-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TY4f/3U/KHWdXqpHUBDENqvOBTaR5jenU1uWWZq72MIXjBd01eSu3gtiFh213m1T rBuOiA+bSdsbwCKIv/P8aA== 0001171520-06-000202.txt : 20060515 0001171520-06-000202.hdr.sgml : 20060515 20060515140222 ACCESSION NUMBER: 0001171520-06-000202 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20060331 FILED AS OF DATE: 20060515 DATE AS OF CHANGE: 20060515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BILTRITE INC CENTRAL INDEX KEY: 0000004611 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 041701350 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04773 FILM NUMBER: 06839371 BUSINESS ADDRESS: STREET 1: 57 RIVER STREET STREET 2: SUITE 302 CITY: WELLESLEY HILLS STATE: MA ZIP: 02481 BUSINESS PHONE: 6172376655 MAIL ADDRESS: STREET 1: 57 RIVER STREET STREET 2: SUITE 302 CITY: WELLESLEY HILLS STATE: MA ZIP: 02481 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN BILTRITE RUBBER CO INC DATE OF NAME CHANGE: 19730621 10-Q 1 eps2127.txt AMERICAN BILTRITE INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended March 31, 2006 Commission File Number 1-4773 AMERICAN BILTRITE INC. (Exact name of registrant as specified in its charter) Delaware 04-1701350 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 57 River Street Wellesley Hills, Massachusetts 02481-2097 (Address of Principal Executive Offices) (781) 237-6655 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |X| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at May 9, 2006 ----------------- ---------------------------------- Common Stock 3,441,551 shares FORWARD LOOKING STATEMENTS Some of the information presented in or incorporated by reference in this report constitutes "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks, uncertainties and assumptions. These statements can be identified by the use of the words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project" and other words of similar meaning. In particular, these include statements relating to intentions, beliefs or current expectations concerning, among other things, future performance, results of operations, the outcome of contingencies such as bankruptcy and other legal proceedings, and financial conditions. These statements do not relate strictly to historical or current facts. These forward-looking statements are based on the Company's expectations, as of the date of this report, of future events, and the Company undertakes no obligation to update any of these forward-looking statements. Although the Company believes that these expectations are based on reasonable assumptions, within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Readers are cautioned not to place undue reliance on any forward-looking statements. Any or all of these statements may turn out to be incorrect. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Any forward-looking statements made in this report speak only as of the date of such statement. It is not possible to predict or identify all factors that could potentially cause actual results to differ materially from expected and historical results. Factors that could cause or contribute to the Company's actual results differing from its expectations include those factors discussed in Item 1A of Part II of this Quarterly Report on Form 10-Q and in the Company's other filings with the Securities and Exchange Commission. AMERICAN BILTRITE INC. INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidating Condensed Balance Sheets - Assets as of March 31, 2006 (unaudited) and December 31, 2005............1 Consolidating Condensed Balance Sheets - Liabilities and Stockholders' Equity as of March 31, 2006 (unaudited) and December 31, 2005.......................................2 Consolidating Condensed Statements of Operations for the three months ended March 31, 2006 and 2005 (unaudited)......3 Consolidating Condensed Statements of Cash Flows - Operating Activities for the three months ended March 31, 2006 and 2005 (unaudited).........................4 Consolidating Condensed Statements of Cash Flows - Investing & Financing Activities for the three months ended March 31, 2006 and 2005 (unaudited)...................5 Notes to Unaudited Consolidating Condensed Financial Statements..................................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................32 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................47 Item 4. Controls and Procedures....................................48 PART II. OTHER INFORMATION Item 1. Legal Proceedings..........................................49 Item 1A. Risk Factors...............................................49 Item 3. Defaults Upon Senior Securities............................57 Item 6. Exhibits...................................................58 Signature ...........................................................59 PART I. FINANCIAL INFORMATION Item 1. Financial Statements AMERICAN BILTRITE INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED BALANCE SHEETS - ASSETS (In thousands of dollars)
ABI Consolidated Eliminations Congoleum American Biltrite March 31, December 31, March 31, December 31, March 31, December 31, March 31, December 31, 2006 2005 2006 2005 2006 2005 2006 2005 -------------------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Assets Current Assets: Cash and cash equivalents $ 16,581 $ 29,184 $ 14,659 $ 24,511 $ 1,922 $ 4,673 Restricted cash 12,118 11,644 12,118 11,644 Accounts receivable, net 50,569 41,742 $(112) $(455) 22,837 17,092 27,844 25,105 Inventories 81,928 77,127 (143) (166) 38,501 34,607 43,570 42,686 Assets of discontinued operation 3,200 3,142 3,200 3,142 Deferred income taxes 18,036 18,036 16,735 16,735 1,301 1,301 Prepaid expense & other current assets 26,217 24,062 22,474 20,139 3,743 3,923 -------------------------------------------------------------------------------------------------------- Total current assets 208,649 204,937 (255) (621) 127,324 124,728 81,580 80,830 Property, plant & equipment, net 112,363 115,336 71,144 73,207 41,219 42,129 Other assets: Insurance for asbestos-related liabilities 8,950 8,950 8,950 8,950 Goodwill, net 11,726 11,726 11,726 11,726 Other assets 15,732 15,895 (147) (147) 9,328 9,412 6,551 6,630 -------------------------------------------------------------------------------------------------------- 36,408 36,571 (147) (147) 9,328 9,412 27,227 27,306 -------------------------------------------------------------------------------------------------------- Total assets $357,420 $356,844 $(402) $(768) $207,796 $207,347 $150,026 $150,265 ========================================================================================================
See accompanying notes to consolidating condensed financial statements. 1 AMERICAN BILTRITE INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED BALANCE SHEETS - LIABILITIES AND STOCKHOLDERS' EQUITY (In thousands of dollars)
ABI Consolidated Eliminations Congoleum American Biltrite March 31, December 31, March 31, December 31, March 31, December 31, March 31, December 31, 2006 2005 2006 2005 2006 2005 2006 2005 ------------------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Liabilities Current liabilities: Accounts payable $ 23,306 $ 22,144 $ (112) $ (455) $ 11,751 $ 12,245 $ 11,667 $ 10,354 Accrued expenses 39,808 42,976 21,252 22,703 18,557 20,273 Asbestos-related liabilities 26,387 28,369 26,386 28,369 Liabilities of discontinued operation 249 200 249 200 Notes payable 20,880 19,062 11,290 9,404 9,590 9,658 Current portion of long-term debt 20,453 20,451 20,453 20,451 Liabilities subject to compromise 26,660 23,990 26,660 23,990 ------------------------------------------------------------------------------------------------------- Total current liabilities 157,743 157,192 (112) (455) 97,339 96,711 60,516 60,936 Long-term debt, less current portion 1,887 1,963 1,887 1,963 Asbestos-related liabilities 9,620 9,500 9,620 9,500 Other liabilities 29,664 29,625 16,735 16,735 12,929 12,890 Noncontrolling interests 1,182 1,365 1,182 1,365 Liabilities subject to compromise 138,269 138,714 (147) (147) 138,416 138,861 ------------------------------------------------------------------------------------------------------- Total liabilities 338,365 338,359 (259) (602) 252,490 252,307 86,134 86,654 Stockholders' equity Common stock 46 46 (93) (93) 93 93 46 46 Additional paid-in capital 19,570 19,570 (49,181) (49,126) 49,181 49,126 19,570 19,570 Retained earnings 32,454 31,913 35,207 35,129 (65,194) (65,405) 62,441 62,189 Accumulated other comprehensive loss (17,883) (17,912) 6,111 6,111 (20,961) (20,961) (3,033) (3,062) Less treasury shares (15,132) (15,132) 7,813 7,813 (7,813) (7,813) (15,132) (15,132) ------------------------------------------------------------------------------------------------------- Total stockholders' equity 19,055 18,485 (143) (166) (44,694) (44,960) 63,892 63,611 ------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $357,420 $356,844 $ (402) $ (768) $207,796 $207,347 $150,026 $150,265 =======================================================================================================
See accompanying notes to consolidating condensed financial statements. 2 AMERICAN BILTRITE INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended March 31, 2006 and 2005 (In thousands of dollars, except per share amounts)
ABI Consolidated Eliminations Congoleum American Biltrite 2006 2005 2006 2005 2006 2005 2006 2005 ---------------------------------------------------------------------------------------- Net sales $111,721 $107,424 $ -- $ 52 $57,237 $57,630 $54,484 $49,742 Cost of products sold 83,364 78,856 (127) (44) 43,960 43,969 39,531 34,931 Selling, general & administrative expenses 24,390 25,524 10,396 11,733 13,994 13,791 ---------------------------------------------------------------------------------------- Income from operations 3,967 3,044 127 96 2,881 1,928 959 1,020 Other income (expense) Interest income 244 143 157 98 87 45 Interest expense (3,414) (3,264) (2,734) (2,500) (680) (764) Other income (expense) 14 2,202 (104) (52) (42) 122 160 2,132 ---------------------------------------------------------------------------------------- (3,156) (919) (104) (52) (2,619) (2,280) (433) 1,413 ---------------------------------------------------------------------------------------- Income (loss) before taxes and other items 811 2,125 23 44 262 (352) 526 2,433 Provision for income taxes 247 971 51 -- 196 971 Noncontrolling interests (16) (474) (16) (474) ---------------------------------------------------------------------------------------- Income (loss) from continuing operations 548 680 23 44 211 (352) 314 988 Discontinued operation (62) (56) (62) (56) ---------------------------------------------------------------------------------------- Net income (loss) $ 486 $ 624 $ 23 $ 44 $ 211 $ (352) $ 252 $ 932 ======================================================================================== Basic Diluted 2006 2005 2006 2005 ------------------------ ------------------------- Income per common share from continuing operations $ 0.16 $ 0.20 $ 0.16 $ 0.19 Discontinued operation (0.02) (0.02) (0.02) (0.02) ------------------------ ------------------------- Net income per common share $ 0.14 $ 0.18 $ 0.14 $ 0.17 ======================== ========================= Weighted average number of common and equivalent shares outstanding 3,441,551 3,441,551 3,468,537 3,492,077 ======================== =========================
See accompanying notes to consolidating condensed financial statements. 3 AMERICAN BILTRITE INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS - OPERATING ACTIVITIES (Unaudited) For the Three Months Ended March 31, 2006 and 2005 (In thousands of dollars)
ABI Consolidated Eliminations Congoleum American Biltrite 2006 2005 2006 2005 2006 2005 2006 2005 ------------------------------------------------------------------------------------------- Operating activities Net income (loss) $ 486 $ 624 $ 23 $ 44 $ 211 $ (352) $ 252 $ 932 Net loss from discontinued operation 62 56 62 56 ------------------------------------------------------------------------------------------- Income (loss) from continuing operations 548 680 23 44 211 (352) 314 988 Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation and amortization 4,086 4,376 2,661 2,845 1,425 1,531 Stock compensation expense 55 -- 55 -- Gain on sale of property -- (2,327) -- (2,327) Change in operating assets and liabilities: Accounts and notes receivable (8,818) (8,560) (343) (343) (5,745) (8,634) (2,730) 1,013 Inventories (4,762) (3,492) (23) (44) (3,894) (743) (845) (2,705) Prepaid expenses and other assets 1,446 128 1,257 841 189 (713) Accounts payable and accrued expenses 852 2,493 343 343 928 1,394 (419) 160 Asbestos-related expenses (5,853) (4,263) (5,853) (4,263) Noncontrolling interests (183) 651 (183) 651 Other (205) (373) (382) (415) 177 42 ------------------------------------------------------------------------------------------- Net cash used by operating activities of continuing operations (12,834) (10,687) -- -- (10,762) (9,327) (2,072) (1,360) Net cash used by operating activities of discontinued operations (59) (50) (59) (50) ------------------------------------------------------------------------------------------- Net cash used by operating activities $(12,893) $(10,737) $ -- $ -- $(10,762) $(9,327) $(2,131) $(1,410) ===========================================================================================
See accompanying notes to consolidating condensed financial statements. 4 AMERICAN BILTRITE INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS - INVESTING & FINANCING ACTIVITIES (Unaudited) For the Three Months Ended March 31, 2006 and 2005 (In thousands of dollars)
ABI Consolidated Eliminations Congoleum American Biltrite 2006 2005 2006 2005 2006 2005 2006 2005 ----------------------------------------------------------------------------------------- Investing activities Investments in property, plant and equipment $ (920) $(1,200) $ -- $ -- $ (502) $ (854) $(418) $ (346) Proceeds from sale of property -- 2,327 -- -- -- 2,327 ----------------------------------------------------------------------------------------- Net cash (used) provided by investing activities of continuing operations (920) 1,127 -- -- (502) (854) (418) 1,981 Financing activities Net short-term borrowings 1,799 3,878 1,886 2,910 (87) 968 Payments on long-term debt (75) (388) (75) (388) Net change in restricted cash (474) (877) (474) (877) ----------------------------------------------------------------------------------------- Net cash provided (used) by financing activities of continuing operations 1,250 2,613 -- -- 1,412 2,033 (162) 580 Effect of foreign exchange rate changes on cash (41) 339 (41) 339 ----------------------------------------------------------------------------------------- Net (decrease) increase in cash (12,603) (6,658) -- -- (9,852) (8,148) (2,751) 1,490 Cash and cash equivalents at beginning of period 29,184 34,691 24,511 29,710 4,673 4,981 ----------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $16,581 $28,033 $ -- $ -- $14,659 $21,562 $1,922 $6,471 =========================================================================================
See accompanying notes to consolidating condensed financial statements. 5 AMERICAN BILTRITE INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATING CONDENSED FINANCIAL STATEMENTS March 31, 2006 (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidating condensed financial statements which include the accounts of American Biltrite Inc. and its wholly owned subsidiaries (and including, unless the context otherwise indicates, K&M Associates, L.P., referred to herein as "ABI", "American Biltrite" or the "Company") as well as entities over which it has voting control have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments, provisions for discontinued operations and provisions to effect the plan of reorganization of Congoleum Corporation, a majority-owned subsidiary of the Company, to settle asbestos liability) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2006 are not necessarily indicative of the results that may be expected for future periods, including the year ending December 31, 2006. For further information, refer to the consolidating financial statements and footnotes thereto included in the American Biltrite Inc.'s Annual Report on Form 10-K for the year ended December 31, 2005. The consolidating balance sheet at December 31, 2005 has been derived from the audited financial statements as of that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Certain amounts in 2005 have been reclassified to conform to 2006 classifications. The Company has separately disclosed the operating, investing and financing portions of the cash flows attributed to its discontinued operations, which in prior periods were reported on a combined basis as a single amount. During 2003, the Company decided to discontinue the operations of its Janus Flooring Corporation subsidiary ("Janus"), a manufacturer of pre-finished hardwood flooring, and sell the related assets. Historical financial results have been restated to reflect the classification of Janus as a discontinued operation in accordance with the Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. Results of Janus, including charges resulting from the shutdown, are being reported as a discontinued operation. 6 Note A - Basis of Presentation (continued) As discussed more fully below and elsewhere in these footnotes, the Company's majority owned subsidiary Congoleum Corporation ("Congoleum") and two of Congoleum's subsidiaries filed voluntary petitions commencing cases for reorganization relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") on December 31, 2003. The accompanying consolidating condensed financial statements include the results for Congoleum for all periods presented. ABI continues to own a majority of the voting stock of Congoleum and expects to continue to control Congoleum while it is in reorganization proceedings. In January 2004, Congoleum filed its proposed plan of reorganization and disclosure statement with the Bankruptcy Court. In November 2004, Congoleum filed a modified plan of reorganization and related documents with the Bankruptcy Court (the "Fourth Plan") reflecting the result of further negotiations with representatives of the Asbestos Claimants' Committee, the Future Claimants' Representative and other asbestos claimant representatives. The Bankruptcy Court approved the disclosure statement and plan voting procedures in December 2004, and Congoleum obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of the Fourth Plan. In April 2005, Congoleum announced that it had reached an agreement in principle with representatives of the Asbestos Claimants' Committee and the Future Claimants' Representative to make certain modifications to its proposed plan of reorganization and related documents governing the settlement and payment of asbestos-related claims against Congoleum. Under the agreed-upon modifications, asbestos claimants with claims settled under Congoleum's pre-petition settlement agreements would agree to forbear from exercising the security interest they were granted and share on a pari passu basis with all other present and future asbestos claimants in insurance proceeds and other assets of the trust to be formed upon confirmation of the plan under Section 524(g) of the Bankruptcy Code (the "Plan Trust") to pay asbestos claims against Congoleum. In July 2005, Congoleum filed an amended plan of reorganization (the "Sixth Plan") and related documents with the Bankruptcy Court which reflected the result of these negotiations, as well as other technical modifications. The Bankruptcy Court approved the disclosure statement and voting procedures, and Congoleum commenced solicitation of acceptances of the Sixth Plan in August 2005. In September 2005, Congoleum learned that certain asbestos claimants were unwilling to agree to forbear from exercising their security interest as contemplated by the Sixth Plan, and the Sixth Plan was subsequently withdrawn. In November 2005, the Bankruptcy Court denied a request to extend Congoleum's exclusive right to file a plan of reorganization and solicit acceptances thereof. In February 2006, Congoleum filed a new amended plan of reorganization (the "Seventh Plan"). On February 27, 2006, Congoleum announced its intention to make additional changes to its plan of reorganization, and on March 17, 2006, it filed a new amended plan (the "Eighth Plan"). In addition, an insurance company has filed a plan of reorganization (the "CNA Plan") and the Official Committee of Bondholders has also filed a plan (the "Bondholder Plan"). The Bankruptcy Court has scheduled a hearing to consider the adequacy of the disclosure statements with respect to these plans for June 8, 2006. 7 Note A - Basis of Presentation (continued) There can be no assurance that Congoleum will not amend the Eighth Plan, that Congoleum will obtain approval to solicit acceptances of its plan of reorganization, that Congoleum will receive the acceptances necessary for confirmation of its plan of reorganization, that its plan will not be modified further, that its plan will receive necessary court approvals from the Bankruptcy Court or the Federal District Court, or that such approvals will be received in a timely fashion, that its plan will be confirmed, or that its plan, if confirmed, will become effective. It is unclear whether the Bankruptcy Court will approve the CNA Plan or the Bondholder Plan or whether such plans, if confirmed, would be feasible. Moreover, it is unclear whether any other person will attempt to propose a plan or what any such plan would provide or propose, and whether the Bankruptcy Court would approve a plan other than Congoleum's proposed plan. Congoleum is presently involved in litigation with certain insurance carriers related to disputed insurance coverage for asbestos related liabilities, and certain insurance carriers filed various objections to Congoleum's previously proposed plans of reorganization and related matters and are expected to file objections to the Eighth Plan. Certain other parties have also filed various objections to Congoleum's previously proposed plans of reorganization and may file objections to the Eighth Plan. Congoleum expects that the terms of the Eighth Plan may be amended or modified as a result of further negotiations with various parties. The terms of the CNA Plan and the Bondholder Plan are materially different from the terms of the Eighth Plan, and these plans may also be amended or modified or may be withdrawn. There can be no assurance that the terms of the reorganization plan that is ultimately confirmed, if any, will not materially differ from the terms of the Eighth Plan. Congoleum expects that it will take until some time in the fourth quarter of 2006, at the earliest, to obtain confirmation of any plan of reorganization. In anticipation of Congoleum's commencement of the Chapter 11 cases, Congoleum entered into a settlement agreement with various asbestos personal injury claimants (the "Claimant Agreement"), which provides for an aggregate settlement value of at least $466 million as well as an additional number of individually negotiated trial listed settlements with an aggregate value of approximately $25 million, for total settlements in excess of $491 million. As contemplated by the Claimant Agreement, Congoleum also entered into agreements establishing a pre-petition trust (the "Collateral Trust") to distribute funds in accordance with the terms of the Claimant Agreement and granting the Collateral Trust a security interest in Congoleum's rights under its applicable insurance coverage and payments from Congoleum's insurers for asbestos claims. In December 2005, Congoleum commenced an omnibus avoidance action and a sealed avoidance action (collectively, the "Avoidance Actions") seeking to void the security interest granted to the Collateral Trust and such settlements. In March 2006, Congoleum filed a motion for summary judgment in the Avoidance Actions seeking to avoid the Claimant Agreement settlements and liens under various bankruptcy theories. Under the terms of the Eighth Plan, asbestos personal injury claimants voting to accept the plan would irrevocably consent or would be deemed to have irrevocably consented to the forbearance of any claim and lien rights under the Claimant Agreement and related agreements. Under the terms of the Eighth Plan, after the 8 Note A - Basis of Presentation (continued) establishment of the Plan Trust, the assets in the Collateral Trust would be transferred to the Plan Trust and any asbestos claims would be paid in accordance with the terms of the Eighth Plan. Settlement values under the Eighth Plan may differ from values under the Sixth Plan and the Claimant Agreement, which, together with the outcome of the Avoidance Actions, may materially affect the liability associated with the asbestos personal injury claims against Congoleum. As a result of tabulating ballots on the Fourth Plan, Congoleum is also aware of claims by claimants whose claims were not determined under the Claimant Agreement but who have submitted claims with a value of approximately $512 million based on the settlement values applicable in the Sixth Plan. Based on the Eighth Plan, Congoleum has made provision in its financial statements for the minimum amount of the range of estimates for its contribution to effect its plan to settle asbestos liabilities through the Plan Trust. Congoleum recorded charges aggregating approximately $51.3 million in prior years, and is not yet able to determine the amount of the additional cost that will be required to complete its reorganization. Actual amounts that will be contributed to the Plan Trust and costs for pursuing and implementing the Eighth Plan or any other plan of reorganization could be materially higher than currently recorded. Congoleum may record significant additional charges should the minimum estimated cost increase. Delays in proposing, filing or obtaining approval of the Eighth Plan or any new amended plan of reorganization, or the continued pursuit of the CNA Plan or the Bondholder Plan by the proponents of such plans, or the proposal of additional plans by other parties could result in a proceeding that takes longer and is more costly than Congoleum has estimated. For more information regarding Congoleum's asbestos liability and plan for resolving that liability, please refer to Note J of the Notes to Unaudited Consolidating Condensed Financial Statements. Although there can be no assurances with respect to the terms of any new amended plan, the Company believes, based on the terms of the Eighth Plan and subsequent negotiations regarding a new amended plan that have occurred to date, that there is reasonable basis to expect it will maintain control of Congoleum under the terms of a new amended plan, subject to Congoleum obtaining the necessary acceptances and approvals required for confirmation of the plan. Accordingly, the Company has elected to continue to consolidate the financial statements of Congoleum in its consolidated results because it believes that is the appropriate presentation given its anticipated continuing control of Congoleum. However, the accompanying financial statements also present the details of consolidation to separately show the financial condition, operating results and cash flows of ABI (excluding Congoleum and its wholly owned subsidiaries) and Congoleum and its wholly owned subsidiaries, which may be more meaningful for certain analyses. 9 Note A - Basis of Presentation (continued) The financial statements of Congoleum have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments that might be necessary should Congoleum be unable to continue as a going concern. As described in Note J, there is substantial doubt about Congoleum's ability to continue as a going concern unless it obtains relief from its substantial asbestos liabilities through a successful reorganization under Chapter 11 of the Bankruptcy Code. The American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code ("SOP 90-7"), provides financial reporting guidance for entities that are reorganizing under the Bankruptcy Code. Congoleum has implemented this guidance in its consolidated financial statements for periods commencing after December 31, 2003. Pursuant to SOP 90-7, companies in reorganization under the Bankruptcy Code are required to segregate pre-petition liabilities that are subject to compromise and report them separately on the balance sheet. Liabilities that may be affected by a plan of reorganization are recorded at the amount of the expected allowed claims, even if they may be settled for lesser amounts. Liabilities for asbestos claims are recorded based upon the minimum amount Congoleum expects to spend for its contribution to, and costs to settle asbestos liabilities through, the Plan Trust. Obligations arising post-petition and pre-petition obligations that are secured or that the Bankruptcy Court has authorized Congoleum to pay, are not classified as liabilities subject to compromise. Other pre-petition claims (which would be classified as liabilities subject to compromise) may arise due to the rejection by Congoleum of executory contracts or unexpired leases pursuant to the Bankruptcy Code or as a result of the allowance by the Bankruptcy Court of contingent or disputed claims related to pre-petition matters. Note B - Stock Based Compensation Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, and related interpretations ("SFAS No. 123(R)") using the modified prospective method and, accordingly, has not restated prior period results. SFAS No. 123(R) establishes the accounting for equity instruments exchanged for employee services. Under SFAS No. 123(R), share-based compensation cost is measured at the grant date based on the calculated fair value of the award. The expense is recognized over the employees' requisite service period, generally the vesting period of the award. SFAS No. 123(R) also requires the related excess tax benefit received upon exercise of stock options or vesting of restricted stock, if any, to be reflected in the statement of cash flows as a financing activity rather than an operating activity. The Company has elected to continue to use the Black-Scholes option pricing model to estimate the fair value of stock-based awards. The use of a Black-Scholes option pricing model requires the input of assumptions determined by management of the company at the measurement date. These assumptions include the risk-free interest rate, expected dividend yield, volatility factor of the expected market price of the Company's common stock and the expected life of stock option grants. 10 Note B - Stock Based Compensation (continued) Prior to the adoption of SFAS No. 123(R), the Company accounted for stock options to employees in accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company also provided the disclosures required under SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosures. As a result, no expense was reflected in the Company's operating results for the first quarter of 2005 for stock options, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. The table below reflects the pro forma net income and earnings per share for the first quarter of 2005 had compensation for stock options been determined based on the fair value at the grant date, consistent with the methodology prescribed under SFAS No. 123. Net income for the three months ended March 31, 2005 (in thousands): As reported $ 624 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net, of related tax effects (97) -------- Pro forma net income $ 527 ======== Net income per share - basic: As reported $ 0.18 Pro forma compensation expense (0.03) -------- Pro forma net income $ 0.15 ======== Net income per share - diluted: As reported $ 0.17 Pro forma compensation expense (0.03) -------- Pro forma net income $ 0.14 ======== No stock options were granted by American Biltrite or Congoleum during the three months ended March 31, 2006 and 2005. The pro forma expense for the first quarter of 2005 represents the vesting of options previously granted by American Biltrite and Congoleum. On November 10, 2005, the Board of Directors of American Biltrite approved the vesting of all outstanding and unvested options held by directors, officers and employees under the Company's 1993 Stock Award and Incentive Plan, as amended and restated as of March 4, 1997, and 1999 Stock Option Plan for Non-Employee Directors (together, the "ABI Stock Plans"). As a result of the acceleration of vesting, options to acquire 195,600 shares of the Company's common stock, which otherwise would have vested from time to time over the next four years, became immediately exercisable in full. This action was taken to eliminate, to the extent permitted, the transition expense that the Company otherwise would incur in connection with the adoption of SFAS No. 123(R). The exercise prices of all 11 Note B - Stock Based Compensation (continued) of the unvested options were lower than the closing trading price of the Company's common stock on the modification date. Under the accounting guidance of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, the accelerated vesting resulted in a charge for stock-based compensation of approximately $22 thousand in 2005. As a result of the acceleration of vesting of stock options granted under the ABI Stock Plans, the Company did not have stock compensation expense related to the ABI Stock Plans during the first quarter of 2006. Congoleum recorded stock compensation expense of $55 thousand during the first quarter of 2006 for the vesting of previously granted options under its plans. This expense is included in the Company's consolidated net income for the three months ended March 31, 2006. The impact of the adoption of SFAS No. 123(R) on net income per share was approximately $0.01 per share for the first quarter of 2006. At March 31, 2006, the unrecognized compensation expense related to unvested options previously granted by Congoleum was approximately $300 thousand. This compensation expense will be recognized as the options vest over a weighted-average period of 1.6 years. ABI Stock Plans During 1999, ABI adopted a stock option plan, which permits the issuance of up to 50,000 shares of common stock upon exercise of options granted under the plan to ABI's non-employee directors. Under the terms of the plan, options granted are nonqualified and have an exercise price per share equal to 100% of the fair market value per share of the Company's common stock at the date of grant. Options granted under the plan are exercisable six months after the date of grant. ABI maintains a stock award and incentive plan which permits the issuance of options, stock appreciation rights (SARs), limited SARs, restricted stock, restricted stock units and other stock-based awards to selected employees and independent contractors of the Company. Upon adoption of the plan, 400,000 shares of common stock were reserved for issuance upon exercise of options granted under the plan. The plan provides that the term of each award be determined by the compensation committee of the Board of Directors (the "Committee") charged with administering the plan. During 1997, the Board of Directors approved an amendment to the plan to increase from 400,000 to 550,000 the number of shares reserved for issuance upon exercise of options granted under the plan. Under the terms of the plan, options granted may be either nonqualified or incentive stock options and the exercise price per share, determined by the Committee, may not be less than the fair market value of a share on the date of grant. SARs and limited SARs granted in tandem with an option shall be exercisable only to the extent the underlying option is exercisable and the grant price shall be equal to the exercise price of the underlying option. In addition, the Committee may grant restricted stock to participants under the plan at no cost to them. No SARs or restricted stock have been granted under the plan since its adoption. Other than the restrictions that limit the sale and transfer of these SARs and restricted stock, participants are entitled to all the rights of a shareholder. 12 Note B - Stock Based Compensation (continued) Congoleum Stock Option Plans Congoleum maintains a stock option plan for its officers and key employees and a stock option plan for its non-employee directors (together, the "Congoleum Stock Option Plans"). Under these plans, options to purchase up to 850,000 shares of Congoleum's Class A common stock may be issued to directors, officers and key employees. These options may be either incentive stock options or nonqualified stock options, and the options' exercise price must be at least equal to the fair market value of Congoleum's Class A common stock on the date of grant. Shares issued as a result of stock option exercises under the ABI Stock Plans or the Congoleum Stock Option Plans will be funded through treasury stock of the respective companies. Stock Option Information Stock option information for the ABI Stock Plans and the Congoleum Stock Option Plans as of and for the three months ended March 31, 2006 was as follows:
Congoleum Stock ABI Stock Plans Option Plans Weighted- Weighted- Average Average Exercise Exercise Shares Price Shares Price -------------------------- -------------------------- Outstanding at December 31, 2005 483,000 $15.42 693,500 $ 2.04 Granted -- -- -- -- Exercised -- -- -- -- Forfeited (1,000) 9.65 (4,500) 2.05 ------- ------- Outstanding at March 31, 2006 482,000 15.44 689,000 2.04 ======= ======= Exercisable at March 31, 2006 482,000 $15.44 405,000 $ 2.03 ======= ======= Available for grant at: December 31, 2005 100,020 142,900 March 31, 2006 101,020 147,400 Weighted-Average Remaining Contractual Life at March 31, 2006 (Years) Outstanding options 5.14 6.43 Exercisable options 5.14 6.43
The intrinsic value of outstanding and exercisable stock options issued under the ABI Stock Plans and the Congoleum Stock Option Plans as of March 31, 2006 were as follows (in thousands): ABI Congoleum ----------- ------------ Outstanding options $484 $171 Exercisable options 484 105 13 Note B - Stock Based Compensation (continued) Stock option information related to nonvested shares for the Congoleum Stock Option Plans for the three months ended March 31, 2006 was as follows: Weighted- Average Grant Date Shares Fair Value ---------------------------- Nonvested at December 31, 2005 292,900 $1.67 Granted -- Vested (7,900) 1.99 Forfeited (1,000) 1.65 ------- Nonvested at March 31, 2006 284,000 $1.66 ======= The intrinsic value of Congoleum's options that vested during the three months ended March 31, 2006 was $5 thousand. Note C - Inventories Inventories at March 31, 2006 and December 31, 2005 consisted of the following (in thousands): March 31, December 31, 2006 2005 --------- ------------ Finished goods $55,626 $50,515 Work-in-process 12,110 10,370 Raw materials and supplies 14,192 16,242 ------- ------- $81,928 $77,127 ======= ======= Note D - Sale of Property In January 2005, the Company completed the sale of a warehouse building and land located in Tullahoma, Tennessee. The building and land were owned by Tullahoma Properties, L.L.C. ("Tullahoma Properties"), a subsidiary in which ABI owns a 62.5% interest. The building was previously leased to a third party, and upon termination of the lease in 2003, Tullahoma Properties listed the property for sale. The building and land were sold for $2.5 million in cash and a gain of approximately $2.3 million was recognized and included in other income in the first quarter. After taxes and non-controlling interest, the increase in first quarter 2005 net income as a result of the sale was $887,000 or $0.26 per share. 14 Note E - Accrued Expenses Accrued Expenses at March 31, 2006 and December 31, 2005 consisted of the following (in thousands): March 31, December 31, 2006 2005 --------- ------------ Accrued advertising and sales promotions $22,412 $24,089 Employee compensation and related benefits 9,091 9,499 Interest 143 265 Environmental matters 1,124 1,124 Royalties 646 806 Taxes payable 163 1,330 Other 6,230 5,863 ------- ------- $39,809 $42,976 ======= ======= See Note G for Liabilities Subject to Compromise. Note F - Other Liabilities Other Liabilities at March 31, 2006 and December 31, 2005 consisted of the following (in thousands): March 31, December 31, 2006 2005 --------- ------------ Pension benefits (less current portion) $ 2,584 $ 2,557 Environmental remediation and product related liabilities 4,259 4,259 Deferred income taxes 21,345 21,343 Other 1,476 1,466 -------- ------- $29,664 $29,625 ======== ======= See Note G for Liabilities Subject to Compromise. 15 Note G - Liabilities Subject to Compromise As a result of Congoleum's Chapter 11 filing (see Notes A and J of the Notes to the Unaudited Consolidating Condensed Financial Statements), pursuant to SOP 90-7, Congoleum is required to segregate pre-petition liabilities that are subject to compromise and report them separately on the consolidated balance sheet. Liabilities that may be affected by a plan of reorganization are recorded at the amount of the expected allowed claims, even if they may be settled for lesser amounts. Substantially all of Congoleum's pre-petition debt is recorded at face value and is classified within liabilities subject to compromise. In addition, Congoleum's accrued but unpaid interest expense on its 8 5/8% Senior Notes Due 2008 is also recorded in liabilities subject to compromise. See Notes A and J of the Notes to the Unaudited Consolidating Condensed Financial Statements for further discussion of Congoleum's asbestos liability. Liabilities subject to compromise were as follows (in thousands): March 31, December 31, 2006 2005 --------- ------------ Current Pre-petition other payables and accrued interest $ 26,660 $ 23,990 Non-current Debt (at face value) 100,000 100,000 Pension liability 16,552 16,871 Other post-retirement benefit obligation 8,330 8,407 Pre-petition other liabilities 13,534 13,583 --------- --------- 138,416 138,861 Elimination - Payable to American Biltrite (147) (147) --------- --------- 138,269 138,714 --------- --------- Total liabilities subject to compromise $ 164,929 $ 162,704 ========= ========= Additional pre-petition claims (which would be classified as liabilities subject to compromise) may arise due to the rejection by Congoleum of executory contracts or unexpired leases, or as a result of the allowance by the Bankruptcy Court of contingent or disputed claims. Note H - Pension Plans The Company and Congoleum sponsor several noncontributory defined benefit pension plans covering most of their employees. Benefits under the plans are based on years of service and employee compensation. Amounts funded annually by the Company and Congoleum are actuarially determined using the projected unit credit and unit credit methods and are equal to or exceed the minimum required by government regulations. Congoleum also maintains health and life insurance programs for retirees (reflected in the table below under the columns entitled "Other Benefits"). 16 Note H - Pension Plans (continued) The following summarizes the components of the net periodic benefit cost for the Company's and Congoleum's pension and other benefit plans during the three months ended March 31, 2006 and 2005 (in thousands): 2006 2005 ------------------- ------------------- Other Other Pension Benefits Pension Benefits ------- --------- ------- -------- Components of Net Periodic Benefit Cost: Service cost $ 603 $ 48 $ 586 $ 46 Interest cost 1,493 132 1,445 130 Expected return on plan assets (1,428) -- (1,270) -- Recognized net actuarial loss 359 16 361 15 Amortization of transition obligation -- -- (18) -- Amortization of prior service cost (40) 9 (60) (47) ------- ---- ------- ----- Net periodic benefit cost $ 987 $205 $ 1,044 $ 144 ======= ==== ======= ===== The weighted average assumptions used to determine net periodic benefit cost for the three months ended March 31, 2006 and 2005 were as follows:
2006 2005 ------------------------ ------------------------- Other Other Pension Benefits Pension Benefits ------------- -------- ------------- -------- Discount rate 6.00% 6.00% 6.10% - 6.25% 6.25% Expected long-term return on plan assets 7.00% - 7.50% - 7.00% - 7.50% - Rate of compensation increase 4.00% - 5.50% - 4.00% - 5.00% -
17 Note I - Commitments and Contingencies The Company and Congoleum are subject to federal, state and local environmental laws and regulations and certain legal and administrative claims are pending or have been asserted against the Company and Congoleum. Among these claims, the Company and Congoleum are separately a named party in several actions associated with waste disposal sites. These actions include possible obligations to remove or mitigate the effects on the environment of wastes deposited at various sites, including Superfund sites and certain of the Company's and Congoleum's owned and previously owned facilities. The contingencies also include claims for personal injury and/or property damage. The exact amount of such future cost and timing of payments are indeterminable due to such unknown factors as the magnitude of cleanup costs, the timing and extent of the remedial actions that may be required, the determination of the Company's and Congoleum's liability in proportion to other potentially responsible parties, and the extent to which costs may be recoverable from insurance. The Company and Congoleum have recorded provisions in the financial statements for the estimated probable loss associated with all known general and environmental contingencies. While the Company and Congoleum believe their estimate of the future amount of these liabilities is reasonable, and that they will be paid over a period of five to ten years, the timing and amount of such payments may differ significantly from the Company's and Congoleum's assumptions. Although the effect of future government regulation could have a significant effect on the Company's and Congoleum's costs, the Company and Congoleum are not aware of any pending legislation that would have such an effect. There can be no assurances that the costs of any future government regulations could be passed along to their customers. Estimated insurance recoveries related to these liabilities are reflected in other non-current assets. The Company and Congoleum record a liability for environmental remediation claims when it becomes probable that the Company or Congoleum, as applicable, will incur costs relating to a clean-up program or will have to make claim payments, and the costs or payments can be reasonably estimated. As assessments are revised and clean-up programs progress, these liabilities are adjusted to reflect such revisions and progress. Liabilities of Congoleum comprise the substantial majority of the environmental and other liabilities reported on the Company's consolidated balance sheet. Due to the relative magnitude and wide range of estimates of these liabilities and the fact that recourse related to these liabilities is generally limited to Congoleum, these matters are discussed separately following matters for which ABI has actual or potential liability. However, since ABI includes Congoleum in ABI's consolidating financial statements, to the extent that Congoleum incurs a liability or expense, it will be reflected in ABI's consolidating financial statements. 18 Note I - Commitments and Contingencies (continued) American Biltrite Inc. ABI is a co-defendant with many other manufacturers and distributors of asbestos containing products in approximately 1,692 pending claims involving approximately 2,036 individuals as of March 31, 2006. The claimants allege personal injury or death from exposure to asbestos or asbestos-containing products. Activity related to ABI's asbestos claims is as follows: Three Months Ended Year Ended March 31, December 31, 2006 2005 ------------------ ------------ Beginning claims 1,703 1,838 New claims 117 621 Settlements (14) (24) Dismissals (114) (732) ------------- ------------- Ending claims 1,692 1,703 ============= ============= The total indemnity costs incurred to settle claims during the three months ended March 31, 2006 and twelve months ended December 31, 2005 were $1.1 million and $1.3 million, respectively, all of which were paid by ABI's insurance carriers pursuant to ABI's applicable insurance policies, as were the related defense costs. The average indemnity cost per resolved claim was approximately $8.3 thousand for the three months ended March 31, 2006 and $1.7 thousand for the year ended December 31, 2005. In general, governmental authorities have determined that asbestos-containing sheet and tile products are nonfriable (i.e., cannot be crumbled by hand pressure) because the asbestos was encapsulated in the products during the manufacturing process. Thus, governmental authorities have concluded that these products do not pose a health risk when they are properly maintained in place or properly removed so that they remain nonfriable. The Company has issued warnings not to remove asbestos-containing flooring by sanding or other methods that may cause the product to become friable. The Company estimates its liability to defend and resolve current and reasonably anticipated future asbestos-related claims (not including claims asserted against Congoleum), based upon a strategy to actively defend or seek settlement for those claims in the normal course of business. Factors such as recent and historical settlement and trial results, the incidence of past and recent claims, the number of cases pending against it and asbestos litigation developments that may impact the exposure of the Company were considered in performing these estimates. In 2005, the Company utilized an actuarial study to assist it in developing estimates of the Company's potential liability for resolving present and possible future asbestos claims. At December 31, 2005, the estimated range of liability for settlement of current claims pending and claims anticipated to be filed through 2011 was $9.5 million to $18.8 million. The Company believes no amount within this range is 19 Note I - Commitments and Contingencies (continued) more likely than any other, and accordingly, recorded the minimum liability estimate of $9.5 million in its consolidated financial statements at December 31, 2005. At March 31, 2006, the Company has recorded $9.6 million for the estimated minimum liability. The Company also believes that, based on this minimum liability estimate, the corresponding amount of insurance probable of recovery is $9.0 million at March 31, 2006 and December 31, 2005, which has been included in other assets. The same factors that affect developing forecasts of potential indemnity costs for asbestos-related liabilities also affect estimates of the total amount of insurance that is probable of recovery, as do a number of additional factors. These additional factors include the financial viability of some of the insurance companies, the method in which losses will be allocated to the various insurance policies and the years covered by those policies, how legal and other loss handling costs will be covered by the insurance policies, and interpretation of the effect on coverage of various policy terms and limits and their interrelationships. These amounts were based on currently known facts and a number of assumptions. However, projecting future events, such as the number of new claims to be filed each year, the average cost of disposing of each such claim, and the continuing solvency of various insurance companies, as well as numerous uncertainties surrounding asbestos legislation in the United States, could cause the actual liability and insurance recoveries for the Company to be higher or lower than those projected or recorded. Due to the numerous variables and uncertainties, including the effect of Congoleum's Chapter 11 case and plan of reorganization on the Company's liabilities, the Company does not believe that reasonable estimates can be developed of liabilities for asbestos-related claims against the Company (not including claims asserted against Congoleum) beyond a five year horizon. The Company will continue to evaluate its range of future exposure, and the related insurance coverage available, and when appropriate, record future adjustments to those estimates, which could be material. The Company anticipates that resolution of its asbestos related liabilities resulting from Congoleum's reorganization plan will be limited to liabilities derivative of claims asserted against Congoleum as may be afforded under Section 524(g)(4) of the Bankruptcy Code. ABI reported in its December 31, 2005 Annual Report on Form 10-K that it has been named as a Potentially Responsible Party ("PRP") within the meaning of the Federal Comprehensive Environmental Response Compensation and Liability Act, as amended ("CERCLA"), with respect to five sites located in four separate states (the "CERCLA Sites"). There has been no material developments relating to these sites during the three month period ended March 31, 2006. In 1993, a lawsuit was brought by Olin Corporation ("Olin"), the present owner of a former chemical plant site in Wilmington, Massachusetts (the "Olin Site"), which alleged that ABI and three other named defendants were liable for a portion of the site's soil and groundwater response and remediation costs at the site. A wholly-owned subsidiary of ABI owned and operated the Wilmington plant from 1959 to 1964, and for approximately one month during 1964, American Biltrite Inc. held title to the property directly. 20 Note I - Commitments and Contingencies (continued) In 2000, ABI and The Biltrite Corporation ("TBC") entered into a settlement agreement with Olin that resolved all claims and counterclaims among the parties. Under the terms of the agreement, ABI and TBC together paid Olin $4.1 million in settlement of their share of Olin's $18 million of alleged past response costs incurred through December 31, 1998. ABI and TBC also agreed to reimburse Olin for 21.7% of Olin's response costs incurred at the Olin Site after January 1, 1999, plus pay an annual reimbursement of $100 thousand for Olin's internal costs as long as Olin is actively working on remediating the site. Under an agreement between ABI and TBC, TBC is liable for 37.5% of the aggregate amounts due from ABI and TBC under the settlement agreement with Olin. Additional expenditures, principally consisting of remediation and oversight costs, will be required to remediate the Olin Site. Olin has estimated that the total response costs for 2006 will be approximately $7.2 million. For costs beyond 2006, ABI has estimated the range of total response costs for the site to be between $15.7 million and $45.3 million. As of March 31, 2006 ABI has estimated its potential liability to Olin to be in the range of $3.5 million to $10.8 million after allocation for the annual reimbursement of $100 thousand for Olin's internal costs but before any recoveries from insurance and TBC. Costs are expected to be incurred over the next 10 years. In January 2006, the EPA assumed the responsibility for the oversight of the Olin Site from the Massachusetts Department of Environmental Protection. The State of Maine Department of Environmental Protection has put Miller Industries, Inc. ("Miller"), the present owner of a former ABI sheet vinyl plant in Lisbon Falls, Maine, on notice to clean up a dumpsite where there is exposed asbestos from sheet vinyl waste along with other hazardous substances. In September 2005, a lawsuit was brought by Miller against ABI, which alleged that ABI and one other named defendant are liable for costs to clean up the dumpsite ("Parcel A") and a second parcel of land ("Parcel B"), which is alleged to contain polychlorinated biphenyls ("PCB's") in the soil. The lawsuit, captioned Miller Industries, Inc. v. American Biltrite Inc. et al, was filed on September 22, 2005 in the Androscoggin Superior Court of Maine. Miller is seeking indemnification or contribution from ABI for the clean-up of both parcels of land (together, the "Maine Sites"). The lawsuit was dismissed by the Superior Court of Maine on February 3, 2006 for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted. In January 2006, ABI was notified by the Maine DEP that it is a responsible party as to both Parcel A and Parcel B. Prior to the commencement of the lawsuit by Miller, the Company had been investigating and reviewing the condition of Parcel A and its potential liability for its share of any clean-up costs. The Company believes, at this time, that the cost of site investigation, remediation, maintenance and monitoring for Parcel A will be between approximately $1.2 million and $1.5 million. Prior to the filing of the lawsuit, the Company was also in the process of reviewing the condition of Parcel B and its potential liability for its share of any clean-up costs. The Company cannot determine at this time the cost of site investigation, remediation, maintenance and monitoring for Parcel B. Furthermore, at this time, the Company is not able to determine what its potential liability will be with regard to the Maine Sites. Under an agreement between ABI and TBC, TBC is liable for 37.5% of costs incurred by ABI for the Maine Sites. 21 Note I - Commitments and Contingencies (continued) ABI has made demands against its insurance carriers to provide defense and indemnity for ABI's liabilities at all of the CERCLA and state supervised sites. An agreement was executed by ABI and its carriers regarding the payment of the defense costs for the Olin Site. ABI has reached agreements with four of its insurance carriers whereby the carriers have reimbursed the Company $6.5 million for past and current environmental claims. One carrier has also agreed to reimburse the Company for 2.5% of the Company's liabilities regarding future environmental expenses related to the Olin Site, $57 thousand of which was reimbursed through March 31, 2006 and 37.5% of the amount of that reimbursement was shared with TBC pursuant to the Company's agreement with TBC. ABI and one of its insurance carriers continue to discuss ABI's remaining demands for insurance coverage for these sites. In connection with the transfer of ABI's Trenton, NJ tile plant to Congoleum in 1993, the Company signed an administrative consent order from the New Jersey Department of Environmental Protection for any environmental remediation the state may require at that location. Pursuant to the contribution in 1993 of the Company's former tile division to Congoleum, Congoleum assumed liability for the cost of cleaning up the site. Congoleum has established a remediation trust fund of $100 thousand as financial assurance for certain remediation funding obligations. The Company remains contingently liable in the event that Congoleum fails to perform or fund any required remediation relating to this site. The outcome of these matters could result in significant expenses incurred by, or judgments assessed against, the Company, which could have a material adverse effect on the financial position, results of operations or cash flows of the Company. Congoleum Congoleum is a defendant in a large number of asbestos-related lawsuits and on December 31, 2003, filed a petition commencing a voluntary reorganization case under Chapter 11 of the Bankruptcy Code. See Note J - "Congoleum Asbestos Liabilities and Reorganization." Congoleum is named, together with a large number (in most cases, hundreds) of other companies, as a PRP in pending proceedings under CERCLA and similar state laws. In addition, in four other instances, although not named as a PRP, Congoleum has received a request for information. These pending proceedings in which Congoleum is a named PRP currently relate to eight disposal sites in New Jersey, Pennsylvania and Maryland in which recovery from generators of hazardous substances is sought for the cost of cleaning up the contaminated waste sites. Congoleum's ultimate liability and funding obligations in connection with those other sites depends on many factors, including the volume of material contributed to the site by Congoleum, the number of other PRP's and their financial viability, the remediation methods and technology to be used and the extent to which costs may be recoverable by Congoleum from relevant insurance policies. However, under CERCLA, and certain other laws, as a PRP, Congoleum can be held jointly and severally liable for all environmental costs associated with a site. 22 Note I - Commitments and Contingencies (continued) The most significant exposure to which Congoleum has been named a PRP relates to a recycling facility site in Elkton, Maryland. The PRP group at this site is made up of 81 companies, substantially all of which are large, financially solvent entities. Two removal actions were substantially complete as of December 31, 1998, and a groundwater treatment system was installed thereafter. The EPA has selected a remedy for the soil and shallow groundwater; however, the remedial investigation/feasibility study related to the deep groundwater has not been completed. The PRP group estimated that future costs of the remedy recently selected by the EPA based on engineering estimates would be approximately $11.0 million. Congoleum's proportionate share, based on waste disposed at the site, is estimated to be approximately 5.7%, or approximately $700 thousand. The majority of Congoleum's share of costs incurred to date has been paid by one of its insurance carriers, whose remaining policy limits for this claim will cover approximately half this amount. Congoleum expects the balance to be funded by other insurance carriers and Congoleum. Congoleum also accrues remediation costs for certain of Congoleum's owned facilities on an undiscounted basis. Congoleum has entered into an administrative consent order with the New Jersey Department of Environmental Protection and has established a remediation trust fund of $100 thousand as financial assurance for certain remediation funding obligations. Estimated total clean-up costs of $1.6 million, including capital outlays and future maintenance costs for soil and groundwater remediation, are primarily based on engineering studies. Of this amount, $300 thousand was included in current liabilities subject to compromise and $1.3 million was included in non-current liabilities subject to compromise as of March 31, 2006 and December 31, 2005. At March 31, 2006 and December 31, 2005, Congoleum had recorded a total of $4.3 million for estimated environmental liabilities and $1.9 million for related insurance recoveries. Receivables for expected insurance recoveries are recorded if the related carriers are solvent and paying claims under a reservation of rights or under an obligation pursuant to coverage in place or a settlement agreement. Substantially all of Congoleum's recorded insurance asset for environmental matters is collectible from a single carrier. Congoleum anticipates that these matters will be resolved over a period of years, and that after application of expected insurance recoveries, funding of the costs by Congoleum will not have a material adverse impact on Congoleum's liquidity or financial position. However, unfavorable developments in these matters could result in significant expenses or judgments that could have a material adverse effect on the business, operations and financial position of Congoleum. Other In addition to the matters referenced above and in Note J, in the ordinary course of their businesses, the Company and Congoleum become involved in lawsuits, administrative proceedings in connection with product liability claims and other matters. In some of these proceedings, plaintiffs may seek to recover large and sometimes unspecified amounts, and the matters may remain unresolved for several years. 23 Note J - Congoleum Asbestos Liabilities and Reorganization In early 2003, Congoleum announced a strategy for resolving current and future asbestos claims liability through confirmation of a pre-packaged plan of reorganization under Chapter 11 of the Bankruptcy Code. Later in 2003, Congoleum entered into the Claimant Agreement, a settlement agreement with various asbestos personal injury claimants. As contemplated by the Claimant Agreement, Congoleum also entered into agreements establishing the Collateral Trust to distribute funds in accordance with the terms of the Claimant Agreement and granting the Collateral Trust a security interest in Congoleum's rights under its applicable insurance coverage and payments from Congoleum's insurers for asbestos claims. The Claimant Agreement established a compensable disease valuation matrix (the "Matrix") and allowed claimants who qualified to participate in the Claimant Agreement (the "Qualifying Claimants") to settle their claims for the Matrix value, secured in part (75%) by a security interest in the collateral granted to the Collateral Trust. The Collateral Trust provides for distribution of trust assets according to various requirements that give priority (subject to aggregate distribution limits) to participating claimants who had pre-existing unfunded settlement agreements ("Pre-Existing Settlement Agreements") with Congoleum and participating claimants who qualified for payment under unfunded settlement agreements entered into by Congoleum with plaintiffs that had asbestos claims pending against Congoleum and which claims were scheduled for trial after the effective date of the Claimant Agreement but prior to the commencement of Congoleum's anticipated Chapter 11 reorganization case ("Trial-Listed Settlement Agreements"). The Claimant Agreement incorporated Pre-Existing Settlement Agreements and the settlement of certain Trial-Listed Settlement Agreement claims for a fully secured claim against the Collateral Trust, and it settled all other claims for a secured claim against the Collateral Trust equal to 75% of the claim value and an unsecured claim for the remaining 25%. In December 2005, Congoleum commenced the Avoidance Actions seeking to void the security interest granted to the Collateral Trust and such settlements. In March 2006, Congoleum filed a motion for summary judgment in the Avoidance Actions seeking to avoid the Claimant Agreement settlements and liens under various bankruptcy theories. In October 2003, Congoleum began soliciting acceptances for its proposed pre-packaged plan of reorganization and Congoleum received the votes necessary for acceptance of the plan in late December 2003. On December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy Court (Case No. 03-51524) seeking relief under Chapter 11 of the Bankruptcy Code. In January 2004, Congoleum filed its proposed plan of reorganization and disclosure statement with the Bankruptcy Court. 24 Note J - Congoleum Asbestos Liabilities and Reorganization (continued) In November 2004, Congoleum filed the Fourth Plan with the Bankruptcy Court reflecting the result of further negotiations with representatives of the Asbestos Claimants' Committee, the Future Claimants' Representative and other asbestos claimant representatives. The Bankruptcy Court approved the disclosure statement and plan voting procedures in December 2004 and Congoleum obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of the Fourth Plan. In April 2005, Congoleum announced that it had reached an agreement in principle with representatives of the Asbestos Claimants' Committee and the Future Claimants' Representative to make certain modifications to its proposed plan of reorganization and related documents governing the settlement and payment of asbestos-related claims against Congoleum. Under the agreed-upon modifications, asbestos claimants with claims settled under Congoleum's pre-petition settlement agreements would agree to forbear from exercising the security interest they were granted and share on a pari passu basis with all other present and future asbestos claimants in insurance proceeds and other assets of the Plan Trust. In July 2005, Congoleum filed the Sixth Plan and related documents with the Bankruptcy Court which reflected the result of these negotiations, as well as other technical modifications. The Bankruptcy Court approved the disclosure statement and voting procedures and Congoleum commenced solicitation of acceptances of the Sixth Plan in August 2005. In September 2005, Congoleum learned that certain asbestos claimants were unwilling to agree to forbear from exercising their security interest as contemplated by the Sixth Plan and subsequently withdrew the Sixth Plan. In November 2005, the Bankruptcy Court denied a request to extend Congoleum's exclusive right to file a plan of reorganization and solicit acceptances thereof. In February 2006, Congoleum filed the Seventh Plan. On February 27, 2006, Congoleum announced its intention to make additional changes to its plan of reorganization, and on March 17, 2006 it filed the Eighth Plan. In addition, an insurance company has filed the CNA Plan and the Official Committee of Bondholders has filed the Bondholder Plan. The Bankruptcy Court has scheduled a hearing to consider the adequacy of the disclosure statements with respect to these plans for June 8, 2006. Under the terms of the Eighth Plan, asbestos personal injury claimants voting to accept the plan would irrevocably consent or would be deemed to have irrevocably consented to the forbearance of any claim and lien rights under the Claimant Agreement and related agreements. Under the terms of the Eighth Plan, after the establishment of the Plan Trust, the assets in the Collateral Trust would be transferred to the Plan Trust and any asbestos claims would be channeled to the Plan Trust and paid in accordance with the terms of the Eighth Plan. 25 Note J - Congoleum Asbestos Liabilities and Reorganization (continued) There can be no assurance that Congoleum will not amend the Eighth Plan, that Congoleum will obtain approval to solicit acceptances of its plan of reorganization, that Congoleum will receive the acceptances necessary for confirmation of its plan, that its plan will not be modified further, that its plan will receive necessary court approvals from the Bankruptcy Court or the Federal District Court, or that such approvals will be received in a timely fashion, that its plan will be confirmed, or that its plan, if confirmed, will become effective. It is unclear whether the Bankruptcy Court will approve the CNA Plan or the Bondholder Plan or whether either of such plans, if confirmed, would be feasible. Moreover, it is unclear whether any other person will attempt to propose a plan or what any such plan would provide or propose, and whether the Bankruptcy Court would approve a plan other than Congoleum's proposed plan. Congoleum is presently involved in litigation with certain insurance carriers related to disputed insurance coverage for asbestos related liabilities, and certain insurance carriers filed various objections to Congoleum's previously proposed plans of reorganization and related matters and are expected to file objections to the Eighth Plan. Certain other parties have also filed various objections to Congoleum's previously proposed plans of reorganization and may file objections to the Eighth Plan. During 2005 and 2006 Congoleum has entered into a number of settlement agreements with excess insurance carriers over coverage for asbestos-related claims. In May 2005, certain AIG companies agreed to pay approximately $103 million over ten years to the Plan Trust. This settlement resolves coverage obligations of policies with a total of $114 million in liability limits for asbestos bodily injury claims. Payment is subject to various conditions, including without limitation, the effectiveness of a plan of reorganization that provides AIG with certain specified relief including a channeling injunction pursuant to Section 524(g) of the Bankruptcy Code. An insurer has appealed the approval order granted by the Bankruptcy Court to the U.S. District Court, where it is pending. In June 2005, Congoleum entered into a settlement agreement with certain underwriters at Lloyd's, London, pursuant to which the certain underwriters paid approximately $20 million into an escrow account in exchange for a release of insurance coverage obligations. The escrow agent will transfer the funds to the Plan Trust once a plan of reorganization with the Section 524(g) protection specified in the settlement agreement goes effective and the Bankruptcy Court approves the transfer of the funds. In August 2005, Congoleum entered into a settlement agreement with Federal Insurance Company pursuant to which Federal will pay $4 million to the Plan Trust, subject to certain adjustments, once a plan of reorganization with the Section 524(g) protection specified in the settlement agreement goes effective and the Bankruptcy Court approves the transfer of the funds. The Future Claimants' Representative has appealed the approval order granted by the Bankruptcy Court to the U.S. District Court, where it is pending. In October 2005, Congoleum entered into a settlement agreement with Mt. McKinley Insurance Company and Everest Reinsurance Company pursuant to which Mt. McKinley and Everest have paid $21.5 million into an escrow account. The escrow agent will transfer the funds to the Plan Trust once a plan of reorganization with the Section 524(g) protection specified in the settlement agreement goes effective and the Bankruptcy Court 26 Note J - Congoleum Asbestos Liabilities and Reorganization (continued) approves the transfer of the funds. An insurer and the Future Claimants' Representative have appealed the approval order granted by the Bankruptcy Court to the U.S. District Court, where it is pending. In March 2006, Congoleum entered into a settlement agreement with Harper Insurance Limited. Under the terms of this settlement, Harper will pay $1.4 million to Congoleum or the Plan Trust once certain conditions are satisfied, including the effectiveness of a plan of reorganization containing the Section 524(g) protection specified in the settlement agreement. The Bankruptcy Court approved this settlement on April 2006. In April 2006, Congoleum entered into a settlement agreement with Travelers Casualty and Surety Company and St. Paul Fire and Marine Insurance Company (collectively, "Travelers"). Under the terms of this settlement, Travelers will pay $25 million in two installments over thirteen months to the Plan Trust once a plan of reorganization with the Section 524(g) protection specified in the settlement agreement goes effective and the Bankruptcy Court approves the transfer of the funds. A motion for Bankruptcy Court approval of this settlement is pending. In April 2006, Congoleum also entered into a settlement agreement with Fireman's Fund Insurance Company. Under the terms of this settlement, Fireman's Fund will pay $1 million to the Plan Trust once a plan of reorganization with the Section 524(g) protection specified in the settlement agreement goes effective and the Bankruptcy Court approves the transfer of the funds. A motion for Bankruptcy Court approval of this settlement is pending. It is possible that any of the settling insurers may argue that the Eighth Plan is not substantially similar to relevant provisions of earlier plans referenced in its respective settlement agreement and therefore is relieved of its settlement obligation. Congoleum expects that it will take until some time in the fourth quarter of 2006 at the earliest to obtain confirmation of the Eighth Plan. Under the Eighth Plan, Congoleum's assignment of insurance recoveries to the Plan Trust is net of costs incurred by Congoleum in connection with insurance coverage litigation. Congoleum is entitled to withhold from recoveries, or seek reimbursement from the Plan Trust, for coverage litigation costs incurred after January 1, 2003. Congoleum also paid $1.3 million in claims processing fees in connection with claims settled under the Claimant Agreement. Under the Eighth Plan, Congoleum is entitled to withhold from recoveries, or seek reimbursement from the Plan Trust, for the $1.3 million claims processing fee. There can be no assurance that any future plan will provide for Congoleum to recover any coverage litigation costs or claims processing fees. The Eighth Plan provides for the channeling of asbestos property damage claims in addition to asbestos personal injury claims to the Plan Trust. There were no asbestos related property damage claims asserted against Congoleum at the time of its bankruptcy filing. The Bankruptcy Court approved an order establishing a bar date of May 3, 2004 for the filing of asbestos property damage claims. The claims agent appointed in Congoleum's bankruptcy proceeding advised Congoleum that, as of the bar date, it received 35 timely filed asbestos property damage claims asserting liquidated damages in the amount of approximately $0.8 million plus additional unspecified amounts. Congoleum objected to certain claims on various grounds, and the Bankruptcy Court ultimately allowed 19 claims valued at $133 thousand. The Eighth Plan will pay those claims in full from certain insurance proceeds. 27 Note J - Congoleum Asbestos Liabilities and Reorganization (continued) The Eighth Plan provides that on the effective date of the Eighth Plan, Congoleum will issue a new security (the "New Convertible Security") in the form of either shares of preferred stock or convertible promissory notes and contribute it to the Plan Trust on the effective date of its plan of reorganization in satisfaction of section 524(g) of the Bankruptcy Code. If the New Convertible Security is to be shares of preferred stock of reorganized Congoleum, it will have the following terms: (i) an initial liquidation preference equal to $2,738,234.75 in the aggregate, such amount being subject to increase in the amount (the "Market Reset Obligation"), if any, by which 36% of reorganized Congoleum's market capitalization based on average trading prices for reorganized Congoleum's Class A common stock at the close of trading for the 90 consecutive trading days beginning on the one year anniversary of the effective date of its plan of reorganization, exceeds such initial liquidation preference; (ii) an initial dividend rate equal to 9% of the liquidation preference per annum, payable semi-annually in arrears, with such dividend rate to reset at the rate of 5% of the liquidation preference per annum on the tenth anniversary of such effective date and payable at such reset dividend rate per annum unless and until redeemed; (iii) redeemable for the liquidation preference at the option of the Plan Trust or reorganized Congoleum following the tenth anniversary of such effective date; (iv) a mandatory redemption on the fifteenth anniversary of such effective date if not redeemed earlier; (v) convertible into 5,700,000 shares of Class A Common Stock (or the equivalent thereof on a fully diluted basis) upon a specified default of the obligation to pay dividends and a failure to cure such default within any cure period, which, when combined with the 3.8 million newly issued shares of Class A Common Stock to be contributed to the Plan Trust, will result in the Plan Trust owning 51% of the voting common shares of reorganized Congoleum on a fully diluted basis; and (vi) no voting rights, except upon conversion. If the New Convertible Security is convertible promissory notes, such notes will be on economic terms substantially equivalent to provisions (i) and (v) of the preferred stock described herein, with other terms substantially the same as the Promissory Note described in the Sixth Plan. Under the Eighth Plan and related documents, ABI has agreed to make a cash contribution in the amount of $250 thousand to the Plan Trust upon the formation of the Plan Trust. Under the Eighth Plan, ABI would receive certain relief as may be afforded under Section 524(g)(4) of the Bankruptcy Code from asbestos claims that derive from claims made against Congoleum, which claims are expected to be channeled to the Plan Trust. However, the Eighth Plan does not provide that any other asbestos claims that may be asserted against ABI would be channeled to the Plan Trust. There are sufficient risks and uncertainties related to Congoleum's efforts to confirm a plan of reorganization such that no assurances of the outcome can be given. In addition, the remaining costs to effect the reorganization process, consisting principally of legal and advisory fees and contributions to the Plan Trust, are expected to be approximately $17.2 million at a minimum, not including any Market Reset Obligation arising from revaluation of the New Convertible Security, and could be materially higher. 28 Note J - Congoleum Asbestos Liabilities and Reorganization (continued) Based on the Eighth Plan, Congoleum has made provision in its financial statements for the minimum amount of the range of estimates for its contribution to effect its plan to settle asbestos liabilities through the Plan Trust. Congoleum recorded charges aggregating approximately $51.3 million in prior years, and is not yet able to determine the amount of the additional cost that will be required to complete its reorganization as based on the Eighth Plan. Congoleum is not yet able to determine the additional costs that may be required to effect the Eighth Plan or any other plan, and actual amounts that will be contributed to the Plan Trust and costs for pursuing and implementing any plan of reorganization could be materially higher than currently recorded. Delays in proposing, filing or obtaining approval of the Eighth Plan or any new amended plan of reorganization, or the continued pursuit of the CNA Plan or the Bondholder Plan by the proponents of such plans, or the proposal of additional plans by other parties could result in a proceeding that takes longer and is more costly than Congoleum has estimated. Congoleum may record significant additional charges should the minimum estimated cost increase. Note K - Comprehensive Income (Loss) The following table presents total comprehensive income for the three months ended March 31, 2006 and 2005 (in thousands): 2006 2005 ------ ------ Net income $ 486 $ 624 Foreign currency translation adjustments 29 (192) ------ ------ Total comprehensive income $ 515 $ 432 ====== ====== Note L - Earnings (Loss) Per Share Basic and diluted earnings per share are computed in accordance with FASB Statement No. 128, Earnings per Share ("SFAS 128"). SFAS 128 requires both basic earnings per share, which is based on the weighted-average number of common shares outstanding, and diluted earnings per share, which is based on the weighted-average number of common shares outstanding and all dilutive potential common equivalent shares outstanding. The dilutive effect of options is determined under the treasury stock method using the average market price for the period. Common equivalent shares are included in the per share calculations when the effect of their inclusion would be dilutive. 29 Note M - Industry Segments Description of Products and Services The Company has four reportable segments: flooring products, tape products, jewelry and a Canadian division that produces flooring and rubber products. The flooring products segment consists of Congoleum, a manufacturer of resilient floor coverings, which are sold primarily through floor covering distributors to retailers and contractors for commercial and residential use. The tape products segment manufactures paper, film, HVAC, electrical, shoe and other tape products for use in industrial and automotive markets in two production facilities in the United States, and in finishing and sales facilities in Belgium and Singapore. The jewelry segment consists of the Company's majority-owned subsidiary K&M Associates L.P., a national costume jewelry supplier to mass merchandisers and department stores. The Company's Canadian division produces flooring, rubber and other industrial products. Net sales by segment for the three months ended March 31, 2006 and 2005 were as follows (in thousands): 2006 2005 --------- --------- Net sales to external customers: Flooring products $ 57,237 $ 57,682 Tape products 26,123 22,599 Jewelry 15,084 15,888 Canadian division 13,277 11,255 --------- --------- Total net sales to external customers 111,721 107,424 Intersegment net sales: Flooring products -- -- Tape products -- 20 Jewelry -- -- Canadian division 1,448 1,184 --------- --------- Total intersegment net sales 1,448 1,204 Reconciling items -- -- Intersegment net sales (1,448) (1,204) --------- --------- Consolidated net sales $ 111,721 $ 107,424 ========= ========= 30 Note M - Industry Segments (continued) Segment profit or loss is before income tax expense or benefit. Profit (loss) by segment for the three months ended March 31, 2006 and 2005 was as follows (in thousands): 2006 2005 ------- ------- Segment profit (loss) Flooring products $ 262 $ (352) Tape products 151 31 Jewelry 171 625 Canadian division 260 (249) ------- ------- Total segment profit 844 55 ------- ------- Reconciling items Corporate items (57) 2,026 Intercompany profit 24 44 ------- ------- Consolidated income before income taxes and other items $ 811 $ 2,125 ======= ======= Corporate items of $2.0 million for the three months ended March 31, 2005 include a gain of $2.3 million from the sale of the Tullahoma property (see Note D). Assets by segment as of the end of the quarter and the end of the prior year were as follows (in thousands): March 31, December 31, 2006 2005 --------- ------------ Segment assets Flooring products $ 207,796 $ 207,347 Tape products 61,491 51,679 Jewelry 38,542 39,421 Canadian division 43,285 43,139 --------- --------- Total segment assets 351,114 341,586 Reconciling items Assets of discontinued operation 3,200 3,142 Corporate items 32,752 33,080 Intersegment accounts receivable (29,356) (20,650) Intersegment profit in inventory (143) (167) Intersegment other asset (147) (147) --------- --------- Consolidated assets $ 357,420 $ 356,844 ========= ========= 31 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations On December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy Court seeking relief under Chapter 11 of the Bankruptcy Code as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago. During 2003, Congoleum obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of a proposed, pre-packaged Chapter 11 plan of reorganization. In January 2004, Congoleum filed its proposed plan of reorganization and disclosure statement with the Bankruptcy Court. In November 2004, Congoleum filed the Fourth Plan with the Bankruptcy Court reflecting the result of further negotiations with representatives of the Asbestos Claimants' Committee, the Future Claimants' Representative and other asbestos claimant representatives. The Bankruptcy Court approved the disclosure statement and plan voting procedures in December 2004 and Congoleum obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of the Fourth Plan. In April 2005, Congoleum announced that it had reached an agreement in principle with representatives of the Asbestos Claimants' Committee and the Future Claimants' Representative to make certain modifications to its proposed plan of reorganization and related documents governing the settlement and payment of asbestos-related claims against Congoleum. Under the agreed-upon modifications, asbestos claimants with claims settled under Congoleum's pre-petition settlement agreements would agree to forbear from exercising the security interest they were granted and share on a pari passu basis with all other present and future asbestos claimants in insurance proceeds and other assets of the Plan Trust. In July 2005, Congoleum filed the Sixth Plan and related documents with the Bankruptcy Court which reflected the result of these negotiations as well as other technical modifications. The Bankruptcy Court approved the disclosure statement and voting procedures and Congoleum commenced solicitation of acceptances of the Sixth Plan in August 2005. In September 2005, Congoleum learned that certain asbestos claimants were unwilling to agree to forbear from exercising their security interest as contemplated by the Sixth Plan and the Sixth Plan was subsequently withdrawn. In November 2005, the Bankruptcy Court denied a request to extend Congoleum's exclusive right to file a plan of reorganization and solicit acceptances thereof. In February 2006, Congoleum filed the Seventh Plan. On February 27, 2006, Congoleum announced its intention to make additional changes to its plan of reorganization, and on March 17, 2006 it filed the Eighth Plan. In addition, an insurance company has filed the CNA Plan and the Official Committee of Bondholders has filed the Bondholder Plan. The Bankruptcy Court has scheduled a hearing to consider the adequacy of the disclosure statements with respect to these plans for June 8, 2006. There can be no assurance that Congoleum will not amend the Eighth Plan, that Congoleum will obtain approval to solicit acceptances of its plan of reorganization, that Congoleum will receive the acceptances necessary for confirmation of its plan of reorganization, that its plan will not be modified further, that its plan will receive necessary court approvals from the Bankruptcy Court or the Federal District Court, or that such approvals will be received in a timely fashion, that its plan will be confirmed, or that its plan, if confirmed, will become effective. It is unclear whether the Bankruptcy Court will approve the CNA Plan or the Bondholder Plan or whether either of such plans, if confirmed, would be feasible. Moreover, it is unclear whether any other person will attempt to propose a plan or what any such plan would provide or propose, and whether the Bankruptcy Court would approve a plan other than Congoleum's proposed plan. 32 Congoleum is presently involved in litigation with certain insurance carriers related to disputed insurance coverage for asbestos related liabilities, and certain insurance carriers filed various objections to Congoleum's previously proposed plans of reorganization and related matters and are expected to file objections to the Eighth Plan. Certain other parties have also filed various objections to Congoleum's previously proposed plans of reorganization and may file objections to the Eighth Plan. Congoleum expects that the terms of the Eighth Plan may be amended or modified as a result of further negotiations with various parties. The terms of the CNA Plan and the Bondholder Plan are materially different from the terms of the Eighth Plan, and these plans may also be amended or modified or may be withdrawn. There can be no assurance that the terms of the reorganization plan that is ultimately confirmed, if any, will not materially differ from the terms of the Eighth Plan. Congoleum expects that it will take until some time in the fourth quarter of 2006 at the earliest to obtain confirmation of any plan of reorganization. In anticipation of Congoleum's commencement of the Chapter 11 cases, Congoleum entered into the Claimant Agreement, which provides for an aggregate settlement value of at least $466 million as well as an additional number of individually negotiated trial listed settlements with an aggregate value of approximately $25 million, for total settlements in excess of $491 million. As contemplated by the Claimant Agreement, Congoleum also entered into agreements establishing the Collateral Trust to distribute funds in accordance with the terms of the Claimant Agreement and granting the Collateral Trust a security interest in Congoleum's rights under its applicable insurance coverage and payments from Congoleum's insurers for asbestos claims. In December 2005, Congoleum commenced the Avoidance Actions seeking to void the security interest granted to the Collateral Trust and such settlements. In March 2006, Congoleum filed a motion for summary judgment in the Avoidance Actions seeking to avoid the Claimant Agreement settlements and liens under various bankruptcy theories. Under the terms of the Eighth Plan, asbestos personal injury claimants voting to accept the plan would irrevocably consent or would be deemed to have irrevocably consented to the forbearance of any claim and lien rights under the Claimant Agreement and related agreements. Under the terms of the Eighth Plan, after the establishment of the Plan Trust, the assets in the Collateral Trust would be transferred to the Plan Trust and any claims subject to the Claimant Agreement would be channeled to the Plan Trust and paid in accordance with the terms of the Eighth Plan. Settlement values under the Eighth Plan may differ from values under the Sixth Plan and the Claimant Agreement, which, together with the outcome of the Avoidance Actions, may materially affect the liability associated with the asbestos personal injury claims against Congoleum. As a result of tabulating ballots on the Fourth Plan, Congoleum is also aware of claims by claimants whose claims were not determined under the Claimant Agreement but who have submitted claims with a value of approximately $512 million based on the settlement values applicable in the Sixth Plan. Based on the Eighth Plan, Congoleum has made provision in its financial statements for the minimum amount of the range of estimates for its contribution to effect its plan to settle asbestos liabilities through the Plan Trust. Congoleum recorded charges aggregating approximately $51.3 million in prior years and is not yet able to determine the amount of the additional cost that will be required to complete its reorganization. Actual amounts that will be contributed to the Plan Trust and costs for pursuing and implementing the Eighth Plan or any other plan of reorganization could be materially higher than currently recorded. Congoleum may 33 record significant additional charges should the minimum estimated cost increase. Delays in proposing, filing or obtaining approval of the Eighth Plan or any new amended plan of reorganization, or the continued pursuit of the CNA Plan or the Bondholder Plan by the proponents of such plans, or the proposal of additional plans by other parties could result in a proceeding that takes longer and is more costly than Congoleum has estimated. Please refer to "Risk Factors - The Company and its majority-owned subsidiary Congoleum have significant asbestos liability and funding exposure, and the Company's and Congoleum's strategies for resolving this exposure may not be successful" included in Part II, Item 1A. for a discussion of certain factors that could cause actual results to differ from the Congoleum's goals for resolving its asbestos liability through a plan of reorganization. During 2003, the Company decided to discontinue the operations of its Janus Flooring Corporation subsidiary ("Janus"), a manufacturer of pre-finished hardwood flooring, and sell the related assets. Results of Janus, including charges resulting from the shutdown, are being reported as a discontinued operation. Due to Congoleum's Chapter 11 proceedings and separate capital structure, the Company believes that presenting ABI and its non-debtor subsidiaries separately from Congoleum is the most meaningful way to discuss and analyze its financial condition and results of operations. ABI and its non-debtor subsidiaries are comprised of the Tape, Jewelry (comprised of the Company's majority-owned subsidiary, K&M Associates L.P.) and Canadian division segments as well as Corporate items and Janus. Congoleum is the flooring products segment. Application of Critical Accounting Policies and Estimates The discussion and analysis of the Company's financial condition and results of operations are based upon the Company's consolidating financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the Company's financial statements and the reported amounts of revenues and expenses during the reporting period. The Company's actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those that reflect significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The Company believes that its most critical accounting policies, upon which its financial condition depends and which involve the most complex or subjective decisions or assessments, are those described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005, filed with the Securities and Exchange Commission. There have been no material changes in what the Company considers to be its critical accounting policies or the applicability of the disclosure the Company provided regarding those policies in that Form 10-K. 34 Results of Operations ABI and Non-Debtor Subsidiaries Three Months Ended March 31 2006 2005 -------- -------- (In thousands of dollars) Net sales $ 54,484 $ 49,742 Cost of sales 39,531 34,931 -------- -------- Gross profit 14,953 27.4% 14,811 29.8% Selling, general & administrative expenses 13,994 25.7% 13,791 27.7% -------- -------- Operating income 959 1,020 Interest expense, net (593) (719) Other income, net 160 2,132 -------- -------- Income before taxes and other items 526 2,433 Provision for income taxes 196 971 Noncontrolling interests (16) (474) -------- -------- Income from continuing operations $ 314 $ 988 ======== ======== Net sales in the first quarter of 2006 were $54.5 million compared to $49.7 million in the first quarter of 2005, an increase of $4.8 million or 9.7%. Tape division sales increased $3.5 million, or 15.6%, as a result of higher sales volume in automotive and other films, coupled with price increases on most product lines. Canadian division sales increased $2.0 million, or 18%, on higher volume and pricing of flooring and industrial products. Jewelry sales declined $0.8 million, or 5.1%, as sales were negatively affected by the merger and store consolidation by two major department store customers. Gross profit decreased from 29.8% for the first quarter of 2005 to 27.4% for the first quarter of 2006. Gross margins declined in the Tape business due to higher costs for raw materials and energy, of which only a portion was recovered through selling price increases. Jewelry margins also declined, as the cost of goods (primarily sourced from China) has increased while mass merchandisers have resisted efforts to pass along those increases. A lower proportion of Jewelry sales in the first quarter of 2006 versus 2005 also contributed to the overall gross margin decrease, because Jewelry has higher gross margins as a percent of sales than the other segments. Canadian margins improved due to increased sales volume, higher selling prices to offset cost increases, and manufacturing cost reductions. The Company includes the cost of purchasing and finished goods inspection in selling, general and administrative expenses. Some companies also record such costs in operating expenses while others record them in cost of goods sold. Consequently, the Company's gross profit margins may not be comparable to other companies. Had the Company recorded these expenses in cost of sales, the gross profit margins for the quarter ended March 31, 2006 and 2005 would have been 26.9% and 29.3%, respectively. 35 Selling, general and administrative ("SG&A") expenses in the first quarter of 2006 increased by $203 thousand or 1.5% compared to the first quarter of 2005. This increase was primarily due to higher freight and sales commissions. As a percentage of net sales, SG&A decreased from 27.7% to 25.7%, as programs to contain or reduce SG&A costs kept the growth rate of these expenses well below the sales growth rate. Net interest expense for the first quarter of 2006 was lower than the first quarter of 2005 primarily due to a 150 basis point reduction in the leverage fee charged on the Company's $20 million notes. Other income for the first quarter of 2005 includes a gain of $2.3 million recognized on the sale of a warehouse. The impact of this sale on the Company's net income after taxes and non-controlling interest was $887 thousand, or $0.26 per share. The effective tax rate was 37% in the first quarter of 2006 compared to 40% in the first quarter of 2005. The lower rate is attributed to the effect of the Canadian division's lower effective rate and projected income for the year. Income from continuing operations in the first quarter of 2006 was $314 thousand compared to $988 thousand for the corresponding prior year period. Excluding the net impact of the warehouse sale, income from continuing operations for the first quarter of 2005 was approximately $101 thousand. Congoleum Three Months Ended March 31 2006 2005 -------- -------- (In thousands of dollars) Net sales $ 57,237 $ 57,630 Cost of sales 43,960 43,969 -------- -------- Gross profit 13,277 23.2% 13,661 23.7% Selling, general & administrative expenses 10,396 18.2% 11,733 20.4% -------- -------- Operating income 2,881 1,928 Interest expense, net (2,577) (2,402) Other (expense) income, net (42) 122 -------- -------- Income (loss) before taxes 262 (352) Provision for income taxes 51 -- -------- -------- Net income (loss) $ 211 $ (352) ======== ======== 36 Net sales for the three months ended March 31, 2006 were $57.2 million as compared to $57.6 million for the three months ended March 31, 2005, a decrease of $0.4 million or 0.7%. The decrease reflected weaker sales in high-end resilient sheet products and the impact of a promotional roll sales program in the first quarter of 2005 which was not repeated in 2006. Offsetting these declines were the impact of price increases instituted in the second half of 2005 (5.7%) and higher sales in the manufactured housing category. Gross profit for the three months ended March 31, 2006 totaled $13.3 million, or 23.2% of net sales, compared to $13.7 million, or 23.7% of net sales, for the same period last year. The major factors leading to the deterioration in gross margin were the increase in raw material costs and utility costs experienced during the second half of 2005, which reduced margins by approximately 4.0% points of net sales, and the poorer sales mix which reduced margin by 2% points of net sales. This was partially mitigated by the 5.7% increase in selling prices. Selling, general and administrative expenses were $10.4 million for the three months ended March 31, 2006 as compared to $11.7 million for the three months ended March 31, 2005, a decrease of $1.3 million. The reduction in expenses reflects lower merchandising and sales support related costs (down $0.6 million), lower compensation and related benefit costs reflecting workforce reductions in late 2005 ($0.4 million) and lower depreciation expense ($0.2 million). As a percent of net sales, selling, general and administrative costs were 18.2% for the three months ended March 31, 2006 compared to 20.4% for the same period last year. Income from operations was $2.9 million for the quarter ended March 31, 2006 compared to income of $1.9 million for the quarter ended March 31, 2005. The improvement in operating income was a result of lower selling, general and administrative expenses which offset the impact of lower sales and gross margins. Liquidity and Capital Resources ABI & Non-Debtor Subsidiaries Cash and cash equivalents, including short term investments, decreased $2.8 million in the first three months of 2006 to $1.9 million. Cash used by operating activities, principally for seasonal working capital increases, was funded from existing balances. Working capital at March 31, 2006 was $21.1 million, up from $19.8 million at December 31, 2005. The ratio of current assets to current liabilities at March 31, 2006 was 1.35 compared to 1.33 at December 31, 2005. Capital expenditures in the first three months of 2006 were $418 thousand compared to $346 thousand for the first three months of 2005. It is anticipated that capital spending for the full year 2006 will be approximately $4 million. During the first quarter of 2005, the Company sold a warehouse for $2.5 million, resulting in net cash proceeds of $2.3 million. The warehouse was owned by Tullahoma Properties L.L.C., a subsidiary in which the Company owns a 62.5% interest. 37 The Company has recorded provisions which it believes are adequate for environmental remediation, including provisions for testing and potential remediation of conditions at its own facilities, and non-asbestos product-related liabilities. While the Company believes its estimate of the future amount of these liabilities is reasonable, that most of such amounts will be paid over a period of one to ten years and that the Company expects to have sufficient resources to fund such amounts, the actual timing and amount of such payments may differ significantly from the Company's assumptions. Although the effect of future government regulation could have a significant effect on the Company's costs, the Company is not aware of any pending legislation or regulation relating to these matters that would have a material adverse effect on its consolidated results of operations or financial position. There can be no assurances that any such costs could be passed along to its customers. American Biltrite Inc. has two principal debt agreements that it is party to as borrower. The first of those agreements is a credit agreement (the "Credit Facility") with Fleet National Bank, a Bank of America company ("BofA"), and Bank of America National Association acting through its Canada branch (the "Canadian Lender"). The Credit Facility provides American Biltrite Inc. and its subsidiary K&M Associates L.P. with a revolving credit facility of up to $20 million and a $12 million borrowing sublimit for American Biltrite Inc.'s subsidiary American Biltrite (Canada) Ltd. ("AB Canada"). The amount of domestic borrowings available from time to time under the Credit Facility for the Company may not exceed the lesser of (a) $20 million less the then outstanding amount of borrowings by AB Canada under the Canadian sublimit facility and (b) the applicable borrowing base. The formula used for determining the borrowing base is based upon inventory, receivables and fixed assets of the Company and certain of its subsidiaries (not including, among others, AB Canada and Congoleum), reduced by amounts outstanding under the Note Agreement (as defined below). American Biltrite Inc. and K&M Associates L.P. may also obtain letters of credit in an aggregate amount at any time outstanding of up to $4 million, subject to the Credit Facility's maximum borrowing availability limit discussed above. Interest is payable quarterly on domestic revolving loans borrowed by American Biltrite Inc. and K&M Associates L.P. under the Credit Facility at rates which vary depending on the applicable interest rate in effect and are generally determined based upon: (a) if a LIBOR based rate is in effect, at a rate between a LIBOR based rate plus 1.0% to a LIBOR based rate plus 2.75%, depending on the Company's leverage ratio, as determined under the Credit Facility, (b) if a fixed rate is in effect, at a rate between the fixed rate plus 1.0% to a fixed rate plus 2.75%, depending on the Company's leverage ratio, as determined under the Credit Facility, and (c) for loans not based on a LIBOR or fixed rate, the higher of BofA's applicable prime rate and 0.50% plus the federal funds rate, as determined under the Credit Facility. Under the Credit Facility, the Company may generally determine whether interest on domestic revolving loans will be calculated based on a LIBOR based rate, and if BofA elects to make a fixed rate option available, whether interest on revolving loans will be calculated based on a fixed rate. The amount of borrowings available from time to time for AB Canada under the Canadian sublimit facility under the Credit Facility is limited to the lesser of (a) $12 million, (b) AB Canada's borrowing base amount, which is based upon AB Canada's accounts receivable, inventory and fixed assets, and (c) $20 million less the amount of domestic borrowings outstanding under the Credit Facility on behalf the Company and K&M Associates L.P. The Canadian sublimit facility also 38 allows AB Canada to obtain letters of credit in an aggregate amount at any time outstanding of up to $1 million, subject to the Canadian sublimit facility's maximum borrowing availability limit discussed above. AB Canada may borrow amounts under the Canadian sublimit facility in United States or Canadian dollar denominations; however, solely for purposes of determining amounts outstanding and borrowing availability under the Credit Facility, all Canadian dollar denominated amounts will be converted into United States dollars in the manner provided in the Credit Facility. Interest is payable quarterly on revolving loans under the Canadian sublimit facility at rates which vary depending on the applicable interest rate in effect and are generally determined based upon: (a) if a LIBOR based rate is in effect, at a rate between a LIBOR based rate plus 1.0% to a LIBOR based rate plus 2.75%, depending on the Company's leverage ratio, as determined under the Credit Agreement, and (b) if a LIBOR based rate is not in effect, for outstanding revolving loans denominated in Canadian dollars, the higher of 0.50% plus the applicable 30-day average bankers' acceptance rate as quoted on Reuters CDOR page and the Canadian Lender's applicable prime rate for loans made in Canadian dollars to Canadian customers, and for outstanding revolving loans denominated in United States dollars, the higher of 0.50% plus the federal funds rate as calculated under the Credit Agreement and the applicable rate announced by the Canadian Lender as its reference rate for commercial loans denominated in United States dollars made to a person in Canada. Under the Credit Agreement, AB Canada may generally determine whether interest on revolving loans will be calculated based on a LIBOR based rate. The Credit Facility expires on September 30, 2006. The Company expects that it will be able to extend the maturity or obtain a replacement facility on substantially similar terms before the expiration date of the current facility, although there can be no assurances in this regard. The second principal debt agreement that American Biltrite Inc. is a party to (the "Note Agreement") is with The Prudential Insurance Company of America ("Prudential"). Under the Note Agreement, the Company previously issued notes in an aggregate principal amount of $20 million (the "Notes"). The Notes generally bear interest at a rate of 7.91% per annum, and the Company is obligated to pay Prudential an additional fee on each interest payment date if the Company's and certain of its subsidiaries' ratio of debt to EBITDA, as defined under the Note Agreement, exceeds certain levels. The amount of those fees that may be payable by the Company varies depending on the extent the Company's and certain of its subsidiaries' debt exceeds EBITDA, as determined under the Note Agreement, and is capped at 2% of the outstanding principal amount of the Series A Notes. During 2004 and for the first quarter of 2005, the Company was obligated to pay the full 2% of that fee. For the second quarter of 2005, the fee was 1%, and for the third and fourth quarter of 2005 and the first quarter of 2006, it was 0.5%. Principal on the Notes is repayable in five annual installments of $4.0 million beginning on August 28, 2006. The Credit Facility and the Note Agreement contain certain covenants that the Company must satisfy. The covenants included in the Credit Facility and the Note Agreement include certain financial tests, restrictions on the ability of the Company to incur additional indebtedness or to grant liens on its assets and restrictions on the ability of the Company to pay dividends on its capital stock. In addition, the Credit Facility includes a financial covenant that 39 requires the Company's consolidated adjusted EBITDA for the four consecutive fiscal quarters ending June 30, 2006 to exceed 150% of the Company's consolidated pro forma fixed charges for the 12-month period beginning immediately after June 30, 2006, as determined under the Credit Facility (the "Pro Forma Financial Covenant"). The financial tests are required to be calculated based on the Company accounting for its majority-owned subsidiary Congoleum Corporation on the equity method and include a maximum ratio of total liabilities to tangible net worth, a minimum ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA") less certain cash payments for taxes, debt service, and dividends to interest expense, a minimum level of tangible net worth, a requirement that there be no consecutive quarterly losses from continuing operations, and a maximum level of capital spending. In addition, beginning on September 30, 2006, the Note Agreement requires the Company to satisfy a different set of financial covenants, including a minimum ratio of current assets to current liabilities, a minimum ratio of adjusted EBITDA to fixed charges, a cap on the amount of debt as a percentage (45%) of tangible net worth, a cap on the amount of priority debt (generally, debt of a Company subsidiary (not including Congoleum) that is not a guarantor under the Note Agreement plus secured debt of the Company) as a percentage (15%) of tangible net worth, a minimum leverage ratio, and a minimum amount of tangible net worth. The Company does not presently expect to meet all of the different set of financial covenants which take effect on September 30, 2006 and expects it will need to negotiate amendments to or waivers of certain covenants, although there can be no assurance it will be successful in that regard. Pursuant to the Credit Facility and the Note Agreement, the Company and certain of its subsidiaries granted BofA, the Canadian Lenders and Prudential a security interest in most of the Company's and its subsidiaries' assets. The security interest granted does not include the shares of capital stock of the Company's majority-owned subsidiary Congoleum Corporation or the assets of Congoleum Corporation. In addition, pursuant to the Credit Facility and the Note Agreement, certain of the Company's subsidiaries have agreed to guarantee the Company's obligations (excluding AB Canada's obligations) under the Credit Facility and the Note Agreement. In the past, the Company has had to amend its debt agreements in order to avoid being in default of those agreements as a result of failing to satisfy certain financial covenants contained in those agreements. In January 2004, the Credit Facility and the Note Agreement were amended to remove a former lender under the Credit Facility, reduce the credit line to $20 million, and to modify the tangible net worth, adjusted EBITDA to interest expense and consecutive quarterly loss covenants. Fees of $83 thousand were paid to the lenders in connection with those amendments. In April 2004, the Credit Facility and the Note Agreement were amended to permit AB Canada the ability to grant a security interest in certain assets under a credit agreement that AB Canada was a party to. In November 2004, the Credit Facility was amended to extend the term of the Credit Facility to January 1, 2006, to modify the treatment of tax refunds in covenant calculations, and to modify the measurement levels for the adjusted EBITDA to interest expense and current assets to current liabilities covenants for the remainder of the extended term of the Credit Facility. A fee of $50 thousand was paid in connection with that amendment. 40 On May 20, 2005, the Company entered into amendments and restatements of its Credit Facility and Note Agreement. The amendment to the Credit Facility extended the maturity date of the Credit Facility to September 30, 2006, added the Pro Forma Financial Covenant and added the $12 million Canadian sublimit facility for AB Canada. Pursuant to the amended Credit Facility, AB Canada granted a security interest in all of its personal property to the Canadian Lender. During the second quarter of 2005, AB Canada repaid all amounts outstanding under its previous credit agreement with another lender from the proceeds of borrowings under the Credit Facility. The amendment to the Note Agreement in May 2005 generally removed the application of the financial covenants under the Note Agreement for any measurement period prior to March 31, 2005, which effectively cured the Company's preexisting failure to satisfy the adjusted EBITDA to interest expense covenant (as determined under the Note Agreement) as of December 31, 2004. In addition, the amendments modified the financial covenants for 2005 under the Note Agreement to make them comparable to the financial covenants for 2005 under the Credit Facility. The amendment also requires the Company to enter into a definitive commitment to replace or refinance the $20 million borrowing limit under the Credit Facility by June 30, 2006 and to consummate the replacement or refinancing by September 30, 2006. Fees and expenses incurred for the amendments to the Credit Facility and Note Agreement in May 2005 were approximately $425 thousand. As indicated above, the Company will need to extend or replace the Credit Facility and expects that it will need to obtain additional amendments or waivers of covenants under the Note Agreement during 2006. There can be no assurance that the Company will be successful in doing so. Certain defaults under the Note Agreement, such as defaults resulting from certain bankruptcy, insolvency and receivership matters of the Company or certain of its subsidiaries (not including Congoleum), automatically cause all amounts owing with respect to the Notes then outstanding under the Note Agreement to become immediately due and payable. A default in the payment of principal or interest under the Notes would allow each individual noteholder to cause all amounts owed with respect to the Notes held by such holder to become immediately due and payable. In addition, with respect to all other defaults under the Note Agreement, holders of at least 51% of the aggregate principal amount of the Notes then outstanding could cause all amounts then owing with respect to the Notes to become immediately due and payable. The Company understands that Prudential is the only holder of the Notes and, as such, any decision to cause the acceleration of amounts owed with respect to the Notes would be made at Prudential's discretion. Certain events of default under the Credit Facility, such as defaults resulting from certain bankruptcy, insolvency and receivership matters of the Company or certain of its subsidiaries (not including Congoleum) automatically terminate BofA's and the Canadian Lender's obligations to make borrowings available under the Credit Facility and causes all amounts outstanding under the Credit Facility to become immediately due and payable. With respect to all other events of default under the Credit Facility, BofA and the Canadian Lender may terminate their obligations to make borrowings available under the Credit Facility and cause all amounts outstanding under the Credit Facility to become immediately due and payable. 41 Pursuant to the terms of the Credit Facility and the Note Agreement, a default by the Company under one of those agreements triggers a cross-default under the other agreement. If a default occurs, BofA and the Canadian Lender and Prudential could respectively require the Company to repay all amounts outstanding under the respective debt agreements. If a default occurs and the Company is unable to obtain a waiver from the applicable lender and the Company is required to repay all amounts outstanding under those agreements, the Company would need to obtain funding from another source. Otherwise, the Company would likely be unable to repay those outstanding amounts, in which case, BofA as administrative agent over the collateral securing the amounts outstanding under the Credit Facility and the Note Agreement, might exercise BofA's and the Canadian Lender's and Prudential's rights over that collateral. Any default by the Company under the Credit Facility or the Note Agreement that results in the Company being required to immediately repay outstanding amounts under its debt agreements, and for which suitable replacement financing is not timely obtained, would have a material adverse effect on the Company's business, results of operations and financial condition. As noted above, the Credit Facility and the Note Agreement restrict the Company's ability to obtain additional financing. Moreover, since the Company and most of its subsidiaries have already granted security interests in most of their assets, the Company's ability to obtain any additional debt financing may be limited. The Company currently believes that its cash flow from operations, expected proceeds from the sale of the Janus Flooring assets and borrowings available under its existing credit facilities will be adequate for its expected capital expenditure, working capital and debt service needs, subject to compliance with the covenants contained in its debt agreements and the ability of the Company to replace or refinance its existing credit facility that is scheduled to expire on September 30, 2006 on satisfactory terms. However, if circumstances change, the inability of the Company to obtain any necessary additional debt financing would likely have a material adverse effect on its business, operations and financial condition. Under the terms of the Eighth Plan, ABI expects to contribute $250 thousand in cash to the Plan Trust on the effective date of the plan. Under the terms of the Eighth Plan, unlike under the Sixth Plan, ABI would not pledge any of its assets, including shares of Congoleum stock it owns or certain rights it has to receive indemnification payments from Congoleum pursuant to a joint venture agreement that ABI and Congoleum are party to, as security for Congoleum's obligations under the new convertible security (as was contemplated, under the Sixth Plan with respect to Congoleum's obligations under the Promissory Note described in the Sixth Plan). In addition, the Eighth Plan does not, unlike the Sixth Plan, contemplate that ABI would be required to make any additional contributions to the Plan Trust if ABI were to sell its Congoleum stock under the circumstances provided under the Sixth Plan, a description of which ABI provided in previous periodic reports it filed with the Securities and Exchange Commission. Under the Eighth Plan, ABI would receive certain relief as may be afforded under Section 524(g)(4) of the Bankruptcy Code from asbestos personal injury claims that derive from claims made against Congoleum, which claims are expected to be channeled to the Plan Trust. However, the Eighth Plan does not provide that any other asbestos claims that may be asserted against ABI would be channeled to the Plan Trust. To the extent that the Company pays material amounts for asbestos-related property damage claims that the Company would have been 42 entitled to be reimbursed for by Congoleum absent the provisions of Congoleum's plan of reorganization, that could have a material adverse effect on the Company's liquidity and capital resources. Furthermore, to the extent that the amount of any of the Company's indemnity claims against the Plan Trust are reduced pursuant to the distribution procedures under Congoleum's plan of reorganization to an amount less than the corresponding amount paid by the Company, that could have a material adverse effect on the Company's liquidity and capital resources. The Company has not declared a dividend subsequent to the third quarter of 2003. Future dividends, if any, will be determined by the Company's Board of Directors based upon the financial performance and capital requirements of the Company, among other considerations. Under the Credit Facility, aggregate dividend payments (since June 30, 2003) are generally limited to 50% of cumulative consolidated net income (computed treating Congoleum under the equity method of accounting), as determined under the Credit Facility, earned from June 30, 2003. Under the Note Agreement, aggregate dividend payments (since December 31, 2000) generally may not exceed the sum of $6 million plus 50% of cumulative consolidated net income (accounting for Congoleum under the equity method of accounting), as determined under the Note Agreement, earned after December 31, 2000. Congoleum The consolidated financial statements of Congoleum have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, Congoleum's consolidated financial statements do not include any adjustments that might be necessary should Congoleum be unable to continue as a going concern. As described more fully in the Notes to the Unaudited Consolidating Condensed Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, there is substantial doubt about Congoleum's ability to continue as a going concern unless it obtains relief from its substantial asbestos liabilities through a successful reorganization under Chapter 11 of the Bankruptcy Code. On December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy Court (Case No. 03-51524) seeking relief under the Bankruptcy Code. See Notes A and J of the Notes to the Unaudited Consolidating Financial Statements. These matters will have a material adverse impact on Congoleum's liquidity and capital resources. During the first quarter of 2006, Congoleum paid $5.9 million in fees and expenses related to implementation of its planned reorganization under Chapter 11 and litigation with certain insurance companies. Pursuant to terms of the Eighth Plan and related documents, Congoleum is entitled to reimbursement for certain expenses it incurs for claims processing costs and expenses in connection with pursuit of insurance coverage. At March 31, 2006, Congoleum recorded $18.4 million as a receivable for such reimbursements. The amount and timing of reimbursements that will be received will depend on when Congoleum or the Plan Trust receives funds from insurance settlements or other sources. There can be no assurances that these reimbursements will be received, or that the terms providing for such reimbursements will not be modified. Congoleum expects to spend a further $17.2 million at a minimum in fees, expenses, and trust contributions in connection with obtaining confirmation of its plan of reorganization, which amount is recorded in its reserve for asbestos-related liabilities in addition to the $9.4 million insurance settlement being held as 43 restricted cash. It also expects to spend a further $7.9 million at a minimum in connection with insurance coverage litigation costs, for which it expects to be reimbursed as discussed above. Required expenditures could be materially higher than these estimates. Congoleum currently holds $3.8 million in restricted cash that may be available to offset future costs incurred pursuing insurance coverage, subject to approval by the Bankruptcy Court. Due to the Chapter 11 proceedings, Congoleum has been precluded from making interest payments on its outstanding Senior Notes since January 1, 2004. The amount of accrued interest that is due but has not been paid on the Senior Notes during this period is approximately $21.6 million, including interest on the unpaid interest due. In February 2006, the Bankruptcy Court ordered Gilbert, Heintz & Randolph, a law firm formerly representing Congoleum, to disgorge all fees and certain expenses it was paid by Congoleum. The law firm has appealed this ruling. The amount of the disgorgement is approximately $9.6 million. Pursuant to the terms of the Eighth Plan, holders of the Senior Notes would forego $10 million in interest accrued during the post-petition period and would receive the right to any funds (net of related expenses) from the fee disgorgement and other causes of action against the law firm and one of its service providers, subject to a maximum of $10 million plus interest at 8.625% from the effective date of the plan until the time such payment is made (the "Maximum Additional Bondholder Recovery"). There can be no assurance that the Plan, which is ultimately confirmed, will provide for such interest forgiveness. Any net recoveries in excess of the Maximum Additional Bondholder Recovery would be paid to the Plan Trust. Pursuant to the terms of the Eighth Plan, Congoleum is to make a cash contribution of approximately $7.7 million to the Plan Trust when the plan goes effective. The Eighth Plan also provides that the maturity of the Senior Notes will be extended by three years from August 2008 to August 2011. There can be no assurance that the plan which is ultimately confirmed will provide for such maturity extension. As part of the Eighth Plan, Congoleum expects that it will issue a convertible security (the "New Convertible Security") to the Plan Trust. Under the terms of the Eighth Plan, the New Convertible Security means either shares of preferred stock or convertible promissory notes to be issued by reorganized Congoleum and contributed to the Plan Trust on the effective date of the Eighth Plan in satisfaction of section 524(g) of the Bankruptcy Code. If the New Convertible Security is to be shares of preferred stock of reorganized Congoleum, it will have the following terms: (i) an initial liquidation preference equal to $2,738,234.75 in the aggregate, such amount being subject to increase in the amount, if any, by which 36% of reorganized Congoleum's market capitalization based on average trading prices for reorganized Congoleum's Class A common stock at the close of trading for the 90 consecutive trading days beginning on the one year anniversary of the effective date of the plan of reorganization, exceeds such initial liquidation preference; (ii) an initial dividend rate equal to 9% of the liquidation preference per annum, payable semi-annually in arrears, with such dividend rate to reset at the rate of 5% of the liquidation preference per annum on the tenth anniversary of the effective date of the plan of reorganization and payable at such reset dividend rate per annum unless and until redeemed; (iii) redeemable for the liquidation preference at the option of the Plan Trust or reorganized Congoleum following the tenth anniversary of the effective date of the plan of reorganization; (iv) a mandatory redemption on the fifteenth anniversary of the effective date of the plan of reorganization if not redeemed earlier; (v) convertible into 5,700,000 shares of Class A Common Stock (or the equivalent thereof on a fully diluted basis) upon a specified default of 44 the obligation to pay dividends and a failure to cure such default within any cure period, which, when combined with the 3.8 million newly issued shares of Class A Common Stock to be contributed to the Plan Trust, will result in the Plan Trust owning 51% of the voting common shares of reorganized Congoleum on a fully diluted basis; and (vi) no voting rights, except upon conversion. If the New Convertible Security is convertible promissory notes, such notes will be on economic terms substantially equivalent to provisions (i) and (v) of the preferred stock described herein, with other terms substantially the same as the Promissory Note described in the Sixth Plan. Although the earliest redemption or repayment date for the New Convertible Security does not occur until its tenth anniversary of issuance, this obligation may affect Congoleum's ability to obtain other sources of financing or refinance existing obligations. In addition, it is expected that the terms of the New Convertible Security will require Congoleum to make regularly scheduled dividend or interest payments prior to such instrument's redemption or maturity date. Unrestricted cash and cash equivalents, including short-term investments at March 31, 2006, were $14.7 million, a decrease of $9.9 million from December 31, 2005. Under the terms of its revolving credit agreement, payments on Congoleum's accounts receivable are deposited in an account assigned by Congoleum to its lender and the funds in that account are used by the lender to pay down any loan balance. Funds deposited in this account but not yet applied to the loan balance, which amounted to $2.7 million and $2.0 million at March 31, 2006 and December 31, 2005, respectively, are recorded as restricted cash. Additionally, $9.4 million remaining from a $14.5 million settlement received in August 2004 from an insurance carrier, which is subject to the lien of the Collateral Trust, is included as restricted cash at March 31, 2006. Congoleum expects to contribute these funds, less any amounts withheld pursuant to reimbursement arrangements, to the Plan Trust. Working capital was $30.0 million at March 31, 2006, up from $28.0 million at December 31, 2005. The ratio of current assets to current liabilities at March 31, 2006 was 1.3 to 1.0, which is unchanged from December 31, 2005. The ratio of debt to total capital at March 31, 2006 was 0.48 to 1.0 which is also unchanged since December 31, 2005. Net cash used by operations during the first three months of 2006 was $10.8 million, as compared to net cash used by operations of $9.3 million in the first three months of 2005. The increase in cash used by operations in the first three months of 2006 versus the first three months of 2005 was primarily due to higher working capital requirements and increased reorganization expenditures in 2006. Capital expenditures for the three months ended March 31, 2006 totaled $0.5 million. Congoleum is currently planning capital expenditures of approximately $5 million in 2006 and between $5 million and $7 million in 2007, primarily for maintenance and improvement of plants and equipment, which it expects to fund with cash from operations and credit facilities. In January 2004, the Bankruptcy Court authorized entry of a final order approving Congoleum's debtor-in-possession financing, which replaced its pre-petition credit facility on substantially similar terms. The debtor-in-possession financing agreement (as amended and approved by the Bankruptcy Court to date) provides a revolving credit facility expiring on December 31, 2006 with borrowings up to $30 million. Interest is based on 0.75% above the prime rate. This financing agreement contains certain covenants, which include the maintenance of minimum earnings before interest, taxes, depreciation and amortization ("EBITDA"). It also includes restrictions on the incurrence of additional debt and limitations on capital expenditures. The covenants and 45 conditions under this financing agreement must be met in order for Congoleum to borrow from the facility. Congoleum was in compliance with these covenants at March 31, 2006. Borrowings under this facility are collateralized by inventory and receivables. At March 31, 2006, based on the level of receivables and inventory, $17.6 million was available under the facility, of which $4.7 million was utilized for outstanding letters of credit and $11.5 million was utilized by the revolving loan. Congoleum anticipates that its debtor-in-possession financing facility will be replaced with a revolving credit facility on substantially similar terms upon confirmation and effectiveness of its plan of reorganization. While Congoleum expects the facilities discussed above will provide it with sufficient liquidity, there can be no assurances that it will continue to be in compliance with the required covenants, that Congoleum will be able to obtain a similar or sufficient facility upon exit from bankruptcy, or that the debtor-in-possession facility (as extended) will be renewed prior to its expiration if Congoleum's plan of reorganization is not confirmed before that time. In addition to the provision for asbestos litigation discussed previously, Congoleum has also recorded what it believes are adequate provisions for environmental remediation and product-related liabilities (other than asbestos-related claims), including provisions for testing for potential remediation of conditions at its own facilities. Congoleum is subject to federal, state and local environmental laws and regulations and certain legal and administrative claims are pending or have been asserted against Congoleum. Among these claims, Congoleum is a named party in several actions associated with waste disposal sites (more fully discussed in Note I to the Unaudited Consolidating Condensed Financial Statements contained in Item 1 of this Quarterly Report on Form 10-Q). These actions include possible obligations to remove or mitigate the effects on the environment of wastes deposited at various sites, including Superfund sites and certain of Congoleum's owned and previously owned facilities. The contingencies also include claims for personal injury and/or property damage. The exact amount of such future cost and timing of payments are indeterminable due to such unknown factors as the magnitude of cleanup costs, the timing and extent of the remedial actions that may be required, the determination of Congoleum's liability in proportion to other potentially responsible parties, and the extent to which costs may be recoverable from insurance. Congoleum has recorded provisions in its financial statements for the estimated probable loss associated with all known general and environmental contingencies. While Congoleum believes its estimate of the future amount of these liabilities is reasonable, and that they will be paid over a period of five to ten years, the timing and amount of such payments may differ significantly from Congoleum's assumptions. Although the effect of future government regulation could have a significant effect on Congoleum's costs, Congoleum is not aware of any pending legislation which would reasonably have such an effect. There can be no assurances that the costs of any future government regulations could be passed along to its customers. Estimated insurance recoveries related to these liabilities are reflected in other non-current assets. The outcome of these environmental matters could result in significant expenses incurred by or judgments assessed against Congoleum. 46 Congoleum's principal sources of capital are net cash provided by operating activities and borrowings under its financing agreement. Congoleum has used $10.8 million in cash from operations in the first quarter of 2006 (as more fully discussed above), which includes the benefit of $2.2 million of accrued but unpaid interest on long-term debt. Congoleum believes these sources will be adequate to fund working capital requirements, debt service payments, and planned capital expenditures for the foreseeable future. To meet the funding obligations under the Eighth Plan, Congoleum anticipates it will need to obtain the contemplated forgiveness of $10 million of interest on the Senior Notes and obtain reimbursement for any unreimbursed coverage litigation costs. Actual sources and uses of funds to consummate the effectiveness of the Eighth Plan or any other plan may differ from this description, but confirmation of any plan is dependent on such plan demonstrating it leaves Congoleum with sufficient liquidity that further reorganization will not be needed. Congoleum's inability to obtain confirmation of the Eighth Plan in a timely manner would have a material adverse effect on Congoleum's ability to fund its operating, investing and financing requirements. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to changes in prevailing market interest rates affecting the return on its investments. The Company invests primarily in highly liquid debt instruments with strong credit ratings and short-term (less than one year) maturities. The carrying amount of these investments approximates fair value due to the short-term maturities. If market interest rates were to increase by 10% from levels at March 31, 2006, the fair value of our investments would decline by an immaterial amount. In addition, substantially all of the Company's outstanding long-term debt as of March 31, 2006 consisted of indebtedness with a fixed rate of interest, which is not subject to change based upon changes in prevailing market interest rates. A portion of the Company's operations consists of manufacturing and sales activities in foreign jurisdictions. The Company manufactures its products in the United States, Canada, Belgium and Singapore and sells those products in those markets as well as in other countries in Europe and Asia. As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company distributes its products. The Company's operating results are exposed to changes in exchange rates between the U.S. dollar and the Canadian dollar and the U.S. dollar and the Euro. When the U.S. dollar strengthens against the Canadian dollar or Euro, the U.S. dollar value of the applicable foreign currency sales decreases. When the U.S. dollar weakens against those currencies, the U.S. dollar value of the applicable foreign currency sales increases. Under its current policies, the Company does not use derivative financial instruments, derivative commodity instruments or other financial instruments to manage its exposure to changes in interest rates, foreign currency exchange rates, commodity prices or equity prices and does not hold any instruments for trading purposes. 47 Item 4: Controls and Procedures a) Evaluation of Disclosure Controls and Procedures. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, amended (the "Exchange Act")), as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures were (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company's Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the period in which this report was being prepared, and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) Changes in Internal Control Over Financial Reporting. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 48 PART II. OTHER INFORMATION Item 1. Legal Proceedings The information contained in Note I "Commitments and Contingencies" and Note J "Congoleum Asbestos Liabilities and Reorganization" of the Notes to Unaudited Consolidating Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, in "management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and in "Risk Factors - The Company and its majority-owned subsidiary Congoleum have significant asbestos liability and funding exposure, and the Company's and Congoleum's strategies for resolving this exposure may not be successful," included in Part II, Item 1A of this Quarterly Report on Form 10-Q, are incorporated herein by reference. Item 1A. Risk Factors The Company and its majority-owned subsidiary Congoleum have significant asbestos liability and funding exposure, and the Company's and Congoleum's strategies for resolving this exposure may not be successful. The Company and Congoleum have significant liability and funding exposure for asbestos personal injury claims. In connection with Congoleum's strategy for resolving its asbestos liability, in 2003, Congoleum entered into settlement agreements with various asbestos claimants totaling in excess of $491 million. Under the terms of the Eighth Plan, asbestos personal injury claimants voting to accept the plan would irrevocably consent or would be deemed to have irrevocably consented to the forbearance of any claim and lien rights under such settlement agreements. The outcome of the Avoidance Actions could affect the outcome of plan voting and, therefore, confirmation of the Eighth Plan or any modified version of that plan or any other plan pursued by Congoleum. There can be no assurance that Congoleum will not amend the Eight Plan, that Congoleum will obtain approval to solicit acceptances for its plan, that Congoleum will receive the acceptances necessary for confirmation of its plan, that its plan will not be modified further, that its plan will receive necessary court approvals from the Bankruptcy Court or the Federal District Court, or that such approvals will be received in a timely fashion, that its plan will be confirmed, or that its plan, if confirmed, will become effective. In November 2005, the Bankruptcy Court denied a request to extend Congoleum's exclusive right to file a plan of reorganization and solicit acceptances thereof, and plans have been filed by an insurance company and the Official Committee of Bondholders. It is unclear whether any other person will attempt to propose a plan or what any such plan would provide or propose, and whether the Bankruptcy Court would approve a plan other than Congoleum's proposed plan. The Eighth Plan and any alternative plan of reorganization pursued by Congoleum or another plan proponent or confirmed by the Bankruptcy Court and the Federal District Court could materially differ from the description of the Eighth Plan contained in the Annual Report on Form 10-K. Furthermore, the estimated costs and contributions to effect the Eighth Plan or an alternative plan could be 49 significantly greater than currently estimated. Any plan of reorganization pursued by Congoleum will be subject to numerous conditions, approvals and other requirements, including Bankruptcy Court and Federal District Court approvals, and there can be no assurance that such conditions, approvals and other requirements will be satisfied or obtained. Confirmation of a plan of reorganization will depend on Congoleum obtaining exit financing to provide it with sufficient liquidity to fund obligations upon the plan becoming effective. If Congoleum's cash flow from operations is materially less than anticipated, and/or if the costs in connection with seeking confirmation of the Eighth Plan or in connection with Congoleum's New Jersey state court insurance coverage litigation are materially more than anticipated, or if sufficient funds from insurance proceeds or other sources are not available at confirmation to reimburse coverage litigation costs as expected, Congoleum may be unable to obtain exit financing that, when combined with net cash provided from operating activities, would provide it with sufficient funds, which would likely result in Congoleum not being able to confirm its plan of reorganization or have such plan become effective. The Company has its own direct asbestos liability as well. The Company's strategy remains to vigorously defend and strategically settle its asbestos claims on a case-by-case basis. To date, the Company's insurers have funded substantially all of the Company's liabilities and expenses related to its asbestos liability under the Company's applicable insurance policies. The Company expects its insurance carriers will continue to defend and indemnify it for its asbestos liabilities for the foreseeable future. If, however, it were not able to receive such coverage from its insurers for the Company's asbestos liabilities and expenses, that would likely have a material adverse effect on the Company's financial position. In addition, certain of the excess liability insurance policies that the Company purchased were underwritten by companies that are now insolvent, which may limit the amount of funds available to pay for any future claims covered by these policies. Some additional factors that could cause actual results to differ from Congoleum's and the Company's objectives for resolving asbestos liability include: (i) the future cost and timing of estimated asbestos liabilities and payments; (ii) the availability of insurance coverage and reimbursement from insurance companies that underwrote the applicable insurance policies for asbestos-related claims, including insurance coverage and reimbursement for asbestos claimants under Congoleum's proposed modified plan, which certain insurers have objected to in Bankruptcy Court and are litigating in New Jersey State Court, or any other plan of reorganization; (iii) costs relating to the execution and implementation of any plan of reorganization pursued by Congoleum or relating to any other plan of reorganization proposed by any other party in interest; (iv) timely reaching an agreement with other creditors, or classes of creditors, that exist or may emerge; (v) satisfaction of the conditions and obligations under the Company's and Congoleum's respective outstanding debt instruments, and amendment of those outstanding debt instruments, as necessary, to permit Congoleum and the Company to satisfy their obligations under any plan of reorganization; (vi) the response from time-to-time of the Company's and Congoleum's lenders, customers, suppliers and other constituencies to the Chapter 11 process and related developments arising from the strategy to settle 50 asbestos liability; (vii) Congoleum's ability to maintain debtor-in-possession financing sufficient to provide it with funding that may be needed during the pendency of its Chapter 11 case and to obtain exit financing sufficient to provide it with funding that may be needed for its operations after emerging from the bankruptcy process, in each case, on reasonable terms; (viii) timely obtaining sufficient creditor and court approval of a reorganization plan and the court overruling any objections to such plan that may be filed; (ix) developments in costs, associated with, and the outcome of insurance coverage litigation pending in New Jersey State Court involving Congoleum and certain insurers; (x) the extent to which Congoleum is able to obtain reimbursement for costs it incurs in connection with the insurance coverage litigation; (xi) compliance with the Bankruptcy Code, including section 524(g); and (xii) the possible progress of another party in interest's proposed plan of reorganization which may prove to be unfeasible. In addition, in view of American Biltrite's relationships with Congoleum, American Biltrite could be affected by Congoleum's negotiations regarding its pursuit of a plan of reorganization, and there can be no assurance as to what that impact, positive or negative, might be. In any event, the failure of Congoleum to obtain confirmation and consummation of a Chapter 11 plan of reorganization would have a material adverse effect on Congoleum's business, results of operations or financial condition and could have a material adverse effect on American Biltrite's business, results of operations or financial condition. In addition, there has been federal legislation proposed that, if adopted, would establish a national trust to provide compensation to victims of asbestos-related injuries and channel all current and future asbestos-related personal injury claims to that trust. Due to the uncertainties of this legislation, the Company does not know what effects any such legislation, if adopted, may have upon its or Congoleum's businesses, results of operations or financial conditions, or upon any plan of reorganization Congoleum may decide to pursue. To date, Congoleum has expended significant amounts to resolve its asbestos liability pursuant to a Chapter 11 plan of reorganization. To the extent any federal legislation is enacted which does not credit Congoleum for amounts paid by Congoleum pursuant to its plan of reorganization strategy or requires the Company or Congoleum to pay significant amounts to any national trust or otherwise, such legislation could have a material adverse effect on the Company or Congoleum's businesses, results of operations or financial conditions. As a result of Congoleum's significant liability and funding exposure for asbestos claims, there can be no assurance that if Congoleum were to incur any unforecasted or unexpected liability or disruption to its business or operations it would be able to withstand that liability or disruption and continue as an operating company. Any significant increase of the Company's asbestos liability and funding exposure would likely have a material adverse effect on the Company's business, operations and financial condition and possibly its ability to continue as a going concern. For further information regarding the Company's and Congoleum's asbestos liability, insurance coverage and strategies to resolve that asbestos liability, please see Notes A and J of the Notes to Unaudited Consolidating Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources," which are included in Part I, Item 1 and Part I, Item 2, respectively, in this report. 51 Any plan of reorganization for Congoleum will likely result in substantial dilution of Congoleum's equity holders, including the Company. Under the terms of the Eighth Plan, on the effective date of that plan, reorganized Congoleum would issue 3.8 million shares of its Class A common stock, which based on the number of shares of Congoleum Class A and Class B common stock outstanding as of March 17, 2006, would represent 31.5% of Congoleum's outstanding common stock and 22.8% of the aggregate general voting power of Congoleum's outstanding common stock, and would reduce the Company's equity ownership in Congoleum to 37.7% and its general equity voting interest in Congoleum to 53.6%, in each case, after giving effect to the stock issuance. On a fully diluted basis, the Company's equity ownership would be reduced to 35.2% with a general equity voting interest of 51.0%, giving effect to such stock issuance as if it occurred on such date. In addition, under the Eighth Plan, Congoleum would issue a new convertible security to the Plan Trust on the effective date of the plan. The liquidation preference or principal amount of that convertible security, as applicable, is expected to be approximately $2.7 million and subject to possible future increase. Under the terms of the Eighth Plan, the convertible security would be convertible into 5.7 million shares of reorganized Congoleum Class A common stock (or the equivalent thereof on a fully diluted basis) upon a specified default of the obligation to pay dividends or interest, as applicable, on the convertible security and a failure to cure such default within any cure period, which, when combined with the 3.8 million newly issued shares of reorganized Congoleum Class A common stock to be contributed to the Plan Trust on the effective date of the plan, would result in the Plan Trust owning 51% of the voting common stock on a fully diluted basis. If this further additional issuance were to occur, based on the number of shares of Congoleum Class A and Class B common stock outstanding as of March 17, 2006, the Company's equity ownership and voting equity interest in Congoleum would be reduced to 24.4%, resulting in a loss of voting control of Congoleum by ABI. In addition, any proposed plans of reorganization proposed for Congoleum by other parties in interest may provide for even greater dilution of the Congoleum equity interests than that contemplated by the Eighth Plan. There can be no assurance as to how the equity interests in Congoleum, including ABI's Congoleum equity interests, will be treated under any plan of reorganization for Congoleum that may ultimately be confirmed by the Bankruptcy Court and consummated. A substantial portion of the Company's debt must be amended or refinanced and the Company's ability to obtain additional financing may be limited. The credit agreement governing the Company's credit facility with Bank of America ("BofA") includes a covenant that takes effect for periods after June 30, 2006 that the Company does not anticipate it will meet, and the Company also does not anticipate it will meet certain covenants under the note agreement governing its outstanding $20 million aggregate principal amount notes that take effect September 30, 2006. In addition, pursuant to the terms of those agreements, a default by the Company under one of those agreements triggers a cross-default under the other agreement. If such a default occurs, the lenders under those agreements could respectively require the Company to repay all amounts outstanding under the respective debt agreements. If a default occurs 52 and the Company is unable to obtain a waiver from the lenders under those agreements and the Company is required to repay all amounts outstanding under those agreements, the Company would need to obtain funding from another source. Otherwise, the Company would likely be unable to repay those outstanding amounts, in which case, the administrative agent over the collateral securing the amounts outstanding under those agreements might exercise the lenders' rights over that collateral. Any default by the Company under those agreements that results in the Company being required to immediately repay outstanding amounts under its debt agreements, and for which suitable replacement financing is not timely obtained, would have a material adverse effect on the Company's business, results of operations and financial condition. The credit facility expires on September 30, 2006. Under the Note Agreement, the Company must enter into a definitive commitment to replace or refinance the $20 million borrowing limit under the Credit Facility by June 30, 2006 and consummate the replacement or refinancing by September 30, 2006. Although the Company expects that it will be able to satisfy that requirement under the Note Agreement, and that it will obtain a modification or waiver of covenants as needed prior to any extension or replacement of its credit facility, as well as a modification of the covenants under the note agreement governing its outstanding $20 million aggregate principal amount notes, there can be no assurances in this regard. If the Company is unable to timely satisfy these requirements or obtain waivers for or amendments of these requirements, such failure would result in a breach of the note agreement governing its outstanding $20 million aggregate principal amount notes, which for the reasons discussed in the preceding paragraph, could have a material adverse effect on the Company's business, results of operations or financial condition. In addition, even if the Company were to obtain appropriate waivers or amendments of these obligations under the note agreement, the Company would be required to repay (without replenishment) all amounts outstanding under its credit facility if it were to fail to extend or replace that facility by the expiration date, which would have a material adverse effect on the Company's financial condition and liquidity. Under the terms of the Company's debt agreements, the Company's ability to obtain additional debt financing is limited. Moreover, since the Company and most of its domestic subsidiaries have already granted security interests in most of their assets, the Company's ability to obtain any additional debt financing may be limited. The Company and its majority-owned subsidiary Congoleum may incur substantial liability for environmental claims and compliance matters. Due to the nature of the Company's and its majority-owned subsidiary Congoleum's businesses and certain of the substances which are or have been used, produced or discharged by them, the Company's and Congoleum's operations and facilities are subject to a broad range of federal, state, local and foreign legal and regulatory provisions relating to the environment, including those regulating the discharge of materials into the environment, the handling and disposal of solid and hazardous substances and wastes and the remediation of contamination associated with releases of hazardous substances at Company and Congoleum facilities and off-site disposal locations. The Company and Congoleum have historically expended substantial amounts for compliance with existing 53 environmental laws or regulations, including environmental remediation costs at both third-party sites and Company and Congoleum-owned sites. The Company and Congoleum will continue to be required to expend amounts in the future because of the nature of their prior activities at their current and previously owned facilities, in order to comply with existing environmental laws, and those amounts may be substantial. Although the Company and Congoleum believe that those amounts should not have a material adverse effect on their respective financial positions, there is no certainty that these amounts will not have a material adverse effect on their respective financial positions because, as a result of environmental requirements becoming increasingly strict, neither the Company nor Congoleum is able to determine the ultimate cost of compliance with environmental laws and enforcement policies. Moreover, in addition to potentially having to pay substantial amounts for compliance, future environmental laws or regulations may require or cause the Company or Congoleum to modify or curtail their operations, which could have a material adverse effect on the Company's business, results of operations or financial condition. The Company and its majority-owned subsidiary Congoleum, may incur substantial liability for other product and general liability claims. In the ordinary course of their businesses, the Company and its majority-owned subsidiary Congoleum become involved in lawsuits, administrative proceedings, product liability claims and other matters. In some of these proceedings, plaintiffs may seek to recover large and sometimes unspecified amounts and the matters may remain unresolved for several years. These matters could have a material adverse effect on the Company's business, results of operations or financial condition if the Company or Congoleum, as applicable, is unable to successfully defend against or settle these matters, and its insurance coverage is insufficient to satisfy any judgments against it or settlements relating to these matters, or the Company or Congoleum, as applicable, is unable to collect insurance proceeds relating to these matters. The Company and its majority-owned subsidiary Congoleum are dependent upon a continuous supply of raw materials from third party suppliers and would be harmed if there were a significant, prolonged disruption in supply or increase in its raw material costs. The Company and its majority-owned subsidiary Congoleum generally design and engineer their own products. Most of the raw materials required by the Company for its manufacturing operations are available from multiple sources; however, the Company does purchase some of its raw materials from a single source or supplier. Any significant delay in or disruption of the supply of raw materials could substantially increase the Company's cost of materials, require product reformulation or require qualification of new suppliers, any one or more of which could materially adversely affect the Company's business, results of operations or financial condition. The Company's majority-owned subsidiary Congoleum, does not have readily available alternative sources of supply for specific designs of transfer print paper, which are produced utilizing print cylinders engraved to Congoleum's specifications. Although Congoleum does not anticipate any loss of this source of supply, replacement could take a 54 considerable period of time and interrupt production of certain products, which could have a material adverse affect on the Company's business, results of operations or financial condition. The Company and Congoleum have occasionally experienced significant price increases for some of its raw materials. In particular, industry supply conditions for specialty resins used in flooring have been very tight, despite significant price increases, due to several factors, including an explosion at a large resin plant in 2004 that destroyed the plant, the decision by another major supplier to exit the business, and the effect of hurricanes in 2005. Although the Company has been able to obtain sufficient supplies of specialty resin and other raw materials, there can be no assurances that it may not experience difficulty in the future, particularly if global supply conditions deteriorate, which could have a material adverse effect on profit margins. Raw material prices in 2005 increased significantly and may remain high in 2006 and until additional capacity becomes available. The Company and its majority-owned subsidiary Congoleum operate in highly competitive markets and some of their competitors have greater resources, and in order to be successful, the Company and Congoleum must keep pace with and anticipate changing customer preferences. The market for the Company's and its majority-owned subsidiary Congoleum's products and services is highly competitive. Some of their respective competitors have greater financial and other resources and access to capital. Furthermore, to the extent any of the Company's or Congoleum's competitors make a filing under Chapter 11 of the United States Bankruptcy Code and emerge from bankruptcy as continuing operating companies that have shed much of their pre-filing liabilities, those competitors could have a cost competitive advantage over Congoleum. In addition, in order to maintain their competitive positions, the Company and Congoleum may need to make substantial investments in their businesses, including, as applicable, product development, manufacturing facilities, distribution network and sales and marketing activities. Competitive pressures may also result in decreased demand for their products and in the loss of market share for their products. Moreover, due to the competitive nature of their industries, they may be commercially restricted from raising or even maintaining the sales prices of their products, which could result in the incurrence of significant operating losses if their expenses were to increase or otherwise represent an increased percentage of sales. The markets in which the Company and Congoleum compete are characterized by frequent new product introductions and changing customer preferences. There can be no assurance that the Company's and Congoleum's existing products and services will be properly positioned in the market or that the Company and Congoleum will be able to introduce new or enhanced products or services into their respective markets on a timely basis, or at all, or that those new or enhanced products or services will receive customer acceptance. The Company's and Congoleum's failure to introduce new or enhanced products or services on a timely basis, keep pace with industry or market changes or effectively manage the transitions to new products, technologies or services could have a material adverse effect on the Company's business, results of operations or financial condition. 55 The Company and its majority-owned subsidiary Congoleum are subject to general economic conditions and conditions specific to their respective industries. The Company and its majority-owned subsidiary Congoleum are subject to the effects of general economic conditions. A sustained general economic slowdown could have serious negative consequences for the Company's business, results of operations and financial condition. Moreover, their businesses are affected by the economic factors that affect their respective industries. The Company and its majority-owned subsidiary Congoleum could realize shipment delays, depletion of inventory and increased production costs resulting from unexpected disruptions of operations at any of the Company's or Congoleum's facilities. The Company's and its majority-owned subsidiary Congoleum's businesses depend upon their ability to timely manufacture and deliver products that meet the needs of their customers and the end users of their products. If the Company or Congoleum were to realize an unexpected, significant and prolonged disruption of its operations at any of its facilities, including disruptions in its manufacturing operations, it could result in shipment delays of its products, depletion of its inventory as a result of reduced production and increased production costs as a result of taking actions in an attempt to cure the disruption or carry on its business while the disruption remains. Any resulting delay, depletion or increased production cost could result in increased costs, lower revenues and damaged customer and product end user relations, which could have a material adverse effect on the Company's business, results of operations or financial condition. The Company and its majority-owned subsidiary Congoleum offer limited warranties on their products which could result in the Company or Congoleum incurring significant costs as a result of warranty claims. The Company and its majority-owned subsidiary Congoleum offer a limited warranty on many of their products against manufacturing defects. In addition, as a part of its efforts to differentiate mid- and high-end products through color, design and other attributes, Congoleum offers enhanced warranties with respect to wear, moisture discoloration and other performance characteristics which generally increase with the price of such products. If the Company or Congoleum were to incur a significant number of warranty claims, the resulting warranty costs could be substantial. The Company and its majority-owned subsidiary Congoleum rely on a small number of customers and distributors for a significant portion of their sales or to sell their products. The Company's Tape division principally sells its products through distributors. Sales to five unaffiliated customers accounted for approximately 23% of the Company's Tape division's net sales for the year ended December 31, 2005 and 21% of its net sales for the year ended December 31, 2004. The loss of the largest unaffiliated customer and/or two or more of the other three unaffiliated customers could have a material adverse effect on the Company's business, results of operations or financial condition. 56 The Company's majority-owned subsidiary Congoleum principally sells its products through distributors. Although Congoleum has more than one distributor in some of its distribution territories and actively manages its credit exposure to its distributors, the loss of a major distributor could have a materially adverse impact on the Company's business, results of operations, or financial condition. Congoleum derives a significant percentage of its sales from two of its distributors. These two distributors accounted for approximately 67% of Congoleum's net sales for the year ended December 31, 2005 and 70% of Congoleum's net sales for the year ended December 31, 2004. The Company's majority-owned subsidiary K&M Associates L.P. ("K&M") sells its products through its own direct sales force and, indirectly, through a wholly owned subsidiary and through third-party sales representatives. Three of K&M's customers accounted for approximately 58% of its net sales for the year ended December 31, 2005 and 59% of its net sales for the year ended December 31, 2004. The loss of the largest of these customers would have a material adverse effect on K&M's business, results of operations and financial condition and would likely have a material adverse effect on the Company's business, results of operations or financial condition. The Company and its majority-owned subsidiary Congoleum depend on key executives to run their businesses, and the loss of any of these executives would likely harm the Company's business. The Company and its majority-owned subsidiary Congoleum depend on key executives to run their businesses. In particular, three of the persons that serve as key executives at the Company also serve as key executives at Congoleum. The Company's future success will depend largely upon the continued service of these key executives, all of whom have no employment contract with the Company or Congoleum, as applicable, and may terminate their employment at any time without notice. Although certain key executives of the Company and Congoleum are, directly or indirectly, large shareholders of the Company or Congoleum, and thus are less likely to terminate their employment, the loss of any key executive, or the failure by the key executive to perform in his current position, could have a material adverse effect on the Company's business, results of operations or financial condition. Item 3. Defaults Upon Senior Securities The commencement of the Chapter 11 proceedings by Congoleum constituted an event of default under the indenture governing Congoleum's 8 5/8% Senior Notes Due 2008. In addition, due to the Chapter 11 proceedings, Congoleum was not permitted to make the interest payments due on the Senior Notes on the following dates: February 1, 2004, 2005 and 2006 and August 1, 2004 and 2005. The aggregate amount of the interest payments that was not paid on the Senior Notes with respect to those interest payment due dates is approximately $21.6 million. As of March 31, 2006, the aggregate outstanding principal amount of the Senior Notes is approximately $100 million. These amounts, plus $2.2 million of aggregate accrued interest on the unpaid interest that was due on February 1, 2004, 2005 and 2006 and August 1, 2004 and 2005 with respect to the Senior Notes, are included in the line item "Liabilities Subject to Compromise" in the Company's consolidated balance sheet included in this report. 57 Item 6. Exhibits Exhibit No. Description - ----------- ----------- 3.1 I Restated Certificate of Incorporation 3.2 II By-Laws, amended and restated as of September 11, 2004 31.1 Certification of the Principal Executive Officer of the Registrant Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. 31.2 Certification of the Principal Financial Officer of the Registrant Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended 32 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.1 III Eighth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., dated as of March 17, 2006 99.2 III Proposed Disclosure Statement with respect to the Eighth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., dated as of March 17, 2006 99.3 Settlement Agreement and Release by and between Congoleum Corporation and Harper Insurance Limited, formerly known as Turegum Insurance Company 99.4 Settlement and Policy Buyback Agreement and Release by and among Congoleum Corporation, the Plan Trust, American Biltrite Inc. and Travelers Casualty and Surety Co., formerly known as The Aetna Casualty and Surety Company, and St. Paul Fire and Marine Insurance Company 99.5 Settlement Agreement, made as of April 27, 2006, by and between Congoleum Corporation and Fireman's Fund Insurance Company - ---------- I Incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and filed with the Securities and Exchange Commission on March 27, 1997 (1-4773) II Incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 and filed with the Securities and Exchange Commission on March 30, 2005 III Incorporated by reference to the exhibits to the Company's Current Report on Form 8-K filed on March 22, 2006 58 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN BILTRITE INC. ---------------------- (Registrant) Date: May 15, 2006 BY: /s/ Howard N. Feist III ------------------------------ Howard N. Feist III Vice President-Finance (Duly Authorized Officer and Principal Financial and Chief Accounting Officer) 59 INDEX OF EXHIBITS Exhibit No. Description - ----------- ----------- 3.1 I Restated Certificate of Incorporation 3.2 II By-Laws, amended and restated as of September 11, 2004 31.1 Certification of the Principal Executive Officer of the Registrant Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. 31.2 Certification of the Principal Financial Officer of the Registrant Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended 32 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.1 III Eighth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., dated as of March 17, 2006 99.2 III Proposed Disclosure Statement with respect to the Eighth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., dated as of March 17, 2006 99.3 Settlement Agreement and Release by and between Congoleum Corporation and Harper Insurance Limited, formerly known as Turegum Insurance Company 99.4 Settlement and Policy Buyback Agreement and Release by and among Congoleum Corporation, the Plan Trust, American Biltrite Inc. and Travelers Casualty and Surety Co., formerly known as The Aetna Casualty and Surety Company, and St. Paul Fire and Marine Insurance Company 99.5 Settlement Agreement, made as of April 27, 2006, by and between Congoleum Corporation and Fireman's Fund Insurance Company - ---------- I Incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and filed with the Securities and Exchange Commission on March 27, 1997 (1-4773) II Incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 and filed with the Securities and Exchange Commission on March 30, 2005 III Incorporated by reference to the exhibits to the Company's Current Report on Form 8-K filed on March 22, 2006 EX-31.1 2 ex31-1.txt Exhibit 31.1 Certification of Principal Executive Officer I, Roger S. Marcus, certify that: 1. I have reviewed this quarterly report on Form 10-Q of American Biltrite Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC release 34-47986 and SEC release 33-8618] c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 15, 2006 /s/ Roger S. Marcus ------------------------------ Roger S. Marcus Principal Executive Officer EX-31.2 3 ex31-2.txt Exhibit 31.2 Certification of Principal Financial Officer I, Howard N. Feist III, certify that: 1. I have reviewed this quarterly report on Form 10-Q of American Biltrite Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC release 34-47986 and SEC release 33-8618] c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 15, 2006 /s/ Howard N. Feist III ------------------------------ Howard N. Feist III Principal Financial Officer EX-32 4 ex32.txt Exhibit 32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Pursuant to 18 U.S.C. Section 1350, the undersigned, Roger S. Marcus, Chief Executive Officer, and Howard N. Feist III, Chief Financial Officer, of American Biltrite Inc. (the "Company"), each hereby certifies that, to the best of his knowledge: The quarterly report on Form 10-Q for the quarter ended March 31, 2006 of the Company as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 15, 2006 /s/ Roger S. Marcus ------------------------------ Roger S. Marcus Chief Executive Officer /s/ Howard N. Feist III ------------------------------ Howard N. Feist III Chief Financial Officer EX-99.3 5 ex99-3.txt Exhibit 99.3 SETTLEMENT AGREEMENT AND RELEASE BY AND BETWEEN CONGOLEUM CORPORATION AND HARPER INSURANCE LIMITED, FORMERLY KNOWN AS TUREGUM INSURANCE COMPANY This Settlement Agreement and Release (the "Agreement") is made by and between (a) each of the following (each, a "Debtor" and, collectively, the "Debtors"): Congoleum Corporation, as debtor and debtor-in-possession ("Congoleum"), Congoleum Sales, Inc., and Congoleum Fiscal, Inc., as debtors and debtors-in-possession; and (b) Harper Insurance Limited, formerly known as Turegum Insurance Company ("Harper"). The Debtors and Harper are referred to herein in their individual capacity as a "Party" and collectively as the "Parties." RECITALS WHEREAS, numerous "Asbestos Claims" (as defined herein) have been asserted against Congoleum; and WHEREAS, Turegum Insurance Company, the predecessor to Harper, subscribed to a 10.5 percent share of Insurance Policy No. UJL0389 issued to Congoleum for the policy period April 1, 1977, to January 1, 1980, by Turegum Insurance Company and certain other London Market companies (Turegum Insurance Company's share of said policy is hereinafter referred to as the "Subject Policy"); and WHEREAS, there is a dispute between the Debtors and Harper (the successor to Turegum Insurance Company) regarding their respective rights and obligations with respect to insurance coverage under the Subject Policy for Asbestos Claims (the "Coverage Dispute"); and WHEREAS, Congoleum and Harper are parties to a lawsuit styled Congoleum Corporation v. ACE American Insurance Company, et al., Docket No. MID-L-8908-01, pending in the Superior Court of New Jersey, Law Division, Middlesex County (the "Coverage Action"); and WHEREAS, on or about December 31, 2003, the Debtors filed reorganization case no. 03-51524 (KCF), jointly administered pursuant to chapter 11 of the United States Bankruptcy Code (the "Chapter 11 Case") in the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"), and the Debtors continue to operate their businesses as debtors and debtors-in-possession; and WHEREAS, Congoleum seeks in the Coverage Action actual compensatory and consequential damages, plus interest thereon, among other relief, and Harper denies that it owes any damages as alleged and has defended against Congoleum's claims in the Coverage Action; and WHEREAS, the Debtors and Harper entered into settlement negotiations to resolve the Coverage Dispute and to further define their respective rights and obligations under the Subject Policy; and WHEREAS, subject to the terms of this Agreement, the Debtors and Harper now wish to enter into an agreement, as set forth below, to settle and resolve the Coverage Dispute as between them, to provide for mutual releases of their claims under the Subject Policy, to provide for dismissals with prejudice of the Coverage Action as between them, to provide for a permanent withdrawal of all of Harper's claims, objections and appeals, if any, in the Chapter 11 Case, and to resolve certain other matters, all as set forth below; and NOW, THEREFORE, in consideration of the mutual covenants contained herein, and intending to be legally bound hereby, the Parties hereby agree as follows: 2 AGREEMENT I. DEFINITIONS A. For purposes of this Agreement, the following definitions apply to the capitalized terms herein wherever those terms appear in this Agreement, including the prefatory paragraph, recitals, the sections below and any attachments hereto. Capitalized terms in the prefatory paragraph, recitals, the sections below and any attachments hereto have the meanings ascribed to them therein to the extent they are not otherwise defined in this Definitions section. Moreover, each defined term stated in the singular shall include the plural, and each defined term stated in the plural shall include the singular. The word "include" or "including" means "including but not limited to." B. "Approval Order" means an order of the Bankruptcy Court or the District Court exercising its original bankruptcy jurisdiction approving this Agreement, which order shall be in the form of Attachment A hereto or such other order that is in a form and substance acceptable to the Debtors and Harper. C. "Asbestos Claims" means any and all past, present and future claims, demands, actions, suits, proceedings, notices of partial or total responsibility, whether presently known or unknown, that seek compensatory, punitive or statutory damages, declaratory judgment, injunctive relief, medical monitoring, or any other form of relief whatsoever, on account of alleged bodily injury, personal injury, fear of future injury, medical monitoring, mental injury or anguish, emotional distress, shock, sickness, disease, or any other illness or condition, death, property damage, loss of use of property, or diminution in the value of property arising from alleged, potential or actual exposure of any type or nature whatsoever to asbestos, an asbestos-containing product, and/or any other substance, product, matter or material in any form or 3 state that contains or is alleged to contain asbestos, either alone or in combination with any other substance. The term "Asbestos Claims" also includes claims or suits alleging in whole or in part exposure to asbestos and/or asbes tos-containing products in addition to any other substance, chemical, pollutant, waste, or material of any nature, as well as claims that involve, in whole or in part, alleged exposure to asbestos or asbestos-containing products relating to or arising out of or from the installation, removal, manufacture, distribution, sale, re-sale, existence or presence (whether on premises owned or controlled by the Debtors or otherwise) of asbestos or an asbestos-containing product, either alone or in combination with any other substance. Notwithstanding anything to the contrary herein, the term "Asbestos Claims" does not include any Claims (as defined herein) for property damage brought by any governmental unit, including the United States of America, under applicable environmental laws where such Claims fall outside the scope of the "products" or "completed operations" hazards of the Subject Policy (as those terms are defined in the Subject Policy). D. "Claim" means any of the following: (1) "claim" as that term is defined in 11 U.S.C. ss. 101(5); (2) "demand" as that term is defined in 11 U.S.C. ss. 524(g)(5); or (3) any claim, whether past, present or future, known or unknown, asserted or unasserted, foreseen or unforeseen, fixed or contingent, or direct or indirect, and whether in law, equity, admiralty or otherwise, including any claim (a) arising out of, related to, or involving asbestos or any other substance, product, matter or material in any form or state, any cumulative or other injury or damage, any activity, operation, premises, or exposure or any alleged bad faith, unfair claim practices, unfair trade practices, deceptive trade practices, insurance code violations, fraud, misrepresentation, non-disclosure, breach of fiduciary duty, conspiracy, or extra-contractual or 4 tort liability; (b) for any form of damages, indemnity or defense obligations, insurance premiums (whether retrospectively rated or otherwise), deductibles, self-insured retentions, costs, expenses, contribution or subrogation (except as specified in Paragraph II.J); or (c) pursuant to or under a contract, other agreement, promise, representation or warranty; or (d) pursuant to any direct action or statutory or regulatory right of action, assertion of right, complaint, cross-complaint, counterclaim, affirmative defense, writ, demand, inquiry, request, suit, lawsuit, liability, action, cause of action, administrative proceeding, governmental action, order, judgment, settlement, lien, loss, cost or expense. E. "Claimants' Counsel" means Perry Weitz and Joseph F. Rice in their capacity as counsel to the participating asbestos claimants under that certain settlement agreement between Congoleum Corporation and various asbestos claimants, executed as of April 10, 2003, as amended. F. "Confirmation Order" means an order entered by the Bankruptcy Court in the Chapter 11 Case confirming the Plan, together with any order of the District Court issued pursuant to section 524(g)(3)(A) of the Bankruptcy Code confirming or affirming such order, which Plan includes a 524(g) Injunction. G. "Official Committee" means any and all committees appointed in the Chapter 11 Case by the Office of the United States Trustee. H. "District Court" means the U.S. District Court for the District of New Jersey. I. "Execution Date" means the earliest date on which this Agreement is signed by the Debtors and Harper. J. "Final Order" means an order or judgment of a court, the implementation, operation or effect of which has not been stayed and as to which the time to appeal, seek review, petition for certiorari, or move for reargument, reconsideration or rehearing has expired. 5 K. "FCR" means the Futures Representative appointed pursuant to the Bankruptcy Court's February 18, 2004 Order in the Chapter 11 Case, solely in his capacity as such. L. "524(g) Injunction" means an injunction in the Chapter 11 Case pursuant to Section 524(g) of the Bankruptcy Code that permanently enjoins all Persons from taking any legal action for the purpose of directly or indirectly collecting, recovering, or receiving payment or recovery from the Harper Releasees with respect to any Claim that under the Plan is to be paid in whole or in part by the Plan Trust (including all Asbestos Claims paid or to be paid in whole or in part by the Plan Trust) that arises out of or in connection with the Subject Policy. M. "Harper Releasees" means (i) Harper and its affiliates, subsidiaries, predecessors, successors and assigns; and, (ii) each of the directors, officers, shareholders, agents and employees of the foregoing, solely in their capacities as such. N. "Motion" has the meaning ascribed to such term in Paragraph III.A of this Agreement. O. "Person" means any natural person, corporation, limited liability company, syndicate, trust, joint venture, association, company, partnership, governmental authority or other entity. P. "Plan" means a plan of reorganization proposed by the Debtors in the Chapter 11 Case. 6 Q. "Plan Trust" means the trust created under the Plan that conforms to the description of a "trust" as set forth in Section 524(g)(2)(B)(i) of the Bankruptcy Code. R. "Prior Payments" has the meaning ascribed to such term in Paragraph II.E of this Agreement. S. "Termination Event" means the occurrence for any reason of any of the contingencies set forth in Paragraph III.H below and the subsequent declaration of this Agreement as null and void in accordance with Paragraph III.H below. T. "Trigger Date" means the earliest date upon which written notice is received by Harper from the Debtors, pursuant to Section V below (such notice to be sent by the Debtors within three (3) business days of the satisfaction of the all of the following events), stating that all of the following events have occurred: (1) the Approval Order is a Final Order; (2) the Confirmation Order is a Final Order; and (3) the Plan, which includes the 524(g) Injunction, is declared to be effective. II. PAYMENT BY HARPER A. Within three business days following the Trigger Date, Harper shall pay to Congoleum, or as directed in the Plan or the Confirmation Order, the total amount of One Million Three Hundred and Seventy-Five Thousand Dollars, in immediately available funds ($1,375,000.00) (the "Settlement Amount"). B. The Settlement Amount shall be used only to pay Asbestos Claims and/or to pay other amounts payable by the Plan Trust pursuant to the Plan. C. Time is of the essence with respect to payment of the Settlement Amount. The payment of the Settlement Amount shall be made by Harper no later than the date when due, without any set-off, counterclaim, diminution or any other deduction whatsoever. 7 D. In the event that the Settlement Amount is not paid in full when due, the Settlement Amount shall bear interest from (and including) the due date in the manner specified in Section II herein, to (but excluding) the date the Settlement Amount plus all interest accrued thereon is actually paid in full, at an interest rate equal to the prime rate of Citibank, N.A. in effect on the date such payment was due plus three percent (3%), compounded daily. E. The Settlement Amount is in addition to any and all amounts paid prior to the Execution Date by or on behalf of Harper to or for the benefit of the Debtors in connection with Asbestos Claims or otherwise (collectively, the "Prior Payments"). From and after the Trigger Date, and unless this Agreement is declared null and void pursuant to Paragraph III.H below, any and all payments by Harper, including the Prior Payments, if any, shall be deemed final and irrevocable payments. F. In entering into this Agreement, Harper has relied upon the fact that nothing in this Agreement and nothing in the Plan is intended to alter, amend or impair the rights and duties of the Parties in connection with insurance or other transactions that are unrelated to Asbestos Claims or the releases in Paragraphs IV.A. and IV.B. G. Harper shall have the right to allocate the Settlement Amount, or any portions thereof, solely for their own purposes, in their own books and records, to the various types and classifications of claims released by the Debtors pursuant to Section IV.A. below; provided, however, that neither the Debtors nor the Plan Trust shall be bound by or be deemed to agree with any such allocation for any reason or purpose, and that Harper's allocation shall not, in any way, limit its obligation to pay the Settlement Amount in full when due or limit the Debtors' or the Plan Trust's use or allocation of the Settlement Amount. 8 H. Harper shall not seek reimbursement of any payments that it has made (including Prior Payments) or is obligated to make under this Agreement or otherwise, whether by way of a claim for contribution or subrogation, or otherwise, from any Person other than Harper's reinsurers in their capacity as such. Each of the Debtors shall use its reasonable best efforts to obtain from all insurers with which it settles an agreement similar to that set forth in the preceding sentence; provided, however, that notwithstanding anything to the contrary herein, the failure of the Debtors to obtain such an agreement from any other insurer with which it settles shall not constitute a breach of this Agreement. Notwithstanding the foregoing, subject to the effect of the 524(g) Injunction, Harper may file a cross-complaint or counterclaim against any Person that has first asserted a claim seeking reimbursement for any payment that it has paid or is required to pay, whether by way of a claim for contribution and/or subrogation or otherwise, against Harper in connection with any Claims released pursuant to Paragraph IV.A hereunder; provided, however, that, to the extent Harper recovers any amount in respect of such cross-complaint or counterclaim from such third party, the proceeds of such recovery shall be paid by Harper pursuant to the instruction of the Debtors or the Plan Trust (as the case may be), after Harper is reimbursed from such proceeds for its reasonable fees, costs and expenses incurred in prosecuting and defending such claim. For the avoidance of doubt, any payment of such proceeds pursuant to the Debtors' or the Plan Trust's instructions shall not reduce or count towards Harper's obligation to pay the Settlement Amount (plus any and all interest accrued thereon as provided for herein). I. Each Party acknowledges and agrees that the Debtors' rights to the Settlement Amount derive from and are coextensive with the Debtors' rights to the proceeds of the Subject Policy. Each Party agrees that it shall not take any action inconsistent with such acknowledgement and agreement. 9 J. In the event that any insurer of the Debtors obtains a binding arbitration award or final judgment against or a settlement with any of the Harper Releasees (with the consent of the Debtors prior to the effective date of the Plan or with the consent of the Plan Trust following said effective date, which consent in either case shall not be unreasonably withheld) entitling it to obtain a sum certain from any of the Harper Releasees as a result of said insurer's claim for contribution, subrogation, indemnification, reimbursement or other similar claim against the Harper Releasees for the Harper Releasees' alleged share or equitable share of the defense and/or indemnity of the Debtors for any Claims released pursuant to Paragraph IV.A of this Agreement, the Debtors or the Plan Trust (as the case may be) shall voluntarily reduce the amount of any such final judgment or settlement payment that they obtained or may obtain from such other insurer by the amount of such other insurer's binding arbitration award or final judgment awarded against or settlement with the Harper Releasees in connection with such contribution, subrogation, indemnification or other similar claim and shall direct that the Harper Releasees shall not be subject to liability for such judgment, arbitration award or settlement. Such a reduction in judgment or arbitration award or settlement will be accomplished by subtracting from the judgment, arbitration award or settlement against the other insurers, the share of the judgment, arbitration award or settlement attributable to the Harper Releasees. III. BANKRUPTCY OBLIGATIONS A. The Debtors shall file, within ten (10) business days of the Execution Date, a motion (in a form and substance reasonably satisfactory to Harper) pursuant to Federal Rule of Bankruptcy Procedure 9019 seeking entry of the Approval Order (the "Motion"), and Harper shall support the Motion. 10 B. Upon the later of the Trigger Date or the payment of the Settlement Amount pursuant to Paragraph II.A, if any Claim released under the Subject Policy pursuant to Paragraph IV.A of this Agreement, or that is subject to the 524(g) Injunction, is brought against any of the Harper Releasees, the Plan Trust will cooperate with Harper in establishing that the Harper Releasees are entitled to the protections afforded by such injunction. C. From and after the effective date of the Plan, each of the Debtors agrees not to modify the terms of the 524(g) Injunction in a way that adversely affects the Harper Releasees without first obtaining Harper's consent, which consent shall not be unreasonably withheld. D. Harper will not assert, file, or pursue any motions, objections, claims, proofs of claim, or appeals in the Chapter 11 Case and shall support and not oppose entry of the Approval Order. E. Harper will not object to or oppose confirmation of the Plan, and Harper will not appeal the Confirmation Order, provided that the Plan does not in any way impair, diminish or detract from the rights of the Harper Releasees under this Agreement. F. The Debtors will provide notice of the Motion and of the hearing on the Motion to: (a) the members of the Official Committees and each such committee's counsel; (b) the FCR and the counsel for the FCR; (c) the Claimants' Counsel; (d) all other Persons, including but not limited to Congoleum's insurers, that, as of the Execution Date, had filed a notice of appearance or other demand for service of papers in the Chapter 11 Case; (e) the United States Trustee; (f) the Collateral Trustee of the Congoleum Collateral Trust (the "Collateral Trust") 11 established pursuant to a Collateral Trust Agreement dated April 17, 2003; (g) Congoleum Corporation's majority shareholder, American Biltrite, Inc.; (h) any other presently existing Person who is actually known to Congoleum Corporation as insureds under the Subject Policy; (i) counsel to all known holders of Asbestos Claims as reflected in the claims filed in this case, and claims submitted in connection with the Settlement Between Congoleum Corporation and Various Asbestos Claimants; and (j) all known holders of Asbestos Claims whose counsel is not included within the preceding clause who, as of at least five (5) business days prior to the filing of the Motion, became known through the filing of a proof of claim or otherwise. G. Upon the Confirmation Order becoming a Final Order, this Agreement shall be binding immediately and automatically upon the Plan Trust, and the Plan Trust shall be deemed to be a party to this Agreement without the need for further action. H. Subject to Paragraph III.I below, any Party may declare this Agreement, except for the provisions in Paragraphs III.H. and III.I, and Sections I and V, to be null and void upon the occurrence of any of the following contingencies: (1) the entry of an order by the Bankruptcy Court (or the District Court exercising its original bankruptcy jurisdiction) denying approval of the Motion; (2) the entry of an order by the Bankruptcy Court (or the District Court exercising its original bankruptcy jurisdiction), prior to the Confirmation Order becoming a Final Order, converting the Chapter 11 Case into a Chapter 7 case or dismissing the Chapter 11 Case; or (3) the entry of an order by the Bankruptcy Court (or the District Court exercising its original bankruptcy jurisdiction) confirming a plan of reorganization that does not contain the 524(g) Injunction. Any such declaration pursuant to this Paragraph III.H must be made in writing and sent to all Parties in the manner set forth in Section V below. 12 I. Notwithstanding anything in this Agreement to the contrary, in the event that this Agreement is declared null and void pursuant to Paragraph III.H above (1) this Agreement (except for Sections I and V, and Paragraphs III.H and III.I) shall be vitiated and shall be a nullity; (2) Harper shall not be obligated to pay the Settlement Amount; (3) no Party shall be bound by the terms of any Approval Order; (4) the Subject Policy shall remain in the same force and effect as if this Agreement had never existed, and the Debtors and Harper shall have all of their respective rights and obligations under or with respect to the Subject Policy that they would have had if this Agreement had never existed; (5) Harper shall not receive any benefits or protections under the Plan or under any injunctions issued in the Chapter 11 Case unless subsequently agreed to in writing by the Parties; and (6) any and all statutes of limitation or repose, or other time-related limitations, shall be deemed to have been tolled for the period from the Execution Date through the date that is thirty (30) days following the date on which the Agreement is declared null and void, and no Party shall assert or rely on any time-related defense to any Claim by any other Party related to such period. J. The Parties shall use commercially reasonable efforts to obtain the Approval Order and the Confirmation Order. IV. RELEASE, DISMISSAL AND WAIVER A. Effective upon the Trigger Date, each of Congoleum and the other Debtors and, solely to the extent that they have the right and power to give the releases set forth in this Paragraph IV.A on their behalf (i) their respective affiliates, subsidiaries, predecessors, successors and assigns; and (ii) the directors, members, officers, shareholders, agents and employees of the foregoing, solely in their capacities as such (collectively, the "Congoleum 13 Releasees") hereby releases the Harper Releasees forever from any and all known or unknown, suspected or unsuspected, past, present, existing, potential or future obligations, duties, Claims, demands, penalties, costs, fees, attorneys' fees, debts, actions, causes of action, choses in action, administrative actions or proceedings, suits, arbitrations, mediations or other proceedings, offsets, damages, injuries, rights, agreements, requests for relief, sums of money, losses or liabilities of any kind, nature, character or description, whether fixed or unliquidated, whether conditional or contingent, whether in law or equity arising from, related to or involving the Subject Policy, including arising from, related to or involving insurance coverage for Claims or with respect to the applicable products/completed operations hazards limits under the Subject Policy. Notwithstanding anything to the contrary herein, nothing in this Paragraph IV.A shall be construed as releasing Harper from its obligation to pay in full the Settlement Amount and its other obligations under this Agreement; nor shall this Paragraph IV.A. be construed as releasing rights under insurance policy UJL0389 except to the extent of Harper's participation therein. B. Effective upon the Trigger Date, each of the Harper Releasees hereby releases the Congoleum Releasees and the Plan Trust forever from any and all known or unknown, suspected or unsuspected, past, present, existing, potential or future obligations, duties, Claims, demands, penalties, costs, fees, attorneys' fees, debts, actions, causes of action, choses in action, administrative actions or proceedings, suits, arbitrations, mediations or other proceedings, offsets, damages, injuries, rights, agreements, requests for relief, sums of money, losses or liabilities of any kind, nature, character or description, whether fixed or unliquidated, whether conditional or contingent, whether in law or equity arising from, related to or involving the Subject Policy, including arising from, related to or involving insurance coverage for 14 Claims or with respect to the applicable products/completed operations hazards limits under the Subject Policy. Notwithstanding anything to the contrary herein, nothing in this Paragraph IV.B shall be construed as releasing the Debtors from their obligations under this Agreement. C. Within five (5) business days after the Execution Date: (1) Congoleum and Harper shall file a joint notice dismissing, without prejudice and without costs, any and all Claims against each other in the Coverage Litigation; (2) Harper shall withdraw any motions, objections, proofs of claim, or discovery filed or served in the Chapter 11 Case; and (3) the Debtors shall withdraw any motions, objections, or discovery filed or served in the Chapter 11 Case solely to the extent such motions, objections, or discovery are related to Harper. D. After the Trigger Date, the dismissal referred to in Paragraph IV.C of this Agreement shall be amended to reflect that the dismissal is with prejudice and without costs. E. The Parties acknowledge that they have been advised by their respective legal counsel and are familiar with the provisions of Section 1542 of the California Civil Code, which provides: A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of the executing of the release which if known by him or her must have materially affected his or her settlement with the debtor. The Parties hereto expressly consent that this settlement and release shall be given full force and effect according to each and all of its express terms and provisions, including those dealing with unknown and unsuspected claims, and causes of action. The Parties further agree that this reference to the California Civil Code shall not give rise to any argument that California law applies to this Agreement or the disputes resolved pursuant hereto. 15 F. Notwithstanding anything in this Section IV to the contrary, the release provisions of Paragraphs IV.A and IV.B shall not be construed to apply to any breach by a Party of any of its obligations under this Agreement or to discharge any rights that any Party has to enforce this Agreement. V. NOTICES Any and all statements, communications or notices to be provided pursuant to or in connection with this Agreement shall be in writing and sent by facsimile, e-mail and first-class mail, postage prepaid. Such notices shall be sent to the individuals noted below, or to such other individuals as hereafter designated in writing: TO THE DEBTORS: Mr. Howard N. Feist III Congoleum Corporation 57 River Street Wellesley, MA 02481-2097 Phone: (781) 237-6655 Fax: (781) 237-6880 e-mail: sfeist@alumni.princeton.edu With a copy to Pillsbury Winthrop Shaw Pittman LLP 1540 Broadway New York, NY 10036-4039 Attn: Richard L. Epling, Esq. Kerry A. Brennan, Esq. Phone: (212) 858-1000 Fax: (212) 858-1500 e-mail: repling@pillsburylaw.com kbrennan@pillsburylaw.com and 16 Covington & Burling 1201 Pennsylvania Avenue, NW Washington, D.C. 20004 Attn: Mitchell F. Dolin, Esq. Michael St. Patrick Baxter, Esq. Phone: (202) 662-6000 Fax: (202) 662-6291 e-mail: mdolin@cov.com mbaxter@cov.com TO HARPER: Mr. Nick Packer No. 1 Stoke Road Guildford, Surrey GU1 4HW England Direct Dial: 011 44 1483 452 622 Fax: 011 44 1483 452 644 e-mail: nick.packer@castlewood.co.uk With a copy to Shawn L. Kelly, Esq. Riker Danzig Headquarters Plaza One Speedwell Avenue Morristown, New Jersey 07962-1981 Direct Dial: (973) 451-8555 Fax: 973-538-1984 e-mail: skelly@riker.com VI. NO ADMISSIONS BY THE PARTIES; RIGHTS OF THIRD PARTIES A. Nothing contained herein is or shall be deemed to be: (1) an admission by Harper that any of the Debtors or any other Person was or is entitled to any insurance coverage under the Subject Policy, or as to the validity of any of the positions that have been or could have been asserted by any of the Debtors; (2) an admission by any of the Debtors as to the validity of any of the positions or defenses to coverage that have been or could have been asserted by Harper; or (3) an admission by any of the Debtors or Harper of any liability whatsoever 17 with respect to Asbestos Claims or other Claims. In entering into this Agreement, no Party has waived or shall be deemed to have waived, modified, or retracted any rights, obligations, privileges, or positions it has asserted or might in the future assert in connection with any Claim, matter, bankruptcy procedure or process, insurance policy, or Person outside the scope of this Agreement. B. Notwithstanding anything to the contrary herein, the releases in Section IV above in no way impair any third party or direct claim or action by any Person against Harper for any wrongful conduct allegedly committed by Harper arising from Harper's insurance of any manufacturer, supplier, distributor, or user of asbestos or asbestos-containing products other than the Congoleum Releasees' or defense or settlement of any asbestos claims against any manufacturer, supplier, distributor, or user of asbestos or asbestos-containing products other than the Congoleum Releasees'. VII. CONFIDENTIALITY The Parties agree, subject to any disclosure obligations imposed by law, to hold confidential, and not to disclose to third parties, this Agreement or its contents unless and until the Debtors file the Motion not under seal. Notwithstanding anything to the contrary in this Section VII, any Party may disclose this Agreement or its contents at any time (1) subject to an agreement of confidentiality, to the Party's reinsurers, auditors, regulators, reinsurance intermediaries, creditors, and lenders; (2) as required to obtain the Approval Order or the Confirmation Order; (3) subject to an agreement of confidentiality, by the Debtors to the Office of the United States Trustee, any Official Committee, the FCR and their respective counsel; and/or (4) at any time after the effective date of the Plan. 18 VIII. COOPERATION A. Harper shall use its reasonable best efforts to comply with reasonable requests from the Debtors or the Plan Trust for documents and other information required by the Debtors or the Plan Trust in connection with any insurance claims, arbitrations, or litigation related to the Settlement Amount, this Agreement, or the Debtors' Asbestos Claims, including Harper's claims and underwriting files and billing and payment records with respect to the Debtors' Asbestos Claims. B. Each of the Debtors and the Plan Trust shall use their reasonable best efforts to comply with reasonable requests from Harper for documents and other information required by Harper in connection with any reinsurance claims, arbitrations, or litigation relating to the Settlement Amount, this Agreement, or the Debtors' Asbestos Claims. C. For purposes of this Section VIII, "reasonable best efforts" shall not include disclosure of information that is subject to a confidentiality agreement or legal privilege. IX. REPRESENTATIONS AND WARRANTIES A. Each of the Debtors represents and warrants that it has full corporate authority to enter this Agreement as a binding and legal obligation of such Debtor, subject to approval by the Bankruptcy Court. The person signing this Agreement on behalf of any of the Debtors represents and warrants that he or she is authorized by such Debtor to execute this Agreement as a binding and legal obligation of such Debtor, subject to approval by the Bankruptcy Court. B. Harper represents and warrants that it has full corporate authority to enter this Agreement as a binding and legal obligation of Harper. The person signing this Agreement on behalf of Harper represents and warrants that he or she is authorized by Harper to execute this Agreement as a binding and legal obligation of Harper. 19 C. Each Party represents and warrants that, as of the Execution Date, it is not aware of the existence of any insurance policies issued to any of the Debtors by any of the Harper Releasees or subscribed to by any of the Harper Releasees, other than the Subject Policy. X. JURISDICTION The Bankruptcy Court shall retain exclusive jurisdiction over any dispute relating to this Agreement. XI. NO PREJUDICE AND CONSTRUCTION OF AGREEMENT This Agreement is the product of informed negotiations and involves compromises of the Parties' previously stated legal positions. This Agreement is without prejudice to positions taken by Harper with regard to other insureds or by the Debtors with regard to other insurers. This Agreement is the jointly drafted product of arm's-length negotiations between the Parties with the benefit of advice from counsel, and the Parties agree that it shall be so construed. As such, no Party will claim that any ambiguity in this Agreement shall be construed against any other Party by reason of the identity of the drafter. XII. ENTIRE AGREEMENT AND TERM A. This Agreement and the Approval Order express the entire agreement and understanding between the Parties. Except as expressly set forth in this Agreement, there are no representations, warranties, promises, or inducements, whether oral, written, express or implied, that in any way affect or condition the validity of this Agreement or alter its terms. If the facts or law related to the subject matter of this Agreement are found hereafter to be other than is 20 now believed by any of the Parties, the Parties expressly accept and assume the risk of such possible difference of fact or law and agree that this Agreement nonetheless shall be and remain effective according to its terms. B. Titles and captions contained in this Agreement are inserted only as a matter of convenience and are for reference purposes only. Such titles and captions are intended in no way to define, limit, expand, or describe the scope of this Agreement or the intent of any provision hereof. XIII. MODIFICATION No change or modification of this Agreement shall be valid unless it is made in writing and signed by the Parties hereto. XIV. EXECUTION This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument. Each counterpart may be delivered by facsimile transmission, and a faxed signature shall have the same force and effect as an original signature. XV. MISCELLANEOUS A. Notwithstanding anything to the contrary herein, the Parties hereby agree that no Party hereto shall have any liability to the other Parties for the occurrence of any Termination Event or the failure of the Trigger Date to occur. B. In the event that an asbestos reform bill becomes federal law by the earlier of July 1, 2006, or the date that the Confirmation Order becomes a Final Order, and such law (1) materially limits or controls the prosecution or payment of Asbestos Claims in the state or federal courts or in any other forum; and (2) permits direct assessments against insurers, Harper may, with notice to the Debtors, seek Bankruptcy Court approval to eliminate or reduce its payment of 21 the Settlement Amount to protect Harper against making duplicative payments under the Agreement and the aforementioned federal law. In the event that the Bankruptcy Court finds that the above contingencies have been met, Harper shall be entitled to entry of an order by the Bankruptcy Court eliminating or reducing payment of the Settlement Amount, to the extent necessary to protect Harper against making duplicative payments under the Agreement and the aforementioned federal law. Nothing contained herein precludes or limits the right and ability of any party in interest in the Chapter 11 Case from asserting that the contingencies set forth in the first sentence of this Paragraph XV.B have not been met or that any payment limitation or reduction is not necessary. The preceding sentences are intended to address what is commonly understood to be "asbestos reform" legislation and are not intended to encompass general tort reform, asbestos medical criteria reform, class action reform, malpractice reform, or tax reform legislation. Unless specifically addressed by order of the Bankruptcy Court in furtherance of this Paragraph XV.B, nothing in this Paragraph XV.B shall affect the obligations of the Parties under this Agreement. C. If an asbestos reform bill becomes federal law, at the request of any Party, the Parties shall meet and confer concerning the practical implementation of this Paragraph XV.B in light of the asbestos-reform legislation. D. The settlement negotiations leading up to this Agreement and all related discussions and negotiations shall be deemed to fall within the protection afforded to compromises and to offers to compromise by Rule 408 of the Federal Rules of Evidence and any parallel state law provisions. 22 IN WITNESS WHEREOF, this Agreement, consisting of twenty-seven (27) pages, including the signature page and one attachment, has been read and signed by the duly authorized representatives of the Parties as of the dates set forth below. March 6, 2006 CONGOLEUM CORPORATION Debtor-in-Possession By: /s/ Howard Feist ---------------------- Name: Howard Feist Title CFO CONGOLEUM SALES, INC. Debtor-in-Possession By: /s/ Howard Feist ---------------------- Name: Howard Feist Title: VP CONGOLEUM FISCAL, INC. Debtor-in-Possession By: /s/ Howard Feist ---------------------- Name: Howard Feist Title: VP March 8, 2006 HARPER INSURANCE LIMITED, FORMERLY KNOWN AS TUREGUM INSURANCE COMPANY By: /s/ Nicholas Packer ---------------------- Name: Nicholas Packer Title: Director 23 EXHIBIT A - ------------------------------------------- UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW JERSEY - ------------------------------------------- Caption in Compliance with D.N.J. LBR 9004-2(c) Okin, Hollander & DeLuca L.L.P. Parker Plaza, 400 Kelley Street Fort Lee, NJ 07024 (201) 947-7500 Paul S. Hollander (PH-2681) Pillsbury Winthrop Shaw Pittman LLP 1540 Broadway New York, NY 10036 (212) 858-1000 Richard L. Epling Kerry A. Brennan Attorneys for Debtors and Debtors-In-Possession - ------------------------------------------- In re: Chapter 11 Case No. 03-51524 (KCF) CONGOLEUM CORPORATION, et al., Jointly Administered Debtors. Honorable Kathryn C. Ferguson - ------------------------------------------- ORDER PURSUANT TO BANKRUPTCY RULE 9019 AUTHORIZING AND APPROVING INSURANCE SETTLEMENT AGREEMENT BETWEEN DEBTORS AND HARPER INSURANCE LIMITED ------------------------------------------------------------------ The relief set forth on the following pages, numbered two (2) through four (4) is hereby ORDERED. The Court has considered the "Motion for Order Pursuant to Bankruptcy Rule 9019 Authorizing and Approving Settlement Agreement Between Debtors and Harper Insurance Limited" (the "Motion"), filed by Congoleum Corporation, Congoleum Sales, Inc., and Congoleum Fiscal, Inc., the debtors and debtors-in-possession herein (collectively, the "Debtors"), seeking approval, pursuant to Rules 2002(a)(3), 9014 and 9019 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") and other applicable sections of the title 11 of the United States Code, 11 U.S.C. ss.ss. 101 et seq. (the "Bankruptcy Code"), of that certain Settlement Agreement and Release by and Between Congoleum Corporation and Harper Insurance Limited, Formerly Known As Turegum Insurance Company, dated as of _____________, 2006 (the "Settlement Agreement").(1) The Court having found that due and proper notice of the Motion was given to (a) the members of the Official Committees and each such committee's counsel; (b) the FCR and the counsel for the FCR; (c) the Claimants' Counsel; (d) all other Persons, that, as of the Execution Date, had filed a notice of appearance or other demand for service of papers in the Chapter 11 Case; (e) the United States Trustee; (f) the Collateral Trustee of the Congoleum Collateral Trust established pursuant to a Collateral Trust Agreement dated April 17, 2003; (g) American Biltrite, Inc.; (h) any other presently existing person who is actually known to Congoleum Corporation as insureds under the Subject Policy; (i) counsel to all known holders of Asbestos Claims as reflected in the claims filed in this case, and claims submitted in connection with the Settlement Between Congoleum Corporation and Various Asbestos Claimants; and (j) all known holders of Asbestos Claims whose counsel is not included within the preceding clause who, as of at least five (5) business days prior to the filing of the Motion, became known through the filing of a proof of claim or otherwise. - ---------- (1) Capitalized terms used in this Approval Order and not otherwise defined herein shall have the meanings ascribed to such terms in the Settlement Agreement. 2 Following notice and a hearing at which all interested parties were given an opportunity to be heard, objections to the Motion, if any, have been resolved by agreement or are overruled, and after due deliberation and sufficient cause appearing therefore, it is hereby ORDERED, ADJUDGED AND DECREED AS FOLLOWS: 1. The notice of the Motion constitutes due, sufficient and timely notice of the Motion, the Hearing, and the Settlement Agreement. 2. The Motion is hereby granted and the Settlement Agreement is hereby approved in its entirety. 3. Each of the Debtors is hereby authorized to enter into and perform the Settlement Agreement; and to execute such documents and do such acts as are necessary or desirable to carry out the transactions contemplated by the Settlement Agreement. 4. This Order shall be binding upon, and the Settlement Agreement shall inure to the benefit and constitute the valid and binding obligations of the Plan Trust, without further order or action. 5. The Settlement Agreement and other related documents may be modified, amended, or supplemented by the parties thereto, in a writing signed by such parties in accordance with the terms thereof, without further order of the Court, provided that (a) any such modification, amendment, or supplement is not material and (b) to the extent practicable, notice of any modification, amendment, or supplement should be delivered to (i) the Official Committees, (ii) the FCR and (iii) the U.S. Trustee at least five (5) days prior to the effective date of any such modification, amendment, or supplement. 3 6. The Court shall retain exclusive jurisdiction over any proceeding that involves the validity, application, construction, modification or termination of the Settlement Agreement and this Approval Order, and may make such further orders with respect thereto as are proper and appropriate. 4 EX-99.4 6 ex99-4.txt Exhibit 99.4 SETTLEMENT AND POLICY BUYBACK AGREEMENT AND RELEASE This Settlement and Policy Buyback Agreement and Release ("Settlement and Buyback Agreement") is made by and among Congoleum Corporation, individually and on behalf of all of the Congoleum Entities; upon its creation, the Plan Trust; American Biltrite Inc., individually and on behalf of all of the ABI Entities; and Travelers Casualty and Surety Co., formerly known as The Aetna Casualty and Surety Company ("Travelers"), and St. Paul Fire and Marine Insurance Company ("St. Paul"), individually and on behalf of all of the St. Paul Travelers Entities. RECITALS WHEREAS, numerous asbestos-related Claims including, but not limited to Asbestos Personal Injury Claims and Asbestos Property Damage Claims, have been asserted against certain of the Congoleum Entities; and WHEREAS, certain of the St. Paul Travelers Entities issued or allegedly issued one or more of the Subject Policies; and WHEREAS, the Congoleum Entities assert that certain of the St. Paul Travelers Entities are obligated to provide coverage under the Subject Policies with respect to asbestos-related Claims including Asbestos Personal Injury Claims and Asbestos Property Damage Claims; and WHEREAS, there is a dispute among certain of the Congoleum Entities and certain of the St. Paul Travelers Entities regarding their respective rights and obligations with respect to insurance coverage for Claims including Asbestos Claims; and WHEREAS, Congoleum Corporation, Travelers and St. Paul are parties to a lawsuit styled Congoleum Corporation v. ACE American Insurance Company, et al., Docket No. MID-L-8908-01 pending in the Superior Court of New Jersey, Law Division, Middlesex County (the "Coverage Action") in which Congoleum Corporation has asserted claims against Travelers and St. Paul, among other insurers; and WHEREAS, on December 31, 2003, Congoleum Corporation, Congoleum Fiscal, Inc. and Congoleum Sales, Inc. (collectively, the "Debtors") filed petitions pursuant to Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"), jointly administered under Case No. 03-51524 (KCF) (collectively, the "Chapter 11 Cases"); and WHEREAS, the Debtors continue to operate their businesses as debtors and debtors-in-possession; and WHEREAS, numerous Claims including Asbestos Claims have been asserted against certain of the Congoleum Entities and may be asserted in the future, and certain of the Congoleum Entities may contend that such Claims are covered under the Subject Policies; and WHEREAS, on March 17, 2006, the Debtors filed the Eighth Modified Joint Plan of Reorganization; and WHEREAS, Travelers and St. Paul have objected and continue to object to the plans of reorganization proposed by the Debtors in the Chapter 11 Cases; and WHEREAS, the Parties now wish to enter into an agreement to settle the outstanding disputes referred to above and to release the St. Paul Travelers Entities as set forth herein from any further obligations under the Subject Policies, as well as to effect the buyback of the Subject Policies thereby terminating all of the St. Paul Travelers Entities' respective obligations under, and the Congoleum Entities' respective rights in, the Subject Policies; NOW, THEREFORE, in consideration of the promises and of the mutual covenants contained herein, and intending to be legally bound hereby, subject to the satisfaction of all the conditions precedent as set forth in Section II of this Settlement and Buyback Agreement (where and when applicable), the Parties do hereby agree as follows: I. DEFINITIONS The following definitions apply to the capitalized terms herein wherever those terms appear in this Settlement and Buyback Agreement, including the prefatory paragraph, recitals, the Sections below and any exhibits attached hereto. Capitalized terms in the prefatory paragraph, recitals, and in the Sections below have the meanings ascribed to them therein to the extent they are not otherwise defined in this Definitions Section. Capitalized terms that are not defined in this Settlement and Buyback Agreement are given the meanings designated in the Eighth Modified Joint Plan of Reorganization as of March 17, 2006. Moreover, each defined term, whether stated in the singular or the plural, shall include both the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and the neuter gender. The word "including" means "including but not limited to." A. "ABI" means American Biltrite Inc. B. "ABI Entities" means: (i) ABI; (ii) its respective present, direct and indirect, parents, subsidiaries and affiliates; (iii) the respective past and future, direct and indirect, parents, subsidiaries and affiliates of the Persons described in Sections I.B(i) and/or I.B(ii) only to the extent that any of the Persons described in Sections I.B(i) and/or I.B(ii) have the power to give the releases set forth in Section VI.C on behalf of the Persons described in this Section I.B(iii); (iv) the respective past, present and future, direct and indirect, associated corporations and/or entities of the Persons described in Sections I.B(i) through I.B(iii), inclusive, but only in their capacity as such and only to the extent that any of the Persons described in Sections I.B(i) and/or I.B(ii) have the power to give the releases set forth in Section VI.C on behalf of the Persons described in this Section I.B(iv); (v) the direct and indirect predecessors, successors and assigns of each of the foregoing Persons described in Sections I.B(i) through I.B(iv), inclusive, except, in the case of predecessors, only to the extent that any of the Persons described in Sections I.B(i) through I.B(iv), inclusive, have the power to give the releases set forth in Section VI.C on behalf of such predecessors; and (vi) the respective officers, directors, employees, shareholders, agents, principals, attorneys and representatives of the Persons described in Sections I.B(i) through I.B(v), inclusive, but only when acting in their capacity as such and only to the extent any of the Persons described in Sections I.B(i) through I.B(v), inclusive, have 2 the power to give the releases set forth in Section VI.C on behalf of the Persons described in this Section I.B(vi). Any Person who meets the definition set forth above shall be individually referred to as an "ABI Entity." Other than ABI and any other ABI Entity for which no Congoleum Entity has the power to give the releases set forth in Section VI, any Person who meets the definition of both "ABI Entity" and "Congoleum Entity," as such term is defined in Section I.H below, shall be treated for all purposes under the Settlement and Buyback Agreement as a "Congoleum Entity." ABI and any other ABI Entity for which no Congoleum Entity has the power to give the releases set forth in Section VI shall be treated only as "ABI Entities" and not as "Congoleum Entities" under this Settlement and Buyback Agreement. C. "ACC" means the Asbestos Claimants' Committee in the Chapter 11 Cases. D. "Approval Order" means an order of the Court, in the form of Exhibit A hereto with such changes, if any, to which the St. Paul Travelers Entities will have consented in writing, or such other substantially similar form that does not materially or adversely affect the rights of the St. Paul Travelers Entities under the Settlement and Buyback Agreement, and that: (i) approves this Settlement and Buyback Agreement and the compromise and settlement memorialized herein; and (ii) provides that this Settlement and Buyback Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns, including the Reorganized Debtors and the Plan Trust; and (iii) provides that this Settlement and Buyback Agreement is an Asbestos Insurance Settlement Agreement. E. "Business Day" means any day other than a Saturday, Sunday or other "legal holiday" as defined in Federal Bankruptcy Rule 9006(a). F. "Claim" means: (i) "Claim" as that term is defined in the Section 101(5) of the Bankruptcy Code; (ii) "Demand" as that term is defined in the Section 524(g)(5) of the Bankruptcy Code; and/or (iii) Any past, present or future, known or unknown, asserted or unasserted, foreseen or unforeseen, matured or unmatured, concealed or disclosed, fixed or contingent, direct or indirect claim, complaint, cross-complaint, counterclaim, affirmative defense, writ, demand, inquiry, request, suit, lawsuit, liability, action, cause of action, administrative proceeding, governmental action, order, judgment, settlement, lien, loss, cost or expense, and whether in law, equity, admiralty, or otherwise, and whether for economic loss, general damages, medical monitoring, punitive damages, attorneys' fees or otherwise. G. "Confirmation Order" means an order or orders entered by the Court in the Chapter 11 Cases that: (i) Confirms the Plan; 3 (ii) Has the effect of providing that the Asbestos Channeling Injunction applies in full to the St. Paul Travelers Entities and the ABI Entities with respect to Plan Trust Asbestos Claims and Demands; Asbestos Claims and Demands; Derivative Actions; and any other Claims which are channeled pursuant to the Asbestos Channeling Injunction. (iii) Specifies that: (a) the St. Paul Travelers Entities are Settling Asbestos Insurance Companies or incorporates by reference the schedule referred to in Section II.B below; (b) any prerequisites to permit the designation of the St. Paul Travelers Entities as Settling Asbestos Insurance Companies under the terms of the Plan have been satisfied; and (c) Settling Asbestos Insurance Companies are entitled to all of the benefits of the Asbestos Channeling Injunction as Protected Parties; (iv) Provides that all of the Congoleum Entities' obligations and rights under this Settlement and Buyback Agreement shall be binding on and inure to the benefit of the Plan Trust and the Plan Trustee, and each of the foregoing shall become fully bound to all of the terms and conditions of this Settlement and Buyback Agreement, including the releases in Section VI, and of the Approval Order without the need for further act or documentation of any kind (which may be accomplished by a provision that makes all Asbestos Insurance Settlement Agreements, including this Settlement and Buyback Agreement, and related approval orders, including the Approval Order, binding upon and inure to the benefit of the Plan Trust and the Plan Trustee); and (v) Specifies that the Congoleum Entities, the ABI Entities, the FCR, the Plan Trustee, the ACC, and/or the Claimants' Representative may not seek to terminate, reduce or limit the scope of the Asbestos Channeling Injunction or any other injunction with respect to any St. Paul Travelers Entities and any ABI Entities. H. "Congoleum Entities" means: (i) the Debtors; (ii) Congoleum Corporation as the parent of Congoleum Fiscal, Inc. and Congoleum Sales, Inc.; (iii) the Debtors' respective present, direct and indirect, subsidiaries and affiliates; (iv) the respective past and future, direct and indirect, parents, subsidiaries and affiliates of the Persons described in Sections I.H(i) through I.H(iii), inclusive, only to the extent that any of the Persons described in Sections I.H(i) through I.H(iii), inclusive, have the power to give the releases set forth in Section VI on behalf of the Persons described in this Section I.H(iv); (v) the respective past, present and future, direct and indirect, associated corporations and/or entities of the Persons described in Sections I.H(i) through I.H(iv), inclusive, but only in their capacity as such and only to the extent that any of the Persons described in Sections I.H(i) through I.H(iv), inclusive, have the power to give the releases set forth in Section VI on behalf of the Persons described in this Section I.H(v); (vi) any other insureds under the Subject Policies, only to the extent that the Persons described in Sections I.H(i) through I.H.(v), inclusive, have the power to give the releases set forth in Section VI on behalf of the Persons described in this Section I.H(vi); (vii) the direct and indirect predecessors, successors and assigns of each of the foregoing Persons described in Sections I.H(i) through I.H(vi), inclusive, except, in the case of predecessors, only to the extent that any of the Persons described in Sections I.H(i) through I.H(vi), inclusive, have the power to give 4 the releases set forth in Section VI on behalf of such predecessors; and (viii) the respective officers, directors, employees, shareholders, agents, principals, attorneys and representatives of the Persons described in Sections I.H(i) through I.H(vii), inclusive, but only when acting in their capacity as such and only to the extent that any of the Persons described in Section I.H(i) through I.H(vii), inclusive, have the power to give the releases set forth in Section VI on behalf of the Persons described in this Section I.H(viii). Any Person who meets the definition set forth above shall be individually referred to as a "Congoleum Entity." Notwithstanding anything in this Settlement and Buyback Agreement to the contrary, the term "Congoleum Entities" does not include ABI or any ABI Entity for which no Congoleum Entity has the power to give the releases set forth in Section VI. I. "Court" means the Bankruptcy Court or the United States District Court for the District of New Jersey or other court of competent jurisdiction. J. "Coverage Action" means the action pending in the Superior Court of New Jersey, Law Division, Middlesex County, captioned, Congoleum Corporation v. ACE American Insurance Company, et al., Docket No. MID-L-8908-01. K. "Execution Date" means the earliest date on which this Settlement and Buyback Agreement has been signed by all of the signatories hereto as reflected by the last dated signature entered on the signature page. L. "FCR" means the Futures Representative appointed pursuant to the Bankruptcy Court's February 18, 2004 Order in the Chapter 11 Cases, solely in his capacity as such, together with his successors and assigns, solely in their respective capacities. M. "Final Order" means an order as to which the time to appeal, petition for certiorari, or move for reargument or rehearing has expired and as to which no appeal, petition for certiorari, or other proceedings for reargument or rehearing shall then be pending or as to which any right to appeal, to petition for certiorari, to reargue, to rehear or to reconsider shall have been waived in writing by the Person possessing such right, or, in the event that an appeal, writ of certiorari, or reargument, rehearing or reconsideration thereof has been sought, such order shall have been affirmed by the highest court to which such order was appealed, or certiorari has been denied or from which reargument, rehearing or reconsideration was sought, and the time to take any further appeal, petition for certiorari, or move for reargument, rehearing or reconsideration shall have expired, and no such further appeal, petition for certiorari, or motion for reargument, rehearing or reconsideration shall have been filed. N. "Parties" means the Congoleum Entities, the ABI Entities, and the St. Paul Travelers Entities. O. "Person" means any natural or legal entity or person, including an individual, a corporation, a partnership, an association, a trust, a joint venture, a union, any other entity or organization, and any federal, state or local government or any governmental or quasi-governmental body or political subdivision or any agency, department, board or instrumentality thereof. 5 P. "Plan" means the Eighth Modified Joint Plan of Reorganization, filed by the Debtors on _March 17, 2006 in the Bankruptcy Court, as such Plan may be modified from time to time in accordance with the terms thereof, provided, however, that such modifications: (i) Are consistent with the rights and benefits provided to the St. Paul Travelers Entities under this Settlement and Buyback Agreement and with the duties and obligations of, and releases provided by, the Congoleum Entities and the ABI Entities under this Settlement and Buyback Agreement; and (ii) Do not otherwise have a material adverse effect on the interests of the St. Paul Travelers Entities under this Settlement and Buyback Agreement. Q. "Plan Effective Date" means the earlier of: (i) the "Effective Date" as that term is defined in the Plan; or (ii) the first Business Day after the date on which all of the conditions precedent to the effectiveness of the Plan specified in the Plan have been satisfied or waived, or, if a stay of the Confirmation Order is in effect on such date, the first Business Day after the expiration, dissolution, or lifting of such stay. R. "Settlement and Buyback Amount" means the sum of Twenty-Five Million U.S. Dollars ($25,000,000) in cash, certified or cashiers check, or wire transfer, at the option of Travelers. S. "St. Paul" means St. Paul Fire and Marine Insurance Company. T. "St. Paul Travelers Entities" means: (i) The St. Paul Travelers Companies, Inc., Travelers, St. Paul, and their respective past, present and future, direct and indirect, parents, subsidiaries, affiliates and associated corporations and/or entities; (ii) the predecessors, successors and assigns of each of the foregoing Persons described in Section I.T(i), no matter the degree of removal from the Persons described in Section I.T(i) (which terms shall include any Person who assumes the liabilities of any of the foregoing Persons described in Section I.T(i) and (ii) with the approval of the appropriate insurance commissioner or other official); and (iii) the respective officers, directors, employees, shareholders, agents, principals, attorneys, and representatives of the Persons described in Sections I.T(i) and I.T(ii), but only when acting in their capacity as such. Any Person who meets the definition set forth above shall be individually referred to as a "St. Paul Travelers Entity." U. "Subject Policies" means all policies of insurance, whether the policies are primary, umbrella, excess or otherwise, and whether called liability, first party, third party, property, environmental impairment, employer liability or otherwise and whether known or unknown, issued by any St. Paul Travelers Entity prior to the Execution Date: (i) to any Congoleum Entity; and/or (ii) under which any Congoleum Entity claims to be entitled to insurance, rights or benefits, except for the statutory portion of any workers' compensation policy. Notwithstanding the above, the Parties agree that: (a) Policy Nos. QK09000534, QK09000747, 06 XN 22205576, 0369JM0112, OC06900058, and MOC 0645B63A issued by one or more of the St. Paul Travelers Entities to ABI shall be deemed "Subject Policies" but only with respect to Claims arising from, relating to or involving asbestos-related Claims, including but not limited to 6 Plan Trust Asbestos Claims (recognizing that the Parties agree that each of the first three above-mentioned policies contains an asbestos exclusion and that each of the last three above-mentioned policies does not afford liability insurance coverage), and only with respect to the rights of a Congoleum Entity thereunder; and (b) with respect to policies issued by a St. Paul Travelers Entity to any ABI Entities or any other Person other than one of the Congoleum Entities, "Subject Policies" shall include only the rights of a Congoleum Entity thereunder, and shall not include the rights of any other Person, including any ABI Entity, thereunder. For the purposes of this Settlement and Buyback Agreement, the Parties agree that "Subject Policies" shall not include: (x) any policy of insurance issued by a Person that is not a St. Paul Travelers Entity as of the Execution Date that acquires, is merged into, or is acquired by a St. Paul Travelers Entity on or after the Execution Date; (y) any policy of insurance issued to a Person that was not a Congoleum Entity on or before the Execution Date, except to the extent that a Congoleum Entity had rights thereunder which arose on or before the Execution Date; and/or (z) any policy of insurance set forth in Exhibit C hereto. V. "Travelers" means Travelers Casualty and Surety Company, formerly known as The Aetna Casualty and Surety Company. W. "Trigger Date" means the date on which all of the conditions precedent set forth in Section II of this Settlement and Buyback Agreement have occurred. II. CONDITIONS PRECEDENT The obligations of the St. Paul Travelers Entities set forth in Section III and the obligations of and releases by the Parties set forth in any other provision in this Settlement and Buyback Agreement made subject to this Section II are subject to and made expressly contingent upon the satisfaction of each of the following conditions precedent: A. The Approval Order shall have become a Final Order; B. A schedule shall have been filed with the Bankruptcy Court prior to the conclusion of the Confirmation Hearing, listing the St. Paul Travelers Entities as Settling Asbestos Insurance Companies and such schedule shall not have been amended to remove the St. Paul Travelers Entities from such schedule; C. If and to the extent required under the terms of the Plan, any necessary prerequisites to permit the designation of the St. Paul Travelers Entities as Settling Asbestos Insurance Companies, entitled to all of the benefits and protections of the Asbestos Channeling Injunction as Protected Parties, under the terms of the Plan have been satisfied; D. Congoleum shall have filed a modified Plan which provides injunctive relief under Section 105(a) as set forth in Section IV.B for Claims that are not related to asbestos but that arise out of or relate to the Subject Policies or the insuring relationship of the relevant St. Paul Travelers Entities with the relevant Congoleum Entities (the "105(a) Relief") in favor of the St. Paul Travelers Entities in form and substance acceptable to the St. Paul Travelers Entities, and shall use reasonable best efforts to obtain Court approval of said modified Plan. The requirement of reasonable best efforts shall be deemed to be satisfied if: 7 (i) The Debtors affirmatively support the 105(a) Relief, brief responses to any objections to the 105(a) Relief on all appropriate grounds and advocate for, and defend against objections to, the 105(a) Relief in all hearings and other proceedings in which such relief is in issue, all in reasonable consultation with the St. Paul Travelers Entities; (ii) After the Debtors shall have complied with their obligations set forth in subparagraph (i) above, the Court, including without limitation, any appellate court of competent jurisdiction, declines to confirm the Plan solely as a result of the 105(a) Relief, in which case the Debtors will not be obligated to appeal denial of confirmation if the only basis for such denial was the inclusion of the 105(a) Relief; (iii) After the Debtors shall have complied with their obligations set forth in subparagraph (i) above, the Court, including without limitation, any appellate court of competent jurisdiction, determines to stay the effectiveness of the Plan or the Confirmation Order solely as a result of the 105(a) Relief, in which case the St. Paul Travelers Entities will not oppose the removal of the 105(a) Relief from the Plan; and (iv) The Court determines to deny confirmation on grounds in addition to the 105(a) Relief and if the Debtors, or any other party, determine to appeal denial of confirmation, the Debtors will include denial of the 105(a) Relief as one of the issues on appeal, or in response to the appeal of any other party, and shall brief, argue and prosecute the appeal of the denial of the 105(a) Relief in all levels of appeal and further review that the Debtors or such other party elect to pursue, all in reasonable consultation with the St. Paul Travelers Entities. E. The Confirmation Order shall: (i) be in conformity with the definition of Confirmation Order in Section I.G above; (ii) be in form and substance reasonably acceptable to the St. Paul Travelers Entities and otherwise consistent with the terms of this Settlement and Buyback Agreement; and (iii) shall have become a Final Order; F. Congoleum: (i) shall have filed a modified Plan which both (a) provides the ABI Entities with the benefits and protections of the Asbestos Channeling Injunction as Protected Parties identical or equivalent to those provided under the Eighth Modified Joint Plan of Reorganization, which benefits and protections, if not identical to those found in the Eighth Modified Joint Plan of Reorganization, are in conformity with, and no less favorable to the ABI Entities than, those provided under the Eighth Modified Plan of Reorganization and are in form and substance acceptable to the St. Paul Travelers Entities and also (b) provides and/or clarifies that the ABI Entities are entitled to the benefits and protections of the Asbestos Channeling Injunction as Protected Parties with respect to Congoleum Derivative Actions, as that term is defined in Exhibit F, or in an equivalent definition in conformity with the definition of Congoleum Derivative Actions and which is acceptable in form and substance to the St. Paul Travelers Entities (Congoleum Derivative Actions and their equivalents being herein collectively defined as "Derivative Actions"); (ii) Congoleum and the ABI Entities shall use reasonable best efforts to obtain entry 8 of an order confirming such modified Plan which provides all of the benefits and protections described in this Section II. F(i) under the Asbestos Channeling Injunction to the ABI Entities; (iii) an order confirming such modified plan providing all such benefits and protections under this Section II.F(i) to the ABI Entities under the Asbestos Channeling Injunction shall have become a Final Order, which Final Order, as it pertains to such benefits and protections, is in conformity with this Section II.F(i) and is acceptable in form and substance to the St. Paul Travelers Entities and which Final Order cannot be modified, limited or terminated without the consent of the St. Paul Travelers Entities; and (iv) the Effective Date of such modified Plan as described in this Section II.F shall have occurred. For the avoidance of doubt, Congoleum Derivative Actions and Derivative Actions do not include Claims for, based on, derivative of, arising out of, or caused or allegedly caused (x) by exposure to asbestos or asbestos-containing products manufactured, supplied, distributed, handled , fabricated, stored, sold, installed or removed by any ABI Entity (and not by any Congoleum Entity) or (y) by services, actions or operations provided, completed, or taken by any ABI Entity (and not by any Congoleum Entity) in connection with asbestos or asbestos-containing products manufactured, supplied, distributed, handled, fabricated, stored, sold, installed or removed by any ABI Entity (and not by any Congoleum Entity). G. The Plan Effective Date shall have occurred; and H Congoleum Corporation or the Plan Trust shall have notified the St. Paul Travelers Entities that all of the conditions precedent described in Sections II.A through II.G, inclusive, have occurred and in fact they have occurred. Travelers and St. Paul, at their sole option and in their sole discretion, shall have the right to waive the satisfaction of any or all of the conditions precedent described in Sections II.B through II.H, inclusive, including any subsection(s) thereof, by delivery of written notice thereof to Congoleum Corporation and ABI pursuant to Section XVI below, and any condition so waived shall be deemed irrevocably waived and satisfied for all purposes of this Settlement and Buyback Agreement. III. PAYMENT A. Travelers shall pay the Settlement and Buyback Amount, on behalf of the St. Paul Travelers Entities, to the Plan Trust, or as otherwise directed by the Court consistent with the terms of this Settlement and Buyback Agreement, on the following payment schedule: (i) Within thirty (30) calendar days following the Trigger Date, Travelers shall pay, on behalf of the St. Paul Travelers Entities, Twelve Million Five Hundred Thousand Dollars ($12,500,000) (the "First Payment Date"); and (ii) One year after the First Payment Date, Travelers shall pay, on behalf of the St. Paul Travelers Entities, the remaining Twelve Million Five Hundred Thousand Dollars ($12,500,000) of the Settlement and Buyback Amount. 9 B. The Parties agree that the payments made pursuant to this Settlement and Buyback Agreement are for Claims against the Congoleum Entities, including Asbestos Claims. IV. LITIGATION AND BANKRUPTCY OBLIGATIONS A. No later than five (5) Business Days following the Execution Date, the Debtors shall: (i) File, and take all steps to pursue granting of, a motion pursuant to Federal Rule of Bankruptcy Procedure 9019 and Section 363 of the Bankruptcy Code, in a form that is reasonably acceptable to the St. Paul Travelers Entities, seeking the Bankruptcy Court's entry of the Approval Order; (ii) Serve the motion and notice of a hearing on such motion in a form, manner and scope that is in compliance with all applicable Bankruptcy Rules upon: (a) the "Core Service List" and the "Master Service List," each as defined in the Order Establishing Case Management and Administrative Procedures, dated February 25, 2004, and the "Master E-Mail Service List," as defined in the Order (1) Amending The Order Establishing Case Management and Administrative Procedures Entered On February 25, 2004 And The Order Establishing Procedures For Interim Compensation And Reimbursement Of Expenses Of Professionals Entered On February 10, 2004 And (2) Allowing Notice By E-Mail And Establishing Procedures Therefor, dated September 6, 2005; (b) the Claimants' Representative; (c) the Office of the United States Trustee; (d) the FCR and counsel to the FCR; (e) the ACC's members and its counsel; (f) parties who have filed a notice of appearance in these Chapter 11 Cases; (g) the Collateral Trustee (the "Collateral Trustee") of the Congoleum Collateral Trust (the "Collateral Trust") established pursuant to a Collateral Trust Agreement dated April 16, 2003; (h) ABI and counsel to ABI; (i) counsel to all known holders of Asbestos Claims as reflected in the proofs of claim filed in these Chapter 11 Cases, claims submitted in connection with the Settlement Between Congoleum Corporation and Various Asbestos Claimants attached as Exhibit E to the Disclosure Statement with respect to the Plan (the "Claimant Agreement"), or ballots submitted in connection with these Chapter 11 Cases; (j) all known holders of Asbestos Claims whose counsel is not included within the preceding clause who, as of at least ten (10) Business Days prior to the Hearing, became known through filing of a proof of claim; (k) the members of the bondholders' committee and counsel to such committee and (l) any notice in addition to that described in Sections IV.A(i)(a) through IV.A(i)(l), inclusive, in such other manner as the St. Paul Travelers Entities may reasonably direct, with any such additional service to be at the cost of the St. Paul Travelers Entities; and (iii) Seek a hearing on the motion no later than thirty (30) days following the Execution Date, provided that they shall not be obligated to seek such hearing on shortened notice. 10 The Debtors shall use their reasonable best efforts to have the Bankruptcy Court enter the Approval Order as soon as reasonably possible. The St. Paul Travelers Entities shall support the Debtors' efforts to obtain such approval. B. Following the Execution Date, the Debtors shall file modifications to the Plan, in a form reasonably acceptable to Travelers and St. Paul, pursuant to Section 1127 of the Bankruptcy Code, to include an injunction pursuant to Section 105(a) of the Bankruptcy Code that permanently enjoins all holders of Claims not relating to asbestos from asserting against the St. Paul Travelers Entities any such Claims, provided that they arise out of or relate to the Subject Policies or the insuring relationship of the relevant St. Paul Travelers Entities with the relevant Congoleum Entities, but such injunction shall not affect or modify the rights of Insured Persons under policies of insurance except to the extent released in Section VI. The term Insured Persons in the preceding sentence shall mean those Persons specifically identified as named insureds, insureds, additional insureds, additional named insureds, persons insured, assureds or those Persons otherwise insured by means of a specific policy provision or endorsement. The Debtors shall use their reasonable best efforts to obtain Bankruptcy Court approval of the Plan as so modified to incorporate such Section 105(a) injunctive relief in favor of the St. Paul Travelers Entities, and the St. Paul Travelers Entities shall support the efforts of the Debtors to obtain approval of such Section 105(a) injunctive relief. C. As of the Execution Date, the Parties shall file no further discovery, motions, objections and/or Claims against each other in the Chapter 11 Cases; provided, however, that the St. Paul Travelers Entities shall have the right to file their own objections and to join in objections to confirmation filed by other parties, and to prosecute all such objections and oppose confirmation of the Plan as currently filed if the Approval Order has not been entered by the date when such action is required by the Court. The Parties fully reserve all of their rights pertaining to discovery, motions, objections and Claims made prior to the Execution Date in the Chapter 11 Cases until such time as the Approval Order becomes a Final Order. Nothing within this Section IV.C shall prevent any Party from participating in any hearing or proceeding in the Chapter 11 Case. Within three (3) Business Days of the Court's entry of the Approval Order, Travelers and St. Paul shall withdraw any and all objections they have made to the Plan and any and all pending discovery, motions, objections, Claims, and any appeals or notices of appeal that they have made in the Chapter 11 Cases, and the St. Paul Travelers Entities shall not pursue any Claim against the Debtors in the Chapter 11 Cases. Within three (3) Business Days of the Court's entry of the Approval Order, the Congoleum Entities and the ABI Entities shall withdraw any and all pending discovery, Claims, motions and any appeal or notices of appeal that they have made in the Chapter 11 Cases to the extent that such pending discovery, Claims, motions and any appeal or notices of appeal involve the St. Paul Travelers Entities, and the Congoleum Entities and the ABI Entities shall not pursue any Claim against any of the St. Paul Travelers Entities in the Chapter 11 Cases. Upon the Court's entry of the Approval Order, the St. Paul Travelers Entities shall not object to or oppose confirmation of the Plan and shall not appeal the Confirmation Order. Subject to Section IX, prior to the Trigger Date, no provisions of the Plan or the Plan Documents, findings of fact in the Confirmation Order, conclusions of law in the Confirmation Order, or other rulings of the Court in the context of the proceedings on confirmation of the Plan shall be used by the Plan Trust or any other Person as evidence in any 11 way in any proceeding involving a St. Paul Travelers Entity, nor shall they have any evidentiary, res judicata, collateral estoppel or other preclusive or other effect against any of the St. Paul Travelers Entities in any proceeding (the "No Use/No Effect Restriction"); provided, however, that this No Use/No Effect Restriction shall not apply after the Trigger Date, again subject to Section IX. D. Prior to the conclusion of the Confirmation Hearing, (i) the Debtors shall have designated the St. Paul Travelers Entities as Settling Asbestos Insurance Companies on the schedule of Settling Asbestos Insurance Companies filed by the Debtors; and (ii) any necessary prerequisites under the terms of the Plan have been satisfied so as to permit the designation of the St. Paul Travelers Entities as Settling Asbestos Insurance Companies, entitled to all of the benefits and protections of the Asbestos Channeling Injunction as Protected Parties. E. The Congoleum Entities, the ABI Entities, and the Plan Trustee shall not seek to terminate, or reduce or limit the scope of the Asbestos Channeling Injunction, with respect to the St. Paul Travelers Entities after the Confirmation Order becomes a Final Order. F. The Congoleum Entities shall use their reasonable best efforts to obtain in the Approval Order the protection of a sale free and clear pursuant to Section 363(f) of the Bankruptcy Code for the buyback of all of the Debtors' interests in the Subject Policies. G. The Parties agree that no Party will seek to reject this Settlement and Buyback Agreement as an executory contract in the Chapter 11 Cases or any other bankruptcy case. H. Within three (3) Business Days of the Execution Date, Congoleum Corporation, Travelers and St. Paul shall submit a Consent Order to the court in the Coverage Action seeking a dismissal without prejudice of all of the Claims each has asserted against the other in the Coverage Action. The Consent Order shall provide that, on the Trigger Date, such dismissals shall convert, without any need for further act or deed, to dismissals with prejudice. The Consent Order shall further provide that, in the event that the Settlement and Buyback Agreement becomes null and void pursuant to its terms, then any Congoleum Entity and any St. Paul Travelers Entity, to the extent it has the right to do so, may re-institute litigation against each other, in accordance with Section V.B(viii) below, and that neither the "Entire Controversy Doctrine" nor New Jersey Rule 4:30A nor any analogous doctrine or rule shall bar any such Congoleum Entity and any such St. Paul Travelers Entity from asserting, in such litigation, the same or substantially similar Claims and/or defenses to those asserted in the Coverage Action. Any such Congoleum Entity or any such St. Paul Travelers Entity may also file and/or assert any Claims and/or defenses which have arisen since the trial of the Coverage Action began on August 2, 2005. Each Party is to bear its own fees and costs in the Coverage Action and in the Chapter 11 Cases. Notwithstanding the above, nothing in this Section IV.H shall affect the rights of the ABI Entities. V. TERMINATION OF SETTLEMENT AND BUYBACK AGREEMENT A. After the Execution Date, this Settlement and Buyback Agreement shall become null and void upon the occurrence of any of the following contingencies: 12 (i) The failure of the Coverage Court to enter the Consent Order described in Section IV.H above; (ii) The entry by the Court of an order confirming a Chapter 11 plan of reorganization for the Debtors other than the Plan; (iii) The entry by the Court of an order that states that the St. Paul Travelers Entities are not Settling Asbestos Insurance Companies; (iv) The entry of a Final Order denying approval of the Settlement and Buyback Agreement; (v) The entry of an order by the Court converting the Chapter 11 Cases into Chapter 7 cases or dismissing the Chapter 11 Cases; (vi) The entry of an order by the Court appointing a trustee or an examiner possessing the rights, powers and duties reasonably and substantially equivalent to those of a trustee in the Chapter 11 Cases as described in Section 1106(a) of the Bankruptcy Code; or (vii) The proposal or filing of a plan of reorganization by the Debtors that: (a) is inconsistent with the rights and benefits provided to the St. Paul Travelers Entities under this Settlement and Buyback Agreement and/or with the duties and obligations of, and releases provided by, the Congoleum Entities under this Settlement and Buyback Agreement; and/or (b) otherwise has a material adverse effect on the interests of the St. Paul Travelers Entities under this Settlement and Buyback Agreement. Travelers, in its sole option and in its sole discretion, shall have the right to waive, in writing, any of the contingencies set forth in Sections V.A(i) through V.A(vii), inclusive, by notice to the Persons described in the notice provisions in Section XVI below within thirty (30) Business Days of the occurrence of any such contingency(ies), and any such contingency(ies) so waived shall be deemed irrevocably waived and satisfied. If all such contingencies are so waived or are satisfied, then this Settlement and Buyback Agreement shall continue in full force and effect. B. Notwithstanding anything in this Settlement and Buyback Agreement to the contrary, in the event that this Settlement and Buyback Agreement becomes null and void pursuant to Section V.A above: (i) The Settlement and Buyback Agreement, except for Sections I, IV.H, V, IX, XII, XVI and XVII (which Sections shall remain in full force and effect), shall be vitiated and shall be a nullity; (ii) Travelers, on behalf of the St. Paul Travelers Entities, shall not be obligated to pay the Settlement and Buyback Amount pursuant to this Settlement and Buyback Agreement; 13 (iii) None of the St. Paul Travelers Entities, none of the ABI Entities, and none of the Congoleum Entities shall be bound by the terms of any Approval Order; (iv) None of the St. Paul Travelers Entities shall be designated as, and none of the St. Paul Travelers Entities shall receive the benefits or protections of, a Settling Asbestos Insurance Company, and none of the St. Paul Travelers Entities shall be entitled to benefit from any injunctive or related benefit provided for in the Plan, Confirmation Order, or otherwise in the Chapter 11 Cases, including any injunction or benefit provided under the authority of Sections 105, 363, or 524(g) of the Bankruptcy Code; (v) The St. Paul Travelers Entities, the ABI Entities, and the Congoleum Entities shall have all the rights, defenses and obligations under or with respect to any Subject Policies that they would have had absent this Settlement and Buyback Agreement; (vi) Any otherwise applicable statutes of limitations or repose, or other time-related limitation, shall be deemed to have been tolled for the period from the Execution Date through the thirtieth day after receipt of notice by any of the Parties that any of the contingencies listed in Sections V.A(i) through V.A(vii), inclusive, has/have occurred so that the Settlement and Buyback Agreement becomes null and void, and no Party shall assert or rely on any time-related defense to any Claim by any St. Paul Travelers Entity, ABI Entity, or Congoleum Entity related to such period; (vii) The releases set forth in Section VI below shall become null and void ab initio; (viii) Any Party who was a party in the Coverage Action may elect to re-file a coverage action against any other party in the Coverage Action. Such a new coverage action shall be called the "New Coverage Action." All discovery taken in the Coverage Action or in relationship to any of the Plan's previous versions, and any and all evidence admitted, testimony taken, and rulings of the Court entered in the trial of the Coverage Action between August 2, 2005 and September 6, 2005 may be used in the New Coverage Action. No rulings of the court, conclusions of law, or findings of fact entered in the Coverage Action after September 7, 2005, shall be used as evidence in any way in any proceeding involving a St. Paul Travelers Entity or Congoleum Entity or have any evidentiary, res judicata, collateral estoppel or preclusive or other effect against any such St. Paul Travelers Entity or Congoleum Entity in the New Coverage Action. The Parties agree that neither the "Entire Controversy Doctrine" of New Jersey nor New Jersey Rule 4:30A nor any analogous doctrine or rule shall bar any such Congoleum Entity and any such St. Paul Travelers Entity from asserting, in such litigation, the same or substantially similar Claims and/or defenses to those asserted in the Coverage Action. Additionally, any such St. Paul Travelers Entity or any such Congoleum Entity may file and/or assert any Claims and/or defenses which have arisen since the date the trial of the Coverage Action began, on August 2, 2005. In the event of a New Coverage Action, the St. Paul Travelers Entities shall have the right to examine or cross-examine any witnesses designated 14 by any of the Parties in the New Coverage Action who were not examined or cross-examined by Travelers and St. Paul prior to the closing of the trial in the Coverage Action before any such testimony or evidence adduced from or introduced through such witnesses can be used in any way in the New Coverage Action by any Congoleum Entity. Notwithstanding the above, nothing in this Section V.B(viii) shall affect the rights of the ABI Entities; and (ix) The St. Paul Travelers Entities may pursue any and all objections, whether to confirmation of a Chapter 11 plan of reorganization for the Congoleum Entities, or otherwise. VI. BUYBACK AND TERMINATION OF POLICY RIGHTS AND RELEASE A. Effective immediately upon the Execution Date, but subject to satisfaction of the conditions precedent, as set forth in Section II above, the Congoleum Entities remise, release, acquit and forever discharge the St. Paul Travelers Entities from any Claims arising from, relating to or involving the Subject Policies, including, but not limited to (i) any Claims arising from, relating to or involving asbestos-related Claims, including, but not limited to, Plan Trust Asbestos Claims, and (ii) any Claims that were or could have been brought in the Coverage Action. B. For the avoidance of doubt, the Parties hereby confirm that the releases granted by the Congoleum Entities to the St. Paul Travelers Entities as set forth in Section VI.A are intended to include and do include releases from any and all Claims that any Congoleum Entity ever had, now has or may in the future have against any of the St. Paul Travelers Entities arising from or related to what is commonly referred to as bad faith or insurer misconduct and which includes: (i) the insurance relationship between any St. Paul Travelers Entity and any Congoleum Entity and any obligations of any St. Paul Travelers Entity under or in connection with such relationship; (ii) the obligations of any St. Paul Travelers Entity to any Congoleum Entity as a result of (a) issuance of the Subject Policies, (b) the handling of Claims against any Congoleum Entity, (c) the defense or trial of Claims against any Congoleum Entity, or (d) the settlement of Claims against any Congoleum Entity; (iii) any and all acts or omissions by any St. Paul Travelers Entity in connection with Claims made against any Congoleum Entity; (iv) any and all Claims arising from or relating to loss prevention or engineering acts or omissions by any St. Paul Travelers Entity performed in connection with the insurance relationship between any St. Paul Travelers Entity and any Congoleum Entity; (v) any Claims with respect to payments made by any St. Paul Travelers Entity to or on behalf of any Congoleum Entity prior to the Execution Date; and (vi) any actual or alleged bad faith, fraud, unfair competition, breach of contract, breach of duty of good faith and fair dealing, violation of insurance statute or regulation or extra-contractual liability of any kind, type or description, including any and all Claims that arise under or from the laws, whether statutory, common or otherwise, of one or more of the fifty (50) states or any other jurisdiction. 15 C. Effective immediately upon the Execution Date, but subject to satisfaction of the conditions precedent, as set forth in Section II above, the ABI Entities remise, release, acquit and forever discharge the St. Paul Travelers Entities from any Claims arising from, relating to or involving: (i) the Subject Policies; (ii) Plan Trust Asbestos Claims; (iii) Asbestos Claims; (iv) Derivative Actions; and (v) any Claims arising from or related to what is commonly referred to as bad faith and includes Claims for unfair and deceptive acts, breach or violation of statutory duties, breach of fiduciary duties, and breach of the covenant of good faith and fair dealing solely to the extent such Claims arise out of or relate to the Claims released in Sections VI.C(i) through VI.C(iv), inclusive and are not reserved in the following sentence. Notwithstanding the foregoing sentence and any other provision of this Settlement and Buyback Agreement to the contrary, the ABI Entities specifically reserve, and do not remise, release, acquit or discharge the St. Paul Travelers Entities from, any and all Claims and rights arising from, relating to or involving: (x) any policies issued to any ABI Entities, including but not limited to, ABI, American Biltrite Rubber Co., Inc., ABI Rubber Co., Inc., and American Biltrite Rubber Corporation, except to the extent that such policies are Subject Policies; and (y) the Settlement Agreement by and between Continental Casualty Company, the Travelers Insurance Company, the Travelers Indemnity Company, Risk Enterprise Management, Ltd., The Aetna Casualty and Surety Company, Employers Insurance of Wausau, and American Biltrite Inc., dated February 1, 1996. D. Effective immediately upon the Execution Date, but subject to satisfaction of the conditions precedent, as set forth in Section II above, the St. Paul Travelers Entities remise, release, acquit and forever discharge the Congoleum Entities from any Claims arising from, relating to or involving the Subject Policies, including, but not limited to: (i) any Claims arising from, relating to or involving asbestos-related Claims, including, but not limited to, Plan Trust Asbestos Claims; and (ii) any Claims that were or could have been brought in the Coverage Action. E. For the avoidance of doubt, the Parties hereby confirm that the releases granted by the St. Paul Travelers Entities to the Congoleum Entities as set forth in Section VI.D are intended to include and do include releases from any and all Claims that any St. Paul Travelers Entity ever had, now has or may in the future have against any of the Congoleum Entities arising from or related to what is commonly referred to as reverse bad faith or policyholder misconduct and which includes: (i) the insurance relationship between any St. Paul Travelers Entity and any Congoleum Entity and any obligations of any Congoleum Entity under or in connection with such relationship; (ii) the obligations of any Congoleum Entity to any St. Paul Travelers Entity as a result of (a) issuance of the Subject Policies, (b) the handling of Claims against any Congoleum Entity, (c) the defense or trial of Claims against any Congoleum Entity, or (d) the settlement of Claims against any Congoleum Entity; (iii) any and all acts or omissions by any of the Congoleum Entities in connection with Claims made against any St. Paul Travelers Entity; and (iv) any actual or alleged bad faith, fraud, unfair competition, breach of contract, breach of duty of good faith and fair dealing, violation of insurance statute or regulation or extra-contractual liability of any kind, type or description, including any and all Claims that arise under or from the laws, whether statutory, common or otherwise, of one or more of the fifty (50) states or any other jurisdiction. 16 F. Effective immediately upon the Execution Date, but subject to satisfaction of the conditions precedent, as set forth in Section II above, the St. Paul Travelers Entities remise, release, acquit and forever discharge the ABI Entities from any Claims arising from, relating to or involving: (i) the Subject Policies; (ii) Plan Trust Asbestos Claims; (iii) Asbestos Claims; (iv) Derivative Actions; and (v) any Claims arising from or related to what is commonly referred to as reverse bad faith and includes Claims for unfair and deceptive acts, breach or violation of statutory duties, breach of fiduciary duties, and breach of the covenant of good faith and fair dealing solely to the extent such Claims arise out of or relate to the Claims released in Sections VI.F(i) through VI.F(iv), inclusive. Notwithstanding the foregoing sentence and any other provision of this Settlement and Buyback Agreement to the contrary, the St. Paul Travelers Entities specifically reserve, and do not remise, release, acquit or discharge the ABI Entities from any and all Claims and rights arising from, relating to or involving: (x) any policies issued to any ABI Entities, including, but not limited to ABI, American Biltrite Rubber Co., Inc., ABI Rubber Co, Inc. and American Biltrite Rubber Corporation, except to the extent that such policies are Subject Policies; and (y) the Settlement Agreement by and between Continental Casualty Company, the Travelers Insurance Company, the Travelers Indemnity Company , Risk Enterprise Management, Ltd., The Aetna Casualty and Surety Company, Employers Insurance of Wausau, and American Biltrite, Inc., dated February 1, 1996. G. For the avoidance of doubt, none of the releases set forth herein shall release: (i) any of the Congoleum Entities', any of the ABI Entities' or any of the St. Paul Travelers Entities' respective obligations under this Settlement and Buyback Agreement, and the Parties hereby reserve and retain all rights in connection with the enforcement of this Settlement and Buyback Agreement; (ii) the Parties' rights and obligations under Policy Nos. QK09000534, QK09000747, 06 XN 22205576, 0369JM0112, OC06900058, and MOC 0645B63A issued by one or more St. Paul Travelers Entities to ABI for Claims other than those arising from, relating to or involving asbestos-related Claims, including but not limited to Plan Trust Asbestos Claims (recognizing that the Parties agree that each of the first three such policies contains an exclusion for asbestos coverage and that the last three such policies do not afford liability insurance coverage); and/or (iii) any reinsurance policy, contract or certificate issued by any St. Paul Travelers Entity and/or any reinsurance treaty in which any St. Paul Travelers Entity participates. H. In consideration of the promises contained in this Settlement and Buyback Agreement and consistent with the scope of the releases given in Section VI, effective immediately upon the Execution Date, but subject to the satisfaction of the conditions precedent, as set forth in Section II above: (i) the limits of liability of all of the Subject Policies are hereby deemed by the Parties to be fully extinguished for all Claims; (ii) any and all purported rights, duties, responsibilities and obligations of any St. Paul Travelers Entity alleged to have been created or that may be created by the Subject Policies and that have been released pursuant to Section VI are hereby deemed extinguished, terminated, canceled and otherwise fully satisfied; and (iii) any and all rights under the Subject Policies that have been released pursuant to Section VI shall be and are extinguished, terminated and voided, subject to the terms and conditions of this Settlement and Buyback Agreement. The Subject Policies are to be thereafter treated as null and void, and no Person shall have the right hereafter to present or tender any Claim released pursuant to Section VI under the Subject Policies regardless of whether the Claim has been or could 17 have been presented or tendered prior to the Trigger Date. In addition, as of the Trigger Date, any and all rights of the Debtors under the Subject Policies shall be and are deemed sold, transferred and conveyed to the St. Paul Travelers Entities pursuant to Section 363 of the Bankruptcy Code, free and clear of all Claims, liens, encumbrances and/or interests of any kind and/or nature whatsoever, to the extent permitted under Section 363(f) of the Bankruptcy Code. None of the St. Paul Travelers Entities shall have a duty or obligation to defend, pay defense costs, indemnify or otherwise to provide defense, indemnity, coverage, services or benefits of any kind whatsoever released pursuant to Section VI under the Subject Policies. For the avoidance of doubt, this Section VI.H shall not apply to those insurance policies issued to any ABI Entities insofar as they provide coverage to any ABI Entities. I. The Congoleum Entities agree and jointly represent that the promises and consideration given by any of the St. Paul Travelers Entities pursuant to this Settlement and Buyback Agreement, including, but not limited to the payment of the Settlement and Buyback Amount by Travelers on behalf of the St. Paul Travelers Entities pursuant to this Settlement and Buyback Agreement, constitute a fair and reasonable exchange for: (i) the releases granted to St. Paul Travelers Entities in this Settlement and Buyback Agreement; (ii) the sale, transfer, conveyance and buyback of the rights and interests of the Congoleum Entities in the Subject Policies; and (iii) the designation of St. Paul Travelers Entities as Settling Asbestos Insurance Companies, entitled to the rights and benefits afforded to Settling Asbestos Insurance Companies under the Plan and as set forth in the Approval Order and the Confirmation Order, including the rights and benefits of the Asbestos Channeling Injunction and any other Section 105(a) and 524(g) injunctions that may be granted under the Plan, Approval Order and the Confirmation Order with respect to all Claims, including all Plan Trust Asbestos Claims and Indirect Asbestos Claims. J. Based upon the representation and warranty of the St. Paul Travelers Entities set forth in Section XI.C and the Parties' understanding regarding the corporate history of the Congoleum Entities, the Congoleum Entities do not claim to be entitled to insurance, rights or benefits, and, in fact, to the extent that they had or have any interest, expressly renounce any such interest in the policies and alleged policies set forth in Exhibit D hereto (the "Listed Policies") and agree that they have no right to assert any Claims under such Listed Policies and that there is no coverage available to them under such Listed Policies. For the avoidance of doubt, the Parties agree that they do not deem the Listed Policies to be Subject Policies because they agree that the Congoleum Entities do not have any interests or rights in the Listed Policies. If, after the Execution Date, a court of competent jurisdiction were to rule, after a final order on appeal, that a Congoleum Entity has an interest or right in a Listed Policy as defined above, or if, after the Execution Date, new information were to reveal that a Congoleum Entity has an interest or right in a Listed Policy as defined above, then such Listed Policy will be deemed a Subject Policy. K. Except to the extent set forth in Section VI.J, the release provisions of this Section VI are not intended to release and shall not be construed deemed to effect a release of any Claims arising from, relating to or involving (i) any policy of insurance that is not a Subject Policy, (ii) that portion of the coverage of any policy of insurance that is otherwise a Subject Policy, but as to which such portion of coverage has been carved out of the definition of Subject Policy, or (iii) the rights of any insured Person under a Subject Policy that is not a Congoleum Entity except to the extent that the Congoleum Entities have the right and power to release such rights. 18 L. Each Party expressly assumes the risk that acts, omissions, matters, causes or things may have occurred that they do not know or do not suspect to exist. Each Party hereby waives the terms and provisions of any statute, rule or doctrine of common law that either: (i) narrowly construes releases purporting by their terms to release claims, in whole or in part based upon, relating to or arising from such acts, omissions, matters, causes or things; or (ii) restricts or prohibits releasing of such claims. Without limitation, each Party acknowledges that it has been advised by its attorneys concerning, and is familiar with, the California Civil Code Section 1542. Section 1542 of the California Civil Code provides as follows: a general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of the executing of the release, which if known by him or her must have materially affected his or her settlement with the debtor. Each Party expressly waives any and all rights under California Civil Code Section 1542 and under any other federal or state statute or law of similar effect. The Parties further agree that this reference to the California Civil Code shall not give rise to any argument that California law applies to this Settlement and Buyback Agreement or the disputes resolved pursuant hereto. VII. DEFENSE OF THE ASBESTOS CHANNELING INJUNCTION A. In the event that any Claim is brought against any St. Paul Travelers Entity after the Trigger Date that is subject to the Asbestos Channeling Injunction ("SPT Channeling Injunction Claim"), the Plan Trust and the Plan Trustee will exercise their reasonable best efforts and take all reasonably necessary and appropriate steps to oppose any such SPT Channeling Injunction Claim by a Person claiming a right against any of the St. Paul Travelers Entities under the Subject Policies or otherwise in violation of the Asbestos Channeling Injunction. B. Except as provided hereafter, the Plan Trust shall bear all of the costs, including attorneys' fees and settlements and judgments, associated with its opposing such SPT Channeling Injunction Claims. The St. Paul Travelers Entities shall have the right to consent to the selection of the counsel to be paid by the Plan Trust in any such action ("Designated Counsel"), which consent shall not be unreasonably withheld. The Plan Trust shall have no obligation to pay any internal costs of any of the St. Paul Travelers Entities (including costs associated with time or expense of employees of any of the St. Paul Travelers Entities) or fees or expenses associated with the St. Paul Travelers Entities' employment of outside counsel (other than Designated Counsel). The obligation of the Plan Trust to bear all of the costs, including attorneys' fees and settlements and judgments, associated with its opposing such SPT Channeling Injunction Claims (including the portions of any such Claim that is a SPT Channeling Injunction Claim and that also names as defendants insurers other than St. Paul Travelers Entities) and its opposing any other Claims that are 19 subject to the Asbestos Channeling Injunction (which opposition is undertaken at the request of the St. Paul Travelers Entities) shall not exceed the total sum of Three Million, Six Hundred Thousand U.S. Dollars ($3,600,000.00). In the event the Plan Trustee or the Plan Trust fails to satisfy these defense obligations, the Plan Trust shall be liable to the St. Paul Travelers Entities for any damages that result from such breach, as may be determined by a court of competent jurisdiction. In any action brought by any of the St. Paul Travelers Entities against the Plan Trust or the Plan Trustee requesting that the Plan Trust or Plan Trustee meet its obligations under this Section VII, each party shall bear its own costs. The St. Paul Travelers Entities may enforce any judgment that any of the St. Paul Travelers Entities may obtain against the Plan Trust as a result of any breach of the obligations of the Plan Trust or the Plan Trustee as is contemplated in Section VII.B above, by any applicable enforcement procedure. Without limitation, the St. Paul Travelers Entities may enforce any such judgment awarded in their favor by offsetting the amount of such judgment against any future payment by Travelers on behalf of the St. Paul Travelers Entities under the Settlement and Buyback Agreement. VIII. REDUCTION OF JUDGMENT In the event that any insurer of the Debtors either: (i) obtains a final binding award (whether by judgment, arbitration award, or other judicial or quasi-judicial proceeding) against a St. Paul Travelers Entity after a contested proceeding; or (ii) agrees to a settlement with a St. Paul Travelers Entity with the consent of the Debtors prior to the Plan Effective Date or with the consent of the Plan Trust following said Plan Effective Date (which consent in either case shall not be unreasonably withheld) entitling such insurer to obtain a sum certain from such St. Paul Travelers Entity as a result of such insurer's claim for contribution, subrogation, indemnification, reimbursement or other similar claim against such St. Paul Travelers Entity for such St. Paul Travelers Entity's alleged share or equitable share of the defense and/or indemnity of a Congoleum Entity, the Congoleum Entity shall voluntarily reduce or return to such insurer an amount of any such final award (whether by judgment, arbitration award or other judicial or quasi-judicial proceeding) or settlement payment that they obtained or may obtain from such other insurer for Claims released pursuant to this Settlement and Buyback Agreement, which amount shall be sufficient to eliminate the St. Paul Travelers Entity's obligation to satisfy the award against it. IX. NO ADMISSIONS BY THE PARTIES; RIGHTS OF THIRD PARTIES A. Nothing contained herein is or shall be deemed to be: (i) An admission by the St. Paul Travelers Entities that any Congoleum Entity, ABI Entity, or any other Person was or is entitled to any insurance coverage under the Subject Policies, or as to the validity of any of the positions that have been or could have been asserted by any Congoleum Entity or ABI Entity; (ii) An admission by the Congoleum Entities or the ABI Entities as to the validity of any of the positions or defenses to coverage that have been or could have been asserted by St. Paul Travelers Entities with respect to the Subject Policies; 20 (iii) An admission by any Party of any liability whatsoever with respect to asbestos-related Claims including, but not limited to Plan Trust Asbestos Claims, Indirect Asbestos Claims or other Claims or Demands; (iv) A waiver by the St. Paul Travelers Entities of any position that they may adopt or already have adopted concerning the appropriateness of any bankruptcy process or procedure or any other issue or matter in any other case or proceeding; (v) An admission by any St. Paul Travelers Entity as to the validity of anything with respect to the Plan, including, without limitation, any claim allowance process or criteria, medical criteria, exposure criteria, disease matrices, claim values, or trust distribution procedures that have been or will be adopted, used or applied or any aspects of the Plan that may implicate the rights and duties of the St. Paul Travelers Entities; or (vi) An admission by any Congoleum Entity or any St. Paul Travelers Entity as to the manner in which the other may allocate the Settlement and Buyback Amount for its own purposes between and among the Subject Policies. In entering into this Settlement and Buyback Agreement, no Party has waived, nor shall be deemed to have waived, modified, or retracted any rights, obligations, privileges or positions it has asserted or might in the future assert in connection with any Claim, matter, insurance policy or Person outside the scope of this Settlement and Buyback Agreement. B. Except as expressly provided in this Settlement and Buyback Agreement, the Parties specifically disavow any intention to create rights in third parties under or in relation to this Settlement and Buyback Agreement. C. The Parties agree that no part of this Settlement and Buyback Agreement may be used in any proceeding as an admission by or evidence against or for any other purpose as evidence of the Parties' respective rights, duties or obligations under and in relation to any policy of insurance, including the Subject Policies; provided, however, that this restriction shall not apply to any proceeding in connection with or related to the interpretation, validity, enforcement or breach of this Settlement and Buyback Agreement. The Parties further agree that no part of this Settlement and Buyback Agreement or the fact that the St. Paul Travelers Entities have entered into it may be used in any proceeding as an admission by, evidence against, or for any other purpose in an action involving any of the St. Paul Travelers Entities pertaining to the validity of anything with respect to the Plan, including, without limitation, any claim allowance process or criteria, medical criteria, exposure criteria, disease matrices, claim values, or trust distribution procedures that have been or will be adopted, used or applied or any aspects of the Plan that may implicate the rights and duties of the St. Paul Travelers Entities. D. All actions taken and statements made by the Parties or their representatives relating to their participation in this Settlement and Buyback Agreement, including its formation and implementation, shall relate to this matter only and shall be without prejudice or value as precedent and shall not be taken as a standard by which other matters may be judged or adjudicated. 21 E. The St. Paul Travelers Entities shall not seek reimbursement of any payments that Travelers made or is obligated to make under this Agreement or the Subject Policies, whether by way of a claim for contribution or subrogation, or otherwise, from any Person other than the St. Paul Travelers Entities' reinsurers in their capacity as such. Each of the Debtors shall use its reasonable best efforts to obtain from all insurers with which it settles an agreement similar to that set forth in the preceding sentence; provided, however, that notwithstanding anything to the contrary herein, the failure of the Debtors to obtain such an agreement from any other insurer with which they settle shall not constitute a breach of this Agreement. Notwithstanding the foregoing, subject to the effect of any injunction issued pursuant to section 524(g) and/or section 105(a) of the Bankruptcy Code, the St. Paul Travelers Entities may file a cross-complaint or counterclaim against any Person that has first asserted a claim seeking reimbursement for any payment that it has paid or is required to pay to Debtors, whether by way of a claim for contribution and/or subrogation or otherwise, against the St. Paul Travelers Entities in connection with any Claims released hereunder. X. SUCCESSORS This Settlement and Buyback Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns, including the reorganized Debtors and the Plan Trust. XI. REPRESENTATIONS AND WARRANTIES A. Each Party represents and warrants that it has full authority to execute this Settlement and Buyback Agreement as its binding and legal obligation (subject, however, in the case of the Debtors, to the requirement that the Approval Order be entered). The person signing this Settlement and Buyback Agreement on behalf of each Party represents and warrants he or she is authorized to execute this Settlement and Buyback Agreement (subject, however, in the case of the Debtors, to the requirement that the Approval Order be entered) on behalf of all Persons for whom he or she signs. B. The Congoleum Entities and the St. Paul Travelers Entities each represent and warrant, which representation and warranty is based solely upon an inquiry performed by their respective employees involved in the Coverage Action and in the negotiation, documentation and execution of this Settlement and Buyback Agreement and their counsel involved in the Coverage Action and in the negotiation, documentation and execution of this Settlement and Buyback Agreement, that they are not aware of any Subject Policies other than the insurance policies and alleged policies identified in Exhibit E hereto. C. The St. Paul Travelers Entities each represent and warrant, which representation and warranty is based solely upon their understanding of the corporate history of the Congoleum Entities and a review of the available documentation and other information regarding the policies and alleged policies identified in Exhibit D hereto performed by their employees involved in the 22 Coverage Action and in the negotiation, documentation and execution of this Settlement and Buyback Agreement and their counsel involved in the Coverage Action and in the negotiation, documentation and execution of this Settlement and Buyback Agreement, that the documentation and other information available to those Persons making such representations and warranties on behalf of the St. Paul Travelers Entities regarding the policies and alleged policies identified in Exhibit D hereto indicate, to the best of their knowledge and belief, that the policies and alleged policies identified in Exhibit D hereto: (i) do not identify any of the Congoleum Entities as insureds or otherwise insure them; and (ii) insure only Persons who, during the effective period of the policies and alleged policies, were not Congoleum Entities. D. The St. Paul Travelers Entities each warrant and represent to the best of their knowledge and belief, which representation and warranty is based solely upon an inquiry performed by their respective employees involved in the Coverage Action and in the negotiation, documentation and execution of this Settlement and Buyback Agreement and their counsel involved in the Coverage Action and in the negotiation, documentation and execution of this Settlement and Buyback Agreement, that the St. Paul Travelers Entities encompassed by the definition in Section I.T(i) in the business of issuing insurance policies as of December 31, 2005 are those Persons listed in Exhibit B and that the most recent publicly available list is the one as of December 31, 2005; provided, however, that the Congoleum Entities understand and acknowledge that Section I.T by its terms is not limited to those Persons so listed, only that those Persons listed are the ones that the St. Paul Travelers Entities represent and warrant pursuant to the terms of this Section XI.D were in the business of issuing insurance policies as of December 31, 2005. E. Other than any pending or threatened Claims by Debtors against the St. Paul Travelers Entities under the Subject Policies, the St. Paul Travelers Entities each represent and warrant, which representation and warranty is based solely upon an inquiry performed by their employees involved in the Coverage Action and in the negotiation, documentation and execution of this Settlement and Buyback Agreement and their counsel involved in the Coverage Action and in the negotiation, documentation and execution of this Settlement and Buyback Agreement, that they are aware of no pending Claims against any St. Paul Travelers Entity by others that would be released by Section VI or barred by an injunction contemplated and provided for by this Settlement and Buyback Agreement. XII. NO PREJUDICE AND CONSTRUCTION OF AGREEMENT A. This Settlement and Buyback Agreement is the product of informed negotiations and involves compromises of the Parties' legal positions. This Settlement and Buyback Agreement is without prejudice to positions taken by the Parties with regard to other insureds or to other insurers. This Settlement and Buyback Agreement is the jointly drafted product of arm's length negotiations between the Parties with the benefit of advice from counsel, and the Parties agree that it shall be so construed. As such, no Party will claim that any ambiguity in this Settlement and Buyback Agreement shall be construed against any other Party by reason of the identity of the drafter. 23 B. The negotiation, execution and performance of this Settlement and Buyback Agreement shall not be deemed to be or cited as an act of bad faith or a violation of any statute, regulation, contract or duty owed by any Party to any other Party. XIII. ENTIRE AGREEMENT AND TERM A. This Settlement and Buyback Agreement expresses the entire agreement and understanding between and among the Parties. Except as expressly set forth in this Settlement and Buyback Agreement, there are no representations, warranties, promises or inducements, whether oral, written, expressed or implied, that in any way affect or condition the validity of this Settlement and Buyback Agreement or alter its terms. If the facts or law related to the subject matter of this Settlement and Buyback Agreement are found hereafter to be other than is now believed by any of the Parties, the Parties expressly accept and assume the risk of such possible difference of fact or law and agree that this Settlement and Buyback Agreement nonetheless shall be and remain effective according to its terms. This Settlement and Buyback Agreement shall be binding on, and inure to the benefit of, the Parties and their respective successors and assigns in their respective capacities as such. This Settlement and Buyback Agreement shall have perpetual existence, except as expressly provided herein. B. Titles and captions contained in this Settlement and Buyback Agreement are inserted only as a matter of convenience and are for reference purposes only. Such titles and captions are intended in no way to define, limit, expand, or describe the scope of this Settlement and Buyback Agreement or the intent of any provision hereof. XIV. NO MODIFICATION No change, amendment, variation or modification of the terms of this Settlement and Buyback Agreement shall be valid unless it is made in writing and signed the Debtors, ABI, Travelers, and St. Paul. In the event that any such Person is dissolved following the Execution Date, the remaining Persons may modify this Settlement and Buyback Agreement without that Person's consent. After the Plan Effective Date, any change, amendment, variation, or modification of the terms of this Settlement and Buyback Agreement will also require the consent of the Plan Trust. XV. EXECUTION This Settlement and Buyback Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. Each counterpart may be delivered by facsimile transmission, and a faxed signature shall have the same force and effect as an original signature. 24 XVI. NOTICES Any and all statements, communications, or notices to be provided pursuant to this Settlement and Buyback Agreement shall be in writing and sent by facsimile or by first-class mail, postage prepaid. Such notices shall be sent to the individuals noted below, or to such other individuals as each Party may designate in writing from time to time: IF TO CONGOLEUM CORPORATION OR TO ANY OTHER CONGOLEUM ENTITY: Howard N. Feist III Congoleum Corporation 57 River Street Wellesley, MA 02481-2097 Phone: (781) 237-6655 Fax: (781) 237-6880 e-mail: sfeist@alumni.princeton.edu With a copy to: Pillsbury Winthrop Shaw Pittman LLP 1540 Broadway New York, NY 10036-4039 Attn: Richard L. Epling, Esq. Kerry A. Brennan, Esq. Phone: (212) 858-1000 Fax: (212) 858-1500 e-mail: richard.epling@pillsburylaw.com kerry.brennan@pillsburylaw.com Covington & Burling 1201 Pennsylvania Avenue, NW Washington, DC 20004-2401 Attn: Mitchell F. Dolin, Esq. Phone: (202) 662-5210 Fax: (202) 662-6291 e-mail: mdolin@cov.com IF TO AMERICAN BILTRITE INC. OR TO ANY OTHER ABI ENTITY: Roger S. Marcus American Biltrite Inc. 57 River Street Wellesley Hills, MA 02481 Phone: (781) 237-6655 Fax: (781) 237-6880 25 With a copy to: Winston & Strawn LLP 1700 K Street, N.W. Washington, D.C. 20006 Attn: William N. Hall, Esq. John Fehrenbach, Esq. Phone: (202) 282-5000 Fax: (202) 282-5100 e-mail: whall@winston.com jfehrenbach@winston.com IF TO THE PLAN TRUST: Plan Trustee Contact information to be supplied by the Plan Trust IF TO THE ST. PAUL TRAVELERS ENTITIES: General Counsel - Environmental Litigation Travelers Casualty and Surety Company One Tower Square - 6MS Hartford, CT 06183-6016 Phone: (860) 954-6055 Fax: (860) 954-0359 XVII. NEGOTIATION PRIVILEGE All communications, negotiations and/or discussions leading up to the execution of this Settlement and Buyback Agreement and all related communications, negotiations and/or discussions shall be deemed to fall within the protection afforded to compromises and to offers to compromise by Rule 408 of the Federal Rules of Evidence and any parallel state law provisions. The Parties agree that any and all such communications, negotiations and/or discussions shall remain confidential, inadmissible and not subject to discovery. XVIII. LEGISLATIVE CONTINGENCY PROVISION A. In the event Asbestos Fund Legislation is enacted and the Asbestos Fund Legislation Effective Date is on or before February 15, 2008, then on and after the Asbestos Fund Legislation Effective Date, Travelers shall have no obligation to make payment of any unpaid amount not yet due and owing under this Settlement and Buyback Agreement (the "Unpaid Amount") so long as the St. Paul Travelers Entities are assessed and do in fact make a payment and/or contribution to the Asbestos Fund (the "Asbestos Fund Payment") that is greater than the Unpaid Amount and is based, at least in part, upon (1) past payments for defense and indemnity costs for asbestos-related bodily injury claims made by the St. Paul Travelers Entities pursuant to liability policies of insurance issued by the St. Paul Travelers Entities; (2) historic premium charged by the St. Paul Travelers 26 Entities for lines of liability insurance that have sustained losses for asbestos-related bodily injury claims; (3) amounts reserved by the St. Paul Travelers Entities for the asbestos exposure of their insureds; or (4) the estimated cost to the St. Paul Travelers Entities for their future liability for asbestos-related bodily injury claims under liability insurance policies issued to the insureds of the St. Paul Travelers Entities, including the Congoleum Entities. Even if the contingencies of the previous sentence are met, Travelers shall nonetheless have an obligation to pay the Unpaid Amount if and in the dollar amount that the St. Paul Travelers Entities are entitled to receive a credit or set-off pursuant to the Asbestos Fund Legislation that diminishes the Asbestos Fund Payment, which credit or set-off is permitted in recognition of the obligation of the St. Paul Travelers Entities under this Settlement and Buyback Agreement to pay towards the Unpaid Amount. For the avoidance of doubt, the amount that Travelers would be obligated to pay towards the Unpaid Amount in the foregoing sentence would be equal to the dollar amount of the credit or set-off permitted to the St. Paul Travelers Entities in respect of this Settlement and Buyback Agreement. This Section XVIII shall have no effect on the release provisions of Section VI. B. The St. Paul Travelers Entities shall not be required to pay any amount that any Congoleum Entity will be required to pay (or does in fact pay) to the Asbestos Fund. This Section XVIII.B shall have no effect on the obligations of the Parties under Section III and Section XVIII.A. C. Definitions "Asbestos Fund" means a fund, trust or other similar mechanism created by Asbestos Fund Legislation. "Asbestos Fund Legislation" means any legislation enacted by the United States Congress and signed by the President of the United States, or that becomes law without the President's signature, that establishes a fund, trust, or other similar mechanism that has the effect of providing for resolution of substantially all of the asbestos-related bodily injury claims that are pending or, in the absence of the Asbestos Fund Legislation, could have been filed in the state or federal courts. The term "Asbestos Fund Legislation" is intended to encompass what is commonly understood to be "asbestos reform" legislation and is not intended to encompass general tort reform, class action reform, malpractice reform, or tax reform, or any other legislation that would regulate, limit or control Claims without regard to whether such Claims arise from or are attributable to exposure to asbestos or asbestos-containing products. For the avoidance of doubt, the fact that legislation alters or modifies the requirements or standards for establishing liability against the Debtors and/or the Plan Trust (including legislation that imposes medical and/or exposure criteria, imposes strict liability on the Debtors and/or the Plan Trust, or regulates or limits the jurisdiction or forum in which asbestos-related bodily injury claims may be brought) without also creating a fund to pay for such Claims is not "Asbestos Fund Legislation" under this Section XVIII.C(ii). 27 "Asbestos Fund Legislation Effective Date" means the date on which Asbestos Fund Legislation is signed by the President of the United States or becomes law without the President's signature. XIX. MISCELLANEOUS The Parties shall execute such instruments, agreements or other documents and take such further actions as may be reasonably required to carry out the provisions of this Settlement and Buyback Agreement and the transactions contemplated hereby. [The remainder of this page is left blank intentionally.] 28 IN WITNESS WHEREOF, this Settlement and Buyback Agreement, consisting of 59 pages, including the signature page and Exhibits A through F, has been read and signed by the duly authorized representatives of the Parties on the dates set. April 25, 2006 CONGOLEUM CORPORATION, CONGOLEUM SALES, INC. and CONGOLEUM FISCAL, INC. (on behalf of all of the Congoleum Entities) By: /s/ Howard N. Feist ------------------------------------ Name: Howard N. Feist ---------------------------------- Title: CFO --------------------------------- April 25, 2006 AMERICAN BILTRITE INC. (on behalf of all of the ABI Entities) By: /s/ Howard N. Feist ------------------------------------ Name: Howard N. Feist ---------------------------------- Title: VP-Finance --------------------------------- April 20, 2006 TRAVELERS CASUALTY AND SURETY COMPANY AND ST. PAUL FIRE AND MARINE INSURANCE COMPANY (on behalf of all of the St. Paul Travelers Entities) By: /s/ Thomas J. Joyce ------------------------------------ Name: Thomas J. Joyce ---------------------------------- Title: Senior Vice President --------------------------------- 29 SETTLEMENT AND BUYBACK AGREEMENT EXHIBIT A UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEW JERSEY - -------------------------------------- In re: CONGOLEUM CORPORATION, et al., Case No. 03-51524 (KCF) Jointly Administered Debtors. Chapter 11 - -------------------------------------- ORDER AUTHORIZING AND APPROVING SETTLEMENT AND POLICY BUYBACK AGREEMENT AND RELEASE AMONG THE CONGOLEUM ENTITIES, THE PLAN TRUST, THE ABI ENTITIES AND THE ST. PAUL TRAVELERS ENTITIES AND SALE OF SUBJECT POLICIES PURSUANT TO SECTIONS 105, 363, 1107 AND 1108 OF THE BANKRUPTCY CODE AND RULES 2002, 6004, 9014 AND 9019 OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE The relief set forth on the following pages, numbered two (2) through sixteen (16) is hereby ORDERED. Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 2 This matter came before the Court on the Motion for Order Approving Settlement and Policy Buyback Agreement and Release with the St. Paul Travelers Entities, et al. (the "Motion"), filed by Congoleum Corp., Congoleum Sales, Inc., and Congoleum Fiscal, Inc., the debtors and debtors-in-possession herein (the "Debtors"), seeking approval of the Settlement and Policy Buyback Agreement and Release, dated as of April __, 2006 (attached hereto as Exhibit 1 and as it may be amended, supplemented or otherwise modified from time to time in writing, the "Settlement and Buyback Agreement"), and the settlements, releases, compromises and policy buyback contained therein pursuant to Bankruptcy Code Sections 105, 363, 1107 and 1108 and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"). All capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Settlement and Buyback Agreement. Capitalized terms that are not defined in this Approval Order or in the Settlement and Buyback Agreement are given the meanings designated in the Eighth Modified Joint Plan of Reorganization, dated as of March 17, 2006. Adequate notice of the Motion and of the hearing on the Motion was given by mailing, or emailing in the case of the Master E-Mail service list defined below, a copy of the Motion and notice of the hearing on the Motion to: (a) the "Core Service List" and the "Master Service List," each as defined in the Order Establishing Case Management and Administrative Procedures, dated February 25, 2004, and the "Master E-Mail Service List," as defined in the Order (1) Amending The Order Establishing Case Management and Administrative Procedures Entered On February 25, 2004 And The Order Establishing Procedures For Interim Compensation Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 3 And Reimbursement Of Expenses Of Professionals Entered On February 10, 2004 And (2) Allowing Notice By E-Mail And Establishing Procedures Therefor, dated September 6, 2005; (b) the Claimants' Representative; (c) the Office of the United States Trustee; (d) the FCR and counsel to the FCR; (e) counsel to the members of the ACC and the ACC's counsel; (f) parties who have filed a notice of appearance in these Chapter 11 Cases; (g) the Collateral Trustee (the "Collateral Trustee") of the Congoleum Collateral Trust (the "Collateral Trust") established pursuant to a Collateral Trust Agreement dated April 16, 2003; (h) ABI and counsel to ABI; (i) counsel to all known holders of Asbestos Claims as reflected in the proofs of claim filed in these Chapter 11 Cases, claims submitted in connection with the Settlement Between Congoleum Corporation and Various Asbestos Claimants attached as Exhibit E to the Disclosure Statement with respect to the Plan (the "Claimant Agreement"), or ballots submitted in connection with these Chapter 11 Cases; (j) all known holders of Asbestos Claims whose counsel is not included within the preceding clause who, as of at least ten (10) Business Days prior to the Hearing, became known through filing of a proof of claim; and (k) the members of the Bondholders' Committee and counsel to such Committee. A hearing on the Motion was held on May __, 2006 (the "Hearing") to consider approval of the Settlement and Buyback Agreement, and all interested parties were given an opportunity to be heard and to present evidence and object to the Motion. Based upon the record of the Hearing and of these Chapter 11 Cases, and after due deliberation and sufficient cause appearing therefor: Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 4 The Court hereby FINDS(1) that: XX. THIS COURT HAS JURISDICTION TO HEAR AND DETERMINE THE MOTION PURSUANT TO 28 U.S.C. ss.ss. 157 AND 1334. THIS MOTION PRESENTS A CORE PROCEEDING PURSUANT TO 28 U.S.C. ss.ss. 157(B)(2)(A), (N) AND (O). XXI. THE NOTICE OF THE MOTION, OF THE DEADLINE TO OBJECT TO THE MOTION AND OF THE HEARING ON THE MOTION DESCRIBED ABOVE CONSTITUTES DUE, SUFFICIENT AND TIMELY NOTICE TO ALL PERSONS ENTITLED THERETO IN ACCORDANCE WITH THE REQUIREMENTS OF THE BANKRUPTCY CODE, THE BANKRUPTCY RULES AND THE LOCAL RULES FOR THE U.S. DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY AND THE BANKRUPTCY COURT, AND OF DUE PROCESS. NO OTHER OR FURTHER NOTICE OF THE MOTION, OF THE HEARING ON THE MOTION OR OF THE REQUEST FOR ENTRY OF THIS APPROVAL ORDER IS OR SHALL BE REQUIRED. THIS COURT HEREBY FURTHER FINDS THAT NOTICE TO AN ATTORNEY FOR THE HOLDER OF AN ASBESTOS CLAIM CONSTITUTES NOTICE TO SUCH HOLDER FOR PURPOSES OF NOTICE OF THE MOTION, THE HEARING, THE SETTLEMENT AND BUYBACK AGREEMENT, AND THE APPROVAL ORDER. XXII. THIS APPROVAL ORDER IS "FINAL" WITHIN THE MEANING OF 28 U.S.C. ss. 158(A)(1). - ---------- (1) Findings of fact shall be construed as conclusions of law and conclusions of law as findings of fact when appropriate in accordance with Bankruptcy Rule 7052. Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 5 XXIII.______TO THE EXTENT THAT ANY PERSON (I) EITHER (A) RECEIVED PROPER NOTICE OF THESE MATTERS (OR IS REPRESENTED BY A PERSON, INCLUDING, WITHOUT LIMITATION, THE FCR OR COUNSEL, THAT RECEIVED SUCH NOTICE) OR (B) HAVING HAD NOTICE OF THESE CHAPTER 11 CASES, ELECTED NOT TO REQUEST NOTICES REGARDING THESE CHAPTER 11 CASES, AND (II) FAILED TO OBJECT TO THE MOTION AND THE ENTRY OF THIS APPROVAL ORDER, THEN SUCH PERSONS, INCLUDING WITHOUT LIMITATION, THE DEBTORS AND THE PLAN TRUST (OR, TO THE EXTENT THAT IT HAS NOT YET BEEN FORMED OR DOES NOT YET EXIST, ITS PREDECESSOR(S) IN INTEREST), THE FCR, THE CLAIMANTS' REPRESENTATIVE AND THE ACC, HEREBY SHALL HAVE NO RIGHT TO FILE OR PROSECUTE AN APPEAL OF THIS APPROVAL ORDER. XXIV. THE CONGOLEUM ENTITIES AND THE ST. PAUL TRAVELERS ENTITIES NEGOTIATED AT ARM'S LENGTH AND IN GOOD FAITH TO REACH A SETTLEMENT ON THE MATTERS RESOLVED THROUGH THE SETTLEMENT AND BUYBACK AGREEMENT. XXV. THE DEBTORS' RIGHTS AND OBLIGATIONS UNDER THE SUBJECT POLICIES ARE PROPERTY OF THE DEBTORS' ESTATES, AND THIS COURT HAS THE JURISDICTION AND POWER TO APPROVE THE SETTLEMENT AND BUYBACK AGREEMENT AND THE COMPROMISES AND RELEASES CONTAINED THEREIN. Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 6 XXVI. THE DEBTORS HAVE DUE AND PROPER CORPORATE AUTHORITY TO ENTER INTO THE SETTLEMENT AND BUYBACK AGREEMENT AND PERFORM ALL OF THEIR OBLIGATIONS THEREUNDER. NO CONSENTS OR APPROVALS, OTHER THAN THIS APPROVAL ORDER, ARE REQUIRED FOR THE DEBTORS TO PERFORM ALL OF THEIR OBLIGATIONS THEREUNDER, INCLUDING THE SALE AND TRANSFER OF THE SUBJECT POLICIES. THE CONSUMMATION OF THE SETTLEMENT AND BUYBACK AGREEMENT BY THE DEBTORS AND THE PLAN TRUST DOES NOT CONFLICT, CONTRAVENE, OR CAUSE A BREACH, DEFAULT OR VIOLATION OF ANY LAW, RULE, REGULATION, CONTRACTUAL OBLIGATION OR ORGANIZATIONAL OR FORMATION DOCUMENT. XXVII.______THE COMPROMISES CONTAINED IN THE SETTLEMENT AND BUYBACK AGREEMENT ARE A VALID AND PROPER EXERCISE OF THE REASONABLE BUSINESS JUDGMENT OF THE CONGOLEUM ENTITIES AND REPRESENT AN EXCHANGE FOR REASONABLY EQUIVALENT VALUE. THE RELEASES TO BE MADE BY THE CONGOLEUM ENTITIES PURSUANT TO SECTION VI OF THE SETTLEMENT AND BUYBACK AGREEMENT ARE APPROPRIATE AND SHOULD BE APPROVED. THE ST. PAUL TRAVELERS ENTITIES WOULD NOT HAVE ENTERED INTO THE SETTLEMENT AND BUYBACK AGREEMENT OR ANY OF THE COMPROMISES AND SETTLEMENTS CONTAINED THEREIN, OR AGREED TO PAY THE SETTLEMENT AND BUYBACK AMOUNT, WITHOUT THE BENEFIT OF Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 7 OBTAINING THE RELEASES CONTAINED IN THE SETTLEMENT AND BUYBACK AGREEMENT AND THE INJUNCTIONS CONTAINED OR TO BE CONTAINED IN THE PLAN AND THE CONFIRMATION ORDER AND IN THIS APPROVAL ORDER. XXVIII._____THE SETTLEMENT AND BUYBACK AGREEMENT RESULTS IN SUBSTANTIAL BENEFITS TO THE DEBTORS' ESTATE AND HOLDERS OF CLAIMS, INCLUDING ASBESTOS CLAIMS, BY (I) SETTLING COMPLEX LITIGATION; AND (II) RECEIVING PAYMENT OF THE SETTLEMENT AND BUYBACK AMOUNT FROM THE ST. PAUL TRAVELERS ENTITIES FOR THE BENEFIT OF THE ESTATE AND HOLDERS OF ASBESTOS CLAIMS. THE SETTLEMENT AND BUYBACK AGREEMENT IS FAIR AND EQUITABLE WITH RESPECT TO THE DEBTORS AND THE PLAN TRUST AND THE PERSONS WHO HAVE ASSERTED, AND WHO MIGHT SUBSEQUENTLY ASSERT, CLAIMS, INCLUDING ASBESTOS CLAIMS, AGAINST THE DEBTORS AND/OR THE PLAN TRUST. XXIX. EACH OF THE FOLLOWING FACTORS HAS BEEN TAKEN INTO ACCOUNT BY THE PARTIES IN REACHING THE COMPROMISES EMBODIED IN THE SETTLEMENT AND BUYBACK AGREEMENT, AND EACH FACTOR SUPPORTS APPROVAL OF THE SETTLEMENT AND BUYBACK AGREEMENT AND THE ENTRY OF THIS APPROVAL ORDER PURSUANT TO BANKRUPTCY RULE 9019: Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 8 A. the probability of success in the litigation of the claims between the Debtors and the St. Paul Travelers Entities, including the ranges of recoverable damages; B. the likelihood that even if the Debtors were successful in the Coverage Action, the St. Paul Travelers Entities would exhaust their appellate rights thereby delaying collection of any judgment; C. the complexity of the litigation between the Debtors and the St. Paul Travelers Entities, and the expense, inconvenience and delay necessarily attending it; D. the paramount interest of creditors and proper deference to their reasonable views regarding the Settlement and Buyback Agreement; and E. whether the conclusion of the litigation promotes the integrity of the judicial system. XXX. CONSIDERING ALL OF THE FACTORS SET FORTH IN IN RE MARTIN, 91 F.3D 389, 393 (3D CIR. 1996), AS DISCUSSED IN THE MOTION, THE PROVISIONS AND CONDITIONS OF THE SETTLEMENT AND BUYBACK AGREEMENT ARE IN THE BEST INTERESTS OF THE DEBTORS, THEIR ESTATES, THEIR CREDITORS, HOLDERS OF DEMANDS, THE PLAN TRUST, AND OTHER PARTIES IN INTEREST. XXXI. THE TERMS OF THE COMPROMISE AND EXCHANGES OF CONSIDERATION SET FORTH IN THE SETTLEMENT AND BUYBACK AGREEMENT: (I) ARE IN THE BEST INTERESTS OF THE CONGOLEUM ENTITIES, INCLUDING THE DEBTORS, THEIR RESPECTIVE ESTATES AND ALL OF THEIR RESPECTIVE CREDITORS AND OTHER PARTIES IN INTEREST; AND (II) ARE ENTERED Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 9 INTO IN GOOD FAITH. NEITHER THE DEBTORS NOR THE ST. PAUL TRAVELERS ENTITIES HAVE ENGAGED IN ANY CONDUCT THAT WOULD CAUSE OR PERMIT THE SETTLEMENT AND BUYBACK AGREEMENT TO BE AVOIDED UNDER SECTION 363(N) OF THE BANKRUPTCY CODE. THE ST. PAUL TRAVELERS ENTITIES ARE NOT "INSIDERS" AS THAT TERM IS DEFINED IN SECTION 101(31) OF THE BANKRUPTCY CODE. XXXII.______BY ENTERING INTO THE SETTLEMENT AND BUYBACK AGREEMENT, THE CONGOLEUM ENTITIES AND THE ST. PAUL TRAVELERS ENTITIES HAVE COMPROMISED THEIR POSITIONS AND HAVE NOT ADMITTED TO OR WAIVED ANY LEGAL, FACTUAL OR OTHER POSITIONS WITH RESPECT TO THE COVERAGE ACTION, OR OTHER DISPUTES BETWEEN THE CONGOLEUM ENTITIES AND THE ST. PAUL TRAVELERS ENTITIES, THE SUBJECT POLICIES, THE INSURANCE RELATIONSHIP BETWEEN THE CONGOLEUM ENTITIES AND THE ST. PAUL TRAVELERS ENTITIES, OR ANY OTHER MATTERS. XXXIII._____THE ST. PAUL TRAVELERS ENTITIES ARE GOOD FAITH PURCHASERS WITHIN THE MEANING OF SECTION 363(M) OF THE BANKRUPTCY CODE AND, AS SUCH, ARE ENTITLED TO ALL OF THE PROTECTIONS AFFORDED THEREBY. THE ST. PAUL TRAVELERS ENTITIES HAVE ACTED AND WILL BE ACTING IN GOOD FAITH WITHIN THE MEANING OF SECTION 363(M) OF THE BANKRUPTCY CODE IN EFFECTING THE BUYBACK OF THE SUBJECT POLICIES CONTEMPLATED BY THE SETTLEMENT AND BUYBACK AGREEMENT AT ALL TIMES AFTER THE ENTRY OF THIS APPROVAL ORDER. Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 10 XXXIV.______THE TERMS AND CONDITIONS OF THE SETTLEMENT AND BUYBACK AGREEMENT AND THE SETTLEMENT AND BUYBACK AMOUNT TO BE PAID TO THE PLAN TRUST, OR AS OTHERWISE DIRECTED BY THE COURT CONSISTENT WITH THE TERMS OF THE SETTLEMENT AND BUYBACK AGREEMENT, ON BEHALF OF THE ST. PAUL TRAVELERS ENTITIES (I) ARE FAIR AND REASONABLE; (II) CONSTITUTE REASONABLY EQUIVALENT VALUE AND FAIR CONSIDERATION FOR THE SUBJECT POLICIES; AND (III) ARE WELL WITHIN THE RANGE OF REASONABLENESS REQUIRED FOR APPROVAL OF THE SETTLEMENT AND BUYBACK AGREEMENT UNDER THE BANKRUPTCY CODE AND APPLICABLE LAW. XXXV. THE SALE AND TRANSFER OF THE SUBJECT POLICIES WILL (I) BE A LEGAL, VALID, AND EFFECTIVE TRANSFER OF ALL OF THE DEBTORS' RIGHTS AND INTERESTS IN AND TO THE SUBJECT POLICIES TO THE ST. PAUL TRAVELERS ENTITIES AND (II) VEST THE ST. PAUL TRAVELERS ENTITIES WITH GOOD TITLE TO, AND ALL OF THE DEBTORS' RIGHTS AND INTERESTS IN AND TO, THE SUBJECT POLICIES FREE AND CLEAR OF ALL CLAIMS, LIENS, ENCUMBRANCES AND INTERESTS OF ANY KIND OR NATURE WHATSOEVER BECAUSE THE STANDARDS SET FORTH IN SECTIONS 363(F)(1), (F)(2) AND (F)(5) OF THE BANKRUPTCY CODE HAVE BEEN SATISFIED. ANY AND ALL NON-DEBTOR HOLDERS OF CLAIMS, LIENS, Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 11 ENCUMBRANCES AND/OR INTERESTS OF ANY KIND OR NATURE WHATSOEVER IN THE SUBJECT POLICIES WHO DID NOT OBJECT TO THE MOTION AND TO THE SALE AND TRANSFER OF THE SUBJECT POLICIES, OR WHO WITHDREW THEIR OBJECTIONS, ARE DEEMED TO HAVE CONSENTED PURSUANT TO SECTION 363(F)(2) OF THE BANKRUPTCY CODE. ANY HOLDER OF A SECURED CLAIM OR ASBESTOS SECURED CLAIM WHO DID OBJECT TO THE MOTION FALLS WITHIN SECTIONS 363(F)(1) OR 363(F)(5) OF THE BANKRUPTCY CODE AND IS ADEQUATELY PROTECTED BY HAVING ITS INTERESTS, IF ANY, ATTACH TO THE SETTLEMENT AND BUYBACK AMOUNT. Q. Consummation of the sale of the Subject Policies will not subject the St. Paul Travelers Entities to any debts, liabilities, obligations or Claims of any kind or nature whatsoever, whether known or unknown, contingent or otherwise, existing as of the date hereof or hereafter arising, of or against the Debtors, the other Congoleum Entities, the ABI Entities or any other Person by reason of such sale of the Subject Policies, including, without limitation, based on any theory of successor or transferee liability. R. The Settlement Agreement is an Asbestos Insurance Settlement Agreement. NOW, THEREFORE, pursuant to Bankruptcy Code Sections 105(a), 363(b) and (f), 1107 and 1108 and Bankruptcy Rules 2002, 6004, 9014 and 9019(a), IT IS HEREBY ORDERED, ADJUDGED AND DECREED THAT: Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 12 (i) The Motion shall be and hereby is GRANTED in all respects subject to the provisions of this Approval Order, and the Settlement and Buyback Agreement is hereby approved in all respects. All objections that have not been withdrawn, resolved, waived or settled are hereby overruled on the merits. (ii) The terms and provisions of the Settlement and Buyback Agreement are incorporated by reference into and are an integral part of this Approval Order. Each term of the Settlement and Buyback Agreement is valid, binding and enforceable as though fully set forth herein. The provisions of the Settlement and Buyback Agreement and of this Approval Order, including the findings of fact and conclusions of law set forth herein, are non-severable and mutually dependent. The failure specifically to include or reference any particular term or provision of the Settlement and Buyback Agreement in this Approval Order shall not diminish or impair the effectiveness of such term and provision, it being the intent of the Court that the Settlement and Buyback Agreement be authorized and approved in its entirety. (iii) To the extent of any conflict or inconsistency between the provisions of this Approval Order and the terms and conditions of the Settlement and Buyback Agreement, the Settlement and Buyback Agreement shall govern and control. The Settlement and Buyback Agreement shall also govern and control in the event of any conflict or inconsistency between the Settlement and Buyback Agreement and the Plan or any other plan of reorganization or liquidation, or order of any type, entered in (i) these Chapter 11 Cases, (ii) any subsequent chapter 7 case into which the Chapter 11 Cases may be converted, or (iii) any related proceeding subsequent to entry of this Approval Order. The terms and provisions of the Settlement and Buyback Agreement, together with the terms and Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 13 provisions of this Approval Order, shall be binding in all respects upon all Entities, including each of the Debtors, their respective Estates, any and all Chapter 7 and Chapter 11 trustees thereof, the Plan Trust, the Plan Trustee, the FCR and each of the Entities whose interests he represents, the Collateral Trust, the Collateral Trustee, the Claimants' Representative and each Asbestos Claimant, the Debtors' other creditors, shareholders of any of the Debtors, and all interested parties, administrative agencies, governmental units, federal, state and local officials maintaining any authority with respect to the Settlement and Buyback Amount, and their respective successors and assigns. (iv) The Debtors are hereby authorized, empowered and directed to take all necessary and appropriate acts to carry out and implement the Settlement and Buyback Agreement in accordance with its terms without further order of the Court, including designating the St. Paul Travelers Entities as Settling Asbestos Insurance Companies and Protected Parties in the Confirmation Order, and after the Effective Date of the Plan occurs, treating the St. Paul Travelers Entities as Settling Asbestos Insurance Companies and Protected Parties under the Plan for all purposes in these Chapter 11 Cases. The designation of the St. Paul Travelers Entities as Settling Asbestos Insurance Companies shall entitle the St. Paul Travelers Entities to the rights and benefits afforded to Settling Asbestos Insurance Companies under the Plan, including the rights and benefits of the Asbestos Channeling Injunction and any other Section 105 and 524(g) injunctions granted under the Plan and the Confirmation Order with respect to all Claims, including all Plan Trust Asbestos Claims. Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 14 (v) The Settlement and Buyback Agreement and this Approval Order constitute valid and binding obligations of the Debtors, their Estates and the Plan Trust, which shall be enforceable in accordance with the terms thereof and shall be binding on the Debtors and their Estates, and any and all successors to and assigns of the Debtors, including the Plan Trust, any Plan Trustee appointed in these Chapter 11 Cases or any other case or proceeding, and all present and future holders of Claims, including without limitation, Plan Trust Asbestos Claims and Demands, and all other parties in interest, as set forth in the Settlement and Buyback Agreement. The Confirmation Order and the Plan Trust Agreement shall include as an obligation of the Plan Trust, effective from the creation of the Plan Trust, that such trust shall be subject to and bound by the Settlement and Buyback Agreement and the Approval Order. Upon its creation, the Plan Trust, without further order of any court or action by any Entity, shall be deemed to be automatically a party to the Settlement and Buyback Agreement. (vi) The releases contained in Section VI of the Settlement and Buyback Agreement are hereby approved in all respects and shall be effective in accordance with the terms of the Settlement and Buyback Agreement. (vii) Pursuant to Sections 105(a) and 363(b) and (f) of the Bankruptcy Code, upon the Trigger Date the Debtors will sell, transfer and convey all of their rights and interests in the Subject Policies and the coverages for Asbestos Claims and other Claims and Demands under the Subject Policies to the St. Paul Travelers Entities, free and clear of all Claims, liens, encumbrances and interests of any kind or nature whatsoever. Effective upon entry of this Approval Order but subject to the satisfaction of the conditions precedent as set forth in Section II of the Settlement and Buyback Agreement, in addition to Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 15 the injunctions granted under the Plan and the Confirmation Order that will protect the St. Paul Travelers Entities as Settling Asbestos Insurance Companies, all Persons and Entities shall be hereby forever enjoined, barred and estopped from asserting any Claims, liens, encumbrances or interests of any kind or nature with respect to the Subject Policies against the St. Paul Travelers Entities and their respective property and assets, including the Subject Policies, including, but not limited to, any interests such person or entity had, has, or may have against or in the Debtors or their respective estates or successors, but such additional injunction shall not affect or modify the rights of Insured Persons under policies of insurance except to the extent released in Section VI of the Settlement and Buyback Agreement. The term Insured Persons in the preceding sentence shall mean those persons or entities specifically identified as named insureds, insureds, additional insureds, additional named insureds, persons insured, assureds or those persons or entities otherwise insured by means of a specific policy provision or endorsement. The St. Paul Travelers Entities are not, and shall not be deemed to be, successors to the Debtors and/or their respective bankruptcy estates by reason of any theory of law or equity as a result of consummation of the transactions provided in the Settlement and Buyback Agreement or otherwise. The St. Paul Travelers Entities are not assuming under the Settlement and Buyback Agreement any liabilities of the Debtors and/or their respective bankruptcy estates or of any other Persons. (viii) As the Parties have entered into the Settlement and Buyback Agreement by way of compromise and settlement, no Party released under the Settlement and Buyback Agreement shall be deemed to have, and no such releasee has, admitted or waived any legal, factual or other positions and no Person Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 16 shall or may use the Settlement and Buyback Agreement or any portion thereof, or any negotiations with respect thereto, as evidence of any kind or nature that any such releasee has made any admission or concession of any kind or nature with respect to the Subject Policies, any Person's rights or obligations thereunder or the Plan. (ix) The St. Paul Travelers Entities are not obligated to perform under the Settlement and Buyback Agreement and/or the Settlement and Buyback Agreement shall become null and void if, among other things, any of the following provisions of a plan of reorganization proposed or filed by the Debtors are modified in a manner that would be inconsistent with the rights and benefits provided to the St. Paul Travelers Entities under the Settlement and Buyback Agreement and/or with the duties and obligations of, and releases provided by, the Congoleum Entities under the Settlement and Buyback Agreement and/or otherwise would have a material adverse effect on the interests of the St. Paul Travelers Entities under the Settlement and Buyback Agreement: (I) Asbestos Channeling Injunction. The sole recourse of the holder of a Plan Trust Asbestos Claim or Demand on account of such Claim or Demand or of a Person that had or could have asserted an Asbestos Claim or Demand shall be to the Plan Trust pursuant to the provisions of the Asbestos Channeling Injunction, the Plan, the Plan Trust Agreement and the TDP, and such holder shall have no right whatsoever at any time to assert its Plan Trust Asbestos Claim or Demand against the Debtors, Reorganized Debtors, any other Protected Party, or any property or interest in property of the Debtors, the Reorganized Debtors, or any other Protected Party. Without limiting the foregoing, from and after the Effective Date, the Asbestos Channeling Injunction shall apply to all present and future holders of Plan Trust Asbestos Claims and Demands, and all such holders shall be permanently and forever stayed, restrained, and enjoined from taking any of the following actions for the purpose of, directly or indirectly, collecting, recovering, or receiving payment of, on, or with respect to any Plan Trust Asbestos Claims and Demands, other than from the Plan Trust in accordance with the Asbestos Channeling Injunction and pursuant to the Plan, the Plan Trust Agreement and the TDP: Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 17 (a) commencing, conducting, or continuing in any manner, directly or indirectly, any suit, action, or other proceeding (including a judicial, arbitration, administrative, or other proceeding) in any forum against or affecting any Protected Party or any property or interests in property of any Protected Party; (b) enforcing, levying, attaching (including any prejudgment attachment), collecting, or otherwise recovering by any means or in any manner, whether directly or indirectly, any judgment, award, decree, or other order against any Protected Party or any property or interests in property of any Protected Party; (c) creating, perfecting, or otherwise enforcing in any manner, directly or indirectly, any encumbrance against any Protected Party, or any property or interests in property of any Protected Party; (d) setting off, seeking reimbursement of, contribution from, or subrogation against, or otherwise recouping in any manner, directly or indirectly, any amount against any liability owed to any Protected Party or any property or interests in property of any Protected Party; and (e) proceeding in any manner in any place with regard to any matter that is subject to resolution pursuant to the Plan Trust, except in conformity and compliance with the Plan, the Plan Trust Agreement and the TDP. Any right, claim or cause of action that an Asbestos Insurance Company may have been entitled to assert against a Settling Asbestos Insurance Company based on or relating to Asbestos Claims shall be channeled to and become a right, claim or cause of action as an offset claim against the Plan Trust and not against the Settling Asbestos Insurance Company in question and all persons, including any Asbestos Insurance Company, shall be enjoined from asserting any such right, claim or cause of action against a Settling Asbestos Insurance Company. Except as otherwise expressly provided in the Plan, nothing contained in the Plan shall constitute or be deemed a waiver of any claim, right or cause of action that the Debtors, the Reorganized Debtors, or the Plan Trust may have against any Entity in connection with or arising out of or related to an Asbestos Claim. Notwithstanding any other provision in the Plan to the contrary, nothing in the Plan shall be understood to channel, prevent, impair or limit in any way enforcement against the Debtors, the Reorganized Debtors, or any other Protected Party of any rights provided in connection with any Workers' Compensation Claim; or Debtor: Congoleum Corp., et al. Case No: 03-51524 Caption: Order Authorizing and Approving Settlement and Policy Buyback Agreement and Release Among the Congoleum Entities, the Plan Trust, the ABI Entities and the St. Paul Travelers Entities and Sale of Subject Policies Pursuant to Sections 105, 363, 1107 and 1108 of the Bankruptcy Code and Rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure 18 (II) Anti-Suit Injunction. With respect to the St. Paul Travelers Entities, this Section 11.11 shall operate as an injunction, pursuant to section 105(a) of the Bankruptcy Code, permanently and forever prohibiting and enjoining the commencement, conduct or continuation of any action or cause of action, whether known or unknown, the employment of process or any act to collect, recover from or offset any non-asbestos claim, Claim or demand against the St. Paul Travelers Entities arising out of, relating to, or in connection with a Subject Policy (as that term is defined in the Settlement and Buyback Agreement) or the insuring relationship of the relevant St. Paul Travelers Entities with the relevant Congoleum Entities (as that term is defined in the Settlement and Buyback Agreement), but such injunction pursuant to section 105(a) of the Bankruptcy Code shall not affect or modify the rights of Insured Persons under policies of insurance except to the extent released in Section VI of the Settlement and Buyback Agreement. The term Insured Persons in the preceding sentence shall mean those persons or entities specifically identified as named insureds, insureds, additional insureds, additional named insureds, persons insured, assureds or those persons or entities otherwise insured by means of a specific policy provision or endorsement. SETTLEMENT AND BUYBACK AGREEMENT EXHIBIT B LIST REFERENCED IN SECTION XI.D Afianzadora Insurgentes, S.A. De C.V. American Equity Insurance Company American Equity Specialty Insurance Company Aprilgrange Limited Athena Assurance Company Atlantic Insurance Company Captiva, Ltd. Commercial Guaranty Casualty Insurance Company Commercial Guaranty Insurance Company Commercial Guaranty Lloyds Insurance Company Constitution State Services LLC Coronation Insurance Company, Ltd. Discover Property & Casualty Insurance Company Discover Re Managers, Inc. Discover Reinsurance Company Discover Specialty Insurance Company Discovery Managers, Ltd. Farmington Casualty Company Fidelity and Guaranty Insurance Company Fidelity and Guaranty Insurance Underwriters, Inc. First Floridian Auto and Home Insurance Company First Trenton Indemnity Company Gulf Group Lloyds 2 Gulf Insurance Holdings U.K. Ltd. Gulf Underwriters Insurance Company Gulf Underwriting Holdings Limited Gulf Underwriting Limited Jago Capital Limited Jago Dedicated, Ltd. Jupiter Holdings, Inc. Lloyds Syndicate 205 Lloyds Syndicate 5000 Mendakota Insurance Company Mendota Insurance Company MMedica Insurance Company, Ltd. Mountain Ridge Insurance Company Northbrook Holdings, Inc. Northfield Insurance Company Northland Casualty Company Northland Insurance Company Seaboard Surety Company Select Insurance Company Societe Nationale d'Assurances du Rwanda St. Paul (Bermuda), Ltd. St. Paul Bermuda Holdings, Inc. St. Paul Fire and Casualty Insurance Company St. Paul Fire and Marine Insurance Company St. Paul Guarantee Insurance Company 3 St. Paul Guardian Insurance Company St. Paul Insurance Company (S.A.) Limited St. Paul Medical Liability Insurance Company St. Paul Mercury Insurance Company St. Paul Multinational Holdings, Inc. St. Paul Protective Insurance Company St. Paul Re (Bermuda), Ltd. St. Paul Re Management PTE, Ltd. St. Paul Re, Inc. St. Paul Reinsurance Company Limited St. Paul Risk Management International, Ltd. St. Paul Specialty Underwriting, Inc. St. Paul Surplus Lines Insurance Company St. Paul Travelers Casualty and Surety Company of Europe, Limited St. Paul Travelers Insurance Company Limited St. Paul Venture Capital VI, LLC TCS European Investments Inc. The Automobile Insurance Company of Hartford, Connecticut The Charter Oak Fire Insurance Company The Northland Company The Phoenix Insurance Company The Premier Insurance Company of Massachusetts The St. Paul Travelers Companies, Inc. The Standard Fire Insurance Company The Travelers Home and Marine Insurance Company 4 The Travelers Indemnity Company The Travelers Indemnity Company of America The Travelers Indemnity Company of Connecticut The Travelers Lloyds Insurance Company The Travelers Marine Corporation TINDY RE Investments, Inc. TPC Investments Inc. TPC UK Investments Inc. LLC TravCo Insurance Company Travelers (Bermuda) Limited Travelers Auto Insurance Co. of New Jersey Travelers Casualty and Surety Company Travelers Casualty and Surety Company of America Travelers Casualty Company of Connecticut Travelers Casualty Insurance Company of America Travelers Commercial Casualty Company Travelers Commercial Insurance Company Travelers Excess and Surplus Lines Company Travelers Indemnity UK Investments, LLC Travelers Indemnity UK LLC Travelers Insurance Group Holdings Inc. Travelers Lloyds of Texas Insurance Company Travelers PC Funds Investments, Inc. Travelers Personal Insurance Company Travelers Personal Security Insurance Company 5 Travelers Property Casualty Company of America Travelers Property Casualty Corp. Travelers Property Casualty Insurance Company Unionamerica Acquisition Company, Ltd. Unionamerica Combined Investment Co., Ltd. Unionamerica Holdings, Ltd. Unionamerica Insurance Company, Ltd. United States Fidelity and Guaranty Company USF&G Insurance Company of Mississippi SETTLEMENT AND BUYBACK AGREEMENT EXHIBIT C POLICIES REFERENCED IN SECTION I.U
- ------------------------------------------------------------------------------------------------------------------------------- Policy Begin Policy End Carrier Name Policy Number Date Date - ------------------------------------------------------------------------------------------------------------------------------- AIU Insurance Co. 75-100034 1/1/1978 1/1/1979 - ------------------------------------------------------------------------------------------------------------------------------- AIU Insurance Co. 75-100996 1/1/1979 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- AIU Insurance Co. 75 101790 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- AIU Insurance Co. 75-102500 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- AIU Insurance Co. 75-102594 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- AIU Insurance Co. 75-103280 1/1/1983 1/1/1984 - ------------------------------------------------------------------------------------------------------------------------------- AIU Insurance Co. 75-103173 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- American Centennial Insurance Company CC-01-58-52 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- American Home Assurance Co. CE 3380176 10/12/1972 1/1/1976 - ------------------------------------------------------------------------------------------------------------------------------- American Home Assurance Co. SCLE 80 65427 1/1/1976 1/1/1977 - ------------------------------------------------------------------------------------------------------------------------------- American Home Assurance Co. SCLE 80 65428 1/1/1976 1/1/1977 - ------------------------------------------------------------------------------------------------------------------------------- American ReInsurance Co. M0691611 2/16/1973 1/1/1976 - ------------------------------------------------------------------------------------------------------------------------------- Colonia Insurance Co. 85-L-1116/01 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- Continental Casualty RDU 9973758 1/1/1964 1/1/1967 - ------------------------------------------------------------------------------------------------------------------------------- Continental Casualty RDU 9433828 1/1/1967 1/28/1970 - ------------------------------------------------------------------------------------------------------------------------------- Continental Casualty RDX 0308091604 1/28/1970 2/16/1973 - ------------------------------------------------------------------------------------------------------------------------------- Continental Casualty RDU 8065433 2/16/1973 1/1/1976 - ------------------------------------------------------------------------------------------------------------------------------- Continental Casualty RDX 8937036 12/17/1973 1/1/1975 - ------------------------------------------------------------------------------------------------------------------------------- Continental Insurance Co. EXC 102428 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- Employers Commercial Union EY 9399 004 1/28/1970 2/16/1973 - ------------------------------------------------------------------------------------------------------------------------------- Employers Ins. Of Wausau 5733-00-200275 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- Employers Ins. Of Wausau 5734-00-200275 1/1/1983 1/1/1984 - ------------------------------------------------------------------------------------------------------------------------------- Employers Ins. Of Wausau 5736-00-102319 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- Employers Ins. Of Wausau 5736-02-102319 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- Employers Ins. Of Wausau Unknown 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- Employers Mutual Casualty Co. MMO 70018 1/1/1978 1/1/1979 - ------------------------------------------------------------------------------------------------------------------------------- Employers Mutual Casualty Co. MMO 70606 1/1/1979 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- Employers Mutual Casualty Co. MMO 70607 1/1/1979 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- Employers Mutual Casualty Co. MMO 71201 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- Employers Mutual Casualty Co. MMO 71202 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- Employers Mutual Casualty Co. MMO 71653 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- Employers Mutual Casualty Co. MMO 71654 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- Employers Mutual Casualty Co. MMO 73047 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- Employers Mutual Casualty Co. MMO 73048 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- Employers Mutual Casualty Co. MMO 73326 1/1/1983 1/1/1984 - ------------------------------------------------------------------------------------------------------------------------------- Employers Mutual Casualty Co. MMO 73526 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- Employers Mutual Liability Ins. Co. of Wisconsin 0524 00 084282 1/1/1973 1/1/1974 - ------------------------------------------------------------------------------------------------------------------------------- Employers Mutual Liability Ins. Co. of Wisconsin 0525 00 084282 1/1/1974 1/1/1975 - ------------------------------------------------------------------------------------------------------------------------------- Employers Mutual Liability Ins. Co. of Wisconsin 0526 00 084282 1/1/1975 3/1/1976 - -------------------------------------------------------------------------------------------------------------------------------
2
- ------------------------------------------------------------------------------------------------------------------------------- Policy Begin Policy End Carrier Name Policy Number Date Date - ------------------------------------------------------------------------------------------------------------------------------- Excess Insurance Co. Of America EL 10355 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- Federal Ins. Co. 7932 98 47 1/1/1977 1/1/1978 - ------------------------------------------------------------------------------------------------------------------------------- Federal Ins. Co. (79) 7932-98-47 1/1/1978 1/1/1979 - ------------------------------------------------------------------------------------------------------------------------------- Fireman's Fund XLX 1202504 10/12/1972 12/17/1973 - ------------------------------------------------------------------------------------------------------------------------------- First State Insurance Company 924233 1/1/1977 1/1/1978 - ------------------------------------------------------------------------------------------------------------------------------- First State Insurance Company 925946 1/1/1978 1/1/1979 - ------------------------------------------------------------------------------------------------------------------------------- First State Insurance Company 927497 1/1/1979 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- First State Insurance Company 929216 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- First State Insurance Company 930852 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- First State Insurance Company 933238 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- First State Insurance Company 934313 1/1/1983 1/1/1984 - ------------------------------------------------------------------------------------------------------------------------------- Gibraltar Cas. Co. GMX 00451 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- Gibraltar Cas. Co. GMX 00452 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- Gibraltar Cas. Co. GMX 00856 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- Gibraltar Cas. Co. GMX 00857 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- Gibraltar Cas. Co. GMX 01497 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- Gibraltar Cas. Co. GMX 01498 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- Gibraltar Cas. Co. GMX 02027 1/1/1983 1/1/1984 - ------------------------------------------------------------------------------------------------------------------------------- Gibraltar Cas. Co. GMX 02028 1/1/1983 1/1/1984 - ------------------------------------------------------------------------------------------------------------------------------- Gibraltar Cas. Co. GMX 02545 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- Gibraltar Cas. Co. GMX 02546 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- Granite State Ins. Co. 80-94046 1/1/1977 1/1/1978 - ------------------------------------------------------------------------------------------------------------------------------- Granite State Ins. Co. SCLD 80 94047 1/1/1977 1/1/1978 - ------------------------------------------------------------------------------------------------------------------------------- Granite State Ins. Co. 6179-0998 1/1/1979 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- Granite State Ins. Co. 6180-1880 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- Granite State Ins. Co. 6481-5121 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- Granite State Ins. Co. 6482-5348 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- Granite State Ins. Co. 6483-5546 1/1/1983 1/1/1984 - ------------------------------------------------------------------------------------------------------------------------------- Granite State Ins. Co. 6484-0070 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- Highlands Ins. Co. SR 10276 10/12/1972 12/17/1973 - ------------------------------------------------------------------------------------------------------------------------------- Highlands Ins. Co. SR 10638 1/1/1975 1/1/1976 - ------------------------------------------------------------------------------------------------------------------------------- Highlands Ins. Co. SR 20042 1/1/1976 1/1/1977 - ------------------------------------------------------------------------------------------------------------------------------- Highlands Ins. Co. SR 20227 1/1/1977 1/1/1978 - ------------------------------------------------------------------------------------------------------------------------------- Highlands Ins. Co. SR 20482 1/1/1978 1/1/1979 - ------------------------------------------------------------------------------------------------------------------------------- Highlands Ins. Co. SR 20789 1/1/1979 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- Highlands Ins. Co. SR 20943 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- Highlands Ins. Co. SR 21208 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- Highlands Ins. Co. SR 21396 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- Highlands Ins. Co. SR 21696 1/1/1983 1/1/1984 - ------------------------------------------------------------------------------------------------------------------------------- Highlands Ins. Co. SR 22005 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- Holland-America Insurance Company H83678 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- Home Insurance Company HEC 9791374 1/28/1970 2/16/1973 - ------------------------------------------------------------------------------------------------------------------------------- Insurance Co. Of North America XBC 1838 10/13/1965 1/1/1967 - ------------------------------------------------------------------------------------------------------------------------------- Insurance Co. Of North America XBC 40971 1/1/1967 1/28/1970 - -------------------------------------------------------------------------------------------------------------------------------
3
- ------------------------------------------------------------------------------------------------------------------------------- Policy Begin Policy End Carrier Name Policy Number Date Date - ------------------------------------------------------------------------------------------------------------------------------- Insurance Co. Of North America XBC 43099 1/28/1970 2/16/1973 - ------------------------------------------------------------------------------------------------------------------------------- Insurance Co. Of North America XCP 3904 2/16/1973 1/1/1976 - ------------------------------------------------------------------------------------------------------------------------------- Insurance Co. Of North America XCP 3956 12/17/1973 1/1/1976 - ------------------------------------------------------------------------------------------------------------------------------- Insurance Co. Of North America XBC 155083 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- Insurance Co. Of North America XCP GO 7908702 5/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- Integrity Insurance Company XL 200500 1/1/1979 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- Integrity Insurance Company XL 201439 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- Integrity Insurance Company XL 201522 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- Integrity Insurance Company XL 203766 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- Integrity Insurance Company XL 207014 1/1/1983 1/1/1984 - ------------------------------------------------------------------------------------------------------------------------------- Integrity Insurance Company XL 207970 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- Integrity Insurance Company XL 210163 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- International Surplus Lines Insurance Company (ISLIC) XSI 10018 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- International Surplus Lines Insurance Company (ISLIC) XSI 10017 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. Unknown 1/1/1952 1/1/1953 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. Unknown 1/1/1953 1/1/1954 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. Unknown 1/1/1954 1/1/1955 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LB24-914417-55 1/1/1955 1/1/1956 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LP-24-692115-56 1/1/1956 1/1/1957 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LP-6032-900078-37 1/1/1957 1/1/1958 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LP-6032-900078-38 1/1/1958 1/1/1959 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LP-6032-900078-39 1/1/1959 1/1/1960 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LP-632-004138-040-TD93 1/1/1960 1/1/1961 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LP1-632-004138-041 TD 93 1/1/1961 1/1/1962 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LP1-632-004138-042 TD93 1/1/1962 1/1/1963 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LP1-632-004138-043 TD 93 1/1/1963 1/1/1964 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LP1-632-004138-044 TD 93 1/1/1964 1/1/1965 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LP1-632-004138-045 TD 93 1/1/1965 1/1/1966 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LP1-632-004136-046 TD 93 1/1/1966 1/1/1967 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LG1-632-004138-047 1/1/1967 1/1/1968 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LG1-632-004138-048 1/1/1968 1/1/1969 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LG1-632-004138-049 1/1/1969 1/1/1970 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LGl-632-004138-040 1/1/1970 1/1/1971 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LG1-632-004138-041 1/1/1971 1/1/1972 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LG1-632-004138-042 1/1/1972 1/1/1973 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LG1-641-004051-046 3/1/1976 1/1/1977 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LG1-641-004051-047 1/1/1977 1/1/1978 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LG1-641-004051-048 1/1/1978 1/1/1979 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LGl-641-004051-049 1/1/1979 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LG1-641-004051-040 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LG1-612-004157-041 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LG1-612-004157-042 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LG1-612-004157-043 1/1/1983 1/1/1984 - -------------------------------------------------------------------------------------------------------------------------------
4
- ------------------------------------------------------------------------------------------------------------------------------- Policy Begin Policy End Carrier Name Policy Number Date Date - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LG1-612-004157-044 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. LG1-612-004157-045 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. RG1-612-004157-046 1/1/1986 8/19/1986 - ------------------------------------------------------------------------------------------------------------------------------- Liberty Mutual Ins. Co. RG1-612-004207-046 8/19/1986 8/19/1987 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds K21782 11/12/1953 11/12/1954 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds K21783 11/12/1953 11/12/1954 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds K21784 11/12/1953 11/12/1954 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds K28288 11/12/1954 1/1/1958 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds K28289 11/12/1954 1/1/1958 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds K28290 11/12/1954 1/1/1958 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds K28291 11/12/1954 1/1/1958 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds CK2458 1/1/1958 2/1/1961 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds CK2459 1/1/1958 2/1/1961 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds 881/UHL 0036 1/12/1976 1/1/1977 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds 881/WHL551 4/1/1976 4/1/1977 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds 881/UJL 0056 1/1/1977 1/1/1978 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds 881/UJL 0057 1/1/1977 1/1/1978 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds 881/UJL 0389 4/1/1977 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds WJU551 4/1/1977 12/31/1977 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds 881/WK0151 1/1/1978 1/1/1979 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds 881/WK0161 1/1/1978 1/1/1979 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds 881/WKT051 1/1/1978 1/1/1979 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds 881/WLT121 1/1/1979 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds FUL083067 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds FUL083811 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds FUL084656 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- London Companies And Lloyds 707/FULD8556 1/1/1983 1/1/1984 - ------------------------------------------------------------------------------------------------------------------------------- Midland Insurance Company XL 111017004473-5/ 10/12/1972 1/1/1976 111017004472-7 - ------------------------------------------------------------------------------------------------------------------------------- Midland Insurance Company XL 145821 1/1/1976 1/1/1977 - ------------------------------------------------------------------------------------------------------------------------------- Midland Insurance Company XL 152158 1/1/1977 1/1/1978 - ------------------------------------------------------------------------------------------------------------------------------- Midland Insurance Company XL 148361 1/1/1978 1/1/1979 - ------------------------------------------------------------------------------------------------------------------------------- Midland Insurance Company XL 160344 1/1/1979 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- Midland Insurance Company XL 706593 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- Midland Insurance Company XL 723759 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- Midland Insurance Company XL 724778 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- Midland Insurance Company XL 748705 1/1/1983 1/1/1984 - ------------------------------------------------------------------------------------------------------------------------------- Midland Insurance Company XL 770107 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- Midland Insurance Company XL 770108 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- Mission Insurance Company M81757 1/1/1975 4/1/1976 - ------------------------------------------------------------------------------------------------------------------------------- Mission Insurance Company M831963 4/1/1976 4/1/1977 - ------------------------------------------------------------------------------------------------------------------------------- Mission Insurance Company M856066 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- Navigators Insurance Co. 85-L-1116/01 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- Old Republic Insurance Company OZX 11607 1/1/1981 1/1/1982 - -------------------------------------------------------------------------------------------------------------------------------
5
- ------------------------------------------------------------------------------------------------------------------------------- Policy Begin Policy End Carrier Name Policy Number Date Date - ------------------------------------------------------------------------------------------------------------------------------- Old Republic Insurance Company OZX 11787 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- Protective National Insurance Company of Omaha XUB 180-72-81 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- Prudential Reinsurance Company DXC 901037 1/1/1976 1/1/1977 - ------------------------------------------------------------------------------------------------------------------------------- Prudential Reinsurance Company DXC DX0067 1/1/1977 1/1/1978 - ------------------------------------------------------------------------------------------------------------------------------- Prudential Reinsurance Company DXC DX 0588 1/1/1978 1/1/1979 - ------------------------------------------------------------------------------------------------------------------------------- Prudential Reinsurance Company DXC DX 0659 1/1/1978 1/1/1979 - ------------------------------------------------------------------------------------------------------------------------------- Prudential Reinsurance Company DXC DX 1356 1/1/1979 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- Prudential Reinsurance Company DXC DX 1357 1/1/1979 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- Puritan Insurance Co. ML 65 04 47 1/1/1978 1/1/1979 - ------------------------------------------------------------------------------------------------------------------------------- Puritan Insurance Co. ML 65 15 58 1/1/1979 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- Puritan Insurance Co. ML 65 22 64 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- Stonewall Insurance 36000045 1/1/1976 1/1/1977 - ------------------------------------------------------------------------------------------------------------------------------- Transit Casualty Company SCU 9550 66 1/1/1979 1/1/1980 - ------------------------------------------------------------------------------------------------------------------------------- Transit Casualty Company SCU 955-427 1/1/1980 1/1/1981 - ------------------------------------------------------------------------------------------------------------------------------- Transit Casualty Company SCU055787 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- Transit Casualty Company SCU955786 1/1/1981 1/1/1982 - ------------------------------------------------------------------------------------------------------------------------------- Transit Casualty Company SCU 956122 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- Transit Casualty Company SCU 956-123 1/1/1982 1/1/1983 - ------------------------------------------------------------------------------------------------------------------------------- Transit Casualty Company SCU 956394 1/1/1983 1/1/1984 - ------------------------------------------------------------------------------------------------------------------------------- Transit Casualty Company SCU 956395 1/1/1983 1/1/1984 - ------------------------------------------------------------------------------------------------------------------------------- Transit Casualty Company SCU 956652 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- Transit Casualty Company SCU 956653 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- Transit Casualty Company SCU 957115 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- Transport Indemnity Co. TEL 900359 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- Transport Indemnity Co. TEL 01129C 1/1/1985 7/15/1985 - ------------------------------------------------------------------------------------------------------------------------------- Twin City Fire TXS 102624 1/1/1983 1/1/1984 - ------------------------------------------------------------------------------------------------------------------------------- Twin City Fire TXS103545 1/1/1984 1/1/1985 - ------------------------------------------------------------------------------------------------------------------------------- U.S. Fire Insurance Co. 349 001829 9 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- U.S. Fire Insurance Co. H02317 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- Unigard Mutual 1-0682 2/16/1973 5/19/1975 - ------------------------------------------------------------------------------------------------------------------------------- United Reinsurance Corp. of NY 85-L-1116/01 1/1/1985 1/1/1986 - ------------------------------------------------------------------------------------------------------------------------------- Unknown (but not any St. Paul Travelers Entity) Unknown 2/1/1961 1/1/1962 - ------------------------------------------------------------------------------------------------------------------------------- Unknown (but not any St. Paul Travelers Entity) Unknown 1/1/1962 1/1/1963 - ------------------------------------------------------------------------------------------------------------------------------- Unknown (but not any St. Paul Travelers Entity) Unknown 1/1/1963 1/1/1964 - ------------------------------------------------------------------------------------------------------------------------------- Western Employers Insurance Company EX10-0185-20348 1/1/1985 1/1/1986 - -------------------------------------------------------------------------------------------------------------------------------
SETTLEMENT AND BUYBACK AGREEMENT EXHIBIT D LISTED POLICIES REFERENCED IN SECTION VI.J
- ------------------------------------------------------------------------------------------------------------------------- Alleged Policy Number Alleged Name of Insurer Alleged Policy Period - ------------------------------------------------------------------------------------------------------------------------- 77XC9SCA The Aetna Casualty and Surety Company 01/01/1992 - 01/01/1993 - ------------------------------------------------------------------------------------------------------------------------- 077XC14SCA The Aetna Casualty and Surety Company 01/01/1993 - 01/01/1994 - ------------------------------------------------------------------------------------------------------------------------- 077XC31SCA The Aetna Casualty and Surety Company 01/01/1994 - 01/01/1995 - ------------------------------------------------------------------------------------------------------------------------- 77XC44SCA The Aetna Casualty and Surety Company 01/01/1995 - 01/01/1996 - ------------------------------------------------------------------------------------------------------------------------- 77XC57SCA* The Aetna Casualty and Surety Company 01/01/1996 - 01/01/1997 - ------------------------------------------------------------------------------------------------------------------------- 160T4304* The Travelers Indemnity Company 09/01/1988 - 01 /01/1989 - ------------------------------------------------------------------------------------------------------------------------- 160T4304* The Travelers Indemnity Company 01/01/1989 - 01/01/1990 - ------------------------------------------------------------------------------------------------------------------------- 160T4304* The Travelers Indemnity Company 01/01/1990 - 01/01/1991 - ------------------------------------------------------------------------------------------------------------------------- 166D6103 The Travelers Indemnity Company 07/27/1998 - 07/27/1999 - ------------------------------------------------------------------------------------------------------------------------- 166D6103 The Travelers Indemnity Company 07/27/1999 - 07/27/2000 - ------------------------------------------------------------------------------------------------------------------------- 166D6115 The Travelers Indemnity Company 07/27/1998 - 10/31/2000 - ------------------------------------------------------------------------------------------------------------------------- 166D6103 The Travelers Indemnity Company 07/27/2000 - 07/27/2001 - ------------------------------------------------------------------------------------------------------------------------- 166D6115 The Travelers Indemnity Company 10/31/2000 - 07/27/2001 - ------------------------------------------------------------------------------------------------------------------------- 166D6103 The Travelers Indemnity Company 07/27/2001 - 09/15/2001 - ------------------------------------------------------------------------------------------------------------------------- 166D6115 The Travelers Indemnity Company 07/27/2001 - 09/15/2001 - ------------------------------------------------------------------------------------------------------------------------- 1111855* The Travelers Indemnity Company 01/01/1963 - 01/01/1966 - ------------------------------------------------------------------------------------------------------------------------- 1308910* The Travelers Indemnity Company 04/20/1967 - 10/27/1967 - ------------------------------------------------------------------------------------------------------------------------- 3284326* The Travelers Indemnity Company 01/01/1967 - 01/01/1968 - ------------------------------------------------------------------------------------------------------------------------- 1245401* The Travelers Indemnity Company 02/20/1967 - 02/02/1968 - ------------------------------------------------------------------------------------------------------------------------- 201T1987 The Travelers Indemnity Company 09/01/1988 - 01/01/1989 - ------------------------------------------------------------------------------------------------------------------------- 199T9924 The Travelers Indemnity Company 09/01/1988 - 09/01/1989 - ------------------------------------------------------------------------------------------------------------------------- 139J3448 The Travelers Indemnity Company 01/01/1989 - 01/01/1990 - ------------------------------------------------------------------------------------------------------------------------- 201T1987 The Travelers Indemnity Company 01/01/1989 - 01/01/1990 - ------------------------------------------------------------------------------------------------------------------------- 199T9924* The Travelers Indemnity Company 09/01/1989 - 09/01/1990 - ------------------------------------------------------------------------------------------------------------------------- 139J3448 The Travelers Indemnity Company 01/01/1990 - 01/01/1991 - ------------------------------------------------------------------------------------------------------------------------- 181K196A The Travelers Indemnity Company 02/01/1994 - 01/01/1995 - ------------------------------------------------------------------------------------------------------------------------- 696K8594 The Travelers Indemnity Company 01/01/1995 - 01/01/1996 - ------------------------------------------------------------------------------------------------------------------------- 745K4532 The Travelers Indemnity Company 03/09/1995 - 01/01/1996 - ------------------------------------------------------------------------------------------------------------------------- 853K1146 The Travelers Indemnity Company 01/16/1996 - 01/01/1997 - ------------------------------------------------------------------------------------------------------------------------- 2312027 The Travelers Indemnity Company 01/01/1966 - 01/01/1969 - ------------------------------------------------------------------------------------------------------------------------- 1587862 The Travelers Indemnity Company 01/01/1969 - 01/01/1972 - ------------------------------------------------------------------------------------------------------------------------- 7232892 The Travelers Indemnity Company 01/01/1972 - 01/01/1973 - -------------------------------------------------------------------------------------------------------------------------
*= St. Paul Travelers Entities have not located copy of policy and reserve all rights pertaining thereto, including those that concern the existence, terms, conditions and/or completeness of such alleged policy. SETTLEMENT AND BUYBACK AGREEMENT EXHIBIT E POLICIES REFERENCED IN SECTION XI.B
- -------------------------------------------------------------------------------------------------------------------------- Policy Number Name of Insurer Policy Period - -------------------------------------------------------------------------------------------------------------------------- GA5743953 Gulf Insurance Company 02/02/1995 - 02/02/1996 - -------------------------------------------------------------------------------------------------------------------------- 01XN904WCA The Aetna Casualty and Surety Company 01/01/1976 - 01/01/1977 - -------------------------------------------------------------------------------------------------------------------------- 01XN905WCA The Aetna Casualty and Surety Company 01/01/1976 - 01/01/1977 - -------------------------------------------------------------------------------------------------------------------------- 01XN1221WCA The Aetna Casualty and Surety Company 01/01/1977 - 01/01/1978 - -------------------------------------------------------------------------------------------------------------------------- 01XN1222WCA The Aetna Casualty and Surety Company 01/01/1977 - 01/01/1978 - -------------------------------------------------------------------------------------------------------------------------- 01XN1631WCA The Aetna Casualty and Surety Company 01/01/1978 - 01/01/1979 - -------------------------------------------------------------------------------------------------------------------------- 01XN1632WCA The Aetna Casualty and Surety Company 01/01/1978 - 01/01/1979 - -------------------------------------------------------------------------------------------------------------------------- 01XN2061WCA The Aetna Casualty and Surety Company 01/01/1979 - 01/01/1980 - -------------------------------------------------------------------------------------------------------------------------- 01XN2062WCA The Aetna Casualty and Surety Company 01/01/1979 - 01/01/1980 - -------------------------------------------------------------------------------------------------------------------------- 01XN2455WCA The Aetna Casualty and Surety Company 01/01/1980 - 01/01/1981 - -------------------------------------------------------------------------------------------------------------------------- 01XN2456WCA The Aetna Casualty and Surety Company 01/01/1980 - 01/01/1981 - -------------------------------------------------------------------------------------------------------------------------- 01XN2877WCA The Aetna Casualty and Surety Company 01/01/1981 - 01/01/1982 - -------------------------------------------------------------------------------------------------------------------------- 01XN2878WCA The Aetna Casualty and Surety Company 01/01/1981 - 01/01/1982 - -------------------------------------------------------------------------------------------------------------------------- 01XN2879WCA The Aetna Casualty and Surety Company 01/01/1981 - 01/01/1982 - -------------------------------------------------------------------------------------------------------------------------- 01XN3267WCA The Aetna Casualty and Surety Company 01/01/1982 - 01/01/1983 - -------------------------------------------------------------------------------------------------------------------------- 01XN3268WCA The Aetna Casualty and Surety Company 01/01/1982 - 01/01/1983 - -------------------------------------------------------------------------------------------------------------------------- 01XN3269WCA The Aetna Casualty and Surety Company 01/01/1982 - 01/01/1983 - -------------------------------------------------------------------------------------------------------------------------- 01XN326WCA The Aetna Casualty and Surety Company 10/12/1972 - 01/01/1976 - -------------------------------------------------------------------------------------------------------------------------- 3827* The Travelers Indemnity Company 11/07/1967 - 11/07/1968 - -------------------------------------------------------------------------------------------------------------------------- 06 XN 22205576^ Travelers Casualty and Surety Company 04/01/1992 - 04/01/1993 - -------------------------------------------------------------------------------------------------------------------------- 2516266* The Travelers Indemnity Company 01/01/1966 - 01/01/1969 - -------------------------------------------------------------------------------------------------------------------------- 3735545* The Travelers Indemnity Company 01/01/1968 - 01/01/1969 - -------------------------------------------------------------------------------------------------------------------------- 1245401* The Travelers Indemnity Company 02/20/1968 - 02/20/1969 - -------------------------------------------------------------------------------------------------------------------------- 3836* The Travelers Indemnity Company 03/14/1968 - 03/14/1969 - -------------------------------------------------------------------------------------------------------------------------- 3921* The Travelers Indemnity Company 03/14/1968 - 03/14/1969 - -------------------------------------------------------------------------------------------------------------------------- 3922* The Travelers Indemnity Company 03/15/1968 - 03/15/1969 - -------------------------------------------------------------------------------------------------------------------------- 1237827* The Travelers Indemnity Company 06/01/1966 - 06/01/1969 - -------------------------------------------------------------------------------------------------------------------------- 1245401* The Travelers Indemnity Company 02/20/1969 - 02/20/1970 - -------------------------------------------------------------------------------------------------------------------------- 1658073* The Travelers Indemnity Company 02/20/1969 - 02/20/1970 - -------------------------------------------------------------------------------------------------------------------------- 1658073* The Travelers Indemnity Company 02/20/1970 - 02/20/1971 - -------------------------------------------------------------------------------------------------------------------------- 1658073* The Travelers Indemnity Company 02/20/1971 - 02/20/1972 - -------------------------------------------------------------------------------------------------------------------------- 1237827* The Travelers Indemnity Company 06/01/1969 - 06/01/1972 - -------------------------------------------------------------------------------------------------------------------------- 1300993* The Travelers Indemnity Company 07/28/1966 - 07/28/1969 - -------------------------------------------------------------------------------------------------------------------------- MOC 0645B63A^ Travelers Property Casualty Company of America 01/01/2004 - 01/01/2005 - -------------------------------------------------------------------------------------------------------------------------- 590XA0834** St. Paul Fire and Marine Insurance Company 10/12/1972 - 01/12/1976 - --------------------------------------------------------------------------------------------------------------------------
* = St. Paul Travelers Entities have not located copy of policy and reserve all rights pertaining thereto, including those that concern the existence, terms, conditions and/or completeness of such alleged policy. ** = St. Paul Travelers Entities have not located copy of policy in their own records and have reserved all rights regarding policy, including rights pertaining to its completeness and authenticity. ^ = These policies are considered Subject Policies only to the extent set forth in Section I.U. 2
- -------------------------------------------------------------------------------------------------------------------------- Policy Number Name of Insurer Policy Period - -------------------------------------------------------------------------------------------------------------------------- RP 06605372 St. Paul Fire and Marine Insurance Company 04/01/1993 - 04/01/1994 - -------------------------------------------------------------------------------------------------------------------------- RP 06605372 St. Paul Fire and Marine Insurance Company 04/01/1994 - 04/01/1995 - -------------------------------------------------------------------------------------------------------------------------- RP 06605372 St. Paul Fire and Marine Insurance Company 04/01/1995 - 04/01/1996 - -------------------------------------------------------------------------------------------------------------------------- RP 06605372 St. Paul Fire and Marine Insurance Company 04/01/1996 - 04/01/1997 - -------------------------------------------------------------------------------------------------------------------------- RP 06605372 St. Paul Fire and Marine Insurance Company 04/01/1997 - 04/01/1998 - -------------------------------------------------------------------------------------------------------------------------- RP 06605372 St. Paul Fire and Marine Insurance Company 04/01/1998 - 04/01/1999 - -------------------------------------------------------------------------------------------------------------------------- QK 09000534^ St. Paul Fire and Marine Insurance Company 06/01/2003 - 06/01/2004 - -------------------------------------------------------------------------------------------------------------------------- QK 09000747^ St. Paul Fire and Marine Insurance Company 06/01/2004 - 06/01/2005 - -------------------------------------------------------------------------------------------------------------------------- 0369JM0112^ St. Paul Fire and Marine Insurance Company 01/01/2005 - 01/01/2006 - -------------------------------------------------------------------------------------------------------------------------- OC 06900058^ St. Paul Fire and Marine Insurance Company 01/01/2006 - 01/01/2007 - --------------------------------------------------------------------------------------------------------------------------
* = St. Paul Travelers Entities have not located copy of policy and reserve all rights pertaining thereto, including those that concern the existence, terms, conditions and/or completeness of such alleged policy. ** = St. Paul Travelers Entities have not located copy of policy in their own records and have reserved all rights regarding policy, including rights pertaining to its completeness and authenticity. ^ = These policies are considered Subject Policies only to the extent set forth in Section I.U. SETTLEMENT AND BUYBACK AGREEMENT EXHIBIT F DEFINITION OF "CONGOLEUM DERIVATIVE ACTION" "(a) any claim, demand or lawsuit whenever and wherever arising or asserted against any of ABI or the ABI Entities and (b) any debt, obligation or liability (whether or not reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, bonded, secured or unsecured), whenever or wherever arising or asserted, against any of ABI or the ABI Entities; in either case (a) or (b) for, based on, derivative of, arising out of, or caused or allegedly caused, in whole or in part, directly or indirectly: (i) by exposure to asbestos or asbestos-containing products manufactured, supplied, distributed, handled, fabricated, stored, sold, installed, or removed by any Debtor; (ii) by services, actions, or operations provided , completed or taken by any Debtor in connection with asbestos or asbestos-containing products or (iii) by asbestos for which any Debtor or its predecessors are otherwise liable under any applicable law, in either case (a) or (b) including, but not limited to, any claim, demand or lawsuit for or based on the corporate relationship between the Debtor and ABI, including, but not limited to, allegations of piercing the corporate veil, shareholder liability, interlocking directorships, or any similar allegations or otherwise." EX-99.5 7 ex99-5.txt Exhibit 99.5 SETTLEMENT AGREEMENT BETWEEN CONGOLEUM CORPORATION AND FIREMAN'S FUND INSURANCE COMPANY This Settlement Agreement ("Agreement") is hereby made as of April 27, 2006, by and between CONGOLEUM CORPORATION ("Congoleum"), a debtor-in-possession under Chapter 11 of the U.S. Bankruptcy Code, and FIREMAN'S FUND INSURANCE COMPANY ("Insurer"). RECITALS WHEREAS, the Insurer issued to Congoleum the Subject Policy (defined below); and WHEREAS, Congoleum has been and may in the future be subject to Asbestos-Related Claims (defined below) that Congoleum contends are covered by the Subject Policy; and WHEREAS, Congoleum and the Insurer disagree with respect to whether and the extent to which coverage is afforded by the Subject Policy for Asbestos-Related Claims; and WHEREAS, Congoleum and the Insurer stipulate that, for the purposes of this Agreement, the total amount of undisputed limits applicable and available to pay Asbestos-Related Claims under the Subject Policy is Five Million U.S. Dollars ($5,000,000.00); and WHEREAS, on December 31, 2003, Congoleum filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code (defined below), commencing the Chapter 11 Case (defined below); and WHEREAS, Congoleum continues to operate its business and to manage its properties as a debtor-in-possession under the Bankruptcy Code; and WHEREAS, Congoleum and the Insurer, without either admitting in any way the validity of the positions or arguments relating to facts or law advanced by the other, wish to compromise and resolve any and all issues between them regarding the Subject Policy and to terminate any and all further obligations between them arising under or relating to the Subject Policy; and NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and intending to be legally bound hereby, Congoleum and the Insurer hereby agree as follows: I. Definitions As used in this Agreement, the following terms shall have the following meanings: 1.1 "Approval Motion" means a motion or motions, as the case may be, to be filed by Congoleum pursuant to Bankruptcy Rule 9019 requesting the Approval Order. 1.2 "Approval Order" means an order of the Bankruptcy Court entered in a form substantially identical to Exhibit 1 hereto, or in a form otherwise mutually agreeable to the Parties, approving this Agreement. 1.3 "Asbestos-Related Claims" means any and all Claims arising out of, caused by, or related to, in whole or in part, directly or indirectly, the manufacture, sale, handling, distribution, installation, existence, presence, repair, or removal of asbestos or asbestos-containing products or material, or any act or omission that results or is alleged to result in the exposure or potential exposure to asbestos or asbestos-containing material (alone or in combination with any other dust, mineral, fiber, substance, or material), including, without limitation, any such Claims arising out of actual, threatened, or alleged exposure to asbestos (alone or in combination with any other dust, mineral, fiber, substance, or material), seeking the removal, repair, abatement, or replacement of asbestos or asbestos-containing material, arising out of the alleged failure to produce an asbestos-free product, and/or based on or arising out of any theory of liability or basis of recovery based upon, growing out of, or related to asbestos. 2 1.4 "Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as codified in Title 11 of the United States Code, 11 U.S.C. ss.ss. 101 et seq., as now in effect or hereafter amended. 1.5 "Bankruptcy Court" means the United States Bankruptcy Court for the District of New Jersey, or such other court as may have jurisdiction over the Chapter 11 Case. 1.6 "Channeling Injunction Claim" has the meaning set forth in Section 9.3 of this Agreement. 1.7 "Chapter 11 Case" means that Chapter 11 case of Congoleum, captioned In re Congoleum, et al., Case No. 03-51524 (KCF), commenced in the United States Bankruptcy Court for the District of New Jersey. 1.8 "Claim" means any past, present, or future claim, demand, action, cause of action, suit or liability of any kind or nature whatsoever, whether at law or in equity, known or unknown, asserted or unasserted, anticipated or unanticipated, accrued or unaccrued, fixed or contingent, which has been or may be asserted by or on behalf of any Person, whether seeking damages (including compensatory, punitive or exemplary damages) or equitable, mandatory, injunctive, or any other type of relief, including without limitation crossclaims, counterclaims, third-party claims, suits, lawsuits, administrative proceedings, notices of liability or potential liability, arbitrations, actions, rights or causes of action. Claim also includes "claim" as defined in 11 U.S.C. ss. 101(5) and "demand" as defined in 11 U.S.C. ss. 524(g)(5). 3 1.9 "Committee" means the Official Committee of Unsecured Asbestos Claimants appointed by the United States Trustee in the Chapter 11 Case and/or any other official committee appointed by the United States Trustee in the Chapter 11 Case. 1.10 "Confirmation Order" means an order entered by the U.S. District Court for the District of New Jersey that either (a) confirms a Plan that includes a 524(g) Injunction and, in connection with such Plan, enters a 524(g) Injunction; or (b) affirms an order of the Bankruptcy Court that has confirmed a Plan and, in connection with such Plan, has entered a 524(g) Injunction. 1.11 "Congoleum Entities" means Congoleum and: a. All of its past and present subsidiaries, affiliates, predecessors, successors (including, without limitation, any reorganized company or other successor to Congoleum under the Plan), and assigns; and b. All of the respective employees, officials, representatives, agents, attorneys, officers, and directors, in their capacity as such, of the entities encompassed by subparagraph (a) above. 1.12 "Coverage Litigation" means the lawsuit styled Congoleum Corporation v. ACE American Insurance Company, et al., Docket No. MID-L-8908-01, pending in the Superior Court of New Jersey, Law Division, Middlesex County. 1.13 "Designated Counsel" has the meaning set forth in Section 9.4 of this Agreement. 4 1.14 "Execution Date" means the date as of which this Agreement shall have been executed by all of the Parties. 1.15 "Final Order" means an order or judgment of the Bankruptcy Court or other court of competent jurisdiction, as entered on the docket in the Chapter 11 Case or on appeal therefrom, the operation or effect of which has not been stayed or reversed and as to which such order or judgment (or any revision, modification, or amendment thereof) the time to appeal or seek review, rehearing, or certiorari has expired. 1.16 "Fireman's Fund Entities" means the Insurer and: a. All of its past and present parents, subsidiaries, affiliates, predecessors, successors, and assigns; and b. All of the respective employees, representatives, agents, attorneys, officers, and directors, in their capacity as such, of the entities encompassed by subparagraph (a) above. 1.17 "524(g) Injunction" means an injunction in the Chapter 11 Case pursuant to Section 524(g) of the Bankruptcy Code that permanently enjoins all Persons from taking any legal action for the purpose of directly or indirectly collecting, recovering, or receiving payment or recovery from the Fireman's Fund Entities with respect to any Claim that under the Plan is to be paid in whole or in part by the Trust created in connection with the Plan and that arises out of or in connection with the Subject Policy. 1.18 "Insurance Coverage Claim" means any Claim by any Person for indemnification, contribution, ultimate net loss, defense, defense costs, subrogation, reimbursement, payment of any sum or performance of any obligation under any provision of the Subject Policy, arising out of Claims asserted against Congoleum for actual, potential, or alleged bodily injury, emotional distress, sickness, disease, or the fear or apprehension thereof, property damage, environmental impairment, economic loss, breach of fiduciary duty, personal injury, contractual liability, loss, negligence, or arising from or out of any other Claim of any nature against the Congoleum Entities that gives rise to or potentially gives rise to coverage under the Subject Policy. 5 1.19 "Parties" means Congoleum and the Insurer. 1.20 "Person" means an individual, a corporation, a partnership, an association, a proprietorship, a trust, or any other entity or organization, as well as any federal, international, foreign, state, or local governmental or quasi-governmental entity, body, unit, or political subdivision or any agency or instrumentality thereof. 1.21 "Plan" means a plan of reorganization proposed by Congoleum in the Chapter 11 Case. 1.22 "Section 524(g)" means 11 U.S.C. ss. 524(g). 1.23 "Settlement Amount" means One Million U.S. Dollars ($1,000,000.00) in immediately available funds. 1.24 "Subject Policy" means the following insurance policy: - -------------------------------------------------------------------------------- Insurer Policy Period Policy Number Limits - -------------------------------------------------------------------------------- Fireman's Fund 10/12/72 - XLX1202504 $5M part of $55M xs $25M 12/17/73 - -------------------------------------------------------------------------------- 1.25 "Trust" means the trust created under the Plan that conforms to the description of a "trust" set forth in Section 524(g)(2)(B)(i) of the Bankruptcy Code. II. Bankruptcy Court Approval 2.1 This Agreement, and the Parties' obligations hereunder, are conditioned on approval by the Bankruptcy Court and entry of the Approval Order. 6 2.2 Congoleum will use its reasonable best efforts to obtain the Approval Order and the Confirmation Order, and the Insurer will use its reasonable best efforts to assist Congoleum in obtaining the Approval Order and the Confirmation Order. 2.3 If requested by the Insurer, and at the Insurer's sole expense, Congoleum shall provide notice of the hearing on the Approval Motion by publication in the national edition of The Wall Street Journal. III. Termination 3.1 This Agreement (except for Article I, Sections 3.1 and 3.2, and Articles VII and VIII hereof) shall become null and void (a) upon the entry of a Final Order that denies the Approval Motion; (b) upon the entry of a Final Order that confirms a Plan that does not contain the 524(g) Injunction; or (c) upon the entry of a Final Order that converts the Chapter 11 Case to a case under chapter 7 of the Bankruptcy Code. 3.2 In the event that portions of this Agreement become null and void under Section 3.1 of this Agreement: (a) the Insurer shall not be obligated to make any payment of the Settlement Amount; (b) the Parties shall not be bound by the terms of any Approval Order previously entered; (c) the Fireman's Fund Entities shall not receive any benefits or protections under any Plan or under any injunctions issued in the Chapter 11 Case unless subsequently agreed to by the Parties; (d) the Congoleum Entities and the Fireman's Fund Entities shall have restored all of the rights, defenses, and obligations under or with respect to the Subject Policy; (e) Congoleum may file a new coverage action against the Insurer; and (f) any and all otherwise applicable statutes of limitations or repose, or other time-related limitations, shall be deemed to have been tolled for the period from the date the complaint was filed in the Coverage Litigation through the date that is 30 days after the date upon which this Agreement shall have become null and void, and Congoleum and the Fireman's Fund Entities shall not assert or rely on any time-related defense to any Claim by the other in reliance in whole or in part on such time period. 7 To the extent necessary to effectuate the intent of the preceding sentence to restore the Parties to their prior rights, the Parties shall, if necessary, jointly file applications or motions to effect the restoration of the Parties' ability to assert the rights described in the preceding sentence. IV. Settlement Amount 4.1 In settlement and full and final accord and satisfaction of all disputes between the Parties, and subject to all of the terms and conditions contained in this Agreement, the Insurer shall pay the Settlement Amount in full to Congoleum or as directed in the Plan or the Confirmation Order within three business days following the date that the Confirmation Order becomes a Final Order. Contemporaneously with payment of the Settlement Amount, the Insurer shall purchase from Congoleum, and Congoleum shall sell, convey, assign, transfer and deliver to Insurer, all rights, title and interests of Congoleum in and under the Subject Policy, free and clear of any interests of all Persons pursuant to section 363(f) of the Bankruptcy Code and the Approval Order. 4.2 Except as provided for in Sections 3.2 and Article V of this Agreement, the Settlement Amount shall not be paid unless and until the Confirmation Order is entered and has become a Final Order. 4.3 The Settlement Amount shall be used only in connection with Asbestos-Related Claims and/or to pay other amounts payable by the Plan Trust pursuant to the Plan. The Insurer may allocate its respective share of the Settlement Amount in any manner it deems appropriate. 8 V. Asbestos-Reform Legislation 5.1 In the event that an asbestos-reform bill becomes federal law by the earlier of July 1, 2006, or the date that the Confirmation Order becomes a Final Order, and such law (a) materially limits or controls the prosecution or payment of Asbestos-Related Claims in the state or federal courts or in any other forum; and (b) permits direct assessments against insurers and/or reinsurers of the Subject Policy, the Insurer may, with notice to Congoleum, seek Bankruptcy Court approval to limit or reduce its payment of the Settlement Amount to protect the Insurer against making duplicative payments under the Agreement and the aforementioned federal law. 5.2 In the event that the Bankruptcy Court finds that the contingencies in Section 5.1 above have been met, the Insurer shall be entitled to entry of an order by the Bankruptcy Court eliminating or reducing the payment of the Settlement Amount, to the extent necessary to protect the Insurer against making duplicative payments under the Agreement and the aforementioned federal law. Nothing contained herein precludes or limits the right and ability of any party in interest in the Chapter 11 Case from asserting that the contingencies set forth in Section 5.1 have not been met or that any payment limitation or reduction is not necessary. 5.3 This Article V is intended to address what is commonly understood to be "asbestos reform" legislation and is not intended to encompass general tort reform, asbestos medical-criteria reform, class-action reform, malpractice reform, or tax-reform legislation. Unless specifically addressed by order of the Bankruptcy Court in furtherance of this Article V, nothing in this Article V shall affect the obligations of the Parties under this Agreement. 9 VI. Mutual Release and Dismissals 6.1 Effective upon payment of the Settlement Amount, Congoleum, for itself and (solely to the extent that Congoleum has the right, power, and authority so to bind them) on behalf of the Congoleum Entities, for their part, and the Insurer, for itself and (solely to the extent that the Insurer has the right, power, and authority so to bind them) on behalf of the Fireman's Fund Entities, for their part, mutually release and fully and forever discharge the Congoleum Entities and Fireman's Fund Entities from any and all duties, obligations, damages, costs, fees, deductibles, retentions, premiums, accountings, interest charges, payments, setoffs, debts, accounts, Insurance Coverage Claims, and Claims of every kind, nature, and description, known or unknown, asserted or unasserted, arising or alleged to have arisen or which may hereafter arise out of or in connection with the Subject Policy; provided, however, that this release shall not include, apply to, impair, or affect the Parties' rights and obligations set forth in this Agreement. 6.2 Within five business days after the Execution Date: (a) Congoleum and the Insurer shall file a joint notice dismissing, without prejudice and without costs, any and all Claims against each other in the Coverage Litigation; (b) the Insurer shall withdraw without prejudice any motions, objections, proofs of claim, or discovery filed or served in the Chapter 11 Case; and (c) Congoleum shall withdraw without prejudice any motions, objections, or discovery filed or served in the Chapter 11 Case solely to the extent such motions, objections, or discovery relate to the Insurer. Nothing herein shall be construed to impair the right of the Congoleum Entities or the Fireman's Fund Entities to assert or pursue any Claim not released by Section 6.1 of this Agreement. 6.3 At such time as the Confirmation Order has become a Final Order, and if the Insurer so requests, Congoleum and the Insurer shall jointly seek amendment of the dismissal referred to in Section 6.2 of this Agreement to reflect that the dismissal is with prejudice and without costs. 10 6.4 In furtherance of their express intent to fully, forever, and irrevocably release and discharge each other for all Claims, including, without limitation, Insurance Coverage Claims, known and unknown, from the beginning of time until the end of time to the extent set forth in Section 6.1 of this Agreement, the Parties expressly waive any and all rights they may have under any contract, statute, code, regulation, ordinance, or the common law, which may limit or restrict the effect of a general release as to Claims, including, without limitation, Insurance Coverage Claims, that Congoleum and the Insurer do not know or suspect to exist in their favor at the time of the execution of this Agreement. 6.5 With respect to the mutual release set forth in Section 6.1 of this Agreement, the Parties acknowledge that they have been advised by their respective legal counsel and are familiar with the provisions of Section 1542 of the California Civil Code, which provides: A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of the executing of the release which if known by him or her must have materially affected his or her settlement with the debtor. The Parties hereto expressly consent that this settlement and release shall be given full force and effect according to each and all of its express terms and provisions, including those dealing with unknown and unsuspected claims, and causes of action. The Parties further agree that this reference to the California Civil Code shall not give rise to any argument that California law applies to this Agreement or the disputes resolved pursuant hereto. 11 VII. Representations and Warranties of Congoleum 7.1 Congoleum hereby warrants and represents that it is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, and that it has the requisite corporate power and authority to enter into this Agreement and to perform its obligations contemplated by this Agreement, subject to the approval of the Bankruptcy Court. 7.2 Congoleum hereby warrants and represents that the execution and delivery of this Agreement by Congoleum and the performance by Congoleum of the obligations contemplated by this Agreement have been approved by duly authorized representatives of Congoleum and by all other necessary corporate actions on the part of Congoleum. This Agreement constitutes the valid and binding agreement of Congoleum, subject to the approval of the Bankruptcy Court. 7.3 Congoleum hereby warrants and represents that it has expressly authorized its undersigned representative to execute this Agreement on Congoleum's behalf as its duly authorized agent. 7.4 Congoleum hereby warrants and represents that this Agreement has been executed and delivered in good faith, pursuant to arm's-length negotiations, and for valuable consideration. 7.5 Congoleum hereby warrants and represents that it has not assigned the Subject Policy or any Insurance Coverage Claims as they relate to the Subject Policy. Congoleum covenants that it will not in the future assign the Subject Policy or Insurance Coverage Claims as they relate to the Subject Policy to any Person without the prior written consent of the Insurer. 12 7.6 Congoleum hereby warrants and represents to the best of its knowledge and belief that, other than the Subject Policy, it has no actual knowledge of any policies of liability insurance providing coverage for Asbestos-Related Claims issued to Congoleum by and in the name of any of the Persons listed in Exhibit 2 hereto. VIII. Representations and Warranties of Fireman's Fund 8.1 The Insurer hereby warrants and represents that it is a corporation duly organized, validly existing, and in good standing under the laws of the State of California, and that it has the requisite power and authority to enter into this Agreement and to perform its obligations contemplated by this Agreement. 8.2 The Insurer hereby warrants and represents that its execution and delivery of this Agreement and its performance of the obligations contemplated by this Agreement have been approved by its duly authorized representatives and by all other necessary corporate actions on the part of the Insurer. This Agreement constitutes the valid and binding agreement of the Insurer. 8.3 The Insurer hereby warrants and represents that it has expressly authorized its undersigned representative to execute this Agreement on its behalf as its duly authorized agent. 8.4 The Insurer hereby warrants and represents that this Agreement has been executed and delivered in good faith, pursuant to arm's-length negotiations, and for valuable consideration. 8.5 The Insurer hereby warrants and represents to the best of its knowledge and belief that, other than the Subject Policy, it has no actual knowledge of any policies of liability insurance providing coverage for Asbestos-Related Claims issued to Congoleum by any of the Persons listed in Exhibit 2 hereto. 13 IX. Actions Involving Third Parties 9.1 In the event any matter brought by Congoleum against any insurance company other than the Insurer proceeds to an adjudication on the merits, whether in court or another tribunal with jurisdiction, which determines that Congoleum would have been entitled to coverage from the Insurer under the Subject Policy for certain amounts, and the adjudication Congoleum secures against such other insurance company includes amounts actually attributed or clearly allocated to the Insurer under the Subject Policy, Congoleum agrees that it will not seek to obtain payment from any such other insurance company of any sum that represents the Insurer's actually attributed or clearly allocated share of any defense or indemnity obligation (if any) owed to Congoleum. 9.2 Except as otherwise provided in this Section 9.2, the Insurer shall not seek reimbursement of any payments made or obligated to be made under this Agreement or otherwise, whether by way of a claim for contribution or subrogation, or otherwise, from any Person other than its reinsurers in their capacity as such. Congoleum shall use its reasonable best efforts to obtain from all insurers with which it settles an agreement similar to that set forth in the preceding sentence; provided, however, that notwithstanding anything to the contrary herein, the failure of Congoleum to obtain such an agreement from any other insurer with which it settles shall not constitute a breach of this Agreement. Notwithstanding the foregoing and subject to the effect of the 524(g) Injunction, the Insurer may file a cross-complaint or counterclaim against any Person that has first asserted a claim seeking reimbursement for any payment that it has paid or is required to pay, whether by way of a claim for contribution and/or subrogation or otherwise, against any of the Fireman's Fund Entities in connection with any Claims released pursuant to Section 6.1 of this Agreement; provided, however, that, to the extent the Insurer recovers any amount in respect of such cross-complaint or counterclaim from such third party, the proceeds of such recovery shall be paid by the Insurer pursuant to the instruction of Congoleum or the Trust (as the case may be), after the Insurer is reimbursed from such proceeds for reasonable fees, costs and expenses incurred in prosecuting and defending such claim. For the avoidance of doubt, any payment of such proceeds pursuant to Congoleum's or the Trust's instructions shall not reduce or count towards the Insurer's obligation to pay the Settlement Amount. 14 9.3 In the event that any Claim is brought against any of the Fireman's Fund Entities after the payment of the Settlement Amount pursuant to Section 4.1 of this Agreement, and such Claim is subject to the 524(g) Injunction ("Channeling Injunction Claim"), the Trust will exercise reasonable best efforts and take all reasonably necessary and appropriate steps to resist and oppose any such Channeling Injunction Claim. 9.4 Except as provided hereafter, the Trust shall bear all of the reasonable costs, including reasonable attorneys' fees and settlements and judgments, associated with its opposing such Channeling Injunction Claim. The Insurer shall have the right to consent to the selection of the counsel to be paid by the Trust in any such action ("Designated Counsel"), which consent shall not be unreasonably withheld. The Trust shall have no obligation to pay any internal costs of any of the Fireman's Fund Entities, or fees or expenses associated with the Fireman's Fund Entities' employment of outside counsel (other than Designated Counsel). The obligation of the Trust to bear all of the reasonable costs, including reasonable attorneys' fees and settlements and judgments, associated with its opposing such Channeling Injunction Claims shall not exceed ten percent (10%) of the Settlement Amount. Notwithstanding anything herein to the contrary, the Trust shall have no further obligation under this Section 9.4 once the aggregate costs, including attorneys' fees, settlements and judgments, associated with opposing Channeling Injunction Claims and/or with resisting or opposing any other Claims asserted against Persons, other than the Fireman's Fund Entities, that Congoleum and/or the Trust has a duty or obligation to resist or oppose, total Two Million Dollars ($2,000,000.00). The Insurer shall have the absolute right to retain, at its sole expense, its own independent counsel to defend the Channeling Injunction Claim. 15 X. Cooperation 10.1 In the event that any proceedings are commenced to invalidate all or any part of this Agreement, the Parties agree to cooperate fully in opposition to such proceedings. The Parties further agree to take whatever action is necessary to effectuate the intent of the Agreement. 10.2 The Parties shall attempt in good faith to promptly resolve through negotiation any dispute arising out of this Agreement. In the event that they are unable to do so, the Bankruptcy Court shall have exclusive and continuing jurisdiction to resolve all disputes concerning the interpretation and enforcement of this Agreement and any other documents executed in connection with this Agreement. 10.3 The Insurer shall use its reasonable best efforts to comply with reasonable requests from Congoleum or the Trust for documents and other information required by Congoleum or the Trust in connection with any insurance claims, arbitrations, or litigation related to the Settlement Amount and/or payment of the Settlement Amount, this Agreement, or the Asbestos-Related Claims. 10.4 Congoleum and the Trust shall use their reasonable best efforts to comply with reasonable requests from the Insurer for documents and other information required by the Insurer in connection with any reinsurance claims, arbitrations, or litigation relating to the Settlement Amount and/or payment of the Settlement Amount, this Agreement, or the Asbestos-Related Claims. 16 10.4 Congoleum shall, at the Insurer's sole expense take such action and execute and deliver any and all further instruments and documents, including, without limitation, a bill of sale in form and substance reasonably acceptable to the Insurer, evidencing the sale of Congoleum's rights, title and interest under and in the Subject Policy to Insurer, that are reasonable and necessary for the purpose of implementing and giving full force and effect to, the provisions of this Agreement, the Approval Order and the Confirmation Order. XI. Miscellaneous 11.1 This Agreement, including Exhibits 1 and 2 hereto, constitutes the entire agreement and understanding between the Parties and supersedes all prior communications or negotiations between the Parties and their representatives regarding the matters contained in this Agreement. Except as expressly set forth in this Agreement, there are no representations, warranties, promises, or inducements, whether oral, written, expressed, or implied, that in any way affect or condition the validity of this Agreement or alter its terms. This Agreement may be amended only by a subsequent written instrument executed by both of the Parties hereto. 11.2 Each Party agrees to take such steps and to execute such documents as may be reasonably necessary or proper to carry out and effectuate this Agreement. 11.3 If any provision of this Agreement or any portion of any provision of this Agreement is determined to be null and void or unenforceable by any court or tribunal having jurisdiction, then such provision or portion of the provision shall be considered separate and apart from the remainder of this Agreement, and this Agreement shall otherwise remain in full force and effect. 17 Notwithstanding the foregoing, the provisions in this Agreement regarding the entry of the Approval Order and the Confirmation Order, and the effectiveness of the release in Section 6.1 shall not be severable from this Agreement. 11.4 The Parties agree, subject to any disclosure obligations imposed by law, to hold confidential, and not to disclose to third parties, this Agreement or its contents unless, until and to the extent that Congoleum discloses such information in its motion seeking entry of the Approval Order. Notwithstanding anything to the contrary in this Section 11.4, any Party may disclose this Agreement or its contents at any time (a) to the Party's reinsurers, auditors, regulators, reinsurance intermediaries, creditors, and lenders, subject to an agreement of confidentiality; (b) as required to obtain the necessary court approval of this Agreement or the Plan; (c) by Congoleum to any Committee, the Futures Representative appointed in the Chapter 11 Case, and their respective counsel, subject to an agreement of confidentiality; and/or (d) at any time after the effective date of the Plan. 11.5 In the event a Party learns that a Person to whom disclosure is not permitted pursuant to Section 11.4 is seeking disclosure of the Agreement or any of its contents in any proceeding, or in the event that a Party receives notice of subpoena, requesting an order directing the disclosure of this Agreement, or any portion thereof, such Party shall provide notice to the other Party promptly and sufficiently in advance of disclosure to permit such other Party to take steps to prevent the disclosure. 11.6 By entering into this Agreement, neither Congoleum nor the Insurer has waived or shall be deemed to have waived any rights, obligations, or positions it or they have asserted or may in the future assert in connection with any matter or Person outside the scope of this Agreement. The Parties specifically disavow any intention to create rights in third parties (other than rights specifically conferred upon the Congoleum Entities, the Fireman's Fund Entities, or other Persons by this Agreement) under or in relation to this Agreement. Congoleum's rights, title and interest under any policy of insurance other than the Subject Policy shall not be affected by this Agreement. 18 11.7 Neither Congoleum nor the Insurer will be entitled to have any wording of this Agreement construed against the other based on any contention as to which of the Parties drafted the language in question. 11.8 Neither this Agreement nor the rights and obligations set forth herein shall be assigned without the prior written consent of the other Party, which consent shall not be unreasonably withheld; provided, however, that this shall not prohibit any assignment by any of the Parties by merger, consolidation, operation of law or to a Person who succeeds to all or substantially all of such Party's assets. 11.9 Section titles or headings contained in this Agreement are included only for ease of reference and shall have no substantive effect. 11.10 All notices, demands, or other communications to be provided pursuant to this Agreement shall be in writing and sent by facsimile or by Federal Express or other overnight delivery service, costs prepaid, to the Parties at the addresses set forth below, or to such other person or address as either the Insurer or Congoleum may designate in writing from time to time: If to Insurer: Mr. Eric Billeter Fireman's Fund Insurance Companies Environmental Claims Facility 777 San Marin Drive Novato, California 94998-3400 19 With a copies to: Gary Centola, Esq. Rivkin Radler LLP 926 EAB Plaza Uniondale, NY 11556-0926 - and - Leonard P. Goldberger, Esq. Stevens & Lee, P.C. 1818 Market Street, 29th Floor Philadelphia, PA 19103 If to Congoleum: Congoleum Corporation 57 River Street Wellesley, MA 02481-2097 Attention: Mr. Howard N. Feist, III With a copies to: Mitchell F. Dolin, Esq. Michael St. Patrick Baxter, Esq. Covington & Burling 1201 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2401 - and - Richard L. Epling, Esq. Kerry Brennan, Esq. Pillsbury Winthrop Shaw Pittman LLP 1540 Broadway New York, NY 10036-4039 11.11 This Agreement may be executed in multiple counterparts, each of which shall constitute an original. Congoleum will deliver an executed counterpart to the Insurer, and the Insurer will deliver an executed counterpart to Congoleum. Each counterpart may be delivered by facsimile transmission, and a faxed signature shall have the same force and effect as an original signature. 11.12 Upon the Confirmation Order becoming a Final Order, this Agreement shall be binding immediately and automatically upon the Trust, and the Trust shall be deemed to be a party to this Agreement without the need for further action. 20 11.13 This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the United States and the laws of the State of New Jersey without giving effect to the rules and principles of conflict of laws under the laws of the State of New Jersey. IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the dates indicated below. CONGOLEUM CORPORATION Debtor-in-Possession By: /s/ Howard N. Feist ----------------------------- Name: Howard N. Feist Title: CFO Witness: /s/ Henry Winkleman ------------------------ FIREMAN'S FUND INSURANCE COMPANY By: /s/ Daniel Kane ----------------------------- Name: Daniel Kane Title: Claims Specialist Witness: /s/ Jerry Leddy ------------------------ 21 EXHIBIT 1 --------- - ------------------------------------------------ UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW JERSEY - ------------------------------------------------ Caption in Compliance with D.N.J. LBR 9004-2(c) Okin, Hollander & DeLuca L.L.P. Parker Plaza, 400 Kelley Street Fort Lee, NJ 07024 (201) 947-7500 Paul S. Hollander (PH-2681) Pillsbury Winthrop Shaw Pittman LLP 1540 Broadway New York, NY 10036 (212) 858-1000 Richard L. Epling Kerry A. Brennan Attorneys for Debtors and Debtors-In-Possession - ------------------------------------------------ In re: Chapter 11 Case No. 03-51524 (KCF) CONGOLEUM CORPORATION, et al., Jointly Administered Debtors. Honorable Kathryn C. Ferguson - ------------------------------------------------ ORDER PURSUANT TO BANKRUPTCY RULE 9019 AND 11 U.S.C. ss. 363(f) AUTHORIZING AND APPROVING SETTLEMENT AGREEMENT BETWEEN CONGOLEUM CORPORATION AND FIREMAN'S FUND INSURANCE COMPANY -------------------------------------------------------------------- The relief set forth on the following pages, numbered two (2) through five (5) is hereby ORDERED. Debtors: Congoleum Corporation, et al. Case No.: 03-51524 (KCF) (Jointly Administered) Caption: Order Pursuant to Bankruptcy Rule 9019 and 11 U.S.C. ss. 363(f) Authorizing and Approving Settlement Agreement Between Congoleum Corporation and Fireman's Fund Insurance Company - -------------------------------------------------------------------------------- The Court has considered the Motion for Order Pursuant to Bankruptcy Rule 9019 Authorizing and 11 U.S.C. ss. 363(f) Approving Settlement Agreement Between Congoleum Corporation and Fireman's Fund Insurance Company (the "Motion"), filed by Congoleum Corporation, Congoleum Sales, Inc., and Congoleum Fiscal, Inc., the debtors and debtors-in-possession herein (collectively, the "Debtors"), seeking approval, pursuant to Rules 2002(a)(3), 9014 and 9019 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), 11 U.S.C. ss. 363(f), and other applicable sections of title 11 of the United States Code, 11 U.S.C. ss.ss. 101 et seq. (the "Bankruptcy Code"), of that certain Settlement Agreement Between Congoleum Corporation and Fireman's Fund Insurance Company, dated as of April __, 2006 (the "Settlement Agreement").(1) The Court having found that due, proper and sufficient notice of the Motion was given to (a) the members of the Committees and each such Committee's counsel; (b) the Futures Representative appointed pursuant to the Bankruptcy Court's February 18, 2004 Order in the Chapter 11 Case, solely in his capacity as such (the "FCR") and the counsel for the FCR; (c) Perry Weitz and Joseph F. Rice in their capacity as counsel to the participating asbestos claimants under that certain settlement agreement between Congoleum Corporation and various asbestos claimants, executed as of April 10, 2003, as amended; (d) all other Persons, that, as of the Execution Date, had filed a notice of appearance or other demand for service of papers in the Chapter 11 Case; (e) the United States Trustee; (f) the Collateral Trustee of the Congoleum Collateral Trust established pursuant to a Collateral Trust Agreement dated April 17, 2003; (g) American Biltrite, Inc.; (h) counsel to all known holders of Asbestos-Related Claims as reflected in the claims filed in this case, and claims submitted in connection with the Settlement Between Congoleum Corporation and Various Asbestos Claimants; and (i) all known holders of Asbestos-Related Claims whose counsel is not included within the preceding clause who, as of at (1) Capitalized terms used in this Approval Order and not otherwise defined herein shall have the meanings ascribed to such terms in the Settlement Agreement. Debtors: Congoleum Corporation, et al. Case No.: 03-51524 (KCF) (Jointly Administered) Caption: Order Pursuant to Bankruptcy Rule 9019 and 11 U.S.C. ss. 363(f) Authorizing and Approving Settlement Agreement Between Congoleum Corporation and Fireman's Fund Insurance Company - -------------------------------------------------------------------------------- least five (5) business days prior to the filing of the Motion, became known through the filing of a proof of claim or otherwise. The Court having found that the sale of Congoleum's rights, title and interests in and under the Subject Policy, free and clear of any interests of all Persons pursuant to section 363(f) of the Bankruptcy Code satisfies one or more of the standards set forth in section 363(f)(1) through (5); that Congoleum and Fireman's Fund Insurance Company (the "Insurer") negotiated at arm's length and in good faith to reach agreement on the matters resolved by the Settlement Agreement; and that the purchase by the Insurer of all Congoleum's rights, title and interests in and under the Subject Policy, free and clear of any interests of all Persons, is in good faith. Following notice and a hearing at which all interested parties were given an opportunity to be heard, objections to the Motion, if any, have been resolved by agreement or are hereby overruled, and after due deliberation and sufficient cause appearing therefore, it is hereby ORDERED, ADJUDGED AND DECREED AS FOLLOWS: 1. The notice of the Motion constitutes due, sufficient and timely notice of the Motion, the hearing, and the Settlement Agreement. 2. The Motion is hereby granted and the Settlement Agreement is hereby approved in its entirety. 3. Each of the Debtors is hereby authorized to enter into and perform the Settlement Agreement; and to execute such documents and do such acts as are necessary or desirable to carry out the transactions contemplated by the Settlement Agreement. 4. Pursuant to sections 363(b)(1) and 363(f) of the Bankruptcy Code, Congoleum is hereby authorized to sell to the Insurer, all of Congoleum's rights, title and interests in and under the Subject Policy, free and clear of any interests of all Persons. Debtors: Congoleum Corporation, et al. Case No.: 03-51524 (KCF) (Jointly Administered) Caption: Order Pursuant to Bankruptcy Rule 9019 and 11 U.S.C. ss. 363(f) Authorizing and Approving Settlement Agreement Between Congoleum Corporation and Fireman's Fund Insurance Company - -------------------------------------------------------------------------------- 5. Upon payment of the Settlement Amount by the Insurer pursuant to the terms of the Settlement Agreement, the Insurer shall be deemed to be a "good faith purchaser" under section 363(m) of the Bankruptcy Code of Congoleum's rights, title and interests in and under the Subject Policy and is entitled to the protections provided by such designation without further order of this Court. 6. This Order shall be binding upon, and the Settlement Agreement shall inure to the benefit and constitute the valid and binding obligations of the Plan Trust, without further order or action. 7. The Settlement Agreement and other related documents may be modified, amended, or supplemented by the parties thereto, in a writing signed by such parties in accordance with the terms thereof, without further order of the Court, provided that (a) any such modification, amendment, or supplement is not material; and (b) to the extent practicable, notice of any modification, amendment, or supplement should be delivered to (i) the Committees, (ii) the FCR, and (iii) the U.S. Trustee at least five (5) days prior to the effective date of any such modification, amendment, or supplement. 8. The Court shall retain exclusive jurisdiction over any proceeding that involves the validity, application, construction, modification or termination of the Settlement Agreement and this Approval Order, and may make such further orders with respect thereto as are proper and appropriate. EXHIBIT 2 Allianz Aktiengesellschaft (Corporation) Koniginstrasse 28 80802 Munich, Germany Allianz of America, Inc., (corporation) 55 Greens Farms Road, P.O. Box 5160 Westport CT 06881-5160 Allianz of Canada, Inc. (corporation) 10 York Mills Road, Suite 700 Toronto, Ontario M2P 2G5, Canada Allianz Insurance Company of Canada (corporation) 10 York Mills Road, Suite 700 Toronto, Ontario M2P 2G5, Canada Trafalgar Insurance Company (corporation) 10 York Mills Road, Suite 700 Toronto, Ontario M2P 2G5, Canada Oxford Insurance Ltd., (corporation) 10 York Mills Road, Suite 700 Toronto, Ontario M2P 2G5, Canada Manley Insurance Brokers (corporation) 10 York Mills Road, Suite 700 Toronto, Ontario M2P 2G5, Canada Allianz Mexico, S.A. Compania de Seguros (corporation) Boulevard Manuel Avila Camacho 164 MEX-11570 Mexico, D.F. Allianz Rentas Vitalicias (corporation) Boulevard Manuel Avila Camacho 164 MEX-11570 Mexico, D.F. Allianz of America Corporation (corporation) 777 San Marin Drive Novato, CA 94998 Allianz Life Insurance Company of North America (corporation) 5701 Golden Hills Drive Minneapolis, MN 55416 Associated Group Benefits Ltd., (corporation) 2005 Sheppard Avenue East, Suite 700 Willowdale, Ontario M2J 5B4 Canada Allianz Education Funds, LLC (Canadian Federal Corp) 2005 Sheppard Avenue East, Suite 700 Willowdale, Ontario M2J 5B4, Canada Preferred Life Insurance Company of New York) (corporation) 152 West 57th Street, 18th floor New York, NY 10019 Lapis, Inc. (corporation) 5701 Golden Hills Drive Minneapolis, MN 55416 USAllianz Investor Services, LLC 5701 Golden Hills Drive Minneapolis, MN 55416 USAllianz Advisers, LLC (LLC) 5701 Golden Hills Drive Minneapolis, MN 55416 Allianz Education Funds International, LLC 5701 Golden Hills Drive Minneapolis, MN 55416 5557 Green Farms, LLC (corporation) 55 Greens Farms Road, P.O. Box 5160 Westport, CT 06881-5160 North American London Underwriters, Limited (corporation) P.O. Box HM1179 Cedar House, 41 Cedar Avenue Hamilton HM 12, Bermuda Cooperative Care Planning Services, LLC (LLC) 5701 Golden Hills Drive Minneapolis, MN 55416 LTCAmerica Holding (corporation) 5701 Golden Hills Drive Minneapolis, MN 55416 Senior American Assurance, LLC (LLC) 2450 Hollywood Blvd., Suite 700 Hollywood, FL 33020 USAllianz Securities, Inc. (corporation) 5701 Golden Hills Drive Minneapolis, MN 55416 USAllianz Insurance & securities Agency, Inc., (corporation) (New Mexico) 119 East Marcy Santa Fe, NM 87501 USAllianz Insurance & Securities Agency, Inc., (corporation) (Colorado) 1675 Broadway Denver, CO 80202 USAllianz Insurance,& Securities Agency, Inc., (corporation) (North Carolina) 225 Hillsborough Street Raleigh, NC 27603 USAllianz Insurance & Securities Agency, Inc., (corporation) (Texas) 350 North St. Paul Street Dallas, TX 75201 USAllianz Insurance Agency of Texas, Inc. (corporation) (Texas) 350 North St. Paul Street Dallas, TX 75201 USAllianz Insurance & Securities Agency, Inc. (corporation) (Vermont) 148 College Street Burlington, VT 05401 USAllianz Insurance & Securities Agency, Inc. 2000 Interstate Park Drive, Suite 204 (corporation) Montgomery, AL 36109 USAllianz Insurance & Securities Agency, Inc.(corporation) (Kentucky) Kentucky Home Life Building Louisville, KY 40202 USAllianz Insurance & Securities Agency, Inc. (corporation) (Ohio) 1300 East 91-11 Street Cleveland, OH 44114 USAllianz Insurance & Securities Agency, Inc. (corporation) (Hawaii) 100 Bishop Street Honolulu, HI 96813 USAllianz Insurance & Securities Agency, Inc. (corporation) (Nevada) 6100 Neil Road, Suite 500 Reno, NV 89511 USAllianz Insurance Agency, Inc. (corporation) (Massachusetts) 101 Federal Street Boston, MA 02110 USAllianz Insurance Agency, Inc. (corporation) (New York) c/o Corporation Service Company 80 State Street Albany, NY 12207 Allianz Individual Insurance Group, Inc. (corporation) 5701 Golden Hills Drive Minneapolis, MN 55416 Tax Planning Seminars, Inc. (corporation) Two Echelon Plaza, Suite 220 221 Laurel Road, Voorhees, NJ 08043 Ann Arbor Annuity Exchange, Inc., (corporation) 2350 Washtenau Ave., Suite 8 Ann Arbor, MI 48104 Signature Financial Services, Inc. (corporation) 550 Pinetown Road, Suite 208 Fort Washington, PA 19034 Sunderland Insurance Services, Inc. (corporation) 2102 Great Northern Drive Fargo, ND 58102 Challenging Financial Careers Insurance Marketing (corporation) 20422 Beach Boulevard, Suite 200 Huntington Beach, CA 92648 Personalized Brokerage services, Inc. (corporation) 1023 SW 5th Ave. Topeka, KS 66606 Roster Financial, LLC (LLC) 403 Commerce Lane West Berlin, NJ 08091 Life Sales, LLC (LLC) 955 Front Street Novato, CA 94947 Professional Planners, LLC (LLC) 636 U.S. Highway 1, Suite 205 North Palm Beach, FL 33408 Professional Planners Marketing Group, LLC (LLC) 636 U.S. Highway 1, Suite 205 North Palm Beach, FL 33408 Professional Planners Marketing Group II, LLC (LLC) 636 U.S. Highway 1, Suite 205 [city and state???] Valley Green Business Park, Ltd. 55 Greens Farms Road, P.O. Box 5160 Westport, CT 06881-5160 Allianz Asset Management, Incorporated (corporation) 55 Greens Farms Road, P.O. Box 5160 Westport, CT 06881-5160 Allianz Real Estate Corp. (corporation) 55 Greens Farms Road, P.O. Box 5160 Westport, CT 06881-5160 Valley Green Business Park, Inc. (corporation) 55 Greens Farms Road, P.O. Box'5160 Westport, CT 06881-5160 Allianz Global Risks US Insurance Company (corporation) 2350 Empire Avenue Burbank, CA 91504 Allianz Risk Consultants, LLC (LLC) 2350 Empire Avenue Burbank, CA 91504 Allianz Underwriters Insurance Company (corporation) 2350 Empire Avenue Burbank, CA 91504 Jefferson Insurance Company of New York (corporation) 75 Wall Street, 19th Floor New York, NY 10005 Monticello Insurance Company (corporation) 1209 Orange Street Wilmington, DE 19801 JeffCo Management Company, Inc. (corporation) Harborside Financial Center, 702 Plaza 3 Jersey City, NJ 07311-3892 Fireman's Fund Insurance Company (corporation) 777 San Marin Drive The American Insurance Company (corporation) c/oKutak Rock, The Omaha Bldg., 1650 Farnam Street, Omaha, NE 68102-2156 Fireman's Fund Insurance Company of Georgia (corporation) Four NorthWinds Center 11605 Haynes Bridge Road Alpharetta, GA 30004 Fireman's Fund Insurance Co. of Hawaii, Inc. (corporation) 1001 Bishop Street Pauahi Tower, Suite 1900 Honolulu, HI 96813 Fireman's Fund Insurance Co. of Louisiana (Corporation) 800 Commerce Road West, Suite 106 Harah, LA 70123 Fireman's Fund Insurance Company of Ohio (corporation) 312 Walnut Street, Suite 1100 Cincinnati, OH 45202 Fireman's Fund Insurance Company of Wisconsin (corporation) 3333 North Mayfair Rd. (P.O. Box 2963, Milwaukee WI 53201-2963) Wauwatosa, WI 53213 Interstate National Corporation (corporation) 55 East Monroe Street, Chicago, IL 60603 Interstate Fire & Casualty Company (corporation) 55 East Monroe Street Chicago, IL 60603 Interstate Indemnity Company (corporation) 55 East Monroe Street, Chicago, IL 60603 Chicago Insurance Company (corporation) 55 East Monroe Street Chicago, IL 60603 Chicago Auto Insurance Service, Inc. (corporation) 55 East Monroe Street Chicago, IL 60603 Interstate National Corp. of California (corporation) 55 East Monroe Street Chicago, IL 60603 American Automobile Insurance Company (corporation) 727 Craig Rd. Creve Coeur, MO 63141 Associated Indemnity Corporation (corporation) 777 San Marin Drive Novato, CA 94998 The Excess and.Special Risk Market Inc. (corporation) 777 San Marin Drive Novato, CA 94998 Fireman's Fund Indemnity Corporation (corporation) 35 Waterview Plaza, #400 Parsippany, NJ 07054 Fireman's Fund Insurance Company of Missouri (corporation) 727 Craig Road Creve Coeur, MO 63141 Fireman's Fund Insurance Company of Nebraska (corporation) 1650 Farnam Street, Omaha, NE 68102-2156 Fireman's Fund Insurance Company of Texas (Corporation) 1999 Bryan Street, Dallas, TX 5201 Midway Insurance Company of Illinois (corporation) 233 South Wacker Drive, Suite 2000 Chicago, IL 60606-6308 National Surety Corporation (corporation) 233 South Wacker Drive, Suite 2000 Chicago, IL 60606-6308 Parkway Insurance Company (corporation) 1200 Route 22 East Bridgewater, NJ 08807 San Francisco Reinsurance Company (corporation) 777 San Marin Drive Novato, CA 94998 Standard General Agency Inc. (corporation) 1999 Bryan Street Dallas, TX 75201 Fireman's Fund County Mutual Insurance Co. (corporation) 1999 Bryan Street, Dallas, TX 75201 American Standard Lloyd's Insurance Company (corporation) 1999 Bryan Street Dallas TX 75201 Structured Security Company, LLC. (LLC) 32 Loockerman Sq. #L-100 Dover, DE 19901 Vintage Insurance Company (corporation) 777 San Marin Drive Novato, CA 94998 International Film Guarantors Inc., (corporation) 10940 Wilshire Blvd., #1900 Los Angeles, CA 90024 International Film Guarantors, L.P. (L.P.) 10940 Wilshire Blvd., #1900 Los Angeles, CA 90024 International Film Guarantors Reinsurance Ltd. (corporation) 75 Pitt's Bay Road P.O. Box HM 1007 Hamilton HM DX, Bermuda Par Holdings, Ltd. (corporation) P.O. Box 660, Belvedere Bldg. Hamilton HM CX Bermuda Allianz Cash Pool LLC 1209 Orange Street Wilmington DE 19801 Fireman's Fund Foundation (corporation - non profit) 777 San Marin Drive Novato, CA 94998 Crop Growers Corporation (corporation) P.O. Box 25951 Overland Park, KS 66225-5951 Crop Growers Insurance Services, Inc. (corporation) 1126 Meade Avenue Prosser WA 99350 Texas Crop Growers Insurance Services, Inc. (corporation) 8220 Orlando Lubbock, TX 79423 Wm. H. McGee & Co., Inc. (corporation) 75 Wall Street, 19th Floor New York, NY 10005 Wm. H. McGee & Co. of Canada, Ltd. (corporation) 48 Yonge Street Toronto, Ontario, Canada M5E 1G6 Wm. H. McGee & Company of Puerto Rico, Inc. (corporation) 252 Ponce de Leon Avenue, Suite 903 Hato Rey, Puerto Rico 00918 Wm. H. McGee Services, Inc. (corporation) 75 Wall Street, 19th Floor New York, NY 10005 Wm. H. McGee & Co. (Bermuda) Ltd. (corporation) The Ace Building Hamilton, HM DX Bermuda McGee Insurance Company (Bermuda) Limited (corporation) The Ace Building P.O. Box HM 1007 Hamilton, HM DX Bermuda -----END PRIVACY-ENHANCED MESSAGE-----