LANCASTER, Pa. (Reuters) - Floor coverings maker Armstrong World Industries Inc., the main operating subsidiary of Armstrong Holdings Inc., on Monday said it has filed a reorganization plan setting the stage for its emergence from bankruptcy.

The plan calls for the cancellation of the existing common stock of Armstrong. Shareholders would receive in exchange warrants to buy 5 percent of the common shares of the reorganized company, which has not yet been named. The warrants are expected to have a value of about $40 million to $50 million.

Armstrong has been in bankruptcy proceedings in Wilmington, Del., since December 2000 while it sought to resolve its liability for claims that the asbestos used in its floor tiles made people sick. Armstrong has said it faces about 600 claims alleging more than $852 million in damages related to floor tiles containing asbestos.

Armstrong said the plan is supported by the asbestos personal injury claimants' committee, the representative for future asbestos personal injury claimants and the unsecured creditors' committee.

The plan would create a trust for the benefit of present and future asbestos personal injury claimants, which would assume all of the company's obligations for them. The trust would be assigned the rights to Armstrong's insurance coverage and create a mechanism to resolve asbestos property damage claims through insurance proceeds. It would distribute 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 to be paid under the plan to the trust and unsecured creditors.

The reorganized company would issue at least $775 million principal amount of notes, an amount which would be increased to the extent that available cash to be distributed under the plan fell below $350 million. General unsecured claims of $10,000 or less, other than debt securities, would be repaid in cash, at 75 cents on the dollar.

Under the plan, unsecured creditors would receive about 34.43 percent of the common stock of the successor to Armstrong and about 35.5 percent of the new notes and available cash. The asbestos personal injury trust would receive the portion of the plan not distributed to unsecured creditors. The amount of secured claims is immaterial, an Armstrong spokesman said. The plan is subject to approval by various classes of creditors and the bankruptcy court.