Lancaster, Pa.—Coming on the heels of a
judge’s ruling in its favor in a recent court decision regarding the “type
of science” plaintiffs can use in trying to prove their property damage claims
related to asbestos-containing flooring in homes and public buildings, Armstrong
World Industries (AWI) has filed a Plan of Reorganization with the U.S.
Bankruptcy Court in Delaware in its Chapter 11 reorganization case. The plan is
supported by the asbestos personal in jury claimants’ committee, the
representative for future asbestos personal injury claimants and the unsecured
creditors’ committee. The filing represents a critical step forward in the
resolution of the company’s reorganization efforts. The plan will only become
effective after a vote of various classes of creditors and with the approval of
the court.
“Armstrong entered in Chapter 11 to use the
court-supervised process to resolve its liability for asbestos personal injury
claims with finality,” said Armstrong chairman and CEO, Michael Lockhart.
“We believe that the plan we have filed will accomplish that objective while
serving fairly and in proper balance with the interests of all shareholders.”
The key elements of the plan provide:
• Creation of a trust for the benefit of
present and future asbestos personal injury claimants, which will assume all the
company’s obligations to those claimants;
• The distribution of new common shares and
notes of the reorganized company and available cash (after reserving $100
million to fund ongoing operations and making provisions for amounts required to
be paid in connection with the plan), referred to as the “Plan
Consideration,” to the trust and unsecured creditors;
• The notes to be issued by the reorganized
company will total at least $775 million in principal amount, which will be
increased to the extent that available cash to be distributed under the Plan is
less than $350 million;
• The assignment to the trust of certain
rights to insurance coverage of the company; • A mechanism to resolve asbestos
property damage claims through insurance proceeds;
• A class of “convenience claims,”
general unsecured claims of $10,000 or less (other than debt securities), which
will be paid 75% of their allowed claims in cash, and
• Cancellation of the existing common stock
of AWI and the potential distribution to the stockholders of Armstrong Holdings,
Inc. (AHI) (NYSE:ACK), AWI’s parent company, if they approve a dissolution of
AHI, of warrants for 5% of the common shares of the reorganized company, which
are expected to have a value of approximately $40 million to $50 million.
The stockholders of AHI are not entitled to
vote on the proposed Plan. If the Plan is implemented, the only value that will
be retained by stockholders of AHI is the potential to receive their ratable
share of the warrants if the dissolution of AHI is approved. The Plan sets out a
process for determining the portion of the Plan Consideration to be received by
the asbestos personal injury trust and by the holders of unsecured creditor
claims (other than asbestos personal injury and property damage claims). The
class of unsecured creditors would receive approximately 34.43% of the new
common stock of AWI and approximately 35.5% of the new notes and available cash,
which would be allocated among the unsecured creditors pro rata according to the
amount of their allowed claims.
The value of the distribution which unsecured
creditors receive will depend principally on the value of the shares to be
distributed to them and is not fixed by the Plan as a percentage of their
claims. The asbestos personal injury trust will receive the portion of the Plan
Consideration that is not distributed to the class of unsecured creditors. The
Plan is available on a new Web site, www.armstrongplan.com, where additional
information will also be posted as it becomes available, noted Lockhart. A
proposed Disclosure Statement regarding the Plan will be filed with the
bankruptcy court by AWI. No date has been set for the required bankruptcy court
hearing on the Dis closure Statement. Votes on the Plan may not be solicited
until the court approves the Disclosure Statement. In connection with the
implementation of AWI’s Plan, the dissolution and winding up of AHI will be
proposed for approval by AHI’s shareholders.
Regarding the aforementioned court ruling in
Armstrong’s favor, following a two- day Daubert hearing that began on Sept.
26, in Wilmington, Del., the presiding judge granted Armstrong’s motion to
exclude evidence presented by the plaintiffs’ expert witnesses. The ruling is
a second setback for the plaintiffs. In July, the judge denied the plaintiff’s
request to file a class action lawsuit. “Judge Newsome’s ruling represents
another big step forward for Armstrong in the Chapter 11 process,” said Ken
Jacobs, Armstrong’s deputy general counsel for litigation. “The court has
accepted Armstrong’s argument that a significant group of asbestos claims are
based on speculation and not sound science.”
Armstrong requested the Daubert hearing, which
is used to determine what type of expert testimony regarding scientific testing
is allowable under the Federal Rules of Evidence. Judge Newsome ruled the
methodology offered by the Asbestos Property Damage Committee in support of its
claims is not a scientifically valid method of quantifying the level of asbestos
contamination in a building. Armstrong argued that settled dust sampling
produces wholly inflated and unreliable results. Armstrong’s expert witnesses
told Judge Newsome that “air monitoring,” which measures the number of
asbestos fibers actually found in the air, is the most scientifically valid
method of determining whether the presence of asbestos-containing floor tile
poses a health risk.
Prior to filing Chapter 11, Armstrong had only
six un-resolved property damage claims pending based on asbestos in floor
products. Since its filing, Armstrong faces about 600 individual property
claims, filed mostly by a handful of law firms. The claims allege more than $852
million in damage related to asbestos-containing flooring. Armstrong believes
these claims are opportunistic and have no merit. Resolving these property
damage claims is part of the effort to move Armstrong toward a plan of
reorganization, which details how the company will emerge from Chapter 11
bankruptcy protection, noted Lockhart. Armstrong filed for Chapter 11
reorganization in December 2000 to resolve the tens of thousands of claims
alleging personal injury from exposure to asbestos insulation. —Louis Iannaco
