under, this Agreement
do not and will not (a) contravene any provision of the Restated
Certificate of Incorporation or Restated By-Laws of Dal-Tile or
Dal-Tile Group Inc., (b) contravene, result in a breach of or
constitute a default under the Credit Agreement or any other
agreement or instrument binding upon Dal-Tile (or any of its
Subsidiaries) (1) that is listed as an exhibit to the
Registration Statement or Dal-Tile's Annual Report on Form 10-K
for the fiscal year ended January 3, 1998 or (2) that is listed
as an exhibit to any document filed with the Commission
subsequent to January 3, 1998 and prior to the date of this
opinion that is incorporated or deemed to be incorporated in the
Registration Statement or (c) violate (1) any present statute,
rule or regulation of any governmental agency or authority of the
United States of America or the State of New York or any present
provision of the General Corporation Law of the State of Delaware
(the "DGCL") applicable to Dal-Tile, or (2) any judgment, decree
or order of any court or governmental agency or body of the
United States of America or the State of New York or of the State
of Delaware pursuant to the DGCL set forth in the Officers'
Certificate to be attached to such opinion; provided, however,
that such counsel need express no opinion with respect to any
violation, breach or default not ascertainable from the face of
any such agreement, instrument, judgment, decree or order, or
arising under or based upon any cross-default provision insofar
as such violation relates to a default under an agreement that is
not referred to in subclause (1) or (2) of clause (b) above or
arising under or based upon any covenant of a financial or
numerical nature or which requires arithmetic computation.
(vii) No consent, approval, authorization, order,
qualification of or registration with any court or government
agency of the United States of America or the States of New York
or Delaware (as it relates to the General Corporation Law of the
State of Delaware) is required for the performance by Dal-Tile of
its obligations hereunder (except such as have been obtained
under the Securities Act and such as may be required under state
securities or Blue Sky laws) in connection with the sale of the
Shares;
(viii) Dal-Tile is not an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended; and
(ix) (a) The Registration Statement and the Prospectus (in
each case excluding the documents incorporated or deemed to be
incorporated by reference therein), as of their respective
effective or issue dates (other than the financial statements,
the notes and schedules thereto and the other financial
information included therein or omitted therefrom, as to which we
express no opinion), each appeared on its face to be responsive
as to form in all material respects to the requirements of the
Securities Act and the rules and regulations of the Commission
thereunder and (b) the documents incorporated or deemed to be
incorporated by reference in the Prospectus (other than the
financial statements, the notes and schedules thereto and the
other financial information included therein or omitted
therefrom, as to which we express no opinion), when they were
filed with the Commission, each appeared on its face to be
responsive as to form in all material respects to the
requirements of the Exchange Act and the rules and regulations of
the Commission thereunder.
In addition, such counsel shall state that in the course of the
preparation by Dal-Tile of the Registration Statement and the
Prospectus, such counsel participated in conferences with certain of
the officers and representatives of, and the independent public
accountants for, Dal-Tile, at which the contents of the Registration
Statement and the Prospectus were discussed. Between the date of the
effectiveness of the Registration Statement and the time of delivery
of such opinion, such counsel participated in additional conferences
with certain of the officers and representatives of, and independent
public accountants for, Dal-Tile, at which the contents of the
Prospectus were discussed to a limited extent. Such counsel shall
state that, given the limitations inherent in the independent
verification of factual matters and the character of determinations
involved in the registration process, such counsel shall not pass upon
or assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or
the Prospectus. Subject to the foregoing and on the basis of the
information gained in the performance of the services referred to
above, including information obtained from officers and other
representatives of, and the independent public accountants for,
Dal-Tile, such counsel shall state that no facts have come to their
attention that have caused them to believe that the Registration
Statement, as of its effective date, contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein
not misleading, or that the Prospectus, as of the date hereof,
contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. Also, subject to the foregoing,
such counsel shall state that no facts have come to their attention in
the course of the procedures described in the second sentence of this
paragraph that cause them to believe that the Prospectus, as of the
date and time of delivery of such opinion, contains an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. Such counsel shall state that they express
no view or belief, however, with respect to financial statements, the
notes or schedules thereto or other financial information included in
or incorporated by reference into or omitted from the Registration
Statement or the Prospectus.
(d) Dal-Tile shall use reasonable efforts to ensure that the
Underwriter shall have received on the Closing Date an opinion of Mark
A. Solls, Esq., Vice President, Secretary and General Counsel of
Dal-Tile, dated the Closing Date, to the effect that:
(i) Dal-Tile is duly qualified to transact business and is
in good standing in the State of Delaware;
(ii) Dal-Tile Group is duly qualified to transact business
and is in good standing in the State of Delaware;
(iii) Dal-Tile Corporation is duly qualified to transact
business and is in good standing in each jurisdiction set forth
in the officer's certificate attached to such opinion; and
(iv) after due inquiry, such counsel does not know of any
legal or governmental proceedings pending or threatened to which
Dal-Tile or any of its subsidiaries is a party or to which any of
the properties of Dal-Tile or any of its subsidiaries is subject
that are required to be described in the Registration Statement
or the Prospectus and are not so described or of any contracts or
other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or
filed as required.
(e) Dal-Tile shall use reasonable efforts to ensure that the
Underwriter shall have received on the Closing Date an opinion of
Consultoria Juridicia Mercantil, S.A. de C.V., counsel for Dal-Tile
Mexico, S.A. de C.V., dated the Closing Date, to the effect that:
(i) Dal-Tile Mexico, S.A. de C.V. (the "MEXICAN SUBSIDIARY")
is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation,
with full corporate power and authority to own, lease, and
operate its properties and to conduct its business as described
in the Registration Statement and the Prospectus; and (x) all the
outstanding shares of capital stock of the Mexican Subsidiary
have been duly authorized and validly issued, are fully paid and
non-assessable, and (y) all the outstanding shares of capital
stock of the Mexican Subsidiary are owned by Dal-Tile directly or
indirectly (except for directors' qualifying shares in the case
of the Mexican Subsidiary), free and clear of any lien,
encumbrances, claim or equity, except for the lien on 65% of the
stock of the Mexican Subsidiary granted in favor of certain
lenders pursuant to the Pledge Agreement dated as of October 4,
1996 by Dal-Tile Group, Inc. to the Chase Manhattan Bank as
administrative agent for such lenders);
(ii) the Mexican Subsidiary is not (A) in violation of its
respective certificate of incorporation or bylaws or other
organizational documents, or (B) to the best knowledge of such
counsel after reasonable inquiry, in default in the performance
of any material obligation, agreement or condition contained in
any bond, debenture, note or other evidence of indebtedness,
except as may be disclosed in the Prospectus;
(iii) neither the execution, delivery or performance by
Dal-Tile of this Agreement conflicts or will conflict with or
constitutes or will constitute a breach of, or default under, the
certificate of incorporation or bylaws or other organizational
documents of the Mexican Subsidiary or any agreement, indenture,
lease or other instrument to which the Mexican Subsidiary is a
party or by which it or any of its properties is bound that is an
exhibit to the Registration Statement, or is known to such
counsel after reasonable inquiry, or will result in the creation
or imposition of any lien, encumbrance, equity or claim upon any
property or assets of the Mexican Subsidiary, nor will any such
action result in any violation of any existing Mexican rule, law,
regulation, ruling, judgment, injunction, order or decree known
to such counsel after reasonable inquiry, and applicable to the
Mexican Subsidiary, or any of its properties;
(iv) to the best knowledge of such counsel after reasonable
inquiry, other than as described or contemplated in the
Prospectus, there are no legal or governmental proceedings
pending or threatened against the Mexican Subsidiary, or to which
the Mexican Subsidiary, or any of its property, is subject;
(v) to the best knowledge of such counsel after reasonable
inquiry, (A) the Mexican Subsidiary is not in violation of any
law, ordinance, administrative or governmental rule or regulation
applicable to the Mexican Subsidiary or of any decree of any
Mexican court or governmental agency or body having jurisdiction
over the Mexican Subsidiary and (B) the Mexican Subsidiary has
such Permits as are necessary to own its properties and to
conduct its respective business in the manner described in the
Prospectus; and the Mexican Subsidiary has fulfilled and
performed all its material obligations with respect to such
Permits and no event has occurred that allows, or after notice or
lapse of time would allow, revocation or termination thereof or
results in any other material impairment of the rights of the
holder of any such Permit;
(vi) the Mexican Subsidiary has good and marketable title to
all property (real and personal) described in the Prospectus as
being owned by it, free and clear of all liens, claims, security
interests or other encumbrances, and all the property described
in the Prospectus as being held under lease by the Mexican
Subsidiary is held by it under valid, subsisting and enforceable
leases;
(vii) the Mexican Subsidiary has filed all material tax
returns required by Mexican law to be filed, which returns are
true, complete and correct, and the Mexican Subsidiary is not in
default in the payment of any taxes which were payable pursuant
to said returns or any assessments with respect thereto;
(viii) except as described in the Registration Statement and
the Prospectus, the Mexican Subsidiary (i) is in compliance in
all material respects with Mexican Environmental Laws (as
hereinafter defined) and (ii) has received, and is in compliance
in all material respects with all terms and conditions of, all
material permits, licenses, authorizations or other approvals
required of it under Mexican Environmental Laws to conduct its
respective businesses; and
(ix) except as described in the Registration Statement and
the Prospectus, there are no past or present actions (including
on-site and off-site disposal of Mexican Hazardous Substances (as
hereinafter defined)), omissions or conditions regarding the
Mexican Subsidiary or any real property upon which any of them
conduct their respective business operations that have formed, or
are reasonably likely to form, the basis of any material claim or
violation against the Mexican Subsidiary (including releases or
discharges of Mexican Hazardous Substances) under Mexican
Environmental Laws.
As used herein, "Mexican Environmental Laws" means any and
all applicable Mexican laws, regulations, rules, ordinances,
judgments or decrees relating to the protection of human health,
safety or the environment, the preservation of natural resources,
or to Hazardous Substances. As used herein, "Mexican Hazardous
Substances" means any and all explosive, radioactive, hazardous,
toxic or otherwise dangerous materials, pollutants, contaminants
or wastes regulated pursuant to Mexican Environmental Laws.
(x) to the best knowledge of such counsel, no labor problem
exists with employees of the Mexican Subsidiary or is imminent
that could adversely affect the Mexican Subsidiary.
The opinions of Fried, Frank, Harris, Shriver & Jacobson, Mark A.
Solls and Consultoria Juridicia Mercantil, S.A. de C.V. described in
Sections 2(c), 2(d) and 2(e) above shall be rendered to the
Underwriter at the request of Dal-Tile (and of Dal-Tile Mexico, S.A.
de C.V., in the case of the opinion of Consultoria Juridicia
Mercantil, S.A. de C.V.), and shall so state therein.
(f) Dal-Tile shall use reasonable efforts to ensure that the
Underwriter shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as
the case may be, in form and substance satisfactory to the
Underwriter, from Ernst & Young LLP, independent public accountants,
containing statements and information of the type ordinarily included
in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in
the Registration Statement and the Prospectus; provided that the
letter delivered on the Closing Date shall use a "cut-off date" not
earlier than the date hereof.
(g) Dal-Tile shall use reasonable efforts to ensure that the
"lock-up" agreements, each substantially in the form of Exhibit A
hereto, between you and certain stockholders, officers and directors
of Dal-Tile relating to sales and certain other dispositions of shares
of Common Stock or certain other securities, be delivered to you on or
before the date hereof, shall be in full force and effect on the
Closing Date.
3. Additional Covenants of Dal-Tile. In further consideration of the
agreements of the Underwriter herein contained, Dal-Tile further covenants
with the Underwriter as follows:
(a) To furnish to you, without charge, two signed copies of the
Registration Statement (including exhibits thereto) and to furnish to
you in New York City, without charge, prior to 5:00 p.m., New York
City time, on the business day next succeeding the date of this
Agreement and during the period mentioned in Section 3(c) below, as
many copies of the Prospectus and any supplements and amendments
thereto or to the Registration Statement as you may reasonably
request.
(b) Before amending or supplementing the Registration Statement
or the Prospectus, to furnish to you a copy of each such proposed
amendment or supplement and not to file any such proposed amendment or
supplement to which you reasonably object, and to file with the
Commission within the applicable period specified in Rule 424(b) under
the Securities Act any prospectus required to be filed pursuant to
such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the
Underwriter the Prospectus is required by law to be delivered in
connection with sales by the Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to
a purchaser, not misleading, or if, in the reasonable judgment of
Dal-Tile or in the opinion of counsel for the Underwriter, it is
necessary to amend or supplement the Prospectus to comply with
applicable law, forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriter and to the dealers
(whose names and addresses you will furnish to Dal-Tile) to which
Shares may have been sold by you and to any other dealers upon
request, either amendments or supplements to the Prospectus so that
the statements in the Prospectus as so amended or supplemented will
not, in the light of the circumstances when the Prospectus is
delivered to a purchaser, be misleading or so that the Prospectus, as
amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) To make generally available to Dal-Tile's security holders
and to you as soon as practicable an earnings statement covering the
twelve-month period beginning on the first day of the first full
fiscal quarter after the Closing Date that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of
the Commission thereunder.
4. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, Dal-Tile agrees
to pay or cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements
and expenses of accountants and counsel for Dal-Tile and counsel for AWI in
connection with the registration and delivery of the Shares under the
Securities Act and all other fees or expenses in connection with the
preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the
mailing and delivering of copies thereof to the Underwriter and dealers, in
the quantities hereinabove specified, (ii) the cost of printing or
producing any Blue Sky or Legal Investment memorandum in connection with
the offer and sale of the Shares under state securities laws and all
expenses in connection with the qualification of the Shares for offer and
sale under state securities laws as provided in Section 3(d) hereof,
including filing fees and the reasonable fees and disbursements of counsel
for the Underwriter in connection with such qualification and in connection
with the Blue Sky or Legal Investment memorandum, (iii) all filing fees and
the reasonable fees and disbursements of counsel to the Underwriter
incurred in connection with the review and qualification of the offering of
the Shares by the National Association of Securities Dealers, Inc., (iv)
all costs and expenses incident to listing the Shares on the NYSE, (v) the
costs and charges of any transfer agent, registrar or depositary for the
Shares, (vi) the costs and expenses of Dal-Tile relating to investor
presentations on any "road show" undertaken in connection with the
marketing of the offering of the Shares, including, without limitation,
expenses associated with the production of road show slides and graphics,
fees and expenses of any consultants engaged in connection with the road
show presentations with the prior approval of Dal-Tile, travel and lodging
expenses of the representatives and officers of Dal-Tile and any such
consultants, and (vii) all other costs and expenses incident to the
performance of the obligations of Dal-Tile hereunder for which provision is
not otherwise made in this Section. It is understood, however, that except
as provided in this Section, Section 5 and the last paragraph of Section 7
below, the Underwriter will pay all of their costs and expenses, including
fees and disbursements of their counsel, stock transfer taxes payable on
resale of any of the Shares by them and any advertising expenses connected
with any offers they may make.
The provisions of this Section shall not supersede or otherwise affect
any agreement that Dal-Tile and AWI may otherwise have for the allocation
of such expenses among themselves.
5. Indemnity and Contribution. (a) Dal-Tile agrees to indemnify and
hold harmless the Underwriter and each person, if any, who controls the
Underwriter within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act, from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal
or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the
Prospectus (as amended or supplemented if Dal-Tile shall have furnished any
amendments or supplements thereto) or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to the Underwriter furnished to Dal-Tile in writing by
you expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not
inure to the benefit of the Underwriter, or any person controlling the
Underwriter, if a copy of the Prospectus (as then amended or supplemented
if Dal-Tile shall have furnished any amendments or supplements thereto) was
not sent or given by or on behalf of the Underwriter to such person, if
required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such losses, claims, damages or liabilities, unless such
failure is solely the result of noncompliance by Dal-Tile with Section 3(a)
hereof.
(b) The Underwriter agrees to indemnify and hold harmless Dal-Tile,
the directors of Dal-Tile, the officers of Dal-Tile who sign the
Registration Statement and each person, if any, who controls Dal-Tile
within the meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if Dal-Tile shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with reference to information
relating to the Underwriter furnished to Dal-Tile in writing by you
expressly for use therein.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may
be sought pursuant to Section 5(a) or 5(b), such person (the "INDEMNIFIED
PARTY") shall promptly notify the person against whom such indemnity may be
sought (the "INDEMNIFYING PARTY") in writing and the indemnifying party,
upon request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to
the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the indemnifying party shall
not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (i) the fees and expenses of more than one
separate firm (in addition to any local counsel) for the Underwriter and
all persons, if any, who control the Underwriter within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act
and (ii) the fees and expenses of more than one separate firm (in addition
to any local counsel) for Dal-Tile, its directors, its officers who sign
the Registration Statement and each person, if any, who controls Dal-Tile
within the meaning of either such Section, and that all such fees and
expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Underwriter and such control persons of the
Underwriter, such firm shall be designated in writing by Morgan Stanley &
Co. Incorporated. In the case of any such separate firm for Dal-Tile, and
such directors, officers and control persons of Dal-Tile, such firm shall
be designated in writing by Dal-Tile. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 90 days after receipt by such indemnifying party of
the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to
the date of such settlement (other than with respect to requests for
reimbursement of an indemnified party contested in good faith). No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been
a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter
of such proceeding.
(d) To the extent the indemnification provided for in Section 5(a) or
5(b) is unavailable to an indemnified party or insufficient in respect of
any losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect
the relative benefits received by the indemnifying party or parties on the
one hand and the indemnified party or parties on the other hand from the
offering of the Shares, or (ii) if the allocation provided by clause
5(d)(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
5(d)(i) above but also the relative fault of the indemnifying party or
parties on the one hand and of the indemnified party or parties on the
other hand in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by Dal-Tile on the
one hand and the Underwriter on the other hand in connection with the
offering of the Shares, shall be deemed to be in the same respective
proportions as the net proceeds from the offering (before deducting
expenses) of the Shares, received by AWI and the total underwriting
discounts and commissions received by the Underwriter, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate
public offering price of the Shares. The relative fault of Dal-Tile on the
one hand and the Underwriter on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by Dal-Tile or by the
Underwriter and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
(e) Dal-Tile and the Underwriter agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by pro
rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 5(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 5, the Underwriter
shall not be required to contribute any amount in excess of the amount by
which the total price at which the Shares, underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages that the Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 5 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 5 and the representations, warranties and other statements of
Dal-Tile contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any termination of this Agreement, (ii)
any investigation made by or on behalf of the Underwriter or any person
controlling the Underwriter, or Dal-Tile, its officers or directors or any
person controlling Dal-Tile and (iii) acceptance of and payment for any of
the Shares.
6. Termination. This Agreement shall be subject to termination by
notice given by you to Dal-Tile, if you elect to terminate the Underwriting
Agreement pursuant to Section 7 thereof.
7. Effectiveness. This Agreement shall become effective upon the
execution and delivery hereof by the parties hereto.
If the Underwriting Agreement shall be terminated by the Underwriter
because of any failure or refusal on the part of Dal-Tile to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for
any reason Dal-Tile shall be unable to perform its obligations under this
Agreement, Dal-Tile will reimburse the Underwriter for all out-of-pocket
expenses (including the fees and disbursements of their counsel) reasonably
incurred by the Underwriter in connection with this Agreement, the
Underwriting Agreement or the offerings contemplated hereunder or
thereunder.
8. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
9. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
10. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
<PAGE>
Very truly yours,
DAL-TILE INTERNATIONAL INC.
By:
--------------------------
Name:
Title:
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
By:
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP LETTER]
____________, 1998
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY") proposes to enter into an Indemnification Agreement (the
"INDEMNIFICATION AGREEMENT") with Dal-Tile International Inc., a Delaware
corporation ("DAL-TILE"), relating to the sale by Armstrong World
Industries, Inc. ("AWI") or Armstrong Enterprises Inc. ("AEI") of ______
shares of the Common Stock, $.01 par value, of Dal-Tile (the "Common
Stock") (the "SHARES")(the "OFFERING").
To induce Morgan Stanley to continue its efforts in connection with
the Offering, the undersigned hereby agrees that, without the prior written
consent of Morgan Stanley, [it] [he] will not, during the period ending the
later of (i) January 1, 1999 or (ii) 45 days after the date of the final
prospectus relating to the Offering (the "PROSPECTUS"), [for so long as he
remains a director or executive officer of Dal-Tile,] (1) offer, pledge,
loan, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase, or otherwise transfer or dispose of (each, a "TRANSFER"),
directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock (whether
such shares or any such securities all then owned by the undersigned or are
thereafter acquired directly from Dal-Tile), or (2) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of the Common Stock, whether any
such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. In
addition, the undersigned agrees that, without the prior written consent of
Morgan Stanley, [it] [he] will not, during the period commencing on the
date hereof and ending the later of (i) January 1, 1999 or (ii) 45 days
after the date of the Dal-Tile Prospectus, make any demand for or exercise
any right with respect to, the registration of any shares of Common Stock
or any security convertible into or exercisable or exchangeable for Common
Stock. Notwithstanding anything to the contrary in the foregoing, the
consent of Morgan Stanley shall not be required for (i) any Transfer by the
undersigned to (A) any affiliate of the undersigned, or (B) any member of
the undersigned's immediate family, or to a trust for the benefit of the
undersigned or any member of the undersigned's immediate family, provided
that any such transferee shall agree in writing, prior to or
contemporaneously with such Transfer, to be bound by the provisions of this
agreement to the same extent as the undersigned, and (ii) any pledge by the
undersigned of shares of Common Stock, or any securities convertible into
or exercisable or exchangeable for Common Stock, to secure indebtedness,
provided that the pledgee shall agree in writing, prior to or
contemporaneously with such pledge, to be bound by the provisions of this
agreement to the same extent as the undersigned. The undersigned further
agrees that Dal-Tile may note such restrictions on the books and records of
Dal-Tile.
Whether or not the Offering actually occurs depends on a number of
factors, including market conditions. The Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between AWI and the Underwriter.
Very truly yours,
--------------------------------------------
(Name)
--------------------------------------------
(Address)
Exhibit 1.2
DRAFT
ARMSTRONG WORLD INDUSTRIES, INC.
7,822,322
Shares of Common Stock, Par Value $.01 per Share
of Dal-Tile International Inc.
UNDERWRITING AGREEMENT
<PAGE>
November __, 1998
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
Armstrong World Industries, Inc., a Pennsylvania corporation ("AWI"),
and Armstrong Enterprises, Inc., a Vermont corporation ("AEI") and a direct
wholly-owned subsidiary of AWI (AEI and AWI, collectively being referred to
as the "Sellers"), jointly and severally propose to sell to Morgan Stanley
& Co. Incorporated (the "Underwriter") 7,822,322 shares (the "Shares") of
Common Stock, par value $.01 (the "Common Stock"), of Dal-Tile
International Inc. ("Dal-Tile").
In connection with the foregoing, Dal-Tile has filed with the
Commission a registration statement, including, a prospectus relating to
the Shares. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A
under the Securities Act of 1933, as amended (the "Securities Act"), is
hereinafter referred to as the "Registration Statement"; the prospectus in
the form first used to confirm sales of Shares is hereinafter referred to
as the "Prospectus." The term "preliminary prospectus" means a preliminary
prospectus relating to the Shares. As used herein, the terms "Prospectus"
and "preliminary prospectus" shall include in each case the documents, if
any, incorporated by reference therein. If Dal-Tile has filed an
abbreviated registration statement to register additional shares of Common
Stock pursuant to Rule 462(b) under the Securities Act (the "Rule 462
Registration Statement"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
The terms "supplement," "amendment" and "amend" as used herein shall
include all documents subsequently filed by Dal-Tile with the Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that are deemed to be incorporated by reference in the Prospectus.
Dal-Tile has also entered into an indemnification agreement (the
"Dal-Tile Indemnification Agreement") dated as of the date hereof with the
Underwriter, relating to the offering of the Shares and the
above-referenced registration statement filed by Dal-Tile.
1. Representations and Warranties of Sellers.
Each of the Sellers represents and warrants to and agrees with the
Underwriter that:
(a) Each of AWI and AEI has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation.
(b) This Agreement has been duly authorized, executed and
delivered by AWI and AEI.
(c) Each of AWI and AEI is not, and after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof, will not be an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended.
(d) AEI has, and on the Closing Date will have, valid title to
the Shares and the legal right and power to sell, transfer and deliver
such Shares, and delivery of the Shares to be sold by the Sellers
pursuant to this Agreement will pass title to such Shares free and
clear of any security interests, claims, liens, equities and other
encumbrances.
(e) The execution and delivery by AWI and AEI of, and the
performance by AWI and AEI of their respective obligations under, this
Agreement, will not contravene any provision of applicable law or the
articles of incorporation or by-laws of AWI or any of its subsidiaries
or any agreement or other instrument binding upon AWI or any of its
subsidiaries, or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over AWI or any subsidiary,
and no consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the performance
by AWI or AEI of their respective obligations under this Agreement.
The representations, warranties and other statements of the Sellers
contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of the Underwriter or any person
controlling the Underwriter or either Seller, its officers or directors or
any person controlling either Seller and (iii) acceptance of any payment
for any of the Shares.
2. Agreements to Sell and Purchase.
The Sellers hereby jointly and severally agree to sell to the
Underwriter, and the Underwriter, upon the basis of the representations and
warranties herein contained, but subject to the conditions hereinafter
stated, agrees to purchase from the Sellers at $_____ a share (the
"Purchase Price") the Shares.
3. Terms of Public Offering.
The Sellers are advised by the Underwriter that the Underwriter
proposes to make a public offering of the Shares as soon after the
Registration Statement, this Agreement and the Dal-Tile Indemnification
Agreement have become effective as in the Underwriter's judgment is
advisable. AWI is further advised by the Underwriter that the Shares are to
be offered to the public initially at $____ a share (the "Public Offering
Price") and to certain dealers selected by the Underwriter at a price that
represents a concession not in excess of $_____ a share under the Public
Offering Price, and that the Underwriter may allow, and such dealers may
reallow, a concession, not in excess of $_____ a share, to certain other
dealers.
4. Payment and Delivery.
Payment for the Shares to be sold by the Sellers shall be made to AEI
in Federal or other funds immediately available in New York City against
delivery of such Shares for the account of the Underwriter at 10:00 A.M.,
New York City time, on __________, 1998, or at such other time on the same
or such other date, not later than ___________, 1998, as shall be
designated in writing by the Underwriter. The time and date of such payment
are hereinafter referred to as the "Closing Date."
Certificates for the Shares shall be in definitive form and registered
in such names and in such denominations as the Underwriter shall request in
writing not later than one full business day prior to the Closing Date. The
certificates evidencing the Shares shall be delivered to the Underwriter on
the Closing Date, for the account of the Underwriter, with any transfer
taxes payable in connection with the transfer of the Shares to the
Underwriter duly paid, against payment of the Purchase Price therefor.
5. Conditions to the Underwriter's Obligations. The obligation of the
Sellers to sell the Shares to the Underwriter and the several obligations
of the Underwriter to purchase and pay for the Shares are subject to the
condition that the Registration Statement shall have become effective not
later than 5:00 P.M., New York City time, on the date hereof.
The obligation of the Underwriter to purchase the Shares is subject to
the following further conditions:
(a) The Underwriter shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of AWI, to the effect that the representations and warranties of the
Sellers contained in this Agreement are true and correct as of the
Closing Date and that each of the Sellers has complied with all of the
agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date.
(b) The Underwriter shall have received on the Closing Date an
opinion of Buchanan Ingersoll Professional Corporation, counsel for
AWI, dated the Closing Date, to the effect that:
(i) AWI is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation;
(ii) this Agreement has been duly authorized, executed and
delivered by AWI and AEI;
(iii) the execution and delivery by each of AWI and AEI of,
and the performance by each of AWI and AEI of its respective
obligations under, this Agreement, will not contravene any
provision of applicable law (except to the extent that the
federal securities laws may limit or restrict any indemnification
provisions set forth in this Agreement) or the articles of
incorporation or by-laws of AWI or AEI, and no consent, approval,
authorization or order of, or qualification with, any
governmental body or agency is required for the performance by
AWI or AEI of its obligations under this Agreement;
(iv) delivery of the Shares to be sold by the Sellers
pursuant to this Agreement will pass title to such Shares free
and clear of any security interests, claims, liens, equities and
other encumbrances to the Underwriter; provided that the
Underwriter does not have notice of an "adverse claim" thereto
(as defined in Section 8-102 of the UCC);
(v) each of AWI and AEI is not, and after giving effect to
the offering and sale of the Shares and the application of the
proceeds thereof will not be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as
amended; and
(vi) Dal-Tile Corporation is validly existing as a
corporation in good standing under the laws of the Commonwealth
of Pennsylvania and has the corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Dal-Tile Registration Statement and the Dal-Tile
Prospectus.
In rendering its opinion, Buchanan Ingersoll Professional
Corporation may rely (i) as to matters of New York law, on the
opinion of Davis Polk & Wardwell referred to in Section 5(d)
hereof, and (ii) as to factual matters, on certificates of
officers of AWI and its subsidiaries and on certificates of
public officials. With respect to matters of Vermont law,
Buchanan Ingersoll Professional Corporation may state that in
rendering their opinion they have assumed that there are no
differences material to such opinion between the laws of the
State of Vermont and the laws of the Commonwealth of
Pennsylvania.
The opinion of Buchanan Ingersoll Professional Corporation
described in this Section 5(b) shall be rendered to the
Underwriters at the request of AWI and shall so state therein.
(c) The Underwriter shall have received on the Closing Date an
opinion of Deborah K. Owen, General Counsel of AWI, dated the Closing
Date, to the effect that:
(i) the execution and delivery by AWI of, and the
performance by AWI of its obligations under, this Agreement, will
not contravene any provision of the articles of incorporation or
by-laws of AWI or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon AWI or any of its
subsidiaries that is material to AWI and its subsidiaries, taken
as a whole, or, to the best of such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or
court having jurisdiction over AWI or any subsidiary; and
(ii) AEI has valid title to the Shares and the legal right
and power to sell, transfer and deliver the Shares.
(d) The Underwriter shall have received on the Closing Date an
opinion of Davis Polk & Wardwell, counsel for the Underwriter, dated
the Closing Date, covering the matters referred to in Sections 2(c)(v)
and 2(c)(ix) (but only as to the statements in clause (a) and the
final paragraph thereof) of the Dal-Tile Indemnification Agreement and
to the effect that the statements in the Prospectus under the caption
"The Underwriter," insofar as such statements constitute a summary of
legal matters or documents referred to therein, fairly present the
information called for with respect to such legal matters and
documents and fairly summarize the matters referred to therein.
With respect to such Section 2(c)(ix) of the Dal-Tile
Indemnification Agreement, Davis Polk & Wardwell may state that their
opinion and belief are based upon its participation in the preparation
of the Registration Statement and the Prospectus and any amendments or
supplements thereto and review and discussion of the contents thereof,
but are without independent check or verification, except as
specified.
(e) The Dal-Tile Indemnification Agreement shall be in effect as
of the Closing Date; the representations and warranties of Dal-Tile
contained in the Dal-Tile Indemnification Agreement shall be true and
correct as of the date hereof and as of the Closing Date; Dal-Tile
shall have complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied under the
Dal-Tile Indemnification Agreement on or before the Closing Date; the
Underwriter shall have received on the Closing Date the certificates,
opinions and letters described in Sections 2(b), 2(c), 2(d), 2(e),
2(f) and 2(g) of the Dal-Tile Indemnification Agreement; and the
Underwriter shall have received on the Closing Date a certificate,
dated the Closing Date and signed by an executive officer of Dal-Tile,
to the effect that the representations and warranties of Dal-Tile
contained in the Dal-Tile Indemnification Agreement are true and
correct as of the Closing Date and that Dal-Tile has complied with all
of the agreements and satisfied all of the conditions on its part to
be performed or satisfied thereunder on or before the Closing Date.
(f) The Shares shall have been listed or approved for listing on
the New York Stock Exchange.
6. Covenants of AWI. In further consideration of the agreements of the
Underwriter herein contained, AWI covenants with the Underwriter as
follows:
(a) To pay all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees and
disbursements of AWI's counsel and accountants; (ii) the qualification
of the Shares under state securities or Blue Sky laws in accordance
with the provisions of Section 3(d) of the Dal-Tile Indemnification
Agreement, including filing fees and the fees and disbursements of
counsel for the Underwriter in connection therewith and in connection
with the preparation of any Blue Sky or Legal Investment Memoranda
(the cost of which shall not exceed $3,000); (iii) the printing and
delivery to the Underwriter of copies of any Blue Sky or Legal
Investment Memoranda; (iv) all document production charges and
expenses of counsel to the Underwriter incurred in connection with the
preparation of this Agreement and the Dal-Tile Indemnification
Agreement; (v) all costs and expenses related to the transfer and
delivery of the Shares to the Underwriter, including any transfer or
other taxes payable thereon; and (vi) all other costs and expenses
incident to the performance of the obligations of AWI hereunder for
which provision is not otherwise made in this Section.
The provisions of this Section shall not supersede or otherwise affect
any agreement that Dal-Tile and AWI may otherwise have for the allocation
of such expenses among themselves.
7. Termination. This Agreement shall be subject to termination by
notice given by Morgan Stanley & Co. Incorporated to AWI, if (a) after the
execution and delivery of this Agreement and prior to the Closing Date (i)
trading generally shall have been suspended or materially limited on or by,
as the case may be, any of the New York Stock Exchange, the American Stock
Exchange or the National Association of Securities Dealers, Inc., (ii)
trading of any securities of Dal-Tile shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by
either Federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in
financial markets or any calamity or crisis that, in the judgment of Morgan
Stanley & Co. Incorporated, is material and adverse and (b) in the case of
any of the events specified in clauses (a)(i) through (iv), such event,
singly or together with any other such event, makes it, in the judgment of
Morgan Stanley & Co. Incorporated, impracticable to market the Shares on
the terms and in the manner contemplated in the Prospectus.
The representations, warranties and other statements of the Sellers
contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of the Underwriter or any person
controlling the Underwriter or either Seller, its officers or directors or
any person controlling either Seller and (iii) acceptance of and payment
for any of the Shares.
If this Agreement shall be terminated by the Underwriter because of
any failure or refusal on the part of AWI to comply with the terms or to
fulfill any of the conditions of this Agreement, or if for any reason AWI
shall be unable to perform its obligations under this Agreement, AWI will
reimburse the Underwriter for all out-of-pocket expenses (including the
fees and disbursements of its counsel) reasonably incurred by the
Underwriter in connection with this Agreement or the offering contemplated
hereunder.
8. Effectiveness. This Agreement shall become effective upon the
execution and delivery hereof by the parties hereto.
9. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
10. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
11. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
<PAGE>
Please confirm your agreement by having an authorized officer sign a
copy of this Agreement in the space set forth below.
Very truly yours,
ARMSTRONG WORLD INDUSTRIES, INC.
By:
----------------------------------
Name:
Title:
ARMSTRONG ENTERPRISES, INC.
By:
----------------------------------
Name:
Title:
Accepted as of the date hereof:
MORGAN STANLEY & CO. INCORPORATED
By:
-----------------------------
Name:
Title:
Exhibit 5.1
[LETTERHEAD OF FRIED, FRANK, HARRIS, SHRIVER & JACOBSON]
212-859-8000
November 12, 1998 (FAX: 212-859-4000)
Dal-Tile International Inc.
7834 C.F. Hawn Freeway
Dallas, Texas 75217
Ladies and Gentlemen:
We have acted as special counsel for Dal-Tile International Inc.,
a Delaware corporation (the "Company"), in connection with the underwritten
public offering by Armstrong World Industries, Inc., a Pennsylvania
corporation, or a subsidiary thereof of shares (the "Shares") of common
stock, par value $.01 per share of the Company. With your permission, all
assumptions and statements of reliance herein have been made without any
independent investigation or verification on our part except to the extent
otherwise expressly stated, and we express no opinion with respect to the
subject matter or accuracy of such assumptions or items relied upon.
In connection with this opinion, we have (i) investigated such
questions of law, (ii) examined originals or certified, conformed or
reproduction copies of such agreements, instruments, documents and records
of the Company, such certificates of public officials and such other
documents, and (iii) received such information from officers and
representatives of the Company as we have deemed necessary or appropriate
for the purposes of this opinion. In all examinations, we have assumed the
legal capacity of all natural persons executing documents, the genuineness
of all signatures, the authenticity of original and certified documents and
the conformity to original or certified copies of all copies submitted to
us as conformed or reproduction copies. As to various questions of fact
relevant to the opinions expressed herein, we have relied upon, and assume
the accuracy of, representations and warranties contained in the documents
and certificates and oral or written statements and other information of or
from representatives of the Company and others and assume compliance on the
part of all parties to the documents with their covenants and agreements
contained therein.
Based upon the foregoing and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion that
the Shares are duly authorized, validly issued, fully paid and
non-assessable.
The opinion expressed herein is limited to the General
Corporation Law of the State of Delaware, as currently in effect.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the Prospectus forming part of the Registration
Statement. In giving such consent, we do not hereby admit that we are in
the category of such persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ Frederick H. Fogel
-------------------------------
Frederick H. Fogel
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3) and related Prospectus of Dal-Tile
International Inc. for the registration of 7,822,322 shares of its common
stock and to the incorporation by reference therein of our report dated
February 16, 1998, with respect to the consolidated financial statements of
Dal-Tile International Inc., included in its Form 10-K and Form 10-K/A for
the year ended January 2, 1998.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Dallas, Texas
November 12, 1998
