UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Armstrong Holdings, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
[GRAPHIC]
Armstrong Holdings, Inc.
Proxy Statement and Notice of Annual Meeting of Shareholders, December 10, 2001.
[LOGO] Armstrong
Armstrong Holdings, Inc.
2500 Columbia Avenue, Lancaster, Pennsylvania, 17603
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Dear Fellow Armstrong Shareholders:
We cordially invite you to attend the 2001 Annual Meeting of Shareholders to be
held on Monday, December 10, 2001 at 1:00 p.m. Central Standard Time. The
meeting will be held at Armstrong World Industries' Pensacola, Florida plant,
located at 300 South Myrick Street, Pensacola, Florida. In addition, the audio
portion and slide presentation of the meeting will be webcast simultaneously
over the Internet, allowing shareholders anywhere in the world with Internet
access to connect to the proceedings via Armstrong's website, www.armstrong.com.
You may also listen to a live broadcast of the annual meeting on your telephone.
Follow the instructions on the voting form you receive with this document to
listen or observe the Annual Meeting using either your telephone or the
Internet.
Please note that you will need to show you are a shareholder to attend the
meeting in person. To obtain an admission ticket, please follow the Annual
Meeting instructions on the voting form you receive with this document. If your
shares are in the name of your broker or bank, you can also bring evidence of
your stock ownership, such as your most recent account statement and picture
identification, for admission.
At the meeting, shareholders will vote to:
. Elect three directors for terms expiring in 2004; and
. Take action on any other matters properly brought before the meeting.
Your proxy to vote at the meeting is being solicited on behalf of Armstrong
Holdings' (the "Company's") Board of Directors. Our directors, officers and
employees may solicit proxies in person or by telephone. Record holders of the
Company's common stock at the close of business on September 28, 2001 may vote
at the meeting.
Your vote is important. Please read this proxy statement and complete, sign and
date the enclosed voting instruction form and return it promptly in the
enclosed envelope. You may also be able to vote via phone or Internet by
following the directions on the proxy card or voting instructions you receive
with this document. We appreciate your participation in the corporate
governance of your company.
Sincerely yours,
/s/ Michael D. Lockhart
Michael D. Lockhart
Chairman and CEO
Armstrong Holdings, Inc.
October 22, 2001
PROXY INFORMATION
--------------------------------------------------------------------------------
The Board of Directors of the Company is soliciting proxies to vote at the
Company's 2001 Annual Meeting of Shareholders.
How to Vote Before the Meeting
You can provide your voting instructions before the meeting:
. Over the Internet, which we encourage, by following the directions on the
voting instructions form you received with this document;
. By telephone through the number shown on your voting instruction form; or
. By mail by completing, signing and returning your voting instruction
form.
If you hold shares through a broker or bank, your ability to vote by Internet
or telephone depends on their voting processes. Please carefully follow the
directions on the voting instruction form you received with this document.
Persons who wish to cumulate their votes for election of directors should
submit their voting instructions by mail due to technical limitations of the
telephone and Internet mediums.
Alternatively, you may vote in person if you attend the meeting.
Who May Vote
Only holders of common stock, as recorded in the Company's stock register on
September 28, 2001 may vote at the meeting. On that date, the Company had
40,749,695 shares of common stock outstanding. Each shareholder may vote in
person or by proxy. The presence at the meeting (in person or by proxy) of a
majority of the shares of common stock outstanding constitutes a quorum for
conducting business.
Proxy Cards
You may receive more than one proxy card (or voting instruction form) depending
on how you hold your shares. If you hold shares under different names, you may
receive multiple sets of proxy materials. Also, if you hold your shares through
a stockbroker or bank, you will get separate material from that firm asking how
you want to vote those shares.
Revocation of a Proxy
Any shareholder who provides proxy voting instructions (whether by mail, phone
or Internet) may revoke the proxy at any time before it is formally voted at
the meeting. You can revoke a proxy by:
. Filing a written notice of revocation with the Company's Secretary;
. Executing and returning a proxy card bearing a later date; or
. Attending the meeting and voting in person.
Attendance at the meeting by itself will not revoke any proxy you previously
granted.
Voting Rights and Cumulative Voting
You are entitled to one vote for each share of common stock held on September
28, 2001 other than in the election of directors. In the election of directors
a shareholder may cumulate votes. Under cumulative voting, a shareholder
multiplies the number of shares he or she holds times the number of directors
being elected to determine the number of votes the shareholder may cast. You
may cast all of your votes for one director or distribute the votes in any
other manner you choose. The nominees receiving the greatest number of votes
will be elected directors. Shareholders who desire to cumulate their votes
should not vote by Internet or telephone due to the limitation of those
mediums.
Abstentions and Broker Nonvotes
Abstentions and broker nonvotes have the effect of votes against any matter
submitted to shareholders for approval, other than the election of directors. A
shareholder can abstain from voting by marking the "abstain" box on the proxy
card, or if the shareholder chooses to attend and vote at the meeting, on the
ballot at the meeting. Broker nonvotes occur when a broker returns a proxy for
the shares it holds for customers, but does not have the authority to vote on a
particular matter. The Company's Bylaws require matters presented to
shareholders to be approved by the affirmative vote of at least a majority of
the votes present (in person or by proxy) and entitled to vote at the meeting.
Therefore, abstentions and
1
broker nonvotes will have the effect of votes against any matter submitted to
the shareholders for approval. This is because the shares they represent are
present at the meeting, but are not voted in favor of the matter. Shares
covered by abstentions and broker nonvotes are considered present at the
meeting for the purpose of a quorum even though no vote is cast.
PROPOSAL TO BE PRESENTED AT THE ANNUAL MEETING
--------------------------------------------------------------------------------
The only matter scheduled to be addressed at the meeting is the election of
three directors.
Election of Directors
The Company has a classified Board of Directors, currently consisting of ten
directors divided into three classes. These classes consist of three directors
whose terms will expire at the 2001 annual meeting, three directors whose terms
will expire at the 2002 annual meeting and four directors whose terms will
expire at the 2003 annual meeting.
Unless you specify otherwise in your voting instructions, the persons to whom
you will be giving your voting directions intend to vote the proxies they
receive for the election of the Board nominees discussed below. If a nominee
refuses or is unable to serve as a director, the persons named on the
accompanying proxy card intend to vote for the election of any other person who
may be nominated by the Board. The persons to whom you will be giving your
voting instructions also may exercise cumulative voting rights to elect as many
of the Board nominees as possible.
NOMINEES FOR TERMS TO EXPIRE IN 2004
--------------------------------------------------------------------------------
Ms. Haberkorn is a graduate of
Briarcliff (N.Y.) College and
completed the Advanced Management
Program at Harvard Business School.
From 1998 until her retirement in
June 2000, she served as President--
Consumer Sales & Service for Bell
Atlantic (telecommunications). She
previously served as President--
Public & Operator Services (1997-
1998), also at Bell Atlantic, and
Vice President--Material Management
(1990-1997) for NYNEX Telesector
Resources Group
(telecommunications). Ms. Haberkorn
is a director of Enesco Corporation
and serves on the advisory board of
Norfolk Southern. She is chair of
the Committee of 200 and a member of
The International Women's Forum and
The Harvard Business School Network
of Women Alumnae. She is a Vice
President Emerita of the Harvard
Business School Alumni Advisory
Board and a member of the Visiting
Committee.
[PHOTO]
JUDITH R. HABERKORN
Former President--
Consumer Sales and
Service, Bell Atlantic
Member--Board Affairs and Governance
Committee and Management Development
and Compensation Committee
Director since July 1998 Age 55
2
Mr. Marley is a graduate of Pennsylvania
State University and earned a master's
degree in mechanical engineering from
Drexel University. From 1993 until his
retirement (August 1998), he served as
Chairman of the Board of AMP Incorporated
(electrical/electronic connection
devices), which he joined in 1963 and
where he served as President and Chief
Operating Officer (1990-1992) and
President (1986-1990). He also serves on
the Board of Arvin Meritor, Inc.
[PHOTO]
JAMES E. MARLEY
Former Chairman of the
Board, AMP
Incorporated
Member--Audit Committee
(Chairman) and Finance Committee
Director--Armstrong World
Industries, Inc.
Director since November 1988 Age
66
Mr. Stead is a graduate of the University
of Iowa and was a participant in the
Advanced Management Program, Harvard
Business School. From August 1996 until
June 2000 he served as Chairman and Chief
Executive Officer of Ingram Micro, Inc.
(technology products and services).
During 1995, he served as Chairman,
President and Chief Executive Officer of
Legent Corporation (integrated product
and service software solutions) until its
sale late in 1995. He was Executive Vice
President, American Telephone and
Telegraph Company (telecommunications)
and Chairman and Chief Executive Officer
of AT&T Global Information Solutions
(computers and communicating), formerly
NCR Corp. (1993-1994). He was President
of AT&T Global Business Communications
Systems (communications) (1991-1993) and
Chairman, President and Chief Executive
Officer (1989-1991) and President (1987-
1989) of Square D Company (industrial
control and electrical distribution
products). In addition, he held numerous
positions during a 21-year career at
Honeywell. He is a Director of Thomas &
Betts, Conexant Systems, Inc.,
Brightpoint Inc. and Mobility
Electronics, Inc. Mr. Stead is also
Chairman of the Board and Director of
WorkWell Systems, Inc.
[PHOTO]
JERRE L. STEAD
Former Chairman and
Chief Executive
Officer, Ingram Micro,
Inc.
Member--Board Affairs and
Governance Committee and
Management Development and
Compensation Committee
(Chairman)
Director since April 1992 Age 58
The Board of Directors of the Company recommends that shareholders vote FOR the
election of each of these nominees.
3
CONTINUING DIRECTORS
--------------------------------------------------------------------------------
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2002
--------------------------------------------------------------------------------
Mr. Arnelle is Of Counsel with the
law firm of Womble Carlyle Sandridge
& Rice, PLLC since October 1997 and
former senior partner and co-founder
of Arnelle, Hastie, McGee, Willis &
Greene, a San Francisco-based
corporate law firm from which he
retired in 1996. He is a graduate of
Pennsylvania State University and
the Dickinson School of Law.
Armstrong has retained Womble
Carlyle Sandridge and Rice, PLLC for
many years, including 2000 and 2001.
Mr. Arnelle served as Vice Chairman
(1992-1995) and Chairman (1996-1998)
of the Board of Trustees of the
Pennsylvania State University. He
serves on the Boards of Waste
Management, Inc., FPL Group, Inc.,
Eastman Chemical Company, Textron,
Inc. and Gannett Corporation.
[PHOTO]
H. JESSE ARNELLE
Of Counsel, Womble
Carlyle Sandridge &
Rice, PLLC
Member--Audit Committee and Finance
Committee
Director since July 1995 Age 67
Mr. Clark is a graduate of Clarkson
University and Northwestern
University where he earned his MBA
degree. He joined Household
International, Inc. (consumer
financial services) in 1955 and,
after holding a number of managerial
and executive positions, was elected
Chief Executive Officer in 1982 and
Chairman of the Board in 1984. In
1994, he relinquished the title of
Chief Executive Officer and retired
as a Director and Chairman of the
Board in May 1996, as a result of
reaching Household's mandatory
retirement age for employee
directors. Mr. Clark is a life
trustee of Northwestern University
and Chairman of the Board of
Trustees of Clarkson University. He
is also a Director of The PMI Group,
Inc. and a life director of Evanston
Northwestern Healthcare.
[PHOTO]
DONALD C. CLARK
Former Chairman of the
Board, Household
International, Inc.
Member--Board Affairs and Governance
Committee (Chairman) and Management
Development and Compensation
Committee
Director since April 1996 Age 70
4
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 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
trustee of The Committee for Economic
Development and a member of the Business
Council for the Graduate School of
Business at the University of Chicago.
[PHOTO]
MICHAEL D. LOCKHART
Director, Chairman of
the Board and Chief
Executive Officer
Director since August 2000 and
Chairman since March 2001 of
Armstrong
World Industries, Inc. Age 52
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2003
--------------------------------------------------------------------------------
Mr. Campbell graduated from Cornell
University and holds an MBA degree from
Harvard University. He retired in 1999 as
Vice Chairman of Corning Incorporated
(glass and ceramic products) and a member
of its Board of Directors. He also serves
on the Board of Quest Diagnostics
Incorporated. Mr. Campbell is a Trustee
of the Corning Museum of Glass.
[PHOTO]
VAN C. CAMPBELL
Former Vice Chairman,
Corning Incorporated
Member--Audit Committee and
Finance Committee (Chairman)
Director since March 1991 Age 62
Mr. Krol is a graduate of Tufts
University where he also received a
master's degree in chemistry. From 1997
until his retirement in 1998, he was
Chairman of the Board of DuPont
(chemicals, fibers, petroleum, life
sciences and diversified businesses),
which he joined in 1963, and where he
also served as Chief Executive Officer
(1995-1998), Vice Chairman (1992-1995),
and Senior Vice President of DuPont
Fibers (1990-1992). He is a director of
Mead Corporation, Milliken & Company,
Molecular Circuitry, Inc. and ACE Limited
Insurance Co. Mr. Krol also serves on the
Boards of Trustees of the Tufts
University and the University of
Delaware. He is on the advisory Boards of
Teijin Limited and Bechtel Corporation.
He is a trustee of the Hagley Museum. He
is also the former president of GEM: The
National Consortium for Graduate Degrees
for Minorities in Engineering and
Science, Inc.
[PHOTO]
JOHN A. KROL
Former Chairman of the
Board and CEO, E.I. du
Pont de Nemours and
Company
Member--Board Affairs and
Governance Committee and
Management Development and
Compensation Committee
Director since February 1998 Age
64
5
Mr. Raisbeck is a graduate of Iowa
State University and the executive
MBA program at the University of
Southern California. He joined
Cargill, Incorporated (agricultural
trading and processing businesses)
in 1971 and has held a variety of
merchandising and management
positions focused primarily in the
commodity and the financial trading
businesses. Mr. Raisbeck was elected
President of Cargill's Trading
Sector in June 1993, a director of
Cargill's Board in August 1994,
Executive Vice President in August
1995 and Vice Chairman in November
1999. He is a member of the
Executive Committee and the ESOP
Committee of the Cargill Board. He
also serves as a Director of Eastman
Chemical. Mr. Raisbeck is a member
of the Chicago Mercantile Exchange
and Minneapolis Grain Exchange. He
is a governor of the Iowa State
University Foundation and a member
of the Dean's Advisory Council for
the College of Business at Iowa
State University. He serves on the
board of the Greater Minneapolis
YMCA.
[PHOTO]
DAVID W. RAISBECK
Vice Chairman, Cargill,
Incorporated
Member--Audit Committee and Finance
Committee
Director since July 1997 Age 52
Mr. Sellers is a graduate of
Vanderbilt University and received
his MBA from Harvard Business
School. Mr. Sellers joined Blue
Cross and Blue Shield of South
Carolina (a health, life, property
and casualty insurance company with
related services and functions) in
1987, serving as President and Chief
Operating Officer until 1992 when he
assumed the role of President and
Chief Executive Officer. He serves
as Chairman of the Board of the
South Carolina State Chamber of
Commerce and Chairman of the Board
of Columbia College. He also serves
on the following Boards: Open
Networks Technologies, Inc.;
Palmetto Conservation Foundation;
National Bank of South Carolina;
American Red Cross; ETV (Educational
Television) Endowment of South
Carolina; Central Carolina Economic
Development Alliance, Central
Carolina Community Foundation.
[PHOTO]
M. EDWARD SELLERS
President and Chief
Executive Officer, Blue
Cross and Blue Shield
of South Carolina and
The Companion Group of
Companies
Member--Board Affairs and Governance
and Management Development and
Compensation Committee
Director since May 2001 Age 57
Mr. David M. LeVan retired from the Company's Board of Directors effective July
23, 2001.
Director Attendance at Board Meetings
During 2000, the Board of Directors held 13 meetings. The Audit, Board Affairs
and Governance, Management and Development and Compensation, and Finance
Committees held a total of 18 meetings. Each director attended at least 75% of
the meetings of the Board and Board Committees of which they were a member.
6
COMPENSATION OF DIRECTORS
--------------------------------------------------------------------------------
The Company does not separately compensate directors who are employees for
services as a director. In 2000, directors who are not employees were paid an
annual retainer of $20,000. In addition, these directors received $1000 for
each Board and Committee (other than Executive Committee) meeting attended.
Nonemployee directors of the Executive Committee and other committee
Chairpersons received an annual fee of $3000. These directors were also paid
$1000 per day plus reasonable expenses for special assignments in connection
with Board activity.
Also in 2000, nonemployee directors received 400 shares of restricted common
stock under the now-terminated Restricted Stock Plan for Nonemployee Directors.
In addition, Messrs. Arnelle, Campbell, Marley and Stead received 200 shares
each as a result of their previous waiver of accrued benefits under the
Directors' Retirement Plan, which was discontinued for new participants in
1995.
Restricted Stock Plan for Nonemployee Directors
Through 2000, all nonemployee directors participated in this plan. Under the
plan, each nonemployee director received an annual award of 400 shares. The
plan was terminated and all restrictions on previously granted shares were
ended in February 2001.
Nonstatutory Stock Option Alternatives
During 2000, each director could elect to receive nonstatutory stock options
instead of receiving other forms of compensation, including (1) cash payment;
(2) phantom share award; and (3) common stock under the Restricted Stock Plan
for Non-employee Directors.
The resulting stock options: (1) were granted at fair market value; (2) have a
ten-year option term; (3) are immediately exercisable; and (4) are transferable
for the benefit of an immediate family member.
For 2000, the following directors elected to receive the following stock
options in lieu of other compensation:
Mr. Campbell--2,010; Mr. Clark--5,560;
Ms. Haberkorn--3,250 and Mr. LeVan--5,260.
This program was terminated in 2001.
In 2001, following the Chapter 11 filing of Armstrong World Industries, Inc.
(the Company's principal subsidiary) and the resulting uncertainty surrounding
the ultimate value of the Company's stock, the compensation of directors was
changed to end the above stock-based compensation features. Those plans were
replaced with a higher level of cash compensation.
For the current year, directors who are not employees are paid a retainer of
$50,000 per year. These directors also receive $1,200 for each Board meeting
and $1,000 for each committee (other than Executive Committee) meeting
attended. Nonemployee members of the Executive Committee and each other
committee chairperson receive an annual fee of $3,000. Nonemployee directors
are also paid $2,500 per day plus reasonable expenses for special assignments
in connection with Board activities.
7
BOARD COMMITTEES
--------------------------------------------------------------------------------
The Board of Directors has several committees, including an Audit Committee, a
Management Development and Compensation Committee and a Board Affairs and
Governance Committee. The functions of these committees are described in the
following paragraphs. All committees met several times in 2000. All committees
receive their authority and assignments from the Board and report directly to
the Board.
Audit Committee
The Audit Committee oversees the accounting and internal financial control
matters. Its charter is attached as an exhibit to this document. The committee
recommends the employment of independent public accountants to audit
Armstrong's financial statements. The committee also reviews: (1) the scope and
results of the independent auditors' activities and the fees proposed and
charged by the independent auditors; (2) the scope and results of Armstrong's
internal audit activities; (3) the travel and entertainment expenses of
Armstrong's officers; and (4) the financial activities, financial position and
related financial reports of Armstrong. All members of the Audit Committee are
independent directors as prescribed by the New York Stock Exchange Rules.
Audit Committee Members: James E. Marley (Chairman), H. Jesse Arnelle, Van C.
Campbell and David W. Raisbeck.
Meetings Held Last Year: 8
Management Development and Compensation Committee
The Management Development and Compensation Committee reviews the annual
compensation of all directors who are officers of Armstrong. The committee also
(1) oversees the compensation plans of Armstrong's senior officers; (2)
periodically reviews the management development plans, the salary and incentive
compensation plans and the administration of those plans covering Armstrong's
salaried employees; (3) reviews senior management succession plans; and (4)
administers Armstrong's various incentive plans, including the Long-Term
Incentive Plan.
Management Development and Compensation Committee Members: Jerre L. Stead
(Chairperson), Donald C. Clark, Judith R. Haberkorn, John A. Krol and M.
Edward Sellers
Meetings Held Last Year: 5
Board Affairs and Governance Committee
The Board Affairs and Governance Committee oversees the development,
performance and effective functioning of the Board. Specifically, the committee
reviews and recommends new director candidates for consideration by the Board.
The committee also recommends director nominees for election at the annual
shareholders' meeting and considers candidates recommended by the shareholders.
(To recommend a candidate, a shareholder should send the candidate's name to,
John N. Rigas, Secretary of the Company, at the address shown on the front page
of this proxy statement.) The committee supports the Board in conducting
periodic assessments of Board effectiveness and evaluations of individual
directors. Additionally, the committee reviews matters concerning nonemployee
directors' compensation. The committee also oversees Armstrong's policies on
environmental, health, safety, equal employment opportunity and general
diversity issues.
Board Affairs and Governance Committee Members: Donald C. Clark (Chairperson),
Judith R. Haberkorn, John A. Krol, M. Edward Sellers and Jerre L. Stead.
Meetings Held Last Year: 3
8
CURRENT EXECUTIVE OFFICERS
--------------------------------------------------------------------------------
Set forth below are the names, ages, titles of, and certain information
regarding executive officers of the Company as of the date of this Proxy
Statement. Officers are selected by the Board of Directors from time to time
and hold office until a successor is duly elected or until his or her earlier
incapacity, resignation, retirement or removal.
Michael D. Lockhart--(See description, at page 5.)
Frank A. Riddick, III--Age 44; Chief Executive Officer, Triangle Pacific Corp.
since November 2000; President and Chief Operating Officer, Armstrong Holdings,
Inc. since August 2000. Previously Executive Vice President and Chief Operating
Officer February 2000-August 2000; Senior Vice President, Finance and Chief
Financial Officer, Armstrong World Industries, Inc. April 1995-February 2000;
Controller, FMC Corporation, Chicago, IL (chemicals, machinery), May 1993-March
1995.
Stephen J. Senkowski--Age 50; President and Chief Executive Officer, Armstrong
Building Products Operations, Armstrong World Industries, Inc. since October
2000. Previously, Senior Vice President, Americas, Building Products
Operations, Armstrong World Industries, Inc. April 2000-October 2000;
President/Chief Executive Officer, WAVE July 1997-April 2000; Vice President,
Innovation Process, Building Products Operations 1994-July 1997.
Chan W. Galbato--Age 38; President and Chief Executive Officer, Armstrong Floor
Products, Armstrong World Industries, Inc. since July 2001. Previously,
President and Chief Executive Officer of ChoiceParts LLC (provider of
integrated virtual exchange services for auto parts industry) June 2000-June
2001. Held senior management positions at various divisions of General
Electric, including President and Chief Executive Officer of Coregis (GE
capital insurance company) February 1999-June 2000.
Stephen E. Stockwell--Age 55; Senior Vice President, Armstrong Strategic
Relations, Armstrong World Industries since July 2001. Previously served
Armstrong World Industries, Inc. as Vice President, Corporate Alliances,
December 2000-June 2001; Senior Vice President Floor Products, Americas,
Residential Sales, July 1998-December 2000; President, Corporate Retail
Accounts Division, November 1994-July 1998; Vice President, Corporate Retail
Accounts, July 1994-November 1994; General Manager, Residential Sales, Floor
Division, January 1994-July 1994; Field Sales Manager, Floor Division, 1988-
1994.
Matthew J. Angello--Age 42; Senior Vice President, Corporate Human Resources
since September 2000. Previously Vice President, Human Resources, Floor
Products Operations, Armstrong World Industries, Inc. January 1997-September
2000; Vice President and Senior Director, Human Resources, The Restaurant
Company (food service) 1992-January 1997.
John N. Rigas--Age 52; Senior Vice President, Secretary and General Counsel
since November 2000. Previously Deputy General Counsel--Litigation, Armstrong
World Industries, Inc. March 1999-November 2000; worked for Dow Corning
Corporation (specialty chemical company) October 1982-March 1999, his last
title being Senior Managing Counsel.
Leonard A. Campanaro--Age 53; Senior Vice President and Chief Financial Officer
since April 2001. Previously President, Chief Operating Officer and board
member of Harsco Corporation (provider of industrial services and products)
January 1998-July 2000. Served Harsco for over 20 years in a variety of
financial and operations positions before assuming the role of President of
Harsco, served as Senior Vice President and Chief Financial Officer from 1992-
1997.
April L. Thornton--Age 40; Senior Vice President and Chief Marketing Officer
since April 2001. Previously Vice President, Marketing and Sales for Capitol
Wire, Inc. (online interactive news service) May 2000-March 2001; Vice
President, Marketing, Worldwide Building Products Operations, Armstrong World
Industries, Inc. September 1997-May 2000; Marketing Director, New Beverage
Product Strategy and Development, Pepsi Cola Company (snack food, soft drink
and juice) April 1992-August 1997.
9
William C. Rodruan--Age 47; Vice President and Controller since July 1999.
Previously Director, Corporate Transformation and Shared Services February
1997-July 1999 and Vice President of Finance, Corporate Retail Accounts,
Armstrong World Industries, Inc. July 1994-February 1997.
Involvement in Certain Legal Proceedings
On December 6, 2000, the Company's subsidiary, Armstrong World Industries, Inc.
and two of Armstrong World Industries' wholly owned subsidiaries, Nitram
Liquidators, Inc. and Desseaux Corporation of North America, Inc., filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. Several of the
Company's officers and directors are also officers or directors of Armstrong
World Industries or the subsidiaries of Armstrong World Industries that filed
for reorganization under Chapter 11. In addition, all present directors of the
Company, except Mr. Sellers, were or are directors of Armstrong World
Industries within the past year. As such, these executive officers and
directors have been associated with a corporation that filed a petition under
the federal bankruptcy laws within the last five years.
10
DIRECTORS' AND EXECUTIVE OFFICERS' STOCK OWNERSHIP
--------------------------------------------------------------------------------
The following table shows the amount of Company stock that each director (and
nominee), each individual named in the Summary Compensation Table and all
directors and executive officers owned as a group. The ownership rights in
these shares consist of sole voting and investment power, except where
otherwise indicated. This information is as of September 28, 2001.
--------------------------------------------------------------------------------
COMMON STOCK AND STOCK BASED HOLDINGS
--------------------------------------------------------------------------------
Stock Options
Exercisable Total Beneficial Deferred
Name Stock/1/ Within 60 days Ownership Stock Units/2/
-------------------------------------------------------------------------------
H. Jesse Arnelle 2,358 0 2,358 1,703
Van C. Campbell 2,200 5,330 7,530 9,915
Donald C. Clark 4,448 12,080 16,528 1,863
Judith R. Haberkorn 1,184 4,970 6,154 1,910
John A. Krol 1,432 2,990 4,422 644
Michael D. Lockhart 128,499 33,333 161,832 0
George A. Lorch 25,292/3/ 99,500 124,792 0
James E. Marley 4,697 1,410 6,107 8,086
Marc R. Olivie 25,437/3/ 0 25,437 0
David W. Raisbeck 1,436 0 1,436 11,880
Frank A. Riddick,
III 80,959 60,000 140,959 1,687
M. Edward Sellers 0 0 0 0
Stephen J.
Senkowski 5,808 5,988 11,796 1,327
Floyd F. Sherman 15,712/3/ 23,333 39,045 0
Jerre L. Stead 4,812 3,260 8,072 2,094
Directors and
executive officers
as a group
(22 persons) 349,672 285,936 635,608/4/ 41,109
--------------------------------------------------------------------------------
/1/ Includes the following shares that may be deemed to be owned through
accounts of Armstrong World Industries' Retirement Savings and Stock Ownership
Plan ("RSSOP"): Michael D. Lockhart--124; Frank A. Riddick, III--1,396; Stephen
J. Senkowski--2,224; and executive officers as a group--13,514. Each of the
above individuals and each member of the group holds shared voting power and no
investment power with respect to these shares.
Includes the following shares indirectly owned and held in the Bonus
Replacement Retirement Plan accounts: Marc R. Olivie--1,538 and executive
officers as a group--1,830.
/2/ Includes phantom shares held in a stock subaccount under the Deferred
Compensation Plan. The participants have no voting or investment power.
/3/ This information is based on Section 16 reporting information as of this
individual's date of last employment with the Company.
/4/ Includes an aggregate of 189,274 shares owned by George A. Lorch, Marc R.
Olivie and Floyd F. Sherman, who are no longer with the Company.
For each director, the shares listed under the "Total Beneficial Ownership"
column represent less than 1.0% ownership of the outstanding shares on
September 28, 2001. All directors and executive officers as a group
beneficially own 1.56% of the outstanding shares on September 28, 2001.
11
Section 16(a) Beneficial Ownership Reporting Compliance
Securities and Exchange Commission ("SEC") regulations require Company
directors and executive officers, and any persons beneficially owning more than
ten percent of its common stock to report to the SEC their ownership of this
stock and any changes in that ownership. SEC regulations also require these
persons to furnish the Company with copies of these reports. The proxy rules
require the Company to report any failure to timely file those reports in the
previous fiscal year.
Based solely upon review of copies of reports furnished to the Company and
written representations from its directors and executive officers that no other
reports were required, the Company believes that all of these filing
requirements were satisfied by Armstrong's directors and executive officers
during 2000 except as follows: a timely report on a Form 4 was not filed
relating to the lapse of restrictions on and deferral of 14,915 shares of
restricted stock to George A. Lorch on October 19, 2000. The grant had
previously been reported on a Form 5 filed on January 31, 1997 as the
acquisition of a derivative security. The vesting and distribution of this
restricted stock should have been reported on a Form 4 as a settlement of a
derivative security. This transaction was subsequently reported on a Form 5 on
February 12, 2001.
MANAGEMENT DEVELOPMENT & COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
--------------------------------------------------------------------------------
Overview
The Management Development and Compensation Committee establishes the Company's
overall philosophy and policies governing the compensation programs for
management. The Company regularly reviews the competitiveness of these
programs. The major program elements are:
. base salary;
. annual incentive;
. long-term incentives;
. employee benefits; and
. perquisites.
In cases where an executive has an employment agreement that specifies the
executive's salary, bonus or other compensation, the Company observes those
terms. (These are discussed at "Executive Officers' Compensation During 2000,
Employment Agreements" later in this document.) In establishing compensation
terms, either in agreements or otherwise, the committee assesses the
competitiveness of the Company's program by comparing the total value of the
program elements to the compensation programs of other companies with
comparable sales revenues.
Executive Compensation Principles and Philosophy
The design of the Company's executive compensation program is based on the
following principles:
. The level and mix of compensation opportunity must attract, retain and
motivate the caliber of executive talent vital to the Company's business.
. The total compensation opportunity will include at-risk incentive
compensation that is conditioned on the attainment of performance goals
intended to increase the value of the Company.
. Where appropriate, equity-based compensation will be utilized to align the
interests of senior management with that of shareholders.
Annual Compensation
The Company administers base salaries on a "pay for performance" policy. Each
year, the Chief
12
Executive Officer (CEO) prepares a salary recommendation for each senior
officer. The recommendation takes into account the officer's performance and
contributions. The committee reviews the recommendations and, subject to
modifications, sets those salaries. The committee also sets the salary and
other compensation of the CEO.
The Company's primary annual incentive plan is the Management Achievement Plan
(MAP). Under this plan, a participant can earn cash awards in relation to the
attainment of corporate and business unit goals established by the committee. A
specific weighting is assigned to each of the applicable achievement segments.
Each participant has a targeted annual incentive award that is expressed as a
percentage of base salary earnings. This incentive opportunity varies with each
participant's level of responsibility.
For 2000, the committee used Economic Value Added (EVA(R)), corporate earnings
per share (EPS) and business unit operating income results as the basis for
determining awards under the MAP. EVA(R) is the dollar amount equal to net
operating profit after taxes minus the cost of the capital needed to generate
that profit. The committee established a threshold level of performance for
each measure below which no incentive award was to be paid. The incentive award
goals for Messrs. Lockhart, Lorch and Riddick were based on equal weightings of
corporate EVA(R) and corporate EPS results, while the awards for Messrs.
Olivie, Senkowski and Sherman were weighted 30% on corporate EVA(R), 20% on
their respective business unit EVA(R) and 50% on business unit operating income
results. The threshold levels of performance were not achieved for corporate
EVA(R) and EPS, Floor Products' EVA(R) and operating income, and Wood Products'
operating income. Consequently, Messrs. Lockhart, Lorch and Riddick received no
MAP bonus for 2000 on the basis of Company and respective business unit
financial results.
In connection with recruiting Mr. Lockhart and retaining the employment of
Messrs. Riddick, Olivie and Senkowski in 2000, the Company agreed to guaranteed
minimum or additional bonuses shown in the Summary Compensation Table that
follows.
For 2001, EVA(R) is no longer being used for incentive award determination.
Instead, operating income results (adjusted for working capital variance from
budget) will be measured against committee-specified goals to determine the
maximum payout achievement for each business unit segment. The committee can
apply negative discretion to the maximum payout achievement in order to provide
annual bonus payments that are commensurate with the efforts required to
achieve the results.
Key Employee Retention Plan
Due to the high level of voluntary turnover of senior management, the
difficulty and high costs of recruiting qualified individuals to fill open
positions, and the significant reduction in the size of MAP bonus awards for
2000 as compared to recent years, the committee authorized a key employee
retention plan. This plan was announced prior to Armstrong World Industries,
Inc. filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
This retention plan applied to approximately 40 senior managers and provided to
each manager a bonus for 2000 (paid in March 2001) of not less than 50% of base
salary. The same group of senior managers will be paid a second retention
payment equal to 50% of base salary in December 2001. These retention payments
were approved by the court in Armstrong World Industries' Chapter 11 case.
Messrs. Lockhart, Lorch and Sherman were not included in this plan.
The Court also authorized additional key employee retention measures. These
include financial incentives and security provisions to minimize key employee
turnover, attract highly competent new executives, and motivate key employees
to work to maximize enterprise value and achieve a successful plan of
reorganization for Armstrong World Industries. The key employee retention
program consists of: annual cash retention payments for up to 150 key employees
(not including Mr. Lockhart) ranging from 30% to 110% of base salary starting
December 2001 and extending to December 2003; a special severance benefit
program covering approximately 195 key employees (not including Messrs.
Lockhart and Riddick) for the period of the Chapter 11 reorganization process;
and the assumption of change in control agreements for up to 23 senior
13
executives, subject to modifications specified by the Court. In the event
Armstrong World Industries emerges from Chapter 11 reorganization prior to
December 2003, the cash retention payment scheduled for the year of emergence
will be prorated and any remaining payments will be cancelled.
Long-Term Incentive Compensation
Each year, the committee reviews and, if appropriate, authorizes long-term
incentive grants. The Company's long-term incentive plans through 2000 provided
for the grant of stock options, performance restricted shares, restricted stock
awards, stock awards and cash awards.
In 2000, the committee granted stock options at the fair market value of the
Company's common stock on the date of the grant. In determining the number of
stock options granted to management, the committee reviewed a number of
factors. These factors included: previous contractual commitments; position
levels; the targeted amount of the long-term incentive award for selected
participants; individual performance; employment retention; and the number of
shares available for issuance under the plan.
In September 2000, the committee authorized a program under which senior
managers (other than the CEO) holding unexercised stock options with exercise
prices in excess of $50 per share could exchange these stock options for stock
awards and restricted stock awards for a smaller number of shares. In this
program, employees surrendered options to purchase 1,701,919 shares at prices
ranging from $50.9375 to $85.8125, and received 198,343 shares of common stock
(two-thirds of which was restricted, with one-third vesting in 2001 and the
final third in 2002). The program objectives were to reduce the number of stock
option shares outstanding and to foster employee retention. The stock options
were exchanged for shares of common stock and restricted stock at either a 6 to
1 or an 11 to 1 ratio, depending on the exercise price of the stock option and
the time remaining under the original option term. Messrs. Riddick, Olivie,
Senkowski and Sherman elected to exchange all of their eligible stock options
under this program. Mr. Riddick exchanged 189,720 options with exercise prices
ranging from $50.9375 to $73.125 for 20,278 shares. Mr. Olivie exchanged
101,300 options with exercise prices in that same range for 11,103 shares. Mr.
Senkowski exchanged 16,630 options with exercise prices in that same range for
2,004 shares. Mr. Sherman exchanged 87,000 options with exercise prices ranging
from $50.9375 to $84.75 for 10,712 shares.
In 2001, the committee decided to substitute long-term cash incentive awards
for equity-based long-term incentive grants to eligible senior managers. The
Company's cumulative corporate operating income (adjusted for working capital
variance from budget) for 2001 and 2002 will be measured against a committee-
approved target to determine the maximum payout achievement. A threshold level
of performance below which no cash incentive awards will be paid has also been
established by the committee. The committee can apply negative discretion to
the maximum payout achievement in order to provide a cash payment that is
commensurate with the efforts required to achieve the results. Payments earned
will be made in early 2003.
Stock Ownership Guidelines
Due to the impact of asbestos liabilities and the uncertainty associated with
the Chapter 11 reorganization on the market value of Company stock, the
committee discontinued the stock ownership guidelines that had been applicable
to senior executives.
Federal Tax Deductibility
The committee intends that all performance-based compensation be deductible for
federal income tax purposes. The Company believes that annual incentive
payments under the Management Achievement Plan, long-term cash incentive awards
and any gain on outstanding non-statutory stock options will qualify as
deductible compensation under the Internal Revenue Code.
CEO Compensation
Mr. Lorch served as CEO of the Company from January until August 7, 2000. He
resigned as CEO and became advisor to the Company's new CEO, Mr. Lockhart, who
joined the Company on August 7.
14
Mr. Lorch's base compensation during his tenure as CEO was set by his
employment agreement. In February 2000, the committee awarded him a salary
increase of 4.4% to $835,000 (effective April 1, 2000), 168,000 stock options
at an exercise price of $19.4375, and set Corporate EVA(R) and earnings per
share targets as performance goals for his potential 2000 Management
Achievement Plan bonus. Those goals were not achieved, so Mr. Lorch received no
bonus for 2000.
In addition to following the provisions of his contract, the committee set Mr.
Lorch's 2000 compensation based upon Mr. Lorch's achievements in 1999 and upon
an analysis of the competitiveness of Mr. Lorch's overall compensation package.
His 1999 achievements, as previously disclosed to shareholders, included record
sales and earnings from operations, a reduction in debt, divestment of non-core
businesses, and a successful new product introduction.
On August 7, 2000, the Company hired Mr. Lockhart as CEO to succeed Mr. Lorch
after an extensive search. The Board approved the terms of Mr. Lockhart's
employment agreement after considering competitive levels of compensation for
CEOs managing companies of similar size and businesses, and the importance of
securing the services of a CEO with the experience and the strategic and
leadership skills to lead the Company through the operational and asbestos
litigation challenges it was facing at that time.
The terms of Mr. Lorch's and Mr. Lockhart's employment agreements are set out
under the caption "Employment Agreements" later in this document. In setting
CEO compensation generally during 2000, the Committee focused on the need to
secure experienced, qualified and stable leadership for the Company in dealing
with operational, strategic and litigation issues and maintaining the
competitive value of the CEO's total compensation package. The Committee also
endeavored during 2000 to structure CEO compensation to include equity-based
components, such as restricted stock and stock options, to incent and reward
performance to benefit shareholders.
Management Development and Compensation Committee
Jerre L. Stead, Chairman
Judith R. Haberkorn
Donald C. Clark
John A. Krol
M. Edwards Sellers
15
EXECUTIVE OFFICERS' COMPENSATION DURING 2000
--------------------------------------------------------------------------------
The following table shows the compensation received by the Company's Chief
Executive Officers and the four other highest paid individuals who served as
executive officers during 2000. The data reflects compensation for services
rendered to the Company and its subsidiaries in each of the last three fiscal
years.
TABLE 1: SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------------------------------------
Awards Payout
--------------------------------------------------
AHI
Other AHI Securities All
Annual Restricted Underlying Other
Compen- Stock Options/ LTIP Compen-
Name and Current Salary Bonus sation Awards SARs Payouts sation
Principal Position Year ($) ($)/5/ ($)/6/ ($)/7/ (#) ($) ($)/8/
------------------------------------------------------------------------------------------------
M. D. Lockhart 2000 321,212 5,401,640 -- 2,456,250 200,000 -- --
Chairman and Chief
Executive Officer;
Chairman, Armstrong
World Industries/1/
------------------------------------------------------------------------------------------------
G. A. Lorch 2000 756,667 -- -- 168,000 -- 50,520
Advisor to the Chairman 1999 792,500 1,831,780 115,000 86,558
and Chief Executive 1998 752,500 1,007,339 93,000 64,247
Officer; formerly
Chairman and Chief
Executive Officer
through August 7,
2000/2/
------------------------------------------------------------------------------------------------
M. R. Olivie 2000 392,875 565,144 -- 148,503 60,000 -- 32,421
President & Chief 1999 343,125 362,147 25,000 33,708
Executive Officer, 1998 327,750 237,236 20,300 15,433
Armstrong Floor Products
Operations and Corporate
President, Armstrong
World Industries/3/
------------------------------------------------------------------------------------------------
F. A. Riddick, III 2000 508,182 184,398 -- 1,089,968 90,000 -- 24,513
President and Chief 1999 390,000 665,680 254,688 40,000 21,596
Operating Officer; 1998 354,000 364,448 75,600 11,249
President & Chief
Executive Officer,
Triangle Pacific Corp.
------------------------------------------------------------------------------------------------
F. F. Sherman 2000 536,250 31,576 60,828 143,273 70,000 -- 15,702
Chairman, Triangle 1999 518,750 638,685 60,892 37,000 27,346
Pacific Corp./4/ 1998 360,772 310,660 50,000 29,074
------------------------------------------------------------------------------------------------
S. J. Senkowski 2000 219,583 309,322 -- 26,804 13,000 -- 6,104
President & Chief 1999 133,830 172,925 6,500 4,800
Executive Officer, 1998 120,960 138,311 3,460 5,798
Armstrong World
Industries, Worldwide
Building Products
Operations
/1/ Mr. Lockhart's employment with the company commenced August 7, 2000.
/2/ Mr. Lorch resigned as Chairman and Chief Executive Officer of the Company
and Armstrong World Industries on August 7, 2000, when he became Advisor to the
Chairman and CEO. Mr. Lorch retired December 1, 2000.
/3/ Mr. Olivie resigned effective April 30, 2001.
/4/ Mr. Sherman retired effective August 31, 2001.
/5/ The amounts disclosed include the following items:
Mr. Lockhart had a guaranteed bonus for 2000 along with a $5,000,000 signing
bonus. Messrs. Olivie, Riddick and Senkowski received supplemental bonuses of
$250,000, $200,000 and $175,000 respectively, which were reduced by non-
elective contributions by Armstrong to each individual's Bonus Replacement
Retirement Plan
16
in 2001. Mr. Olivie also received $100,000 as a contract bonus for his new
position as President & Chief Executive Officer of Armstrong Floor Products
Operations.
/6/ Mr. Sherman received a car allowance of $56,736 in 1999 and in 2000.
Otherwise, the aggregate value of personal benefits received by these officers
did not exceed the lesser of $50,000 or 10% of combined salary and bonus.
/7/ The number and value of restricted stock held by each as of February 16,
2001, is as follows: Michael D. Lockhart--150,000 ($588,000); Marc R. Olivie--
5,290 ($20,763) and Frank A. Riddick, III--59,653 ($233,840). In 2000, Mr.
Lockhart and Mr. Riddick received restricted stock awards of 150,000 and 50,000
shares respectively valued at the amounts disclosed on the grant date. These
shares vest and become free of restrictions three years from the grant date.
Messrs. Olivie, Riddick, Senkowski and Sherman received stock awards and
restricted stock awards under a program in which each agreed to forfeit stock
options with exercise prices in excess of $50 per share. The number of shares
awarded are as follows: Marc R. Olivie--11,103; Frank A. Riddick, III--20,278;
Stephen J. Senkowski--2,004; and Floyd F. Sherman--10,712. One-third of the
shares were issued as a stock award, one-third of the shares were a restricted
stock award with a one-year restriction period and one-third of the shares were
a restricted stock award with a two-year restricted period.
/8/ Includes above-market interest credited to each individual's Armstrong
Deferred Compensation Plan account: Floyd F. Sherman--$252 and Stephen J.
Senkowski--$97.
Includes the following vested amount in the Retirement Savings and Stock
Ownership Plan for members' Equity and Match Accounts: George A. Lorch--$2,762;
Marc R. Olivie--$4,805; Frank A. Riddick, III--$2,481; and Stephen J.
Senkowski--$2,882.
Includes the following amount of non-elective contribution by Armstrong to
each individual's Bonus Replacement Retirement Plan Account: George A. Lorch--
$19,500; Marc R. Olivie--$18,500 and Frank A. Riddick, III--$17,600. This
contribution results in a corresponding reduction in the amount of the
executive's Management Achievement Plan payment.
Includes the following present value costs of Armstrong's portion of 2000
premiums for split-dollar life insurance: George A. Lorch--$28,258; Marc R.
Olivie--$9,116; Frank A. Riddick, III--$4,432; and Stephen J. Senkowski--
$3,125. The executives waived future participation in the Armstrong-paid group
term life insurance program as a condition to participate in the split-dollar
life insurance program.
Mr. Sherman had taxable income of $15,400 related to life insurance benefits
provided by Triangle Pacific Corp.
Change in Control Agreements
The Company (Triangle Pacific in the case of Mr. Riddick) has change in control
("CIC") agreements with a group of senior executives, including the officers
named in the Summary Compensation Table who are actively employed by the
Company. These agreements provide severance benefits in the event of a change
in control of the Company or its major subsidiary, Armstrong World Industries.
The purpose of the agreements is to foster stability in the Company's
management ranks in the face of a possible change in control.
The severance benefits are payable if the executive is involuntarily terminated
or terminates employment for good reason within three years following a change
in control. Good reason to terminate employment exists if there are significant
changes in the nature of the employment following the change in control. For
example, a reduction in compensation, a change in responsibility, or a
relocation of the place of employment would constitute significant changes. For
the most senior officers, the agreement includes a provision where the
executive may choose to terminate employment
17
for any reason during the thirty-day period beginning twelve months following a
qualifying change in control and receive severance benefits. The qualifying
change in control must meet the definitions in (2) and (3) shown below. The
agreement has an automatic renewal feature, meaning the agreements will
continue in effect unless either the Company or the executive elects not to
extend the agreement.
For the purposes of these agreements, a change in control includes the
following: (1) acquisition by a person (excluding certain qualified owners) of
beneficial ownership of 20% or more of Company common stock; (2) change in the
composition of the Board of the Company, so that existing Board members and
their approved successors do not constitute a majority of the Board; (3)
consummation of a merger or consolidation of the Company, unless shareholders
of voting securities immediately prior to the merger or consolidation continue
to hold 66 2/3% or more of the voting securities of the resulting entity; and
(4) shareholder approval of a liquidation or dissolution of the Company or sale
of substantially all of the Company's assets.
Severance benefits under the agreements depend on the position the executive
holds, but generally include: (1) a lump severance payment equal to two or
three times the sum of the officer's annual base salary and the higher of
either (a) the officer's highest annual bonus earned in the three years prior
to termination or prior to the change in control, or (b) the annual target
bonus for the year in which the change in control occurs; (2) a lump payment of
the portion of the target incentive award calculated by multiplying the target
award by the fractional number of months completed in the performance award
period; (3) payment of remaining premium payments for split-dollar life
insurance policies; (4) enhanced retirement benefits payable as a lump sum; (5)
continuation of life, disability, accident and health insurance benefits for
three years following termination; (6) full reimbursement for the payment of
excise taxes; and (7) payment of legal fees in connection with a good faith
dispute involving the agreement.
The Court in Armstrong World Industries' Chapter 11 case authorized Armstrong
World Industries to assume the CIC agreements subject to certain modifications.
The modifications limit in certain respects (i) what constitutes a change in
control under the CIC agreements, and (ii) with respect to the CIC agreements
for the most senior officers, what constitutes a qualifying change of control
that would enable the executive to terminate employment.
Employment Agreements
The Company and Armstrong World Industries amended their employment agreement
with George A. Lorch as CEO as of August 7, 2000 to allow Mr. Lockhart to
assume that position. The terms of this amended agreement continued Mr. Lorch's
employment in a non-executive capacity through November 30, 2000 at his base
salary of $835,000 per year. Mr. Lorch agreed to provide consulting services
following his retirement through January 31, 2003 for compensation of $2.8
million paid February 2001, and $125,000 per quarter to be paid through 2001
and 2002. Mr. Lorch's agreement also contains a non-competition provision that
bars him from competing with the Company or any subsidiaries or affiliates for
an additional two years. In addition, in an amendment to his agreement in
connection with its approval by the court in Armstrong World Industries'
Chapter 11 case, Mr. Lorch's options to purchase 559,380 shares of Armstrong
stock were cancelled.
The Company and Armstrong World Industries, entered into a three-year
employment agreement with Michael D. Lockhart effective August 7, 2000, in
which Mr. Lockhart agreed to serve as Chairman of the Board and Chief Executive
Officer of the Company at an initial base salary of $800,000 per year and a
$5,000,000 one-time signing bonus. This contract was subsequently approved by
the court in Armstrong World Industries' Chapter 11 case. Portions of the
signing bonus must be repaid to the Company if Mr. Lockhart terminates
employment for any reason other than death, disability or good reason or is
terminated for cause. The employment agreement is automatically renewed for an
additional one-year term on the third anniversary of the date of the agreement
and each successive anniversary, unless the Company gives notice not to extend
the agreement at least 180 days prior to the anniversary date. If the Company
terminates
18
the employment agreement with Mr. Lockhart without "cause" or if Mr. Lockhart
terminates his employment for "good reason" prior to the third year of the
employment contract, Mr. Lockhart is entitled to receive (1) a lump-sum cash
payment equal to his base salary, plus the higher of (i) his target bonus in
the year of termination, or (ii) the highest bonus award earned during the last
three years, including the year of termination, multiplied by either the number
of years remaining in his employment agreement or by two ("2"), whichever is
larger and (2) continuation of certain benefits for a period equal to the
greater of two years or the remaining term of the agreement. If the Company
terminates the employment agreement with Mr. Lockhart without "cause" or if Mr.
Lockhart terminates his employment for "good reason" after the third year of
the employment contract, Mr. Lockhart is entitled to receive (1) a lump-sum
cash payment equal to his base salary, plus the higher of (i) his bonus in the
year of termination at target performance levels, or (ii) the highest bonus
award paid during the last three years, multiplied by either the number of
years remaining in his employment agreement or by one ("1"), whichever is
larger and (2) continuation of certain benefits. Mr. Lockhart's employment
agreement also contains a non-competition provision that bars him from
competing with the Company or any subsidiaries or affiliates for a period of
two years following his termination. The agreement also provides Mr. Lockhart
with the opportunity to participate in all short-term and long-term incentive
plans offered by the Company and Armstrong World Industries, including an
annual cash incentive opportunity and an annual long-term incentive award under
the Company's long term incentive plan. The agreement further provides that the
value of his annual long-term incentive award on the grant date is required to
equal 150% of Mr. Lockhart's target annual cash compensation for the year.
The Company and Frank A. Riddick, III entered into a three-year employment
agreement effective August 7, 2000, in which Mr. Riddick agreed to serve as
President and Chief Operating Officer of the Company. In November 2000, Mr.
Riddick entered into an agreement to also serve as Chief Executive Officer of
Triangle Pacific Corp., a wholly owned subsidiary of the Company. This
employment agreement provides Mr. Riddick an initial base salary of $600,000
and contains a provision for automatic renewal for additional one-year terms on
the second anniversary of the date of the agreement and each successive
anniversary. A special cash retention payment of $200,000 is payable December
28, 2001. If Triangle Pacific Corp. terminates the employment agreement with
Mr. Riddick without "cause" or if Mr. Riddick terminates his employment for
"good reason" during the term of the agreement, Mr. Riddick is entitled to
receive (1) a lump-sum cash payment equal to three ("3") times the sum of his
base salary plus the higher of (i) his bonus in the year of termination at
target performance levels, or (ii) the highest bonus award earned during the
last three years, and (2) continuation of certain benefits for three years. If
Triangle Pacific Corp. terminates the employment agreement with Mr. Riddick
without "cause" or if Mr. Riddick terminates his employment for "good reason"
at the end of the term of the agreement, Mr. Riddick is entitled to receive (1)
a lump-sum cash payment equal to one and one-half ("1.5") times the sum of his
base salary plus the higher of (i) his bonus in the year of termination at
target performance levels, or (ii) the highest bonus award earned during the
last three years, including the year of termination and (2) continuation of
certain benefits. Mr. Riddick's employment agreements also contain non-
competition provisions that bar him from competing with the Company or any
subsidiaries or affiliates for two years following his termination. The
agreement also provides Mr. Riddick with the opportunity to participate in all
short-term and long-term incentive plans offered to senior officers of
Armstrong World Industries.
The Company and Armstrong World Industries entered into an employment agreement
with Marc R. Olivie, effective October 1, 2000. Mr. Olivie agreed to serve as
President and Chief Executive Officer, Armstrong Floor Products Operations at
an initial base salary of $500,000 and received a one-time cash payment of
$100,000. Mr. Olivie's employment agreement also contained a non-competition
provision that bars him from competing with the Company or any subsidiaries or
affiliates for a period of two years following his termination. Mr. Olivie
resigned this post effective April 30, 2001.
19
Armstrong World Industries entered into an employment agreement with Chan W.
Galbato effective May 2, 2001, in which Mr. Galbato agreed to serve as
President and Chief Executive Officer of Armstrong Floor Products Operations at
an initial base salary of $450,000 per year and a $200,000 one-time signing
bonus. The signing bonus must be repaid to Armstrong World Industries if Mr.
Galbato voluntarily terminates employment within one year of his start date.
Mr. Galbato is eligible to participate in the Management Achievement Plan, with
a minimum bonus of $270,000 for 2001. The agreement also provides Mr. Galbato
the opportunity to participate in long-term incentive plans offered to senior
officers. The agreement calls for severance pay for Mr. Galbato at one and one-
half times the sum of the base salary and target bonus, provided that during
the period of the Chapter 11 reorganization, Mr. Galbato is eligible to
participate at the maximum level in the cash retention and enhanced severance
benefit programs of Armstrong World Industries.
Severance Pay Plan for Salaried Employees
The Severance Pay Plan for Armstrong World Industries' Salaried Employees was
adopted in 1990. This plan is designed to cushion the effects of unemployment
for certain salaried employees. The benefits are payable if a covered employee
is terminated under certain circumstances. All salaried employees of the
Company and Armstrong World Industries, including Messrs. Lockhart, Riddick and
Senkowski, are eligible to participate in the plan. A participant will be
entitled to severance pay if they are terminated and an exclusion does not
apply. The employee is not entitled to severance pay if the reason for the
termination is the following: (1) voluntary separation; (2) the employee
accepts employment with the successor organization in connection with the sale
of a plant, unit, division or subsidiary; (3) the employee rejects the offer of
a similar position with comparable compensation in the same geographic area,
made by the Company or Armstrong World Industries, their subsidiaries or any
successor organization; or (4) misconduct or unsatisfactory performance.
Severance benefits will be offset by payments made under CIC agreements or
individual employment agreements.
Under the plan, the scheduled amount of the payment is based on the employee's
length of service, reason for termination and base salary level. The amount of
the payment ranges from a minimum of two weeks base salary to a maximum of 39
weeks base salary. Subject to certain limitations, benefits may be paid by
salary continuation or lump sum payments. A participant may also choose a
combination of periodic and lump-sum payments. The Severance Pay Committee
retains the right to depart from the severance pay schedule where factors
justify an upward or downward adjustment in the level of benefits. In no event
may the severance benefit exceed two times the participant's annual
compensation.
20
TABLE 2: OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding the grant of stock options
during 2000 under Armstrong's Long-Term Stock Incentive Plan to each of the
named executives:
Individual Grants
--------------------------------------------------------------------------------
AHI
Securities Percent of
Underlying Total Options/
Options/SARs SARs Granted Exercise Or Grant Date
Granted/1 To Employees Base Price Expiration Present Value/2/
Name / (#) In Fiscal Year ($/share) Date ($)
----------------------------------------------------------------------------------
M. D.
Lockhart 100,000 5.6% 16.3750 8/07/10 83,387
----------------------------------------------------------------------------------
M. D.
Lockhart 100,000 5.6% 1.1875 12/07/10 22,659
----------------------------------------------------------------------------------
G. A. Lorch 168,000 9.3% 19.4375 2/28/10 205,451
----------------------------------------------------------------------------------
M. R.
Olivie/3/ 60,000 3.3% 19.4375 2/28/10 75,519
----------------------------------------------------------------------------------
F. A.
Riddick,
III 90,000 5.0% 19.4375 2/28/10 111,610
----------------------------------------------------------------------------------
F. F.
Sherman/4/ 70,000 3.9% 19.4375 2/28/10 87,549
----------------------------------------------------------------------------------
S. J.
Senkowski 13,000 0.7% 19.4375 2/28/10 18,448
/1/ These options become exercisable in equal installments at one, two and
three years from the date of grant. The exceptions are in the case of death or
disability and a defined change in control event. All stock options become
exercisable immediately upon a change in control of the Company.
/2/ In accordance with Securities and Exchange Commission rules, the numbers in
the column titled "Grant Date Present Value" were determined using the Black-
Scholes model. These are not the Company's predictions. However, the following
material weighted-average assumptions and adjustments were necessary: (1) an
option term of five years; (2) a volatility of 28%; (3) a dividend yield of
8.55%; (4) a risk free interest rate of 6.28%; and (5) a reduction of 17% to
reflect the possibility that the above stock options will be forfeited prior to
the expiration date.
/3/ Mr. Olivie resigned April 30, 2001.
/4/ Mr. Sherman retired August 31, 2001.
Whether these options ever have actual value will depend on the future market
price of the Company's stock. We cannot forecast this with any reasonable
certainty.
21
TABLE 3: AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth information regarding the exercise of stock
options during 2000 and the unexercised options held as of the end of 2000 by
each of the named executives:
AHI Value Securities
Shares Realized Underlying Unexercised Value of Unexercised
Acquired (market price Options/SARs In-The-Money Options/
On at exercise less At Fiscal Year-End SARs At Fiscal Year-End
Exercise exercise price) (#) ($)
---------------------------------------------------------------------------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---------------------------------------------------------------------------------------------------
M. D. Lockhart 0 0 0 200,000 0 87,500
G. A. Lorch 0 0 51,300 168,000 0 0
M. R. Olivie/1/ 0 0 0 60,000 0 0
F. A. Riddick, III 0 0 30,000 90,000 0 0
F. F. Sherman/2/ 0 0 0 70,000 0 0
S. J. Senkowski 0 0 1,655 13,000 0 0
/1/ Mr. Olivie resigned April 30, 2001.
/2/ Mr. Sherman retired August 31, 2001.
PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Return/1/
Among the Company Common Stock, the S&P 500 Index and a Peer Group Index
The following graph compares the cumulative total return, including
reinvestment of dividends, of the Company's common stock, a broad equity market
index and a peer group index:
22
------------------------------------------------------------------------------------
Year-End Armstrong Peer Group Index/2/ S&P 500
------------------------------------------------------------------------------------
1995 $100 $100 $100
1996 $115 $112 $120
1997 $127 $128 $158
1998 $105 $137 $200
1999 $ 61 $129 $239
2000 $ 4 $107 $214
------------------------------------------------------------------------------------
/1/ Assumes a $100 investment on December 31, 1995, a reinvestment of dividends
and a fiscal year ending on December 31.
/2/ Composed of the following companies which as a group reflect the Company's
mix of residential, nonresidential and international end-use markets: American
Standard Cos., Inc.; Black & Decker Corp.; Congoleum Corp.; Dal-Tile
International, Inc.; Masco Corp.; Mohawk Industries, Inc.; Owens Corning; PPG
Industries, Inc.; Sherwin-Williams Co.; Stanley Works; USG Corp. and Whirlpool
Corp.
RETIREMENT INCOME PLAN BENEFITS
--------------------------------------------------------------------------------
The following table shows the estimated pension benefits payable to a
participant at normal retirement age under Armstrong's Retirement Income Plan
and Retirement Benefit Equity Plan. The Retirement Income Plan is a qualified
defined benefit pension plan. The Retirement Benefit Equity Plan is a partially
funded, nonqualified supplemental pension plan. It provides participants with
benefits that would otherwise be denied by reason of certain Internal Revenue
Code limitations on qualified plan benefits. The amounts shown in Table 4 are
based on compensation that is covered under the plans and years of service with
the Company and its subsidiaries. Mr. Sherman did not participate in the
Retirement Income Plan. Mr. Sherman participated in the Triangle Pacific Corp.
Salaried Employees Profit Sharing Plan and the Triangle Pacific Corp.
Supplemental Profit Sharing and Deferred Compensation Plan.
TABLE 4: PENSION PLAN TABLE
ANNUAL RETIREMENT BENEFIT BASED ON SERVICE/1/
Remuneration/2/ 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years
--------------- -------- -------- -------- -------- -------- --------
$ 200,000 $ 44,000 $ 58,000 $ 73,000 $ 87,000 $ 102,000 $ 114,000
400,000 90,000 120,000 150,000 180,000 210,000 234,000
600,000 137,000 182,000 228,000 273,000 319,000 355,000
800,000 183,000 244,000 305,000 366,000 427,000 475,000
1,000,000 230,000 306,000 383,000 459,000 536,000 596,000
1,200,000 276,000 368,000 460,000 552,000 644,000 716,000
1,400,000 323,000 430,000 538,000 645,000 753,000 837,000
1,600,000 369,000 492,000 615,000 738,000 861,000 957,000
1,800,000 416,000 554,000 693,000 831,000 970,000 1,078,000
2,000,000 462,000 616,000 770,000 924,000 1,078,000 1,198,000
2,200,000 509,000 678,000 848,000 1,017,000 1,187,000 1,319,000
2,400,000 555,000 740,000 925,000 1,110,000 1,295,000 1,439,000
2,600,000 602,000 802,000 1,003,000 1,203,000 1,404,000 1,560,000
2,800,000 648,000 864,000 1,080,000 1,296,000 1,512,000 1,680,000
3,000,000 695,000 926,000 1,158,000 1,389,000 1,621,000 1,801,000
/1/ Benefits shown assume retirement in 2000. The benefits are computed as a
straight life annuity beginning at age 65 and are not subject to deduction for
Social Security or other offsets.
23
/2/ Calculated as the average annual compensation in the three highest paid
years during the 10 years prior to retirement. Annual compensation equals the
total of the amounts reported under the columns captioned "Salary" and "Bonus"
in the Summary Compensation Table (excluding the signing bonus for Mr. Lockhart
and the contract bonus for Mr. Olivie) as well as Armstrong contributions under
the Bonus Replacement Retirement Plan.
The 2000 annual compensation and estimated years of service for plan purposes
for each of the executives named in the Summary Compensation Table were as
follows: Michael D. Lockhart--$321,212 (0.4 years); George A. Lorch--$2,607,947
(37.5 years); Marc R. Olivie--$773,522 (24.2 years); Frank A. Riddick, III--
$1,191,462 (20.8 years) and Steven J. Senkowski--$310,766 (27.6 years). Mr.
Lockhart receives two years of service credit for every one year of actual
service toward the calculation of his pension benefits under the Retirement
Benefit Equity Plan. Messrs. Riddick and Olivie's estimated years of service
include 15 and 20 years, respectively, of credit for prior service awarded to
them upon their employment with Armstrong. The Armstrong retirement benefit
will be reduced by the value of any defined benefit pension payable by previous
employers for the respective period of the prior service credit.
Special provisions apply if the Retirement Income Plan is terminated within
five years following an Extraordinary Event, as this item is defined in the
Plan. In that event, Plan liabilities will first be satisfied; then, remaining
Plan assets will be applied to increase retirement income to employees. The
amount of the increase is based on the assumption that the employee would have
continued employment with Armstrong until retirement. The executives named in
the Summary Compensation Table, except for Mr. Sherman, would be entitled to
this benefit.
Special provisions also apply in the event that a salaried member is terminated
other than for cause or resigns for good reason, as those terms are defined in
the plan, within two years following a change in control of Armstrong. If those
members have at least 10 years of service and are at least 50 years in age,
they would be eligible for early retirement without certain normal reductions
applying. Those members would also receive some Social Security replacement
benefits. Members with 15 or more years of service would also receive credit
under the plan for an additional five years of service.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
--------------------------------------------------------------------------------
The following table/1/ sets forth, as of the record date of September 28, 2001,
each person or entity known to the Company that may be deemed to have
beneficial ownership of more than 5% of the outstanding Company common stock.
Amount And Nature of Percent Of Class
Name And Address Of Beneficial Owner Beneficial Ownership Outstanding/2/
------------------------------------ -------------------- ----------------
Chase Manhattan Bank/3
/ 270 Park Ave.
39th Floor
New York, NY 10017 6,443,000 15.77%
Dimensional Fund Advisors/4
/ 1299 Ocean Ave.,
11th floor,
Santa Monica, CA 90401 2,124,000 5.20%
/1/ In accordance with applicable rules of the Securities and Exchange
Commission, this information is based on Section 13(g) information filed in
February 2001.
/2/ In accordance with applicable rules of the Securities and Exchange
Commission, this percentage is based upon the total 40,844,585 shares of the
Company's common stock that were outstanding on December 31, 2000.
24
/3/ Chase Manhattan Bank advises that the 6,443,000 shares of Common Stock are
held in a Trust created pursuant to the Armstrong World Industries, Inc. Master
Trust Agreement dated November 1,1999 and as between Chase Manhattan Bank as
the Master Trustee (the Master Trustee) and for the benefit of Participants in
the Armstrong World Industries, Inc. Master Retirement Plan (DB) and the
Armstrong World Industries, Inc. Retirement Savings and Stock Ownership Plan
(DC Plan).
Except as set forth below, the Master Trustee is obligated, under the terms of
the Trust and the terms of the Plan, to vote, tender or exchange and Common
Stock beneficially owned by the Trust as directed by Participants in the
Armstrong World Industries, Inc. Retirement Savings Plan (the Participants).
For this purpose, each Participant is a named Fiduciary with respect to all
shares of Common Stock as to which such Participant has the rights of direction
with respect to voting, tender, exchange and any other rights appurtenant to
such stock.
Under the terms of the Trust and the terms of the Plan, the Master Trustee
will vote shares of Common Stock allocated to the accounts of Participants in
accordance with the instructions given by such Participants. Unallocated shares
of Common Stock, together with any allocated shares for which on instructions
are received, are voted by the Master Trustee in the same proportion as the
allocated shares of Common Stock for which instructions are received.
Pursuant to the terms of the Plan, the administrators of the Plan may cause
the Master Trustee to dispose of shares of Common Stock under certain limited
circumstances.
The actions and duties of the Master Trustee under the terms of the Trust and
the terms of the Plan, including but not limited to the provisions described
above, are subject to the requirements of ERISA.
/4/ Dimensional Fund Advisors Inc., advises that it is an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940, that
furnishes investment advice to four investment companies registered under the
Investment Company Act of 1940, and serves as investment manager to certain
other commingled group trusts and separate accounts. These investment
companies, trusts and accounts are the "Funds." In its role as investment
advisor or manager, Dimensional advises that it possesses voting and/or
investment power over the securities of the Issuer described in this schedule
that are owned by the Funds. All securities reported in this schedule are owned
by the Funds. Dimensional Fund Advisors Inc. disclaims beneficial ownership of
such securities.
AUDIT COMMITTEE MATTERS
--------------------------------------------------------------------------------
Audit Committee Report
The Audit Committee of the Company's Board of Directors (the Committee) is a
standing committee comprised of four independent directors. It operates under a
written charter adopted by the Board of Directors. The members of the Committee
are Mr. James E. Marley, (Chairperson), Mr. Van C. Campbell, Mr. David W.
Raisbeck, Mr. Jesse Arnelle. The Committee annually recommends to the Board of
Directors the selection of the Company's independent accountants.
Management is responsible for the Company's internal control and the financial
reporting process. The independent accountants are responsible for performing
an audit of the Company's consolidated financial statements in accordance with
auditing standards generally accepted in the United States of America and
issuing a report regarding such audit. As provided in its Charter, the
Committee's responsibilities include the monitoring and oversight of these
processes.
Consistent with its Charter responsibilities, the Committee has met and held
discussions with management and the independent accountants. In this context,
management represented to the Committee that the Company's consolidated
25
financial statements were prepared in accordance with accounting principles
generally accepted in the United States of America. The Committee has reviewed
and discussed the consolidated financial statements with management and the
independent accountants and discussed with the independent accountants matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees).
The Company's independent accountants have also provided to the Committee the
written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Committee discussed
with the independent accountants that firm's independence. The Committee has
also considered whether the provision of non-audit services by that firm is
compatible with maintaining the independent auditor's independence.
Based upon the Committee's discussions with management and the independent
accountants as described in this report and the Committee's review of the
representations of management and the report of the independent accountants to
the Committee, the Committee recommended that the Board of Directors include
the audited consolidated financial statements in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000 filed with the Securities and
Exchange Commission.
Audit Committee
James E. Marley, Chairperson
Jesse Arnelle
Van C. Campbell
David W. Raisbeck
Audit Fees
The aggregate fees billed by KPMG LLP for professional services rendered for
the audit of the Company's consolidated financial statements for 2000 and the
limited reviews of the condensed consolidated financial statements included in
the Company's Quarterly Reports on Form 10-Q for that fiscal year were
$2,308,000.
Financial Information Systems Design and Implementation Fees
The aggregate fees billed by KPMG Consulting, Inc. for consultation related to
financial information systems design and implementation in 2000 were $174,000.
All Other Fees
The aggregate fees billed for services rendered by KPMG LLP, other than the
fees discussed in the foregoing paragraphs, were $6,398,000. These fees
primarily comprise systems design and implementation work performed by KPMG
Consulting, Inc. (which was a subsidiary of KPMG LLP until February 2001) for
non-financial systems, and professional services performed by KPMG LLP for
audits of employee benefit plan and separate subsidiary financial statements,
tax consulting, and assistance in connection with acquisitions and
divestitures.
CONFIDENTIAL VOTING POLICY
--------------------------------------------------------------------------------
Under the Company's confidential voting policy, all proxies, ballots and voting
tabulations that identify how shareholders voted will be kept confidential. To
implement this policy, the Company will engage independent vote tabulators and
independent judges of election. Employees of the Company or its subsidiaries
will not serve as vote tabulators or judges. This policy does not apply: (1)
when disclosure is required by law; (2) when disclosure is necessary in
connection with a claim involving the Company; (3) when a shareholder expressly
requests or permits disclosure; or (4) during the course of a contested proxy
solicitation. Shareholders' comments on proxy cards and ballots will be
conveyed to the Company in a manner that protects the confidentiality of the
voter.
26
INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
The Board of Directors, upon the recommendation of the Audit Committee,
appointed KPMG LLP as auditors of the Company's financial statements for 2001.
KPMG LLP is a firm of independent certified public accountants. A
representative of KPMG LLP is expected to be present at the 2001 annual meeting
to respond to appropriate questions and to make a statement if they desire.
PROPOSALS FOR 2002 ANNUAL MEETING
--------------------------------------------------------------------------------
The deadline for shareholder proposals to be included in the Company's proxy
statement for the 2002 annual meeting is June 24, 2002. All proposals must be
submitted in writing and received at the Company's Principal Executive Offices,
as shown on the front page of this document. Please address any proposals to
the attention of John N. Rigas, Secretary. Such proposal must comply with Rule
14a-8 of Regulation 14A of the proxy rules of the Securities and Exchange
Commission.
Under the Company's Bylaws, under normal circumstances, shareholder nomination
of directors and other matters shareholders wish to submit for consideration at
the 2002 annual meeting must be submitted to the Company's Secretary in writing
by September 11, 2002. That notice must also contain information specified in
the Bylaws regarding a proposed nominee and the shareholders submitting the
nomination or matter to be considered.
However, if the date of the 2002 Annual Meeting is prior to November 10, 2002
or after January 9, 2003, then the written notice of the proposal or nomination
must be received within 15 days after the public announcement by the Company of
the date of the 2002 Annual Meeting. In either case, the written notice to the
Secretary of the Company must also contain specified information and conform to
certain requirements, as set forth in the bylaws.
If the presiding officer at the 2002 Annual Meeting determines that a
shareholder proposal or director nomination was not made in accordance with the
bylaws, the Company may disregard such proposal or nomination. In addition, if
a shareholder submits a proposal outside of Rule 14a-8 for the 2002 Annual
Meeting, the proposal must comply with the advance notice procedure prescribed
by the bylaws.
Any shareholder may obtain a copy of the applicable Bylaw from the Company's
Secretary upon written request.
ANNUAL REPORT
--------------------------------------------------------------------------------
An Annual Financial Statements and Review of Operations 2000 is being mailed to
each shareholder with this proxy statement.
MISCELLANEOUS
--------------------------------------------------------------------------------
The Board of Directors is not aware of any other matters to be presented for
action at the meeting. If any other matter that calls for a vote of the
shareholders should arise, it is intended that the persons named in the
enclosed proxy (or their substitutes) will vote in accordance with their best
judgment.
27
EXHIBIT A
ARMSTRONG HOLDINGS, INC.
AUDIT COMMITTEE CHARTER
Purpose
The Audit Committee oversees the accounting and internal financial control
matters of Armstrong:
. The Committee monitors the integrity of the Company's management, policies,
legal compliance, reporting practices and systems of internal controls
regarding finance and accounting.
. The Committee monitors the independence and performance of the Company's
independent auditors and internal auditing function.
. The Committee provides one avenue of communication among the independent
auditors, management, the internal auditing function, and the Board of
Directors concerning financial accounting, reporting and controls.
Authority
The Audit Committee receives its authority and its assignments from the Board
of Directors and reports to the Board. The Committee and the Board of
Directors have ultimate authority and responsibility to select, evaluate and
where appropriate, replace the independent auditors. The independent auditors
are ultimately accountable to the Committee and the Board of Directors. The
Committee has direct access to the independent auditors as well as anyone in
the organization. The Committee may investigate any activity of the Company.
The Committee has the ability to retain, at the Company's expense, special
legal, accounting or other consultants or experts it deems necessary in the
performance of its duties.
Composition
Audit Committee members' qualifications shall meet the requirements as may be
set by the Board of Directors from time to time, plus all applicable legal and
regulatory requirements, including those of the principal securities exchange
on which the common stock of the Company is listed (the "Exchange"). At a
minimum, the following requirements shall be observed:
. The Audit Committee shall be comprised of three or more Directors of the
Board who each meet the independence standards prescribed by the Exchange,
which include being independent of management and operating executives and
free from any relationship that would interfere with the exercise of his or
her independent judgment.
. All members of the Committee shall be financially literate, or must become
so within a reasonable period of time.
. At least one member of the Committee shall have accounting or related
financial management expertise.
Audit Committee members shall be recommended by the Board Affairs and
Governance Committee and appointed by the Board of Directors. The Chairman of
the Board shall appoint the Committee Chairman. The terms of Committee members
shall be arranged to maintain continuity to the extent practicable.
Meetings
The Audit Committee shall meet at least four times per year on a schedule
adopted by the Committee and as many additional times as the Committee deems
necessary. The Chairman of the Company, the Chairman of the Committee or any
two other members of the Committee may call a special meeting in the manner
prescribed by the By-laws for a special meeting of the Board. As necessary or
desirable, the Committee Chairman may request members of management and
representatives of the independent auditors be present at the meetings of the
Committee. At least once per year, the Committee shall meet privately with the
Chief Financial Officer, the Chief Accounting Officer, the Director of
Internal Auditing,
28
the independent auditors, and as a committee to discuss any matters that the
Committee or any of these individuals believe should be discussed.
Minutes
Minutes of each meeting are to be prepared at the direction of the Chairman of
the Committee and sent to Audit Committee members and the Armstrong Directors
who are not members of the Committee. Copies are to be provided to the
independent auditors, the Director of Internal Auditing, the Chief Executive
Officer, the Chief Operating Officer, the Chief Financial Officer, the Chief
Accounting Officer and the General Counsel.
Scope of Responsibilities and Duties
Charter Review
1. Review and reassess the adequacy of this Charter each year. Submit the
charter to the Board of Directors for approval and have the document
published as required by law or Exchange rules.
Financial Reporting
2. Review the Company's annual audited financial statements prior to filing or
distribution. The review should include discussion with management and
independent auditors of significant issues regarding accounting principles,
practices, audit findings, disclosures, judgments and any other
requirements under accounting standards and rules.
3. In consultation with the management, the independent auditors and the
internal auditors, consider the integrity of the Company's financial
reporting processes and controls. Discuss significant financial risk
exposures and the steps management has taken to monitor, control, and
report such exposures. Review significant findings prepared by the
independent auditors and the internal auditing function together with
management's responses.
4. Prior to issuing quarterly financial statements, review with financial
management and the independent auditors any items required to be
communicated by the independent auditors in accordance with SAS 61.
Independent Auditors
5. Each year, review the independence and performance of the independent
auditors and recommend to the Board of Directors the appointment of the
independent auditors or discharge of auditors if circumstances warrant.
Prescribe such policies and procedures as the Committee deems appropriate
pertaining to relationships with the independent auditors.
6. Review the independent auditors' fees for annual audit services prior to
recommending them to the Board for approval.
7. On at least an annual basis, review a formal, written statement from the
independent auditors on all relationships between the auditors and the
Company or its management. Discuss with the independent auditors all
significant relationships they have with the Company and their impact on
the auditors' objectivity and independence, including non-audit services
and the fees proposed and charged therefore. Recommend that the Board of
Directors take appropriate action in response to these matters to satisfy
itself of the auditors' independence.
8. Review the independent auditors audit plan; discuss scope, staffing,
locations, reliance upon management and internal audit, and general audit
approach.
9. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
29
Internal Audit Function and Legal Compliance
10. Annually review the budget, audit plan and activities of the internal
audit function.
11. On at least an annual basis, review with the Company's counsel any legal
matters that could have a significant impact on the organization's
financial statements, the Company's compliance with applicable laws and
regulations, and inquiries received from regulators or governmental
agencies.
Other Audit Committee Responsibilities
12. Annually prepare such report and certification to shareholders and the
Exchange as required by Securities and Exchange Commission regulations or
Exchange rules.
13. Periodically report to the Board of Directors on significant results of
the foregoing activities.
14. As considered necessary by the Committee, review policies and procedures
as well as audit results associated with directors' and officers' travel
and entertainment expenses.
15. Perform any other activities consistent with this Charter, the Company's
by-laws, and governing law, as the Committee or the Board deems necessary
or appropriate.
30
[MAP]
Directions to Plant
[_] Exit Pensacola Airport parking lot and turn left onto 12th Avenue
[_] Follow 12th Avenue to where Fairfield Drive forks to the right
[_] Travel about 2 miles on Fairfield Drive to the intersection of W Street
[_] Turn Left onto W Street and go about 3 miles until it ends at Navy
Boulevard
[_] Turn right onto Navy, travel 2 blocks, and turn left onto Myrick Street
[_] Follow Myrick Street for 2 blocks, take left fork around the plant parking
lot and follow signs directing you to the proper entrance and parking area
for the shareholders' meeting
ARMSTRONG HOLDINGS, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
Michael D. Lockhart, John N. Rigas and Walter T. Gangl, or any one or more of
them with the power of substitution each, are hereby authorized to represent the
undersigned at the Annual Meeting of the shareholders of Armstrong Holdings,
Inc., to be held at Armstrong World Industries, Inc.'s, Pensacola, Florida
plant, 300 South Myrick Street, on Monday, December 10, 2001, at 1:00 p.m. local
time, and at any postponement or adjournment of that meeting. At that meeting,
they are authorized to vote, as indicated on the other side, the same number of
shares as the undersigned would be entitled to vote if then personally present,
including shares, if any, credited to the undersigned's account under the
Company's shareholder dividend reinvestment plan.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HERE BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE LISTED NOMINEES IN THE ELECTION OF DIRECTORS, AND IN ACCORDANCE WITH
THEIR BEST JUDGEMENT ON ANY OTHER MATTER THAT CALLS FOR A VOTE OF SHAREHOLDERS
AT THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN THERE AND RETURN PROMPTLY.
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of shareholders
ARMSTRONG HOLDINGS, INC.
DECEMBER 10, 2001
. Please Detach and Mail in the Envelope Provided .
_____ Please mark your
A X votes as in this
_____ example.
For all nominees WITHHOLD The Board of Directors recommends a vote FOR
listed at right (except AUTHORITY to vote Proposal 1
as marked to the for all nominees
contrary below) listed at right.
Proposal 1: _____ _____ Nominees:
ELECTION OF Judith R. Haberkorn ___________________________
THREE _____ _____ James E. Marley ___________________________
DIRECTORS FOR TERMS TO EXPIRE IN 2004. Jerre L. Stead ___________________________
To withhold authority to vote for any individual
nominee, write the nominee's name in the space
provided below: To cumulate votes, place the number of votes for a nominee
on the line provided after the nominee's name.
________________________________________________
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any postponement or
adjournment. If necessary, cumulative voting rights will be exercised
to secure the election of as many as possible of the Board of
Directors' nominees. Please mark, sign exactly as name(s) appears at
left, date and mail this card promptly in the postage prepaid return
envelope provided. Executors, administrators, trustees, attorneys,
guardians, etc. should so indicate when signing.
Signature ________________________ Dated __________________, 2001 Signature _________________________ Dated ______________, 2001