EXHIBIT 99.1
ARMSTRONG
DISCLOSURE STATEMENT, DATED DECEMBER 20,
2002, FOR THE PLAN OF REORGANIZATION OF
ARMSTRONG WORLD INDUSTRIES, INC.
THE PLAN OF REORGANIZATION OF ARMSTRONG WORLD INDUSTRIES, INC.,
WHICH IS ATTACHED AS EXHIBIT "A" TO THIS DISCLOSURE
STATEMENT, CONTAINS THE ASBESTOS PI PERMANENT CHANNELING
INJUNCTION, AN INJUNCTION AGAINST CONDUCT NOT OTHERWISE
ENJOINED UNDER THE BANKRUPTCY CODE. FOR A DESCRIPTION OF
THE ACTS TO BE ENJOINED AND THE IDENTITY OF THE ENTITIES THAT
WOULD BE SUBJECT TO THE ASBESTOS PI PERMANENT CHANNELING
INJUNCTION, SEE SECTION VI.D OF THIS DISCLOSURE STATEMENT,
ENTITLED, "THE ASBESTOS PI TRUST - THE ASBESTOS PI
PERMANENT CHANNELING INJUNCTION," AND SECTION 1.25 OF
THE PLAN OF REORGANIZATION.
This Disclosure Statement has not been approved by the
Bankruptcy Court as containing "adequate information"
within the meaning of section 1125(a) of the Bankruptcy
Code. Prior to the solicitation of votes to accept or reject the
Plan, Armstrong World Industries, Inc. intends to seek an order of the
Bankruptcy Court approving this Disclosure Statement.
ARMSTRONG
TO: HOLDERS OF CLAIMS (INCLUDING ASBESTOS PERSONAL INJURY CLAIMS) AGAINST AND
EQUITY INTERESTS IN ARMSTRONG WORLD INDUSTRIES, INC.
HOLDERS OF COMMON STOCK OF ARMSTRONG HOLDINGS, INC.
GENERAL
We are transmitting to you with this letter the Disclosure Statement with
respect to the proposed chapter 11 plan of reorganization (the "PLAN") of
Armstrong World Industries, Inc. ("AWI"). The Disclosure Statement describes the
provisions of the Plan for AWI, which is supported by the major constituencies
in AWI's chapter 11 case - the Official Asbestos Claimants' Committee (the
"ASBESTOS PI CLAIMANTS' COMMITTEE"), the Legal Representative for Future
Personal Injury Claimants (the "FUTURE CLAIMANTS' REPRESENTATIVE"), and the
Official Committee of Unsecured Creditors (the "UNSECURED CREDITORS'
COMMITTEE"). The Disclosure Statement has been approved for dissemination to
parties in interest. You should read the Disclosure Statement carefully. A
summary of the distributions that will be made under the Plan is included in
Sections II and V of the Disclosure Statement. If you are entitled to vote on
the Plan, a ballot is enclosed for you. WE URGE YOU TO VOTE TO ACCEPT THE PLAN.
THE PLAN IS THE PRODUCT OF EXTENSIVE NEGOTIATIONS AMONG AWI AND THE
REPRESENTATIVES OF ITS PRINCIPAL CONSTITUENCIES, INCLUDING UNSECURED CREDITORS
AND ASBESTOS PERSONAL INJURY CLAIMANTS. AWI AND THESE REPRESENTATIVES BELIEVE
THAT THE PLAN IS IN THE BEST INTERESTS OF ALL CREDITORS AND WILL ALLOW AWI TO
EMERGE FROM CHAPTER 11 AS A VIABLE ONGOING BUSINESS ENTERPRISE. THE PLAN HAS THE
SUPPORT OF AWI, THE REPRESENTATIVES OF ALL OF THE HOLDERS OF PRESENT AND FUTURE
ASBESTOS-RELATED PERSONAL INJURY CLAIMS AGAINST AWI, AND THE REPRESENTATIVES OF
ALL UNSECURED CREDITORS.
ARMSTRONG HOLDINGS, INC. SHAREHOLDERS
Although we are concurrently distributing the Disclosure Statement (and related
Plan) to shareholders of Armstrong Holdings, Inc. ("Holdings"), such
shareholders are not entitled to vote on the Plan. By order of the Court
overseeing AWI's chapter 11 case, however, Holdings' shareholders do have
standing to object to confirmation of the Plan. In addition, as discussed in
Section V.P, entitled "THE PLAN OF REORGANIZATION -- Holdings Plan of
Liquidation," pursuant to this Disclosure Statement, simultaneously with AWI's
solicitation of votes with respect to the Plan, Holdings is soliciting its
shareholders for approval of the Holdings Plan of Liquidation. If the Holdings
Plan of Liquidation is approved prior to the first anniversary of the Effective
Date, Armstrong Worldwide, Inc. ("AWWD"), the direct parent of AWI and a
wholly-owned subsidiary of Holdings, will deliver to Holdings warrants to
purchase shares of the new common stock of reorganized AWI, which Holdings will
distribute under the Plan of Liquidation.
CREDITORS OF AWI
The Plan is attached to the Disclosure Statement as Exhibit "A." In order for a
class to accept the Plan, at least two-thirds in dollar amount of the claims
voted in such class and more than one-half in number of the claims voted in the
class must be voted to accept the Plan. Moreover, the Plan requires that at
least 75% of the holders of asbestos-related personal injury claims who vote on
the Plan vote in favor of the Plan. Your acceptance will facilitate and expedite
the emergence of AWI from chapter 11.
If you did not receive a ballot with the Disclosure Statement, please see the
summary of who may not vote on the Plan on page __ of the Disclosure Statement.
If you believe that you are entitled to vote on the Plan but did not receive a
ballot, received a damaged ballot, lost your ballot, or if you have any other
questions about the Plan or this Disclosure Statement, please call Innisfree M&A
Incorporated, AWI's special ballot tabulation and solicitation agent, at (877)
750-2689.
Please note that BALLOTS MUST BE RECEIVED NO LATER THAN 5:00 P.M.,
_____________, TIME, ON _________________. If you are entitled to vote on the
Plan, a ballot and return envelope are enclosed for your convenience. IT IS OF
THE UTMOST IMPORTANCE THAT YOU VOTE PROMPTLY TO ACCEPT THE PLAN.
Sincerely,
ARMSTRONG WORLD INDUSTRIES, INC.
------------------------------------
Michael D. Lockhart, Chairman
ASBESTOS PI CLAIMANTS' COMMITTEE
------------------------------------
[ ]
Chairperson
UNSECURED CREDITORS' COMMITTEE
------------------------------------
[ ]
FUTURE CLAIMANTS' REPRESENTATIVE
------------------------------------
Dean M. Trafelet
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TABLE OF CONTENTS
I. INTRODUCTION.............................................................................................1
II. OVERVIEW OF THE PLAN.....................................................................................5
III. GENERAL INFORMATION.....................................................................................10
A. Description and History of Business...........................................................10
B. Competition...................................................................................12
C. Corporate Reorganization......................................................................13
D. Events Leading to the Commencement of the Chapter 11 Case.....................................13
1. AWI's Involvement with Asbestos-Containing Materials................................13
2. Prepetition Asbestos-Related Personal Injury Litigation Against AWI.................16
3. Owens Corning Fiberglas Filing for Protection under Chapter 11......................16
4. Downgrading of AWI's Credit Rating..................................................16
IV. THE CHAPTER 11 CASE.....................................................................................17
A. General.......................................................................................17
B. Professionals Retained in the Chapter 11 Case.................................................17
1. AWI's Attorneys and Advisers:..............................................................17
2. Committees.................................................................................18
C. Significant Events During the Chapter 11 Case.................................................20
1. Employee Related Matters............................................................20
2. Vendor and Customer Issues..........................................................20
3. The DIP Credit Facility.............................................................21
4. AWI's Exclusive Right to File and Confirm a Plan....................................22
5. The Bar Date (for Claims other than Asbestos Personal Injury Claims)................22
6. Asbestos Property Damage Claims.....................................................24
7. Insurance Coverage Issues...........................................................25
8. Litigation Involving the Center for Claims Resolution...............................28
9. Other Litigation....................................................................30
10. Settlement of Claims................................................................30
11. Delisting of Holdings' Common Stock and Certain of AWI's Debt
Securities from the New York Stock Exchange.........................................31
V. THE PLAN OF REORGANIZATION..............................................................................32
A. Classification and Treatment of Claims and Equity Interests in AWI............................32
1. Administrative Expenses.............................................................32
2. Priority Tax Claims.................................................................35
3. Class 1: Priority Claims...........................................................35
4. Class 2: Secured Claims............................................................36
5. Class 3: Convenience Claims........................................................37
6. Class 4: Asbestos Property Damage Claims...........................................37
7. Class 5: COLI Claims...............................................................38
8. Class 6: Unsecured Claims other than Convenience Claims............................38
9. Class 7: Asbestos Personal Injury Claims...........................................39
10. Class 8: Environmental Claims......................................................41
11. Class 9: Affiliate Claims..........................................................41
12. Class 10: Subsidiary Debt Guarantee Claims.........................................42
13. Class 11: AWWD's Equity Interests in AWI...........................................42
B. Conditions to Confirmation....................................................................42
C. Conditions Precedent to the Effective Date under the Plan.....................................46
D. Description of the Reorganization Consideration...............................................47
E. Plan of Division..............................................................................48
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F. Exit Facility.................................................................................49
G. Executory Contracts and Unexpired Leases......................................................49
H. Insurance Policies and Agreements.............................................................50
I. Indemnification and Reimbursement Obligations.................................................51
J. Compensation and Benefit Programs.............................................................51
K. Cancellation of Existing Debt Securities......................................................54
L. Expiration of the Retention Period............................................................54
M. Compensation of the Applicable Trustees.......................................................54
N. Listing of the New Common Stock...............................................................54
O. Corporate Reorganization Actions..............................................................54
P. Holdings Plan of Liquidation..................................................................55
Q. Distributions Under the Plan..................................................................56
1. Distribution Date...................................................................56
2. Disputed Unsecured Claims Reserve...................................................56
3. Timing of Distributions under the Plan..............................................56
4. Fractional Shares...................................................................57
5. Provisions for Treatment of Disputed Claims.........................................57
6. Amendments to the Claims Settlement Guidelines......................................57
7. Distribution of Unclaimed Property..................................................57
R. Discharge of AWI..............................................................................58
S. Modification of the Plan......................................................................58
T. Revocation or Withdrawal of the Plan..........................................................58
U. Rights of Action..............................................................................58
V. Dissolution of the Committees.................................................................59
W. Exculpation...................................................................................59
X. Supplemental Documents........................................................................59
VI. THE ASBESTOS PI TRUST...................................................................................60
A. General Description of the Asbestos PI Trust..................................................60
1. Creation of Asbestos PI Trust.......................................................60
2. The Trustees........................................................................60
3. The Trustees' Advisory Committee....................................................60
4. Transfer of Certain Property to the Asbestos PI Trust...............................60
5. Ability to Amend Asbestos PI Trust Documents........................................62
B. Asbestos PI Trust Distribution Procedures.....................................................62
C. The Asbestos PI Insurance Asset...............................................................62
D. The Asbestos PI Permanent Channeling Injunction...............................................62
E. Application of the Claims Trading Injunction to Asbestos Personal Injury Claims...............65
F. Compliance with QSF Regulations...............................................................65
VII. THE ASBESTOS PD TRUST...................................................................................66
A. Creation of Asbestos PD Trust.................................................................66
1. General Description of the Asbestos PD Trust...............................................66
2. The Asbestos PD Trustees...................................................................66
3. Transfer of Certain Property to the Asbestos PD Trust......................................66
B. Asbestos PD Claims Resolution Procedures......................................................66
C. Discharge of Asbestos Property Damage Claims..................................................67
D. Application of the Claims Trading Injunction to Asbestos Property Damage Claims...............67
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VIII. CONFIRMATION AND CONSUMMATION PROCEDURE.................................................................68
A. Solicitation of Votes.........................................................................68
B. The Confirmation Hearing......................................................................68
C. Confirmation..................................................................................68
1. Acceptance..........................................................................69
2. Unfair Discrimination and Fair and Equitable Tests..................................69
3. Feasibility.........................................................................69
4. Best Interests Test.................................................................70
D. Consummation..................................................................................71
IX. MANAGEMENT OF REORGANIZED AWI...........................................................................72
A. Board of Directors and Management.............................................................72
1. Composition of the Board of Directors......................................................72
2. Identity of Officers.......................................................................72
B. Compensation of Executive Officers............................................................73
C. Incentive Compensation Plans and New Management Incentive Plan................................74
D. Management Contracts..........................................................................75
E. Amendment and Restatement of AWI's Articles of Incorporation and By-Laws......................75
X. EXEMPTIONS FROM SECURITIES ACT REGISTRATION.....................................................................76
XI. REORGANIZATION VALUE....................................................................................78
XII. RISK FACTORS............................................................................................82
A. Overall Risks to Recovery by Holders of Claims................................................82
1. Ability to Refinance Certain Indebtedness...........................................82
2. Ownership by the Asbestos PI Trust..................................................82
3. Dividend Policies...................................................................82
4. Projected Financial Information.....................................................82
5. Value of Consideration to Be Distributed under the Plan.............................83
B. The Asbestos PI Permanent Channeling Injunction...............................................83
C. Absence of Public Market for the New Notes, New Common Stock and New Warrants.................83
D. Certain Provisions of AWI's Amended and Restated Articles of Incorporation, Bylaws and
the Pennsylvania Business Corporation Law.....................................................83
XIII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.....................................................84
A. Consequences to AWI...........................................................................84
1. Cancellation of Debt................................................................84
2. Limitation on NOL Carryforwards and Other Tax Attributes............................85
3. Alternative Minimum Tax.............................................................86
4. Treatment of the Asbestos PI Trust and Asbestos PD Trust............................86
B. Consequences to Holders of Unsecured Claims and Convenience Claims............................87
1. Gain or Loss - Generally............................................................87
2. Treatment of Unsecured Claims that Constitute Securities............................88
3. Distributions in Discharge of Accrued but Unpaid Interest...........................89
4. Ownership and Disposition of the New Notes..........................................89
5. Disposition of New Common Stock.....................................................91
C. Consequences to Holders of Asbestos Personal Injury Claims....................................91
D. Consequences to Holders of Asbestos Property Damage Claims....................................91
E. Information Reporting and Withholding.........................................................91
XIV. Alternatives to Confirmation and Consummation of the Plan...............................................93
A. Liquidation under Chapter 7...................................................................93
B. Alternative Plan of Reorganization............................................................93
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XV. CONCLUSION AND RECOMMENDATION...........................................................................94
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DISCLOSURE STATEMENT, DATED DECEMBER 20,
2002, FOR THE PLAN OF REORGANIZATION OF
ARMSTRONG WORLD INDUSTRIES, INC.
I. INTRODUCTION
Armstrong World Industries, Inc. ("AWI") submits this Disclosure Statement
pursuant to section 1125 of title 11 of the United States Code (the "BANKRUPTCY
CODE") to the holders of Claims (each a "CLAIMANT," and all or some of them
"CLAIMANTS") and to Armstrong Worldwide, Inc. ("AWWD"), the holder of the common
stock of AWI, in connection with (i) the solicitation of acceptances or
rejections of the proposed chapter 11 plan of reorganization (the "PLAN") of
AWI, dated November 4, 2002, filed with the United States Bankruptcy Court for
the District of Delaware (the "BANKRUPTCY COURT"), and (ii) the hearing on
confirmation of the Plan (the "CONFIRMATION HEARING") scheduled for
___________________.
This Disclosure Statement is also being provided to shareholders of AWI's
publicly held indirect parent company, Armstrong Holdings, Inc. ("HOLDINGS"), in
connection with a request to them to approve the dissolution or other winding up
of Holdings following consummation of the Plan. See Section V.P, entitled "THE
PLAN OF REORGANIZATION - Holdings Plan of Liquidation," for more information on
such process.
UNLESS OTHERWISE DEFINED HEREIN, ALL CAPITALIZED TERMS CONTAINED IN THIS
DISCLOSURE STATEMENT SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE PLAN.
Attached as Exhibits to this Disclosure Statement are the following documents:
1. the Plan (Exhibit "A");
2. the Order of the Bankruptcy Court, dated
____________, approving this Disclosure
Statement (Exhibit "B");
3. Financial Appendix (Exhibit "C");
4. Ballot Tabulation and Solicitation Procedures,
as approved by the order of the Bankruptcy
Court, dated ____________ (the "VOTING
PROCEDURES") (Exhibit "D");
5. Liquidation Analysis (Exhibit "E");
6. list of AWI's Subsidiaries (Exhibit "F"); and
7. list of the directors and officers of AWI and
Holdings (Exhibit "G").
In addition, the Ballot for acceptance or rejection of the Plan is enclosed with
this Disclosure Statement if you are entitled to vote to accept or reject the
Plan.
Holdings is the publicly held Armstrong parent holding company. It owns all of
the stock of AWWD, which in turn owns all of the stock of AWI. Holdings became
the parent company of AWI on May 1, 2000, following AWI shareholder approval of
a plan of exchange under which each share of AWI was automatically exchanged for
one share of Holdings. Stock certificates that formerly represented shares of
AWI were automatically converted into certificates representing the same number
of shares of Holdings. As a result, all publicly held stock certificates that
bear the name "Armstrong World Industries, Inc." actually represent shares of
stock of Holdings. The publicly held debt of AWI was not affected in the
transaction. Holdings was formed for purposes of the share exchange, and
Holdings does not have any other significant assets or operations.
1
Additional information concerning AWI and its financial condition, on a
consolidated basis, and results of operations, on a consolidated basis, is set
forth in AWI's and Holdings' joint (i) Annual Report on Form 10-K for the fiscal
year ended December 31, 2001, (ii) Quarterly Reports on Form 10-Q for the
quarterly periods ended September 30, 2002, June 30, 2002, and March 31, 2002,
and (iii) Current Reports on Form 8-K filed since the most recent 10-K report.
You may read and copy these documents (and any other document AWI or Holdings
files with the Securities and Exchange Commission (the "SEC")) at the SEC's
Public Reading Room located at 450 Fifth Street, N.W., Washington D.C. 20549.
You may obtain information on the operation of the Public Reading Room by
calling the SEC at 1-800-SEC-0300. The SEC also maintains an Internet site
(www.sec.gov) through which you can access reports, proxy and information
statements and other information regarding Holdings and AWI. These documents
also may be viewed by accessing the Internet site maintained by AWI in
connection with the Plan (www.armstrongplan.com).
Certain exhibits to the Plan are included with this Disclosure Statement. The
remaining exhibits to the Plan will be contained in a separate exhibit volume,
which will be filed with the clerk of the Bankruptcy Court by [INSERT DATE],
which is not later than the earlier of (i) fifteen (15) days before the deadline
for filing objections to confirmation of the Plan and (ii) thirty (30) days
prior to the Confirmation Hearing. Such exhibit volume may be inspected in the
office of the clerk of the Bankruptcy Court during normal court hours and may
also be viewed at AWI's Internet site (www.armstrongplan.com). Claimants and
AWWD, as well as Holdings' shareholders, also may obtain a copy of the exhibit
volume, once filed, from AWI by written request sent to the following address:
Armstrong World Industries, Inc.
Post Office Box 3666
Lancaster, Pennsylvania 17604-3666
On _____________, after notice and a hearing, the Bankruptcy Court approved this
Disclosure Statement as containing information of a kind and in sufficient
detail adequate to enable hypothetical, reasonable investors typical of the
Claimants to make an informed judgment as to whether to accept or reject the
Plan. APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT, HOWEVER, CONSTITUTE A
DETERMINATION BY THE BANKRUPTCY COURT AS TO THE FAIRNESS OR THE MERITS OF THE
PLAN.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR
HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED
HEREIN.
On __________, after notice and a hearing, the Bankruptcy Court entered an order
approving the Voting Procedures. Among other things, these procedures (i)
designate which Claimants are entitled to vote on the Plan and (ii) establish
other procedures governing the solicitation and tabulation of Ballots. A copy of
the Voting Procedures is attached to this Disclosure Statement as Exhibit "D."
See Section VIII.A, entitled, "CONFIRMATION AND CONSUMMATION PROCEDURE -
Solicitation of Votes," for a complete description of the Voting Procedures.
Each Claimant entitled to vote to accept or reject the Plan should read this
Disclosure Statement and the Plan in their entirety before voting on the Plan.
Under the Bankruptcy Code, only classes of claims or equity interests that are
"impaired" are entitled to vote to accept or reject the Plan. The Claims in each
of Classes 3, 4, 6, 7, and 8 and AWWD's Equity Interests in AWI in Class 11 of
the Plan are impaired (see Section V.A, entitled, "THE PLAN OF REORGANIZATION --
Classification and Treatment of Claims and Equity Interests in AWI," for a
description of these classes). Claimants in these classes who, pursuant to the
Voting Procedures, are entitled to vote on the Plan and AWWD may do so by
completing and mailing the enclosed Ballot to the address set forth on the
Ballot so that it is received by 5:00 p.m., Eastern Time, on ______________ (the
"VOTING Deadline").
BENEFICIAL OWNERS OF DEBT SECURITIES OF AWI THAT ARE REGISTERED EITHER FULLY OR
AS TO PRINCIPAL ONLY ("REGISTERED DEBT SECURITIES") WHO HOLD SUCH SECURITIES
THROUGH NOMINEES SHOULD RETURN THEIR INDIVIDUAL BALLOTS TO THEIR NOMINEES IN
SUFFICIENT TIME TO ALLOW THEIR NOMINEES TO COMPLETE AND RETURN A MASTER BALLOT
PRIOR TO THE VOTING DEADLINE UNLESS SUCH BENEFICIAL OWNERS RECEIVE
"PREVALIDATED" BALLOTS. "PREVALIDATED" BALLOTS MAY BE SENT DIRECTLY TO THE
ADDRESS SET FORTH ON THE BALLOT. See the Voting Procedures, a copy of which is
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annexed hereto as Exhibit "D," and Section VIII.A, entitled, "CONFIRMATION AND
CONSUMMATION PROCEDURE -- Solicitation of Votes," for a more detailed
description of the Voting Procedures. Shareholders of Holdings are not entitled
to vote on the Plan, but may object to confirmation of the Plan.
If you did not receive a Ballot, it is because AWI believes that, in accordance
with the Voting Procedures, you are not entitled to vote on the Plan. Because
AWI does not have records of the addresses of individual holders of Asbestos
Personal Injury Claims and because no deadline for the filing of Asbestos
Personal Injury Claims (other than Asbestos PI Contribution Claims) has been set
in the Chapter 11 Case, this Disclosure Statement is being sent to attorneys who
may represent holders of Asbestos Personal Injury Claims, together with a form
of Ballot. The Voting Procedures provide special procedures for voting by
attorneys on behalf of holders of Asbestos Personal Injury Claims (to the extent
such attorneys are authorized to do so) or voting by individual holders of
Asbestos Personal Injury Claims. Please review the Voting Procedures for
detailed instructions regarding how to vote with respect to Asbestos Personal
Injury Claims.
============================================================
The following are NOT entitled to vote on the Plan and,
therefore, have not received Ballots with this Disclosure
Statement:
>> SHAREHOLDERS OF ARMSTRONG HOLDINGS, INC.
>> ADMINISTRATIVE EXPENSE CLAIMANTS
>> HOLDERS OF PRIORITY TAX CLAIMS
>> HOLDERS OF SECURED CLAIMS
>> HOLDER OF COLI CLAIMS
>> HOLDERS OF AFFILIATE CLAIMS
>> HOLDERS OF SUBSIDIARY DEBT GUARANTEE CLAIMS
>> HOLDERS OF UNSECURED CLAIMS FOR AWI'S CONTINUING
OBLIGATIONS UNDER EMPLOYEE COMPENSATION AND
BENEFIT PROGRAMS THAT ARE BEING ASSUMED PURSUANT
TO SECTION 8.7 OF THE PLAN (BECAUSE SUCH UNSECURED
CLAIMS WILL NOT BE IMPAIRED BY THE PLAN)
>> CLAIMANTS WHOSE CLAIMS HAVE BEEN FULLY DISALLOWED
>> CLAIMANTS WHOSE CLAIMS ARE THE SUBJECT OF PENDING
OBJECTIONS AND HAVE NOT BEEN ALLOWED FOR VOTING
PURPOSES
============================================================
If you are not listed above and you did not receive a Ballot, received a damaged
Ballot, or lost your Ballot, please call AWI's special balloting and
solicitation agent, Innisfree M&A Incorporated ("INNISFREE"), at (877) 750-2689.
If you are not entitled to vote solely because your Claim is the subject of a
pending objection, you may apply to the Bankruptcy Court for an order allowing
your Claim for voting purposes only.
The Bankruptcy Code defines "acceptance" of a plan by a class of claimants as
acceptance by holders of at least two-thirds in dollar amount and more than
one-half in number of the claims of that class that cast ballots for acceptance
or rejection of the plan. AWI is seeking acceptance of the Plan by Claimants in
Classes 3, 4, 6, 7, and 8, as well as by AWWD, the holder of the Equity
Interests in Class 11. For a complete description of the requirements for
acceptance of the Plan, see Section VIII, entitled, "CONFIRMATION AND
CONSUMMATION PROCEDURE." Moreover, the Plan requires that at least 75% of the
holders of Asbestos Personal Injury Claims who vote on the Plan vote to accept
the Plan.
The record date for determining which holders of Unsecured Claims (including
holders of Registered Debt Securities) are entitled to vote on the Plan is
___________. THE TRUSTEES FOR THE REGISTERED DEBT SECURITIES ARE NOT ENTITLED TO
VOTE ON BEHALF OF THE HOLDERS OF SUCH SECURITIES, AND, CONSEQUENTLY, SUCH
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HOLDERS MUST SUBMIT THEIR OWN BALLOTS. Please see the Voting Procedures for
further information regarding voting procedures that have been established for
holders of Registered Debt Securities.
After carefully reviewing this Disclosure Statement, including the exhibits,
each Claimant in an impaired class that is entitled to vote and AWWD should vote
on the enclosed Ballot and return the Ballot in the envelope provided so that it
is actually received by the Voting Deadline -- 5:00 p.m. Eastern time on
____________. If you have a Claim in more than one class and you are entitled to
vote Claims in more than one class, you will receive separate Ballots for each
Claim.
All Ballots for Registered Debt Securities should be returned to the
following address:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, NY 10022
(Attn: Armstrong World Industries, Inc.)
All Claimants other than holders of Registered Debt Securities should
vote and return their Ballots to the following address:
Trumbull Services LLC ("TRUMBULL")
4 Griffin Road North
Windsor, CT 06095
(Attn: Armstrong World Industries, Inc.)
IF YOU HAVE ANY QUESTIONS ABOUT THE PLAN, THIS DISCLOSURE STATEMENT, OR THE
VOTING PROCEDURES, PLEASE CALL INNISFREE AT (877) 750-2689.
TO BE COUNTED, YOUR BALLOT MUST BE ACTUALLY RECEIVED AT THE APPROPRIATE ADDRESS
BY THE VOTING DEADLINE -- 5:00 P.M., EASTERN TIME ON _______________. BALLOTS
MUST BE DELIVERED BY MAIL, COURIER, OR DELIVERY SERVICE. FACSIMILE BALLOTS WILL
NOT BE ACCEPTED. ANY COMPLETED BALLOTS RECEIVED THAT DO NOT INDICATE EITHER AN
ACCEPTANCE OR REJECTION OF THE PLAN OR THAT INDICATE BOTH AN ACCEPTANCE AND A
REJECTION OF THE PLAN WILL NOT BE COUNTED.
Pursuant to section 1128 of the Bankruptcy Code, the Confirmation Hearing will
be held on _____________, at _________ [a.m.] [p.m.], before the [INSERT NAME OF
JUDGE AND ADDRESS OF COURTROOM]. The Bankruptcy Court has directed that
objections, if any, to confirmation of the Plan be served and filed on or before
__________, at 4:00 p.m. (Eastern Time), in the manner described in this
Disclosure Statement under Section VIII.B, entitled, "CONFIRMATION AND
CONSUMMATION PROCEDURE -- The Confirmation Hearing." The Confirmation Hearing
may be adjourned from time to time by the Bankruptcy Court without further
notice except for an announcement of the adjournment date made at the
Confirmation Hearing or at any subsequent adjourned date of the Confirmation
Hearing.
=================================================================
AWI AND THE REPRESENTATIVES OF THE UNSECURED CREDITORS AND THE
ASBESTOS PERSONAL INJURY CLAIMANTS BELIEVE THAT THE PLAN
PROVIDES THE BEST POSSIBLE RECOVERIES TO THE CLAIMANTS AND THAT
ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF EVERY CLASS
OF CLAIMANTS. ACCORDINGLY, AWI, THE ASBESTOS
PI CLAIMANTS' COMMITTEE, THE FUTURE CLAIMANTS' REPRESENTATIVE,
AND THE UNSECURED CREDITORS'
COMMITTEE ALL RECOMMEND THAT YOU VOTE TO ACCEPT THE PLAN.
=================================================================
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II. OVERVIEW OF THE PLAN
The following is a brief overview of the provisions of the Plan. This overview
is qualified in its entirety by reference to the Plan, a copy of which is
included as Exhibit "A." In addition, for a more detailed description of the
terms of the Plan, see Section V, entitled, "THE PLAN OF REORGANIZATION."
The Plan accomplishes the following objectives, which AWI believes are essential
components of a successful reorganization:
o Resolution of AWI's liability for all Asbestos Personal Injury
Claims;
o Fair treatment for Unsecured Claims;
o Resolution of AWI's liability for all Asbestos Property Damage
Claims; and
o Corporate reorganization of AWI and liquidation of Holdings.
The Plan designates 11 classes -- ten classes of Claims and one class of Equity
Interests in AWI (which are held by AWWD, AWI's sole shareholder). These classes
take into account the differing nature and priority under the Bankruptcy Code of
the various Claims and Equity Interests.
The Plan accomplishes, and is premised on, a resolution of AWI's liability for
all Asbestos Personal Injury Claims by channeling them to a trust established by
AWI (the "ASBESTOS PI TRUST"). In exchange for the Asbestos PI Insurance Asset
and the Reorganization Consideration to be transferred pursuant to the terms of
the Plan, the Asbestos PI Trust will assume and be responsible for all liability
for Asbestos Personal Injury Claims and certain other obligations associated
with the Asbestos PI Insurance Asset. All Asbestos Personal Injury Claims will
be determined and paid pursuant to the terms, provisions, and procedures of the
Asbestos PI Trust, the Asbestos PI Trust Distribution Procedures, and the
Asbestos PI Trust Agreement. Moreover, as described in Section VI.D, entitled,
"THE ASBESTOS PI TRUST - The Asbestos PI Permanent Channeling Injunction,"
Asbestos Personal Injury Claimants will be permanently enjoined from pursuing
their claims against Reorganized AWI and certain other parties.
Similarly, the Plan accomplishes, and is premised on, a resolution of AWI's
liability for all Asbestos Property Damage Claims by channeling them to a trust
(the "ASBESTOS PD TRUST"). The Asbestos PD Trust will be funded with the
Asbestos PD Trust Funding Obligation. If Class 4 (Asbestos Property Damage
Claims) votes to accept the Plan, the Asbestos PD Trust Funding Obligation will
be equal to $5 million (which will be funded solely from insurance proceeds as
provided in section 11.2 of the Plan). If Class 4 votes to reject the Plan, the
Asbestos PD Trust Funding Obligation will be equal to the Asbestos PD Insurance
Asset having a value equal to the aggregate value of all Allowed Asbestos
Property Damage Claims as estimated by the Bankruptcy Court. In exchange for the
Asbestos PD Trust Funding Obligation, the Asbestos PD Trust will assume and be
responsible for all liability for Asbestos Property Damage Claims and certain
other obligations associated with the Asbestos PD Insurance Asset. All Asbestos
Property Damage Claims will be determined and paid pursuant to the terms,
provisions, and procedures of the Asbestos PD Trust, the Asbestos PD Claims
Resolution Procedures, and the Asbestos PD Trust Agreement, and all Asbestos
Property Damage Claimants will be permanently enjoined from pursuing their
claims against Reorganized AWI and certain other parties.
Pursuant to the terms of the Plan, each holder of a Convenience Claim (Class 3)
will receive a cash payment of 75% of the Allowed Amount of such Convenience
Claim on the Effective Date or as soon as practicable after such Convenience
Claim becomes Allowed. A "CONVENIENCE CLAIM" is an Unsecured Claim other than a
Registered Debt Security that otherwise would be classified as a general
Unsecured Claim, but which either (i) is in an amount less than or equal to
$10,000 or (ii) has been reduced to $10,000 by the holder of such Claim on the
Ballot. For all Unsecured Claims other than Convenience Claims (Class 6), each
holder of an Allowed Unsecured Claim in Class 6 will receive on each
Distribution Date its Pro Rata Share of the following elements of Reorganization
Consideration:
5
>> 34.43% of the New Common Stock,
>> 34.43% of the first $1.05 billion of (x) up to $300 million of
Available Cash and (y) the New Notes,
>> 60% of the first $50 million of the amount of Available Cash
remaining after making provision for the Distribution provided
in section 3.2(f)(ii)2 of the Plan and the funding of the
Asbestos PI Trust in section 10.1(b)(i)2 of the Plan,
>> 60% of the amount of New Notes equal to the difference (if
positive) of $50 million less the amount of Available Cash
remaining after making provision for the Distribution provided
in section 3.2(f)(ii)2 of the Plan and the funding of the
Asbestos PI Trust in section 10.1(b)(ii) of the Plan, and
>> 34.43% of the remaining amount of Available Cash and New Notes
after making provision for the Distribution provided in sections
3.2(f)(ii)2, 3.2(f)(ii)3 and 3.2(f)(ii)4 of the Plan and the
funding of the Asbestos PI Trust in sections 10.1(b)(ii),
10.1(b)(iii) and 10.1(b)(iv) of the Plan.
In any Distribution made to the holder of an Allowed Unsecured Claim, there will
be deducted from such Distribution the amount of each such element of the
Reorganization Consideration (computed as provided in section 3.2(f)(ii) of the
Plan) previously distributed on account of such Allowed Unsecured Claim in any
Distribution made prior thereto.
The proposed capital structure for Reorganized AWI, including post-Effective
Date financing arrangements that Reorganized AWI expects to enter into in order
to meet the working capital needs of its ongoing business operations (and, if
necessary, increase the amount of Available Cash to $350 million), is as
follows:
>> Retained cash for working capital purposes of $100 million on a
consolidated basis.
>> Exit financing facility for working capital needs in the
approximate amount of $300 million. AWI's projections assume
that $49.7 million will be drawn under the exit financing
facility to increase Available Cash to $350 million. AWI
estimates that such borrowing will be repaid by the end of 2003.
In addition, letters of credit will be issued under the exit
financing facility to replace the Letters of Credit and to issue
letters of credit in the ordinary course of Reorganized AWI's
business. See Section V.F, entitled, "THE PLAN OF REORGANIZATION
- Exit Facility," for a description of the proposed exit
financing facility.
>> New Notes in an aggregate principal account equal to the higher
of (x) $1.125 billion less the amount of Available Cash and (y)
$775 million. See Section V.D.2, entitled, "THE PLAN OF
REORGANIZATION - Description of the Reorganization Consideration
- New Notes," for a description of the New Notes.
>> 60-70 million shares of New Common Stock to be issued to the
Asbestos PI Trust and Claimants. See Section V.D.1, entitled,
"THE PLAN OF REORGANIZATION - Description of the Reorganization
Consideration - New Common Stock," for a description of the New
Common Stock. The Existing AWI Common Stock, which is held
directly by AWWD (and indirectly by Holdings), will be cancelled
on the Effective Date.
6
>> If the shareholders of Holdings approve the Holdings Plan of
Liquidation within one year after the Effective Date; New
Warrants to purchase 5% of the New Common Stock on a fully
diluted basis. See Section V.P, entitled, "THE PLAN OF
REORGANIZATION - Holdings Plan of Liquidation," for a
description of the Holdings Plan of Liquidation and Section
V.D.4, entitled, "THE PLAN OF REORGANIZATION - Description of
the Reorganization Consideration - New Warrants," for a
description of the New Warrants.
IMPORTANT NOTE: The industry in which AWI operates is affected by numerous
uncertainties. Those uncertainties and other investment risks make it difficult
to determine a precise value for AWI and the equity interests distributed under
the Plan. The recoveries described in the table below represent AWI's best
estimate of these values given the information available at this time. This
estimate does not predict the potential trading prices of the securities under
the Plan. Unless otherwise noted, the information in the following table and in
the sections below is based upon an assumed Effective Date of July 1, 2003. The
estimated recoveries set forth below are based upon the following assumptions:
>> The New Notes will be in the aggregate principal amount of $775
million and are worth their face value.
>> The estimated reorganization value for AWI is between $2,700
million and $3,300 million (with a midpoint valuation of $3,000
million).
>> The estimated Equity Value of the New Common Stock (based on the
residual value of the equity of Reorganized AWI) is between
$25.60 per share and $34.40 per share, with a midpoint value of
$30.00 per share (assuming a distribution of 67.7 million shares
of New Common Stock to holders of Unsecured Claims and the PI
Trust).
>> AWI will have Available Cash of approximately $350 million as of
the Effective Date.
>> The estimated value of the New Warrants is $40-50 million.
7
SUMMARY OF CLASSIFICATION AND
TREATMENT UNDER THE PLAN (1)
The Plan classifies Claims and Equity Interests in AWI for all purposes,
including voting, confirmation, and distribution, as follows:
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
CLASS TREATMENT STATUS ENTITLED ESTIMATED
TO VOTE? RECOVERY
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
CLASS 1: Priority Claims Paid in full, in cash, on the later of the Effective Date Unimpaired No 100%
or as soon as practicable after such Priority Claim
becomes Allowed.
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
CLASS 2: Secured Claims Reinstated - Any defaults related to Secured Claims will Unimpaired No 100%
be cured.
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
CLASS 3: Convenience Paid 75% of Allowed Amount of Convenience Claim, in cash, Impaired Yes 75%
Claims on later of the Effective Date or as soon as practicable
after such Convenience Claim becomes Allowed.
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
CLASS 4: Asbestos All Asbestos Property Damage Claims will be channeled to Impaired Yes Unknown
Property Damage Claims the Asbestos PD Trust, which will be funded exclusively
with the Asbestos PD Trust Funding Obligation.
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
CLASS 5: COLI Claims Reinstated - Any defaults related to the COLI Claims Unimpaired No 100%
will be cured.
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
CLASS 6: Unsecured Claims Each holder of an Allowed Unsecured Claim will receive Impaired Yes 66.5%
other than Convenience its Pro Rata Share of (i) 34.43% of the New Common Stock,
Claims (ii) 34.43% of the first $1.05 billion of (x) up to $300
million of Available Cash and (y) the New Notes,
(iii) 60% of the next $50 million of the remaining
Available Cash, (iv) 60% of the remaining amount of
New Notes to the extent that Available Cash in
(iii) is less than $50 million, and (v) 34.43% of
the remaining amount of Available Cash and New
Notes.
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
CLASS 7: Asbestos All Asbestos Personal Injury Claims will be channeled to Impaired Yes Unknown
Personal Injury Claims the Asbestos PI Trust, which will be funded pursuant to
section 10.1 of the Plan.
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
CLASS 8: Environmental Treated as an Allowed Unsecured Claim to the extent it Impaired Yes 66.5%
Claims becomes Allowed prior to any Distribution Date. Other
treatment determined as applicable under the relevant
settlement agreement.
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
CLASS 9: Affiliate Claims Reinstated Unimpaired No 100%
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
- ----------------
1 This table is only a summary of the classification and treatment of
Claims and Equity Interests under the Plan. Reference should be made to
the entire Disclosure Statement and the Plan for a complete description
of such classification and treatment.
8
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
CLASS TREATMENT STATUS ENTITLED ESTIMATED
TO VOTE? RECOVERY
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
CLASS 10: Subsidiary Debt Reinstated Unimpaired No 100%
Guarantee Claims
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
CLASS 11: AWWD's Equity If the Holdings Plan of Liquidation is approved by the Impaired Yes N/A
Interests in AWI requisite shareholders of Holdings prior to the first
anniversary of the Effective Date, the holder of
the Equity Interests in AWI will receive the New
Warrants (which will be distributed in accordance
with the Holdings Plan of Liquidation). If the
Holdings Plan of Liquidation is not approved by the
requisite shareholders of Holdings prior to the
first anniversary of the Effective Date, the holder
of the Equity Interests in AWI will not receive any
distribution, and no New Warrants will be issued.
- -------------------------- --------------------------------------------------------- ----------- -------------- ------------------
As a separate condition to confirmation of the Plan, at least 75% of the holders
of Asbestos Personal Injury Claims who vote on the Plan must vote to ACCEPT the
Plan. Moreover, for confirmation of the Plan to occur, the Confirmation Order
must contain findings that are consistent with and those that are required by
section 524(g) of the Bankruptcy Code. Section 524(g) contains requirements for
a "channeling injunction" of the type that is provided under the Plan (see
Section V.B, entitled, "THE PLAN OF REORGANIZATION -- Conditions to
Confirmation" and Section VI.D, entitled, "THE ASBESTOS PI TRUST - The Asbestos
PI Permanent Channeling Injunction"). Only AWI and the Asbestos PI Claimants'
Committee, the Future Claimants' Representative and, if Class 6 votes to accept
the Plan, the Unsecured Creditors' Committee, may waive the satisfaction of
these conditions to confirmation of the Plan.
Following confirmation of the Plan, the Plan will not become effective until the
first Business Day after which certain other conditions have been satisfied or
waived or, if a stay of the Confirmation Order is in effect, the first Business
Day after the dissolution, lifting, or expiration of such stay. These conditions
are described in Section V.C, entitled, "THE PLAN OF REORGANIZATION --
Conditions Precedent to the Effective Date under the Plan." For purposes of this
Disclosure Statement, AWI has assumed that the Effective Date will be July 1,
2003. Of course, there can be no certainty that the Effective Date will occur by
such date. The satisfaction of many of the conditions to the occurrence of the
Effective Date is beyond the control of AWI.
Distributions on account of Allowed Claims (other than Asbestos Personal Injury
Claims and Asbestos Property Damage Claims) will be made on the Effective Date
or as soon as practicable thereafter, but in no event more than fifteen (15)
days after the Effective Date.
The timing of distributions to holders of Allowed Asbestos Personal Injury
Claims will be established by the Asbestos PI Trustees pursuant to the Asbestos
PI Trust Agreement and the Asbestos PI Trust Distribution Procedures. The timing
of distributions to holders of Allowed Asbestos Property Damage Claims will be
established by the Asbestos PD Trustees pursuant to the Asbestos PD Trust and
the Asbestos PD Claims Resolution Procedures.
Notwithstanding the foregoing, a payment will only be made on account of a
Disputed Claim after, and to the extent that, such Disputed Claim becomes
Allowed. All payments to be made in cash under the Plan will be made, at the
election of Reorganized AWI or the Disbursing Agent, by check or wire transfer.
9
III. GENERAL INFORMATION
A. DESCRIPTION AND HISTORY OF BUSINESS.
AWI is a Pennsylvania corporation that was incorporated in 1891 to carry on the
business founded by Thomas M. Armstrong in 1860. Together with its subsidiaries,
it is referred to here as "Armstrong." Through its U.S. operations and U.S. and
international subsidiaries, Armstrong designs, manufactures and sells flooring
products (resilient, wood, carpeting and sports flooring), as well as ceiling
systems, around the world. Armstrong products are sold primarily for use in the
finishing, refurbishing and repair of residential, commercial and institutional
buildings. Armstrong also designs, manufactures and sells kitchen and bathroom
cabinets.
Holdings became the indirect parent company (and AWWD became the direct parent
company) of Armstrong on May 1, 2000, following AWI shareholder approval of a
plan of exchange pursuant to which each share of AWI was exchanged for one share
of Holdings. As a result, stock certificates dated before that date that bear
the name "Armstrong World Industries, Inc." actually represent stock of
Holdings. Until the filing of the Plan, the common stock of Holdings was
publicly traded on the New York Stock Exchange under the ticker symbol "ACK".
The Holdings Common Stock currently is quoted on the OTC (over-the-counter)
bulletin board with the ticker symbol "ACKHQ". Holdings and AWWD were formed for
purposes of the share exchange and do not hold any other significant assets or
engage in any operations.
Armstrong conducts its business through the following business segments:
Resilient Flooring -- Armstrong is a worldwide manufacturer of a
broad range of floor coverings for homes and commercial and
institutional buildings, which are sold with adhesives, installation
and maintenance materials and accessories. Armstrong's flooring
products include vinyl sheet and vinyl tile, linoleum and laminate
flooring. Various products offer ease of installation, reduced
maintenance (no-wax), and cushioning for greater underfoot comfort.
The products are sold in a wide variety of types, designs, and colors
to commercial, residential and institutional customers through
wholesalers, retailers (including large home centers and buying
groups), contractors, and to the hotel/motel and manufactured homes
industries.
Building Products -- The Building Products segment includes
commercial and some residential ceiling systems. Commercial suspended
ceiling systems, designed for use in shopping centers, offices,
schools, hospitals, and other commercial and institutional settings,
are available in numerous colors, performance characteristics and
designs and offer characteristics such as acoustical control,
accessibility to the plenum (the area above the ceiling), rated fire
protection, and aesthetic appeal. Armstrong sells commercial ceiling
materials and accessories to ceiling systems contractors and to
resale distributors. Ceiling materials for the home provide noise
reduction and incorporate features affording ease of installation.
These residential ceiling products are sold through wholesalers and
retailers (including large home centers). Framework (grid) products
for Armstrong suspension ceiling systems products are manufactured
through a joint venture with Worthington Industries (WAVE) and are
sold by both Armstrong and the WAVE joint venture.
Wood Flooring -- The Wood Flooring segment manufactures and
distributes wood and other flooring products. These products are used
primarily in residential new construction and remodeling, with some
commercial applications in stores, restaurants and high-end offices.
Wood Flooring sales are generally made through independent wholesale
flooring distributors and retailers (including large home centers and
buying groups) under the brand names Bruce(TM), Hartco(TM) and
Robbins(TM).
10
Cabinets -- The Cabinets segment manufactures kitchen and bathroom
cabinetry and related products, which are used primarily in
residential new construction and remodeling. Through its nationwide
system of company-owned and independent distribution centers, the
Cabinets segment provides design, fabrication and installation
services to single-family builders, multi-family builders and
remodelers under the brand names IXL(TM), Bruce,(TM) and
Armstrong(TM).
Textiles & Sports Flooring -- The Textiles and Sports Flooring
business segment manufactures carpeting and sports flooring products
that are mainly sold in Europe. The carpeting products consist
principally of carpet tiles and broadloom used in commercial
applications as well as the leisure and travel industry. Sports
flooring products include artificial turf surfaces. Both product
groups are sold through wholesalers, retailers and contractors.
Armstrong businesses principally sell products through building products
distributors, who re-sell its products to retailers, builders, contractors,
installers and others. Armstrong also sells a significant portion of its
products to home center chains and industry buying groups. For example, in 2001,
Armstrong sales to The Home Depot, Inc. totaled approximately $340.8 million. No
other customer accounted for more than 10% of Armstrong's revenue.
Raw materials essential to Armstrong businesses are purchased worldwide in the
ordinary course of business from numerous suppliers. The principal raw materials
used in each business include the following:
BUSINESS PRINCIPAL RAW MATERIALS
- ----------------------------- ------------------------------------------------
Resilient Flooring Synthetic resins, plasticizers, PVC, latex,
linseed oil, limestone, films, pigments and inks
Building Products Mineral fibers and fillers, clays, starches,
newspaper, and perlite, as well as steel used in
the production of metal ceilings and
manufacturing of ceiling grids
Wood Flooring Lumber, veneer, acrylics, and plywood
Cabinets Lumber, veneer, plywood, particleboard and
fiberboard
Textiles and Sports Flooring Yarn, latex, bitumen and wool
Armstrong's laminate flooring products are sourced from third parties under
long-term supply contracts.
Armstrong also purchases significant amounts of packaging materials for all
products and uses substantial amounts of energy such as electricity and natural
gas and water in its manufacturing operations. In general, adequate supplies of
raw materials were available to all of Armstrong's businesses. Armstrong cannot
guarantee that a significant shortage of one raw material or another will not
occur, however.
Customers' orders for Armstrong products are typically for immediate shipment.
Thus, in each business group, Armstrong keeps sufficient inventory on hand to
satisfy orders, or manufactures product to meet delivery dates specified in
orders. As a result, there historically has been no material backlog in any
industry segment.
Patent protection is important to Armstrong's business in the United States and
other markets. Armstrong's competitive position has been enhanced by U.S. and
foreign patents on products and processes developed or perfected within
Armstrong or obtained through acquisition or license. In addition, Armstrong
also benefits from its trade secrets for certain products and processes. Patent
protection extends for varying periods according to the date of patent filing or
grant and the legal term of a patent in the various countries where patent
protection is obtained. The actual protection afforded by a patent, which can
vary from country to country, depends upon the type of patent, the scope of its
coverage, and the availability of legal remedies in the country. Although
Armstrong considers that, in the aggregate, its patents and trade secrets
constitute a valuable asset of material importance to its business, Armstrong
does not regard any of its businesses as being materially dependent upon any
single patent or trade secret, or any group of related patents or trade secrets.
11
Armstrong products are sold around the world under numerous brand-name
trademarks that are considered in the aggregate to be of material importance.
Certain of Armstrong trademarks, including, without limitation, house marks
Armstrong(TM), Bruce(TM), Hartco(TM), Robbins(TM), and DLW(TM), and product line
marks Ceramaguard(TM), Cirrus(TM), Corlon(TM), Cortega(TM), Designer
Solarian(TM), Excelon(TM), Fundamentals(TM), i-Ceilings(TM), Medintech(TM),
Minatone(TM), Natural Inspirations(TM), Second Look(TM), Switftlock(TM),
ToughGuard(TM), Traffic Zone(TM), Travertone(TM) and Ultima(TM) are important to
Armstrong's business because of their significant brand name recognition.
Trademark protection continues in some countries as long as the mark is used
and, in other countries, as long as it is registered. Registrations are
generally for fixed, but renewable, terms.
Armstrong's world headquarters are located in Lancaster, Pennsylvania. Armstrong
owns a 100-acre, multi-building campus comprising the site of its corporate
headquarters, most operational headquarters, and its U.S. R&D operations and
marketing and service headquarters. Altogether, Armstrong's headquarters
operations occupy over 986,000 square feet of floor space.
Armstrong produces and markets Armstrong products and services throughout the
world, owning and operating 50 manufacturing plants in 15 countries. Twenty-nine
of these facilities are located throughout the United States. In addition,
Armstrong has an interest through joint ventures in 9 additional plants in 5
countries.
NUMBER
BUSINESS SEGMENT OF PLANTS LOCATION OF PRINCIPAL FACILITIES
---------------- --------- --------------------------------
Resilient Flooring 14 California, Illinois, Oklahoma, Pennsylvania, Mississippi, Canada, Germany,
Sweden, Australia, and the U.K.
Building Products 15 Alabama, Florida, Georgia, Oregon, Pennsylvania, China, France, Germany and
the U.K.
Wood Flooring 13 Arkansas, Tennessee, Texas, and West Virginia
Cabinets 3 Nebraska, Pennsylvania, and Tennessee
Textiles and Sports Flooring 5 Belgium, Germany, and The Netherlands
Sales offices are leased and owned worldwide, and leased facilities are used to
supplement Armstrong's owned warehousing facilities.
Productive capacity and the extent of utilization of Armstrong facilities are
difficult to quantify with certainty because in any one facility, maximum
capacity and utilization vary periodically depending upon the product that is
being manufactured, and individual facilities manufacture multiple products.
Armstrong believes its facilities have sufficient productive capacity to meet
its current and anticipated future needs. Armstrong believes that its various
facilities are adequate and suitable. Additional incremental investments in
plant facilities are made as appropriate to balance capacity with anticipated
demand, improve quality and service, and reduce costs.
As of September 30, 2002, Armstrong had approximately 16,700 full and part time
employees around the world, of whom approximately 4,900 are located outside of
the United States. About 67% of the approximately 8,100 hourly or salaried
production and maintenance employees in the United States are represented by
labor unions. This percentage includes all hourly production employees of
Armstrong plants and warehouses where labor unions exist, regardless of whether
or not the employees actually pay union dues.
B. COMPETITION.
There is strong competition in all of the industry segments in which Armstrong
does business. Competition in each industry segment and each geographic area
where Armstrong does business includes numerous companies. Principal methods of
competition include price, product performance and service. In addition, product
styling is a significant component of competition. Increasing competition in the
U.S. from worldwide producers is apparent in Armstrong's businesses. Over recent
12
years, there has continued to be excess production capacity in many geographic
markets, which tends to increase price competition.
C. CORPORATE REORGANIZATION.
1. REORGANIZED COMPANY STRUCTURE - THE CORPORATE DIVISION
As part of the Plan, AWI intends to implement a division pursuant to Subchapter
D, Chapter 19 of the Pennsylvania Business Corporation Law of 1988 (the
"PENNSYLVANIA BCL") and section 7.20(a)(iii) of the Plan pursuant to which
Reorganized AWI will divide into several Entities organized under the laws of
Pennsylvania and/or of other jurisdictions permitting such division. Through
this process, Reorganized AWI will become organized as a parent holding company
with subsidiaries carrying on its businesses. See Section V.E, entitled "THE
PLAN OF REORGANIZATION -- Plan of Division."
2. PROPOSED DISSOLUTION OF ARMSTRONG HOLDINGS, INC.
Holdings, which is not a debtor, is seeking approval from its shareholders of
the dissolution, liquidation, and winding up of Holdings (and, as part thereof,
the dissolution and winding up, or other termination of the corporate existence,
of AWWD) pursuant to Subchapter F, Chapter 19 of the Pennsylvania BCL or in such
other manner as is consistent with the terms of the Plan and permitted by law.
See Section V.P, entitled "THE PLAN OF REORGANIZATION -- Holdings Plan of
Liquidation."
D. EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER 11 CASE.
1. AWI'S INVOLVEMENT WITH ASBESTOS-CONTAINING MATERIALS.
AWI's involvement in asbestos personal injury litigation relates primarily to
its involvement in the high temperature insulation contracting business.
Throughout the early 1900's, AWI (then known as Armstrong Cork Company)
manufactured, installed, and serviced low temperature primarily cork based
products for cold storage insulation and pipe covering applications. In
addition, as an adjunct to these cold storage contracting activities, from
around 1910 to 1933, AWI manufactured various high temperature insulation
products, including some that contained asbestos. These products have not been
the subject of significant claims..
Commencing in 1939, AWI expanded its low temperature insulation contracting
business into high temperature contracting services. AWI generally manufactured
its own low temperature insulation materials for use in its contracting
services, but did not manufacture the high temperature insulation materials used
in its contracting operations. Some of the high temperature products furnished
and installed in the contracting operations contained asbestos. AWI believes
that its sale and installation of asbestos-containing insulation products was
limited to the United States and Canada.
As a part of overall organizational changes that took place in the late 1950's,
AWI separated the insulation contracting business from the remainder of the
company with the formation of a separate, independent subsidiary, Armstrong
Contracting and Supply Corporation ("ACANDS"). From January 1, 1958 through July
1969, ACandS operated as an independent subsidiary in the insulation contracting
business. During this period, AWI licensed certain trade names and trademarks to
ACandS, which ACandS placed on certain insulation products manufactured by
others. In addition, from 1964 through 1969, another independent subsidiary of
AWI, National Cork Company ("NCC"), operated an insulation contracting business.
Other than two specific products, AWI did not manufacture or sell any asbestos
containing thermal insulation materials during this period.
In August of 1969, a group of ACandS management employees formed a holding
company and purchased the stock of ACandS from AWI. In connection with such
sale, AWI assigned certain trade names to ACandS, but ACandS was not licensed to
use, and did not use, AWI's trademark or the trade style "(A)rmstrong." ACandS
continues to exist today and is now known as ACandS, Inc. On September 19, 2002,
ACandS filed a voluntary petition for relief under chapter 11 of the Bankruptcy
Code with the Bankruptcy Court.
13
AWI manufactured only two asbestos containing insulation materials between 1939
and 1968 - LT Cork Covering and Armaspray. LT Cork Covering (1956 1959) was a
cork product with a purchased paper wrapper that contained chrysotile asbestos.
Armaspray (1966 1968) was an investigatory high temperature spray applied
insulation material that contained less than 10% amosite asbestos and was sold
only to ACandS for installation. LT Cork Covering with the asbestos paper
covering and Armaspray were not commercially successful products, and AWI had no
involvement with asbestos containing insulation materials after AWI stopped
making Armaspray in 1968. AWI has no information to suggest that LT Cork
Covering was sold outside the United States.
The following asbestos containing insulation products were sold and/or installed
by AWI during various points of AWI's history from about 1910 to 1957 (and to a
very limited extent from 1958 to 1969), or are believed to have been used,
installed, or sold by AWI's former subsidiaries ACandS from 1958 to 1969 and NCC
from 1964 to 1969. This information is not intended to be an exhaustive list,
but is intended to identify those products that have been the most identified by
claimants in the course of AWI's history and based upon information acquired
about the activities of ACandS from 1958 to 1969 and NCC from 1964 to 1969.
These products were primarily (if not exclusively) used in the high temperature
insulation contracting installation operations where AWI, ACandS, or NCC
employed insulators. This list does not include products that may have contained
some portion of the "Armstrong" name but did not contain asbestos.
Nonpareil Pipecovering, Block and Cement (1910 -1930s only)
85% Magnesia Pipecovering and Block (Keasbey & Mattison or
Ehret Magnesia)
Hy-Temp Pipecovering and Block (Keasbey & Mattison)
Bestfelt Pipecovering and Block (Keasbey & Mattison)
Air Cell Pipecovering and Block (Keasbey & Mattison)
Duplex Pipe Insulation (Keasbey & Mattison)
No. 152 Asbestos Cement (Keasbey & Mattison)
Hy-Temp Cement (Keasbey & Mattison)
85% Magnesia Cement (Keasbey & Mattison)
Amblerex No. 2 Cement (Keasbey & Mattison)
Mineral Wool Cement (Keasbey & Mattison)
Kamatt Pipecovering (Keasbey & Mattison
Kaytherm Block (Keasbey & Mattison)
Mani-Ply Insulation (Keasbey & Mattison)
No. 151 Cement (Keasbey & Mattison)
Velvet Hard Finish Cement (Keasbey & Mattison)
Asbestos Floats (Keasbey & Mattison)
Millboard, Rollboard, Paper and Range Boiler Jackets
(Keasbey & Mattison)
LT Cork Covering
Armabestos Pipecovering and Block (UNR)
Armatemp Cements (Eagle-Picher)
Armstrong LK Pipecovering and Block (Owens-Illinois)
Armstrong's Limpet (Turner-Newall, Keasbey & Mattison after
1962 only)
Armaspray
CC Navy Sealer
14
LT Sealer
P Series (2) Sealer
Insul Mastic
Sure Mastic
Asbestos Asphaltum Mastic
Fibrated/Aquaseal Emulsion
SP Emulsion
Plastic/Weatherproof Emulsion
Cold Erection Plastic Emulsion
Asbestos Shorts (Keasbey & Mattison)
Asbestos Cloth (various manufacturers)
Kaylo Pipecovering and Block (Owens Illinois)
No. 1 Insulating Cement (Baldwin Hill)
V-18 High Temperature Block (Vermiculite Co.)
In addition to the products listed above, AWI, ACandS, or NCC may have used
other asbestos-containing high temperature insulation products manufactured by
other manufacturers in the course of their contract insulation installation
activities, depending on the requirements of the particular contract involved.
It is impossible to state with certainty what other specific asbestos-containing
products might have been called for by these contracts.
From 1932 until 1982, AWI manufactured various forms of resilient floor tiles,
some of which contained encapsulated chrysotile asbestos. From 1954 until 1983,
some of the sheet vinyl resilient floor coverings that AWI manufactured and sold
were on an asbestos-containing backing material, which was designated as
"Hydrocord." The chrysotile asbestos was bound into the Hydrocord backing by a
latex binder, and, as installed, the backing was covered by a sheet vinyl floor
covering that did not contain asbestos.
From the early 1950's until the late 1980's, AWI manufactured and sold gasket
materials primarily intended for mechanical applications, including internal
combustion engines. Some of these gasket materials contained encapsulated
asbestos fiber. As a general matter, this gasket material was not sold directly
to end users but to secondary processors for the creation of prefabricated
gaskets for resale.
In addition to plants within the United States, AWI subsidiaries have
manufacturing plants in Reservoir (Victoria), Australia; Gateshead (Team
Valley), England; Munster, Germany, and Montreal, Canada that produced
asbestos-containing floor tiles and/or sheet vinyl products or the Hydrocord
backing (in U.K., Canada, and Australia), and AWI's plant in Portumna, Ireland
also may have manufactured asbestos-containing floor tiles. Although Hydrocord
was manufactured by AWI within the United States, it was shipped as a backing
for certain sheet vinyl products manufactured at plants in Canada, Australia,
and the United Kingdom.
AWI's resilient floor covering products, including those that contained
asbestos, were distributed worldwide. In addition to sales within North America,
AWI's gasket products were distributed primarily within Europe and Japan,
although an effort was made to distribute them worldwide.
All AWI-manufactured acoustical ceiling products never contained asbestos. AWI,
however, sold a specialty asbestos cement ceiling board between the mid 1940's
and the mid 1970's. This ceiling product, which was composed of asbestos
containing Portland cement manufactured by both Keasbey & Mattison and National
Gypsum Company, was slate-like in its appearance (which made it readily
distinguishable from AWI's acoustical ceiling materials), was intended for use
in high humidity areas, and was generally attached to the surface with furring
strips and fasteners (and not a suspended grid system).
15
During the period between the mid-1930's and mid-1980's, some of the related
adhesive products that AWI manufactured and sold for use in the installation of
resilient floor tile or acoustical ceiling tile contained encapsulated
chrysotile asbestos.
AWI manufactured two distinct roof deck systems: (1) Fluid Applied and (2)
Travelon Weather Deck. Components of both systems contained asbestos. These were
special-purpose systems that were distinguishable from traditional built-up
roofing. Both roofing systems were unique and specially directed to a highly
specialized segment of the roofing market. These products were not commercially
successful and, therefore, were discontinued shortly after their introduction in
the mid 1960's.
2. PREPETITION ASBESTOS-RELATED PERSONAL INJURY LITIGATION AGAINST
AWI.
Nearly all the asbestos-related personal injury and wrongful death lawsuits
brought against AWI relate to individuals who claim they were exposed to the
asbestos-containing high-temperature thermal insulation products used by AWI in
its insulation contracting activities prior to 1958, or used by ACandS in
connection with ACandS's use of AWI's licensed tradename or trademarks after
1958. The majority of these claimants seek compensatory and punitive damages
arising from their alleged exposure to these products. Many of these claims
involve allegations of negligence, strict liability, and breach of warranty, and
some allege conspiracy or other claims that seek to make AWI responsible for the
activities of ACandS. In some instances, personal injury claims have been
asserted against AWI on account of its asbestos-containing gaskets or flooring
materials. LT Cork Covering and Armaspray have rarely been identified by
plaintiffs as a cause of injury.
As of September 30, 2000, approximately 173,000 asbestos-related personal injury
and wrongful death claims were pending against AWI within the tort system in a
multitude of jurisdictions. As a result, AWI lacked an effective means to
address its liability for asbestos-related personal injury claims in a
comprehensive manner. Moreover, only the Bankruptcy Code provides a vehicle for
AWI to address both its present, as well as future, unknown Asbestos Personal
Injury Claims.
3. OWENS CORNING FIBERGLAS FILING FOR PROTECTION UNDER CHAPTER 11.
On October 5, 2000 Owens Corning Fiberglas Corp. ("OCF"), a manufacturer of
insulation products, filed for protection under chapter 11 of the Bankruptcy
Code to address its asbestos liability. This filing adversely affected AWI's
attempts at that time to obtain a credit facility to replace its then-existing
$450 million credit facility, which was due to expire on October 19, 2000.
Following the OCF filing, the potential lenders under the new credit facility
reevaluated their credit exposure to AWI, primarily due to AWI's asbestos
personal injury liability. AWI could not reach agreement on a new facility with
acceptable terms, and the existing credit facility expired. In addition, AWI was
concerned about a possibility of increased settlement demands of asbestos
plaintiffs given that OCF, which had previously been a major defendant in
asbestos litigation, had filed for chapter 11 protection.
4. DOWNGRADING OF AWI'S CREDIT RATING.
On October 25, 2000, both Standard & Poors and Moody's Investors Services
(collectively, the "RATING AGENCIES") downgraded AWI's long-term debt rating,
citing the reduction in committed credit facilities, prospects for weaker
operating performance, and continued uncertainty surrounding AWI's asbestos
personal injury liability as a result of, among other things, OCF's chapter 11
filing. Both agencies also indicated the possibility of additional downgrades.
On November 17, 2000, the Rating Agencies further downgraded AWI's long-term
debt rating to below investment grade.
After October 25, 2000, AWI was unable to issue commercial paper and instead
borrowed from its remaining $450 million credit facility. As of December 6,
2000, approximately $50 million of commercial paper was outstanding, and the
entire $450 million credit facility had been drawn and was outstanding.
In response to the large number of Asbestos Personal Injury Claims then
outstanding, the increase in settlement demands over recent years and the
resulting liquidity issues, AWI filed for protection under chapter 11 of the
Bankruptcy Code on December 6, 2000.
16
IV. THE CHAPTER 11 CASE
A. GENERAL.
On December 6, 2000 (the "COMMENCEMENT DATE"), AWI filed a voluntary petition
for relief under chapter 11 of the Bankruptcy Code with the Bankruptcy Court in
order to use the court-supervised reorganization process to achieve a resolution
of its liability for asbestos-related personal injury and wrongful death claims.
Also filing under chapter 11 were two of AWI's wholly-owned subsidiaries, Nitram
Liquidators, Inc. ("NITRAM") and Desseaux Corporation of North America, Inc.
("DESSEAUX"). The cases are being jointly administered as In re Armstrong World
Industries, Inc., et al., Case No. 00-4471 (RJN) (the "Chapter 11 Case").
Currently AWI is operating its business and managing its properties as a debtor
in possession subject to the provisions of the Bankruptcy Code. Pursuant to the
provisions of the Bankruptcy Code, AWI is not permitted to pay any claims or
obligations that arose prior to the Commencement Date unless specifically
authorized by the Bankruptcy Court. Similarly, Claimants may not enforce any
Claims against AWI that arose prior to the Commencement Date unless specifically
authorized by the Bankruptcy Court. In addition, as a debtor in possession, AWI
has the right, subject to the Bankruptcy Court's approval, to assume or reject
any executory contracts and unexpired leases in existence at the Commencement
Date. Parties having Claims as a result of any such rejection may file claims
with the Bankruptcy Court, which will be addressed as part of the Chapter 11
Case.
The Chapter 11 Case originally was assigned to the Honorable Joseph J. Farnan,
Jr., a U.S. District Court Judge for the District of Delaware. During the fourth
quarter of 2001, the U.S. Court of Appeals for the Third Circuit assigned U.S.
District Court Judge Alfred M. Wolin of New Jersey to preside over the Chapter
11 Case in the District of Delaware. Judge Wolin also presides over other
asbestos-related chapter 11 cases pending in the District of Delaware. Judge
Wolin retained issues relating to asbestos personal injury claims and referred
other asbestos-related issues and bankruptcy-related matters in the Chapter 11
Case to U.S. Bankruptcy Judge Randall J. Newsome.
Since the Commencement Date, AWI, the Unsecured Creditors' Committee, the
Asbestos PI Claimants' Committee, and more recently, the Future Claimants'
Representative, have been engaged in substantive negotiations regarding the
terms of the plan of reorganization. During the course of the Chapter 11 Case,
the parties participated in numerous status conferences before Judge Wolin in an
effort to resolve their differences with respect to, among other things, the
distribution of assets and classification of Claims in connection with the
formulation of a viable plan of reorganization. As a result of such status
conferences, on November 4, 2002, AWI filed the Plan with the consent of the
Unsecured Creditors' Committee, the Asbestos PI Claimants' Committee, and the
Future Claimants' Representative.
B. PROFESSIONALS RETAINED IN THE CHAPTER 11 CASE.
1. AWI'S ATTORNEYS AND ADVISERS:
The principal professionals that AWI has retained with respect to chapter 11
matters are as follows:
ATTORNEYS FINANCIAL ADVISOR
Weil, Gotshal & Manges LLP Lazard Freres & Co. LLC ("Lazard")
767 Fifth Avenue 30 Rockefeller Plaza, 61st Floor
New York, New York 10153 New York, New York 10020
(212) 310-8000 (212) 632-6000
(212) 310-8007 (telecopy) (212) 332-1748 (telecopy)
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Richards, Layton & Finger, P.A. RESTRUCTURING CONSULTANTS, AUDITORS
One Rodney Square AND ACCOUNTANTS
P.O. Box 551
Wilmington, Delaware 19899 KPMG, LLP
(302) 651-7700 99 High Street
(302) 651-7701 (telecopy) Boston, Massachusetts 02110
(617)
988-1000
(617)
988-0800
(telecopy)
CLAIMS AGENT SPECIAL BALLOT SOLICITATION AND
TABULATION AGENT
Trumbull Services, LLC Innisfree M&A Incorporated
4 Griffin Road North 501 Madison Avenue, 20th Floor
Windsor, Connecticut 06095 New York, NY 10022
(860) 687-3806 (877) 750-2689
(860) 683-8697 (telecopy)
2. COMMITTEES.
On or about December 15, 2000, the United States Trustee for the District of
Delaware (the "U.S. TRUSTEE"), pursuant to her authority under section 1102 of
the Bankruptcy Code, appointed the Unsecured Creditors' Committee and the
Asbestos PI Claimants' Committee. On or about July 19, 2001, the U.S. Trustee
appointed the Official Committee of Asbestos Property Damage Claimants (the
"ASBESTOS PD COMMITTEE," and together with the Unsecured Creditors' Committee
and the Asbestos PI Claimants' Committee, the "COMMITTEES"). By order dated on
or about March 1, 2002, the Bankruptcy Court approved the appointment of Dean M.
Trafelet as the Future Claimants' Representative. The Committees and the Future
Claimants' Representative have participated actively in all aspects of the
Chapter 11 Case.
(A) ASBESTOS PI CLAIMANTS' COMMITTEE.
The Asbestos PI Claimants' Committee currently consists of the following nine
members:
>> Robert M. Gardner, Sr.
>> Norma H. Garrison, Executor of the Estate of Daniel M. Garrison
>> Joe Donald Smiley
>> Kaye Smith, Executor of the Estate of Willie Hampton
>> Roberta Jeffrey, Executor of the Estate of Frank Jeffrey
>> John A. Spague
>> Frank H. Biele, Jr.
>> Susan Wright, Special Administrator of the Estate of Charles
Wright; and
>> Miron Fidyk.
The Asbestos PI Claimants' Committee has retained the following professionals:
ATTORNEYS ACCOUNTANTS AND FINANCIAL ADVISORS
Caplin & Drysdale, Chartered L. Tersigni Consulting PC
399 Park Avenue, 36th Floor 201 West Main Street, Suite 220
New York, New York 10022 Stamford, CT 06902
(212) 319-7125 (203) 569-9090
(212) 644-6755 (telecopy) (203) 569-9098 (telecopy)
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Campbell & Levine, LLC ASBESTOS BODILY INJURY CONSULTANTS
800 King Street, Suite 300
Wilmington, Delaware 19801 Legal Analysis Research & Planning, Inc.
(302) 426-1900 970 Calle Arroyo
(302) 426-9947 (telecopy) Thousand Oaks, California 91360
(805) 499-3572
(809) 499-7126 (telecopy)
(B) UNSECURED CREDITORS' COMMITTEE.
The Unsecured Creditors' Committee currently consists of the following five
members:
>> Wachovia Bank, N.A.
>> Deutsche Bank
>> Wells Fargo Bank Minnesota, N.A. as Indenture Trustee
>> Bank One, N.A. as Successor Indenture Trustee
>> OCM Opportunities Fund, III, L.P.
The Unsecured Creditors' Committee has retained the following professionals:
ATTORNEYS INVESTMENT BANKER AND FINANCIAL ADVISOR
Paul, Weiss, Rifkind, Wharton & Garrison Houlihan Lokey Howard & Zukin Capital
1285 Avenue of the Americas 685 Third Avenue
New York, New York 10019 New York, New York 10017
(212) 373-3000 (212) 497-4100
(212) 757-3990 (telecopy) (212) 661-3070 (telecopy)
Cozen O'Connor ASBESTOS CLAIMS CONSULTANTS
1201 North Market Street
Wilmington, Delaware 19801 Chambers Associates Incorporation
(888) 207-2440 805 15th Street, NW-Suite 500
(302) 295-2013 (telecopy) Washington, DC 20005
(202) 371-9770
(202) 371-6601 (telecopy)
(C) FUTURE CLAIMANTS' REPRESENTATIVE.
The Future Claimants' Representative has retained the following professionals:
ATTORNEYS INVESTMENT BANKER AND FINANCIAL ADVISOR
Kaye Scholer, LLP Peter J. Solomon Company
425 Park Avenue 767 Fifth Avenue
New York, New York 10022 New York, New York 10153
(212) 836-8000 (212) 508-1600
(212) 836-8689 (telecopy) (212) 508-1633 (telecopy)
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Young Conaway Stargatt & Taylor, LLP ASBESTOS BODILY INJURY CONSULTANTS
The Brandywine Building-17th Floor
1000 West Street Analysis Research Planning Corporation
Wilmington, Delaware 1900 M Street, N.W.
(302) 571-6600 Suite 410
(302) 571-1253 (telecopy) Washington, D.C. 20036
(202) 797-1111
(202) 797-3619 (telecopy)
(D) ASBESTOS PD COMMITTEE.
The Asbestos PD Committee currently consists of the following three members:
>> Christine Wood
>> TrizecHahn Office Properties
>> Stephen Tancredi
The Asbestos PD Committee has retained Klehr, Harrison, Harvey, Branzburg &
Ellers LLP, 919 Market Street, Suite 100, Wilmington, Delaware 19801, (302)
426-1189, (302) 426-9193 (telecopy), as its counsel.
C. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE.
1. EMPLOYEE RELATED MATTERS.
To maintain the continued support, cooperation, and morale of AWI's employees
and to minimize any salary, wage, and employee benefit disruptions that might
have been occasioned by the commencement of the Chapter 11 Case, AWI obtained
orders of the Bankruptcy Court that authorized AWI to (i) pay employees for
prepetition wages, salaries, and other compensation and (ii) continue its
employee benefit programs, including maintenance of AWI's workers' compensation
programs.
In order to (i) ensure that AWI's senior level executives and managers (the "KEY
EMPLOYEES") continued to provide essential management and other necessary
services during the Chapter 11 Case, (ii) minimize Key Employee turnover and
(iii) provide incentives to attract new senior level employees to fill critical
vacant positions, AWI designed a special retention program (the "EMPLOYEE
RETENTION PROGRAM") for the Key Employees and sought Bankruptcy Court approval
of the program. The Employee Retention Program is comprised of annual cash
retention payments for certain Key Employees, a severance benefit plan, the
assumption of certain (and the ability to enter into new) change in control
agreements and an employment agreement, and the continued maintenance of
customary incentive compensation plans in which the Key Employees participate,
including an annual incentive plan for key managers and senior level executives
and a long-term cash incentive plan.
In addition, during the course of the Chapter 11 Case, AWI sought and obtained
the approval of the Bankruptcy Court to assume AWI's indemnification obligations
to its officers and directors, as well as officers and directors of Holdings. In
addition, counsel for the board of directors of Holdings is continuing to hold a
fund of $1 million to fund any unpaid professional fees of Holdings' board or
other obligations to Holdings' directors.
2. VENDOR AND CUSTOMER ISSUES.
Following the commencement of the Chapter 11 Case, AWI took certain actions in
the Bankruptcy Court, including obtaining orders of the Bankruptcy Court, that
authorized AWI to (i) pay claims of critical trade vendors (the "CRITICAL
VENDORS") that supply AWI with essential materials and services; (ii) provide
postpetition deposits with the Critical Vendors and other suppliers to secure
payment for postpetition materials; (iii) pay Claims of prepetition common
carriers, warehouses, and holders of mechanics' liens; (iv) pay prepetition
Claims held by certain building products distributors through which AWI sells
the majority of its vinyl and laminate flooring products, residential
ceiling/grid products, and installation/accessory products; (v) honor certain
20
customer warranty programs in accordance with its prepetition practices and
honor any postpetition obligations in respect thereof; and (vi) implement global
procedures for resolving and paying valid reclamation claims.
3. THE DIP CREDIT FACILITY.
In order to fund its ongoing business operations during the pendency of the
Chapter 11 Case, AWI, Nitram and Desseaux entered into a debtor in possession
financing facility (the "DIP CREDIT FACILITY") with JPMorgan Chase Bank
("JPMORGAN CHASE" or the "AGENT"), as agent for a syndicate of financial
institutions, including JPMorgan Chase (collectively, the "LENDERS"). The terms
of the DIP Credit Facility are memorialized in a Revolving Credit and Guaranty
Agreement dated as of December 6, 2000, as amended from time to time (the
"CREDIT AGREEMENT").
The following are the major elements of the DIP Credit Facility:
>> The DIP Credit Facility originally provided for a total
commitment (the "COMMITMENT") of $400 million. The Commitment
was available for working capital and other general corporate
purposes and for the issuance of standby and import documentary
letters of credit for purposes satisfactory to the Agent
(collectively, the "LETTERS OF CREDIT"). Through subsequent
amendments, AWI and the Lenders agreed to reduce the Commitment
to $75 million and limit it to Letters of Credit.
>> The DIP Credit Facility contemplates that all obligations (i)
are secured by a perfected first priority lien on all cash
maintained in the Letter of Credit Account (as such term is
defined in the Credit Agreement) and (ii) will constitute
superpriority obligations over any and all administrative
expenses of the kind specified in section 503(b) or 507(b) of
the Bankruptcy Code, subject in each case only to (x) in the
event of the occurrence of an Event of Default (as such term is
defined in the Credit Agreement), the payment of allowed and
unpaid professional fees and disbursements incurred by AWI,
Nitram, Desseaux or any of the Committees in an aggregate amount
not to exceed $5 million, and (y) the payment of bankruptcy
filing fees.
>> The DIP Credit Facility originally provided that the sum of the
aggregate outstanding amount of direct borrowings plus undrawn
amount of outstanding Letters of Credit issued for the account
of AWI would at no time exceed the borrowing base, which
included inventory, receivables and certain other assets of AWI
meeting certain eligibility standards determined by the Agent.
>> The term of the DIP Credit Facility, as amended, extends through
December 6, 2003.
As of September 30, 2002, Armstrong had cash on hand in excess of $369 million.
As a result, since the Commencement Date, AWI has not drawn on the DIP Credit
Facility. In the ordinary course of its business, however, AWI has requested the
Lenders from time to time to issue Letters of Credit. As of September 30, 2002,
Letters of Credit in the aggregate face amount of approximately $24.7 million
had been issued and remained outstanding under the DIP Credit Facility.
In the fourth quarter of 2002, AWI and the Lenders further amended the DIP
Credit Facility. The latest amendment (i) extended the maturity date under the
Credit Agreement to December 6, 2003, (ii) terminated all obligations of the
Lenders to make loans or advances and limited the Commitment under the DIP
Credit Facility to issuances of Letters of Credit, (iii) reduced the total
Commitment from $200 million to $75 million and (iv) suspended certain reporting
requirements under the Credit Agreement. By order dated October 29, 2002, the
Bankruptcy Court authorized and approved such amendment.
21
4. AWI'S EXCLUSIVE RIGHT TO FILE AND CONFIRM A PLAN.
The Bankruptcy Court has approved five extensions of the periods during which
AWI has the exclusive right to file and confirm a chapter 11 plan under section
1121(a) of the Bankruptcy Code (the "Exclusive Periods"). The most recent order
of the Bankruptcy Court, entered on September 4, 2002, provides that the
Exclusive Periods are extended through and including April 4, 2003 (for filing a
plan) and June 3, 2003 (for confirmation of a plan).
5. THE BAR DATE (FOR CLAIMS OTHER THAN ASBESTOS PERSONAL INJURY
CLAIMS).
On January 30, 2001, AWI filed with the Bankruptcy Court its schedules of assets
and liabilities, except for Schedule F (Creditors Holding Unsecured Claims
Against the Estate), which was filed on March 21, 2001, pursuant to the
Bankruptcy Court's order dated February 21, 2001 extending AWI's time to file
such schedule (together, the "Schedules"). AWI listed an aggregate of
approximately 181,198 Claims on its Schedules.
On March 30, 2001, AWI filed a motion seeking an order fixing a bar date for the
filing of proofs of claim against AWI's estate for, essentially, all Claims
except those for personal injury based on asbestos exposure. By order dated
April 18, 2001 (the "BAR DATE ORDER"), the Bankruptcy Court set a bar date of
August 31, 2001 (the "BAR DATE"). AWI mailed notices of the Bar Date and proof
of claim forms to all the entities identified in the Schedules, among others
(the "BAR DATE NOTICE"). Notice of the Bar Date also was published on two
occasions in the national editions of The New York Times, The Wall Street
Journal, and The USA Today, as well as in at least fourteen trade publications.
Pursuant to the Bar Date Order, each creditor holding a prepetition claim was
required, subject to certain limited exceptions, to file a proof of claim on or
before the Bar Date. Specifically, as provided in the Bar Date Notice, the
following types of creditors were not required to file proofs of claim on or
before the Bar Date:
>> creditors holding claims that already had been properly filed
with the clerk of the Bankruptcy Court using a claim form that
substantially conforms to Official Form No. 10;
>> creditors holding claims that (a) are listed on the Schedules,
(b) are not described in the Schedules as "disputed,"
"contingent," or "unliquidated," and (c) are in the same amount
and of the same nature as set forth in the Schedules;
>> creditors asserting an Administrative Expense against AWI's
chapter 11 estate under section 503(b) or 507(a) of the
Bankruptcy Code;
>> creditors holding Claims of AWI or a subsidiary of AWI against
another debtor or another subsidiary of a debtor;
>> creditors holding Claims that had been Allowed by an order of
the Bankruptcy Court entered on or before the Bar Date;
>> creditors holding asbestos-related personal injury Claims (other
than a claim for contribution, indemnity, reimbursement, or
subrogation);
>> current employees of AWI for prepetition benefits or deferred
compensation; and
>> creditors holding Claims that had been paid in full by AWI prior
to the Bar Date.
As discussed below in Section IV.C.6, entitled "THE CHAPTER 11 CASE --
Significant Events During the Chapter 11 Case -- Asbestos Property Damage
Claims," the Bankruptcy Court subsequently extended the Bar Date for Asbestos
Property Damage Claims to March 20, 2002.
22
2,655 proofs of claim against AWI, not including Asbestos Personal Injury Claims
or Asbestos Property Damage Claims, either were received by Trumbull or filed
with the clerk of the Bankruptcy Court on or before the Bar Date. In addition,
137 additional proofs of claim, not including Asbestos Personal Injury Claims or
Asbestos Property Damage Claims, were filed against AWI after the Bar Date.
Thus, excluding Asbestos Personal Injury Claims and Asbestos Property Damage
Claims, as of November 15, 2002, a total of 2,792 proofs of claim have been
filed against AWI in the Chapter 11 Case. For information regarding the Asbestos
Property Damage Claims filed against AWI in the Chapter 11 Case, see Section
IV.C.6, entitled "THE CHAPTER 11 CASE -Significant Events During the Chapter 11
Case - Asbestos Property Damage Claims."
Since the Bar Date, AWI, together with its professionals, has engaged in an
extensive process of reviewing and reconciling the proofs of claim asserted
against AWI in the Chapter 11 Case. To date, the Debtors have filed and
prosecuted four omnibus objections to Claims, as well as several additional
objections addressing specific Claims. In addition, the Debtors have engaged in
discussions with a wide variety of Claimants regarding, among other things, the
withdrawal of Claims where appropriate.
As a result of these efforts, the Debtors have successfully disallowed and
expunged a total of 1,207 Claims asserted against AWI, leaving a total of 1,585
proofs of claim outstanding against AWI in the aggregate amount of approximately
$1.89 billion, not including Asbestos Personal Injury Claims, Asbestos Property
Damage Claims or Claims listed on the Schedules ("SCHEDULED CLAIMS"). In
addition, pursuant to the first three omnibus objections to claims, AWI has
obtained orders from the Bankruptcy Court reclassifying as Unsecured Claims
approximately 119 Claims that were initially asserted as priority or filed as
secured or administrative expense Claims.
Furthermore, in connection with each of the omnibus objections to Claims filed
by AWI, as well as settlements and compromises between AWI and certain of the
claimants, AWI has resolved and agreed to allow a total of 264 Claims in the
aggregate amount of approximately $8.37 million (originally filed in the amount
of $8.69 million).
In addition to the foregoing, of the 8,346 Scheduled Claims that were not
scheduled as Asbestos Personal Injury Claims approximately 4,810 Scheduled
Claims (in the aggregate scheduled amount of approximately $214.76 million) were
listed as contingent, disputed and/or unliquidated, were not superseded by a
subsequent timely-filed proof of claim and, therefore, are now deemed null and
void. Moreover, 1,344 Scheduled Claims (totaling approximately $1.5 billion)
have been superseded by a subsequent filed proof of claim. In addition, on or
about __________, 2002, the Debtors filed an amended Schedule F (Unsecured
Claims) with the Bankruptcy Court pursuant to which an additional [____] of
these 8,346 Scheduled Claims in the total amount of [$__________] have been
eliminated (amended to $0.00), and [____] of such Scheduled Claims have been
reduced by a total amount of [$__________]. Pursuant to the Bar Date Order,
however, the holders of such amended Scheduled Claims have until ______________
[INSERT DATE] to file a proof of claim if they disagree with the amended amount
of their Scheduled Claims.
AWI expects the total amount of Allowed Unsecured Claims to be treated in Class
6 will be approximately $1.65 billion as a result of AWI's continued claims
reconciliation and objection process.
Effective on September 1, 2002, the Bankruptcy Court amended its Local Rules for
Bankruptcy Practice and Procedure (the "LOCAL RULES") by adding Local Rule
3007-1, which governs omnibus objections to claims. Pursuant to the new Local
Rule, among other things, all substantive objections (as defined in Local Rule
3007-1) that apply to a particular proof of claim must be asserted in a single
omnibus objection. With respect to non-substantive objections, however, multiple
objections may be filed regarding a particular proof of claim. Due to the volume
of Claims filed against AWI in the Chapter 11 Case and the significant amount of
time required for AWI and its professionals to analyze and reconcile such
Claims, on or about October 29, 2002, AWI and its affiliated Debtors filed a
Motion for an Order Granting Relief from Certain Aspects Relating to the Filing
of Omnibus Objections to Claims (the "OMNIBUS CLAIMS MOTION"), pursuant to which
the Debtors have requested relief from that portion of Local Rule 3007-1
limiting the Debtors' substantive objections to claims. At a hearing held by the
Bankruptcy Court on November 22, 2002, the Bankruptcy Court denied the relief
requested by the Debtors in the Omnibus Claims Motion, other than to clarify
that the mere attachment of a notice or other pleading to a proof of claim does
not constitute "documentation" attached to a proof of claim. As a result of the
denial of the Omnibus Claims Motion, the modified claims objection procedures
imposed by the Local Rules are likely to add delay to AWI's claims
reconciliation process.
23
Basic information regarding Claims that have been scheduled and filed in the
Chapter 11 Case can be accessed using the following website:
www.trumbull-services.com.
6. ASBESTOS PROPERTY DAMAGE CLAIMS.
(A) AWI'S LIMITED INVOLVEMENT WITH ASBESTOS PROPERTY DAMAGE CLAIMS
Prior to the commencement of the Chapter 11 Case, AWI had very limited
involvement with Asbestos Property Damage Claims. Unlike Asbestos Personal
Injury Claims asserted against AWI, AWI's liability for Asbestos Property Damage
Claims generally is not the result of AWI's insulation installation contracting
activities. Instead, Asbestos Property Damage Claims that have been actively
pursued against AWI have concerned primarily resilient floor covering products
manufactured and sold by AWI prior to 1983.
Beginning sometime in the 1950's through 1983, AWI manufactured three types of
resilient floor covering products that contained asbestos. First, until 1972,
AWI manufactured a low priced asphalt floor tile that contained asbestos. There
are few claims involving such asphalt tiles. Any such asphalt tiles are now at
least 30 years old in any building where they still exist. Second, after World
War II AWI began to manufacture and market a new line of sheet flooring, called
Corlon, made from vinyl plastic. The Corlon sheet flooring contains no asbestos,
but AWI also manufactured a Hydrocord felt backing material containing asbestos
that could be used to lay the vinyl sheet flooring directly over on-grade
concrete. AWI discontinued the use of asbestos in the Hydrocord backing in 1983.
Few property damage claims have been asserted with respect to the Hydrocord
backing. This product is not subject to any abrasion unless the vinyl surface
layer, which does not contain asbestos, has completely worn through. Third,
until 1983 AWI manufactured a vinyl tile, called Excelon, that contained
asbestos. Most property damage claims that have involved AWI products are
related to Excelon. It was a popular product that has held up well over the
years and is still present in many buildings.
In contrast to Asbestos Personal Injury Claims, as of the Commencement Date,
only five asbestos property damage actions were commenced against AWI from 1993
to the Commencement Date. Moreover, as of the Commencement Date, only six of the
273 asbestos property damage cases brought against AWI since the early 1980's
remained unresolved, and of those six only three were actively being pursued.
Furthermore, as to the Asbestos Property Damage Claims that were resolved during
the more than 20 year period prior to the Commencement Date, the total amount
paid by AWI on account of such claims was less than $10 million.
(B) THE ASBESTOS PD BAR DATE
On or about August 3, 2001, the Asbestos PD Committee filed a motion (the
"MOTION TO EXTEND") pursuant to which it sought to (i) extend the Bar Date to
enable holders of alleged Asbestos Property Damage Claims to have additional
time to file proofs of claim and (ii) compel AWI to engage in an extensive,
nationwide noticing program. By order dated August 27, 2001, the Bankruptcy
Court extended the Bar Date for Asbestos Property Damage Claims until the
disposition of the Motion to Extend.
At a hearing held on March 1, 2002, the Bankruptcy Court ruled that (i) the
deadline for certain law firms to file a class proof of claim on behalf of a
putative class of holders of alleged Asbestos Property Damage Claims was March
8, 2002, (ii) the deadline for all other holders of Asbestos Property Damage
Claims to file proofs of claim in the Chapter 11 Case was March 1, 2002, and
(iii) the notice of the Bar Date provided by AWI was consistent and complied
with applicable law and satisfied all requirements of due process. The ruling
was memorialized in an order of the Bankruptcy Court entered on or about March
18, 2002 (the "ORDER DENYING THE MOTION TO EXTEND"). The Bankruptcy Court
subsequently modified its Order Denying the Motion to Extend by order dated May
21, 2002, ruling that the deadline for all holders of Asbestos Property Damage
Claims to file proofs of claim in the Chapter 11 Case was March 20, 2002.
As of December 18, 2002, a total of 581 Asbestos Property Damage Claims,
totaling approximately $877 million, had been asserted against AWI. As a result
of the claims reconciliation efforts expended by the Debtors to date, however,
the Debtors have successfully disallowed and expunged, or the Claimant has
withdrawn, a total of 120 Asbestos Property Damage Claims (in the aggregate
amount of approximately $70.4 million), leaving a total of 461 Asbestos Property
24
Damage Claims outstanding against AWI in the aggregate amount of approximately
$806.6 million.
(C) THE CLASS ACTION PROCEEDING.
On August 17, 2001, certain holders of Asbestos Property Damage Claims (the
"ASBESTOS PD PLAINTIFFS") commenced a class action adversary proceeding in the
Bankruptcy Court and filed a motion seeking certification of a nationwide class
for damages and remediation and a separate nationwide class for testing, in each
case consisting of all property owners (residential and otherwise) that have AWI
asbestos-containing flooring products in their structures. On October 1, 2001,
AWI filed a motion to dismiss the class action proceeding on the grounds that
(i) the commencement of the class action proceeding violated the automatic stay
imposed by section 362 of the Bankruptcy Code, (ii) the putative class action
representatives failed to state claims upon which relief could be granted, and
(iii) the putative class action representatives failed to state a claim for
class relief. In addition, on April 12, 2002, AWI and the Asbestos PI Claimants'
Committee filed separate objections to the motion for class certification.
After a one-day trial on the issue of class certification, by order dated July
2, 2002, the Bankruptcy Court denied the motion for class certification. On or
about July 12, 2002, the Asbestos PD Plaintiffs filed a motion for leave to
appeal the Bankruptcy Court's denial of their motion for class certification.
AWI filed a memorandum of law in opposition to such motion for leave to appeal
on July 26, 2002. By order dated October 4, 2002, the District Court denied the
motion for leave to appeal.
(D) THE DAUBERT HEARING.
On September 26, 2002 and September 27, 2002, the Bankruptcy Court conducted a
Daubert hearing on the issue of what evidence holders of Asbestos Property
Damage Claims should be required to present to demonstrate proof of property
damage in their structures as a result of the presence of AWI
asbestos-containing floor products in such structures. In the Daubert hearing,
AWI challenged the use of the "settled dust method" proposed by the claimants as
a method for determining proof of property damage in their structures. On
October 22, 2002, the Bankruptcy Court granted AWI's requested relief and ruled
that the "settled dust method" is not a scientifically valid method for proving
asbestos property damage from flooring in a building.
(E) STATUS CONFERENCE ON ASBESTOS PROPERTY DAMAGE CLAIMS FOLLOWING
THE DAUBERT RULING.
Following the Daubert ruling, the Bankruptcy Court conducted a status conference
on November 1, 2002, after which the Bankruptcy Court entered an order regarding
required product identification proof for Asbestos Property Damage Claims.
Thereafter, on December 5, 2002, the Court entered an Amended Order Regarding
Required Product Identification for Asbestos Property Damage Claims, which
requires each holder of an Asbestos Property Damage Claim to submit the
following information to AWI's counsel no later than February 10, 2003: (i) the
name and address of each building (or other discrete location) alleged to
contain asbestos-containing products manufactured or sold by AWI for which an
Asbestos Property Damage Claim is asserted; (ii) the type of asbestos-containing
product for which an Asbestos Property Damage Claim is asserted; and (iii) the
basis, including all documentation, upon which the claimant has identified an
asbestos-containing product manufactured or sold by AWI. Such order further
provides that any Asbestos Property Damage Claim for which such information is
not provided shall be disallowed in its entirety upon further order of the
Bankruptcy Court.
7. INSURANCE COVERAGE ISSUES.
Throughout the Chapter 11 Case, AWI has been involved in litigation and
negotiations concerning the scope of liability insurance coverage available to
satisfy the various claims against AWI.
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(A) MAERTIN LITIGATION.
Prior to the Commencement Date, AWI entered into settlement agreements (the
"MAERTIN SETTLEMENT AGREEMENTS") with a group of non-asbestos personal injury
plaintiffs (the "MAERTIN PLAINTIFFS") in respect of the Maertin Plaintiffs'
allegations that they had sustained injuries arising from exposure to
polychlorinated biphenyls allegedly found on ceiling material purportedly
manufactured by AWI. Pursuant to the Settlement Agreements, the Maertin
Plaintiffs settled their claims against AWI for an agreed amount (the "MAERTIN
SETTLEMENT AMOUNT") to be paid by AWI on January 21, 2001.
On September 20, 2000, AWI filed an action (the "MAERTIN COVERAGE CASE") in the
United States District Court for the Eastern District of Pennsylvania against
certain insurers (collectively, the "INSURERS") seeking a declaration that
certain insurance policies issued by the Insurers in favor of AWI (collectively,
the "MAERTIN INSURANCE POLICIES") provided coverage amounts to be paid pursuant
to the Settlement Agreements. Shortly after the filing of the Maertin Coverage
Case, AWI engaged in settlement negotiations with the Insurers to resolve the
payment obligations of the Insurers under the Maertin Settlement Agreements.
These negotiations were not successful, and on February 2, 2001, the Maertin
Coverage Case was stayed until such time as all parties to the Maertin Coverage
Case agreed or until ordered by the court overseeing the Chapter 11 Case or the
court before which the Maertin Coverage Case was pending.
Due to the commencement of the Chapter 11 Case, AWI was prohibited from paying,
and the Maertin Plaintiffs were stayed from collecting, the Maertin Settlement
Amount. On March 29, 2001, the Maertin Plaintiffs filed a motion (the "MAERTIN
STAY RELIEF MOTION") seeking to modify the automatic stay to permit them to
enforce their rights under the Maertin Settlement Agreements and, in particular,
to recover the Maertin Settlement Amount from the proceeds of the Maertin
Insurance Policies (the "MAERTIN INSURANCE PROCEEDS"). On December 10, 2001, the
District Court entered an order in connection with the Maertin Stay Relief
Motion (the "MAERTIN STAY RELIEF ORDER"), pursuant to which the Maertin
Plaintiffs were authorized to proceed with their action. On December 18, 2001,
AWI filed a notice of appeal of the Maertin Stay Relief Order to the United
States Court of Appeals for the Third Circuit (the "MAERTIN APPEAL"). On or
about July 2, 2002, AWI filed its brief in the Maertin Appeal. The Maertin
Plaintiffs filed their response brief on November 1, 2002. Oral argument in the
Maertin Appeal is scheduled to occur in February of 2003.
On December 26, 2001, AWI filed a motion (the "MAERTIN STAY PENDING APPEAL
MOTION") requesting that the Bankruptcy Court stay the Maertin Stay Relief Order
pending the resolution of the Maertin Appeal. After extensive negotiations with
the Maertin Plaintiffs, AWI and the Maertin Plaintiffs entered into a
stipulation submitted on March 22, 2002, resolving the Maertin Stay Pending
Appeal Motion (the "MAERTIN STAY PENDING APPEAL STIPULATION"). The Maertin Stay
Pending Appeal Stipulation provides that the Maertin Plaintiffs are stayed from
taking any action to collect any claims, judgment or settlement against AWI or
its assets, other than with respect to the Maertin Insurance Policies or the
Maertin Insurance Proceeds.
On or about April 12, 2002, International Insurance Co. ("INTERNATIONAL") filed
an objection to the Maertin Stay Pending Appeal Stipulation on the grounds that
it did not prohibit the Maertin Plaintiffs from seeking recovery from the
Maertin Insurance Proceeds. On May 3, 2002, the Bankruptcy Court entered an
order approving the Maertin Stay Pending Appeal Stipulation (the "MAERTIN STAY
PENDING APPEAL ORDER") over International's objections. On May 13, 2002,
International filed a motion to reconsider the Maertin Stay Pending Appeal
Order, which motion subsequently was denied by the Bankruptcy Court on July 19,
2002.
On or about July 26, 2002, International filed a Notice of Appeal from the
Maertin Stay Pending Appeal Order. On or about July 29, 2002, OneBeacon
Insurance Company also filed a Notice of Appeal from the Maertin Stay Pending
Appeal Order (collectively, with the Notice of Appeal filed by International,
the "INSURERS' APPEAL"). On August 26, 2002, AWI filed a motion to dismiss the
Insurers' Appeal for lack of subject matter jurisdiction (the "MOTION TO
DISMISS") on the grounds that the Maertin Stay Pending Appeal Order was an
interlocutory order. On or about August 29, 2002, AWI and the Insurers entered
into a stipulation staying the briefing on the Insurers' Appeal until the
resolution of the Motion to Dismiss. On September 27, 2002, the Insurers filed a
response to the Motion to Dismiss (the "INSURERS' RESPONSE"). On October 7,
2002, AWI filed a reply to the Insurers' Response. The Motion to dismiss is sub
judice.
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(B) CENTURY ADVERSARY PROCEEDING.
Prior to the commencement of the Chapter 11 Case, AWI entered into a settlement
agreement (the "CENTURY SETTLEMENT AGREEMENT") with Century Indemnity Company,
as successor to Insurance Company of North America ("CENTURY"), to settle
disputes and coverage issues with respect to asbestos personal injury claims
under certain insurance policies (the "CENTURY POLICIES"). The Century
Settlement Agreement permits Century to stretch out payments due to a trust
established in connection with the Century Settlement Agreement (the "CENTURY
TRUST"). AWI agreed to indemnify Century against certain claims that may be
asserted directly against Century and that would have been covered under the
Century Policies.
Although Century timely made its first payment to the Century Trust in
accordance with the Century Settlement Agreement, Century failed to make a
substantial payment that was due on or before January 5, 2001 (the "2001
INSTALLMENT PAYMENT"). On February 12, 2001, Century filed a motion which, among
other things, sought to compel AWI to assume the Century Settlement Agreement
(the "CENTURY MOTION TO COMPEL"). On or about February 28, 2001, AWI filed a
response objecting to the Century Motion to Compel and requesting that the
Bankruptcy Court direct Century to make the outstanding 2001 Installment Payment
and continue to make all future payments due to the Century Trust. By order
dated June 13, 2001, the Bankruptcy Court denied the Century Motion to Compel
without prejudice and ordered Century to make payments due to the Century Trust.
However the Bankruptcy Court did not rule on the dispute between the parties as
to whether the Century Settlement Agreement is an executory contract. On June
21, 2001, Century remitted the 2001 Installment Payment to the Century Trust.
On or about January 3, 2002, Century commenced a proceeding (the "CENTURY
ADVERSARY PROCEEDING") against AWI, the CCR (as defined below) and Chase Bank of
Texas, N.A., as Trustee pursuant to which Century sought a declaration that (i)
Century need not make further payments due under the Century Settlement
Agreement, (ii) AWI must indemnify Century for certain claims asserted against
Century in an action pending in federal district court, and (iii) Century may
offset any indemnification claim against AWI against payments required to be
made by Century to the Century Trust (the "CENTURY COMPLAINT").
On August 29, 2001, Century filed a proof of claim (the "CENTURY PROOF OF
CLAIM") in the Chapter 11 Case pursuant to which Century asserted that it holds
a secured claim against AWI's estate in an unliquidated amount and that its
claim is secured by payments under a settlement agreement. On February 6, 2002,
AWI filed an objection to the Century Proof of Claim pursuant to section
502(e)(1)(B) of the Bankruptcy Code. On or about March 3, 2002, the Bankruptcy
Court entered an order granting Century's motion to consolidate the Century
adversary proceeding with the objection.
On or about February 6, 2002, AWI filed a Motion to Dismiss (the "CENTURY MOTION
TO DISMISS") against Century. Following the Bankruptcy Court's denial of the
Century Motion to Dismiss, AWI filed its answer, affirmative defenses, and
counterclaim (the "CENTURY ANSWER") to the Century Complaint on or about June
27, 2002. On or about October 24, 2002, Century filed a Motion to Dismiss the
Counterclaim asserted in the Century Answer (the "CENTURY MOTION TO DISMISS
COUNTERCLAIM"). AWI filed a response to the Century Motion to Dismiss
Counterclaim by November 21, 2002.
On or about November 12, 2002, the CCR filed its answer to the Century
Complaint. In such answer, the CCR asserted certain cross claims against AWI.
These cross claims, and AWI's counterclaims against the CCR in the Century
Adversary Proceeding, are discussed more fully in Section IV.C.8(c), entitled,
"THE CHAPTER 11 CASE - Significant Events During the Chapter 11 Case -
Litigation Involving the Center for Claims Resolution - The CCR's Cross Claims,
and AWI's Counterclaims, in the Century Adversary Proceeding."
(C) LIBERTY MUTUAL ARBITRATION/LITIGATION.
AWI and Liberty Mutual Insurance Company ("LIBERTY MUTUAL") are involved in (i)
a pending alternative dispute resolution ("ADR") proceeding under the Agreement
Concerning Asbestos Related Claims dated June 19, 1985 (the "Wellington
Agreement") and (ii) a pending lawsuit in the United States District Court for
the Eastern District of Pennsylvania (the "PENNSYLVANIA LAWSUIT"). Both
proceedings relate to disputes about insurance coverage for Asbestos Personal
Injury Claims.
27
In the ADR, which was initiated in 1996, AWI is seeking a ruling that a
substantial majority of the Asbestos Personal Injury Claims that have been
asserted against it are "non-products" or general liability claims, which are
not within the definition of "products" or "completed operations hazards," as
those terms are defined in the insurance policies that Liberty Mutual issued to
AWI for the period from 1973 through 1981. The Liberty Mutual policies that were
in effect from 1973 through 1976 provide $40 million in coverage, plus defense
costs, for settlements and judgments incurred in connection with non-products
claims. The Liberty Mutual policies in effect for the period from 1977 through
1981 have no aggregate limit for non-products claims.
On January 29, 2002, a final judgment was issued in AWI's favor at the
conclusion of the trial phase of the ADR. Liberty Mutual subsequently appealed
from that final judgment to a panel of three appellate arbitrators pursuant to
the Wellington Agreement's ADR rules. The ADR appeal has been fully briefed.
Oral argument in the ADR appeal was originally scheduled to take place on
October 8, 2002, but that date was postponed because one of the appellate
arbitrators needed to be replaced. Oral argument has been rescheduled to take
place on March 11, 2003.
In the Pennsylvania Lawsuit, which was filed on July 1, 2002, AWI is seeking a
declaratory judgment with respect to certain issues concerning the Liberty
Mutual policies in effect from 1977 through 1981 that were not resolved in the
pending ADR. These issues include: (i) Liberty Mutual's relatively recent effort
to obtain reformation of the deductible and aggregate limit provisions of its
policies in effect from 1977 through 1981 to make them apply to all Asbestos
Personal Injury Claims and not, as written, only to products and completed
operations hazard claims; (ii) Liberty Mutual's relatively recent assertion that
all of the Asbestos Personal Injury Claims constitute a single occurrence for
purposes of the per-occurrence limits of its policies; (iii) the manner in which
AWI is entitled under the Wellington Agreement to expand its coverage block so
as to obtain coverage from Liberty Mutual's 1977 policy; and (iv) disputes about
the extent to which, if at all, Liberty Mutual will be entitled to collect
additional premiums in the event that it provides coverage for Asbestos Personal
Injury Claims under its policies in effect from 1977 through 1981.
On July 18, 2002, Liberty Mutual filed a motion with the Bankruptcy Court
requesting that the automatic stay be modified to allow it to file counterclaims
against AWI in the Pennsylvania Lawsuit ("LIBERTY MUTUAL'S STAY RELIEF MOTION").
Specifically, Liberty Mutual sought permission to file counterclaims setting
forth its position on some of the issues with respect to which AWI is seeking a
declaratory judgment in the Pennsylvania Lawsuit. AWI has not objected to
Liberty Mutual's request to file these proposed counterclaims. Liberty Mutual
also sought permission to file other counterclaims which, in the view of AWI,
would allow Liberty Mutual improperly to re-litigate certain issues that have
already been resolved against it in the trial phase of the ADR and are now on
appeal to the three appellate arbitrators, and AWI has objected to these
proposed counterclaims on that basis. On August 1, 2002, the Bankruptcy Court
adjourned the hearing on Liberty Mutual's Stay Relief Motion until January 24,
2003, at which time it has requested that AWI and Liberty Mutual provide a
report concerning the status of the ADR appeal.
Pursuant to a stipulation between Liberty Mutual and AWI, the Pennsylvania
Lawsuit has been temporarily suspended because the Bankruptcy Court has not yet
ruled on Liberty Mutual's Stay Relief Motion.
8. LITIGATION INVOLVING THE CENTER FOR CLAIMS RESOLUTION.
(A) SAFECO/CCR LITIGATION.
Prior to the Commencement Date, AWI was a member of The Center for Claims
Resolution (the "CCR"). The CCR was formed in 1988 by AWI and certain other
corporations (the "CCR MEMBERS") in order to have an agent to administer, settle
and manage all asbestos-related personal injury claims asserted against the CCR
Members. On or about March 28, 2000, Safeco Insurance Company of America
("SAFECO") issued a performance bond in favor of the CCR (the "SAFECO BOND"),
which related to certain group settlement agreements to resolve asbestos-related
personal injury claims that were negotiated by the CCR on AWI's behalf.
Concurrently with the execution of the Safeco Bond, AWI executed an indemnity
agreement in favor of Safeco through which AWI could become liable to Safeco for
all losses and expenses incurred by Safeco arising out of or relating to the
Safeco Bond.
On or about October 27, 2000, Safeco notified the CCR and AWI that it intended
to cancel the Safeco Bond on February 28, 2001. The CCR issued a written demand
on Safeco demanding payment on the Safeco Bond on or about February 6, 2001.
28
Safeco subsequently commenced an adversary proceeding against the CCR seeking to
enjoin the CCR from drawing on the Safeco Bond. By order dated March 8, 2001,
the Bankruptcy Court dismissed the Safeco adversary proceeding on the grounds
that Safeco lacked standing to seek such relief.
On or about April 30, 2001, AWI commenced an adversary proceeding against Safeco
and the CCR (the "SAFECO/CCR ADVERSARY PROCEEDING") to enjoin Safeco and the CCR
from taking any action with respect to the Safeco Bond. The District Court is
presiding over the Safeco/CCR Adversary Proceeding. On or about February 27,
2002, the District Court consolidated the Safeco/CCR Adversary Proceeding with
similar adversary proceedings commenced by USG Corporation and Federal-Mogul
Corporation (the "CONSOLIDATED CCR PROCEEDINGS").
The parties completed discovery in the Consolidated CCR Proceedings in August
2002 and have filed cross-motions for summary judgment with respect to the issue
of whether the CCR is entitled to draw on the Safeco Bond. The briefing with
respect to the motions for summary judgment filed in connection with this phase
of the Consolidated Safeco/CCR Adversary Proceeding was completed by the parties
on September 27, 2002. The District Court has not yet ruled on the cross-motions
for summary judgment. To the extent the CCR is permitted to draw on the Safeco
Bond, any reimbursement claim by Safeco against AWI will constitute an "Asbestos
PI Contribution Claim" and will be channeled to the Asbestos PI Trust provided
that the proceeds of the Safeco Bond are used by the CCR to pay Asbestos
Personal Injury Claims. It is AWI's expectation that, if the CCR is permitted to
draw on the Safeco Bond, the CCR will be required to use such proceeds to pay
Asbestos Personal Injury Claims.
On December 5, 2002, AWI filed a motion for leave to amend its complaint. The
proposed amended complaint adds counts seeking (1) declaratory and injunctive
relief establishing that the Safeco Bond, if drawn, may only be used to pay
certain Asbestos Personal Injury Claim obligations of AWI authorized by
agreements between the parties and the law; (2) a constructive and/or express
trust requiring the CCR to use any proceeds from the Safeco Bond that it is able
to draw for the benefit of AWI; (3) avoidance of the transfer of the Safeco Bond
as a fraudulent transfer under state law and the Bankruptcy Code; and (4) an
order requiring the CCR to turn over to AWI any indemnity funds paid by AWI to
the CCR that were not paid out to asbestos claimants providing releases of
claims against AWI. The Court has not yet ruled on this motion.
(B) CCR PREFERENCE LITIGATION.
Between September 7, 2000 and December 6, 2000 (the 90-day period prior to the
Commencement Date), AWI transferred and paid to the CCR the aggregate sum of
approximately $93.9 million in payment of invoices issued to AWI by the CCR on
July 5, 2000, August 3, 2000 and September 5, 2000. On October 8, 2002, AWI
commenced an adversary proceeding against the CCR seeking to avoid and recover
these payments pursuant to sections 547 and 550 of the Bankruptcy Code (the "CCR
PREFERENCE CLAIM"). The complaint also seeks to disallow all claims of the CCR
against AWI in the event that the Bankruptcy Court finds that the payments are
recoverable and the CCR fails to reimburse AWI for the transfers.
On November 15, 2002, the CCR served its Answer and Affirmative Defenses to the
CCR Preference Claim. The Bankruptcy Court has set a discovery cut-off date in
this proceeding of February 21, 2003 with a deadline for discovery motions of
February 7, 2003. On November 26, 2002, the CCR filed a Motion to Consolidate
the CCR Preference Claim with the Century Adversary Proceeding.
(C) THE CCR'S CROSS CLAIMS, AND AWI'S COUNTERCLAIMS, IN THE CENTURY
ADVERSARY PROCEEDING.
The CCR alleges that AWI signed certain agreements in which it allegedly
assigned to the CCR certain rights to insurance and insurance proceeds related
to asbestos-related personal injury claims. Stemming from those alleged
assignments, the CCR has asserted four cross-claim counts against AWI in the
Century Adversary Proceeding. In its cross-claims, the CCR seeks (1) declaratory
and injunctive relief establishing that the CCR has an absolute assignment of
past, present and future proceeds of certain AWI insurance policies and the
proceeds of the Century Trust and a similar trust established on AWI's behalf by
Travelers Indemnity Company and Travelers Casualty & Surety Company of America
(formerly known as The Aetna Casualty & Surety Company) (the "Insurance and
Trust Proceeds"); (2) declaratory and injunctive relief establishing that it is
29
the beneficiary of an express trust of the Insurance and Trust Proceeds; (3)
declaratory and injunctive relief establishing that it is the beneficiary of a
constructive trust of the Insurance Trust and Proceeds; and (4) declaratory
relief establishing an equitable lien on the Insurance Trust and Proceeds on the
CCR's behalf.
On December 5, 2002, AWI answered the CCR's cross-claims and asserted
counterclaims against the CCR. AWI seeks to avoid the alleged transfer of the
Insurance and Trust Proceeds and the Safeco Bond as a fraudulent transfer under
state law and the Bankruptcy Code. AWI also seeks avoidance of any transfer of
interest in rights to insurance or insurance proceeds. The CCR has not yet
responded to AWI's counterclaims. As stated above, the CCR has filed a motion to
consolidate this action with the CCR Preference Action.
9. OTHER LITIGATION.
(A) EMC ADVERSARY PROCEEDING.
On or about October 16, 2001, AWI filed a complaint against EMC Corporation
("EMC"), which sought to avoid, pursuant to sections 549(a) and 550 of the
Bankruptcy Code, certain unauthorized transfers of property of AWI's estate made
after the Commencement Date (the "EMC ADVERSARY Proceeding"). The EMC Adversary
Proceeding related to AWI's postpetition payment of a prepetition invoice it had
received from EMC for a computer product package. Pursuant to the EMC Adversary
Proceeding, AWI sought to recover the postpetition payment from EMC on the
grounds that such payment was not authorized by the Bankruptcy Code or the
Bankruptcy Court. After conducting discovery, AWI filed a motion for summary
judgment on July 25, 2002. Following the Bankruptcy Court's denial of AWI's
motion for summary judgment on August 15, 2002, the Court entered an order
setting the EMC Adversary Proceeding for trial during the week of September 23,
2002. The trial was subsequently postponed and a status conference was scheduled
for October 18, 2002. After engaging in extensive negotiations, AWI and EMC
agreed to resolve the EMC Adversary Proceeding pursuant to a settlement
agreement (the "EMC SETTLEMENT AGREEMENT"). AWI intends to seek Bankruptcy Court
approval of the EMC Settlement Agreement.
(B) AVOIDANCE ACTIONS.
The two-year period by which AWI must commence avoidance actions under sections
544, 547, and 548 of the Bankruptcy Code expires on December 6, 2002. Throughout
the course of the Chapter 11 Case, AWI has continued to investigate prepetition
transactions and assess whether such transactions should be avoided as
preferences under section 547 of the Bankruptcy Code or as fraudulent transfers
in accordance with section 544 or 548 of the Bankruptcy Code. On October 10,
2002, AWI filed a motion with the Bankruptcy Court requesting authorization to
enter into tolling agreements with parties alleged to have received prepetition
transfers from AWI in order to afford AWI sufficient time to complete its
analysis of such prepetition transactions and discuss such analysis with the
Committees and the Future Claimants' Representative. By order dated November 1,
2002, the Bankruptcy Court approved the motion and authorized AWI to enter into
the tolling agreements.
Thereafter, and prior to December 6, 2002, AWI completed its analysis of the
prepetition transfers made by AWI, including payments made by AWI to creditors
within the ninety (90) days preceding the Commencement Date. AWI discussed this
analysis with counsel for the Unsecured Creditors' Committee, the Asbestos PI
Claimants' Committee, and the Future Claimants' Representative. As a result of
these discussions, and with the approval of these constituencies, AWI
determined, other than with respect to the CCR Preference Claim, the fraudulent
transfer claims asserted against the CCR in the Century Adversary Proceeding and
the Safeco/CCR Litigation (see Section IV.C.8, entitled, "THE CHAPTER 11 CASE -
Significant Events During the Chapter 11 Case - Litigation Involving the Center
for Claims Resolution"), and one preference action against a former supplier,
not to pursue other avoidance actions.
10. SETTLEMENT OF CLAIMS.
In order to enable AWI to efficiently and economically settle numerous claims
against its estate and, thus, limit its potential liability on such claims, the
Bankruptcy Court entered an order (the "CLAIMS SETTLEMENT ORDER") on June 3,
2002, pursuant to which the Bankruptcy Court approved various guidelines and
procedures with respect to the compromise and settlement of disputed claims
asserted both by and against AWI. Specifically, the Claims Settlement Order
30
authorizes AWI to settle certain prepetition claims in a manner substantially
consistent with its prepetition practice and without the need for obtaining
Bankruptcy Court approval of certain settlements on a case-by-case basis.
The claims subject to the Claims Settlement Order include, but are not limited
to, (i) claims that have been asserted against AWI's estate by current or former
employees for alleged wrongful termination or other contractual, statutory, and
tort-based employment claims allegedly occurring prior to the Commencement Date,
(ii) tax refund claims asserted by AWI against taxing authorities, (iii) tax
assessment claims asserted against AWI by taxing authorities, and (iv) general
unsecured claims. Asbestos Personal Injury Claims and claims asserted by or
against any of AWI's "insiders" (as such term is defined in section 101(31) of
the Bankruptcy Code) are not subject to the Claims Settlement Order.
Pursuant to the Claims Settlement Order, AWI is required to file quarterly
reports with the Bankruptcy Court detailing all settlements of claims into which
it has entered during such quarter.
11. DELISTING OF HOLDINGS' COMMON STOCK AND CERTAIN OF AWI'S DEBT
SECURITIES FROM THE NEW YORK STOCK EXCHANGE.
Following the filing of the Plan, the New York Stock Exchange, Inc. determined
to suspend trading and pursue delisting of Holdings' common stock (NYSE: ACK)
and of AWI's 9.75% Debentures due April 15, 2008 and 7.45% Senior Quarterly
Interest Bonds due October 15, 2038 (NYSE: AKK). The common stock of Holdings is
now quoted on the OTC (over-the-counter) Bulletin Board ("OTCBB") with the
ticker symbol of ACKHQ. The OTCBB is a regulated quotation service that displays
real-time quotes, last sale prices, and volume information in OTC equity
securities. Information about the OTCBB may be found on the Internet at
www.otcbb.com.
31
V. THE PLAN OF REORGANIZATION
AWI believes that (i) through the Plan, Claimants will obtain a substantially
greater recovery from its estate than the recovery that would be available if
AWI's assets were liquidated under chapter 7 of the Bankruptcy Code, and (ii)
the Plan will afford AWI the opportunity and ability to continue in business as
a viable going concern and thereby preserve ongoing employment for AWI's
employees.
The Plan is annexed hereto as Exhibit "A" and forms a part of this Disclosure
Statement. The summary of the Plan set forth below is qualified in its entirety
by the more detailed provisions set forth in the Plan.
A. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS IN AWI.
The Plan classifies Claims and AWWD's Equity Interests in AWI separately and
provides different treatment for different classes of Claims and AWWD's Equity
Interests in accordance with the Bankruptcy Code. As described more fully below,
the Plan provides, separately for each class, either that Claims are unimpaired
or that holders of Claims and AWWD's Equity Interests will receive various types
of consideration (e.g., Available Cash, New Notes, New Warrants and New Common
Stock (collectively, the "REORGANIZATION CONSIDERATION")) or no distribution,
thereby giving effect to the different rights of the holders of Claims of each
class and AWWD.
1. ADMINISTRATIVE EXPENSES.
"ADMINISTRATIVE EXPENSES" are Claims constituting a cost or expense of
administration of the Chapter 11 Case allowed under section 503(b) of the
Bankruptcy Code. Such Claims include any actual and necessary costs and expenses
of preserving the estate of AWI, any expenses of professionals under sections
330 and 331 of the Bankruptcy Code, any actual and necessary costs and expenses
of operating the business of AWI, any indebtedness or obligations incurred or
assumed by AWI, as debtor in possession, in connection with the conduct of its
business, the acquisition or lease of property, the rendition of services, any
allowance of compensation and reimbursement of expenses to the extent allowed by
a Final Order under section 330 of the Bankruptcy Code, and fees or charges
assessed against the estate of AWI under section 1930 of title 28 of the United
States Code.
(A) ADMINISTRATIVE EXPENSE BAR DATE
By order dated ___________ (the "ADMINISTRATIVE EXPENSE BAR DATE ORDER"), the
Bankruptcy Court established a deadline for the filing of certain Administrative
Expenses against AWI's estate. THE DEADLINE FOR THE FILING OF ADMINISTRATIVE
EXPENSES OF THE TYPE DESCRIBED BELOW IS 5:00 P.M., PREVAILING EASTERN TIME, ON
_____________ (THE "ADMINISTRATIVE EXPENSE BAR DATE"), THE DATE THAT IS FIVE (5)
BUSINESS DAYS AFTER THE DATE SCHEDULED FOR THE COMMENCEMENT OF THE HEARING ON
CONFIRMATION OF THE PLAN. IF A HOLDER OF AN ADMINISTRATIVE EXPENSE IS REQUIRED
TO FILE A PROOF OF ADMINISTRATIVE EXPENSE AND FAILS TO FILE PROOF OF ITS
ADMINISTRATIVE EXPENSE SO THAT IT IS ACTUALLY RECEIVED AT THE ADDRESS SPECIFIED
BELOW BEFORE THE ADMINISTRATIVE EXPENSE BAR DATE, THEN SUCH ADMINISTRATIVE
EXPENSE WILL BE BARRED AND DISCHARGED, AND THE HOLDER OF SUCH ADMINISTRATIVE
EXPENSE WILL HAVE NO RIGHT TO ASSERT SUCH ADMINISTRATIVE EXPENSE AGAINST AWI,
AWI'S ESTATE, REORGANIZED AWI, OR ANY OF THE AWI PROGENY.
Not all holders of Administrative Expenses are required to file a proof of
Administrative Expense. Pursuant to the Administrative Expense Bar Date Order,
only an Entity asserting any of the following types of Claims as an
Administrative Expense must file proof of such Administrative Expense:
>> Any Administrative Expense representing personal injury,
property damage, or other tort claims against AWI, excluding
Asbestos Personal Injury Claims.
>> Any Administrative Expense for breach of an obligation -
contractual, statutory or otherwise - by AWI, including any
environmental liability (other than any environmental liability
with respect to property that is currently owned or operated by
AWI);
32
>> Any Administrative Expense for amounts incurred by AWI after the
Commencement Date in the ordinary course of AWI's business if
payment of such amounts is alleged to be overdue by at least
[(sixty (60)] days as of the Confirmation Date.
>> Any Administrative Expense incurred by AWI outside the ordinary
course of its business or on other than ordinary business terms,
except to the extent the incurrence of such Administrative
Expense was approved by the Bankruptcy Court (such as the DIP
Credit Facility Claim or any Claims under any hedging agreement
entered into after the Commencement Date) or represents fees and
expenses of professionals arising under sections 330, 331,
503(b)2, 503(b)(3), 503(b)(4), or 503(b)(5) of the Bankruptcy
Code. AWI believes that any obligation arising under a contract
entered into after the Commencement Date (other than an
indemnification or reimbursement obligation or an obligation
arising out of an alleged breach of such contract) or any
obligation to pay for goods or services received after the
Commencement Date is an obligation arising in the ordinary
course of business and pursuant to ordinary business terms, and
the holder of any such Administrative Expense does not need to
file a proof of Administrative Expense unless such
Administrative Expense is alleged to be overdue by at least
[sixty (60)] days as of the Confirmation Date.
>> Any Administrative Expense representing an employee claim
against AWI, other than a claim for wages, benefits, pension or
retirement benefits or expense reimbursement by an employee who
is employed by AWI as of the Administrative Expense Bar Date or
a grievance claim under any collective bargaining agreement to
which AWI is a party.
If, however, a claim is of the type specified above and the holder of such
alleged Administrative Expense has asserted such claim in an action commenced
against and served on AWI on or before [DATE OF ENTRY OF ADMINISTRATIVE EXPENSE
BAR DATE ORDER] in which such holder alleges that AWI's liability is predicated
upon the operation of AWI's business after the Commencement Date or otherwise
alleges that such liability should be accorded Administrative Expense status,
such holder of an alleged Administrative Expense is not required to file a proof
of Administrative Expense.
A form of proof of Administrative Expense may be obtained by downloading it from
the Internet site maintained by AWI in connection with the Plan
(www.armstrongplan.com) or by calling AWI's claims agent, Trumbull, at (860)
687-3806.
All proofs of Administrative Expense must be mailed, hand delivered, or
delivered by courier service to AWI's claims agent, Trumbull, at the following
address so that they are actually received by _________________:
Trumbull Services LLC
4 Griffin Road North
Windsor, CT 06095
(Attn: Armstrong World Industries, Inc.)
Trumbull will not accept proofs of Administrative Expense by facsimile or any
electronic means.
(B) ALLOWANCE OF ADMINISTRATIVE EXPENSES
The method by which an Administrative Expense becomes Allowed under the Plan
differs depending upon the type of Administrative Expense that is being
asserted.
Pursuant to section 1.8(c)(i) of the Plan, each Administrative Expense that
represents an actual or necessary cost or expense of preserving AWI's estate or
operating the business of AWI for payment of goods, services, wages, or benefits
33
or for credit extended to AWI, as debtor in possession, will be Allowed to the
extent that such postpetition liability is reflected on AWI's books and records
as of the Effective Date. Pursuant to section 2.1 of the Plan, these
Administrative Expenses (which are intended to represent the day-to-day
obligations of AWI to its vendors, employees, and parties to contracts) will be
assumed and paid by Reorganized AWI in accordance with the terms and conditions
of the particular transactions and any agreements relating thereto.
Also included within the Administrative Expenses Allowed pursuant to section
1.8(c)(i) are the DIP Credit Facility Claims. The "DIP CREDIT FACILITY CLAIM" is
the Claim of the Lenders arising under the DIP Credit Facility. See Section
IV.C.3, entitled, "THE CHAPTER 11 CASE -- Significant Events During the Chapter
11 Case -- The DIP Credit Facility," for a description of the DIP Credit
Facility. Section 2.3 of the Plan provides that, on the Effective Date, the DIP
Credit Facility Claim will be paid, in full, in cash. Because the DIP Credit
Facility has been modified so that the Commitment is only available for the
issuance of the Letters of Credit, AWI does not expect any amounts to be due and
owing to the Lenders on the Effective Date. AWI does expect, however, that
approximately $40.0 million in face amount of Letters of Credit issued on AWI's
behalf will be outstanding as of the Effective Date. Section 2.3 of the Plan
provides that, unless otherwise agreed to by the Lenders, to the extent that any
Letters of Credit issued pursuant to the DIP Credit Facility remain outstanding
on the Effective Date, AWI will pay to the Agent Bank, for the ratable benefit
of the Lenders, cash in an amount equal to the face amount of such Letters of
Credit, which will be held by the Agent Bank for the repayment of all amounts
due in respect of such Letters of Credit. On the Effective Date, AWI expects to
replace any outstanding Letters of Credit under the DIP Credit Facility with
Letters of Credit issued under an exit facility to which Reorganized AWI and
possibly one or more of the AWI Progeny will be parties. Accordingly, AWI does
not expect to make any payments on account of the DIP Credit Facility Claim.
Any Administrative Expense that is timely asserted against AWI but disputed by
AWI (whether because AWI disputes that it has liability or because AWI disputes
that such Administrative Expense is entitled to administrative expense priority
under sections 503(b) and 507(a)(i) of the Bankruptcy Code) will only become
Allowed when a court of competent jurisdiction enters an order allowing such
Administrative Expense and such order becomes a Final Order. Moreover, if AWI
disputes that such Administrative Expense is entitled to Administrative Expense
priority, then such Administrative Expense will only become an Allowed
Administrative Expense if and to the extent the Bankruptcy Court determines, by
a Final Order, that it is entitled to administrative expense priority. The
Allowed Amount of any such Administrative Expense will be paid in full, in cash,
as soon as practicable after such Administrative Expense becomes Allowed.
The Bankruptcy Court will fix in the Confirmation Order a date for the filing
of, and a date to hear and determine, all applications for final allowances of
compensation or reimbursement of expenses under section 330 of the Bankruptcy
Code or applications for allowance of Administrative Expenses arising under
section 503(b)(2) or 503(b)(5) of the Bankruptcy Code. The Allowed Amount of all
Administrative Expenses arising under section 330, 331, 503(b)(2) or 503(b)(5)
of the Bankruptcy Code will be paid in full, in cash, (a) upon the later of (i)
the Effective Date and (ii) the date upon which any such Administrative Expense
becomes Allowed or (b) at such later date or upon such other terms as may be
mutually agreed upon between each such Administrative Expense Creditor and
Reorganized AWI.
Aside from payables that are recorded on AWI's books and records and paid in the
ordinary course of business, AWI estimates that, on the Effective Date, it will
have Administrative Expenses that may become Allowed in the following
approximate amounts:
34
NATURE OF CLAIMS ESTIMATED AMOUNT
- ---------------- ----------------
Unpaid fees and expenses of professionals retained in
the Chapter 11 Case................................. $ 18,200,000
Costs relating to post-reorganization financing..... 3,500,000
DIP Credit Facility Claims.......................... 0.00
Cash posted to secure
repayment of Letters of Credit...................... 0.00
Miscellaneous administrative expenses............... 9,200,000
-------------
TOTAL.................................. $ 30,900,000
2. PRIORITY TAX CLAIMS.
"PRIORITY TAX CLAIMS" are those Claims for taxes entitled to priority in payment
under section 507(a)(8) of the Bankruptcy Code. On the Commencement Date, the
Bankruptcy Court authorized AWI to pay most of the types of tax claims that
constitute Priority Tax Claims (with the exception of income taxes). As a
result, most of the Priority Tax Claims have been paid and resolved during the
Chapter 11 Case. AWI estimates that the amount of remaining Priority Tax Claims
that may become Allowed is $30,214.00. The following summarizes the types of
Allowed Priority Tax Claims that comprise AWI's estimate:
Income taxes......................................... $ 30,164.00
Real and personal property taxes..................... 0.00
Employment and other taxes........................... 50.00
-----------
TOTAL.................................. $ 30,214.00
Under the Plan, each holder of an Allowed Priority Tax Claim will be paid the
Allowed Amount of its Allowed Priority Tax Claim either (a) in full, in cash, on
the latest of (i) the Effective Date, (ii) the date such Allowed Priority Tax
Claim becomes Allowed, and (iii) the date such Allowed Priority Tax Claim is
payable under applicable non-bankruptcy law or (b) upon such other terms as may
be mutually agreed upon between each holder of a Priority Tax Claim and
Reorganized AWI.
3. CLASS 1: PRIORITY CLAIMS.
"PRIORITY CLAIMS" consist of those Claims that are entitled to priority in
accordance with section 507(a) of the Bankruptcy Code, other than an
Administrative Expense, DIP Credit Facility Claim or Priority Tax Claim. Such
Claims include (i) unsecured claims for accrued employee compensation earned
within ninety (90) days prior to the Commencement Date to the extent of $4,650
for each employee and (ii) contributions to employee benefit plans arising from
services rendered within one hundred eighty (180) days prior to the Commencement
Date, but only for each such plan to the extent of (x) the number of employees
covered by such plan multiplied by $4,650, less (y) the aggregate amount paid to
such employees from the estate of AWI for wages, salaries, or commissions.
Because AWI obtained orders from the Bankruptcy Court that allowed AWI to
satisfy its prepetition wage claims and employee benefit obligations during the
pendency of its Chapter 11 Case, AWI believes that no unpaid Priority Claims
exist.
Although some additional claims have been filed in the Chapter 11 Case asserting
an entitlement to treatment as Priority Claims pursuant to section 507(a) of the
Bankruptcy Code, AWI believes that most of these claims do not represent valid
35
Priority Claims against AWI's estate, as such Claims either (i) assert Claims
for Administrative Expenses, (ii) will be addressed as a result of the
assumption of the underlying agreement to which they relate, (iii) have already
been paid pursuant to an order of the Bankruptcy Court, or (iv) were erroneously
filed as Priority Claims and are not properly entitled to priority pursuant to
section 507(a) of the Bankruptcy Code. The only potentially valid Priority Claim
that has been filed, and has not been already disallowed or reclassified
pursuant to an objection, is that of the U.S. Customs Service, which filed an
unliquidated claim pursuant to section 507(a)(8)(F) for any customs duties, fees
or other charges that may be due and owing with respect to approximately 1,400
unliquidated prepetition entries (the "Customs Claim"). While the validity and
amount of the Customs Claim has not yet been determined, AWI does not currently
believe that it has any liability on account of the Customs Claim.
Pursuant to the Plan, the holder of an Allowed Priority Claim will be paid the
Allowed Amount of its Allowed Priority Claim, in full, in cash, on the later of
the Effective Date and as soon as practicable after the date such Priority Claim
becomes Allowed.
Priority Claims are unimpaired under the Plan.
4. CLASS 2: SECURED CLAIMS.
"SECURED CLAIMS" are the Claims against AWI to the extent of the value of any
interest in property of the estate of AWI securing such Claim, except for the
DIP Credit Facility Claim and the COLI Claims. The class of Secured Claims
includes the Secured Claims of governmental taxing authorities for real and
personal property, the aggregate amount of which totaled $0.00 as of the
Commencement Date. It also includes certain miscellaneous Secured Claims for
items such as utilities and mechanic's liens, the aggregate amount of which
totaled $41,429 as of November 15, 2002. Because AWI received authorization to
pay most of its Secured Claims during the course of the Chapter 11 Case, AWI
believes that few valid Secured Claims still exist. One such Claim is the
Secured Claim relating to financing for certain improvements made in connection
with AWI's facility in St. Helens, Oregon. Such Claim, which has an outstanding
principal balance of $74,145, will be reinstated on the Effective Date, and AWI
will pay to the holder thereof all past due interest (estimated to total $12,975
as of the assumed Effective Date of July 1, 2003).
Although several other entities have filed Claims against AWI alleging an
entitlement to treatment as Secured Claims, AWI does not currently believe that
any of such Claims are entitled to treatment as Secured Claims pursuant to
section 506(a) of the Bankruptcy Code. Indeed, the majority of such Claims were
filed by litigation co-defendants as Secured Claims on the basis of alleged
setoff rights. However, because AWI believes that such Claims are subject to
disallowance pursuant to section 502(e)(i)(B) of the Bankruptcy Code (and will
be objecting to such Claims on that basis), AWI does not believe that any such
Claims represent valid Secured Claims. If any additional Secured Claims are
determined to exist, AWI believes that the value of such Secured Claims will be
de minimis. Although all Secured Claims are placed together in one category for
purposes of convenience, each Secured Claim will be treated as though in a
separate class for all purposes under the Plan.
In accordance with section 1124 of the Bankruptcy Code, notwithstanding any
contractual provision or applicable law that entitles the holder of an Allowed
Secured Claim to demand or receive payment of such Claim prior to the stated
maturity of such Claim from and after the occurrence of a default under the
agreements governing or instruments evidencing such Claim, such Allowed Secured
Claim will be reinstated, and AWI will (i) cure all defaults that occurred
before or from and after the Commencement Date (other than defaults of a kind
specified in section 365(b)(2) of the Bankruptcy Code), (ii) reinstate the
maturity of such Claim as such maturity existed prior to the occurrence of such
default, (iii) compensate the holder of such Claim for any damages incurred as a
consequence of any reasonable reliance by such holder on such contractual
provision or such applicable law, and (iv) not otherwise alter the legal,
equitable, or contractual rights to which the holder of such Claim is entitled.
The Secured Claims are unimpaired under the Plan.
36
5. CLASS 3: CONVENIENCE CLAIMS.
Under the Plan, a "CONVENIENCE CLAIM" is an Unsecured Claim (other than a Debt
Security Claim) in the amount of $10,000 or less or that is reduced to $10,000
at the election of the Claimant. Any Allowed Unsecured Claim in an amount equal
to or less than $10,000 automatically will be treated as a Convenience Claim.
Pursuant to the Plan, each holder of an Allowed Convenience Claim will be paid
75% of the Allowed Amount of its Allowed Convenience Claim in cash on the later
of the Effective Date and as soon as practicable after such Convenience Claim
becomes Allowed.
AWI estimates that the 75% payment with respect to Allowed Unsecured Claims of
$10,000 or less will total $3,085,000. Moreover, AWI estimates that 68 Claimants
hold Allowed Unsecured Claims (other than Debt Securities) over $10,000 and less
than or equal to $12,500, and 69 Claimants hold Allowed Unsecured Claims (other
than Debt Securities) over $12,500 and less than or equal to $16,000. These
Claimants may elect to have their Allowed Unsecured Claims treated as
Convenience Claims. AWI cannot estimate how many of these Claimants will elect
to have their Allowed Unsecured Claims treated as Convenience Claims and has not
included any Claims in excess of $16,000 in its estimate (although such
Claimants are entitled under the Plan to reduce their Unsecured Claims to
$10,000). If all of such holders of Unsecured Claims greater than $10,000 and
less than or equal to $16,000 elect to be treated as Convenience Claims, AWI
will be required to make an additional cash payment of $7,500 per claim for
total additional payments of $1,028,000. Accordingly, AWI has estimated that it
will make total cash payments with respect to Allowed Convenience Claims of
$4,113,000.
Convenience Claims are impaired under the Plan.
6. CLASS 4: ASBESTOS PROPERTY DAMAGE CLAIMS.
An "ASBESTOS PROPERTY DAMAGE CLAIM" is any Claim or remedy or liability against
AWI now existing or hereafter arising, whether or not such Claim, remedy, or
liability is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured, whether or not the facts of or legal bases therefor are known or
unknown, under any theory of law, equity, admiralty, or otherwise, for damages
for property damage, including but not limited to, the cost of inspecting,
maintaining, encapsulating, repairing, decontaminating, removing or disposing
asbestos or asbestos-containing products in buildings, other structures, or
other property arising from the installation in, presence in or removal from
buildings or other structures of asbestos or asbestos-containing products that
was or were installed, manufactured, sold, supplied, produced, distributed,
released or marketed by AWI prior to the Commencement Date, or for which AWI is
allegedly liable, including, without express or implied limitation, any such
Claims, remedies and liabilities for compensatory damages (such as proximate,
consequential, general, and special damages) and punitive damages, and any
Claim, remedy or liability for reimbursement, indemnification, subrogation and
contribution, including, without limitation, any Asbestos Property Damage
Contribution Claim. Asbestos Property Damage Claims will not include Asbestos
Personal Injury Claims.
All Allowed Asbestos Property Damage Claims will be determined and paid pursuant
to the terms, provisions, and procedures of the Asbestos PD Trust, the Asbestos
PD Trust Agreement and the Asbestos PD Claims Resolution Procedures. The sole
recourse of the holder of an Allowed Asbestos Property Damage Claim will be the
Asbestos PD Trust, and such holder will have no right whatsoever at any time to
assert its Asbestos Property Damage Claim against Reorganized AWI. On the
Effective Date, all entities will be permanently and forever stayed, restrained,
and enjoined from taking those actions specified in the Plan for the purpose of,
directly or indirectly, collecting, recovering, or receiving payment of, on, or
with respect to any Asbestos Property Damage Claims (other than actions brought
to enforce any right or obligation under the Plan, any Exhibits to the Plan, or
any other agreement or instrument between AWI or Reorganized AWI and the
Asbestos PD Trust, which actions will be in conformity and compliance with the
provisions of the Plan).
The Asbestos PD Trust will be funded with the Asbestos PD Trust Funding
Obligation. If Class 4 votes to accept the Plan, the Asbestos PD Trust Funding
Obligation will be equal to $5 million (which will be funded directly from
insurance proceeds), as provided in section 11.2 of the Plan. If Class 4 votes
to reject the Plan, the Asbestos PD Trust Funding Obligation will be equal to
the Asbestos PD Insurance Asset having a value equal to the aggregate estimated
value of all Allowed Asbestos Property Damage Claims as determined by the
Bankruptcy Court. Asbestos PD Claims in the aggregate amount of approximately
37
$877 million have been asserted against AWI's estate, in addition to those
Asbestos PD Claims that do not list a Claim amount. The vast majority of
Asbestos Property Damage Claims, however, are unsubstantiated. AWI believes that
the Asbestos Property Damage Claims are grossly overstated, and, if Class 4
rejects the Plan, and the Bankruptcy Court is required to estimate AWI's
aggregate liability on account of Asbestos Property Damage Claims, AWI intends
to request that the Bankruptcy Court estimate such liability in an amount
substantially less than $5 million.
Asbestos Property Damage Claims are impaired under the Plan.
7. CLASS 5: COLI CLAIMS.
"COLI CLAIMS" are all amounts due to Pacific Life Insurance Company for loans
made by Pacific Life Insurance Company to AWI against (and collateralized by)
certain life insurance policies for which AWI is the holder and beneficiary and
for which certain of AWI's employees are insureds. The COLI Claims do not
include similar loans that were made to AWI after the Commencement Date, which
loans will be paid by AWI and Reorganized AWI in the ordinary course of
business.
In accordance with section 1124 of the Bankruptcy Code, notwithstanding any
contractual provision or applicable law that entitles the holder of an Allowed
COLI Claim to demand or receive payment of such Claim prior to the stated
maturity of such Claim from and after the occurrence of a default under the
agreements governing or instruments evidencing such Claim, such allowed COLI
Claim will be reinstated, and AWI will (i) cure all defaults that occurred
before or from and after the Commencement Date (other than defaults of a kind
specified in section 365(b)(2) of the Bankruptcy Code), (ii) reinstate the
maturity of such Claim as such maturity existed prior to the occurrence of such
default, (iii) compensate the holder of such Claim for any damages incurred as a
consequence of any reasonable reliance by such holder on such contractual
provision or such applicable law, and (iv) not otherwise alter the legal,
equitable, or contractual rights to which the holder of such Claim is entitled.
Based upon an assumed Effective Date of July 1, 2003, AWI estimates that the
outstanding principal balance on the COLI Claims as of the Effective Date will
total approximately $19.2 million.
COLI Claims are unimpaired under the Plan.
8. CLASS 6: UNSECURED CLAIMS OTHER THAN CONVENIENCE CLAIMS.
Class 6 consists of all Allowed Unsecured Claims other than Convenience Claims.
AWI estimates that the amount of Allowed Unsecured Claims other than Convenience
Claims is approximately $1.6538 billion. This estimate does not include any
Unsecured Claims filed or scheduled with respect to retiree benefit plans
because, as described more fully in Section V.J, entitled, "THE PLAN OF
REORGANIZATION - Compensation and Benefit Programs," AWI intends to assume all
its obligations under such plans. In addition, this estimate does not include
any Unsecured Claims under any executory contracts that AWI intends to assume,
all of which Unsecured Claims will be paid as part of AWI's cure obligations
relating to such executory contracts and will be deducted from AWI's cash on
hand in calculating Available Cash. See Section V.G, entitled, "THE PLAN OF
REORGANIZATION - Executory Contracts and Unexpired Leases." Finally, the above
estimate does not include Unsecured Claims that will be treated as Convenience
Claims because they have been filed or scheduled in an amount equal to or less
than $10,000 or that AWI estimates will elect to "drop down" to Convenience
Claim treatment, as described in Section V.A.5, entitled, "THE PLAN OF
REORGANIZATION - Classification and Treatment of Claims and Equity Interests in
AWI - Class 3: Convenience Claims."
Each holder of an Allowed Unsecured Claim will receive on each Distribution Date
its Pro Rata Share of the following elements of Reorganization Consideration:
>> 34.43% of the New Common Stock,
>> 34.43% of the first $1.05 billion of (x) up to $300 million of
Available Cash and (y) the New Notes,
38
>> 60% of the first $50 million of the amount of Available Cash
remaining after making provision for the Distribution provided
in section 3.2(f)(ii)2 of the Plan and the funding of the
Asbestos PI Trust in section 10.1(b)(i)2 of the Plan,
>> 60% of the amount of New Notes equal to the difference (if
positive) of $50 million less the amount of Available Cash
remaining after making provision for the Distribution provided
in section 3.2(f)(ii)2 of the Plan and the funding of the
Asbestos PI Trust in section 10.1(b)(ii) of the Plan, and
>> 34.43% of the remaining amount of Available Cash and New Notes
after making provision for the Distribution provided in sections
3.2(f)(ii)2, 3.2(f)(ii)3 and 3.2(f)(ii)4 of the Plan and the
funding of the Asbestos PI Trust in sections 10.1(b)(ii),
10.1(b)(iii) and 10.1(b)(iv) of the Plan.
In any Distribution made to the holder of an Allowed Unsecured Claim, there
shall be deducted from such Distribution the amount of each element of the
Reorganization Consideration (computed as provided in section 3.2(f)(ii) of the
Plan) previously distributed to such holder on account of such Allowed Unsecured
Claim in any Distribution made prior thereto.
Based upon AWI's projections, the total value of the Reorganization
Consideration being distributed to Class 6 will equal approximately $1.1
billion. Assuming that total Unsecured Claims and Environmental Claims equal
approximately $1.6538 billion, AWI estimates that each holder of an Allowed
Unsecured Claim will receive a combination of New Common Stock, Available Cash
and New Notes having a value of approximately 66.5% of the amount of such
Allowed Unsecured Claim.
Unsecured Claims other than Convenience Claims are impaired under the Plan.
9. CLASS 7: ASBESTOS PERSONAL INJURY CLAIMS.
An "ASBESTOS PERSONAL INJURY CLAIM" is any Claim or remedy, liability, or Demand
against AWI now existing or hereafter arising, whether or not such Claim,
remedy, liability, or Demand is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured, or unsecured, whether or not the facts of or legal bases therefor are
known or unknown, under any theory of law, equity, admiralty, or otherwise, for
death, bodily injury, sickness, disease, or other personal injuries (whether
physical, emotional, or otherwise) to the extent caused or allegedly caused,
directly or indirectly, by the presence of or exposure (whether prior to or
after the Commencement Date) to asbestos or asbestos-containing products that
was or were installed, manufactured, sold, supplied, produced, distributed,
released, or marketed by AWI or an Entity for whose products or operations AWI
allegedly has liability or for which AWI is otherwise liable, including, without
express or implied limitation, any Claim, remedy, liability, or Demand for
compensatory damages (such as loss of consortium, wrongful death, survivorship,
proximate, consequential, general, and special damages) and punitive damages,
and any Claim, remedy, liability or Demand for reimbursement, indemnification,
subrogation and contribution (including, without limitation, any Asbestos PI
Contribution Claim), and any claim under any settlement entered into by or on
behalf of AWI prior to the Commencement Date relating to an Asbestos Personal
Injury Claim. An Asbestos Property Damage Claim or a workers' compensation claim
against AWI will not constitute an Asbestos Personal Injury Claim.
The following types of Claims and Demands are included in the definition of
Asbestos Personal Injury Claim:
>> Claims and Demands for personal injuries relating to the
asbestos-containing insulation installation operations while
such operations were conducted as a division of AWI, regardless
of when such personal injuries manifest themselves;
>> Claims and Demands for personal injuries arising out of
asbestos-containing products manufactured by AWI, including
asbestos-containing flooring products, asbestos-containing
gaskets, Armaspray, and LT Cork Covering, regardless of when
39
exposure to any such products occurs and when such personal
injuries manifest themselves;
>> Claims and Demands for personal injuries arising from exposure
to asbestos-containing products where AWI is alleged to be
liable for the conduct of another Entity as a result of AWI's
relationship with such Entity at the time of the acts giving
rise to the alleged liabilities, including Claims and Demands
relating to the activities of ACandS and NCC;
>> Claims and Demands relating to asbestos personal injuries under
settlement agreements executed by or on behalf of AWI prior to
the Commencement Date; and
>> Asbestos PI Contribution Claims, which include the following:
>> Claims and Demands by co-defendants in actions involving
asbestos-related personal injuries or wrongful death where the
co-defendants allege that AWI is liable for all or a portion of
the liabilities incurred by such co-defendants;
>> Claims and Demands by distributors of AWI's products, including
AWI's asbestos-containing flooring products, that AWI is
obligated to indemnify such distributors (as a contractual
matter or otherwise) because the products at issue are allegedly
AWI products;
>> Any Claim or Demand by the CCR or any present or former member
of the CCR arising from the payment of Asbestos Personal Injury
Claims by such Entity;
>> Claims and Demands under contractual indemnifications pursuant
to which AWI has agreed to indemnify an Entity against
asbestos-related liabilities for which AWI otherwise would have
liability or allegedly would have liability as a result of AWI's
relationship with another Entity; and
>> Any reimbursement claim by Safeco to the extent the Safeco Bond
is drawn and the proceeds applied to satisfy Asbestos Personal
Injury Claims.
In at least one instance, AWI has indemnified the purchaser of one of AWI's
subsidiaries against asbestos-related personal injury claims arising from the
operations of a plant owned by such subsidiary. At the time such subsidiary
acquired the plant, however, the plant had ceased manufacturing
asbestos-containing products and thereafter did not manufacture any
asbestos-containing products. Because AWI's indemnification obligation does not
arise out of the activities of AWI or the activities of another Entity for whose
activities AWI is alleged to be liable, AWI is treating such indemnification
claim as an Unsecured Claim and not an Asbestos Personal Injury Claim. Because
such former subsidiary already has the right to seek indemnification with
respect to any such claim from the entity that sold such plant to AWI, however,
AWI believes that such purchaser is unlikely to suffer any damages as a result
of AWI's inability to honor its contractual indemnification obligation, and AWI
intends to value such claim at a de minimis value. AWI also indemnified such
purchaser against asbestos-related personal injury claims arising from the
operations of another plant that was operated by AWI while such plant was part
of a division of AWI. Any such indemnification obligation with respect to such
plant would constitute an Asbestos PI Contribution Claim and, therefore, an
Asbestos Personal Injury Claim.
All Asbestos Personal Injury Claims will be determined and paid pursuant to the
terms, provisions, and procedures of the Asbestos PI Trust, the Asbestos PI
Trust Agreement and the Asbestos PI Trust Distribution Procedures. The sole
recourse of the holder of an Asbestos Personal Injury Claim will be the Asbestos
PI Trust, and such holder will have no right whatsoever at any time to assert
its Asbestos Personal Injury Claim against Reorganized AWI. Pursuant to the
Asbestos PI Channeling Injunction, on the Effective Date all entities will be
40
permanently and forever stayed, restrained, and enjoined from taking those
actions specified in the Plan for the purpose of, directly or indirectly,
collecting, recovering, or receiving payment of, on, or with respect to any
Asbestos Personal Injury Claims (other than actions brought to enforce any right
or obligation under the Plan, any exhibits to the Plan, or any other agreement
or instrument between AWI or Reorganized AWI and the Asbestos PI Trust, which
actions will be in conformity and compliance with the provisions of the Plan).
The Asbestos PI Trust will be funded with (i) the Insurance Asset and (ii) (a)
65.57% of the New Common Stock, (b) 65.57% of the first $1.05 billion of (x) up
to $300 million of Available Cash and (y) the New Notes, (c) 40% of the first
$50 million of Available Cash remaining after making provision for the
Distribution provided in section 3.2(f)(ii)2 of the Plan and the funding of the
Asbestos PI Trust in section 10.1(b)(ii) of the Plan, (d) 40% of an amount of
New Notes equal to the difference (if positive) of $50 million less the amount
of Available Cash remaining after making provision for the Distribution provided
in section 3.2(f)(ii)2 of the Plan and the funding of the Asbestos PI Trust in
section 10.1(b)(ii) of the Plan, and (e) 65.57% of the remaining amount of
Available Cash and New Notes after making provision for the Distribution
provided in sections 3.2(f)(ii)2, 3.2(f)(ii)3 and 3.2(f)(ii)4 of the Plan and
the funding of the Asbestos PI Trust in sections 10.1(b)(ii), 10.1(b)(iii) and
10.1(b)(iv) of the Plan. AWI estimates that the value of the assets with which
the Asbestos PI Trust will be funded, other than the Insurance Asset, will be
approximately $2.1 billion as of the Effective Date. If Class 6 votes to reject
the Plan, and the Holdings Plan of Liquidation is approved by the shareholders
of Holdings prior to the first anniversary of the Effective Date, on the later
of the date of such approval and the Effective Date, the New Warrants will be
issued to the Asbestos PI Trust, and the Asbestos PI Trust will automatically,
and without further action by the Asbestos PI Trust or approval of the Asbestos
PI Trustees, be deemed to have transferred the New Warrants to AWWD.
Asbestos Personal Injury Claims are impaired under the Plan.
10. CLASS 8: ENVIRONMENTAL CLAIMS.
"ENVIRONMENTAL CLAIMS" are those Claims as to which the treatment thereof is set
forth in an agreement by and between AWI and any party asserting a Claim against
AWI relating to alleged contamination under federal or state environmental laws
or regulations, pursuant to which agreement all or a portion of such Claim (to
the extent and subject to the limitations imposed by such agreement) may be
asserted by the holder thereof after the Effective Date, to the extent that such
agreement is approved and authorized by a Final Order of the Bankruptcy Court or
otherwise in accordance with the Claims Settlement Guidelines.
Each holder of an Environmental Claim will be entitled to treatment of its
Environmental Claim and will receive such consideration as is provided in the
settlement agreement applicable to such Environmental Claim. Without limiting
the provisions of such settlement agreement, to the extent any portion of an
Environmental Claim becomes Allowed prior to any distribution, such
Environmental Claim will be deemed to constitute, and will be treated as, an
Allowed Unsecured Claim under Class 6. The sole recourse of the holder of an
Environmental Claim will be in accordance with the rights of such holder set
forth in such settlement agreement. Nothing contained in the Plan or in any
settlement agreement relating to an Environmental Claim will constitute or be
deemed a waiver of any claim, right, or cause of action that AWI or Reorganized
AWI may have against any entity that is not a party to such settlement
agreement. AWI currently is negotiating an agreement with the Environmental
Protection Agency (the "EPA") to address AWI's alleged liability under federal
environmental laws. If such agreement is finalized and the requisite approvals
are obtained, the EPA will have a liquidated, Allowed Claim against AWI with
respect to certain offsite liabilities. Such Claim will be treated as an Allowed
Unsecured Claim for purposes of Distributions under the Plan. AWI has taken into
account its estimate of its potential liability to the EPA and to other entities
in calculating the estimated total amount of Allowed Unsecured Claims.
Environmental Claims are impaired under the Plan.
11. CLASS 9: AFFILIATE CLAIMS.
Class 9 consists of all Affiliate Claims held among AWI and its affiliates
(other than (a) any Entity in which AWI has less than a fifty percent (50%)
direct or indirect interest, (b) AWWD or (c) Holdings). The Affiliate Claims
consist principally of intercompany book entries, all of which are preserved by
the Plan. Accordingly, the Affiliate Claims are unimpaired under the Plan.
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12. CLASS 10: SUBSIDIARY DEBT GUARANTEE CLAIMS.
Class 10 consists of all Subsidiary Debt Guarantee Claims. A "SUBSIDIARY DEBT
GUARANTEE CLAIM" is any Claim against AWI arising from the guaranty by AWI of an
obligation of one or more Entities that are subsidiaries of AWI as of the date
immediately preceding the Effective Date so long as such obligation has not been
accelerated or declared in default prior to the Effective Date (and such
acceleration has not been rescinded or such default waived), other than any
Claim relating to any obligations of Nitram or Desseaux and other than any Claim
relating to obligations arising from the sale or disposition of the business,
operations, or assets of any Entity. As of the date hereof, the following
Subsidiary Debt Guarantee Claims exist:
ESTIMATED
BALANCE AS OF
BENEFICIARY PRIMARY OBLIGOR TYPE JUNE 30, 2003
----------- --------------- ---- -------------
Banc of America Leasing Armstrong Wood Products
(Robbins) ("AWP") Lease $3,729,501.00
Wachovia Bank AWP AWP Somerset Industrial $10,000,000.00
Revenue Bond
Province of Quebec Armstrong World Industries Canadian Government Loan $91,423.00
Canada Ltd. (Canadian dollars - loan is
expected to be repaid on June
30, 2003)
In accordance with section 1124 of the Bankruptcy Code, each Subsidiary Debt
Guarantee Claim will be reinstated. Accordingly, the Subsidiary Debt Guarantee
Claims are unimpaired under the Plan.
13. CLASS 11: AWWD'S EQUITY INTERESTS IN AWI.
Class 11 consists of the Equity Interests in AWI. AWWD, as the parent company of
AWI, is the sole holder of Equity Interests in AWI. Public shareholders of
Holdings do not have any direct interest in AWI, and any distribution to
Holdings' shareholders will be governed by the Holdings Plan of Liquidation. If
the Holdings Plan of Liquidation is approved by the shareholders of Holdings as
required by the Pennsylvania BCL prior to the first anniversary of the Effective
Date, AWWD, the holder of the Equity Interests in AWI, will receive the New
Warrants. If the Holdings Plan of Liquidation is not approved by the requisite
shareholders of Holdings prior to the first anniversary of the Effective Date,
AWWD will not receive any distribution. If Class 6 votes to accept the Plan,
AWWD will receive the New Warrants directly from AWI. If Class 6 votes to reject
the Plan, AWWD will not receive any distribution under the Plan from AWI's
estate, but will be deemed to have received a distribution from the Asbestos PI
Trust in accordance with section 10.1(b) of the Plan. On the Effective Date, the
certificates that previously evidenced ownership of existing AWI common stock
will be cancelled and will be null and void, and AWWD, the holder thereof, will
have no rights, and such certificates will evidence no rights.
B. CONDITIONS TO CONFIRMATION.
The Plan will not be confirmed and the Confirmation Order will not be entered
until and unless each of the following conditions to confirmation is either
satisfied or waived in writing by each of AWI, the Asbestos PI Claimants'
Committee, the Future Claimants' Representative, and, if Class 6 accepts the
Plan, the Unsecured Creditors' Committee:
42
1. The Bankruptcy Court makes the following findings, each of which
shall be contained in the Confirmation Order:
(i) With respect to any Asbestos Personal Injury Claim that
is Allowed by the Asbestos PI Trust in accordance with
the Asbestos PI Trust Agreement and the Asbestos PI
Trust Distribution Procedures, such allowance will
establish the amount of legal liability against the
Asbestos PI Trust in the Allowed amount of such Asbestos
Personal Injury Claim.
(ii) With respect to any Asbestos Property Damage Claim that
is Allowed by the Asbestos PD Trust in accordance with
the Asbestos PD Trust Agreement and the Asbestos PD
Trust Claims Resolution Procedures, such allowance will
establish the amount of legal liability against the
Asbestos PD Trust in the Allowed amount of such Asbestos
Property Damage Claim.
(iii) The Asbestos PI Permanent Channeling Injunction is to be
implemented in connection with the Plan and the Asbestos
PI Trust.
(iv) The Plan and its exhibits, including but not limited to
the transfer of the Asbestos PI Insurance Asset to the
Asbestos PI Trust, the Asbestos PI Trust Agreement, the
Asbestos PI Trust Distribution Procedures and Articles X
and XI of the Plan are a fair, equitable and reasonable
resolution of the liabilities of AWI for Asbestos
Personal Injury Claims and Asbestos Property Damage
Claims. The Plan and its exhibits, and the negotiations
that led up to them, do not violate any obligation of
AWI or breach any applicable insurance policy, agreement
or contract of AWI, including, without limitation,
obligations or duties to cooperate under any insurance
policies, contracts or agreements, any management of
claims provisions in any applicable insurance policies
or agreements or contracts pertaining thereto, or any
consent-to-assignment provisions of any applicable
insurance policies, contracts or agreements, or any
consent-to-settlement provisions of any applicable
insurance policies, agreement or contract of AWI, and
AWI's discharge and release of claims as provided in the
Plan shall neither diminish nor impair the
enforceability of any such insurance policies, contracts
or agreements.
(v) AWI does not need the consent of its insurers to
transfer the Asbestos PI Insurance Asset to the Asbestos
PI Trust. In the alternative, AWI's insurers have an
obligation not to withhold consent to such transfer
unreasonably, and the refusal to consent to such
transfer under the circumstances would be unreasonable.
(vi) If Class 4 does not accept the Plan, AWI does not need
the consent of its insurers to transfer the Asbestos PD
Insurance Asset to the Asbestos PD Trust. In the
alternative, AWI's insurers have an obligation not to
withhold consent to such transfer unreasonably, and the
refusal to consent to the transfer under the
circumstances would be unreasonable.
(vii) The Plan and its exhibits, including but not limited to
the transfer of the Asbestos PI Insurance Asset to the
Asbestos PI Trust, the Asbestos PI Trust Agreement, the
Asbestos PI Trust Distribution Procedures and Articles X
and XI of the Plan do not materially increase any
insurer's risk of providing coverage for
asbestos-related liabilities under the relevant
insurance policies, settlement agreements and/or
contracts with respect thereto as compared to the risk
that otherwise was being borne by the insurers prior to
the Effective Date.
(viii) Upon confirmation and consummation of the Plan,
including the effectuation of the transfer of the
Asbestos PI Insurance Asset, the Asbestos PI Trust will
have access to insurance coverage and/or insurance
payments pursuant to the transfer of the Asbestos PI
Insurance Asset so that the proceeds of such insurance
may be used to defend, resolve, and satisfy (subject to
any applicable policy limits) the Asbestos PI Trust's
43
obligations to defend, resolve and satisfy Asbestos
Personal Injury Claims, and no insurer will have any
insurance coverage defense based on the Plan, the
transfer of the Asbestos PI Insurance Asset, the
Asbestos PI Trust Agreement, or the Asbestos PI Trust
Distribution Procedures or allowance of claims
thereunder, or the negotiations that produced any of the
foregoing.
(ix) If Class 4 votes to reject the Plan, upon confirmation
and consummation of the Plan, including the effectuation
of the transfer of the Asbestos PD Insurance Asset, the
Asbestos PD Trust will have access to insurance coverage
and/or insurance payments pursuant to the transfer of
the Asbestos PD Insurance Asset so that the proceeds of
such insurance may be used to defend, resolve, and
satisfy (subject to any applicable policy limits) the
Asbestos PD Trust's obligations to defend, resolve and
satisfy Asbestos Property Damage Claims, and no insurer
will have any insurance coverage defense based on the
Plan, the transfer of the Asbestos PD Insurance Asset,
the Asbestos PD Trust Agreement, or the Asbestos PD
Claims Resolution Procedures or allowance of claims
thereunder, or the negotiations that produced any of the
foregoing.
(x) All insurers of AWI affording insurance coverage that is
the subject of the Asbestos PI Insurance Asset and all
insurers of AWI whose policies provide coverage for the
Asbestos Property Damage Claims addressed in Article XI
of the Plan have been given notice and an opportunity to
be heard on matters relating to the Plan and its
exhibits, and are bound by the Plan and its exhibits and
the findings of fact and conclusions of law set forth in
the Confirmation Order.
(xi) The Plan complies with section 524(g) of the Bankruptcy
Code.
(xii) In light of the benefits provided, or to be provided, to
the Asbestos PI Trust on behalf of each PI Protected
Party, the Asbestos PI Permanent Channeling Injunction
is fair and equitable with respect to the persons that
might subsequently assert Asbestos Personal Injury
Claims against any PI Protected Party.
(xiii) At the time of the order for relief with respect to AWI,
AWI had been named as a defendant in personal injury,
wrongful death and property damage actions seeking
recovery for damages allegedly caused by the presence
of, or exposure to, asbestos or asbestos-containing
products.
(xiv) The Asbestos PI Trust, as of the Effective Date, will
assume the liabilities of AWI with respect to all
Asbestos Personal Injury Claims and, upon such
assumption, Reorganized AWI and the AWI Progeny will
have no liability for any Asbestos Personal Injury
Claim.
(xv) The Asbestos PI Trust is to be funded in whole or in
part by securities of Reorganized AWI and by the
obligation of Reorganized AWI to make future payments,
including dividends.
(xvi) The Asbestos PI Trust is to own, or by the exercise of
rights granted under the Plan would be entitled to own
if specified contingencies occur, a majority of the
voting shares of AWI.
(xvii) AWI is likely to be subject to substantial future
demands for payment arising out of the same or similar
conduct or events that gave rise to the claims that are
addressed by the Asbestos PI Permanent Channeling
Injunction.
(xviii) The actual amounts, numbers and timing of the future
demands referenced in section 7.12(a)(xvii) of the Plan
cannot be determined.
44
(xix) Pursuit of the demands referenced in section
7.12(a)(xvii) of the Plan outside the procedures
prescribed by the Plan is likely to threaten the Plan's
purpose to deal equitably with claims and future
demands.
(xx) The terms of the Asbestos PI Permanent Channeling
Injunction, including any provisions barring actions
against third parties pursuant to section 524(g)(4)(A)
of the Bankruptcy Code, are set out in the Plan and in
any disclosure statement supporting the Plan.
(xxi) The Plan establishes, in Class 7 (Asbestos Personal
Injury Claims), a separate class of the claimants whose
claims are to be addressed by the Asbestos PI Trust.
(xxii) The Future Claimants' Representative was appointed as
part of the proceedings leading to the issuance of the
Asbestos PI Permanent Channeling Injunction for the
purpose of protecting the rights of persons that might
subsequently assert demands of the kind that are
addressed in the Asbestos PI Permanent Channeling
Injunction and transferred to the Asbestos PI Trust. The
Future Claimants' Representative has fulfilled his
duties, responsibilities, and obligations as the future
representative in accordance with section 524(g) of the
Bankruptcy Code.
(xxiii) Identifying each PI Protected Party in the Asbestos PI
Permanent Channeling Injunction is fair and equitable
with respect to persons that might subsequently assert
demands against each such PI Protected Party, in light
of the benefits provided, or to be provided, to the
Asbestos PI Trust by or on behalf of any such PI
Protected Party.
(xxiv) Class 7 (Asbestos Personal Injury Claims) has voted, by
at least seventy-five percent (75%) of those voting, in
favor of the Plan.
(xxv) Pursuant to court orders or otherwise, the Asbestos PI
Trust will operate through mechanisms such as
structured, periodic, or supplemental payments, pro rata
distributions, matrices, or periodic review of estimates
of the numbers and values of present claims and future
demands, or other comparable mechanisms, that provide
reasonable assurance that the Asbestos PI Trust will
value, and be in a financial position to pay, present
claims and future demands that involve similar claims in
substantially the same manner.
(xxvi) If Class 4 votes to accept the Plan, Travelers Indemnity
Company, Travelers Casualty and Surety Company and
Liberty Mutual Insurance Company are collectively
obligated under insurance policies that they issued to
AWI with inception dates prior to January 1, 1982 to
distribute on the Initial Distribution Date a total of
$5 million to the Asbestos PD Trust, and are not
entitled to obtain reimbursement of all or any part of
that amount from Reorganized AWI, including, but not
limited to, reimbursement under insurance policy
provisions relating to deductibles, premiums,
retrospective premiums or other charges.
2. Class 7 (Asbestos Personal Injury Claims) has voted, by at least
75 percent (75%) of those voting, in favor of the Plan.
3. The Confirmation Order will be, in form and substance, acceptable
to the Asbestos PI Claimants' Committee, the Future Claimants' Representative,
and, if Class 6 votes to accept the Plan, the Unsecured Creditors' Committee.
4. If Class 4 does not vote to accept the Plan, the Bankruptcy Court
has entered an order estimating the aggregate value of all Asbestos Property
Damage Claims and determining that such value is not greater than the amount of
the insurance available to pay such claims under section 11.3 of the Plan.
45
C. CONDITIONS PRECEDENT TO THE EFFECTIVE DATE UNDER THE PLAN.
The "effective date of the plan," as used in section 1129 of the Bankruptcy
Code, will not occur, and the Plan will be of no force and effect, until the
Effective Date. The occurrence of the Effective Date is subject to satisfaction
of the following conditions precedent:
>> The Confirmation Order has become a Final Order.
>> The Bankruptcy Court and/or the District Court, as required,
will have entered the Asbestos PI Permanent Channeling
Injunction (which may be included in the Confirmation Order),
which will contain terms satisfactory to AWI, the Asbestos PI
Claimants' Committee, the Future Claimants' Representative, and,
if Class 6 votes to accept the Plan, the Unsecured Creditors'
Committee.
>> The Confirmation Order, the Claims Trading Injunction and the
Asbestos PI Permanent Channeling Injunction will be in full
force and effect.
>> No proceedings to estimate any claims are pending.
>> All Asbestos PI Trustees will have been selected and will have
executed the Asbestos PI Trust Agreement.
>> If Class 4 votes to reject the Plan, all Asbestos PD Trustees
have been selected and will have executed the Asbestos PD Trust
Agreement.
>> A favorable ruling will have been obtained from the IRS with
respect to the qualification of the Asbestos PI Trust as a
"qualified settlement fund" within the meaning of Treasury
Regulation section 1.468B-1, or AWI will have received an
opinion of counsel with respect to the tax status of the
Asbestos PI Trust as a "qualified settlement fund" reasonably
satisfactory to AWI, the Asbestos PI Claimants' Committee, the
Future Claimants' Representative, and, if Class 6 votes to
accept the Plan, the Unsecured Creditors' Committee.
>> Reorganized AWI will have entered into and will have credit
availability under a credit facility to provide Reorganized AWI
with working capital (including letters of credit) in an amount
sufficient to meet the needs of Reorganized AWI, as determined
by Reorganized AWI.
>> Each of the Exhibits will be in form and substance acceptable to
AWI, the Asbestos PI Claimants' Committee, the Future Claimants'
Representative, and the Unsecured Creditors' Committee.
Notwithstanding the foregoing, AWI reserves the right in its sole discretion,
with the written consent of the Asbestos PI Claimants' Committee, the Future
Claimants' Representative and, if Class 6 votes to accept the Plan, the
Unsecured Creditors' Committee, to waive the occurrence of any of the foregoing
conditions precedent to the Effective Date or to modify any of such conditions
precedent. Any such written waiver of any such condition precedent may be
effected at any time, without notice, without leave or order of the Bankruptcy
Court or the District Court, and without any formal action other than proceeding
to consummate the Plan. Any actions required to be taken on the Effective Date
will take place and will be deemed to have occurred simultaneously, and no such
action will be deemed to have occurred prior to the taking of any other such
action. If AWI decides that one of the foregoing conditions cannot be satisfied,
and the occurrence of such condition is not waived in writing by each of AWI,
the Asbestos PI Claimants' Committee, the Future Claimants' Representative and,
if required, the Unsecured Creditors' Committee, then AWI will file a notice of
the failure of the Effective Date with the Bankruptcy Court, at which time the
Plan and the Confirmation Order will be deemed null and void.
46
D. DESCRIPTION OF THE REORGANIZATION CONSIDERATION.
Under the Plan, AWI will issue New Common Stock, New Notes and New Warrants
(together, the "PLAN SECURITIES"), together with Available Cash, as follows:
1. NEW COMMON STOCK.
On the Effective Date, pursuant to the Plan, Reorganized AWI will authorize
approximately 200 million shares of New Common Stock and will issue 67.7 million
shares of New Common Stock without any further action necessary under applicable
law, regulation, rule or order. Each share of New Common Stock will entitle its
holder to one vote. The New Common Stock will be subject to dilution as a result
of future issuances, including shares that are or may be issued under the
Management Incentive Plan (see Section IX.C, entitled, "MANAGEMENT OF
REORGANIZED AWI - Incentive Compensation Plans and New Management Incentive
Plan") or that are issued upon the exercise of New Warrants. Holders of New
Common Stock will have the right to participate proportionately in any dividends
distributed by Reorganized AWI. AWI believes that the Equity Value of New Common
Stock as of the Effective Date, based upon the residual value of the equity of
Reorganized AWI, will be $30.00 per share, prior to any dilution. See Section
XI, entitled, "REORGANIZATION VALUE." The Equity Value has been agreed upon by
Lazard and the financial consultants for the Asbestos PI Claimants' Committee,
the Future Claimants' Representative, and the Unsecured Creditors' Committee.
2. NEW NOTES.
The New Notes will be issued by Reorganized AWI pursuant to an indenture (the
"NEW NOTE INDENTURE"), substantially in the form of Exhibit 1.90 to the Plan, by
and between AWI, as the issuer, and a trustee selected by AWI prior to the date
of the commencement of the hearing on confirmation of the Plan, which indenture
will be qualified under the Trust Indenture Act of 1939, as amended. The New
Notes will be issued in three series on substantially the following terms:
>> The principal amount of the New Notes will be the higher of (i)
$1.125 billion less the amount of Available Cash and (ii) $775
million. Because AWI estimates that Available Cash will total
$350 million, it has assumed that the principal amount of the
New Notes will be $775 million.
>> The New Notes will bear interest at a fixed rate based upon U.S.
Treasury Notes with like maturities plus a spread determined to
be the average corporate spread over such Treasury Notes for
outstanding issues of comparable maturity and comparably rated
U.S. industrial companies over the 30-day period ending on the
last day of the month immediately preceding the Effective Date.
Interest will be paid semi-annually.
>> The maturity of the New Notes, as selected by AWI, will be not
less than five years and no more than 10 years. No principal
payments will be required to be made on the New Notes until the
maturity date.
Based upon these requirements and assuming an Effective Date of July 1, 2003,
AWI expects that the three series of New Notes will have the following terms:
>> $____ million in New Notes having a five-year maturity with an
annual interest rate of ___%
>> $____ million in New Notes having a seven-year maturity with an
annual interest rate of ___%
>> $____ million in New Notes having a ten-year maturity with an
annual interest rate of ____%
47
3. AVAILABLE CASH.
Under the Plan, AWI also will distribute Available Cash. Available Cash will be
calculated on the last day of the month prior to the month in which the
Effective Date occurs. "AVAILABLE CASH" will be equal to the sum of the
following: (a) all cash on hand of AWI and its subsidiaries as of the last day
of the month immediately preceding the Effective Date less the sum of the
following as of such date: (i) One Hundred Million and 00/100 Dollars
($100,000,000.00), (ii) the Allowed Amount of Allowed Administrative Expenses,
(iii) a reasonable estimate by AWI of additional Administrative Expenses (such
as professional fees and expenses) that may become Allowed thereafter (other
than Administrative Expenses of the type specified in section 1.8(c)(i) of the
Plan) and fees and expenses payable in connection with any exit facility
referred to in section 7.13(h) of the Plan, (iv) the Allowed Amount of Allowed
Priority Tax Claims, (v) a reasonable estimate by AWI of additional Priority Tax
Claims that may become Allowed thereafter, (vi) the Allowed Amount of all
Priority Claims, (vii) a reasonable estimate of all Priority Claims that may
became Allowed thereafter, (viii) the DIP Credit Facility Claim, (ix) the cash
required to make the distributions for Class 3 (Convenience Claims) for those
that are Allowed and a reasonable estimate by AWI of additional Convenience
Claims that may become Allowed thereafter, (x) any other cash required to be
paid or distributed by AWI pursuant to the Plan (other than in respect of
"Available Cash" and in respect of the Asbestos PD Trust Funding Obligation),
and (xi) the amount reasonably estimated by AWI to be the cost of curing any
defaults under the executory contracts and unexpired leases to be assumed by AWI
under the Plan, (b) any amounts drawn, in AWI's sole discretion, under the
working capital facility referenced in section 7.13(h) of the Plan for the
purpose of funding the Distributions under the Plan, and (c) any proceeds of
insurance received and retained by Reorganized AWI from the Effective Date to
the Final Distribution Date on account of an Allowed Environmental Claim that is
treated as an Allowed Unsecured Claim in accordance with sections 3.2(f) and
3.2(h) of the Plan. Based upon the assumption that the Effective Date will occur
on July 1, 2003 and that AWI will draw $49.7 million under its working capital
facility, AWI, after retaining $100 million for working capital purposes,
expects to have approximately $350 million in Available Cash on the Effective
Date.
4. NEW WARRANTS.
If the Holdings Plan of Liquidation is approved within one year after the
Effective Date, Reorganized AWI will issue to AWWD the New Warrants, which will
be warrants to purchase the New Common Stock pursuant to a warrant agreement
substantially in the form of Exhibit 1.94 to the Plan on terms and conditions
determined in a manner agreed to by Lazard and the financial consultants for the
Asbestos PI Claimants' Committee, the Future Claimants' Representative, and the
Unsecured Creditors' Committee. The New Warrants (i) will provide the right to
purchase an aggregate of 5% of the New Common Stock on a fully diluted basis
determined as of the Effective Date (estimated to be 3.6 million shares), (ii)
will have an exercise price equal to 125% of the Equity Value (i.e., $37.50),
and (iii) will have a term of seven years from the Effective Date. AWI expects
that the New Warrants will have a value of $40-50 million.
E. PLAN OF DIVISION.
On or as soon as practicable after the Effective Date, AWI intends to effect a
division pursuant to the Plan of Division substantially in the form of Exhibit
1.98 to the Plan and pursuant to Subchapter D, Chapter 19 of the Pennsylvania
BCL and Section 7.20(a)(iii) of the Plan. Pursuant to the Plan of Division,
Reorganized AWI will divide into four or more Entities organized under the laws
of Pennsylvania and/or of other jurisdictions permitting such division (the "AWI
PROGENY"), with Reorganized AWI surviving and serving as the parent holding
company of all the other entities.
The actions to be taken by Reorganized AWI in furtherance of the Plan of
Division will include the following:
>> Certain wholly owned, non-operating subsidiaries of AWI will
merge with and into AWI on or as soon as practicable after the
Effective Date.
>> AWI will file the Amended and Restated Articles of Incorporation
with the Secretary of State for the Commonwealth of
Pennsylvania.
48
>> Pursuant to the Plan of Division, AWI will divide into the AWI
Progeny. All assets and certain Administrative Expenses,
executory agreements and unexpired leases to be assumed by
Reorganized AWI under the Plan, and all post-petition AWI
contracts will be allocated among or in common with the AWI
Progeny through the Plan of Division in accordance with the
terms of the Plan, including sections 8.1 and 8.2 of the Plan.
>> Following the Division, each employee of AWI as of the Effective
Date will become an employee of one of the AWI Progeny.
>> One or more of the AWI Progeny will convert from a corporation
to a limited liability company.
F. EXIT FACILITY.
The company expects to enter into a $300 million syndicated bank credit facility
at the time of emergence to provide for liquidity through short-term borrowings
for working capital and other general corporate purposes and to permit the
issuance of letters of credit. This credit facility will include covenants and
terms and conditions that are expected to be similar to comparably rated
industrial companies obtaining similarly structured credit facilities at that
time. It is expected that the syndicated credit facility will be unsecured,
multi-year in maturity, and permit borrowings in both U.S. Dollars and Euros,
priced at applicable margins over the lenders' cost of funds. No significant
borrowings are expected immediately post-emergence, but AWI will use the
facility to replace the Letters of Credit issued under the DIP Credit Facility.
In addition, AWI's projections assume that AWI will draw $49.7 million under the
credit facility to increase "Available Cash" so that Available Cash totals $350
million on the Effective Date. AWI estimates that such borrowing will be repaid
by the end of 2003.
G. EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
Any executory contracts or unexpired leases listed on Exhibit 8.1 to the Plan
will be deemed to have been assumed by Reorganized AWI and, if such executory
contract or unexpired lease is to be assigned and/or allocated to one of the AWI
Progeny, such executory contract or unexpired lease will be deemed assigned
and/or allocated to such AWI Progeny, in each case as of the Effective Date, and
the Plan will constitute a motion to assume (and, to extent necessary, assign)
such executory contracts and unexpired leases. In addition, certain of the
executory contracts to which AWI is a party contain confidentiality provisions
that prohibit the disclosure of the existence of such contracts. To the extent
that AWI wishes to assume such executory contracts, such executory contracts
will be set forth in a separate list, which will contain the information set
forth in the Plan, will be deemed to constitute part of Exhibit 8.1 to the Plan,
will be filed under seal with the Bankruptcy Court, and will be provided only to
the Bankruptcy Court and the Asbestos PI Claimants' Committee, the Asbestos PD
Committee, the Unsecured Creditors' Committee, and the Future Claimants'
Representative. Each of the non-debtor parties to such contracts will receive a
separate notice advising it of AWI's intention to assume such contract, together
with the other information set forth in the Plan. To the extent that any
executory contract or unexpired lease set forth on Exhibit 8.1 to the Plan is to
be assigned and/or allocated to one of the AWI Progeny pursuant to the Plan of
Division, any such assignment and/or allocation will be set forth in the Plan of
Division.
Subject to the occurrence of the Effective Date, entry of the Confirmation Order
by the Clerk of the Bankruptcy Court will constitute approval of such
assumptions and assignments and/or allocations pursuant to section 365(a) of the
Bankruptcy Code and a finding by the Bankruptcy Court that each such assumption
and assignment and/or allocation is in the best interest of AWI, its estate, and
all parties in interest in the Chapter 11 Case. With respect to each such
executory contract or unexpired lease assumed by Reorganized AWI, unless
otherwise determined by the Bankruptcy Court pursuant to a Final Order or agreed
to by the parties thereto prior to the Effective Date, the dollar amount
required to cure any defaults of AWI existing as of the Confirmation Date will
be conclusively presumed to be the amount set forth in Exhibit 8.1 with respect
to such executory contract or unexpired lease. Subject to the occurrence of the
Effective Date, any such cure amount will be treated as an Allowed
Administrative Expense under the Plan, and, upon payment of such Allowed
Administrative Expense, all defaults of AWI existing as of the Confirmation Date
with respect to such executory contract or unexpired lease will be deemed cured.
49
Any executory contracts or unexpired leases of AWI that either (x) are set forth
on Exhibit 8.2 to the Plan or (y)(i) are not listed on Exhibit 8.1 to the Plan,
(ii) have not been assumed by AWI with the approval of the Bankruptcy Court, and
(iii) are not the subject of pending motions to assume at the Confirmation Date
will be deemed to have been rejected by AWI, the Plan will constitute a motion
to reject such executory contracts and unexpired leases, and Reorganized AWI
will have no liability thereunder except as is specifically provided in the
Plan. Entry of the Confirmation Order by the Clerk of the Bankruptcy Court will
constitute approval of such rejections pursuant to section 365(a) of the
Bankruptcy Code and a finding by the Bankruptcy Court that each such rejected
executory contract or unexpired lease is burdensome and that the rejection
thereof is in the best interest of AWI, its estate, and all parties in interest
in the Chapter 11 Case. Without limiting the foregoing, any agreement entered
into prior to the Commencement Date by or on behalf of AWI with respect to the
settlement of any Asbestos Personal Injury Claim will be deemed rejected as of
the Effective Date to the extent such settlement agreement is deemed to be an
executory contract within the meaning of section 365(a) of the Bankruptcy Code.
Claims created by the rejection of executory contracts or unexpired leases
(including, without limitation, the rejection provided in section 8.2 of the
Plan) or the expiration or termination of any executory contract or unexpired
lease prior to the Confirmation Date, other than Asbestos Personal Injury
Claims, must be filed with the Bankruptcy Court and served on AWI no later than
thirty (30) days after (i) in the case of an executory contract or unexpired
lease that was terminated or expired by its terms prior to the Confirmation
Date, the Confirmation Date, (ii) in the case of an executory contract or
unexpired lease rejected by AWI, the entry of the order of the Bankruptcy Court
authorizing such rejection, or (iii) in the case of an executory contract or
unexpired lease that is deemed rejected pursuant to section 8.2 of the Plan, the
Confirmation Date. Notwithstanding the foregoing, Exhibit 8.2 to the Plan sets
forth AWI's value of the rejection claim for each executory contract or
unexpired lease set forth thereon, which claim shall be deemed an Allowed
Unsecured Claim if no proof of claim is timely filed and served in accordance
with the immediately preceding sentence. Any claims for which a rejection claim
is not set forth on Exhibit 8.2 to the Plan and for which a proof of claim is
not filed and served within the time provided herein will be forever barred from
assertion and shall not be enforceable against AWI, its estate, assets,
properties, or interests in property, or Reorganized AWI or its estate, assets,
properties, or interests in property. Unless otherwise ordered by the Bankruptcy
Court, all such Claims (other than Asbestos Personal Injury Claims) that are
timely filed as provided herein will be treated as Unsecured Claims under the
Plan and will be subject to the provisions of Article V of the Plan.
Exhibit 8.4 to the Plan sets forth a list of agreements that were listed on the
Schedules as executory contracts, but which AWI believes should not be
considered executory contracts. If any such agreements are determined to be
executory contracts, AWI or Reorganized AWI, as the case may be, reserves the
right to seek the assumption or rejection of any such contract (and, in the case
of assumption, assignment and/or allocation to one of the AWI Progeny), and the
time within which AWI or Reorganized AWI, as the case may be, may seek to assume
(and assign and/or allocate) or reject any such agreements shall be tolled until
twenty (20) business days after the date on which an order determining that any
such agreement is an executory contract becomes a Final Order. Set forth on
Exhibit 8.4 to the Plan is the amount that AWI intends to treat as an Allowed
Unsecured Claim for each such agreement. Such amount and the treatment of each
such agreement shall be binding unless, on or before ten (10) days after the
Confirmation Date, the other party to any such agreement either (i) files a
proof of claim (which proof of claim shall be deemed timely filed) or (ii) files
a motion seeking to compel assumption or rejection of such agreement.
H. INSURANCE POLICIES AND AGREEMENTS.
AWI does not believe that the insurance policies issued to, or insurance
agreements entered into by, AWI prior to the Commencement Date constitute
executory contracts. To the extent that such insurance policies or agreements
are considered to be executory contracts, then, notwithstanding anything
contained in sections 8.1 or 8.2 of the Plan to the contrary, the Plan will
constitute a motion to assume such insurance policies and agreements, and,
subject to the occurrence of the Effective Date, the entry of the Confirmation
Order by the clerk of the Bankruptcy Court will constitute approval of such
assumption pursuant to section 365(a) of the Bankruptcy Code and a finding by
the Bankruptcy Court that each such assumption is in the best interest of AWI,
its estate, and all parties in interest in the Chapter 11 Case. Unless otherwise
determined by the Bankruptcy Court pursuant to a final order or agreed to by the
parties thereto prior to the Effective Date, no payments are required to cure
any defaults of AWI existing as of the Confirmation Date with respect to each
such insurance policy or agreement. To the extent that the Bankruptcy Court
determines otherwise as to any such insurance policy or agreement, AWI reserves
50
the right to seek rejection of such insurance policy or agreement or other
available relief. In accordance with section 10.1 of the Plan, the rights under
the insurance policies and agreements constituting the Asbestos PI Insurance
Asset will, to the extent necessary, be deemed assigned to the Asbestos PI Trust
as of the Effective Date and, pursuant to section 365 of the Bankruptcy Code,
AWI will have no further liability thereunder from and after the Effective Date.
To the extent that any or all of the insurance policies and agreements set forth
on Exhibit 8.5(b) to the Plan are considered to be executory contracts, then,
notwithstanding anything contained in section 8.1 or 8.2 of the Plan to the
contrary, the Plan will constitute a motion to reject the insurance policies and
agreements set forth on Exhibit 8.5(b) to the Plan, and the entry of the
Confirmation Order by the clerk of the Bankruptcy Court will constitute approval
of such rejection pursuant to section 365(a) of the Bankruptcy Code and a
finding by the Bankruptcy Court that each such rejected insurance policy or
agreement set forth on Exhibit 8.5(b) to the Plan is burdensome and that the
rejection thereof is in the best interest of AWI, its estate, and all parties in
interest in the Chapter 11 Case.
Nothing contained in the Plan will constitute a waiver of any claim, right, or
cause of action that AWI, the Asbestos PI Trust, or Reorganized AWI, as the case
may be, may hold against the insurer under any policy of insurance or insurance
agreement.
I. INDEMNIFICATION AND REIMBURSEMENT OBLIGATIONS.
For purposes of the Plan, the obligations of AWI to indemnify and reimburse
persons who are or were directors, officers, or employees of Holdings, AWWD, or
AWI on the Commencement Date or at any time thereafter against and for any
obligations (including, without limitation, fees and expenses incurred by the
board of directors of Holdings, or the members thereof, in connection with the
Chapter 11 Case) pursuant to articles of incorporation, codes of regulations,
bylaws, applicable state law, or specific agreement, or any combination of the
foregoing, will survive confirmation of the Plan, remain unaffected thereby, and
not be discharged in accordance with section 1141 of the Bankruptcy Code,
irrespective of whether indemnification or reimbursement is owed in connection
with an event occurring before, on, or after the Commencement Date. In
furtherance of the foregoing, Reorganized AWI will maintain insurance for the
benefit of such directors, officers, or employees at levels no less favorable
than those existing as of the date of entry of the Confirmation Order for a
period of no less than three years following the Effective Date.
J. COMPENSATION AND BENEFIT PROGRAMS.
Except as set forth in section 8.7(b) and (c) of the Plan, all employment and
severance policies, workers' compensation programs, and all compensation and
benefit plans, policies and programs of AWI applicable to its present and former
employees, officers, and directors, including, without express or implied
limitation, all savings plans, retirement plans, health care plans, disability
plans, severance benefit plans, incentive plans, and life, accidental death, and
dismemberment insurance plans, will be deemed to be, and will be treated as
though they are, executory contracts that are deemed assumed under the Plan, and
AWI's obligations under such plans, policies, and programs will be deemed
assumed pursuant to section 365(a) of the Bankruptcy Code, survive confirmation
of the Plan, remain unaffected thereby, and not be discharged in accordance with
section 1141 of the Bankruptcy Code. Any defaults existing under any of such
plans, policies, and programs shall be cured promptly after they become known by
Reorganized AWI.
Certain employee benefit plans and policies will be terminated or amended on the
Effective Date or earlier. These plans and policies are as follows:
>> The Employment Protection Plan for Salaried Employees is
provided for severance benefits for salaried employees of AWI in
certain change-in-control situations. Prior to the Effective
Date, such plan will be deemed to have been terminated,
cancelled, and of no further force and effect, and the
participants thereunder will have no further rights thereunder.
51
>> The 1993 Long-Term Stock Incentive Plan is an equity incentive
plan used by AWI to issue stock options and restricted stock to
employees. On the Effective Date, such plan will be deemed
terminated, cancelled, and of no further force and effect, and
the participants thereunder will have no further rights
thereunder; provided that any and all remaining restrictions on
restricted stock awards under the 1993 Long-Term Stock Incentive
Plan will lapse on the Effective Date to the extent participants
do not elect to waive their right to such awards prior to such
date.
>> The 1999 Long-Term Incentive Plan is an equity and cash
performance incentive plan used by AWI to provide equity and
cash bonus incentives to employees. This plan has been used
during the Chapter 11 Case to make long-term incentive awards.
On the Effective Date, this plan will be deemed terminated,
cancelled, and of no further force and effect, and the
participants thereunder will have no further rights thereunder;
provided that any and all remaining restrictions on restricted
stock awards under this plan will lapse on the Effective Date to
the extent participants do not elect to waive their right to
such awards prior to such date. Cash awards granted during the
course of the Chapter 11 Case, however, constitute Allowed
Administrative Expenses, will not be affected by the termination
of this plan, and will be paid out according to their terms.
>> The Armstrong Holdings Stock Award Plan is an equity incentive
plan under which AWI gave its employees awards of Holdings
common stock. On the Effective Date, such plan will be deemed
terminated, cancelled, and of no further force and effect, and
the participants thereunder will have no further rights
thereunder; provided that any and all remaining restrictions on
restricted stock awards under the Armstrong Holdings Stock Award
Plan will lapse on the Effective Date to the extent participants
do not elect to waive their right to such awards prior to such
date.
>> The Armstrong Deferred Compensation Plan is a plan under which
members of Armstrong's management elected to defer compensation
due them from Armstrong, generally until after their retirement.
No deferrals of compensation have been made under this plan
since the Commencement Date. As of the Effective Date, balances
under this plan are estimated to total approximately $34
million. The normal form of payment is an annuity paid over 15
years. Plan participants may request full or partial single-sum
payments. On the Effective Date, the Armstrong Deferred
Compensation Plan will be modified so that Reorganized AWI, and
not Holdings, will be the nominal sponsor of such plan and to
provide that Reorganized AWI has the right, in its sole
discretion, not to honor single-sum withdrawal requests. The
Armstrong Deferred Compensation Plan will be assumed, as so
amended; provided, however, as to any party that objects to such
amendment by the deadline for filing objections to confirmation
of the Plan, the Armstrong Deferred Compensation Plan will be
deemed rejected, and such party will have an Unsecured Claim for
any benefits thereunder in accordance with section 8.3 of the
Plan. In addition, as of a date immediately prior to the
Effective Date, the Armstrong Deferred Compensation Plan will be
deemed amended to exclude the occurrence of the Effective Date
and the creation of the Asbestos PI Trust from triggering a
change in control thereunder.
>> The Severance Pay Plan for Salaried Employees is a severance
plan for salaried employees. On the Effective Date, such plan
will be amended to provide that, if the participant is in a
position at a grade level of 15 or higher on Reorganized AWI's
organizational management system on the date of termination, the
52
participant will be eligible for severance benefits based on two
weeks of pay for each year of service, subject to a minimum of
eight weeks pay and a maximum of 52 weeks pay. On the Effective
Date, the Severance Pay Plan for Salaried Employees will be
assumed, as amended.
>> The Retirement Income Plan (Pension) is Armstrong's qualified
defined benefit retirement plan. Such plan will be amended prior
to the Effective Date in the manner described below and, as
amended, will be assumed as of the Effective Date:
o to eliminate the Social Security retirement enhancement
that may become payable due to job loss following a
Change in Control, and
o to eliminate future accruals of all other retirement
enhancements that may become payable due to job loss
following a Change in Control to the fullest extent
permitted by applicable law.
>> The Retirement Benefit Equity Plan is an ERISA excess pension
plan that provides participants with benefits that otherwise
would be denied by reason of certain Internal Revenue Code
limitations applicable to the qualified Retirement Income Plan..
As of the Effective Date, accrued liabilities under this plan
are expected to total approximately $36 million. The normal form
of payment is an annuity. Under the terms of the Retirement
Income Plan, which also impact the Retirement Benefit Equity
Plan, plan participants are eligible for enhanced pension
benefits in the event of (i) a job loss within two years of a
change in control of Holdings or (ii) termination of the
Retirement Income Plan within five years of an Extraordinary
Event. The Extraordinary Event involves a more narrowly defined
change in control of Holdings as defined in the Retirement
Income Plan. The Retirement Benefit Equity Plan will be amended
as of any date prior to the Effective Date designated by AWI in
the manner described below and, as amended, will be assumed as
of the Effective Date:
o to exclude in the definition of Change in Control the
occurrence of the Effective Date and the creation of
Asbestos PI Trust,
o to eliminate the Extraordinary Event provisions as
covered under the Retirement Income Plan,
o to eliminate any and all retirement enhancements,
related to past and future service, that may become
payable due to job loss following a Change in Control as
covered under the Retirement Income Plan, and
o to terminate any right or obligation of Reorganized AWI
to honor single-sum withdrawal requests;
provided, however, as to any party that objects to such
amendments by the deadline for filing objections to confirmation
of the Plan, such plan will be deemed rejected, and such party
will have an Unsecured Claim for any benefits thereunder in
accordance with section 8.3 of the Plan.
On the Effective Date, the assumption, rejection, and amendment of the foregoing
plans will be deemed to have occurred as of such date or earlier date specified
in section 8.7 of the Plan, will be authorized, and will be deemed approved in
all respects, and will be in effect from and after the Effective Date or such
other date in each case without requiring further action under applicable law,
regulation, order, or rule, including, without express or implied limitation,
any action by any party or Entity, including any administrative committee of any
53
plan or the stockholders or directors of AWI or Reorganized AWI. On the
Effective Date or as soon thereafter as is practicable, Reorganized AWI will
restate the plans amended above as provided in section 8.7(c) of the Plan and
will communicate such amendments in such manner and as may be required without
any further order of the Bankruptcy Court. Each of the officers of AWI and
Reorganized AWI is authorized, in accordance with his or her authority under the
resolutions of the Board of Directors, to execute, deliver, file, or record such
contracts, instruments, releases, indentures, and other agreements or documents
and take such actions as may be necessary or appropriate to effectuate and
further evidence the terms and conditions of the plan amendments set forth in
section 8.7 of the Plan.
K. CANCELLATION OF EXISTING DEBT SECURITIES.
As of the Effective Date, all notes, agreements, and securities evidencing
Unsecured Claims and the rights of the holders thereof thereunder, will be
cancelled and deemed null and void and of no further force and effect, and the
holders thereof will have no rights, and such instruments will evidence no
rights, except the right to receive the distributions provided for in the Plan.
L. EXPIRATION OF THE RETENTION PERIOD.
Upon the expiration of the Retention Period, all monies or other property held
for distribution by any trustee under any indenture governing any of the
Unsecured Claims will be returned to Reorganized AWI by such trustee, free and
clear of any claim or interest of any nature whatsoever, including, without
express or implied limitation, escheat rights of any governmental unit under
applicable law.
M. COMPENSATION OF THE APPLICABLE TRUSTEES.
The trustee under any indenture governing any of the Unsecured Claims will be
compensated by Reorganized AWI for services rendered from and after the
Effective Date, including the reasonable compensation, disbursements, and
expenses of the agents and legal counsel of such trustee in connection with the
performance after the Effective Date of its duties under this section and will
be indemnified by Reorganized AWI for any loss, liability, or expense incurred
by it in connection with the performance of such duties to the same extent and
in the same manner as provided in the related indenture.
N. LISTING OF THE NEW COMMON STOCK.
As soon as practicable after the Effective Date, Reorganized AWI will apply to
have its common stock listed on a national securities exchange or quoted on a
national interdealer quotation system and will use its best efforts to obtain
and maintain such listing or quotation.
O. CORPORATE REORGANIZATION ACTIONS.
On or as soon as practicable after the Effective Date, the following actions
will take place, all of which will be authorized and approved in all respects,
in each case without further action under applicable law, regulation, order, or
rule, including, without express or implied limitation, any action by the
stockholders or directors of AWI or Reorganized AWI:
>> Reorganized AWI's businesses will be reorganized pursuant to the
Plan of Division. See Section V.E, above entitled, "THE PLAN OF
REORGANIZATION - Plan of Division."
>> The existing AWI Common Stock will be cancelled.
>> The New Note Indenture will become effective, and the New Common
Stock, New Warrants (subject to section 7.21 of the Plan), and
the New Notes will be issued.
54
>> Reorganized AWI and/or the AWI Progeny will enter into the
working capital facility referenced in section 7.13 of the Plan.
See Section V.F, above, entitled, "THE PLAN OF REORGANIZATION -
Exit Facility".
>> Reorganized AWI will enter into the New Management Incentive
Plan. See Section IX.C, entitled "MANAGEMENT OF REORGANIZED AWI
- Incentive Corporation Plans and New Management Incentive
Plan." For purposes of compliance with section 162(m) of the
Internal Revenue Code, AWI will seek to include in the
Confirmation Order a finding that a majority of the votes cast
by Creditors in Classes 6 and 7 of the Plan will constitute a
vote of the shareholders of Reorganized AWI on the New
Management Incentive Plan. A majority of the votes cast by the
holders of Asbestos Personal Injury Claims will determine the
vote of the Asbestos PI Trust for these purposes.
P. HOLDINGS PLAN OF LIQUIDATION.
If Holdings' shareholders approve the Holdings Plan of Liquidation prior to the
first anniversary of the Effective Date, the New Warrants will be delivered to
Holdings for distribution pursuant to the Holdings Plan of Liquidation. From and
after the Effective Date, other than as provided in the Plan (including, without
limitation, provisions of the Plan relating to the indemnification rights of
Holdings' officers, directors, and employees and the requirement to provide
insurance for the benefit of such persons), Reorganized AWI will have no ongoing
obligations to Holdings or AWWD; provided, however, that Reorganized AWI will
bear all costs and expenses related to the preparation and submission to a vote
of Holdings' shareholders of the Holdings Plan of Liquidation and all other
operating expenses of Holdings and AWWD until the first anniversary of the
Effective Date and, if the requisite approval of the Holdings Plan of
Liquidation by Holdings' shareholders is obtained by the first anniversary of
the Effective Date, the performance and consummation of the Holdings Plan of
Liquidation, including any operating expenses for Holdings and AWWD until their
dissolution and liquidation pursuant to the Holdings Plan of Liquidation.
IMPORTANT INFORMATION FOR HOLDERS OF
COMMON STOCK OF ARMSTRONG HOLDINGS, INC.
IN CONNECTION WITH THE PROPOSED PLAN, THE BOARD OF DIRECTORS OF
HOLDINGS CONTEMPLATES PROPOSING THE DISSOLUTION AND WINDING-UP OF
HOLDINGS. IN THAT REGARD, HOLDINGS INTENDS TO FILE RELEVANT
MATERIALS WITH THE SEC, INCLUDING A PROXY OR CONSENT SOLICITATION
STATEMENT WITH RESPECT TO APPROVAL BY HOLDINGS' SHAREHOLDERS OF THE
DISSOLUTION OF HOLDINGS AND A PLAN OF LIQUIDATION. BECAUSE THOSE
DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION, STOCKHOLDERS OF
HOLDINGS ARE URGED TO READ THEM, IF AND WHEN THEY BECOME AVAILABLE.
WHEN FILED WITH THE SEC, THEY WILL BE AVAILABLE FOR FREE AT THE
SEC'S WEBSITE, WWW.SEC.GOV. HOLDINGS STOCKHOLDERS WILL RECEIVE
INFORMATION AT AN APPROPRIATE TIME ON HOW TO OBTAIN DOCUMENTS
RELATED TO SUCH MATTERS FOR FREE FROM HOLDINGS. SUCH DOCUMENTS ARE
NOT CURRENTLY AVAILABLE.
DIRECTORS AND EXECUTIVE OFFICERS OF HOLDINGS AND ITS SUBSIDIARIES
MAY BE DEEMED TO BE PARTICIPANTS IN HOLDINGS' SOLICITATION OF
PROXIES OR CONSENTS FROM ITS STOCKHOLDERS IN CONNECTION WITH THIS
MATTER. INFORMATION ABOUT SUCH DIRECTORS AND EXECUTIVE OFFICERS AND
THEIR RESPECTIVE STOCK OWNERSHIP AND OTHER INTERESTS IS SET FORTH
IN HOLDINGS' ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2001. PARTICIPANTS IN HOLDINGS' SOLICITATION MAY ALSO
BE DEEMED TO INCLUDE VARIOUS DIRECTORS, EXECUTIVE OFFICERS AND
OTHER PERSONS:
DIRECTORS: H. Jesse Arnelle, Van C. Campbell, Judith R.
Haberkorn, John A. Krol, Michael D. Lockhart, James E. Marley,
Ruth M. Owades, M. Edward Sellers, and Jerre L. Stead
OFFICERS: Matthew J. Angello, Leonard A. Campanaro, Chan W.
Galbato, Gerard L. Glenn, David E. Gordon, Michael D. Lockhart,
55
Debra L. Miller, John N. Rigas, William C. Rodruan, Stephen J.
Senkowski, Barry M. Sullivan, and April L. Thornton
AS OF THE DATE OF THIS COMMUNICATION, NONE OF THESE PARTICIPANTS
INDIVIDUALLY BENEFICIALLY OWNS MORE THAN 1% OF HOLDINGS' COMMON
STOCK. EXCEPT AS DISCLOSED ABOVE, TO THE KNOWLEDGE OF HOLDINGS,
NONE OF THESE PERSONS HAS ANY INTEREST, DIRECT OR INDIRECT, BY
SECURITY HOLDINGS OR OTHERWISE, IN HOLDINGS. STOCKHOLDERS OF
HOLDINGS WILL BE ABLE TO OBTAIN ADDITIONAL INFORMATION REGARDING
THE INTERESTS OF THE PARTICIPANTS BY READING THE PROXY OR CONSENT
SOLICITATION STATEMENT OF HOLDINGS IF AND WHEN IT BECOMES
AVAILABLE.
Q. DISTRIBUTIONS UNDER THE PLAN.
1. DISTRIBUTION DATE.
Each of the following will constitute a Distribution Date: (a) the Initial
Distribution Date, (b) the first Business Day after the end of the months of
March, June, September, and December, commencing with the first such date to
occur more than one hundred eighty (180) days after the Effective Date and until
the second anniversary of the Effective Date, (c) after the second anniversary
of the Effective Date, the first Business Day after the end of the month of
December, and (d) the Final Distribution Date; provided, however, that (i) a
Distribution Date (other than the Initial Distribution Date and the Final
Distribution Date) shall not occur if the aggregate amount of New Notes and
Available Cash to be distributed on any Distribution Date is less than one
million dollars ($1,000,000), in which case the amount to be distributed shall
be retained and added to the amount to be distributed on the next Distribution
Date, and (ii) any Unsecured Claim that becomes Allowed less than twenty (20)
Business Days prior to a Distribution Date shall be treated as a Disputed Claim
for the purposes of the Distribution occurring on such Distribution Date and
shall not receive a Distribution until the Distribution Date immediately
succeeding such Distribution Date.
2. DISPUTED UNSECURED CLAIMS RESERVE.
On the Initial Distribution Date, Reorganized AWI will establish the Disputed
Unsecured Claims Reserve, pursuant to which New Notes not distributed on the
Initial Distribution Date or on any subsequent Distribution will be issued but
held in trust by the Disbursing Agent pending the resolution of Disputed Claims.
In accordance with and subject to the provisions of sections 3.2(f)(ii), 5.3 and
7.7 of the Plan, any Distribution of New Notes with respect to a Disputed Claim
that becomes Allowed will include interest and other accretions with respect to
such New Notes, net of the portion of expenses (including, without limitation,
taxes payable by the Disputed Unsecured Claims Reserve) attributable to such New
Notes.
3. TIMING OF DISTRIBUTIONS UNDER THE PLAN.
Any Distribution to be made by AWI or Reorganized AWI pursuant to the Plan will
be deemed to have been timely made if made within ten (10) days after the time
therefor specified in the Plan. No interest will accrue or be paid with respect
to any Distribution as a consequence of such Distribution not having been made
on the Effective Date; provided, however, that any New Notes distributed from
the Disputed Unsecured Claims Reserve after the Initial Distribution Date will
include accrued interest and any other accretions thereon (net of the portion of
the expenses of the Disputed Unsecured Claims Reserve (including, without
limitation, taxes) attributable to such New Notes) from and after the Initial
Distribution Date in accordance with the terms of the New Note Indenture, and
New Common Stock issued to holders of Allowed Claims in Classes 6 and 8 after
the Effective Date will include all dividends declared and paid and other
distributions made in respect thereto after the Effective Date.
(A) DISTRIBUTIONS WITH RESPECT TO UNSECURED CLAIMS AND ENVIRONMENTAL
CLAIMS.
Distributions with respect to Classes 6 and 8 will only be made on each
Distribution Date; provided, however, that, if a Claim in any of Classes 6 or 8
becomes Allowed subsequent to the Initial Distribution Date, AWI may, in its
sole discretion, make a Distribution with respect to such Claim prior to a
Distribution Date.
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(B) DISTRIBUTION TO THE ASBESTOS PI TRUST.
The Distribution to the Asbestos PI Trust shall be made on the later of (i) the
date the Asbestos PI Trustees have executed the Asbestos PI Trust Agreement and
(ii) the Effective Date.
(C) DISTRIBUTION TO THE ASBESTOS PD TRUST.
If Class 4 votes to accept the Plan, the Distribution of the Asbestos PD Trust
Funding Obligation will be made on the later of (i) the date the Asbestos PD
Trustees are selected for the Asbestos PD Trust and have executed the Asbestos
PD Trust Agreement and (ii) the Effective Date. If Class 4 votes to reject the
Plan, the Distribution of the Asbestos PD Trust Funding Obligation will be made
on the latest of (x) the date an order of the Bankruptcy Court estimating the
aggregate value of all Asbestos Property Damage Claims becomes a Final Order,
(y) the Effective Date, and (z) the date the Asbestos PD Trustees have executed
the Asbestos PD Trust Agreement.
4. FRACTIONAL SHARES.
No fractional shares of New Common Stock will be distributed, no New Notes will
be issued in an amount equal to less than $100, and no cash payments of
fractions of cents will be made. Fractional cents will be rounded to the nearest
whole cent (with 0.5 cent or less to be rounded down). Fractional shares will be
rounded to the nearest whole share (with 0.5 share or less to be rounded down).
New Notes in denominations of less than $100 will be rounded to the nearest $100
increment (with New Notes in denominations of $50 or less to be rounded down).
No cash will be paid in lieu of such fractional shares or New Notes in
increments of less than $100.
5. PROVISIONS FOR TREATMENT OF DISPUTED CLAIMS.
Reorganized AWI will object to the allowance of Claims filed with the Bankruptcy
Court (other than Asbestos Personal Injury Claims and Asbestos Property Damage
Claims) with respect to which Reorganized AWI disputes liability in whole or in
part. Notwithstanding the foregoing, Reorganized AWI, at its option, may
continue to prosecute objections to Asbestos Property Damage Claims if such
objections are pending as of the Effective Date. All objections that are filed
and prosecuted by Reorganized AWI as provided in the Plan will be litigated to
Final Order by Reorganized AWI or compromised and settled in accordance with the
Claims Settlement Guidelines. Unless otherwise provided in the Plan or ordered
by the Bankruptcy Court, all objections by Reorganized AWI to Claims will be
served and filed no later than ninety (90) days after the Effective Date.
Notwithstanding the above, a Distribution will only be made by Reorganized AWI
to the holder of a Disputed Claim when, and to the extent that, such Disputed
Claim becomes Allowed. No interest will be paid on account of Disputed Claims
that later become Allowed except to the extent that payment of interest is
required under section 506(b) of the Bankruptcy Code. No Distribution will be
made with respect to all or any portion of any Disputed Claim pending the entire
resolution thereof in the manner described above.
6. AMENDMENTS TO THE CLAIMS SETTLEMENT GUIDELINES.
[TO BE ADDED PRIOR TO HEARING ON DISCLOSURE STATEMENT]
7. DISTRIBUTION OF UNCLAIMED PROPERTY.
Any Distribution under the Plan that is unclaimed after one hundred eighty (180)
days following the date such property is distributed will be deemed not to have
been made and will be transferred to Reorganized AWI, free and clear of any
claims or interests of any entities, including, without express or implied
limitation, any claims or interests of any governmental unit under escheat
principles. This will not affect the discharge of the Claim with respect to
which such Distribution was made, and the holder of such Claim will be forever
barred from enforcing such Claim against Reorganized AWI or Reorganized AWI's
assets, estate, properties, or interests in property.
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R. DISCHARGE OF AWI.
The rights provided by the Plan and the treatment of the Claims and Equity
Interests therein will be in exchange for and in complete satisfaction,
discharge, and release of all Claims and Equity Interests of any nature
whatsoever, including any interest accrued thereon from and after the
Commencement Date, against AWI or its estate, properties, or interests in
property. Except as otherwise provided in the Plan, upon the Effective Date all
such Claims and Equity Interests in AWI will be deemed satisfied, discharged,
and released in full. Pursuant to the Plan and the Confirmation Order, all
parties will be precluded from asserting against Reorganized AWI, its
successors, or its or their assets, properties, or interests in property any
other or further Claims or Equity Interests based upon any act or omission,
transaction, or other activity of any kind or nature that occurred prior to the
Confirmation Date. In addition, the Confirmation Order will contain, inter alia,
the Asbestos PI Permanent Channeling Injunction. For a description of the
Asbestos PI Permanent Channeling Injunction, see Section VI.D, entitled "THE
ASBESTOS PI TRUST -- The Asbestos PI Permanent Channeling Injunction." AWI is
not seeking an injunction under section 524(g) of the Bankruptcy Code with
respect to Asbestos Property Damage Claims. Instead, AWI will rely upon the
general discharge and injunction against the assertion of preconfirmation claims
that the Bankruptcy Code makes applicable to all Claims, whatever their nature.
S. MODIFICATION OF THE PLAN.
AWI may, with the written consent of the Future Claimants' Representative, the
Asbestos PI Claimants' Committee, and, if Class 6 has not voted to reject the
Plan at the time of the requested alteration, amendment, or modification, the
Unsecured Creditors' Committee, alter, amend, or modify the Plan under section
1127(a) of the Bankruptcy Code at any time prior to the Confirmation Date so
long as the Plan, as modified, meets the requirements of sections 1122 and 1123
of the Bankruptcy Code. After the Confirmation Date and prior to the Effective
Date, AWI, with the written consent of the Future Claimants' Representative, the
Asbestos PI Claimants' Committee, and, if Class 6 votes to accept the Plan, the
Unsecured Creditors' Committee, may alter, amend, or modify the Plan in
accordance with section 1127(b) of the Bankruptcy Code.
T. REVOCATION OR WITHDRAWAL OF THE PLAN.
The Plan may be revoked or withdrawn prior to the Confirmation Date by AWI, with
the written consent of the Future Claimants' Representative, the Asbestos PI
Claimants' Committee, and, if Class 6 has not voted to reject the Plan at the
time of the requested revocation or withdrawal, the Unsecured Creditors'
Committee, or, after the Confirmation Deadline, by AWI. If the Plan is revoked
or withdrawn prior to the Confirmation Date, then the Plan will be deemed null
and void. In such event, nothing contained in the Plan will be deemed to
constitute a waiver or release of any claims or defenses or any admission or
statement against interest by AWI, the Asbestos PI Claimants' Committee, the
Future Claimants' Representative, the Unsecured Creditors' Committee, or any
other Entity or to prejudice in any manner the rights of AWI, the Asbestos PI
Claimants' Committee, the Future Claimants' Representative, the Unsecured
Creditors' Committee, or any Entity in any further proceedings involving AWI.
U. RIGHTS OF ACTION.
Any rights, claims, or causes of action accruing to AWI pursuant to the
Bankruptcy Code or pursuant to any statute or legal theory, including, without
express or implied limitation, any avoidance or recovery actions under sections
544, 545, 547, 548, 549, 550, 551, and 553 of the Bankruptcy Code and (except as
provided in Articles X and XI of the Plan) any rights to, claims, or causes of
action for recovery under any policies of insurance issued to or on behalf of
AWI will remain assets of AWI's estate and, on the Effective Date, will be
transferred to Reorganized AWI. Reorganized AWI will be deemed the appointed
representative to, and may, pursue, litigate, and compromise and settle any such
rights, claims, or causes of action, as appropriate, in accordance with what is
in the best interests of and for the benefit of Reorganized AWI.
On December 6, 2002, the two-year statutory limitations period imposed by
section 546(a) of the Bankruptcy Code during which AWI must commence avoidance
actions expired. Prior to the expiration of such period, AWI conducted a
comprehensive review of its prepetition transactions to determine if AWI should
commence any avoidance actions prior to December 6, 2002. As a result of such
58
review, the details of which were discussed with counsel to the Unsecured
Creditors' Committee, the Asbestos PI Claimants' Committee, and the Future
Claimants' Representative, AWI determined not to bring any avoidance actions
other than the action against the CCR (see section IV.C.8(b), entitled, "THE
CHAPTER 11 CASE - Significant Events During the Chapter 11 Case - Litigation
Involving the Center for Claims Resolution - CCR Preference Litigation) and a
preference action brought against one of AWI's former suppliers.
V. DISSOLUTION OF THE COMMITTEES.
On the Effective Date, the Future Claimants' Representative, the Asbestos PI
Claimants' Committee, the Asbestos PD Committee and the Unsecured Creditors'
Committee will be released and discharged of and from all further authority,
duties, responsibilities, and obligations relating to and arising from and in
connection with the Chapter 11 Case, and all such committees will be deemed
dissolved, and the Future Claimants' Representative's appointment will continue
to serve through the termination of the Asbestos PI Trust in order to perform
the functions required by the Asbestos PI Trust Agreement; provided, however, if
the Effective Date occurs before the Confirmation Order becomes a Final Order,
the Asbestos PI Claimants' Committee, the Future Claimants' Representative and,
if Class 6 votes to accept the Plan, the Unsecured Creditors' Committee, may
continue to exist and to serve for the purposes of pursuing any appeal of the
Confirmation Order. The fees and expenses of the Future Claimants'
Representative from and after the Effective Date relating to the role of the
Future Claimants' Representative in the Asbestos PI Trust, pursuant to the
Asbestos PI Trust Agreement and the Asbestos PI Trust Distribution Procedures
(including, without limitation, the fees and expenses of any professionals
retained by the Future Claimants' Representative), will be the sole
responsibility of the Asbestos PI Trust. Notwithstanding the foregoing, if Class
4 votes to accept the Plan, the Asbestos PD Committee will continue to exist
from and after the Effective Date for the sole purpose of the selection of the
Asbestos PD Trustees and the development of the Asbestos PD Claims Resolution
Procedures, but all fees and expenses incurred by the Asbestos PD Committee
(including, without limitation, all fees and expenses of counsel to the Asbestos
PD Committee and other professionals retained by the Asbestos PD Committee) will
be the sole responsibility of the Asbestos PD Trust.
W. EXCULPATION.
None of Reorganized AWI, any of the members of the Asbestos PI Claimants'
Committee, the Future Claimants' Representative, any of the members of the
Unsecured Creditors' Committee, AWWD, Holdings, or any of their officers,
directors, employees, or agents will have or incur any liability to any entity
for any act or omission in connection with or arising out of the Chapter 11
Case, including, without limitation, the commencement of the Chapter 11 Case,
the negotiation of the Plan, pursuit of confirmation of the Plan, the
consummation of the Plan, or the administration of the Plan or the property to
be distributed under the Plan, except for gross negligence or willful
misconduct, and in all respects will be entitled to rely upon the advice of
counsel with respect to their duties and responsibilities under, or in
connection with, the Plan.
X. SUPPLEMENTAL DOCUMENTS.
Certain exhibits to the Plan, such as the Asbestos PI Trust Agreement and the
Asbestos PI Trust Distribution Procedures, are included in this Disclosure
Statement as exhibits to the Plan. Other exhibits to the Plan will be contained
in a separate exhibit volume and will be filed with the Clerk of the Bankruptcy
Court by [INSERT DATE], which is not later than the earlier of (i) fifteen (15)
days before the deadline for filing objection to confirmation of the Plan and
(ii) thirty (30) days prior to the Confirmation Hearing. Such exhibit volume may
be inspected in the office of the Clerk of the Bankruptcy Court during normal
court hours and may also be viewed at AWI's Internet site
(www.armstrongplan.com). Claimants and holders of Equity Interests and
shareholders of Holdings may also obtain a copy of the exhibit volume, once
filed, from AWI upon written request to the following address:
Armstrong World Industries, Inc.
Post Office Box 3666
Lancaster, Pennsylvania 17604-3666
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VI. THE ASBESTOS PI TRUST
A. GENERAL DESCRIPTION OF THE ASBESTOS PI TRUST.
1. CREATION OF ASBESTOS PI TRUST.
Effective as of the later of (i) the date the Asbestos PI Trustees have executed
the Asbestos PI Trust Agreement and (ii) the Effective Date, the Asbestos PI
Trust will be created. The purpose of the Asbestos PI Trust will be to, among
other things, (i) assume the liabilities of AWI and its predecessors and
successors in interest for all Asbestos Personal Injury Claims, (ii) pursue
recoveries from the Asbestos PI Trust Insurance Asset, (iii) direct the
processing, liquidation, and payment of all Asbestos Personal Injury Claims in
accordance with the Plan, the Asbestos PI Trust Distribution Procedures, and the
Confirmation Order in such a way that such holders of Asbestos Personal Injury
Claims are treated fairly, equitably, and reasonably in light of the limited
assets available to satisfy Asbestos Personal Injury Claims, (iv) preserve,
hold, manage, and maximize the assets of the Asbestos PI Trust for use in paying
and satisfying valid Asbestos Personal Injury Claims and (v) otherwise comply in
all respects with the requirements of a trust set forth in section 524(g)(2)(B)
of the Bankruptcy Code.
2. THE TRUSTEES.
On the Confirmation Date, effective as of the Effective Date, the
Bankruptcy Court will appoint the individuals selected jointly by the Asbestos
PI Claimants' Committee and the Future Claimants' Representative (as identified
in Exhibit 7.2 to the Plan), which individuals will be appointed after
consultation with AWI, to serve as the Asbestos PI Trustees for the Asbestos PI
Trust. The initial Asbestos PI Trustees will serve staggered terms of three,
four, and five years as shown on the signature page of the Asbestos PI Trustee
Agreement and as described below. Thereafter, each term of service will be five
years.
3. THE TRUSTEES' ADVISORY COMMITTEE.
The Asbestos PI Trust Agreement provides for the establishment of a Trustees'
Advisory Committee (the "TAC") with which the Asbestos PI Trustees are required
to consult, and the consent of which is required, on certain matters under the
Asbestos PI Trust Agreement. As with the initial Asbestos PI Trustees, the
initial members of the TAC will serve staggered terms, with five-year terms
thereafter. The identity of the individuals who will serve as the initial TAC
members will be disclosed at the Confirmation Hearing.
4. TRANSFER OF CERTAIN PROPERTY TO THE ASBESTOS PI TRUST.
(A) TRANSFER OF BOOKS AND RECORDS.
On the Effective Date or as soon thereafter as is practicable, at the sole cost
and expense of the Asbestos PI Trust and in accordance with written instructions
provided to Reorganized AWI by the Asbestos PI Trust, Reorganized AWI will
transfer and assign, or cause to be transferred and assigned, to the Asbestos PI
Trust the books and records of AWI that pertain directly to Asbestos Personal
Injury Claims that have been asserted against AWI. AWI will request that the
Bankruptcy Court, in the Confirmation Order, rule that such transfer does not
result in the destruction or waiver of any applicable privileges pertaining to
such books and records. If the Bankruptcy Court does not so rule, at the option
of the Asbestos PI Trust, Reorganized AWI will, at the sole cost and expense of
the Asbestos PI Trust, retain the books and records and enter into arrangements
to permit the Asbestos PI Trust to have access to such books and records. If the
Asbestos PI Trust does not issue written instructions for the transfer or
retention of such books and records within one hundred eighty (180) days after
the later of the Effective Date and the date by which all the Asbestos PI
Trustees have executed the Asbestos PI Trust Agreement, or if the Asbestos PI
Trust so requests, Reorganized AWI may (and shall, if the Asbestos PI Trust so
requests, but at the sole cost and expense of the Asbestos PI Trust) destroy any
such books and records, and the order of the District Court entered during the
Chapter 11 Case with respect to the retention of books and records shall be
deemed superseded by the Plan.
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(B) TRANSFER OF REORGANIZATION CONSIDERATION.
On the later of the Effective Date and the date by which all the Asbestos PI
Trustees have executed the Asbestos PI Trust Agreement, AWI will transfer to the
Asbestos PI Trust the Asbestos PI Insurance Asset and the following assets:
>> 65.57% of the New Common Stock,
>> 65.57% of the first $1.05 billion of (x) up to $300 million of
Available Cash and (y) the New Notes,
>> 40% of the first $50 million of Available Cash remaining after
making provision for the Distribution provided in section
3.2(f)(ii)2 of the Plan and the funding of the Asbestos PI Trust
in section 10.1(b)(ii) of the Plan,
>> 40% of an amount of New Notes equal to the difference (if
positive) of $50 million less the amount of Available Cash
remaining after making provision for the Distribution provided
in section 3.2(f)(ii)2 of the Plan and the funding of the
Asbestos PI Trust in section 10.1(b)(ii) of the Plan, and
>> 65.57% of the remaining amount of Available Cash and New Notes
after making provision for the Distribution provided in sections
3.2(f)(ii)2, 3.2(f)(ii)3, and 3.2(f)(ii)4 of the Plan and the
funding of the Asbestos PI Trust in sections 10.1(b)(ii),
10.1(b)(iii), and 10.1(b)(iv) of the Plan.
AWI estimates that the total value of assets to be distributed by AWI to the
Asbestos PI Trust, excluding the Asbestos PI Insurance Asset, will be
approximately $2.1 billion as of the Effective Date. See Section V.D, entitled,
"THE PLAN OF REORGANIZATION - Description of the Reorganization Consideration,"
for a description of the New Common Stock and the New Notes and the definition
and estimate of Available Cash.
If Class 6 votes to reject the Plan and the Holdings Plan of Liquidation is
approved by the shareholders of Holdings prior to the first anniversary of the
Effective Date, on the later of the date of such approval and the Effective
Date, the New Warrants will be issued to the Asbestos PI Trust, and the Asbestos
PI Trust will automatically, and without further action by the Asbestos PI Trust
or approval of the Asbestos PI Trustees, be deemed to have transferred the New
Warrants to AWWD.
(C) ASBESTOS PI TRUST TERMINATION PROVISIONS.
The Asbestos PI Trust will terminate automatically 90 days after the first to
occur of the following events:
>> the Asbestos PI Trustees decide to terminate the Asbestos PI
Trust because (i) they deem it unlikely that new Asbestos
Personal Injury Claims will be filed against the Asbestos PI
Trust, (ii) all Asbestos Personal Injury Claims duly filed with
the Asbestos PI Trust have been liquidated and paid to the
extent provided in the Asbestos PI Trust Agreement and the
Asbestos PI Trust Distribution Procedures or disallowed by a
final, non-applicable order, to the extent possible based upon
the funds available through the Plan, and (iii) twelve
consecutive months have elapsed during which no new Asbestos
Personal Injury Claim has been filed with the Asbestos PI Trust;
or
>> if the Asbestos PI Trustees have procured and have in place
irrevocable insurance policies and have established claims
handling agreements and other necessary arrangements with
suitable third parties adequate to discharge all expected
remaining obligations and expenses of the Asbestos PI Trust in a
manner consistent with the Asbestos PI Trust Agreement and the
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Asbestos PI Trust Distribution Procedures, the date on which the
Bankruptcy Court enters an order approving such insurance and
other arrangements and such order becomes a Final Order; or
>> to the extent that any rule against perpetuities is deemed
applicable to the Asbestos PI Trust, 21 years less 91 days pass
after the death of the last survivor of all of the descendants
of the late Joseph P. Kennedy, Sr., father of the late President
John F. Kennedy, living on the date hereof.
5. ABILITY TO AMEND ASBESTOS PI TRUST DOCUMENTS.
[TO BE ADDED PRIOR TO HEARING ON DISCLOSURE STATEMENT]
B. ASBESTOS PI TRUST DISTRIBUTION PROCEDURES.
[TO BE ADDED PRIOR TO HEARING ON DISCLOSURE STATEMENT]
C. THE ASBESTOS PI INSURANCE ASSET.
On the later of the Effective Date and the date by which all of the Asbestos PI
Trustees have executed the Asbestos PI Trust Agreement, AWI will transfer to the
Asbestos PI Trust all rights arising under liability insurance policies issued
to AWI with inception dates prior to January 1, 1982 with respect to the
liability for Asbestos Personal Injury Claims (with the exception of AWI's claim
against Liberty Mutual Insurance Company for costs, expenses and fees incurred
in connection with an Alternative Dispute Resolution Proceeding initiated in
1996 under the Agreement Concerning Asbestos Related Claims of June 19, 1985 and
AWI's rights to insurance relating to workers' compensation claims). The
foregoing includes, but is not limited to, rights under insurance policies,
rights under settlement agreements made with respect to such insurance policies,
rights against the estates of insolvent insurers that issued such policies or
entered into such settlements, and rights against state insurance guaranty
associations arising out of any such insurance policies issued by insolvent
insurers. The foregoing also includes the right, on behalf of AWI and its
subsidiaries as of the Effective Date, to give a full release of the insurance
rights of AWI and its subsidiaries as of the Effective Date under any such
policy or settlement agreement with the exception of rights to coverage for
Asbestos Property Damage Claims and rights to coverage for the amount that AWI
agreed to pay to plaintiffs in the Maertin Litigation in a settlement agreement
executed November 22, 2000 and rights to coverage with respect to workers'
compensation claims.
D. THE ASBESTOS PI PERMANENT CHANNELING INJUNCTION.
THE CONFIRMATION ORDER WILL CONTAIN, INTER ALIA, THE ASBESTOS PI PERMANENT
CHANNELING INJUNCTION. PURSUANT TO THE ASBESTOS PI PERMANENT CHANNELING
INJUNCTION, ALL ENTITIES WILL BE FOREVER STAYED, RESTRAINED, AND ENJOINED FROM
TAKING CERTAIN ACTIONS SPECIFIED IN THE PLAN AGAINST ANY PI PROTECTED PARTY FOR
THE PURPOSE OF, DIRECTLY OR INDIRECTLY, COLLECTING, RECOVERING, OR RECEIVING
PAYMENT OF, ON, OR WITH RESPECT TO ANY ASBESTOS PERSONAL INJURY CLAIMS, ALL OF
WHICH WILL BE CHANNELED TO THE ASBESTOS PI TRUST FOR RESOLUTION AS SET FORTH IN
THE ASBESTOS PI TRUST DISTRIBUTION PROCEDURES, AGAINST ANY PI PROTECTED PARTY OR
ITS PROPERTY (OTHER THAN ACTIONS BROUGHT TO ENFORCE ANY RIGHT OR OBLIGATION
UNDER THE PLAN, ANY EXHIBITS TO THE PLAN, OR ANY OTHER AGREEMENT OR INSTRUMENT
BETWEEN AWI OR REORGANIZED AWI AND THE ASBESTOS PI TRUST, WHICH ACTIONS WILL BE
IN CONFORMITY AND COMPLIANCE WITH THE PROVISIONS OF THE PLAN). NOTHING CONTAINED
IN THE ASBESTOS PI PERMANENT CHANNELING INJUNCTION WILL BE DEEMED A WAIVER OF
ANY CLAIM, RIGHT, OR CAUSE OF ACTION THAT AWI, REORGANIZED AWI, OR THE ASBESTOS
PI TRUST MAY HAVE AGAINST ANY ENTITY IN CONNECTION WITH OR ARISING OUT OF AN
ASBESTOS PERSONAL INJURY CLAIM.
In 1994, the Bankruptcy Code was amended to add subsections (g) and (h) to
section 524. These subsections confirm the validity of existing injunctions
(such as those used in the chapter 11 cases of Johns-Manville Corporation and
UNR Corporation) similar to the Asbestos PI Permanent Channeling Injunction and
codify a court's authority to issue a permanent injunction in asbestos-related
reorganizations under chapter 11 to supplement the injunctive relief afforded by
section 524. Section 524(g) provides that, if certain specified conditions are
62
satisfied, a court may issue a supplemental permanent injunction, such as the
Asbestos PI Permanent Channeling Injunction, barring claims and demands against
the reorganized company and certain identified protected parties and channeling
those claims and demands to an independent trust.
Pursuant to the Asbestos PI Permanent Channeling Injunction and the Plan, the
following entities will be "PI PROTECTED PARTIES" and, therefore, protected by
the scope of the Asbestos PI Permanent Channeling Injunction:
>> AWI;
>> Reorganized AWI;
>> Holdings;
>> AWWD;
>> any past or present affiliate of AWI (other than ACandS, Inc.
f/k/a Armstrong Contracting and Supply Corp.);
>> any AWI Progeny;
>> any Entity that, pursuant to the Plan or after the Effective
Date, becomes a direct or indirect transferee of, or successor
to, any assets of AWI, Reorganized AWI, any of the AWI Progeny,
or the Asbestos PI Trust (but only to the extent that liability
is asserted to exist by reason of it becoming such a transferee
or successor);
>> any Entity that, pursuant to the Plan or after the Effective
Date, makes a loan to Reorganized AWI, any of the AWI Progeny,
or the Asbestos PI Trust or to a successor to, or transferee of,
any assets of AWI, Reorganized AWI, any of the AWI Progeny, or
the Asbestos PI Trust (but only to the extent that liability is
asserted to exist by reason of such Entity becoming such a
lender or to the extent any pledge of assets made in connection
with such a loan is sought to be upset or impaired); or
>> any Entity to the extent he, she, or it is alleged to be
directly or indirectly liable for the conduct of, Claims
against, or Demands on AWI, Reorganized AWI, any of the AWI
Progeny, or the Asbestos PI Trust on account of Asbestos
Personal Injury Claims by reason of one or more of the
following:
o such Entity's ownership of a financial interest in AWI
or Reorganized AWI, a past or present affiliate of AWI
or Reorganized AWI (other than ACandS, Inc. f/k/a
Armstrong Contracting and Supply Corp.), any of the AWI
Progeny, or predecessor in interest of AWI or
Reorganized AWI;
o such Entity's involvement in the management of AWI,
AWWD, Holdings, an Affiliate, Reorganized AWI, any of
the AWI Progeny, or any predecessor in interest of AWI
or Reorganized AWI;
o such Entity's service as an officer, director, or
employee of AWI, Reorganized AWI, AWWD, Holdings, an
Affiliate, any of the AWI Progeny, any past or present
affiliate of AWI or Reorganized AWI (other than ACandS,
Inc. f/k/a Armstrong Contracting and Supply Corp.), any
predecessor in interest of AWI or Reorganized AWI, or
any Entity that owns or at any time has owned a
financial interest in AWI or Reorganized AWI, any past
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or present affiliate of AWI or Reorganized AWI (other
than ACandS, Inc. f/k/a Armstrong Contracting and Supply
Corp.), or any predecessor in interest of AWI or
Reorganized AWI.
o such Entity's provision of insurance to (a) AWI, (b)
Reorganized AWI, (c) any of the AWI Progeny, (d) any
past or present affiliate of AWI or Reorganized AWI
(other than ACandS, Inc. f/k/a Armstrong Contracting and
Supply Corp.), (e) any predecessor in interest of AWI or
Reorganized AWI, or (d) any Entity that owns or at any
time has owned a financial interest in AWI or
Reorganized AWI, any past or present affiliate of AWI or
Reorganized AWI (other than ACandS, Inc. f/k/a Armstrong
Contracting and Supply Corp.) any of the AWI Progeny, or
any predecessor in interest of AWI or Reorganized AWI,
but only to the extent that AWI, Reorganized AWI, or the
Asbestos PI Trust enters into a settlement with such
Entity that is approved by the Bankruptcy Court and
expressly provides that such Entity shall be entitled to
the protection of the Asbestos PI Permanent Channeling
Injunction as a Protected Party; or
o such Entity's involvement in a transaction changing the
corporate structure, or in a loan or other financial
transaction affecting the financial condition, of AWI,
AWWD, Holdings, an Affiliate, Reorganized AWI, any of
the AWI Progeny, any past or present affiliate of AWI or
Reorganized AWI, any predecessor in interest of AWI or
Reorganized AWI, or any Entity that owns or at any time
has owned a financial interest in AWI or Reorganized
AWI, any past or present affiliate of AWI or Reorganized
AWI (other than ACandS, Inc. f/k/a Armstrong Contracting
and Supply Corp.), or any predecessor in interest of AWI
or Reorganized AWI.
Pursuant to the Asbestos PI Permanent Channeling Injunction, the PI Protected
Parties will be protected against any Entity taking any of the following actions
for the purpose of, directly or indirectly, collecting, recovering, or receiving
payment of, on, or with respect to any Asbestos Personal Injury Claims,
including, but not limited to:
>> commencing, conducting, or continuing in any manner, directly or
indirectly, any suit, action, or other proceeding (including,
without express or implied limitation, a judicial, arbitral,
administrative, or other proceeding) in any forum against or
affecting any PI Protected Party or any property or interests in
property of any PI Protected Party;
>> enforcing, levying, attaching (including, without express or
implied limitation, any prejudgment attachment), collecting, or
otherwise recovering by any means or in any manner, whether
directly or indirectly, any judgment, award, decree, or other
order against any PI Protected Party or any property or
interests in property of any PI Protected Party;
>> creating, perfecting, or otherwise enforcing in any manner,
directly or indirectly, any Encumbrance against any PI Protected
Party or any property or interests in property of any PI
Protected Party;
>> setting off, seeking reimbursement of, contribution from, or
subrogation against, or otherwise recouping in any manner,
directly or indirectly, any amount against any liability owed to
any PI Protected Party or any property or interests in property
of any PI Protected Party; and
64
>> proceeding in any manner in any place with regard to any matter
that is subject to resolution pursuant to the Asbestos PI Trust,
except in conformity and compliance therewith.
AWI will seek the issuance of the Asbestos PI Permanent Channeling Injunction
pursuant to section 524(g) and any other applicable provision of the Bankruptcy
Code. To qualify under the statute, a trust must meet certain standards that are
specified in section 524(g). To ensure that the Asbestos PI Trust meets these
standards, AWI has made compliance with them a condition precedent to
confirmation of the Plan. See Section V.B, entitled "THE PLAN OF REORGANIZATION
- -- Conditions to Confirmation."
E. APPLICATION OF THE CLAIMS TRADING INJUNCTION TO ASBESTOS PERSONAL INJURY
CLAIMS.
The Confirmation Order will also contain, inter alia, the Claims Trading
Injunction. Pursuant to the Claims Trading Injunction, a holder of an Asbestos
Personal Injury Claim is stayed, restrained, and enjoined from, directly or
indirectly, purchasing, selling, transferring, assigning, conveying, pledging,
or otherwise acquiring or disposing of such Asbestos Personal Injury Claim. The
restrictions on transfer of Asbestos Personal Injury Claims, however, will not
apply to (i) the transfer of an Asbestos Personal Injury Claim to the holder of
an Asbestos PI Contribution Claim solely as a result of such holder's
satisfaction of such Asbestos Personal Injury Claim or (ii) the transfer of an
Asbestos Personal Injury Claim by will or under the laws of descent and
distribution. Any such order or orders also will provide that any action taken
in violation thereof will be void ab initio.
It is a condition precedent to the Effective Date under the Plan that the Claims
Trading Injunction be in full force and effect. See Section V.C, entitled "THE
PLAN OF REORGANIZATION - Conditions Precedent to the Effective Date under the
Plan."
F. COMPLIANCE WITH QSF REGULATIONS.
AWI will timely seek a private letter ruling from the IRS substantially to the
effect that, among other things, the Asbestos PI Trust will be a "qualified
settlement fund" within the meaning of section 468B of the Internal Revenue Code
and the Treasury Regulations thereunder, or AWI will receive an opinion of
counsel with respect to the tax status of the Asbestos PI Trust as a "qualified
settlement fund" reasonably satisfactory to AWI, the Asbestos PI Claimants'
Committee, the Future Claimants' Representative, and, if Class 6 votes to accept
the Plan, the Unsecured Creditors' Committee. Within sixty (60) days before or
after the funding of the Asbestos PI Trust (but not later than February 14th of
the following calendar year), AWI or Reorganized AWI will obtain a Qualified
Appraisal of the fair market value of the New Common Stock transferred (or to be
transferred) to the Asbestos PI Trust.
Following the funding of the Asbestos PI Trust and the receipt of the Qualified
Appraisal (and in no event later than February 15th of the calendar year
following the funding of the Asbestos PI Trust), Reorganized AWI will provide a
"ss. 1.468B-3 Statement" to the Asbestos PI Trustees in accordance with Treasury
Regulations section 1.468B-3(e).
65
VII. THE ASBESTOS PD TRUST
A. CREATION OF ASBESTOS PD TRUST.
1. GENERAL DESCRIPTION OF THE ASBESTOS PD TRUST.
Effective as of the later of (i) the date the Asbestos PD Trustees have executed
the Asbestos PD Trust Agreement and (ii) the Effective Date, the Asbestos PD
Trust will be created. Following the funding of the Asbestos PD Trust (and in no
event later than February 15th of the following calendar year), Reorganized AWI
will provide a "ss. 1.468B-3 Statement" to the Asbestos PD Trustees in
accordance with Treasury Regulations section 1.468B-3(e). The purpose of the
Asbestos PD Trust will be to, among other things, (i) direct the processing,
liquidation, and payment of all Asbestos Property Damage Claims in accordance
with the Plan, the Asbestos PD Claims Resolution Procedures, and the
Confirmation Order and (ii) preserve, hold, manage, and maximize the assets of
the Asbestos PD Trust for use in paying and satisfying Asbestos Property Damage
Claims.
2. THE ASBESTOS PD TRUSTEES.
If Class 4 votes to accept the Plan, the Asbestos PD Trustees will be selected
by the Asbestos PD Committee. If Class 4 votes to reject the Plan, a single
individual, who will be identified by AWI before or at the Confirmation Hearing,
will be selected to serve as the Asbestos PD Trustee.
3. TRANSFER OF CERTAIN PROPERTY TO THE ASBESTOS PD TRUST.
(A) TRANSFER OF BOOKS AND RECORDS
On the Effective Date or as soon thereafter as is practicable, Reorganized AWI,
at the sole cost and expense of the Asbestos PD Trust, and in accordance with
written instructions provided to Reorganized AWI by the Asbestos PD Trust, shall
transfer and assign, or cause to be transferred and assigned, to the Asbestos PD
Trust the books and records of AWI (if any) that pertain directly to Asbestos
Property Damage Claims that have been asserted against AWI (except to the extent
that any Asbestos Property Damage Claims are the subject of an objection brought
by AWI and which Reorganized AWI will prosecute in accordance with section 5.1
of the Plan and except to the extent that such books and records have been
produced to the Asbestos PD Committee during the course of the Chapter 11 Case).
AWI will request that the Bankruptcy Court, in the Confirmation Order, rule that
such transfer does not result in the destruction or waiver of any applicable
privileges pertaining to such books and records. If the Bankruptcy Court does
not so rule, at the option of the Asbestos PD Trust, Reorganized AWI will, at
the sole cost and expense of the Asbestos PD Trust, retain the books and records
and enter into arrangements to permit the Asbestos PD Trust to have access to
such books and records. If the Asbestos PD Trust does not issue written
instructions for the transfer or retention of such books and records within one
hundred eighty (180) days after the later of the Effective Date and the date by
which all the Asbestos PD Trustees have executed the Asbestos PD Trust
Agreement, or if the Asbestos PD Trust so requests, Reorganized AWI may (and
shall, if the Asbestos PD Trust so requests, but at the sole cost and expense of
the Asbestos PD Trust) destroy any such books and records, and the order of the
District Court entered during the Chapter 11 Case with respect to the retention
of books and records shall be deemed superseded by the Plan.
(B) TRANSFER OF ASBESTOS PD TRUST FUNDING OBLIGATION
If Class 4 votes to reject the Plan, on the later of the Effective Date and the
date by which all the Asbestos PD Trustees have executed the Asbestos PD Trust
Agreement, Reorganized AWI shall transfer and assign, or cause to be transferred
and assigned, to the Asbestos PD Trust the Asbestos PD Trust Funding Obligation.
B. ASBESTOS PD CLAIMS RESOLUTION PROCEDURES.
If Class 4 votes to accept the Plan, the Asbestos PD Trustees will develop
procedures governing the allowance and payment of Asbestos Property Damage
Claims. If Class 4 votes to reject the Plan, the Asbestos PD Trustee will be
bound to use the Asbestos PD Claims Resolution Procedures that are attached as
Exhibit "1.14" to the Plan to determine the allowance and payment of Asbestos
66
Property Damage Claims. Pursuant to the Asbestos PD Claims Resolution Procedures
set forth in Exhibit "1.14" to the Plan, to qualify for compensation, the holder
of an Asbestos Property Damage Claim must submit (i) evidence of asbestos
content of the material for which a claim is made, whether already removed or in
place, and (ii) evidence of friable material releasing fibers into the air in
excess of the OSHA PEL. A holder of an Asbestos Property Damage Contribution
Claim must demonstrate all the evidence that the underlying claimant would be
required to prove, as well as demonstrate that it has made payment to the
claimant in satisfaction of such claimant's claim against AWI.
C. DISCHARGE OF ASBESTOS PROPERTY DAMAGE CLAIMS.
AWI is not seeking an injunction under section 524(g) of the Bankruptcy Code
with respect to Asbestos Property Damage Claims. Instead, AWI will rely upon the
general discharge and injunction against the assertion of preconfirmation claims
that the Bankruptcy Code makes applicable to all Claims, whatever their nature.
D. APPLICATION OF THE CLAIMS TRADING INJUNCTION TO ASBESTOS PROPERTY DAMAGE
CLAIMS.
The Confirmation Order will also contain, inter alia, the Claims Trading
Injunction. Pursuant to the Claims Trading Injunction a holder of an Asbestos
Property Damage Claim is stayed, restrained, and enjoined from, directly or
indirectly, purchasing, selling, transferring, assigning, conveying, pledging,
or otherwise acquiring or disposing of such Asbestos Property Damage Claim. The
restrictions on transfer of Asbestos Property Damage Claims, however, will not
apply to (i) the transfer of an Asbestos Property Damage Claim to the holder of
an Asbestos Property Damage Contribution Claim solely as a result of such
holder's satisfaction of such Asbestos Property Damage Claim or (ii) the
transfer of an Asbestos Property Damage Claim by will or under the laws of
descent and distribution. Any such order or orders also will provide that any
action taken in violation thereof will be void ab initio.
It is a condition precedent to the Effective Date under the Plan that the Claims
Trading Injunction be in full force and effect. See Section V.C, entitled "THE
PLAN OF REORGANIZATION - Conditions Precedent to the Effective Date under the
Plan."
67
VIII. CONFIRMATION AND CONSUMMATION PROCEDURE
Under the Bankruptcy Code, the following steps must be taken to confirm the
Plan:
A. SOLICITATION OF VOTES.
In accordance with sections 1126 and 1129 of the Bankruptcy Code, the Claims in
each of Classes 3 (Convenience Claims), 4 (Asbestos Property Damage Claims), 6
(Unsecured Claims other than Convenience Claims), 7 (Asbestos Personal Injury
Claims), 8 (Environmental Claims) and AWWD's Equity Interests in AWI (in Class
11) are impaired, and the holders of Claims in each of such classes are entitled
to vote to accept or reject the Plan in the manner and to the extent set forth
in the Voting Procedures. Pursuant to the Voting Procedures, any Claimant
holding a Claim in an impaired class under the Plan may vote on the Plan so long
as such Claim has not been disallowed and is not the subject of an objection
pending as of the Voting Record Date (the date that is ______ business days
after the entry of the order approving this Disclosure Statement by the
Bankruptcy Court -- ____________). Nevertheless, if a Claim is the subject of
such an objection, the holder thereof may vote if, prior to the Voting Deadline
(_________________), such holder obtains an order of the Bankruptcy Court, or
the Bankruptcy Court approves a stipulation between AWI and such holder fully or
partially allowing such Claim, whether for all purposes or for voting purposes
only.
Claims in each of Classes 1 (Priority Claims), 2 (Secured Claims), 5 (COLI
Claims), 9 (Affiliate Claims), and 10 (Subsidiary Debt Guarantee Claims) are
unimpaired. The holders of Allowed Claims in each of such classes are
conclusively presumed to have accepted the Plan, and the solicitation of
acceptances with respect to each such Class is not required under section
1126(f) of the Bankruptcy Code. If your Claim is in one of these classes, you
will not be receiving a Ballot.
As to classes of claims entitled to vote on a plan, the Bankruptcy Code defines
acceptance of a plan by a class of creditors as acceptance by holders of at
least two-thirds in dollar amount and more than one-half in number of the claims
of that class that have timely voted to accept or reject a plan. The Voting
Procedures provide the following special rules concerning the calculation of the
amount of Claims voting in a Class of Claims:
Detailed voting instructions are provided with the Ballot accompanying this
Disclosure Statement and are set forth in the Voting Procedures annexed to this
Disclosure Statement. Claims or Interests in Classes 3 (Convenience Claims), 4
(Asbestos Property Damage Claims), 6 (Unsecured Claims other than Convenience
Claims), 7 (Asbestos Personal Injury Claims), 8 (Environmental Claims), and 11
(Equity Interests) are impaired, and are therefore entitled to vote to accept or
reject the Plan.
B. THE CONFIRMATION HEARING.
The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a
confirmation hearing. The Confirmation Hearing in respect of the Plan has been
scheduled to commence on __________, at _______ [a.m.] [p.m.], before the
[INSERT COURT AND ADDRESS FOR COURTHOUSE]. The Confirmation Hearing may be
adjourned from time to time by the Bankruptcy Court without further notice,
except for an announcement of the adjourned date made at the Confirmation
Hearing.
Any objection to confirmation must be made in writing and must specify in detail
the name and address of the objector, all grounds of the objection, and the
amount and class of the Claim or number of shares of Holdings common stock held
by the objector. Any such objection must be filed with the Bankruptcy Court and
served so that it is received by the Bankruptcy Court and the persons on the
"Primary Recipients' List" on or before ___________________, at ________ p.m.,
___________time. Objections to confirmation of the Plan are governed by
Bankruptcy Rule 9014.
C. CONFIRMATION.
At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan only if
all of the requirements of section 1129 of the Bankruptcy Code are met. Among
the requirements for confirmation of the Plan are that the Plan is (i) accepted
68
by all impaired classes of claims and equity interests or, if rejected by an
impaired class, that the Plan "does not discriminate unfairly" and is "fair and
equitable" as to such class, (ii) feasible, and (iii) in the "best interests" of
creditors and stockholders that are impaired under the Plan.
1. ACCEPTANCE.
Classes 3, 4, 6, 7, 8 and 11 of the Plan are impaired under the Plan and are
entitled to vote to accept or reject the Plan. Classes 1, 2, 5, 9 and 10 are
unimpaired and are conclusively deemed to have voted to accept the Plan. AWI
reserves the right to seek nonconsensual confirmation of the Plan with respect
to any class of Claims that is entitled to vote to accept or reject the Plan if
such class rejects the Plan.
2. UNFAIR DISCRIMINATION AND FAIR AND EQUITABLE TESTS.
To obtain nonconsensual confirmation of the Plan, it must be demonstrated to the
Bankruptcy Court that the Plan "does not discriminate unfairly" and is "fair and
equitable" with respect to each impaired, nonaccepting Class. The Bankruptcy
Code provides the following non-exclusive definition of the phrase "fair and
equitable," as it applies to secured creditors, unsecured creditors, and equity
holders:
(A) SECURED CREDITORS.
With respect to any holder of a secured claim that rejects a plan, the
Bankruptcy Code requires that either (i) each impaired secured creditor retains
its liens securing its secured claim and receives on account of its secured
claim deferred cash payments having a present value equal to the amount of its
allowed secured claim, (ii) each impaired secured creditor realizes the
"indubitable equivalent" of its allowed secured claim, or (iii) the property
securing the claim is sold free and clear of liens with such liens to attach to
the proceeds of the sale and the treatment of such liens on proceeds is provided
in clause (i) or (ii) of this subparagraph. Because all Secured Claims are
unimpaired under the Plan and, therefore, conclusively are deemed to accept the
Plan, this test is inapplicable to the Plan.
(B) UNSECURED CREDITORS.
With respect to any class of unsecured claims that rejects a plan, the
Bankruptcy Code requires that either (i) each impaired unsecured creditor
receives or retains under the plan property of a value equal to the amount of
its allowed claim, or (ii) the holders of claims and interests that are junior
to the claims of the rejecting class of unsecured creditors will not receive or
retain any property under the plan. This test will be applicable if any of Class
3 (Convenience Claims), Class 4 (Asbestos Property Damage Claims), Class 6
(Unsecured Claims other than Convenience Claims), or Class 8 (Environmental
Claims) rejects the Plan.
(C) EQUITY HOLDERS.
With respect to any class of equity interests that rejects a plan, the
Bankruptcy Code requires that either (i) each holder of an equity interest will
receive or retain under the plan property of a value equal to the greatest of
the fixed liquidation preference to which such holder is entitled, the fixed
redemption price to which such holder is entitled, or the value of the interest,
or (ii) the holder of an interest that is junior to the non-accepting class will
not receive or retain any property under the plan. This test will be applicable
if AWWD, the holder of the Equity Interests, rejects the Plan or is deemed to
have rejected the Plan if Class 6 rejects the Plan.
AWI believes that the Plan and the treatment of all classes of Claims and Equity
Interests under the Plan satisfy the foregoing requirements for nonconsensual
confirmation of the Plan.
3. FEASIBILITY.
The Bankruptcy Code requires that confirmation of a plan is not likely to be
followed by liquidation or the need for further financial reorganization. For
purposes of determining whether the Plan meets this requirement, AWI has
analyzed its ability to meet its obligations under the Plan. As part of this
analysis, AWI has prepared projections of its financial performance for the
six-month period ending December 31, 2003 and each of the years ending December
69
31, 2004 through 2007 (the "PROJECTION PERIOD"). These projections, and the
assumptions on which they are based, are included in the Armstrong World
Industries, Inc. Projected Financial Information included in the Financial
Appendix annexed hereto as Exhibit "C" (the "PROJECTED FINANCIAL INFORMATION").
Based upon the Projected Financial Information, AWI believes that Reorganized
AWI will be able to make all payments required pursuant to the Plan, and,
therefore, that confirmation of the Plan is not likely to be followed by
liquidation or the need for further reorganization. AWI further believes that
Reorganized AWI will be able to repay or refinance any and all of the
then-outstanding secured indebtedness under the Plan at or prior to the maturity
of such indebtedness.
The Projected Financial Information consists of the following:
>> Pro Forma Consolidated Balance Sheet of Reorganized AWI as of
July 1, 2003, which reflects the projected accounting effects of
the consummation of the Plan and the application of "fresh
start" accounting principles
>> Projected Consolidated Balance Sheets of Reorganized AWI as of
July 1, 2003 and at December 31 for each of the years from 2004
through 2007
>> Projected Consolidated Statements of Income of Reorganized AWI
for the six-month period ending December 31, 2003 and each of
the years ending December 31, 2004 through 2007
>> Projected Consolidated Statements of Cash Flow of Reorganized
AWI for the six-month period ending December 31, 2003 and each
of the years ending December 31, 2004 through 2007
>> Projected Capital Structure of Reorganized AWI as of July 1,
2003
The Projected Financial Information is based upon the assumption that the Plan
will be confirmed and, for projection purposes, that the Effective Date and the
initial distributions take place as of July 1, 2003. Although the Projected
Financial Information is based upon a July 1, 2003, Effective Date, AWI believes
that an actual Effective Date as late as December 31, 2003 would not have any
material adverse effect on the projections.
AWI has prepared the Projected Financial Information based upon certain
assumptions that it believes to be reasonable under the circumstances. Those
assumptions considered to be significant are described in the Projected
Financial Information. The Projected Financial Information has not been examined
or compiled by independent accountants. Many of the assumptions on which the
Projected Financial Information is based are subject to significant
uncertainties. Inevitably, some assumptions will not materialize, and
unanticipated events and circumstances may affect the actual financial results.
Therefore, the actual results achieved throughout the Projection Period may vary
from the projected results, and the variations may be material. All holders of
Claims that are entitled to vote to accept or reject the Plan are urged to
examine carefully all of the assumptions on which the Projected Financial
Information is based in evaluating the Plan.
4. BEST INTERESTS TEST.
With respect to each impaired Class of Claims and Equity Interests, confirmation
of the Plan requires that each holder of a Claim or Equity Interest either (i)
accept the Plan or (ii) receive or retain under the Plan property of a value, as
of the Effective Date, that is not less than the value such holder would receive
or retain if AWI were liquidated under chapter 7 of the Bankruptcy Code. This
requirement is referred to as the "best interests test." To determine what
holders of Claims and Equity Interests of each impaired Class would receive if
AWI were liquidated under chapter 7, the Bankruptcy Court must determine the
dollar amount that would be generated from the liquidation of AWI's assets and
properties in the context of a chapter 7 liquidation case. The cash amount that
would be available for satisfaction of Claims (other than Secured Claims) and
Equity Interests would consist of the proceeds resulting from the disposition of
the unencumbered assets of AWI, augmented by the unencumbered cash held by AWI
at the time of the commencement of the liquidation case. Such cash amount would
be reduced by the amount of the costs and expenses of the liquidation and by
70
such additional administrative and priority claims that may result from the
termination of AWI's businesses and the use of chapter 7 for the purposes of
liquidation.
AWI's costs of liquidation under chapter 7 would include the fees payable to a
trustee in bankruptcy, as well as those that might be payable to attorneys and
other professionals that such a trustee may engage. In addition, claims would
arise by reason of the breach or rejection of obligations incurred and leases
and executory contracts assumed or entered into by AWI during the pendency of
the Chapter 11 Case. The foregoing types of claims and other claims that may
arise in a liquidation case or result from the pending Chapter 11 Case,
including any unpaid expenses incurred by AWI, as debtor in possession, during
the Chapter 11 Case, such as compensation for attorneys, financial advisers, and
accountants, would be paid in full from the liquidation proceeds before the
balance of those proceeds would be made available to pay prepetition Claims.
To determine if the Plan is in the best interests of each impaired class, the
present value of the distributions from the proceeds of the liquidation of AWI's
unencumbered assets and properties, after subtracting the amounts attributable
to the foregoing Claims, are then compared with the value of the property
offered to such classes of Claims and Equity Interests under the Plan.
After considering the effects that chapter 7 liquidation would have on the
ultimate proceeds available for distribution to creditors in the Chapter 11
Case, including (i) the increased costs and expenses of liquidation under
chapter 7 arising from fees payable to a trustee in bankruptcy and professional
advisers to such trustee, (ii) the erosion in value of assets in a chapter 7
case in the context of the expeditious liquidation required under a chapter 7
case and the "forced sale" atmosphere that would prevail, and (iii) the
substantial increases in Claims that would be satisfied on a priority basis or
on a parity with creditors in the Chapter 11 Case, AWI has determined that
confirmation of the Plan will provide each holder of an Allowed Claim or Equity
Interest with a recovery that is not less than such holder would receive
pursuant to liquidation of AWI under chapter 7 of the Bankruptcy Code.
AWI also believes that the value of any distributions to each class of Allowed
Claims in a chapter 7 case, including all Secured Claims, would be less than the
value of distributions under the Plan because such distributions in a chapter 7
case would not occur for a substantial period of time. It is likely that
distribution of the proceeds of the liquidation could be delayed a number of
years after the completion of such liquidations in order to resolve claims and
prepare for distributions. In the likely event litigation was necessary to
resolve claims asserted in the chapter 7 case, the delay could be prolonged.
AWI's Liquidation Analysis is attached hereto as Exhibit "E" (the "LIQUIDATION
ANALYSIS"). The information set forth in Exhibit "E" provides a summary of the
liquidation values of AWI's assets assuming a chapter 7 liquidation in which a
trustee appointed by the Bankruptcy Court would liquidate the assets of AWI's
estate. Reference should be made to the Liquidation Analysis for a complete
discussion and presentation of the Liquidation Analysis.
Underlying the Liquidation Analysis are a number of estimates and assumptions
that, although considered reasonable by AWI's management, are inherently subject
to significant economic and competitive uncertainties and contingencies beyond
the control of AWI's management. The Liquidation Analysis is also based upon
assumptions with regard to liquidation decisions that are subject to change.
Accordingly, the values reflected may not be realized if AWI were, in fact, to
undergo such a liquidation.
D. CONSUMMATION.
The Plan will be consummated on the Effective Date. For a more detailed
discussion of the conditions precedent to the Plan and the impact of the failure
to meet such conditions, see Section V.C, "THE PLAN OF REORGANIZATION --
Conditions Precedent to the Effective Date under the Plan."
The Plan is to be implemented pursuant to the provisions of the Bankruptcy Code.
71
IX. MANAGEMENT OF REORGANIZED AWI
A. BOARD OF DIRECTORS AND MANAGEMENT.
1. COMPOSITION OF THE BOARD OF DIRECTORS.
On the Effective Date, the Board of Directors of Reorganized AWI will consist of
between seven and eleven individuals, one of whom is expected to be Michael D.
Lockhart, AWI's chief executive, who will serve as Chairman of the Board as well
as continuing as chief executive. None of the other Board members will be
members of the management of Reorganized AWI, and at least a majority of the
members will qualify as independent directors in accordance with the prevailing
standards of the New York Stock Exchange or the NASDAQ Stock Market (depending
upon which of such markets the common stock of Reorganized AWI will be listed
for trading upon after the Effective Date). The individuals who are expected to
serve as directors of Reorganized AWI on the Effective Date will be announced at
the Confirmation Hearing. Each of the initial and future members of the Board of
Directors of Reorganized AWI will serve as such in accordance with the articles
of Incorporation and by-laws of Reorganized AWI, as amended from time to time,
and, while such agreement remains in effect, the stockholder agreement between
Reorganized AWI and the Asbestos PI Trust in the form of Exhibit 7.18 to the
Plan. Under this agreement, among other things, the composition of the Board of
Directors shall be established to satisfy the corporate governance standards of
the stock market on which the common stock of Reorganized AWI is listed and
shall include at least one individual who is recognized as a "financial expert"
in accordance with the rules of the SEC and at least three individuals who
qualify as independent directors under section 162(m) of the Internal Revenue
Code and are eligible to serve on the committee of the Board responsible for
executive compensation matters.
2. IDENTITY OF OFFICERS.
Armstrong officers immediately prior to the Effective Date will serve as the
officers of Reorganized AWI. Set forth below is the name, age, and position of
each of these executive officers, with a description of each officer's
employment history:
Matthew J. Angello. Age 43; Senior Vice President, Corporate
Human Resources since October 2000. Previously, Mr. Angello was
Vice President, Human Resources, of the Floor Products
Operations from January 1997 to September 2000; he was Vice
President and Senior Director, Human Resources, of The
Restaurant Company (food service) from 1992 to January 1997.
Leonard A. Campanaro. Age 54; Senior Vice President and Chief
Financial Officer since April 2001. Mr. Campanaro previously was
President, Chief Operating Officer and board member of Harsco
Corporation (provider of industrial services and products) from
January 1998 to July 2000. He served at Harsco for over 20 years
in a variety of financial and operations positions, including as
Senior Vice President and Chief Financial Officer from 1992 to
1997, before assuming the role of President of Harsco.
Chan W. Galbato. Age 39; President and Chief Executive Officer,
Armstrong Floor Products, since July 2001. Previously, Mr.
Galbato was President and Chief Executive Officer of ChoiceParts
LLC (provider of integrated virtual exchange services for auto
parts industry) from June 2000 to June 2001. Mr. Galbato has
held senior management positions at various divisions of General
Electric, including most recently President and Chief Executive
Officer of Coregis (GE Capital insurance company) from February
1999 to June 2000.
Michael D. Lockhart. Age 53; Chairman of the Board and Chief
Executive Officer. He joined Armstrong in August 2000 and has
served AWI as Director since November 2000 and Chairman of the
Board and President since March 2001. Mr. Lockhart previously
served as Chairman and Chief Executive Officer of General Signal
(a diversified manufacturer) headquartered in Stamford,
Connecticut from September 1995 until it was acquired in October
1998. He joined General Signal as President and Chief Operating
Officer in September 1994. From 1981 until 1994, Mr. Lockhart
72
worked for General Electric in various executive capacities in
the GE Credit Corporation (now GE Capital), GE Transportation
Systems and GE Aircraft Engines. He is a member of the Business
Council for the Graduate School of Business at the University of
Chicago.
John N. Rigas. Age 53; Senior Vice President, Secretary, and
General Counsel and Director of AWI since November 2000.
Previously, Mr. Rigas was Deputy General Counsel-Litigation from
March 1999 to November 2000. Mr. Rigas worked for Dow Corning
Corporation (a specialty chemical company) from October 1982 to
March 1999, his last title being Senior Managing Counsel.
Stephen J. Senkowski. Age 50; President and Chief Executive
Officer, Armstrong Building Products Operations, since October
2000. Previously, Mr. Senkowski was the, Senior Vice President,
Americas, of the Building Products Operations from April 2000 to
October 2000; he was the President/Chief Executive Officer of
the Worthington-Armstrong Venture (joint venture) from July 1997
to April 2000 and Vice President, Innovation Process, of the
Building Products Operations from 1994 to July 1997.
April L. Thornton. Age 41; Senior Vice President and Chief
Marketing Officer since April 2001. Previously, Ms. Thornton was
Vice President, Marketing and Sales for Capitol Wire, Inc. (an
online interactive news service) from May 2000 to March 2001;
Vice President, Marketing, of Armstrong's Worldwide Building
Products Operations from September 1997 to May 2000; and
Marketing Director, New Beverage Product Strategy and
Development, of the Pepsi Cola Company (snack food, soft drink
and juice) from April 1992 to August 1997.
B. COMPENSATION OF EXECUTIVE OFFICERS.
The following table sets forth all cash compensation paid by AWI to Michael D.
Lockhart, the Chief Executive Officer, and the four other most highly paid
executive officers for the fiscal year ending December 31, 2001.
HOLDINGS
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME SALARY ($) BONUS ($)(2) COMPENSATION ($)(3) OPTIONS/SARS (#) COMPENSATION ($)(4)
---- ---------- ------------ ------------------- ---------------- -------------------
Michael D. Lockhart 845,000 941,188 178,955 100,000 20,276
Chan W. Galbato 234,375(5) 965,000 99,015 - 18
Stephen J. Senkowski 376,250 387,523 - - 22,098
April L. Thornton 195,985(6) 460,000 - - 95
Matthew J. Angello 336,250 296,162 - - 21,880
- ---------------------------------
2 The amounts disclosed for 2001 include payments under the Management
Achievement Plan and, where applicable, signing bonuses and cash
retention payments.
3 Except for the income related to Mr. Lockhart and Mr. Galbato during
2001, the aggregate value does not exceed the lesser of $50,000 or 10%
of shown salary and bonus. Mr. Lockhart had relocation income of $83,333
and income related to personal use of company aircraft of $48,596. Mr.
Galbato had relocation income of $98,092.
4 Includes the following amount of non-elective contribution by Armstrong
to each individual's Bonus Replacement Retirement Plan account: Michael
D. Lockhart - $20,000; Stephen J. Senkowski - $19,647; Matthew J.
Angello - $19,332.
5 Mr. Galbato's employment commenced June 25, 2001.
6 Ms. Thornton had a break in company service from May 23, 2000 to March
30, 2001.
73
C. INCENTIVE COMPENSATION PLANS AND NEW MANAGEMENT INCENTIVE PLAN.
AWI and the representatives of its principal constituencies have negotiated the
principal terms and conditions of compensation and benefits for executive
management of Reorganized AWI and certain of the AWI Progeny. A summary of
certain of the principal terms is listed below.
Terms of the New Management Incentive Plan. Awards may be made in the
form of grants of shares of stock, restricted stock, stock options,
performance shares, and stock appreciation rights, or cash incentives
in lieu of stock-based awards, in each case pursuant to a New
Management Incentive Plan to be separately approved by a majority of
the shareholders of the Reorganized AWI (including certain holders of
Claims in Classes in respect of the shares of Reorganized AWI to be
issued to them pursuant to the Plan).
Initial Awards. Approximately 565,800 shares of restricted stock and
1,697,400 shares of stock options of Reorganized AWI (assuming
issuance of 67.7 million shares of New Common Stock) shall be
reserved for awards to employees of Reorganized AWI on the Effective
Date. On the Effective Date, in accordance with negotiations between
AWI and the representatives of its principal constituencies, initial
awards of restricted stock and stock options will be made to the
senior executive officers and a select group of senior management of
Reorganized AWI under the Long-Term Incentive Plan. Each such initial
award shall be comprised of a number of shares of restricted stock
determined for such employee and a number of shares of stock options
equal to three times the number of shares of restricted stock (i.e.,
one-to-three ratio). Pursuant to the negotiations, the 43 employees
selected to receive initial awards were grouped into six different
tiers. Messrs. Lockhart, Galbato, and Senkowski have been designated
as Tier 1 employees, and will each receive an initial award
consisting of 55,200 shares of restricted stock and 165,600 stock
options. Messrs. Angello, Campanaro, and Rigas were grouped in Tier
2, and will each receive an initial award consisting of 27,600 shares
of restricted stock and 82,800 stock options. The remaining 37 senior
managers will be grouped into four tiers and will receive a total of
317,400 shares of restricted stock and 952,200 stock options. The
initial award amounts for each of the 37 senior managers will be
established prior to the date of the Confirmation Hearing, and all
initial award grants will be approved upon acceptance of the Plan.
Restricted Stock. The initial awards of restricted stock will vest in
the ordinary course in one-third increments on the second, third and
fourth anniversaries of the Effective Date, subject to continued
employment through the relevant vesting date; provided, however, that
(i) upon retirement or a resignation without "good reason" (as
defined in any applicable employment agreement), all then unvested
shares of restricted stock will be immediately forfeited, and (ii)
upon a change in control of Reorganized AWI (as defined in any
applicable individual change in control agreement or, if none
applies, the New Management Incentive Plan) or a resignation for good
reason, all then unvested shares of restricted stock shall vest. The
compensation committee of the Board of Directors of Reorganized AWI
will determine the treatment of unvested restricted stock awards in
the event of any other termination. Shares of restricted stock will
be held by Reorganized AWI and will be released and delivered to the
employee as the shares of restricted stock vest.
Stock Options. The initial awards of stock options will each have a
term of ten years and an exercise price per share equal to the fair
market value of a share of common stock of Reorganized AWI (as
determined for purposes of the Plan - i.e., $30.00 per share) as of
the Effective Date. The initial stock options will vest in the
ordinary course in one-third increments on the second, third and
fourth anniversaries of the Effective Date, subject to continued
employment through the relevant vesting date; provided, however, that
(i) upon retirement or a resignation without "good reason" (as
defined in any applicable employment agreement), all then unvested
stock options shall be immediately forfeited, and (ii) upon a change
in control of Reorganized AWI (as defined in any applicable
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individual change in control agreement or, if none applies, the New
Management Incentive Plan) or a resignation for good reason, all
outstanding stock options will fully vest. The compensation committee
of the Board of Directors of Reorganized AWI will determine the
treatment of unvested stock options in the event of any other
termination unless such treatment is specified in an employment
agreement.
D. MANAGEMENT CONTRACTS.
On the Effective Date, all employment contracts between AWI and any employee of
AWI who was employed by AWI as of the date immediately preceding the Effective
Date (including, without limitation, any offer letters issued to any such
employees to the extent such offer letters are not superseded by formal
employment contracts) will be deemed assumed by Reorganized AWI. The existing
employment agreement for the Chief Executive Officer of Reorganized AWI
previously was assumed by AWI pursuant to an order of the Bankruptcy Court, and
such agreement will continue in effect after the Effective Date. In addition,
AWI entered into an employment agreement with Chan W. Galbato with Bankruptcy
Court approval. Also, AWI entered into change in control severance agreements
with certain executives pursuant to Bankruptcy Court approval, and such
agreements will continue in effect after the Effective Date.
E. AMENDMENT AND RESTATEMENT OF AWI'S ARTICLES OF INCORPORATION AND
BY-LAWS.
The Articles of Incorporation of AWI will be amended and restated as of the
Effective Date in substantially the form of the Amended and Restated Articles of
Incorporation attached as Exhibit 1.10 to the Plan, inter alia, (a) to prohibit
the issuance of nonvoting equity securities as required by section 1123(a)(6) of
the Bankruptcy Code, subject to further amendment of such Amended and Restated
Articles of Incorporation as permitted by applicable law, and (b) to authorize
215 million (215,000,000) shares of capital stock of which (i) 200 million
(200,000,000) shares will be shares of common stock, (A) of which an estimated
67.7 million (67,700,000) shares will be New Common Stock issued under the Plan,
(B) a portion of which will be reserved for issuance upon exercise of the New
Warrants and (C) the remainder of which will be reserved for future issuance,
and (ii) 15 million (15,000,000) shares will be preferred stock of Reorganized
AWI, with such rights, preferences and privileges as may be determined by the
board of directors of Reorganized AWI.
In addition, the Amended and Restated Articles of Incorporation will provide
that no stockholder or group (as defined pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended) beneficially owning more than 25%
of the outstanding common stock of Reorganized AWI may transfer such stock
except in a transaction in which all holders of common stock are entitled to
receive the same per share consideration. Such provision, however, will not
apply to sales pursuant to an underwritten public offering or ordinary sales
into the market within the volume limitations contemplated by Rule 144. The
trustees of the Asbestos Personal Injury Trust will be deemed to beneficially
own any securities held by the Asbestos Personal Injury Trust.
The By-Laws of AWI will be amended and restated as of the Effective Date in
substantially the form of the Amended and Restated By-Laws attached as Exhibit
1.11 to the Plan.
75
X. EXEMPTIONS FROM SECURITIES ACT REGISTRATION
Holders of Allowed Claims in Classes 6 and 8 and AWWD, the holder of the Equity
Interests in Class 11, will receive Plan Securities pursuant to the Plan.
Section 1145 of the Bankruptcy Code provides that the securities registration
requirements of federal and state securities laws do not apply to the offer or
sale of stock, warrants, or other securities by a debtor if (i) the offer or
sale occurs under a plan of reorganization, (ii) the recipients of securities
hold a claim against, an interest in, or claim for administrative expense
against the debtor, and (iii) the securities are issued in exchange for a claim
against or interest in a debtor or are reissued principally in such exchange and
partly for cash and property. In reliance upon this exemption, the issuance of
the Plan Securities on the Effective Date as provided in the Plan generally will
be exempt from the registration requirements of the Securities Act of 1933, as
amended (the "SECURITIES ACT"). Accordingly, such securities may be resold
without registration under the Securities Act or other federal securities laws
pursuant to an exemption provided by section 4(1) of the Securities Act, unless
the holder is an "underwriter" (see discussion below) with respect to such
securities, as that term is defined in the Bankruptcy Code. In addition, such
securities generally may be resold without registration under state securities
or "blue sky" laws pursuant to various exemptions provided by the respective
laws of the several states. However, recipients of securities issued under the
Plan are advised to consult with their own legal advisors as to the availability
of any such exemption from registration under state law in any given instance
and as to any applicable requirements or conditions to such availability.
Section 1145(b)(1) of the Bankruptcy Code defines "UNDERWRITER" for purposes of
the Securities Act as one who, except with respect to "ordinary trading
transactions" of an entity that is not an "issuer," (i) purchases a claim
against, interest in, or claim for an administrative expense, with a view to
distribution of any security to be received in exchange for the claim or
interest, (ii) offers to sell securities issued under a plan to the holders of
such securities, (iii) offers to buy securities issued under a plan from the
holders of such securities, if the offer to buy is made with a view to
distribution of such securities and under an agreement made in connection with
the plan, the consummation of the plan, or the offer or sale of securities under
the plan, or (iv) is an issuer of the securities within the meaning of section
2(11) of the Securities Act.
The term "ISSUER" is defined in section 2(4) of the Securities Act; however, the
reference contained in section 1145(b)(1)(D) of the Bankruptcy Code to section
2(11) of the Securities Act purports to include as statutory underwriters all
persons who, directly or indirectly, through one or more intermediaries,
control, are controlled by, or are under common control with, an issuer of
securities. "CONTROL" (as defined in Rule 405 under the Securities Act) means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of voting securities, by contract, or otherwise. Accordingly, an
officer or director of a reorganized debtor or its successor under a plan of
reorganization may be deemed to be a "CONTROL PERSON" of such debtor or
successor, particularly if the management position or directorship is coupled
with ownership of a significant percentage of the reorganized debtor's or its
successor's voting securities. Moreover, the legislative history of section 1145
of the Bankruptcy Code suggests that a creditor who owns ten percent (10%) or
more of the securities of a reorganized debtor may be presumed to be a "control
person."
To the extent that persons deemed to be "underwriters" receive Plan Securities
pursuant to the Plan, resales by such persons would not be exempted by section
1145 of the Bankruptcy Code from registration under the Securities Act or other
applicable law. Entities deemed to be statutory underwriters for purposes of
section 1145 of the Bankruptcy Code may, however, be able, at a future time and
under certain conditions described below, to sell securities without
registration pursuant to the resale provisions of Rule 144 and Rule 144A under
the Securities Act.
Under certain circumstances, holders of Plan Securities deemed to be
"underwriters" may be entitled to resell their securities pursuant to the
limited safe harbor resale provisions of Rule 144. Generally, Rule 144 provides
that, if certain conditions are met (e.g., the availability of current public
information with respect to the issuer, volume of sale limitations, and notice
and manner of sale requirements), specified persons who resell "restricted
securities" or who resell securities which are not restricted but such persons
are "affiliates" of the issuer of the securities sought to be resold, will not
be deemed to be "underwriters" as defined in section 2(11) of the Securities
Act.
76
Pursuant to the Plan, certificates evidencing Plan Securities received by a
holder of ten percent (10%) or more of the outstanding New Common Stock will
bear a legend substantially in the form below in the event that AWI reasonably
believes such holder is an underwriter:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND
MAY NOT BE SOLD, OFFERED FOR SALE, OR OTHERWISE TRANSFERRED
UNLESS REGISTERED OR QUALIFIED UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR UNLESS COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH REGISTRATION OR
QUALIFICATION IS NOT REQUIRED.
Any person or entity that would receive legended securities as provided above
may instead receive certificates evidencing Plan Securities without such legend
if, prior to the Effective Date, such person or entity delivers to Reorganized
AWI (i) an opinion of counsel reasonably satisfactory to Reorganized AWI to the
effect that the Plan Securities to be received by such person or entity are not
subject to the restrictions applicable to "underwriters" under section 1145 of
the Bankruptcy Code and may be sold without registration under the Securities
Act and (ii) a certification that such person or entity is not an "underwriter"
within the meaning of section 1145 of the Bankruptcy Code.
Any holder of a certificate evidencing Plan Securities bearing such legend may
present such certificate to the transfer agent for the shares of Reorganized AWI
for exchange for one or more new certificates not bearing such legend or for
transfer to a new holder without such legend at such time as (i) such shares are
sold pursuant to an effective registration statement under the Securities Act,
or (ii) such holder delivers to Reorganized AWI an opinion of counsel reasonably
satisfactory to Reorganized AWI to the effect that such shares are no longer
subject to the restrictions applicable to "underwriters" under section 1145 of
the Bankruptcy Code and may be sold without registration under the Securities
Act or to the effect that such transfer is exempt from registration under the
Securities Act, in which event the certificate issued to the transferee shall
not bear such legend, unless otherwise specified in such opinion.
Whether or not any particular person would be deemed to be an "underwriter" of
Plan Securities to be issued pursuant to the Plan, or an "affiliate" of
Reorganized AWI, would depend upon various facts and circumstances applicable to
that person. Accordingly, AWI expresses no view as to whether any such person
would be such an "underwriter" or an "affiliate."
IN VIEW OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A
PARTICULAR PERSON MAY BE AN UNDERWRITER OR AN AFFILIATE OF REORGANIZED AWI, AWI
MAKES NO REPRESENTATIONS CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN PLAN
SECURITIES. ACCORDINGLY, AWI RECOMMENDS THAT POTENTIAL RECIPIENTS OF PLAN
SECURITIES CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE
SUCH SECURITIES.
77
XI. REORGANIZATION VALUE
AWI has been advised by Lazard, its financial advisor, with respect to the
reorganization value of Reorganized AWI on a going concern basis. Solely for
purposes of the Plan, the estimated range of reorganization value of Reorganized
AWI was assumed to be approximately $2,700 million to $3,300 million (with a
midpoint value of $3,000 million) as of an assumed Effective Date of June 30,
2003. This estimated reorganization value includes $300 million associated with
a tax net operating loss carryforward that is created as part of the Plan.
Lazard's estimate of a range of enterprise values does not constitute an opinion
as to fairness from a financial point of view of the consideration to be
received under the Plan or of the terms and provisions of the Plan.
THE ASSUMED RANGE OF THE REORGANIZATION VALUE, AS OF AN ASSUMED EFFECTIVE DATE
OF JUNE 30, 2003, REFLECTS WORK PERFORMED BY LAZARD ON THE BASIS OF INFORMATION
IN RESPECT OF THE BUSINESS AND ASSETS OF AWI AVAILABLE TO LAZARD AS OF DECEMBER
16, 2002. IT SHOULD BE UNDERSTOOD THAT, ALTHOUGH SUBSEQUENT DEVELOPMENTS MAY
AFFECT LAZARD'S CONCLUSIONS, LAZARD DOES NOT HAVE ANY OBLIGATION TO UPDATE,
REVISE OR REAFFIRM ITS ESTIMATE.
Based upon the assumed range of the reorganization value of Reorganized AWI of
between $2,700 million and $3,300 million and an assumed total debt of $920
million (including $775 million in New Notes, $50 million of debt outstanding
under the exit facility, and $95 million in other reinstated debt), Lazard has
employed an imputed estimate of the range of equity value for Reorganized AWI
between $1,780 million and $2,380 million, with a mid-point value of $2,080
million. Equity to be distributed to the Asbestos PI Trust and the holder of
Unsecured Claims, net of an estimated $50 million value for the New Warrants,
will be in a range between $1,730 million and $2,330 million, with a mid-point
value of $2,030 million. Assuming a distribution of 67.7 million shares of
Reorganized AWI Common Stock pursuant to the Plan, the imputed estimate of the
range of Equity Values on a per share basis for Reorganized AWI is between
$25.60 and $34.40 per share, with a midpoint value of $30.00 per share. The
Equity Value of $30.00 on a per share basis does not give effect to the
potentially dilutive impact of any restricted stock or options to be issued or
granted pursuant to New Management Incentive Plan. See Section IX.C, entitled,
"MANAGEMENT OF REORGANIZED AWI - Incentive Compensation Plans and the New
Management Incentive Plan."
The foregoing estimate of the reorganization value of Reorganized AWI is based
on a number of assumptions, including a successful reorganization of AWI's
business and finances in a timely manner, the implementation of Reorganized
AWI's business plan, the achievement of the forecasts reflected in the Projected
Financial Information, access to adequate exit financing, the continuing
leadership of the existing management team, market conditions as of December 16,
2002 continuing through the assumed Effective Date of July 1, 2003, and the Plan
becoming effective in accordance with the estimates and other assumptions
discussed herein.
With respect to the Projected Financial Information prepared by the management
of AWI and included in the Financial Appendix that is Exhibit "C" to this
Disclosure Statement, Lazard assumed that such Projected Financial Information
has been reasonably prepared in good faith and on a basis reflecting the best
currently available estimates and judgments of AWI as to the future operating
and financial performance of Reorganized AWI. Lazard's estimate of a range of
reorganization values assumes that operating results projected by AWI will be
achieved by Reorganized AWI in all material respects, including revenue growth
and improvements in operating margins, earnings and cash flow. Certain of the
results forecast by the management of AWI are materially better than the recent
historical results of operations of AWI. As a result, to the extent that the
estimate of enterprise values is dependent upon Reorganized AWI performing at
the levels set forth in the Projected Financial Information, such analysis must
be considered speculative. If the business performs at levels below those set
forth in the Projected Financial Information, such performance may have a
material impact on the Projected Financial Information and on the estimated
range of values derived therefrom.
IN ESTIMATING THE RANGE OF THE REORGANIZATION VALUE AND EQUITY VALUE OF
REORGANIZED AWI, LAZARD
>> REVIEWED CERTAIN HISTORICAL FINANCIAL INFORMATION OF AWI FOR
RECENT YEARS AND INTERIM PERIODS;
78
>> REVIEWED CERTAIN INTERNAL FINANCIAL AND OPERATING DATA OF AWI,
INCLUDING THE PROJECTED FINANCIAL INFORMATION, WHICH WAS
PREPARED AND PROVIDED TO LAZARD BY AWI'S MANAGEMENT AND WHICH
RELATE TO AWI'S BUSINESS AND ITS PROSPECTS;
>> MET WITH CERTAIN MEMBERS OF SENIOR MANAGEMENT OF AWI TO DISCUSS
AWI'S OPERATIONS AND FUTURE PROSPECTS;
>> REVIEWED PUBLICLY AVAILABLE FINANCIAL DATA AND CONSIDERED THE
MARKET VALUE OF PUBLIC COMPANIES THAT LAZARD DEEMED GENERALLY
COMPARABLE TO THE OPERATING BUSINESS OF AWI;
>> CONSIDERED RELEVANT PRECEDENT TRANSACTIONS IN THE BUILDING
PRODUCTS INDUSTRY;
>> CONSIDERED CERTAIN ECONOMIC AND INDUSTRY INFORMATION RELEVANT TO
THE OPERATING BUSINESS; AND
>> CONDUCTED SUCH OTHER STUDIES, ANALYSIS, INQUIRIES, AND
INVESTIGATIONS AS IT DEEMED APPROPRIATE.
ALTHOUGH LAZARD CONDUCTED A REVIEW AND ANALYSIS OF AWI'S BUSINESS, OPERATING
ASSETS AND LIABILITIES AND REORGANIZED AWI'S BUSINESS PLANS, IT ASSUMED AND
RELIED ON THE ACCURACY AND COMPLETENESS OF ALL FINANCIAL AND OTHER INFORMATION
FURNISHED TO IT BY AWI, AS WELL AS PUBLICLY AVAILABLE INFORMATION. IN ADDITION,
LAZARD DID NOT INDEPENDENTLY VERIFY MANAGEMENT'S PROJECTIONS IN CONNECTION WITH
SUCH ESTIMATES OF THE REORGANIZATION VALUE AND EQUITY VALUE, AND NO INDEPENDENT
VALUATIONS OR APPRAISALS OF AWI WERE SOUGHT OR OBTAINED IN CONNECTION HEREWITH.
ESTIMATES OF THE REORGANIZATION VALUE AND EQUITY VALUE DO NOT PURPORT TO BE
APPRAISALS OR NECESSARILY REFLECT THE VALUES THAT MAY BE REALIZED IF ASSETS ARE
SOLD AS A GOING CONCERN, IN LIQUIDATION, OR OTHERWISE.
IN THE CASE OF REORGANIZED AWI, THE ESTIMATES OF THE REORGANIZATION VALUE
PREPARED BY LAZARD REPRESENT THE HYPOTHETICAL REORGANIZATION VALUE OF
REORGANIZED AWI. SUCH ESTIMATES WERE DEVELOPED SOLELY FOR PURPOSES OF THE
FORMULATION AND NEGOTIATION OF THE PLAN AND THE ANALYSIS OF IMPLIED RELATIVE
RECOVERIES TO CREDITORS THEREUNDER. SUCH ESTIMATES REFLECT COMPUTATIONS OF THE
RANGE OF THE ESTIMATED REORGANIZATION ENTERPRISE VALUE OF REORGANIZED AWI
THROUGH THE APPLICATION OF VARIOUS VALUATION TECHNIQUES AND DO NOT PURPORT TO
REFLECT OR CONSTITUTE APPRAISALS, LIQUIDATION VALUES OR ESTIMATES OF THE ACTUAL
MARKET VALUE THAT MAY BE REALIZED THROUGH THE SALE OF ANY SECURITIES TO BE
ISSUED PURSUANT TO THE PLAN, WHICH MAY BE SIGNIFICANTLY DIFFERENT THAN THE
AMOUNTS SET FORTH HEREIN.
THE VALUE OF AN OPERATING BUSINESS IS SUBJECT TO NUMEROUS UNCERTAINTIES AND
CONTINGENCIES WHICH ARE DIFFICULT TO PREDICT AND WILL FLUCTUATE WITH CHANGES IN
FACTORS AFFECTING THE FINANCIAL CONDITION AND PROSPECTS OF SUCH A BUSINESS. AS A
RESULT, THE ESTIMATE OF THE RANGE OF THE REORGANIZATION ENTERPRISE VALUE OF
REORGANIZED AWI SET FORTH HEREIN IS NOT NECESSARILY INDICATIVE OF ACTUAL
OUTCOMES, WHICH MAY BE SIGNIFICANTLY MORE OR LESS FAVORABLE THAN THOSE SET FORTH
HEREIN. BECAUSE SUCH ESTIMATES ARE INHERENTLY SUBJECT TO UNCERTAINTIES, NEITHER
AWI, LAZARD, NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THEIR ACCURACY. IN
ADDITION, THE VALUATION OF NEWLY ISSUED SECURITIES IS SUBJECT TO ADDITIONAL
UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT. ACTUAL
MARKET PRICES OF SUCH SECURITIES AT ISSUANCE WILL DEPEND UPON, AMONG OTHER
THINGS, PREVAILING INTEREST RATES, CONDITIONS IN THE FINANCIAL MARKETS, THE
ANTICIPATED INITIAL SECURITIES HOLDINGS OF PREPETITION CREDITORS, SOME OF WHICH
MAY PREFER TO LIQUIDATE THEIR INVESTMENT RATHER THAN HOLD IT ON A LONG-TERM
BASIS, AND OTHER FACTORS WHICH GENERALLY INFLUENCE THE PRICES OF SECURITIES.
79
Valuation Methodology Lazard performed a variety of analyses and considered a
variety of factors in preparing the valuation of AWI. While several generally
accepted valuation techniques for estimating AWI's enterprise value were used,
Lazard primarily relied on three methodologies: comparable public company
analysis, discounted cash flow analysis, and precedent transactions analysis.
Lazard placed different weights on each of these analyses and made judgments as
to the relative significance of each analysis in determining AWI's indicated
enterprise value range. Lazard's valuation must be considered as a whole, and
selecting just one methodology or portions of the analyses, without considering
the analyses as a whole, could create a misleading or incomplete conclusion as
to AWI's enterprise value.
In preparing its valuation estimate, Lazard performed a variety of analyses and
considered a variety of factors, some of which are described herein. The
following summary does not purport to be a complete description of the analyses
and factors undertaken to support Lazard's conclusions. The preparation of a
valuation is a complex process involving various determinations as to the most
appropriate analyses and factors to consider, as well as the application of
those analyses and factors under the particular circumstances. As a result, the
process involved in preparing a valuation is not readily summarized.
Comparable Public Company Analysis. A comparable public company
analysis estimates value based on a comparison of the target
company's financial statistics with the financial statistics of
public companies that are similar to the target company. It
establishes a benchmark for asset valuation by deriving the value of
"comparable" assets, standardized using a common variable such as
revenues, earnings, and cash flows. The analysis includes a detailed
multi-year financial comparison of each company's income statement,
balance sheet, and cash flow statement. In addition, each company's
performance, profitability, margins, leverage and business trends are
also examined. Based on these analyses, a number of financial
multiples and ratios are calculated to gauge each company's relative
performance and valuation.
A key factor to this approach is the selection of companies with
relatively similar business and operational characteristics to the
target company. Criteria for selecting comparable companies include,
among other relevant characteristics, similar lines of businesses,
business risks, target market segments, growth prospects, maturity of
businesses, market presence, size, and scale of operations. The
selection of truly comparable companies is often difficult and
subject to interpretation. However, the underlying concept is to
develop a premise for relative value, which, when coupled with other
approaches, presents a foundation for determining firm value.
In performing the Comparable Public Company Analysis, the following
publicly traded companies deemed generally comparable to AWI in some
or all of the factors described above, were selected: American
Woodmark, Black & Decker, Elkcorp, Interface, Masco, Mohawk, and NCI
Building Systems. Lazard excluded several building products
manufacturers that were deemed not comparable because of size,
specific product comparability and/or status of comparable companies
(e.g., currently in a chapter 11). Lazard analyzed the current
trading value for the comparable companies as a multiple of latest
twelve months' revenue, earnings before interest, taxes,
depreciation, and amortization ("EBITDA"), and earnings before
interest and taxes ("EBIT"). These multiples were then applied to
AWI's fiscal year end 2002 financial results (9 months actual and 3
months forecast) to determine the range of enterprise value.
Discounted Cash Flow Approach. The discounted cash flow ("DCF")
valuation methodology relates the value of an asset or business to
the present value of expected future cash flows to be generated by
that asset or business. The DCF methodology is a "forward looking"
approach that discounts the expected future cash flows by a
theoretical or observed discount rate determined by calculating the
average cost of debt and equity for publicly traded companies that
are similar to AWI. The expected future cash flows have two
components: the present value of the projected unlevered after-tax
free cash flows for a determined period and the present value of the
terminal value of cash flows (representing firm value beyond the time
horizon of the projections). Lazard's discounted cash flow valuation
is based on a five-year projection of AWI's operating results. Lazard
discounted the projected cash flows using AWI's estimated weighted
80
average cost of capital and calculated the terminal value of AWI
using both EBITDA multiple and perpetual growth methodologies.
This approach relies on the company's ability to project future cash
flows with some degree of accuracy. Because AWI's projections reflect
significant assumptions made by AWI's management concerning
anticipated results, the assumptions and judgments used in the
Projected Financial Information may or may not prove correct and,
therefore, no assurance can be provided that projected results are
attainable or will be realized. Lazard cannot and does not make any
representations or warranties as to the accuracy or completeness of
AWI's projections.
Precedent Transactions Analysis. Precedent transactions analysis
estimates value by examining public merger and acquisition
transactions. An analysis of the disclosed purchase price as a
multiple of various operating statistics reveals industry acquisition
multiples for companies in similar lines of businesses to AWI. These
transaction multiples are calculated based on the purchase price
(including any debt assumed) paid to acquire companies that are
comparable to AWI. Lazard specifically focused on prices paid as a
multiple of Revenue, EBITDA and EBIT in determining a range of values
for AWI. These multiples are then applied to AWI's key operating
statistics to determine the total enterprise value or value to a
potential strategic buyer.
Unlike the comparable public company analysis, the valuation in this
methodology includes a "control" premium, representing the purchase
of a majority or controlling position in a company's assets. Thus,
this methodology generally produces higher valuations than the
comparable public company analysis. Other aspects of value that
manifest itself in a precedent transaction analysis include the
following:
>> Circumstances surrounding a merger transaction may introduce
"diffusive quantitative results" into the analysis (e.g., an
additional premium may be extracted from a buyer in the case of
a competitive bidding contest).
>> The market environment is not identical for transactions
occurring at different periods of time.
>> Circumstances pertaining to the financial position of a company
may have an impact on the resulting purchase price (e.g., a
company in financial distress may receive a lower price due to
perceived weakness in its bargaining leverage).
As with the comparable company analysis, because no acquisition used
in any analysis is identical to a target transaction, valuation
conclusions cannot be based solely on quantitative results. The
reasons for and circumstances surrounding each acquisition
transaction are specific to such transaction, and there are inherent
differences between the businesses, operations and prospects of each.
Therefore, qualitative judgments must be made concerning the
differences between the characteristics of these transactions and
other factors and issues that could affect the price an acquirer is
willing to pay in an acquisition. The number of completed
transactions for which public data is available also limits this
analysis. Because the precedent transaction analysis explains other
aspects of value besides the inherent value of a company, there are
limitations as to its use in AWI's valuation.
THE ESTIMATES OF THE REORGANIZATION VALUE AND EQUITY VALUE DETERMINED BY LAZARD
REPRESENT ESTIMATED REORGANIZATION VALUES AND DO NOT REFLECT VALUES THAT COULD
BE ATTAINABLE IN PUBLIC OR PRIVATE MARKETS. THE IMPUTED ESTIMATE OF THE RANGE OF
THE REORGANIZATION EQUITY VALUE OF REORGANIZED AWI ASCRIBED IN THE ANALYSIS DOES
NOT PURPORT TO BE AN ESTIMATE OF THE POST-REORGANIZATION MARKET TRADING VALUE.
ANY SUCH TRADING VALUE MAY BE MATERIALLY DIFFERENT FROM THE IMPUTED ESTIMATE OF
THE REORGANIZATION EQUITY VALUE RANGE FOR REORGANIZED AWI ASSOCIATED WITH
LAZARD'S VALUATION ANALYSIS.
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XII. RISK FACTORS
HOLDERS OF CLAIMS AGAINST AWI SHOULD READ AND CONSIDER CAREFULLY THE FACTORS SET
FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS DISCLOSURE
STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR REFERRED TO
HEREIN BY REFERENCE), PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN. THESE RISK
FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS CONSTITUTING THE ONLY RISKS INVOLVED
IN CONNECTION WITH THE PLAN AND ITS IMPLEMENTATION. IN ADDITION, HOLDERS OF
CLAIMS AGAINST AWI SHOULD CONSULT AWI'S MOST RECENT QUARTERLY REPORT ON FORM
10-Q FOR GENERAL RISK FACTORS RELATING TO AWI AND THE BUSINESS IN WHICH IT
OPERATES.
A. OVERALL RISKS TO RECOVERY BY HOLDERS OF CLAIMS.
The ultimate recoveries under the Plan to holders of Claims (other than holders
whose entire Distribution is paid in cash) depend upon the realizable value of
the New Notes, the New Warrants and the New Common Stock, which are subject to a
number of material risks, including, but not limited to, those specified below.
The factors below assume that the Plan is confirmed and that the Effective Date
occurs on or about July 1, 2003. Prior to voting on the Plan, each holder of a
Claim should consider carefully the risk factors specified or referred to below,
including the exhibits annexed hereto, as well as all of the information
contained in the Plan.
1. ABILITY TO REFINANCE CERTAIN INDEBTEDNESS.
Following the Effective Date of the Plan, AWI's working capital borrowings and
letters of credit requirements are anticipated to be funded under a new credit
facility. See Section V.F, entitled, "THE PLAN OF REORGANIZATION - Exit
Facility." Obtaining such a credit facility is a condition precedent to the
Effective Date. There can be no assurance, however, that Reorganized AWI will be
able to obtain financing for such facility to fund future working capital
borrowings and letters of credit, or that financing, if obtained, would be on
terms as favorable to Reorganized AWI. Furthermore, there can be no assurance
that Reorganized AWI will be able to refinance the New Notes upon their maturity
should such a need arise.
2. OWNERSHIP BY THE ASBESTOS PI TRUST.
The Asbestos PI Trust will beneficially own more than 65% of the shares of the
New Common Stock to be issued pursuant to the Plan. Accordingly, the Asbestos PI
Trust will be in a position to control the outcome of actions requiring
stockholder approval, including the election of the majority of directors. This
concentration of ownership could also facilitate or hinder a negotiated change
of control of Reorganized AWI, and, consequently, affect the value of the New
Common Stock.
3. DIVIDEND POLICIES.
AWI cannot anticipate whether Reorganized AWI will pay any dividends on the New
Common Stock in the foreseeable future. In addition, the covenants in certain
debt instruments to which Reorganized AWI will be a party may limit the ability
of Reorganized AWI to pay dividends.
4. PROJECTED FINANCIAL INFORMATION.
The Projected Financial Information is dependent upon numerous assumptions,
including confirmation and consummation of the Plan in accordance with its
terms, the anticipated future performance of Reorganized AWI, conditions in the
industries in which Reorganized AWI operates, certain assumptions with respect
to competitors of Reorganized AWI, general business and economic conditions, and
other matters, many of which are beyond the control of AWI. In addition,
unanticipated events and circumstances occurring subsequent to the preparation
of the Projected Financial Information may affect the actual financial results
of Reorganized AWI. Although AWI believes that the projections are reasonable
and attainable, some or all of the estimates will vary, and variations between
the actual financial results and those projected may be material.
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5. VALUE OF CONSIDERATION TO BE DISTRIBUTED UNDER THE PLAN.
In estimating the value of distributions under the Plan, AWI has assumed that
(i) cash has a value equal to its face amount, (ii) the New Notes have a value
equal to their face amount, (iii) the New Warrants have an aggregate value of
$40-50 million, or $11.10 to $13.90 per New Warrant (with a midpoint of $12.50
per warrant), and (iv) the New Common Stock will have an aggregate value of
approximately $2.030 billion, or $30.00 a share. There is no assurance that such
assumed values can be obtained.
B. THE ASBESTOS PI PERMANENT CHANNELING INJUNCTION.
The Asbestos PI Permanent Channeling Injunction, which, inter alia, bars the
assertion of "future" Asbestos Personal Injury Claims against AWI and the other
PI Protected Parties, is the cornerstone of the Plan. As described in Section
VI.D, entitled "THE ASBESTOS PI TRUST -- The Asbestos PI Permanent Channeling
Injunction," in 1994 the United States Congress added subsections (g) and (h) to
section 524 of the Bankruptcy Code in order to confirm the authority of the
Bankruptcy Court, subject to the conditions specified therein, to issue
injunctions such as the Asbestos PI Permanent Channeling Injunction with respect
to present and future asbestos-related personal injury claims and demands.
Although the Plan, the Asbestos PI Trust Agreement, and the Asbestos PI Trust
Distribution Procedures all have been drafted with the intention of complying
with section 524(g)-(h) of the Bankruptcy Code, and satisfaction of the
conditions imposed by section 524(g)-(h) is a condition precedent to
confirmation of the Plan, there is no guarantee that the validity and
enforceability of the Asbestos PI Permanent Channeling Injunction or section
524(g)-(h) or the application of the Asbestos PI Permanent Channeling Injunction
to Asbestos Personal Injury Claims will not be challenged, either before or
after confirmation of the Plan. Although AWI believes adequate bases exist for
the courts to uphold section 524(g)-(h) and the Asbestos PI Permanent Channeling
Injunction, there can be no assurance that, in the future, courts might not
invalidate all or a portion of section 524(g)-(h) or the Asbestos PI Permanent
Channeling Injunction.
C. ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES, NEW COMMON STOCK AND NEW
WARRANTS.
There can be no assurance that the New Notes, New Common Stock and/or New
Warrants will be listed or traded on an established trading market. As a result,
there can be no assurance that the secondary markets for the New Notes, New
Common Stock and New Warrants will be liquid.
D. CERTAIN PROVISIONS OF AWI'S AMENDED AND RESTATED ARTICLES OF
INCORPORATION, BYLAWS AND THE PENNSYLVANIA BUSINESS CORPORATION LAW.
AWI's Amended and Restated Articles of Incorporation and Bylaws, as well as the
Pennsylvania BCL, contain provisions that may have the effect of delaying,
deterring or preventing a change in control of AWI.
83
XIII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion summarizes certain federal income tax consequences of
the implementation of the Plan to AWI and to certain holders of Claims. The
following summary does not discuss the federal income tax consequences to (i)
holders whose Claims are entitled to reinstatement or payment in full in cash or
are otherwise unimpaired under the Plan (such as an Administrative Expense
Creditor and holders of Priority Claims, Secured Claims, COLI Claims, Affiliate
Claims, and Subsidiary Debt Guarantee Claims), (ii) holders of Environmental
Claims (the distributions to which will be governed by their respective
settlement agreements), or (iii) holders of Equity Interests.
The following summary is based on the Internal Revenue Code of 1986, as amended
(the "INTERNAL REVENUE CODE"), Treasury Regulations promulgated thereunder,
judicial decisions and published administrative rules and pronouncements of the
Internal Revenue Service ("IRS") as in effect on the date hereof. Changes in
such rules or new interpretations thereof may have retroactive effect and could
significantly affect the federal income tax consequences described below.
The federal income tax consequences of the Plan are complex and are subject to
significant uncertainties. AWI has not requested an opinion of counsel with
respect to any of the tax aspects of the Plan and, other than as involves the
Asbestos PI Trust, does not currently intend to seek a ruling from the IRS
concerning any of the tax aspects of the Plan. However, there is no assurance
that a ruling, even though requested, will be obtained. In addition, this
summary does not address foreign, state or local tax consequences of the Plan,
nor does it purport to address the federal income tax consequences of the Plan
to special classes of taxpayers (such as foreign taxpayers, broker-dealers,
banks, mutual funds, insurance companies, financial institutions, small business
investment companies, regulated investment companies, tax-exempt organizations,
and investors in pass-through entities).
ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING
AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES PERTAINING TO A HOLDER OF A
CLAIM. ALL HOLDERS OF CLAIMS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR THE
FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES APPLICABLE TO THEM UNDER THE
PLAN.
A. CONSEQUENCES TO AWI.
For federal income tax purposes, AWI is a member of an affiliated group of
corporations of which Holdings is the common parent (the "HOLDINGS GROUP") and
joins in the filing of a consolidated federal income tax return. The Holdings
Group does not currently have a consolidated net operating loss ("NOL")
carryforward. However, as discussed below, AWI expects to incur a substantial
NOL (a portion of which would be carried back to obtain a refund of taxes paid
in prior years) for the taxable year that includes the Effective Date as a
result of the funding of the Asbestos PI Trust on the Effective Date. See
Exhibit C, Financial Appendix, which assumes that the Asbestos PI Trust is
funded on the Effective Date in accordance with sections 7.7(b) and 7.13(e) of
the Plan. Although the Plan provides that the execution of the Asbestos PI Trust
is an express condition to the effectiveness of the Plan, this condition (like
all Effective Date conditions) can be waived by AWI with the written consent of
the Asbestos PI Claimants' Committee, the Future Claimants' Representative, and
if Class 6 accepts the Plan, the Unsecured Creditors' Committee. If waived, the
funding of the Asbestos PI Trust would not occur until after the Effective Date
in a subsequent taxable year, with the result that the amount of the tax refund
obtainable by AWI would be significantly reduced. Accordingly, the following
discussion assumes that AWI does not waive this condition.
AWI also has substantial tax basis in its assets. As discussed below, any NOLs
of AWI will be reduced as a result of the implementation of the Plan, and the
tax basis of AWI's depreciable assets also may be reduced.
1. CANCELLATION OF DEBT.
The Internal Revenue Code provides that a debtor in a bankruptcy case must
reduce certain of its tax attributes - such as NOLs, excess tax credits and tax
basis in assets - by the amount of any cancellation of debt ("COD"). COD is the
amount by which the indebtedness discharged exceeds any consideration given in
exchange therefor, subject to certain statutory or judicial exceptions that can
84
apply to limit the amount of COD (such as where the payment of the cancelled
debt would have given rise to a tax deduction). Where a debtor joins in the
filing of a consolidated federal income tax return, it is unclear whether the
reduction in NOLs and other consolidated tax attributes occurs on a group basis
or instead on a separate company basis. To the extent the amount of COD exceeds
the tax attributes available for reduction, the excess COD is simply forgiven.
If advantageous, a debtor can elect to reduce the basis of depreciable property
prior to any reduction in its NOLs or other tax attributes.
As a result of the discharge of Claims pursuant to the Plan, AWI likely will
realize substantial COD. The extent of such COD and the resulting tax attribute
reduction will depend, in part, on the value of the New Common Stock. Based on
the estimated reorganization value of Reorganized AWI (see Section XI, entitled
"REORGANIZATION VALUE," above), AWI expects to incur approximately $550 million
of COD with a corresponding reduction in its NOL for the taxable year (or, at
Reorganized AWI's election, the tax basis of its depreciable assets).
2. LIMITATION ON NOL CARRYFORWARDS AND OTHER TAX ATTRIBUTES.
Following the implementation of the Plan, the availability of the remaining
portion of any NOLs and possibly certain other tax attributes of AWI allocable
to periods prior to the Effective Date to offset future taxable income will be
subject to the limitations imposed by Section 382 of the Internal Revenue Code.
(A) GENERAL LIMITATION.
Under Section 382, if a corporation undergoes an "ownership change," the amount
of its pre-change losses that may be utilized to offset future taxable income
is, in general, subject to an annual limitation. Such limitation also may apply
to certain losses or deductions which are "built-in" (i.e., economically accrued
but unrecognized) as of the date of the ownership change that are subsequently
recognized. The issuance of the New Common Stock pursuant to the Plan will
constitute an ownership change of AWI.
In general, the amount of the annual limitation to which a corporation would be
subject is equal to the product of (i) the fair market value of the stock of the
corporation immediately before the ownership change (with certain adjustments)
multiplied by (ii) the "long-term tax-exempt rate" in effect for the month in
which the ownership change occurs (4.63% for ownership changes occurring in
November 2002). For a corporation in bankruptcy that undergoes the ownership
change pursuant to a confirmed plan, the stock value generally is determined
immediately after (rather than before) the ownership change, and certain
adjustments that ordinarily would apply do not apply.
Any unused limitation may be carried forward, thereby increasing the annual
limitation in the subsequent taxable year. However, if the corporation does not
continue its historic business or use a significant portion of its assets in a
new business for two years after the ownership change, the annual limitation
resulting from the ownership change is zero.
If a loss corporation has a "net unrealized built-in loss" at the time of an
ownership change (taking into account most assets and items of "built-in" income
and deductions), then any built-in losses recognized during the following five
years (up to the amount of the original net built-in loss) generally will be
treated as pre-change losses and similarly will be subject to the annual
limitation. Conversely, if the loss corporation has a "net unrealized built-in
gain" at the time of an ownership change, any built-in gains recognized during
the following five years (up to the amount of the original net built-in gain)
generally will increase the annual limitation in the year recognized, such that
the loss corporation would be permitted to use its pre-change losses (including
recognized built-in losses) against such built-in gain income in addition to its
regular annual allowance. In general, a loss corporation's net unrealized
built-in gain or loss will be deemed to be zero unless it is greater than the
lesser of (i) $10 million or (ii) 15% of the fair market value of its assets
(with certain adjustments) before the ownership change. In a consolidated return
context, the determination of whether a loss corporation is in a net unrealized
built-in gain or built-in loss position is sometimes made on a consolidated
group (or subgroup) basis. Subject to certain interpretational issues, AWI
anticipates that it will be in a net unrealized built-in gain position on the
Effective Date.
85
(B) SPECIAL BANKRUPTCY EXCEPTION.
An exception to the foregoing annual limitation rules generally applies where
the shareholders and/or qualified (so-called "old and cold") creditors of a
debtor receive or retain, in respect of their claims or equity interests, at
least 50% of the vote and value of the stock of the reorganized debtor (or a
controlling corporation if also in bankruptcy) pursuant to a confirmed chapter
11 plan. Under this exception, a debtor's pre-change losses are not limited on
an annual basis but, instead, are reduced by the amount of any interest
deductions claimed during the three taxable years preceding the date of the
reorganization, in respect of the debt converted into stock in the
reorganization. Moreover, if this exception applies, any further ownership
change of the debtor within a two-year period after the consummation of the
chapter 11 plan will preclude the debtor's utilization of any NOLs and other
losses existing at the time of the subsequent ownership change against future
taxable income.
AWI anticipates that the receipt of New Common Stock by the holders of Allowed
Unsecured Claims and the Asbestos PI Trust will qualify for this exception.
Reorganized AWI may, if it so desires, elect not to have this exception apply
and instead remain subject to the annual limitation described above. Such
election would have to be made in Reorganized AWI's federal income tax return
for the taxable year in which the Effective Date occurs. Because the Asbestos PI
Trust will hold a majority of the New Common Stock and may choose to dispose of
all or a significant portion of such stock within two years of the Effective
Date, the projections in the Financial Appendix (Exhibit C) conservatively
assume that AWI will elect not to have this exception apply due to the
possibility of another ownership change occurring within two years.
3. ALTERNATIVE MINIMUM TAX.
In general, an alternative minimum tax ("AMT") is imposed on a corporation's
alternative minimum taxable income at a 20% rate to the extent that such tax
exceeds the corporation's regular federal income tax. For purposes of computing
taxable income for AMT purposes, certain tax deductions and other beneficial
allowances are modified or eliminated. For example, a corporation is generally
not allowed to offset more than 90% of its taxable income for AMT purposes by
available NOL carryforwards. However, recent legislation provides for a
temporary waiver of this limitation for AMT NOL carrybacks originating in years
ending in 2001 or 2002, or NOL carryforwards to the 2001 and 2002 tax years.
In addition, if a corporation undergoes an "ownership change" within the meaning
of Section 382 and is in a net unrealized built-in loss position on the date of
the ownership change, the corporation's aggregate tax basis in its assets would
be reduced for certain AMT purposes to reflect the fair market value of such
assets as of the change date. The application of this provision is unaffected by
whether the special bankruptcy exception to the annual limitation (and built-in
gain and loss) rules of Section 382 applies. As indicated above, AWI anticipates
that it will be in a net unrealized built-in gain position on the Effective
Date.
Any AMT that a corporation pays generally will be allowed as a nonrefundable
credit against its regular federal income tax liability in future taxable years
when the corporation is no longer subject to the AMT.
4. TREATMENT OF THE ASBESTOS PI TRUST AND ASBESTOS PD TRUST.
The Asbestos PI Trust and the Asbestos PD Trust are each intended to be a
"qualified settlement fund" within the meaning of Treasury Regulation section
1.468B-1 et seq. In accordance with the Plan, AWI will seek a ruling from the
IRS confirming such treatment with respect to the Asbestos PI Trust. Moreover,
it is a condition to the effectiveness of the Plan (waivable by AWI, with
appropriate consents) that a favorable ruling be obtained from the IRS with
respect to the qualification of the Asbestos PI Trust as a "qualified settlement
fund" or that AWI have received an opinion of counsel with respect to the tax
status of the trust reasonably satisfactory to AWI, the Asbestos PI Claimants'
Committee, the Future Claimants' Representative, and if Class 6 approves the
Plan, the Unsecured Creditors' Committee.
Assuming the Asbestos PI Trust is treated as a qualified settlement fund, AWI
generally would be entitled to a current federal income tax deduction for all
transfers of cash, stock and other property (other than notes) to the Asbestos
PI Trust to the same extent it would have been entitled to a deduction if such
amounts had been paid directly to the holder of an Asbestos Personal Injury
86
Claim. Accordingly, AWI expects to obtain a substantial tax deduction upon the
funding of the Asbestos PI Trust on the Effective Date and, consequently, to
have a substantial NOL for such taxable year (which, as discussed above, would
be reduced by reason of the discharge of debt under the Plan and would be
subject to limitation under Internal Revenue Code section 382). Reorganized AWI
would only be entitled to a deduction with respect to any New Notes contributed
to the Asbestos PI Trust as and when payments are made on such notes. In
addition, AWI generally will not be entitled to a deduction to the extent that
the Asbestos PI Trust is funded through insurance proceeds or the transfer of
AWI's rights under various insurance policies.
Because the Plan contemplates that the Asbestos PD Trust will be funded entirely
from insurance proceeds or the transfer of AWI's rights under various insurance
policies, AWI generally will not be entitled to a deduction with respect to the
funding of the Asbestos PD Trust.
As a qualified settlement fund, the Asbestos PI Trust and the Asbestos PD Trust
will each be subject to a separate entity level tax at the maximum rate
applicable to trusts and estates (currently 38.6%). In determining the taxable
income of each trust, (a) any amounts transferred by AWI or Reorganized AWI to
the trust (other than with respect to the accrual of interest on the New Notes
or distributions with respect to the New Common Stock) will be excluded from the
trust's income; (b) any sale, exchange or distribution of property by the trust
generally will result in the recognition of gain or loss in an amount equal to
the difference between the fair market value of the property on the date of
disposition and the adjusted tax basis of the trust in such property, and (c)
administrative costs (including state and local taxes) incurred by the trust
will be deductible. In general, the adjusted tax basis of property received by
the Asbestos PI Trust pursuant to the Plan will be its fair market value at the
time of such receipt.
B. CONSEQUENCES TO HOLDERS OF UNSECURED CLAIMS AND CONVENIENCE CLAIMS.
Pursuant to the Plan, in satisfaction and discharge of their Allowed Claims,
holders of Allowed Unsecured Claims (other than Convenience Claims) will receive
a combination of cash, New Common Stock and New Notes, and holders of
Convenience Claims will receive solely cash. In addition to their initial
distribution on or about the Effective Date, holders of Allowed Unsecured Claims
(other than Convenience Claims) may receive an additional distribution in the
event (i) there is additional cash available for distribution as a result of
subsequent insurance recoveries received by AWI with respect to Allowed
Environmental Claims or (ii) any Disputed Unsecured Claim (other than a
Convenience Claim) is subsequently disallowed.
The federal income tax consequences of the Plan to a holder of an Unsecured
Claim (other than a Convenience Claim) depend, in part, on whether such Claim
and all or part of any New Notes received constitute "securities" for federal
income tax purposes. The term "security" is not defined in the Internal Revenue
Code or the Treasury Regulations promulgated thereunder and has not been clearly
defined by judicial decisions. The determination of whether a particular debt
constitutes a "security" depends on an overall evaluation of the nature of the
debt. One of the most significant factors considered in determining whether a
particular debt is a security is its original term. In general, debt obligations
issued with a maturity at issuance of five years or less (e.g., trade debt and
revolving credit obligations) do not constitute securities, whereas debt
obligations with a maturity at issuance of ten years or more constitute
securities. The maturity of the New Notes has not yet been established, but will
be at least five years and no more than ten years. Each holder of a Claim is
urged to consult its tax advisor regarding the status of its Claim and the New
Notes as "securities" for federal income tax purposes.
1. GAIN OR LOSS - GENERALLY.
In general, each holder of an Allowed Unsecured Claim (including a Convenience
Claim) that is not a "security" for federal income tax purposes will recognize
gain or loss in an amount equal to the difference between (i) the sum of the
amount of any cash, the "issue price" of any New Notes (which is intended to be
their face amount) and the fair market value of any New Common Stock received in
satisfaction of its Claim (other than in respect of any Claim for accrued but
unpaid interest, and excluding any portion required to be treated as imputed
interest due to the post-Effective Date distribution of such consideration) and
(ii) the holder's adjusted tax basis in its Claim (other than any Claim for
accrued but unpaid interest). For a discussion of the federal income tax
87
consequences of any Claim for accrued interest, see "Distributions in Discharge
of Accrued but Unpaid Interest" below. For a discussion of the potential tax
consequences to holders of Unsecured Claims (other than Convenience Claims) that
constitute "securities" for federal income tax purposes, see "Treatment of
Unsecured Claims that Constitute Securities" below.
Due to the possibility that a holder of an Allowed Claim may receive additional
distributions subsequent to the Effective Date, the imputed interest provisions
of the Internal Revenue Code may apply to treat a portion of such later
distributions to such holders as imputed interest. In addition, it is possible
that any loss realized, and a portion of any gain realized, by a holder in
satisfaction of an Allowed Unsecured Claim may be deferred until all subsequent
distributions with respect to such Claim are determinable. Holders are urged to
consult their tax advisors regarding the possibility of deferral and the ability
to elect out of the installment method of reporting any gain realized in respect
of their Claims.
Where gain or loss is recognized by a holder in respect of its Claim, the
character of such gain or loss as long-term or short-term capital gain or loss
or as ordinary income or loss will be determined by a number of factors,
including the tax status of the holder, whether the Claim constitutes a capital
asset in the hands of the holder and how long it has been held, whether the
Claim was acquired at a market discount, and whether and to what extent the
holder had previously claimed a bad debt deduction. A holder that purchased its
Claim from a prior holder at a market discount may be subject to the market
discount rules of the Internal Revenue Code. Under those rules, assuming that
the holder has made no election to amortize the market discount into income on a
current basis with respect to any market discount instrument, any gain
recognized on the exchange of such Claim (subject to a de minimis rule)
generally would be characterized as ordinary income to the extent of the accrued
market discount on such Claim as of the date of the exchange.
In general, a holder's tax basis in any New Notes received will equal the issue
price of such notes, a holder's tax basis in any New Common Stock received will
equal the fair market value of such stock, and the holding period for such notes
and stock generally will begin the day following the Effective Date.
2. TREATMENT OF UNSECURED CLAIMS THAT CONSTITUTE SECURITIES.
In the event that a holder's Allowed Unsecured Claim constitutes a "security"
for federal income tax purposes, the exchange of such Claim partially for New
Common Stock will be treated as a "recapitalization" for federal income tax
purposes. Accordingly, the holder of such Claim generally (i) will not be
entitled to recognize any loss upon the exchange of such Claims, but (ii) will
be required to recognize gain (computed as described in the proceeding section),
if any, to the extent of any consideration received other than stock or
"securities" (excluding any consideration received in respect of any Claim for
accrued but unpaid interest, or required to be treated as imputed interest due
to the post-Effective Date distribution of such consideration). As discussed
above, holders are urged to consult their tax advisor regarding the possible
characterization of the New Notes as "securities" for federal income tax
purposes.
The character and timing of such gain, and the potential applicability of the
imputed interest rules, would be determined in accordance with the principles
discussed in the preceding section. For a discussion of the U.S. federal income
tax consequences of any Claim for accrued interest, see "Distributions in
Discharge of Accrued but Unpaid Interest" below.
In general, a holder's aggregate tax basis in any New Common Stock and, if
treated as securities, any New Notes received in satisfaction of an Unsecured
Claim that constitutes a security for federal income tax purposes will equal the
holder's aggregate tax basis in such Claim (including any Claim for accrued but
unpaid interest), increased by any gain recognized or interest income received
in respect of such Claim and decreased by any consideration received other than
stock or securities, and any deductions claimed in respect of any previously
accrued interest. Such tax basis will be allocable among such stock and notes
based on their relative fair market value. In general, the holder's holding
period for such stock and notes will include the holder's holding period for its
Claim, except to the extent such stock or notes were received in respect of a
Claim for accrued but unpaid interest.
In general, the holder's tax basis in any New Notes received that do not
constitute securities will equal the issue price of such notes, and the holding
period for such notes generally will begin the day following the Effective Date.
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3. DISTRIBUTIONS IN DISCHARGE OF ACCRUED BUT UNPAID INTEREST.
Pursuant to the Plan, distributions to any holder of an Allowed Unsecured Claim
will be allocated first to the original principal portion of such Claim as
determined for federal income tax purposes, and then, to the extent the
consideration exceeds such amount, to the portion of such Claim representing
accrued but unpaid interest. However, there is no assurance that the IRS would
respect such allocation for federal income tax purposes.
In general, to the extent that an amount received (cash, stock or notes) by a
holder of debt is received in satisfaction of interest accrued during its
holding period, such amount will be taxable to the holder as interest income (if
not previously included in the holder's gross income). Conversely, a holder
generally recognizes a deductible loss to the extent any accrued interest
claimed or amortized original issue discount ("OID") was previously included in
its gross income and is not paid in full. However, the IRS has privately ruled
that a holder of a security, in an otherwise tax-free exchange, could not claim
a current deduction with respect to any unpaid OID. Accordingly, it is also
unclear whether, by analogy, a holder of a Claim with previously included OID
that is not paid in full would be required to recognize a capital loss, rather
than an ordinary loss. Each holder is urged to consult its tax advisor regarding
the allocation of consideration and the deductibility of unpaid interest for
federal income tax purposes.
4. OWNERSHIP AND DISPOSITION OF THE NEW NOTES.
(A) INTEREST AND ORIGINAL ISSUE DISCOUNT ON THE NEW NOTES.
The New Notes will bear interest at a fixed rate and provide for the semi-annual
payment of all stated interest. Such stated interest generally will be
includable in income by a holder in accordance with the holder's regular method
of accounting..
In addition, under certain circumstances, the New Notes may be treated as issued
with OID. In general, a debt instrument is treated as having OID to the extent
its "stated redemption price at maturity" (in this case, the stated principal
amount of the New Notes) exceeds its "issue price" by more than by a de minimis
amount.
The "issue price" of the New Notes will depend upon whether they are traded on
an "established securities market" during the sixty (60) day period ending
thirty (30) days after the Effective Date. Pursuant to Treasury Regulations, an
"established securities market" need not be a formal market. It is sufficient
that the notes appear on a system of general circulation (including a computer
listing disseminated to subscribing brokers, dealers or traders) that provides a
reasonable basis to determine fair market value by disseminating either recent
price quotations or actual prices of recent sales transactions, or that price
quotations for such notes are readily available from dealers, brokers or
traders.
It is anticipated that the New Notes will be traded on an established securities
market, and that the "issue price" of such New Notes will therefore be their
fair market value. Because the interest rate on the New Notes will be fixed at a
rate that is intended to be a rate at which the New Notes will trade at par, AWI
expects that the fair market value will equal (or be very close to) their stated
principal amount. Otherwise, the issue price of the New Notes automatically will
be their stated principal amount if, as is also expected, the stated interest
rate is greater than the applicable federal rate for obligations of similar
maturity in effect on the Confirmation Date. Accordingly, in either case, AWI
does not expect the New Notes to be issued with significant OID, if any.
If the New Notes are issued with OID, each holder generally will be required to
accrue the OID in respect of the New Notes received and include such amount in
gross income as interest over the term of such notes based on the constant yield
method. Accordingly, each holder generally will be required to include amounts
in gross income in advance of the payment of cash in respect of such income. A
holder's tax basis in a New Note will be increased by the amount of any OID
included in income and reduced by any cash received (other than payments of
stated interest) made with respect to such note.
With respect to holders of Disputed Claims allowed after the Effective Date, any
New Note received will have been outstanding since the Effective Date. Such
holders should consider their federal income tax consequences accordingly.
89
(B) ACQUISITION AND BOND PREMIUM.
If a holder of an Unsecured Claim has a tax basis in any of the New Notes
received that exceeds the issue price (or the "adjusted issue price" in the case
of a Disputed Claim allowed subsequent to the Effective Date) of such note, but
is less than or equal to the unpaid principal amount of such notes, the amount
of OID includable in the holder's gross income generally is reduced in each
period in proportion to the percentage of the OID represented by the excess
basis. Alternatively, if a holder treats all stated interest as OID, such holder
may elect to recompute the OID accruals by treating its acquisition as a
purchase at original issue and applying the constant yield method. Such an
election may not be revoked without the consent of the IRS.
If a holder has a tax basis in any of the New Notes received that exceeds the
unpaid principal amount of such notes (i.e., a "bond premium"), the holder will
not include any of the OID in income. Moreover, a holder may elect to deduct any
bond premium over the period from its acquisition of such note to the maturity
date of such note (or, if it results in a smaller amount of amortizable bond
premium, until an earlier call date), but not in excess of the stated interest.
If such bond premium is amortized, the amount of stated interest on any New Note
that must be included in the holder's gross income for each period ending on an
interest payment date or at the maturity date, as the case may be, will (except
as Treasury Regulations may otherwise provide) be reduced by the portion of bond
premium allocable to such period based on the note's yield to maturity. The
holder's tax basis in its New Note will be reduced by a like amount. If such an
election to amortize bond premium is not made, a holder will receive a tax
benefit from the premium only in computing such holder's gain or loss upon the
sale or other taxable disposition of the New Note, or upon the full or partial
payment of principal.
An election to amortize bond premium will apply to amortizable bond premium on
all notes and other bonds the interest on which is includable in the holder's
gross income and that are held at, or acquired after, the beginning of the
holder's taxable year as to which the election is made. The election may be
revoked only with the consent of the IRS.
(C) MARKET DISCOUNT.
Any holder of a Claim that has a tax basis in any New Notes received less than
the issue price (or the "adjusted issue price" in the case of a Disputed Claim
allowed subsequent to the Effective Date) of such notes generally will be
subject to the market discount rules of the Internal Revenue Code (unless such
difference is less than a de minimis amount). In addition, as discussed below, a
holder who acquired its Claim at a market discount and that receives its New
Notes as part of a tax-free exchange may be required to carry over to such
notes, as well as any New Common Stock received, any accrued market discount
with respect to its Claim to the extent not previously included in income.
Under the market discount rules, a holder is required to treat any principal
payment on, or any gain recognized on the sale, exchange, retirement or other
disposition of, a New Note as ordinary income to the extent of the market
discount that has not previously been included in income and is treated as
having accrued on such note at the time of such payment or disposition. A holder
could be required to defer the deduction of a portion of the interest expense on
any indebtedness incurred or maintained to purchase or to carry a market
discount note, unless an election is made to include all market discount in
income as it accrues. Such an election would apply to all bonds acquired by the
holder on or after the first day of the first taxable year to which such
election applies, and may not be revoked without the consent of the IRS.
Any market discount will be considered to accrue on a straight-line basis during
the period from the date of acquisition of such New Notes to the maturity date
of the notes, unless the holder irrevocably elects to compute the accrual on a
constant yield basis. This election can be made on a note-by-note basis.
The Treasury Department is expected to promulgate regulations that will provide
that any accrued market discount not treated as ordinary income upon a tax-free
exchange of market discount bonds would carry over to the nonrecognition
property (such as a "recapitalization") received in the exchange. If such
regulations are promulgated and applicable to the Plan (and, likely, even
without the issuance of regulations), any holder of an Unsecured Claim that
constitutes a "security" for federal income tax purposes would carry over any
accrued market discount incurred in respect of such Claim to any New Common
Stock and, if treated as a security for federal income tax purposes, any New
90
Notes received for such Claim pursuant to the Plan (presumably allocated on the
basis of relative fair market value), such that any gain recognized by the
holder upon a subsequent disposition of such stock or notes also would be
treated as ordinary income to the extent of any such accrued market discount not
previously included in income.
5. DISPOSITION OF NEW COMMON STOCK.
Any gain recognized by a holder upon a subsequent sale or other taxable
disposition of any New Common Stock received pursuant to the Plan (or any stock
or property received for it in a later tax-free exchange) will be treated as
ordinary income to the extent of (i) any bad debt deductions (or additions to a
bad debt reserve) claimed with respect to its Claim and any ordinary loss
deductions incurred upon satisfaction of its Claim, less any income (other than
interest income) recognized by the holder upon satisfaction of its Claim, and
(ii) with respect to a cash-basis holder, any amounts which would have been
included in its gross income if the holder's Claim had been satisfied in full
but which was not included by reason of the cash method of accounting.
In addition, as discussed in the preceding section, a holder that receives its
New Common Stock in exchange for an Unsecured Claim that constitutes a security
for federal income tax purposes may be required to treat all or a portion of any
gain recognized as ordinary income under the market discount provisions of the
Internal Revenue Code.
C. CONSEQUENCES TO HOLDERS OF ASBESTOS PERSONAL INJURY CLAIMS.
Each Allowed Asbestos Personal Injury Claim will be liquidated and satisfied in
cash solely from the Asbestos PI Trust, in accordance with the Asbestos PI Trust
Distribution Procedures. The federal income tax treatment of a receipt of
payments by a holder of such Claim generally will depend upon the nature of the
Claim. Because the amounts received by a holder of an Allowed Asbestos Personal
Injury Claim (other than an Asbestos PI Contribution Claim) generally will be
attributable to, and compensation for, such holder's personal physical injuries
or sickness, within the meaning of section 104 of the Internal Revenue Code, any
such amounts received by the holder should be nontaxable. Each holder of an
Asbestos Personal Injury Claim should consult his or her own tax advisors as to
the proper tax treatment of any amounts received with respect to such Claim.
D. CONSEQUENCES TO HOLDERS OF ASBESTOS PROPERTY DAMAGE CLAIMS.
Each Allowed Asbestos Property Damage Claim will be liquidated and satisfied in
cash solely from the Asbestos PD Trust, in accordance with the Asbestos PD
Claims Resolution Procedures. The federal income tax treatment of a receipt of
payments by a holder of such Claim generally will depend upon the nature of the
Claim. If any amount received by such holder with respect to such Claim is used
to restore damaged property to its original condition, such amount generally
should be nontaxable to the holder. However, any amount received in respect of
property that has been destroyed and will not be replaced by the holder
generally should be treated as received in respect of a sale or exchange of such
property and may give rise to gain or loss generally equal to the difference
between (i) such amount and (ii) the adjusted tax basis of the holder in the
destroyed property. To the extent the amount received is used to replace
destroyed property, or a part thereof, with similar property, the holder may be
able to avoid recognizing gain under section 1033 of the Internal Revenue Code
(governing involuntary conversions). Because the tax treatment of any amount
received by a holder under the Plan will depend on facts peculiar to each
holder, all holders of Asbestos Property Damage Claims should consult their own
tax advisors as to the proper tax treatment of such receipts.
E. INFORMATION REPORTING AND WITHHOLDING.
All distributions to holders of Allowed Claims under the Plan are subject to any
applicable withholding (including employment tax withholding). Under federal
income tax law, interest, dividends, and other reportable payments may, under
certain circumstances, be subject to "backup withholding" at the then applicable
rate (currently 30%). Backup withholding generally applies if the holder (a)
fails to furnish its social security number or other taxpayer identification
number ("TIN"), (b) furnishes an incorrect TIN, (c) fails properly to report
interest or dividends, or (d) under certain circumstances, fails to provide a
certified statement, signed under penalty of perjury, that the TIN provided is
its correct number and that it is not subject to backup withholding. Backup
91
withholding is not an additional tax but merely an advance payment, which may be
refunded to the extent it results in an overpayment of tax. Certain persons are
exempt from backup withholding, including, in certain circumstances,
corporations and financial institutions.
THE FOREGOING SUMMARY HAS BEEN PROVIDED FOR INFORMATIONAL
PURPOSES ONLY. ALL HOLDERS OF CLAIMS ARE URGED TO CONSULT THEIR
TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL, AND
OTHER TAX CONSEQUENCES APPLICABLE UNDER THE PLAN.
92
XIV. ALTERNATIVES TO CONFIRMATION
AND CONSUMMATION OF THE PLAN
If the Plan is not confirmed and consummated, AWI's alternatives include (i)
liquidation under chapter 7 of the Bankruptcy Code and (ii) the preparation and
presentation of an alternative plan of reorganization.
A. LIQUIDATION UNDER CHAPTER 7.
If no chapter 11 plan can be confirmed, the Chapter 11 Case may be converted to
a case under chapter 7 of the Bankruptcy Code in which a trustee would be
elected or appointed to liquidate AWI's assets. A discussion of the effect that
a chapter 7 liquidation would have on the recovery of holders of Claims is set
forth in Section VIII.C.4, entitled "CONFIRMATION AND CONSUMMATION PROCEDURE --
Confirmation -- Best Interests Test." In performing the liquidation analysis,
AWI has assumed that all holders of Asbestos Personal Injury Claims (whether
presently known or unknown) will be determined to have "claims" that are
entitled to share in the proceeds from any such liquidation. AWI believes that
liquidation under chapter 7 would result in (i) smaller distributions being made
to creditors than those provided for in the Plan because of the additional
administrative expenses involved in the appointment of a trustee and attorneys
and other professionals to assist such trustee, (ii) additional expenses and
claims, some of which would be entitled to priority, which would be generated
during the liquidation and from the rejection of unexpired leases and executory
contracts in connection with the cessation of AWI's operations, and (iii) the
failure to realize the greater, going concern value of all of AWI's assets.
B. ALTERNATIVE PLAN OF REORGANIZATION.
If the Plan is not confirmed, AWI or any other party in interest could attempt
to formulate a different plan of reorganization. Such a plan might involve
either a reorganization and continuation of AWI's businesses or an orderly
liquidation of its assets. During the negotiations prior to the filing of the
Plan, AWI explored various alternatives to the Plan.
AWI believes that the Plan enables AWI to emerge from chapter 11 successfully
and expeditiously, preserves its businesses, and allows Claimants to realize the
highest recoveries under the circumstances. In a liquidation under chapter 11 of
the Bankruptcy Code, the assets of AWI would be sold in an orderly fashion over
a more extended period of time than in a liquidation under chapter 7, and a
trustee need not be appointed. Accordingly, creditors would receive greater
recoveries than in a chapter 7 liquidation. Although a chapter 11 liquidation is
preferable to a chapter 7 liquidation, AWI believes that a liquidation under
chapter 11 is a much less attractive alternative to Claimants than the Plan
because a greater return is provided for in the Plan to Claimants. In any
liquidation, Claimants will be paid their distribution in cash, whereas, under
the Plan, some Claimants will receive a part of their distribution in New Common
Stock, New Notes and/or the New Warrants.
93
XV. CONCLUSION AND RECOMMENDATION
AWI, the Asbestos PI Claimants' Committee, the Future Claimants' Representative,
and the Unsecured Creditors' Committee all believe that confirmation and
implementation of the Plan is preferable to any of the alternatives described
above because it will provide the greatest recoveries to holders of Claims. In
addition, other alternatives would involve significant delay, uncertainty, and
substantial additional administrative costs. WE URGE HOLDERS OF IMPAIRED CLAIMS
ENTITLED TO VOTE ON THE PLAN TO VOTE TO ACCEPT THE PLAN AND TO EVIDENCE SUCH
ACCEPTANCE BY RETURNING THEIR BALLOTS TO THE ADDRESS SET FORTH THEREON SO THAT
THEY WILL BE RECEIVED NO LATER THAN 5:00 P.M., EASTERN TIME, ON ___________.
Dated:
Respectfully submitted,
ARMSTRONG WORLD INDUSTRIES, INC.
94
INDEX
2001 INSTALLMENT PAYMENT.............................27 DCF..................................................80
ACANDS...............................................13 DESSEAUX.............................................17
ADMINISTRATIVE EXPENSE BAR DATE......................32 DIP CREDIT FACILITY..................................21
ADMINISTRATIVE EXPENSE BAR DATE ORDER................32 DIP CREDIT FACILITY CLAIM............................34
ADMINISTRATIVE EXPENSES..............................32 EBIT.................................................80
ADR..................................................27 EBITDA...............................................80
AGENT................................................21 EMC..................................................30
AMT..................................................86 EMC ADVERSARY PROCEEDING.............................30
ASBESTOS PD COMMITTEE................................18 EMC SETTLEMENT AGREEMENT.............................30
ASBESTOS PD PLAINTIFFS...............................25 EMPLOYEE RETENTION PROGRAM...........................20
ASBESTOS PD TRUST.....................................5 ENVIRONMENTAL CLAIMS.................................41
ASBESTOS PERSONAL INJURY CLAIM.......................39 FUTURE CLAIMANTS' REPRESENTATIVE......................i
ASBESTOS PI CLAIMANTS' COMMITTEE......................i HOLDINGS..............................................1
ASBESTOS PI TRUST.....................................5 HOLDINGS GROUP.......................................84
ASBESTOS PROPERTY DAMAGE CLAIM.......................37 INNISFREE.............................................3
AWI...................................................i INSURERS.............................................26
AWI PROGENY..........................................48 INSURERS' APPEAL.....................................26
AWWD..................................................i INSURERS' RESPONSE...................................26
BANKRUPTCY COURT......................................1 INTERNAL REVENUE CODE................................84
BAR DATE.............................................22 INTERNATIONAL........................................26
BAR DATE NOTICE......................................22 IRS..................................................84
BAR DATE ORDER.......................................22 ISSUER...............................................76
CCR..................................................28 JPMORGAN CHASE.......................................21
CCR MEMBERS..........................................28 KEY EMPLOYEES........................................20
CCR PREFERENCE CLAIM.................................29 LENDERS..............................................21
CENTURY..............................................27 LETTERS OF CREDIT....................................21
CENTURY ADVERSARY PROCEEDING.........................27 LIBERTY MUTUAL.......................................27
CENTURY ANSWER.......................................27 LIBERTY MUTUAL'S STAY RELIEF MOTION..................28
CENTURY COMPLAINT....................................27 LIQUIDATION ANALYSIS.................................71
CENTURY MOTION TO COMPEL.............................27 LOCAL RULES..........................................23
CENTURY MOTION TO DISMISS............................27 MAERTIN APPEAL.......................................26
CENTURY MOTION TO DISMISS COUNTERCLAIM...............27 MAERTIN COVERAGE CASE................................26
CENTURY POLICIES.....................................27 MAERTIN INSURANCE POLICIES...........................26
CENTURY PROOF OF CLAIM...............................27 MAERTIN INSURANCE PROCEEDS...........................26
CENTURY SETTLEMENT AGREEMENT.........................27 MAERTIN PLAINTIFFS...................................26
CENTURY TRUST........................................27 MAERTIN SETTLEMENT AGREEMENTS........................26
CLAIMANT..............................................1 MAERTIN SETTLEMENT AMOUNT............................26
CLAIMANTS.............................................1 MAERTIN STAY PENDING APPEAL MOTION...................26
CLAIMS SETTLEMENT ORDER..............................30 MAERTIN STAY PENDING APPEAL ORDER....................26
COD..................................................84 MAERTIN STAY PENDING APPEAL STIPULATION..............26
COLI CLAIMS..........................................38 MAERTIN STAY RELIEF MOTION...........................26
COMMENCEMENT DATE....................................17 MAERTIN STAY RELIEF ORDER............................26
COMMITMENT...........................................21 MOTION TO DISMISS....................................26
COMMITTEES...........................................18 MOTION TO EXTEND.....................................24
CONFIRMATION HEARING..................................1 NEW NOTE INDENTURE...................................47
CONSOLIDATED CCR PROCEEDINGS.........................29 NITRAM...............................................17
CONTROL..............................................76 NOL..................................................84
CONTROL PERSON.......................................76 OCF..................................................16
CONVENIENCE CLAIM.................................5, 37 OMNIBUS CLAIMS MOTION................................23
CREDIT AGREEMENT.....................................21 ORDER DENYING THE MOTION TO EXTEND...................24
CRITICAL VENDORS.....................................20 OTCBB................................................31
1
PENNSYLVANIA BCL.....................................13 SEC...................................................2
PENNSYLVANIA LAWSUIT.................................27 SECURED CLAIMS.......................................36
PI PROTECTED PARTIES.................................63 SECURITIES ACT.......................................76
PLAN..................................................i SUBSIDIARY DEBT GUARANTEE CLAIM......................42
PROJECTED FINANCIAL INFORMATION......................70 TAC..................................................60
PROJECTION PERIOD....................................70 TRUMBULL..............................................4
RATING AGENCIES......................................16 U.S. TRUSTEE.........................................18
REORGANIZATION CONSIDERATION.........................32 UNDERWRITER..........................................76
SAFECO...............................................28 UNSECURED CREDITORS' COMMITTEE........................i
SAFECO BOND..........................................28 VOTING DEADLINE.......................................2
SAFECO/CCR ADVERSARY PROCEEDING......................29 VOTING PROCEDURES.....................................1
SCHEDULED CLAIMS.....................................23
2
EXHIBIT "A"
PLAN OF REORGANIZATION OF ARMSTRONG WORLD INDUSTRIES, INC.,
DATED NOVEMBER 4, 2002
(SEE DOCKET NO. 3313:
TO BE ATTACHED AFTER BANKRUPTCY
COURT APPROVAL OF THE
DISCLOSURE STATEMENT)
A-1
Exhibit "B"
ORDER OF THE BANKRUPTCY COURT, DATED ____________,
APPROVING THE DISCLOSURE STATEMENT
(TO BE ATTACHED)
B-1
EXHIBIT "C"
FINANCIAL APPENDIX
(TO BE ATTACHED)
C-1
Exhibit "D"
Ballot Solicitation and Tabulation Procedures
D-1
EXHIBIT "E"
LIQUIDATION ANALYSIS
(TO BE ATTACHED)
E-1
EXHIBIT "F"
LIST OF AWI'S SUBSIDIARIES
F-1
EXHIBIT "G"
List of Officers and Directors of
Armstrong Holdings, Inc. and
Armstrong World Industries, Inc.
(to be attached)
G-1