Exhibit 10.5





Exhibit 10.5




MALLESONS STEPHEN JAQUES




Equitable Mortgage of Shares




Dated: 2/12/07




Armstrong World Industries, Inc. (“Mortgagor”)

Bank of America, N.A. (“Mortgagee”)




Mallesons Stephen Jaques

Level 50

Bourke Place

600 Bourke Street

Melbourne Vic 3000

Australia

T +61 3 9643 4000

F +61 3 9643 5999

DX 101 Melbourne

www.mallesons.com

KCS:AJH





 


 









 







Equitable Mortgage of Shares



Contents



	 	 	 	 	 
	DETAILS
	 	 	1	 
	GENERAL TERMS
	 	 	2	 
	1. INTERPRETATION
	 	 	2	 
	1.1 Terms defined in the Credit Agreement
	 	 	2	 
	1.2 Definitions
	 	 	2	 
	1.3 References to certain general terms Unless the contrary intention
appears, in this mortgage:
	 	 	5	 
	1.4 Number
	 	 	6	 
	1.5 Headings
	 	 	6	 
	1.6 Designation
	 	 	7	 
	2. MORTGAGOR MUST PAY THE SECURED MONEY
	 	 	7	 
	3. MORTGAGE
	 	 	7	 
	3.1 Mortgage
	 	 	7	 
	3.2 Mandatory action
	 	 	7	 
	3.3 Consideration
	 	 	7	 
	4. OBLIGATIONS TO DEPOSIT DOCUMENTS AND GIVE NOTICES
	 	 	8	 
	4.1 Obligations at signing of mortgage
	 	 	8	 
	4.2 Deposit of Future Security documents
	 	 	8	 
	4.3 Certificated Shares
	 	 	8	 
	4.4 Conversion of Uncertificated Shares to Certificated Shares
	 	 	8	 
	5. DEALINGS — SUCH AS SELLING OR MORTGAGING
	 	 	8	 
	5.1 Restricted dealings
	 	 	8	 
	5.2 Where the law allows for creation of Encumbrance without consent
	 	 	9	 
	6. OTHER ENCUMBRANCES
	 	 	9	 
	6.1 Priority agreement
	 	 	9	 
	6.2 Amount secured by other Encumbrance
	 	 	9	 
	6.3 Obligations under other Encumbrance
	 	 	9	 
	6.4 Mortgagee may rely on third party certificates
	 	 	9	 
	6.5 Prospective liability
	 	 	9	 
	7. DIVIDENDS AND VOTES
	 	 	10	 
	7.1 Before an Event of Default
	 	 	10	 
	7.2 After an Event of Default
	 	 	10	 
	7.3 No obligation on Mortgagee
	 	 	10	 






 


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	8. MAINTAINING THE SECURED PROPERTY
	 	 	11	 
	9. REPRESENTATIONS AND WARRANTIES
	 	 	11	 
	9.1 Representations and warranties
	 	 	11	 
	9.2 Reliance
	 	 	12	 
	10. PAYMENTS
	 	 	12	 
	10.1 Manner of payment
	 	 	12	 
	10.2 Currency of payment
	 	 	12	 
	11. COSTS AND INDEMNITIES
	 	 	13	 
	11.1 Currency conversion on Judgment debt
	 	 	13	 
	12. APPLICATION OF PAYMENTS
	 	 	13	 
	12.1 Application of money
	 	 	13	 
	12.2 Order of payment
	 	 	13	 
	12.3 Suspense account
	 	 	13	 
	12.4 Remaining money
	 	 	14	 
	12.5 Credit from date of receipt
	 	 	14	 
	13. ADMINISTRATIVE MATTERS
	 	 	14	 
	13.1 Deposit of documents
	 	 	14	 
	13.2 Registration of mortgage
	 	 	14	 
	13.3 Further steps
	 	 	14	 
	13.4 Authority to fill in blanks
	 	 	15	 
	13.5 Supply of information
	 	 	15	 
	14. RIGHTS THE MORTGAGEE MAY EXERCISE AT ANY TIME
	 	 	15	 
	14.1 Authority to deal
	 	 	15	 
	14.2 Right to rectify
	 	 	15	 
	15. DEFAULT
	 	 	15	 
	15.1 Events of Default
	 	 	15	 
	15.2 Ensure no default
	 	 	15	 
	15.3 Investigation of default
	 	 	15	 
	15.4 Mortgagee’s powers on default
	 	 	16	 
	15.5 Order of enforcement
	 	 	16	 
	16. EXCLUSION OF TIME PERIODS
	 	 	16	 
	16.1 No notice required unless mandatory
	 	 	16	 
	16.2 Mandatory notice period
	 	 	16	 






 


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	17. RECEIVERS
	 	 	17	 
	17.1 Terms of appointment of Receiver
	 	 	17	 
	17.2 More than one Receiver
	 	 	17	 
	17.3 Receiver is Mortgagor’s agent
	 	 	17	 
	17.4 Receiver’s powers
	 	 	17	 
	18. DISPOSAL OF THE SECURED PROPERTY IS FINAL
	 	 	17	 
	19. POWER OF ATTORNEY
	 	 	18	 
	19.1 Appointment
	 	 	18	 
	19.2 Powers
	 	 	18	 
	20. REINSTATEMENT OF RIGHTS
	 	 	18	 
	21. NOTICES
	 	 	19	 
	22. GENERAL
	 	 	19	 
	22.1 Prompt performance
	 	 	19	 
	22.2 Consents
	 	 	19	 
	22.3 Certificates
	 	 	19	 
	22.4 Set-off
	 	 	19	 
	22.5 Discretion in exercising rights
	 	 	19	 
	22.6 Partial exercising of rights
	 	 	19	 
	22.7 No liability for loss
	 	 	20	 
	22.8 Conflict of interest
	 	 	20	 
	22.9 Remedies cumulative
	 	 	20	 
	22.10 Other Encumbrances or judgments
	 	 	20	 
	22.11 Continuing security
	 	 	20	 
	22.12 Indemnities
	 	 	20	 
	22.13 Rights and obligations are unaffected
	 	 	20	 
	22.14 Inconsistent law
	 	 	20	 
	22.15 Superannuation legislation
	 	 	21	 
	22.16 Supervening legislation
	 	 	21	 
	22.17 Time of the essence
	 	 	21	 
	22.18 Variation and waiver
	 	 	21	 
	22.19 Receipts
	 	 	21	 
	22.20 Each signatory bound
	 	 	21	 
	22.21 Counterparts
	 	 	21	 
	22.22 Governing law
	 	 	21	 
	22.23 Serving documents
	 	 	22	 
	Schedule 1 — Form of Security Notice (clause 4.2(a) (“Future Security”)
and definition of “Security Notice”)
	 	 	23	 
	Signing page
	 	 	24	 







 


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Equitable Mortgage of Shares




Details




	 	 	 	 	 
	Parties	 	Mortgagor and Mortgagee
	Mortgagor

	 	Name
	 	Armstrong World Industries, Inc.
	 
	 	 	 	 
	 

	 	Address
	 	2500 Columbia Avenue

Lancaster, Pennsylvania 17603

Attn: Barry Sullivan and Teresa Redcay
	 
	 	 	 	 
	Mortgagee

	 	Name
	 	Bank of America, N.A. as

Administrative Agent and Collateral

Agent for the Lenders under the

Credit Agreement
	 
	 	 	 	 
	 

	 	Address
	 	One Independence Center

101 North Tryon St, 15th Floor

Charlotte, NC 28255-0001

Mail Code: NC1-001-15-14

Attn: Anne Brooke Lazorik
	 
	 	 
	Date of mortgage

	 	See Signing page	 	 







 


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Equitable Mortgage of Shares




General terms





	1.	 	INTERPRETATION
	 
	1.1	 	Terms defined in the Credit Agreement






A term which has a defined meaning in the Credit Agreement has the same meaning when used
in this mortgage unless it is expressly defined in this mortgage, in which case the meaning
in this mortgage applies.




	1.2	 	Definitions






These meanings apply unless the contrary intention appears:




Attorney means each attorney appointed by the Mortgagor under clause 19 (“Power of
attorney”).




Authorised Officer means:




	 	(a)	 	in the case of the Mortgagee, a director or secretary, or an officer whose
title contains the word “director”, “chief’, “head”, “president” or “manager” or a
person performing the functions of any of them, or any other person appointed by the
Mortgagee as an Authorised Officer for the purposes of this mortgage; and
	 
	 	(b)	 	in the case of the Mortgagor (if the Mortgagor is a company), a director or
secretary or any other person appointed by the Mortgagor to act as an Authorised
Officer for the purposes of this mortgage.






Beneficiary means:




	 	(a)	 	the Mortgagee (for its own account or for the account of the Administrative
Agent or the Collateral Agent or a Lender); and
	 
	 	(b)	 	the Administrative Agent (for its own account or for the account of a
Lender); and
	 
	 	(c)	 	the Collateral Agent (for its own account or for the account of a Lender);
and
	 
	 	(d)	 	each Lender.






A reference to the Beneficiary means each of them individually and every two or more of
them jointly.




Certificate means the certificate which evidences title to a Share.




Certificated Share means a Share forming part of the Secured Property, title to which is
evidenced by a Certificate.




Controller has the meaning it has in the Corporations Act.


 


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Credit Agreement means the credit agreement dated 2 October 2006 between, among others, the
Mortgagor as borrower and the Mortgagee as Administrative Agent and Collateral Agent.




Details means the section of this mortgage headed “Details”.




Encumbrance means any:




	 	(a)	 	security for the payment of money or performance of obligations, including a
mortgage, charge, lien, pledge, trust, power or title retention or flawed deposit
arrangement; or
	 
	 	(b)	 	right, interest or arrangement which has the effect of giving another person
a preference, priority or advantage over creditors including any right of set-off; or
	 
	 	(c)	 	third party right or interest or any right arising as a consequence of the
enforcement of a judgment,






or any agreement to create any of them or allow them to exist.




Event of Default means an event so described in clause 15.1 (“Events of Default”).




Future Security means sixty five percent of the Mortgagor’s interest in the Shares issued
by Armstrong World Industries (Australia) Pty Ltd. which, after the date of this mortgage,
become owned beneficially by the Mortgagor or by anyone (including a trustee, nominee,
broker or agent) for the Mortgagor.




A person is Insolvent if:




	 	(a)	 	it is (or states that it is) an insolvent under administration or insolvent
(each as defined in the Corporations Act); or
	 
	 	(b)	 	it is in liquidation, in provisional liquidation, under administration or
wound up or has had a Controller appointed to its property; or
	 
	 	(c)	 	it is subject to any arrangement, assignment, moratorium or composition,
protected from creditors under any statute, or dissolved (in each case, other than to
carry out a reconstruction or amalgamation while solvent on terms approved by the
Mortgagee); or
	 
	 	(d)	 	an application or order has been made (and, in the case of an application, it
is not stayed, withdrawn or dismissed within 30 days), resolution passed, proposal put
forward, or any other action taken, in each case in connection with that person, which
is preparatory to or could result in any of (a), (b) or (c) above; or
	 
	 	(e)	 	it is taken (under section 459F(l) of the Corporations Act) to have failed to
comply with a statutory demand; or
	 
	 	(f)	 	it is the subject of an event described in section 459C(2)(b) or section 585
of the Corporations Act (or it makes a statement from which the Mortgagee reasonably
deduces it is so subject); or




 


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	 	(g)	 	it is otherwise unable to pay its debts when they fall due; or
	 
	 	(h)	 	something having a substantially similar effect to (a) to (g) happens in
connection with that person under the law of any jurisdiction,






and any reference to Insolvency shall be construed accordingly.




Issuer means a corporation which has issued Shares included in the Secured Property.




Mortgagee means the person so described in the Details.




Mortgagor means the person so described in the Details.




New Rights means:




	 	(a)	 	the Mortgagor’s interest in all money, dividends, interest, allotments,
offers, benefits, privileges, rights, bonuses, Shares, stock, debentures,
distributions or rights to take up securities; or
	 
	 	(b)	 	rights of the Mortgagor consequent on any conversion, redemption,
cancellation, reclassification, forfeiture, consolidation or subdivision; or
	 
	 	(c)	 	rights of the Mortgagor consequent on a reduction of capital, liquidation or
scheme of arrangement,






in connection with the Present Security or the Future Security.




Potential Event of Default means an event which, with the giving of notice, lapse of time
or fulfilment of any condition, would be likely to become an Event of Default.




Present Security means the Mortgagor’s interest in the following Shares, reflecting sixty
five percent of the issued Shares held by the Mortgagor in the Issuer:



	 	 	 	 	 	 	 	 	 
	Issuer	 	Identification number	 	Quantity	 	 	Class
	Armstrong World Industries (Australia) Pty Ltd. (ABN 77 004 747 942)
	 	Share certificate number “24”	 	 	3,713,336	 	 	Ordinary







Receiver includes a receiver or receiver and manager.




Related Entity has the meaning it has in the Corporations Act.




Secured Money means all Obligations and all costs and expenses incurred in connection with
enforcement and collection of the Secured Money, including Attorney Costs,


 


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This definition applies:




	 	(i)	 	irrespective of the capacity in which the Mortgagor or the
Beneficiary became entitled to, or liable in respect of, the amount concerned;






	 	(ii)	 	whether the Mortgagor or the Beneficiary is liable as
principal debtor, as surety, or otherwise;






	 	(iii)	 	whether the Mortgagor is liable alone, or together with
another person;






	 	(iv)	 	even if the Mortgagor owes an amount or obligation to the
Beneficiary because it was assigned to the Beneficiary, whether or not:






	 	(A)	 	the assignment was before, at the same time
as, or after the date of this mortgage; or






	 	(B)	 	the Mortgagor consented to or was aware of
the assignment; or






	 	(C)	 	the assigned obligation was secured before
the assignment;






	 	(v)	 	even if this mortgage was assigned to the Beneficiary,
whether or not:






	 	(A)	 	the Mortgagor consented to or was aware of
the assignment; or






	 	(B)	 	any of the Secured Money was previously
unsecured; or






	 	(vi)	 	if the Mortgagor is a trustee, whether or not it has a right
of indemnity from the trust fund.






Secured Property means the Present Security, the Future Security and the New Rights.




Security Notice means a notice in the form of schedule 1.




Share means shares, stock units or units in the capital of a corporation.




Taxes means taxes, levies, imposts, charges and duties imposed by any authority (including
stamp and transaction duties) together with any related interest, penalties, fines and
expenses in connection with them, except if imposed on, or calculated having regard to, the
overall net income of the Mortgagee.




Transfer means a transfer of the Secured Property executed by the Mortgagor as transferor.




Uncertificated Share means a Share forming part of the Secured Property, title to which is
not evidenced by a Certificate.




	1.3	 	References to certain general terms






Unless the contrary intention appears, in this mortgage:




	 	(a)	 	a reference to a group of persons or things is a reference to any two or more
of them jointly and to each of them individually;




 


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	 	(b)	 	an agreement, representation or warranty in favour of two or more persons is
for the benefit of them jointly and each of them individually;
	 
	 	(c)	 	an agreement, representation or warranty by two or more persons binds them
jointly and each of them individually, but an agreement, representation or warranty by
a Mortgagee binds the Mortgagee individually only;
	 
	 	(d)	 	a reference to anything (including an amount) is a reference to the whole and
each part of it;
	 
	 	(e)	 	a reference to a document (including this mortgage) includes any variation or
replacement of it;
	 
	 	(f)	 	the word “law” includes common law, principles of equity, and laws made by
parliament (and laws made by parliament include State, Territory and Commonwealth laws
and regulations and other instruments under them, and consolidations, amendments,
reenactments or replacements of any of them);
	 
	 	(g)	 	a reference to accounting standards is a reference to the accounting
standards as defined in the Corporations Act and a reference to an accounting term is
a reference to that term as it is used in those accounting standards, or, if not
inconsistent with those standards, in accounting principles and practices generally
accepted in Australia;
	 
	 	(h)	 	a reference to Australian dollars, dollars, A$ or $ is a reference to the
lawful currency of Australia;
	 
	 	(i)	 	the word “person” includes an individual, a firm, a body corporate, an
unincorporated association and an authority;
	 
	 	(j)	 	a reference to a particular person includes the person’s executors,
administrators, successors, substitutes (including persons taking by novation) and
assigns;
	 
	 	(k)	 	the words “including”, “for example” or “such as” when introducing an
example, do not limit the meaning of the words to which the example relates to that
example or examples of a similar kind;
	 
	 	(l)	 	an Event of Default or Potential Event of Default is “continuing” if it has
not been waived by, or remedied to the satisfaction of, the Mortgagee;
	 
	 	(m)	 	a reference to the Corporations Act is a reference to the Corporations Act
2001 (Cwlth).






	1.4	 	Number
	 
	 	 	The singular includes the plural and vice versa.
	 
	1.5	 	Headings






Headings (including those in brackets at the beginning of paragraphs) are for convenience
only and do not affect the interpretation of this deed.


 


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	1.6	 	Designation






The parties agree that this mortgage is a Collateral Document for the purposes of the
Credit Agreement.




	2.	 	MORTGAGOR MUST PAY THE SECURED MONEY






The Mortgagor agrees to pay the Secured Money in accordance with the terms of the Loan
Documents. However, if an Event of Default is continuing, the Mortgagee may declare at any
time by notice to the Mortgagor that the Secured Money is either payable on demand or
immediately due for payment.




	3.	 	MORTGAGE
	 
	3.1	 	Mortgage






The Mortgagor:




	 	(a)	 	mortgages to the Mortgagee the Present Security by way of equitable mortgage;
and
	 
	 	(b)	 	mortgages to the Mortgagee the New Rights existing at the date of this
mortgage with respect to the Present Security by way of equitable mortgage; and
	 
	 	(c)	 	agrees to mortgage to the Mortgagee, when acquired by the Mortgagor, the
Future Security; and
	 
	 	(d)	 	agrees to mortgage to the Mortgagee, when acquired by the Mortgagor, the New
Rights which arise after the date of this mortgage; and
	 
	 	(e)	 	for the purpose of securing payment of the Secured Money.






The Mortgagor does this as beneficial owner.




	3.2	 	Mandatory action






To the extent that any law requires that something must be done (such as obtaining consent)
before the Mortgagor may validly mortgage any of the Secured Property, the mortgage under
clause 3.1 (“Mortgage”) only takes effect in relation to that Secured Property when the
thing required is done. The Mortgagor agrees to do anything reasonably necessary to ensure
that it is done.




	3.3	 	Consideration






The Mortgagor acknowledges giving this mortgage and incurring obligations and giving rights
under this deed for valuable consideration received.


 


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	4.	 	OBLIGATIONS TO DEPOSIT DOCUMENTS AND GIVE NOTICES
	 
	4.1	 	Obligations at signing of mortgage






The Mortgagor agrees to deposit with the Mortgagee or its nominee at the time of the
Mortgagor’s execution of this mortgage:




	 	(a)	 	the Certificates (if any) in respect of the Present Security; and
	 
	 	(b)	 	the number of Transfers specified by the Mortgagee of the Present Security
with the name of the transferee and the consideration and date left blank.






	4.2	 	Deposit of Future Security documents






The Mortgagor agrees to deposit with the Mortgagee or its nominee the following in respect
of Future Security promptly after the Mortgagor acquires the Future Security:




	 	(a)	 	a Security Notice; and
	 
	 	(b)	 	the Certificates (if any); and
	 
	 	(c)	 	the number of Transfers specified by the Mortgagee with the name of the
transferee and the consideration and date left blank.






	4.3	 	Certificated Shares






If the Mortgagee asks, the Mortgagor agrees to promptly give to any Issuer, broker, share
registrar or other person specified by the Mortgagee, an irrevocable direction (in a form
approved by the Mortgagee) to deliver to the Mortgagee or its nominee any Certificates held
or issued by that person in respect of Certificated Shares. The Mortgagor agrees to give
to the Mortgagee a copy of the direction, promptly after giving it.




	4.4	 	Conversion of Uncertificated Shares to Certificated Shares






If a Certificate is issued at any time after the execution of this mortgage in respect of
any Uncertificated Share forming part of the Secured Property, the Mortgagor agrees to
promptly deposit with the Mortgagee or its nominee:




	 	(a)	 	that Certificate; and
	 
	 	(b)	 	the number of replacement Transfers specified by the Mortgagee in respect of
the Shares evidenced by that Certificate with the name of the transferee and the
consideration and date left blank.






	5.	 	DEALINGS — SUCH AS SELLING OR MORTGAGING
	 
	5.1	 	Restricted dealings






The Mortgagor covenants that so long as any of the Secured Money remains outstanding and
until all of the commitments relating thereto have been terminated, the Mortgagor shall not
sell, exchange, transfer, assign, lease or otherwise dispose of the Secured
Property or any interest therein, except as permitted under the Credit Agreement and the
other Loan Documents.



 


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	5.2	 	Where the law allows for creation of Encumbrance without consent






If a law entitles the Mortgagor to create another Encumbrance over the Secured Property
without the consent of the Mortgagee, this clause 5 does not operate to require the
Mortgagor to obtain the Mortgagee’s consent before creating that other Encumbrance.
However:




	 	(a)	 	if the Mortgagor intends to create another Encumbrance, it agrees to notify
the Mortgagee at least seven days before it proposes to do so; and
	 
	 	(b)	 	if the Mortgagee requests an agreement under clause 6.1 (“Priority
agreement”) and the Mortgagor has not complied with that request by the time the
Encumbrance is created, financial accommodation need not be made available under any
Loan Document.






	6.	 	OTHER ENCUMBRANCES
	 
	6.1	 	Priority agreement






If the Mortgagee reasonably requests, the Mortgagor agrees to obtain an agreement
acceptable to the Mortgagee regulating priority between this mortgage and any other
Encumbrance over the Secured Property.




	6.2	 	Amount secured by other Encumbrance






The Mortgagor agrees to ensure that the amount secured under any other Encumbrance over the
Secured Property is not increased without the Mortgagee’s consent.




	6.3	 	Obligations under other Encumbrance






The Mortgagor agrees to comply with all material obligations under any other Encumbrance
over the Secured Property.




	6.4	 	Mortgagee may rely on third party certificates






The Mortgagee may rely on a certificate from any other person with an Encumbrance over the
Secured Property as to the amount that is owed to that other person.




	6.5	 	Prospective liability






For the purpose only of fixing priorities under section 282 of the Corporations Act, the
prospective liabilities (within the meaning of section 261 of the Corporations Act) secured
by this mortgage include the obligations of the Mortgagor to pay or repay the Secured Money
including all principal and amounts in the nature of principal, interest and amounts in the
nature of interest, fees, costs, amounts due under indemnities and all other amounts coming
within the definition of Secured Money up to $100,000,000,000 (or, if the principal amount
secured is greater than this amount, a figure which is at least double the principal
amount).


 


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	7.	 	DIVIDENDS AND VOTES
	 
	7.1	 	Before an Event of Default






Until an Event of Default occurs or the Secured Property is registered in the Mortgagee’s
name:




	 	(a)	 	the Mortgagor is entitled to retain all dividends or other income in respect
of the Secured Property; and
	 
	 	(b)	 	the Mortgagor may exercise rights to take up further Shares in an Issuer; and
	 
	 	(c)	 	the Mortgagor may exercise any voting power in respect of the Secured
Property as it sees fit; and
	 
	 	(d)	 	the Mortgagee may not exercise any voting power in respect of the Secured
Property without the Mortgagor’s consent.






	7.2	 	After an Event of Default






If an Event of Default occurs and is continuing or the Secured Property is registered in
the Mortgagee’s name, then all rights of the Mortgagor under clause 7.1 (“Before an Event
of Default”) shall immediately cease and:




	 	(a)	 	the Mortgagor agrees to procure that all dividends or other income in respect
of the Secured Property are paid directly to the Mortgagee; and
	 
	 	(b)	 	the Mortgagee is entitled to exercise the rights referred to in clauses
7.1(b) and 7.1(c) (“Before an Event of Default”).






	7.3	 	No obligation on Mortgagee






The Mortgagee need not:




	 	(a)	 	do anything to obtain payment of any dividends or other income in respect of
the Secured Property; or
	 
	 	(b)	 	vote at any meeting of shareholders of an Issuer; or
	 
	 	(c)	 	exercise rights in respect of the Secured Property; or
	 
	 	(d)	 	sell the Secured Property,






even if it has reason to believe that the value of the Secured Property may fall. The
Mortgagee is not responsible for loss as a result of such a failure to act or delay in so
acting.




 


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	8.	 	MAINTAINING THE SECURED PROPERTY






The Mortgagor agrees to:




	 	(a)	 	(details of New Rights) provide to the Mortgagee or its nominee, promptly
after becoming aware of the New Rights, particulars of all New Rights and all
documentary or other evidence of New Rights; and






	 	(b)	 	(take up New Rights) at the Mortgagee’s request take up New Rights, if, in
the Mortgagee’s opinion, failure to do so could mean that the Secured Property or this
mortgage is or is likely to become materially lessened in value or prejudicially
affected, provided that the aggregate Secured Property will not exceed sixty five
percent of the total number of Shares held by the Mortgagor in the Issuer; and






	 	(c)	 	(notices) give the Mortgagee a copy of any notice and, at the Mortgagee’s
request, any report, given to the shareholders of an Issuer; and






	 	(d)	 	(maintain authorisations) obtain, renew on time and comply with the terms of
each authorisation necessary to enter into this mortgage, comply with obligations
under it and allow it to be enforced.






	9.	 	REPRESENTATIONS AND WARRANTIES






	9.1	 	Representations and warranties






The Mortgagor represents and warrants (except in relation to matters disclosed to the
Mortgagee and accepted by the Mortgagee in writing) that:




	 	(a)	 	(owner of the Secured Property) it is the beneficial owner of, and has good
title to, the Secured Property free from Encumbrance other than Permitted Liens; and






	 	(b)	 	(incorporation and existence) if the Mortgagor is a company, (i) it has been
incorporated in accordance with the laws of its place of incorporation, (ii) it is
validly existing under those laws, and (iii) it has power and authority to carry on
its business as it is now being conducted, except in the case referred to in paragraph
(iii) to the extent failure to do so could not reasonably be expected to have a
Material Adverse Effect; and
	 
	 	(c)	 	(fully paid) the Secured Property is fully paid up; and






	 	(d)	 	(all interests in Issuer) it has disclosed to the Mortgagee all of its
interest in Shares in the Issuer; and






	 	(e)	 	(power) it has power to enter into this mortgage and comply with its
obligations under it; and






	 	(f)	 	(no contravention or exceeding power) this mortgage and the transactions
under it do not (i) contravene its constituent documents (if any), (ii) contravene any
law or obligation by which it is bound or to which any of its assets are subject, or
(iii) cause a limitation on its powers (or, to the extent applicable, the
powers of its directors) to be exceeded, except in each case referred to in
paragraphs (ii) and (iii) to the extent that such contravention could not
reasonably be expected to have a Material Adverse Effect; and




 


11









 











	 	(g)	 	(authorisations) it has in full force and effect the authorisations necessary
for it to enter into this mortgage, to comply with its obligations and exercise its
rights under it and allow it to be enforced; and






	 	(h)	 	(validity of obligations) its obligations under this mortgage are valid and
binding and are enforceable against it in accordance with its terms; and






	 	(i)	 	(benefit) it benefits by entering into the Loan Documents to which it is a
party; and






	 	(j)	 	(Event of Default) no Event of Default or Potential Event of Default is
continuing; and






	 	(k)	 	(full disclosure) it has disclosed in writing to the Mortgagee all facts
relating to the Mortgagor, this mortgage, the Secured Property and all things in
connection with them, which are material to the assessment of the nature and amount of
the risk undertaken by the Mortgagee in entering into any transaction relating to this
mortgage and doing anything in connection with this mortgage or a transaction relating
to it.






	9.2	 	Reliance






The Mortgagor acknowledges that the Mortgagee and each Beneficiary has entered into the
Loan Documents to which it is a party in reliance on the representations and warranties in
this clause 9,




	10.	 	PAYMENTS






	10.1	 	Manner of payment






The Mortgagor agrees to make payments under this mortgage:




	 	(a)	 	in full without set-off or counterclaim, and without any deduction in respect
of Taxes unless prohibited by law; and






	 	(b)	 	if the payment relates to the Secured Money, in the currency in which the
payment is due, and otherwise in Australian dollars in immediately available funds.






	10.2	 	Currency of payment






The Mortgagor waives any right it has in any jurisdiction to pay an amount other than in
the currency in which it is due. However, if the Mortgagee receives an amount in a
currency other than that in which it is due:




	 	(a)	 	it may convert the amount received into the due currency (even though it may
be necessary to convert through a third currency to do so) on the day and at such
rates (including spot rate, same day value rate or value tomorrow rate) as it
reasonably considers appropriate. It may deduct its usual costs in connection with
the conversion; and




 


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	 	(b)	 	the Mortgagor satisfies its obligation to pay in the due currency only to the
extent of the amount of the due currency obtained from the conversion after deducting
the costs of the conversion.






	11.	 	COSTS AND INDEMNITIES






	11.1	 	Currency conversion on Judgment debt






If a judgment, order or proof of debt for an amount in connection with this mortgage is
expressed in a currency other than the currency in which the amount is due under this
mortgage, then the Mortgagor indemnifies the Mortgagee against:




	 	(a)	 	any difference arising from converting the other currency if the rate of
exchange used by the Mortgagee under clause 10.2 (“Currency of payment”) for
converting currency when it receives a payment in the other currency is less
favourable to the Mortgagee than the rate of exchange used for the purpose of the
judgment, order or acceptance of proof of debt; and
	 
	 	(b)	 	the costs of conversion.






The Mortgagor agrees to pay amounts under this indemnity on demand from the Mortgagee.




	12.	 	APPLICATION OF PAYMENTS






	12.1	 	Application of money






The Mortgagee must apply money it receives under this mortgage towards paying the Secured
Money in accordance with the Loan Documents unless the Mortgagee is obliged to pay the
money to anyone with a prior claim.




	12.2	 	Order of payment






The Mortgagee may use money received under this mortgage towards paying any part of the
Secured Money the Mortgagee chooses, including by paying a later instalment before an
earlier instalment. This applies even if that part only falls due after the Mortgagee
gives a notice of demand.




	12.3	 	Suspense account






The Mortgagee may place in a suspense account any payment it receives from the Mortgagor
for as long as it considers prudent and need not apply it towards satisfying the Secured
Money.


 


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	12.4	 	Remaining money






The Mortgagee agrees to pay any money remaining after the Secured Money is paid either to
the Mortgagor (which the Mortgagee may do by paying it into an account in the
Mortgagor’s name) or to another person entitled to it (such as another person with an
Encumbrance over the Secured Property). In doing so, it does not incur any liability to
the Mortgagor. The Mortgagee is not required to pay the Mortgagor interest on any money
remaining after the Secured Money is paid.




	12.5	 	Credit from date of receipt






The Mortgagor is only credited with money from the date the Mortgagee actually receives it
(including, where the Mortgagee has appointed a Receiver, the date the Receiver pays money
to the Mortgagee).




	13.	 	ADMINISTRATIVE MATTERS






	13.1	 	Deposit of documents






In addition to the Mortgagor’s obligations under clause 4 (“Obligations to deposit
documents and give notices”) the Mortgagor agrees to deposit with the Mortgagee all other
documents the Mortgagee reasonably requests relating to the Secured Property.




However, the Mortgagor need not deposit them if another person is holding them under a
Permitted Lien which has priority over this mortgage.




	13.2	 	Registration of mortgage






The Mortgagee may register this mortgage at the Mortgagor’s expense.




	13.3	 	Further steps






The Mortgagor agrees to do anything the Mortgagee reasonably requests (such as obtaining
consents, signing and producing documents, producing receipts and getting documents
completed and signed):




	 	(a)	 	to provide more effective security over the Secured Property for payment of
the Secured Money; or






	 	(b)	 	to enable the Mortgagee to register this mortgage with the priority required
by the Mortgagee; or






	 	(c)	 	to enable the Mortgagee to exercise the Mortgagee’s rights in connection with
the Secured Property; or






	 	(d)	 	to bind the Mortgagor and any other person intended to be bound under this
mortgage; or






	 	(e)	 	to enable the Mortgagee to register the power of attorney in clause 19
(“Power of attorney”) or a similar power; or






	 	(f)	 	to show whether the Mortgagor is complying with this mortgage.




 


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	13.4	 	Authority to fill in blanks






The Mortgagor agrees that the Mortgagee may fill in any blanks in this mortgage or a
document connected with it (such as Corporations Act forms or transfers for the Secured
Property).




	13.5	 	Supply of information






If the Mortgagee reasonably requests, the Mortgagor agrees to supply the Mortgagee with any
information about or documents affecting:




	 	(a)	 	the Secured Property; or






	 	(b)	 	this mortgage.






	14.	 	RIGHTS THE MORTGAGEE MAY EXERCISE AT ANY TIME






	14.1	 	Authority to deal






The Mortgagee may assign or otherwise deal with its rights under this mortgage in any way
it considers appropriate. If the Mortgagee does this, the Mortgagor may not claim against
any assignee (or any other person who has an interest in this mortgage) any right of
set-off or other rights the Mortgagor has against the Mortgagee.




	14.2	 	Right to rectify






The Mortgagee may do anything which the Mortgagor should have done under this mortgage but
which the Mortgagor either has not done or, in the Mortgagee’s opinion, has not done
properly. If the Mortgagee does so, the Mortgagor agrees to pay the Mortgagee’s costs on
demand.




	15.	 	DEFAULT






	15.1	 	Events of Default






It is an Event of Default if an “event of default” as defined in the Credit Agreement
occurs.




	15.2	 	Ensure no default






The Mortgagor agrees to ensure that no Event of Default occurs.




	15.3	 	Investigation of default






If the Mortgagee reasonably believes that an Event of Default is, or may be, continuing the
Mortgagee may appoint a person to investigate this. The Mortgagor agrees to co-operate
with the person and comply with every reasonable request they make. If there is or was an
Event of Default, the Mortgagor agrees to pay the Mortgagee all costs in connection with
the investigation.


 


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	15.4	 	Mortgagee’s powers on default






If an Event of Default is continuing, the Mortgagee may do one or more of the following in
addition to anything else the law allows the Mortgagee to do as mortgagee:




	 	(a)	 	sue the Mortgagor for the Secured Money; or






	 	(b)	 	appoint one or more Receivers; or






	 	(c)	 	do anything that a Receiver could do under clause 17.4 (“Receiver’s powers”).






	15.5	 	Order of enforcement






The Mortgagee may enforce this mortgage before it enforces other rights or remedies:




	 	(a)	 	against any other person; or






	 	(b)	 	under another document, such as another Encumbrance.






If the Mortgagee has more than one Encumbrance, it may enforce them in any order it
chooses.




	16.	 	EXCLUSION OF TIME PERIODS






	16.1	 	No notice required unless mandatory






Neither the Mortgagee nor any Receiver need give the Mortgagor any notice or demand or
allow time to elapse before exercising a right under this mortgage or conferred by law
(including a right to sell) unless the notice, demand or lapse of time is required by law
and cannot be excluded.




	16.2	 	Mandatory notice period






If the law requires that a period of notice must be given or a lapse of time must occur or
be permitted before a right under this mortgage or conferred by law may be exercised, then:




	 	(a)	 	when a period of notice or lapse of time is mandatory, that period of notice
must be given or that lapse of time must occur or be permitted by the Mortgagee; or






	 	(b)	 	when the law provides that a period of notice or lapse of time maybe
stipulated or fixed by this mortgage, then one day is stipulated and fixed as that
period of notice or lapse of time including, if applicable, as the period of notice or
lapse of time during which:






	 	(i)	 	an Event of Default must continue, before a notice is given
or requirement otherwise made for payment of the Secured Money or the
observance of other obligations under this mortgage; and




 


16









 











	 	(ii)	 	a notice or request for payment of the Secured Money or the
observance of other obligations under this mortgage must remain not complied
with before the Mortgagee or a Receiver may exercise rights.






	17.	 	RECEIVERS






	17.1	 	Terms of appointment of Receiver






In exercising its power to appoint a Receiver, the Mortgagee may:




	 	(a)	 	appoint a Receiver to all or any part of the Secured Property or its income;
and






	 	(b)	 	set a Receiver’s remuneration at any figure the Mortgagee determines
appropriate, remove a Receiver and appoint a new or additional Receiver.






	17.2	 	More than one Receiver






If the Mortgagee appoints more than one Receiver, the Mortgagee may specify whether they
may act individually or jointly.




	17.3	 	Receiver is Mortgagor’s agent






Any Receiver appointed under this mortgage is the Mortgagor’s agent unless the Mortgagee
notifies the Mortgagor that the Receiver is to act as the Mortgagee’s agent. The Mortgagor
is solely responsible for anything done, or not done, by a Receiver and for the Receiver’s
remuneration and costs.




	17.4	 	Receiver’s powers






Unless the terms of appointment restrict a Receiver’s powers, the Receiver may do one or
more of the following:




	 	(a)	 	sell, transfer or otherwise dispose of the Secured Property;






	 	(b)	 	obtain registration of the Secured Property in the Mortgagee’s or its
nominee’s name;






	 	(c)	 	do everything necessary to enable the Mortgagee or its nominee to receive any
New Rights;






	 	(d)	 	do anything else the law allows an owner or a Receiver of the Secured
Property to do.






	18.	 	DISPOSAL OF THE SECURED PROPERTY IS FINAL






The Mortgagor agrees that if the Mortgagee or a Receiver sells or otherwise disposes of the
Secured Property:




	 	(a)	 	the Mortgagor will not challenge the acquirer’s right to acquire the Secured
Property (including on the ground that the Mortgagee or the Receiver was not entitled
to dispose of the Secured Property or that the Mortgagor did not receive
notice of the intended disposal) and the Mortgagor will not seek to reclaim that
property; and




 


17









 











	 	(b)	 	the person who acquires the Secured Property need not check whether the
Mortgagee or the Receiver has the right to dispose of the Secured Property or whether
the Mortgagee or the Receiver exercises that right properly.






	19.	 	POWER OF ATTORNEY






	19.1	 	Appointment






The Mortgagor irrevocably appoints the Mortgagee, each Authorised Officer of the Mortgagee,
and each Receiver individually as the Mortgagor’s attorney and agrees to ratify anything an
Attorney does under clause 19.2 (“Powers”).




	19.2	 	Powers






If an Event of Default has occurred or is continuing an Attorney may:




	 	(a)	 	do anything which the Mortgagor can lawfully authorise an attorney to do in
connection with this mortgage, the Secured Property, or which the Attorney believes is
expedient to give effect to any of the Mortgagee’s or a Receiver’s rights (these
things may be done in the Mortgagor’s name or the Attorney’s name, and they include
signing and delivering documents, selling or transferring the Secured Property,
starting, conducting and defending legal proceedings); and






	 	(b)	 	delegate their powers (including this power) and revoke a delegation; and






	 	(c)	 	exercise their powers even if this involves a conflict of duty or they have a
personal interest in doing so.






	20.	 	REINSTATEMENT OF RIGHTS






Under law relating to Insolvency, a person may claim that a transaction (including a
payment) in connection with the Secured Money is void or voidable. If a claim is made and
upheld, conceded or compromised, then:




	 	(a)	 	the Mortgagee is immediately entitled as against the Mortgagor to the rights
in respect of the Secured Money to which it was entitled immediately before the
transaction; and






	 	(b)	 	on request from the Mortgagee, the Mortgagor agrees to do anything (including
signing any document) to restore to the Mortgagee any Encumbrance (including this
mortgage) it held from the Mortgagor immediately before the transaction.






The Mortgagor’s obligations under this clause are continuing obligations, independent of
the Mortgagor’s other obligations under this mortgage and continue after this mortgage
ends.


 


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	21.	 	NOTICES






Clause 11.02 of the Credit Agreement applies to this mortgage as if set out in full in this
mortgage (with any necessary amendments).




	22.	 	GENERAL






	22.1	 	Prompt performance






Subject to clause 22.17 (“Time of the essence”):




	 	(a)	 	if this mortgage specifies when the Mortgagor agrees to perform an
obligation, the Mortgagor agrees to perform it by the time specified; and






	 	(b)	 	the Mortgagor agrees to perform all other obligations promptly.






	22.2	 	Consents






The Mortgagor agrees to comply with all conditions in any consent the Mortgagee gives in
connection with this mortgage.




	22.3	 	Certificates






The Mortgagee may give the Mortgagor a certificate about an amount payable or other matter
in connection with this mortgage. The certificate is sufficient evidence of the amount or
matter, unless it is proved to be incorrect.




	22.4	 	Set-off






The Mortgagee may set off any amount owing by the Mortgagee to the Mortgagor (whether or
not due for payment) against any amount due for payment by the Mortgagor to the Mortgagee
under this mortgage.




The Mortgagee may do anything necessary to effect any set-off under this clause (including
varying the date for payment of any amount owing by the Mortgagee to the Mortgagor and
making currency exchanges). This clause applies despite any other agreement between the
Mortgagor and the Mortgagee.




	22.5	 	Discretion in exercising rights






The Mortgagee or a Receiver may exercise a right or remedy or give or refuse its consent in
any way it considers appropriate (including by imposing conditions), unless this mortgage
expressly states otherwise.




	22.6	 	Partial exercising of rights






If the Mortgagee or a Receiver does not exercise a right or remedy fully or at a given
time, the Mortgagee or the Receiver may still exercise it later.


 


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	22.7	 	No liability for loss






Neither the Mortgagee nor a Receiver is liable for loss caused by the exercise or attempted
exercise of, failure to exercise, or delay in exercising, a right or remedy except as a
result of that Mortgagee’s or Receiver’s gross negligence or wilful misconduct (as
determined by a court of competent jurisdiction by final and non-appealable judgment).




	22.8	 	Conflict of interest






The Mortgagee’s and any Receiver’s rights and remedies under this mortgage may be exercised
even if this involves a conflict of duty or the Mortgagee or Receiver has a personal
interest in their exercise.




	22.9	 	Remedies cumulative






The rights and remedies of the Mortgagee or a Receiver under this mortgage are in addition
to other rights and remedies given by law independently of this mortgage.




	22.10	 	Other Encumbrances or judgments






This mortgage does not merge with or adversely affect, and is not adversely affected by,
any of the following:




	 	(a)	 	any Encumbrance or other right or remedy to which the Mortgagee is entitled;
or






	 	(b)	 	a judgment which the Mortgagee obtains against the Mortgagor in connection
with the Secured Money,






The Mortgagee may still exercise its rights under this mortgage as well as under the
judgment, other Encumbrance or the right or remedy.




	22.11	 	Continuing security






This mortgage is a continuing security despite any intervening payment, settlement or other
thing until the Mortgagee releases the Secured Property from this mortgage.




	22.12	 	Indemnities






The indemnities in this mortgage are continuing obligations, independent of the Mortgagor’s
other obligations under this mortgage, and continue after this mortgage ends. It is not
necessary for the Mortgagee to incur expense or make payment before enforcing a right of
indemnity under this mortgage.




	22.13	 	Rights and obligations are unaffected






Rights given to the Mortgagee or any Receiver under this mortgage and the Mortgagor’s
liabilities under it are not affected by anything which might otherwise affect them at law.




	22.14	 	Inconsistent law






To the extent permitted by law, this mortgage prevails to the extent it is inconsistent
with any law.


 


20









 






	22.15	 	Superannuation legislation






If the Superannuation Industry (Supervision) Act 1993 (Cwlth) prohibits the Mortgagor from
mortgaging any of the Secured Property, this mortgage does not extend to that Secured
Property.




	22.16	 	Supervening legislation






Any present or future legislation which operates to vary the obligations of the Mortgagor
in connection with this mortgage with the result that the Mortgagee’s rights, powers or
remedies are adversely affected (including by way of delay or postponement) is excluded
except to the extent that its exclusion is prohibited or rendered ineffective by law.




	22.17	 	Time of the essence






Time is of the essence in this mortgage in respect of an obligation of the Mortgagor to pay
money.




	22.18	 	Variation and waiver






Unless this mortgage expressly states otherwise, a provision of this mortgage, or right
created under it, may not be waived or varied except in writing signed by the party or
parties to be bound.




	22.19	 	Receipts






The receipt of a Receiver, the Mortgagee or an Authorised Officer of the Mortgagee releases
the person paying money to the Receiver or the Mortgagee in connection with this mortgage
from:




	 	(a)	 	liability to enquire whether the Secured Money has become payable; and
	 
	 	(b)	 	liability for the money paid or expressed to be received; and






	 	(c)	 	being concerned to see to its application or being answerable or accountable
for its loss or misapplication.






	22.20	 	Each signatory bound






This mortgage binds each person who signs as Mortgagor even if another person who was
intended to sign does not sign it or is not bound by it.




	22.21	 	Counterparts






This mortgage may consist of a number of copies, each signed by one or more parties to the
mortgage. If so, the signed copies are treated as making up the one document.




	22.22	 	Governing law






This mortgage is governed by the law in force in Victoria, Australia. The Mortgagor and
the Mortgagee submit to the non-exclusive jurisdiction of the courts of that place.


 


21









 






	22.23	 	Serving documents






Without preventing any other method of service any document in a court action may be served
on a party by being delivered or left at that party’s address for service of notice under
clause 21 (“Notices”).



EXECUTED as a deed





 


22









 







Equitable Mortgage of Shares




Schedule 1 — Form of Security Notice (clause 4.2(a) (“Future Security”) and definition of “Security
Notice”)



[Date]




	 	 	 
	To:

	 	Bank of America, N.A. (“Mortgagee”)
	Address:

	 	One Independence Center

101 North Tryon St, 15th Floor

Charlotte, NC 28255-0001

Mail Code: NC1-001-15-14

Attn: Anne Brooke Lazorik






SECURITY NOTICE




Under the mortgage (“Mortgage”) dated [______] between Armstrong World Industries, Inc. (“Mortgagor”)
and Bank of America, N.A. (“Mortgagee”) the Mortgagor notifies the Mortgagee and represents and
warrants that:




	1.	 	The following Shares constitute Future Security.





	 	 	 	 	 	 	 
	 	 	Share	 	 	 	 
	Name of Company	 	Certificate No*	 	No of Shares	 	Class
	 
	 	 	 	 	 	 
	Armstrong World Industries
(Australia)
Pty Ltd.
	 	 	 	 	 	 







	2.	 	All the Shares are fully paid up.





We enclose:




	 	(a)	 	the Certificates in respect of the Shares; and






	 	(b)	 	the number of Transfers specified by you in respect of the Shares completed
with the name of the Mortgagee as transferee and the consideration and date left
blank.





If any of the above are not enclosed we undertake to forward them to you.



A term which has a defined meaning in the Mortgage has the same meaning as in the Mortgage when
used in this Security Notice.



	 	 	 
	 
	 	**** 
	 

for Armstrong World Industries, Inc,

	 	 








	 	 	 
	****	 	Care! Before signing obtain stamp duty advice on the stamp duty implications of execution for
the relevant jurisdiction.



 


23









 





Signing page



DATED: February 12, 2007



Each of the parties hereto has caused a counterpart of this mortgage to be duly executed and
delivered as of the date above



	 	 	 	 	 
	ARMSTRONG WORLD

INDUSTRIES, INC., a

Pennsylvania corporation	 	 
	 
	 	 	 	 
	By:

	 	/s/ Walter T. Gangl
 

Name: Walter T. Gangl
	 	 
	 

	 	Title:   Assistant Secretary	 	 
	 
	 	 	 	 
	BANK OF AMERICA, N.A., as

Administrative Agent and

Collateral Agent By:	 	 
	 
	 	 	 	 
	By:

	 	/s/ Anne B. Lazorik	 	 
	 

	 	 	 	 
	 

	 	Name: Anne B. Lazorik	 	 
	 

	 	Title:   Vice President	 	 







 


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