Judge Rejects Armstrong Reorganization Plan

Lancaster, PA, February 24--Armstrong Holdings Inc. today announced that federal bankruptcy judge Eduardo C. Robreno issued a ruling yesterday finding that the AWI Plan of Reorganization was not confirmable. Armstrong's emergence from bankruptcy will be substantially delayed, according to the company. The judge found the provision in the plan that provides warrants to existing equity violated the strict priority rule of bankruptcy. "Bluntly put, no amount of legal creativity or counsel's incantation to general notions of equity or to any supposed policy favoring reorganizations over liquidation supports judicial rewriting of the Bankruptcy Code," the judge wrote. "The plan, therefore, cannot be confirmed." The company is studying Judge Robreno's opinion to understand the full extent of the judge's concerns. AWI's course of action will be determined after a careful review of Judge Robreno's opinion and the company has discussed the options with its advisors and the other constituencies in the case. Armstrong World Industries filed for Chapter 11 bankruptcy protection in December 2000 following thousands of lawsuits stemming from its use of asbestos. In November 2002, the company filed its reorganization plan. In September 2003, the unsecured creditors filed objections to the Amstrong reorganization plan and the next month rejected it in a vote. At the same time, it was approved by three classes: the "convenience claims" class, the asbestos personal injury claims class and the equity interest holders. The plan was confirmed in November 2003 by federal Judge Randall J. Newsome and went to Robreno for final review. It was amended three times before Wednesday's decision. Complicating the issue was the 2003 approval by the U.S. Senate Judiciary Committee of the Fairness in Asbestos Injury Resolution Act, which would have established a central fund paid for by contributions from private companies affected by asbestos litigation. The fund would have replaced civil litigation in state and federal courts. The act has since stalled in Congress. Under Armstrong's reorganization plan, an asbestos trust fund would have been established consisting of more than $234 million in cash and $519 million in notes and warrants for stock. Existing stockholders would have received warrants - valued at between $35 million and $40 million, or about $1 a share - to be used for the purchase of a new company stock.