-----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, REB9IDhii6q8N7d32/Q8nF1rmeoASfBXSpPR5STPc87k673oFCt0W69PFtoamizD mfk6eigPIYnPmL9Om8OspQ== 0001171520-06-000383.txt : 20060921 0001171520-06-000383.hdr.sgml : 20060921 20060921122348 ACCESSION NUMBER: 0001171520-06-000383 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060915 ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060921 DATE AS OF CHANGE: 20060921 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04773 FILM NUMBER: 061101593 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 8-K 1 eps2260.txt AMERICAN BILTRITE INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) September 15, 2006 ----------------------------------------------------------------------------- AMERICAN BILTRITE INC. --------------------------------------------- (Exact Name of Registrant as Specified in Charter) Delaware 1-4773 04-1701350 ---------------------------- ----------- ------------- (State or other jurisdiction (Commission (IRS Employer of Incorporation) File No.) Identification No.) 57 River Street, Wellesley Hills, Massachusetts 02481-2097 ------------------------------------------------------------ (Address of principal executive offices, including zip code) (781) 237-6655 ---------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ------------------------------------------------------------- (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 8.01 OTHER EVENTS On September 15, 2006, American Biltrite Inc.'s majority-owned subsidiary Congoleum Corporation ("Congoleum") filed its Tenth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., and the Asbestos Claimants' Committee, dated as of September 15, 2006 (the "Tenth Modified Plan"), and related proposed Disclosure Statement (the "Disclosure Statement") with the United States Bankruptcy Court for the District of New Jersey. Congoleum filed and proposed the Tenth Modified Plan jointly with the official committee representing its unsecured asbestos creditors. The modifications reflected in the Tenth Modified Plan largely address the treatment that the holders of Congoleum's 8.625% Senior Notes Due 2008 (the "Bondholders") will receive under Congoleum's proposed plan of reorganization. Specifically, on the effective date of the Tenth Modified Plan and conditioned upon the Bondholders as a class voting to accept the Tenth Modified Plan, the existing Congoleum Senior Notes will be cancelled and Congoleum will issue $100 million aggregate principal amount of new senior notes due August 2011 (the "New Senior Notes") to the former holders of the Congoleum Senior Notes. Interest on the New Senior Notes will be payable semi-annually at the rate of 10% per annum. The New Senior Notes will be secured by a lien on or security interest in all of Congoleum's assets (subject to certain limitations), which security interest will be subordinate in priority only to Congoleum's working capital credit facility Congoleum expects to have in place following confirmation of its proposed plan of reorganization under Section 524(g) of the United States Bankruptcy Code, which credit facility is expected to be on substantially the same terms as Congoleum's existing credit facility. The New Senior Notes will be contractually senior in priority and right of payment to the Plan Trust Note and the New Convertible Security (each as defined in the Tenth Modified Plan) to be issued pursuant to the Tenth Modified Plan to the plan trust to be established upon confirmation of Congoleum's plan of reorganization under Section 524(g) of the United States Bankruptcy Code, with the exception of certain litigation recoveries from a law firm that formerly represented Congoleum and which recoveries are to be pledged to that plan trust. The precise terms of the New Senior Notes will be set forth in a new indenture, which is the subject of negotiation. In addition to the New Senior Notes and after the effective date of the Tenth Modified Plan, the Bondholders may receive an additional $5 million from Congoleum, to be paid from the proceeds of insurance recoveries, contingent upon the consummation of certain insurance settlements and the receipt of a threshold amount of insurance proceeds. The foregoing description of Congoleum's proposed modified plan of reorganization does not purport to be complete, does not address all the matters impacting Congoleum and American Biltrite Inc. under that plan and is subject to, and qualified in its entirety by, the Tenth Modified Joint Plan of Reorganization Under Chapter 11 of the United States Bankruptcy Code of Congoleum Corporation, et al., and the Asbestos Claimants' Committee, dated as of September 15, 2006, and the proposed Disclosure Statement relating thereto, copies of which are attached hereto as Exhibits 99.1 and 99.2, respectively, and incorporated by reference herein. On December 31, 2003, Congoleum filed a voluntary petition with the United States Bankruptcy Court for the District of New Jersey (Case No. 03-51524) seeking relief under Chapter 11 of the United States Bankruptcy Code as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago. Forward-Looking Statements Some of the information presented in this Current Report on Form 8-K constitutes "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks, uncertainties and assumptions. These forward-looking statements are based on American Biltrite Inc.'s expectations, and American Biltrite Inc.'s understanding of Congoleum's expectations, as of the date of this report, of future events, and American Biltrite Inc. undertakes no obligation to update any of these forward-looking statements except as required by the federal securities laws. Although American Biltrite Inc. 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. There can be no assurance that Congoleum will be successful in obtaining confirmation of its proposed amended Chapter 11 plan of reorganization in a timely manner or at all. Any alternative plan of reorganization pursued by Congoleum or confirmed by the bankruptcy court could vary significantly from the version of the plan currently being pursued by Congoleum. Furthermore, the estimated costs and contributions required to confirm and to effect the proposed amended plan of reorganization or an alternative plan could be 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 approvals, and there can be no assurance that such conditions, approvals and other requirements will be satisfied or obtained. Some additional factors that could cause actual results to differ from Congoleum's and American Biltrite Inc.'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 of reorganization, 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 or reorganization proposed by any other party in interest; (iv) timely reaching agreement with other creditors, or classes of creditors, that exist or may emerge; (v) satisfaction of the conditions and obligations under American Biltrite Inc.'s and Congoleum's respective outstanding debt instruments, and amendment of those outstanding debt instruments, as necessary, to permit Congoleum and American Biltrite Inc. to satisfy their obligations under any plan of reorganization; (vi) the extent to which American Biltrite Inc.'s equity interest in Congoleum is diluted or otherwise reduced in connection with any plan of reorganization, including the possible elimination of the interests of all existing shareholders of Congoleum through implementation of the "cram down" provisions of the United States Bankruptcy Code if the holders of Congoleum's Senior Notes do not vote as a class to accept Congoleum's plan of reorganization in the requisite numbers and amounts required by the United States Bankruptcy Code; (vii) the response from time-to-time of American Biltrite Inc.'s and Congoleum's lenders, customers, suppliers, holders of Congoleum's Senior Notes and their representatives, and other creditors and constituencies to the Chapter 11 process and related developments arising from the strategy to settle asbestos liability; (viii) 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; (ix) timely obtaining sufficient creditor and court approval (including the results of any relevant appeals) of a reorganization plan and the court overruling any objections to the plan that may be filed; (x) developments in, costs associated with and the outcome of insurance coverage litigation pending in New Jersey state court involving Congoleum and certain insurers; (xi) the extent to which Congoleum is able to obtain reimbursement for costs it incurs in connection with the insurance coverage litigation; (xii) the impact any adopted federal legislation addressing asbestos claims may have on American Biltrite Inc.'s and Congoleum's businesses, results of operations or financial conditions; (xiii) compliance with the United States Bankruptcy Code, including Section 524(g); (xiv) the possible adoption of another party in interest's proposed plan of reorganization which may prove to be unfeasible; and (xv) the ability of American Biltrite Inc. to timely replace or refinance its secured credit facility, which expires on September 30, 2006. In addition, in view of American Biltrite Inc.'s relationships with Congoleum, American Biltrite Inc. could be affected by Congoleum's negotiations regarding its pursuit of a plan or 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 Inc.'s business, results of operations or financial condition. Other factors that could cause or contribute to actual results differing from its expectations include those factors discussed in American Biltrite Inc.'s other filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2005, its Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 and its subsequent filings. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS (d) Exhibits - -------------------------------------------------------------------------------- EXHIBIT NO. DESCRIPTION - -------------------------------------------------------------------------------- 99.1 Tenth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., and the Asbestos Claimants' Committee, dated as of September 15, 2006, including the exhibits thereto - -------------------------------------------------------------------------------- 99.2 Proposed Disclosure Statement with respect to the Tenth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., and the Asbestos Claimants' Committee, dated as of September 15, 2006, including the exhibits thereto with the exception of Exhibit A, which is included herein as Exhibit 99.1. - -------------------------------------------------------------------------------- SIGNATURES 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 hereunto duly authorized. Date: September 21, 2006 AMERICAN BILTRITE INC. By: /s/ Howard N. Feist III ------------------------------ Name: Howard N. Feist III Title: Chief Financial Officer Exhibit Index - -------------------------------------------------------------------------------- EXHIBIT NO. DESCRIPTION - -------------------------------------------------------------------------------- 99.1 Tenth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., and the Asbestos Claimants' Committee, dated as of September 15, 2006, including the exhibits thereto - -------------------------------------------------------------------------------- 99.2 Proposed Disclosure Statement with respect to the Tenth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., and the Asbestos Claimants' Committee, dated as of September 15, 2006, including the exhibits thereto with the exception of Exhibit A, which is included herein as Exhibit 99.1. - -------------------------------------------------------------------------------- EX-99.1 2 ex99-1.txt Exhibit 99.1 EXHIBIT A TO THE DISCLOSURE STATEMENT UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW JERSEY __________________________________________ IN RE: ) Chapter 11 ) CONGOLEUM CORPORATION, ) CONGOLEUM SALES, INC., and ) Case No. 03-51524 (KCF) CONGOLEUM FISCAL, INC., ) Debtors. ) Jointly Administered __________________________________________) TENTH MODIFIED JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE OF CONGOLEUM CORPORATION, ET AL., AND THE ASBESTOS CLAIMANTS' COMMITTEE, DATED AS OF SEPTEMBER 15, 2006 THIS PLAN PROVIDES, AMONG OTHER THINGS, FOR THE ISSUANCE OF INJUNCTIONS UNDER SECTIONS 105 AND 524(g) OF THE BANKRUPTCY CODE THAT RESULT IN THE CHANNELING OF ALL ASBESTOS-RELATED LIABILITIES OF CONGOLEUM CORPORATION AND THE PROTECTED PARTIES SET FORTH HEREIN INTO A TRUST AS MORE FULLY DESCRIBED HEREIN. PILLSBURY WINTHROP SHAW PITTMAN LLP OKIN, HOLLANDER & DELUCA, LLP 1540 Broadway Parker Plaza New York, NY 10036-4039 400 Kelby Street Fort Lee, New Jersey 07024 Richard L. Epling Robin L. Spear Paul S. Hollander Kerry A. Brennan James J. DeLuca Attorneys for Congoleum Corporation, et al. CAPLIN & DRYSDALE, CHTD. One Thomas Circle, N.W. Washington D.C. 20005 Peter Van N. Lockwood Ronald Reinsel Attorneys for the Asbestos Claimants' Committee EXHIBIT A TO THE DISCLOSURE STATEMENT TABLE OF CONTENTS Page ---- INTRODUCTION ARTICLE I DEFINITIONS, RULES OF INTERPRETATION, AND COMPUTATION OF TIME 1.1 SCOPE OF DEFINITIONS.................................................1 1.2 DEFINITIONS..........................................................1 1.3 RULES OF INTERPRETATION: APPLICATION OF DEFINITIONS, RULES OF CONSTRUCTION, AND COMPUTATION OF TIME...............................24 1.4 EXHIBITS AND SCHEDULES..............................................24 ARTICLE II COMPROMISES AND SETTLEMENTS OF CLAIMS 2.1 PROPOSED SETTLEMENT BETWEEN THE DEBTORS AND QUALIFIED PRE-PETITION SETTLEMENT CLAIMANTS................................................24 2.2 PROPOSED SETTLEMENT BETWEEN THE DEBTORS AND THE QUALIFIED PARTICIPATING CLAIMANTS.............................................26 ARTICLE III CLASSIFICATION OF CLAIMS AND INTERESTS 3.1 GENERALLY...........................................................27 3.2 UNCLASSIFIED CLAIMS.................................................27 3.3 CLASSES.............................................................27 ARTICLE IV TREATMENT OF ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS 4.1 ADMINISTRATIVE CLAIMS...............................................29 4.2 PRIORITY TAX CLAIMS.................................................29 4.3 SUBSTANTIAL CONTRIBUTION CLAIMS.....................................29 ARTICLE V TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS 5.1 CLAIMS AND INTERESTS................................................29 5.2 RESERVATION OF RIGHTS REGARDING CLAIMS..............................35 5.3 SEPARATE LIABILITIES OF REORGANIZED DEBTORS.........................35 i EXHIBIT A TO THE DISCLOSURE STATEMENT ARTICLE VI IMPLEMENTATION OF THE PLAN 6.1 THE PLAN TRUST AND THE GHR/KENESIS LITIGATION TRUST.................35 6.2 INTERCOMPANY SETTLEMENT.............................................40 6.3 CERTIFICATE OF INCORPORATION AND BYLAWS.............................41 6.4 MANAGEMENT OF THE REORGANIZED DEBTORS...............................41 6.5 AMENDED CREDIT AGREEMENT............................................41 6.6 TRANSFER TAXES......................................................41 6.7 SECTION 346 INJUNCTION..............................................42 6.8 EFFECTUATING DOCUMENTS AND FURTHER TRANSACTIONS.....................42 6.9 CORPORATE ACTION....................................................42 6.10 ALLOCATION OF RESERVED COMMON STOCK.................................42 6.11 TRANSFER LIMITATIONS UNDER SECTION 382(1)(5) OF THE IRC.............42 6.12 ESCROWED $5 MILLION.................................................42 ARTICLE VII PROVISIONS GOVERNING DISTRIBUTIONS WITH RESPECT TO CLAIMS OTHER THAN PLAN TRUST ASBESTOS CLAIMS 7.1 PLAN DISTRIBUTIONS..................................................43 7.2 DELIVERY OF DISTRIBUTIONS...........................................43 7.3 WITHHOLDING OF TAXES................................................43 7.4 UNCLAIMED PROPERTY..................................................43 ARTICLE VIII RESOLUTION OF DISPUTED CLAIMS 8.1 DISALLOWANCE OF IMPROPERLY FILED CLAIMS.............................44 8.2 PROSECUTION OF OBJECTIONS TO CLAIMS.................................44 8.3 NO DISTRIBUTIONS PENDING ALLOWANCE..................................45 8.4 DISTRIBUTIONS AFTER ALLOWANCE.......................................45 ARTICLE IX TREATMENT OF EXECUTORY CONTRACTS, UNEXPIRED LEASES AND SETTLEMENTS 9.1 ASSUMPTION OF UNEXPIRED LEASES AND EXECUTORY CONTRACTS..............45 9.2 DAMAGES UPON REJECTION..............................................46 9.3 EXECUTORY AND OTHER SETTLEMENTS.....................................46 9.4 INSURANCE AGREEMENTS................................................46 9.5 COMPENSATION AND BENEFITS PROGRAMS..................................46 9.6 RETIREE BENEFITS....................................................47 9.7 INDEMNIFICATION OF DIRECTORS, OFFICER AND EMPLOYEES.................47 ii EXHIBIT A TO THE DISCLOSURE STATEMENT ARTICLE X ACCEPTANCE OR REJECTION OF THE PLAN 10.1 CLASSES ENTITLED TO VOTE............................................47 10.2 ACCEPTANCE BY IMPAIRED CLASSES OF CLAIMS............................48 10.3 ACCEPTANCE BY IMPAIRED CLASS OF INTERESTS...........................48 10.4 ACCEPTANCE PURSUANT TO SECTION 524(G) OF THE BANKRUPTCY CODE........48 10.5 PRESUMED ACCEPTANCE OF PLAN.........................................48 10.6 RESERVATION OF RIGHTS...............................................48 ARTICLE XI CONDITIONS TO CONFIRMATION AND EFFECTIVENESS 11.1 CONDITIONS TO CONFIRMATION..........................................48 11.2 CONDITIONS TO EFFECTIVENESS.........................................51 11.3 WAIVER OF CONDITIONS................................................52 ARTICLE XII INJUNCTIONS, RELEASES AND DISCHARGE 12.1 DISCHARGE...........................................................52 12.2 RELEASE OF REPRESENTATIVES OF THE DEBTORS...........................53 12.3 EXCULPATION.........................................................53 12.4 RELEASES BY HOLDERS OF CLAIMS.......................................54 12.5 DISCHARGE INJUNCTION................................................55 12.6 ASBESTOS CHANNELING INJUNCTION......................................55 12.7 RESERVATION OF RIGHTS...............................................56 12.8 RIGHTS AGAINST NON-DEBTORS UNDER SECURITIES LAWS....................56 12.9 RIGHTS AGAINST DEBTORS UNDER ENVIRONMENTAL LAWS.....................56 12.10 DISALLOWED CLAIMS AND DISALLOWED INTERESTS..........................57 12.11 ANTI-SUIT INJUNCTION................................................57 12.12 INSURANCE NEUTRALITY................................................57 ARTICLE XIII MATTERS INCIDENT TO PLAN CONFIRMATION 13.1 TERM OF CERTAIN INJUNCTIONS AND AUTOMATIC STAY......................59 13.2 NO SUCCESSOR LIABILITY..............................................59 13.3 REVESTING...........................................................59 13.4 VESTING AND ENFORCEMENT OF CAUSES OF ACTION.........................59 13.5 PLAN TRUST BANKRUPTCY CAUSES OF ACTION..............................60 13.6 BANKRUPTCY CAUSES OF ACTION.........................................60 iii EXHIBIT A TO THE DISCLOSURE STATEMENT ARTICLE XIV MISCELLANEOUS 14.1 JURISDICTION........................................................60 14.2 GENERAL RETENTION...................................................61 14.3 SPECIFIC PURPOSES...................................................61 14.4 PAYMENT OF STATUTORY FEES...........................................63 14.5 THE ASBESTOS CLAIMANTS' COMMITTEE, THE FUTURES REPRESENTATIVE AND THE BONDHOLDERS' COMMITTEE..........................................63 14.6 REVOCATION OF PLAN..................................................63 14.7 MODIFICATION OF PLAN................................................63 14.8 MODIFICATION OF PAYMENT TERMS.......................................64 14.9 ENTIRE AGREEMENT....................................................64 14.10 HEADINGS............................................................64 14.11 PROFESSIONAL FEE CLAIMS.............................................64 14.12 RECORDABLE ORDER....................................................64 14.13 GOVERNING LAW.......................................................64 14.14 NO ADMISSION........................................................65 14.15 CONSENT TO JURISDICTION.............................................65 14.16 SETOFFS.............................................................65 14.17 SUCCESSORS AND ASSIGNS..............................................65 14.18 NON-DEBTOR WAIVER OF RIGHTS.........................................65 14.19 FURTHER AUTHORIZATIONS..............................................65 14.20 NOTICES.............................................................65 14.21 DUTY TO COOPERATE...................................................67 iv EXHIBIT A TO THE DISCLOSURE STATEMENT INTRODUCTION Congoleum Corporation, Congoleum Sales, Inc. and Congoleum Fiscal, Inc., the Debtors (as defined herein) in these Reorganization Cases (as defined herein) along with the Asbestos Claimants' Committee (as defined herein) hereby propose this joint plan of reorganization pursuant to the provisions of Chapter 11 of the United States Bankruptcy Code. Reference is made to the Disclosure Statement (as defined herein) distributed contemporaneously herewith for a discussion of the history, businesses, properties, results of operations, projections for future operations of the Debtors and risks associated with the Plan. All holders of Claims and Interests (each as defined herein) entitled to vote on the Plan are encouraged to read the Plan and Disclosure Statement in their entirety before voting to accept or reject the Plan. Subject to certain restrictions and requirements set forth in section 1127 of the Bankruptcy Code, Bankruptcy Rule 3019 (as defined herein), and Section 14.7 of the Plan, the Debtors and the Asbestos Claimants' Committee reserve the right to alter, amend, modify, revoke or withdraw the Plan prior to its substantial consummation. ARTICLE I DEFINITIONS, RULES OF INTERPRETATION, AND COMPUTATION OF TIME 1.1 Scope of Definitions. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in Article I of the Plan. Any term used in the Plan that is not defined herein, but is defined in the Bankruptcy Code or the Bankruptcy Rules, shall have the meaning ascribed to that term in the Bankruptcy Code or the Bankruptcy Rules. 1.2 Definitions. "ABI" means American Biltrite Inc., a Delaware corporation, and any successor or assign thereto whether presently existing or which may arise in the future. "ABI Asbestos Claim" means any Asbestos Claim that may be asserted by ABI now or in the future other than an ABI Asbestos Indemnity Claim. "ABI Asbestos Indemnity Claim" means any ABI Asbestos Personal Injury Indemnity Claim or ABI Asbestos Property Damage Indemnity Claim. "ABI Asbestos Personal Injury Indemnity Claim" means any asbestos personal injury indemnification Claim or Demand that may be asserted by ABI against Congoleum at any time under the Joint Venture Agreement. "ABI Asbestos Property Damage Indemnity Claim" means any asbestos related property damage indemnification Claim or Demand that may be asserted by ABI against Congoleum at any time under the Joint Venture Agreement. "ABI Claim" means any Claim or Demand at any time that may be asserted by ABI at any time against any Debtor, including without limitation ABI Asbestos Claims. EXHIBIT A TO THE DISCLOSURE STATEMENT "ABI Contribution" means $250,000 in Cash to be delivered to the Plan Trust by and on behalf of ABI on the Effective Date pursuant to Section 6.2 of the Plan. "ABI Entities" means (i) ABI; (ii) ABI's 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 (i) and/or (ii) hereinabove only to the extent that such Persons have the power to give the releases set forth in any Asbestos Insurance Settlement Agreement on behalf of the Persons described in this (iii); (iv) the respective past, present and future, direct and indirect, associated corporations and/or entities of the Persons described in (i) through (iii) hereinabove, inclusive, but only in their capacity as such and only to the extent that any of the Persons described in (i) and/or (ii) hereinabove have the power to give the releases set forth in any Asbestos Insurance Settlement Agreement on behalf of the Persons described in this (iv); (v) the direct and indirect predecessors, successors and assigns of each of the foregoing Persons described in (i) through (iv) hereinabove, inclusive, except, in the case of predecessors, only to the extent that any of the Persons described in (i) through (iv) hereinabove, inclusive, have the power to give the releases set forth in any Asbestos Insurance Settlement Agreement on behalf of such predecessors; and (vi) the respective officers, directors, employees, shareholders, agents, principals, attorneys and representatives of the Persons described in (i) through (v) hereinabove, inclusive, but only when acting in their capacity as such and only to the extent any of the Persons described in (i) through (v) hereinabove, inclusive, have the power to give the releases set forth in any Asbestos Insurance Settlement Agreement on behalf of the Persons described in this (vi). Any Person who meets the definition set forth hereinabove shall be individually referred to as an "ABI Entity." As used in this definition of "ABI Entities" only, the definition of "Persons" includes "Governmental Units." "ABI Parties" means any current or former officers, directors and employees of ABI, in their capacity as such. "Additional Bondholder Recovery" means the $5 million in Cash paid to the holders of the Senior Note Claims (as a Class) on the terms and subject to the conditions contained in the Plan, including without limitation Section 6.12. "Additional Indemnitees" has the meaning set forth in Section 2.1(c)(xiv) of the Plan Trust Agreement. "Administrative Claim" means any Claim for the payment of an Administrative Expense. The term "Administrative Claim" shall not include Asbestos Claims. "Administrative Expense" means (a) any cost or expense of administration of the Reorganization Cases under section 503(b) of the Bankruptcy Code including, but not limited to (1) any actual and necessary post-petition cost or expense of preserving the Estates or operating the Debtors' assets and businesses, (2) any payment to be made under the Plan to cure a default on an assumed executory contract or unexpired lease, (3) any post-petition cost, indebtedness or contractual obligation duly and validly incurred or assumed by the Debtors in the ordinary course of business, (4) the outstanding fees and expenses of the Indenture Trustee incurred in accordance with Section 6.6 of the Indenture relating to the Senior Notes, including the reasonable fees and expenses of counsel to the Indenture Trustee, and (5) compensation or reimbursement of expenses of professionals to the extent allowed by the Bankruptcy Court under section 327, 328, 330(a), 331, 503(b) or 1103 of the Bankruptcy Code, including, without limitation, the Futures Representative and its Representatives and (b) any fee or charge assessed against the Estates under 28 U.S.C. ss. 1930. 2 EXHIBIT A TO THE DISCLOSURE STATEMENT "Affiliate" shall have the meaning ascribed to such term in section 101(2) of the Bankruptcy Code. "AIG Contingencies and Conditions" means the conditions precedent and/or contingencies to consummation of that certain Asbestos Insurance Settlement Agreement with certain AIG companies approved by the Bankruptcy Court by order, dated July 18, 2005 and any non-material amendments or modifications thereto or any other settlement with such AIG companies that is materially similar to such Asbestos Insurance Settlement Agreement. "Allocation Proceeding" has the meaning set forth in Section 5.1(f) of the Plan. "Allowed" means: (a) With respect to the Claims Handling Fee, the amount certified by the Collateral Trustee pursuant to Section 6.1(k); (b) With respect to an Administrative Claim: (i) such amount that represents a Claim of a professional person employed under sections 327, 328, 524(g)(4)(B)(i) or 1103 of the Bankruptcy Code who is required to apply to the Bankruptcy Court for the allowance of compensation and reimbursement of expenses pursuant to section 330 of the Bankruptcy Code, to the extent such Claim is allowed by a Final Order of the Bankruptcy Court under sections 330 or 331 of the Bankruptcy Code; (ii) such amount that represents the reasonable fees and expenses of the Indenture Trustee and its counsel that were otherwise incurred in accordance with the terms of the Indenture and are outstanding on the Effective Date, without application to the Bankruptcy Court; provided, however, that if there is a dispute regarding the reasonableness of such fees and expenses or whether such fees and expenses were incurred in accordance with the Indenture, the Bankruptcy Court shall resolve such dispute; and (iii) other than with respect to a Claim described in clauses (b)(i) and (b)(ii) of this definition, such amount that represents an actual or necessary expense of preserving the Estates or operating the business of any of the Debtors, any such Claim to the extent that it constitutes an Allowed Administrative Claim, or if such Claim is a Disputed Claim, any such Claim to the extent it is allowed in whole or in part by a Final Order of the Bankruptcy Court and only to the extent that such allowed portion is deemed, pursuant to a Final Order of the Bankruptcy Court, to constitute a cost or expense of administration under section 503 or 1114 of the Bankruptcy Code; (c) With respect to an Asbestos Property Damage Claim that is filed prior to the expiration of the Asbestos Property Damage Claim Bar Date, such amount as is liquidated and allowed by the Bankruptcy Court; and 3 EXHIBIT A TO THE DISCLOSURE STATEMENT (d) With respect to any Claim other than a Plan Trust Asbestos Claim, an Asbestos Property Damage Claim or an Administrative Claim, such Claim or any portion thereof (i) that has been allowed in whole or in part by a Final Order of the Bankruptcy Court; (ii) that has been expressly allowed in the Plan; (iii) as to which, on or before the Effective Date, (A) no Proof of Claim has been filed with the Bankruptcy Court and (B) the Claim is listed in the Schedules (as they may be amended) and not listed as disputed, contingent, or unliquidated; or (iv) for which a Proof of Claim in a liquidated amount has been timely filed with the Bankruptcy Court pursuant to the Bankruptcy Code, any Final Order of the Bankruptcy Court, or other applicable bankruptcy law, and as to which either (A) no objection to its allowance has been filed within the periods of limitation fixed by the Plan, the Bankruptcy Code, or any order of the Bankruptcy Court, or (B) any objection to its allowance has been settled or withdrawn, or has been denied by a Final Order. "Allowed Amount" means the sum at which a Claim is Allowed. "Amended Credit Agreement" means the amended credit agreement which may be entered into on the Effective Date by Reorganized Congoleum, as borrower, and Wachovia, as lender, which shall provide for a revolving credit loan on terms and conditions mutually satisfactory and acceptable to Reorganized Congoleum and Wachovia; provided, however, that such Amended Credit Agreement shall be on terms similar to the Existing Credit Agreement (except that the Amended Credit Agreement may be modified to provide for a lien on or security interest in real estate and any other collateral securing the New Senior Notes). "Anti-Suit Injunction" means the injunction described in Section 12.11 of the Plan. "Asbestos Channeling Injunction" means the injunction described in Section 12.6 of the Plan. "Asbestos Claimant" means the holder of an Asbestos Personal Injury Claim. "Asbestos Claimants' Committee" means the official committee of the representatives of holders of present unsecured Asbestos Personal Injury Claims, solely in its capacity as such, which committee as of the date hereof consists of the following representatives of the holders of present unsecured Asbestos Personal Injury Claims: Perry Weitz, Esquire, Joseph Rice, Esquire, Steven Kazan, Esquire, Russell Budd, Esquire and Robert Taylor, II, Esquire. "Asbestos Claims" means, collectively, Plan Trust Asbestos Claims and ABI Asbestos Claims. "Asbestos Expenses" means all costs, taxes and expenses of or imposed on the Plan Trust Assets, the Collateral Trust or the Plan Trust attributable or allocable to Plan Trust Asbestos Claims, including, but not limited to: trustee compensation; employee compensation; compensation to and indemnification of the Futures Representative and the TAC and their respective Representatives; insurance premiums; legal, accounting and other professional fees and expenses; overhead; and disbursements, but excluding payments to holders of Plan Trust Asbestos Claims on account of such Plan Trust Asbestos Claims; provided, however, that Asbestos Expenses shall not include any costs or expenses incurred or indemnification for relief granted in connection with the Avoidance Actions. 4 EXHIBIT A TO THE DISCLOSURE STATEMENT "Asbestos In-Place Insurance Coverage" means any insurance coverage, not reduced to Cash settlement proceeds, available for the payment or reimbursement of liability, indemnity or defense costs arising from or related to Asbestos Claims or Demands or Plan Trust Expenses under any Asbestos Insurance Policy or any Asbestos Insurance Settlement Agreement. "Asbestos Insurance Action" means any claim, cause of action, or right of any Debtor against any Asbestos Insurance Company, including without limitation, the Coverage Litigation, arising from or related to: (a) any such Asbestos Insurance Company's failure to provide or pay under Asbestos In-Place Insurance Coverage, (b) the refusal of any Asbestos Insurance Company to compromise and settle any Asbestos Claim under or pursuant to any Asbestos Insurance Policy, or (c) the interpretation or enforcement of the terms of any Asbestos Insurance Policy with respect to any Asbestos Claim. "Asbestos Insurance Action Recoveries" means (a) Cash derived from and paid pursuant to Asbestos Insurance Settlement Agreements, (b) the right to receive proceeds of Asbestos In-Place Insurance Coverage, and (c) the right to receive the proceeds or benefits of any Asbestos Insurance Action. "Asbestos Insurance Assignment" means the transfer, grant and assignment of the Asbestos Insurance Rights to the Plan Trust described in Article VI of the Plan, which will be effectuated pursuant to the Insurance Assignment Agreement. "Asbestos Insurance Company" means any insurance company, insurance broker, guaranty association, liquidator, rehabilitator or any other Entity with demonstrated or potential liability to any of the Debtors, the Reorganized Debtors, the Collateral Trust or the Plan Trust under or related to an Asbestos Insurance Policy. "Asbestos Insurance Policy" means any insurance policy issued to or for the benefit of any of the Debtors (except for any insurance policy issued to ABI, American Biltrite International Inc., or any of their predecessors) in effect at any time on or before the Effective Date that may afford any of the Debtors indemnity or insurance coverage, upon which any claim has been or may be made with respect to any Asbestos Claim. "Asbestos Insurance Rights" means any and all rights, titles, privileges, interests, claims, demands or entitlements to any proceeds, payments, initial or supplemental dividends, scheme payments, supplemental scheme payments, causes of action and choses in action related to Asbestos In-Place Insurance Coverage, whether now existing or hereafter arising, accrued or unaccrued, liquidated or unliquidated, matured or unmatured, disputed or undisputed, fixed or contingent, including but not limited to: (i) any and all rights to pursue or receive payments with respect to Asbestos Claims under any Asbestos In-Place Insurance Coverage, whether for liability, defense or otherwise; (ii) any and all rights to pursue or receive payments related to any Asbestos In-Place Insurance Coverage that was entered into by any domestic or foreign insolvent insurance company, whether in receivership, liquidation, rehabilitation, run-off, scheme of arrangement or any other form of proceeding; 5 EXHIBIT A TO THE DISCLOSURE STATEMENT (iii) any and all rights to pursue or receive payments related to any Asbestos In-Place Insurance Coverage from any state insurance guaranty association in connection with any state insurance guaranty association statute; provided, however, that Asbestos Insurance Rights shall not include any rights or obligations under any insurance policy or settlement agreement to which the Debtors are a party insofar as such insurance policy or settlement agreement relates to Workers' Compensation Claims; and (iv) any and all rights to pursue any Causes of Action against, or to receive payments related to any Asbestos In-Place Insurance Coverage from, any Asbestos Insurance Company. "Asbestos Insurance Settlement Agreement" means any settlement agreement between or among any of the Debtors and a Settling Asbestos Insurance Company relating to any Asbestos Claim or Asbestos Insurance Action. "Asbestos Insurer Coverage Defenses" means all defenses at law or in equity that an Asbestos Insurance Company may have under any Asbestos Insurance Policy or applicable law to provide Asbestos In-Place Insurance Coverage to or for Asbestos Personal Injury Claims or Plan Trust Expenses that have been channeled to or assumed by or incurred by the Plan Trust pursuant to the Plan; provided, however, that in the event that it is finally determined in the Bankruptcy Court that the Bankruptcy Code authorizes the Asbestos Insurance Assignment by preempting any terms of any Asbestos Insurance Policy or provisions of applicable non-bankruptcy law that otherwise might prohibit the Asbestos Insurance Assignment, "Asbestos Insurer Coverage Defenses" shall not include any defense that the Asbestos Insurance Assignment is prohibited by any Asbestos Insurance Policy or applicable non-bankruptcy law. "Asbestos Personal Injury Claim" means (a) any Congoleum Derivative Action; (b) any claim, demand or lawsuit (including, but not limited to, any Claim or Demand), whenever and wherever arising or asserted against any of the Debtors or their respective present or former officers, directors or employees in their capacities as such and (c) 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 and wherever arising or asserted, of the Debtors or their respective present or former officers, directors or employees in their capacities as such (including, but not limited to, all thereof in the nature of or sounding in tort, contract, warranty, or any other theory of law, equity or admiralty); in either case (b) or (c) for, based on or arising by reason of, directly or indirectly, physical, emotional, bodily or other personal injury, sickness, disease, death or damages based on the foregoing (including, but not limited to, any claim or demand for compensatory damages, loss of consortium, proximate, consequential, general, special or punitive damages, reimbursement, indemnity, warranty, contribution or subrogation) whether or not diagnosable or manifested before the Confirmation of the Plan or the close of the Reorganization Cases, (x) caused or allegedly caused, in whole or 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 and/or any of its Affiliates; (ii) by services, actions, or operations provided, completed or taken by any Debtor and/or any of its Affiliates in connection with asbestos or asbestos-containing products or (y) caused or allegedly caused by asbestos for which any Debtor or its predecessors, are otherwise liable under any applicable law including, but not limited to, Indirect Asbestos Claims and Asbestos Expenses, provided that Asbestos Personal Injury Claim shall not include Workers' Compensation Claims, ABI Asbestos Claims or Asbestos Property Damage Claims. 6 EXHIBIT A TO THE DISCLOSURE STATEMENT "Asbestos Personal Injury Claim Sub-Account" means that portion of the Plan Trust Assets to be made available for payment of Plan Trust Asbestos Claims (and related Plan Trust Expenses) other than Allowed Asbestos Property Damage Claims. "Asbestos Property Damage Claim" means any Claim or remedy or liability for damage to property (whether or not such Claim, remedy or liability is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not the facts of or legal bases therefor are known or unknown, under any theory of law, equity, admiralty or otherwise), for which the Debtors are alleged to be or may be responsible by judgment, order or settlement and that (1) arises from or relates to any building or other real property in which asbestos was or is, or asbestos-containing products were or are, alleged to have been installed prior to the Petition Date; and (2) seeks monetary or other relief for injury to, destruction, loss of use, diminution in value, and/or asbestos-related repair or maintenance of such property or for the cost of inspection, encapsulation, decontamination, containment, removal, or other abatement of the asbestos or asbestos-containing products installed or allegedly installed in such property. Asbestos Property Damage Claim also includes any such Claims, remedies or liabilities as described immediately above that seek (a) compensatory damages (such as proximate, consequential, general and special damages) and punitive damages; and/or (b) reimbursement, indemnification, subrogation and/or contribution, including, without limitation, any Asbestos Property Damage Contribution Claim. Notwithstanding the foregoing, Asbestos Property Damage Claim does not include any ABI Asbestos Claim or Asbestos Personal Injury Claim. "Asbestos Property Damage Claim Bar Date" means May 3, 2004, the date designated by the Bankruptcy Court as the last date for filing Proofs of Claim on account of an Asbestos Property Damage Claim against the Debtors. "Asbestos Property Damage Claim Sub-Account" means that portion of the Plan Trust Assets, consisting solely of the Asbestos Property Damage Insurance Rights, to be made available for payment of Allowed Asbestos Property Damage Claims. "Asbestos Property Damage Claimant" means the holder of an Asbestos Property Damage Claim. "Asbestos Property Damage Contribution Claim" means any Claim or remedy or liability for damage to property asserted against the Debtors (whether or not such Claim, remedy or liability is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not the facts of or legal bases therefor are known or unknown, under any theory of law, equity, admiralty or otherwise) that is: (1) held by any Entity or assignee or transferee thereof (other than a director or officer entitled to indemnification pursuant to Section 9.7 of the Plan) which has been, is, or may be a defendant in an action alleging damage to property that (i) arises from or relates to any building or other real property in which asbestos was or is, or asbestos-containing products were or are, alleged to have been installed prior to the Petition Date, and (ii) seeks monetary or other relief for injury to, destruction, loss of use, diminution in value, and/or asbestos-related repair or maintenance of such 7 EXHIBIT A TO THE DISCLOSURE STATEMENT property or for the cost of inspection, encapsulation, decontamination, containment, removal, or other abatement of the asbestos or asbestos-containing products installed or allegedly installed in such property; and (2) on account of alleged liability by the Debtors for reimbursement, indemnification, subrogation, or contribution of any portion of any damages such Entity (or assignee or transferee thereof) has paid or may pay to the plaintiff in such action. Notwithstanding anything herein to the contrary, Asbestos Property Damage Contribution Claim does not include any ABI Asbestos Claims. "Asbestos Property Damage Insurance Rights" means all rights arising under all insurance policies, issued to or for the benefit of any of the Debtors (except for any insurance policy issued to ABI, American Biltrite International Inc., or any of their predecessors) that may afford any of the Debtors indemnity or insurance coverage solely for Asbestos Property Damage Claims, which policies are set forth on Exhibit "A." The foregoing includes, but is not limited to, rights under insurance policies, rights under settlement agreements made with respect to such insurance policies, rights against the estates of insolvent insurers that issued such policies or entered into such settlements, and rights against state insurance guaranty associations arising out of any such insurance policies issued by insolvent insurers. "Asbestos Settlement Documents" means the Security Agreement, Collateral Trust Agreement and Claimant Agreement, collectively. "Avoidance Actions" means, collectively, the Omnibus Avoidance Action and the Sealed Avoidance Action. "Bankruptcy Causes of Action" means all Causes of Action other than Plan Trust Bankruptcy Causes of Action arising under the Bankruptcy Code, including any avoidance or recovery actions under sections 544, 545, 547, 548, 549, 550, 551 and/or 553 of the Bankruptcy Code, or under any similar state statutes, which seek recovery of or with respect to any payment by, or transfer of any interest in property of, any of the Debtors made in respect of any claim, cause of action or other matter. "Bankruptcy Code" means title 11 of the United States Code, 11 U.S.C. ss.ss. 101, et seq., as in effect on the Petition Date, together with all amendments and modifications thereto that were subsequently made applicable to the Reorganization Cases. "Bankruptcy Court" means the United States Bankruptcy Court having jurisdiction over the Reorganization Cases or the District Court exercising bankruptcy jurisdiction. "Bankruptcy Professional" means any Person (a) employed pursuant to an order of the Bankruptcy Court in accordance with section 327 or 1103 of the Bankruptcy Code and to be compensated for services pursuant to sections 327, 328, 329, 330 and/or 331 of the Bankruptcy Code, or (b) who applies to the Bankruptcy Court for compensation and reimbursement of expenses pursuant to section 503(b) of the Bankruptcy Code. "Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure and the local rules of the Bankruptcy Court, as in effect on the Petition Date, together with all amendments and modifications thereto that were subsequently made applicable to the Reorganization Cases. 8 EXHIBIT A TO THE DISCLOSURE STATEMENT "Bar Dates" means the date(s), if any, designated by the Bankruptcy Court as the last date(s) for filing Proofs of Claim against the Debtors. "Bondholders' Committee" means the official committee of the representatives of holders of Senior Notes appointed in these Reorganization Cases on January 27, 2006, solely in its capacity as such. "Business Day" means any day other than a Saturday, Sunday or a legal holiday (as such term is defined in Bankruptcy Rule 9006(a)) on which commercial banks are open for business in New York, New York. "Cash" means lawful currency of the United States of America and its equivalents. "Causes of Action" means, without limitation, any and all rights, remedies, claims, causes of action, liabilities, obligations, suits, debts, sums of money, damages, judgments, and demands whatsoever, whether known or unknown, in law, equity, or otherwise which may be brought by or on behalf of the Debtors and/or the Estates, arising under any provision of the Bankruptcy Code or other applicable law. "Claim" means a claim against the Debtors (or any of them), whether or not asserted, as defined in section 101(5) of the Bankruptcy Code, and further shall include, but is not limited to, Asbestos Claims. "Claimant Agreement" means that certain Settlement Agreement Between Congoleum and Various Asbestos Claimants, as amended by the first amendment thereto, entered into by Congoleum and certain Asbestos Claimants, through their counsel, prior to the Petition Date, as the same may be further amended from time to time in accordance with its terms. The Claimant Agreement and the first amendment thereto are attached to the Disclosure Statement as Exhibit "E." "Claimants' Counsel" or "Claimants' Representative" means Joseph F. Rice, Esquire and Perry Weitz, Esquire, collectively, in their capacity under the Claimant Agreement as the representatives of certain holders of Asbestos Personal Injury Claims. "Claims Handling Fee" shall have the meaning ascribed to such term in the Collateral Trust Agreement. "Claims Reviewer" shall have the meaning ascribed to such term in the Collateral Trust Agreement. "Class" means a category of Claims or Interests, as classified in Article III of the Plan pursuant to section 1122(a)(1) of the Bankruptcy Code. "Class 2 Settlement" means the settlement agreement with the Qualified Pre-Petition Settlement Claimants encompassing, inter alia, the compromise and settlement contained in Section 2.1 of the Plan and the treatment afforded to the Qualified Pre-Petition Settlement Claimants in Section 5.1(b) of the Plan. 9 EXHIBIT A TO THE DISCLOSURE STATEMENT "Class 3 and 11 Settlement" means the settlement agreement with the Qualified Participating Claimants encompassing, inter alia, the compromise and settlement contained in Section 2.2 of the Plan and the treatment afforded to the Qualified Participating Claimants in Section 5.1(c) of the Plan. "Collateral Trust" means the Collateral Trust established pursuant to the Collateral Trust Agreement, the Security Agreement and the Claimant Agreement. "Collateral Trust Agreement" means that certain irrevocable trust agreement entered into by Congoleum and Arthur J. Pergament and Wilmington Trust Company, as amended by the first amendment thereto, and any further modifications or amendments thereto. The Collateral Trust Agreement and the first amendment thereto are attached to the Plan as Exhibit "B." "Collateral Trustee" means the Trustee as defined and named in the Collateral Trust Agreement. "Confirmation" means the approval of the Plan by the Bankruptcy Court pursuant to section 1129 and other applicable sections of the Bankruptcy Code. "Confirmation Date" means the date on which the Confirmation Order is entered on the docket of the Bankruptcy Court. "Confirmation Hearing" means the hearing(s) which will be held before the Bankruptcy Court and the District Court, as appropriate, in which the Debtors will seek Confirmation of the Plan. "Confirmation Order" means the order of the Bankruptcy Court confirming the Plan pursuant to section 1129 and other applicable sections of the Bankruptcy Code. "Congoleum" means Congoleum Corporation, a Delaware corporation. "Congoleum Derivative Action" means (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 Debtors and ABI, including, but not limited to, allegations of piercing the corporate veil, shareholder liability, interlocking directorships, or any similar allegations or otherwise. 10 EXHIBIT A TO THE DISCLOSURE STATEMENT "Congoleum Interests" means, collectively, all equity interests in Congoleum outstanding immediately prior to the Effective Date including, without limitation, (a) shares of Class A common stock, par value $0.01 per share, and Class B Common Stock, par value $0.01 per share, of Congoleum and (b) any options, warrants, conversion rights, rights of first refusal, or other rights, contractual or otherwise, to acquire or receive any stock or other equity ownership interests in Congoleum. "Coverage Costs" means all reasonable costs, including reasonable attorneys' fees, actually incurred by the Debtors and/or their Representatives on their behalf, on or after January 1, 2003, to prosecute the Coverage Litigation and any other Asbestos Insurance Actions and to pursue the Asbestos Insurance Action Recoveries. "Coverage Litigation" means (i) that certain civil action pending in the Superior Court of New Jersey, docket number MID-L-8908-01, as such action exists after giving effect to the Order entered therein on October 30, 2003 that dismissed, without prejudice, certain claims including Environmental Claims, as referenced in such Order; and (ii) any other action which seeks to determine the extent of insurance coverage for defense of and liability for Asbestos Claims and related issues. "Debtor" means each of Congoleum, Congoleum Sales, Inc. and Congoleum Fiscal, Inc., as debtors-in-possession in the Reorganization Cases, and "Debtors" means all of them collectively, and when the context so requires, as post-Confirmation entities reorganized hereunder. "Demand" means a demand for payment against any of the Debtors within the meaning of section 524(g)(5) of the Bankruptcy Code, but excludes any demand in respect of an Asbestos Property Damage Claim or an ABI Asbestos Claim. "Direct Action" means any cause of action or right to bring a cause of action possessed by an Asbestos Claimant against an Asbestos Insurance Company on account of such Asbestos Claimant's Plan Trust Asbestos Claim, whether arising by contract or under the laws of any jurisdiction. "Disallowed" means a Claim or Interest, as the case may be, that is disallowed by the Plan, a Final Order of the Bankruptcy Court, or that is disallowed pursuant to the TDP. "Disbursing Agent" means the Reorganized Debtors or any Person selected by the Reorganized Debtors to hold and distribute the consideration to be distributed to the holders of Allowed Claims (other than Plan Trust Asbestos Claims and Senior Note Claims) under the Plan. "Discharge Injunction" means the injunction described in Section 12.5 of the Plan. "Disclosure Statement" means the Disclosure Statement with respect to the Plan, including all exhibits, appendices, schedules and annexes attached thereto, as submitted by the Debtors pursuant to section 1125 of the Bankruptcy Code, as such Disclosure Statement may be further amended, supplemented or modified from time to time. 11 EXHIBIT A TO THE DISCLOSURE STATEMENT "Disputed Claim" means any Claim that has not been allowed by a Final Order as to which (a) a Proof of Claim has been filed with the Bankruptcy Court, and (b) an objection has been or may be timely filed or deemed filed under applicable law and any such objection has not been (i) withdrawn, (ii) overruled or denied by a Final Order or (iii) granted by a Final Order. For purposes of the Plan, a Claim that has not been Allowed by a Final Order shall be considered a Disputed Claim, whether or not an objection has been or may be timely filed, if (A) the amount of the Claim specified in the Proof of Claim exceeds the amount of any corresponding Claim listed in the Schedules, (B) the classification of the Claim specified in the Proof of Claim differs from the classification of any corresponding Claim listed in the Schedules, (C) any corresponding Claim has been listed in the Schedules as disputed, contingent or unliquidated, (D) no corresponding Claim has been listed in the Schedules or (E) such Claim is reflected as unliquidated or contingent in the Proof of Claim filed in respect thereof. "Distribution Date" means, when used with respect to an Allowed Claim (other than a Plan Trust Asbestos Claim or the Additional Bondholder Recovery), the date which is as soon as reasonably practicable after the latest of: (a) the Effective Date; (b) the first Business Day of the next calendar month following the date on which the Claim becomes an Allowed Claim; or (c) the first Business Day of the next calendar month upon which the Claim matures and becomes due and payable according to its own terms, unless the Claim becomes Allowed within fifteen (15) Business Days before the first Business Day of the next calendar quarter, in which case Distribution Date shall be the first Business Day of the next succeeding calendar quarter. "District Court" means the United States District Court for the judicial district having jurisdiction over the matter in question. "Effective Date" means the first Business Day after the Confirmation Date immediately following the first day upon which all of the conditions to occurrence of the Effective Date specified in Section 11.2 of the Plan have been satisfied or waived pursuant to Section 11.3 of the Plan. "Entity" means any Person, estate, trust, Governmental Unit or the United States Trustee. "Environmental Laws" means (a) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.ss.ss.9601, et seq., (b) the Resource Conservation and Recovery Act, as amended by the Hazardous and Solid Waste Amendment of 1984, 42 U.S.C.ss.ss.6901, et seq., (c) the Clean Air Act, 42 U.S.C.ss.ss.7401, et seq., (d) the Clean Water Act of 1977, 33 U.S.C.ss.ss.1251, et seq., (e) the Toxic Substances Control Act, 15 U.S.C.ss.ss.2601, et seq., (f) all statutes or laws issued or promulgated by any Governmental Unit, as they may be amended from time to time, relating to environmental contamination or pollution, air pollution, water pollution, noise control and/or the handling, discharge, existence, release, disposal or recovery of on-site or off-site hazardous, toxic or dangerous wastes, substances, chemicals or materials, and (g) the ordinances, rules, regulations, orders, notices of violation, requests, demands and requirements issued or promulgated by any Governmental Unit in connection with such statutes or laws. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 12 EXHIBIT A TO THE DISCLOSURE STATEMENT "Estate(s)" means, individually, the estate of each Debtor in the Reorganization Cases and, collectively, the estates of all Debtors in the Reorganization Cases, created pursuant to section 541 of the Bankruptcy Code. "Existing Credit Agreement" means the Loan and Security Agreement between Congoleum, as borrower, and Wachovia, as lender, dated as of December 10, 2001, as amended by Amendment No. 1 to Loan and Security Agreement, dated September 19, 2002, by and between Wachovia and Congoleum, and Amendment No. 2 to Loan and Security Agreement, dated as of February 27, 2003, by and between Wachovia and Congoleum, and as otherwise amended, restated, modified and/or supplemented as of the Petition Date and any related documents. "Existing Subsidiary Guaranty" means the Limited Guaranty, dated as of February 27, 2003, executed by Congoleum Fiscal, Inc. and Congoleum Sales, Inc., as amended, restated, modified or supplemented as of the Petition Date. "Final Order" means an order or judgment of the Bankruptcy Court, or other court of competent jurisdiction, the implementation, operation or effect of which has not been stayed and as to which order (or any revision, modification or amendment thereon) the time to appeal or seek review, rehearing or writ of certiorari has expired and as to which no appeal or petition for review, reconsideration, rehearing or certiorari has been taken and is pending. "Financing Order" shall have the meaning ascribed to such term in Section 5.1(d). "First Indicated Date" means the 90th Trading Day after the first anniversary of the Effective Date. "Forbearance" means agreement, conditioned upon the occurrence of the Effective Date, to refrain from exercising: (i) the right to enforce or exercise any status or right as a secured party, including any rights in the Collateral described in the Security Agreement; (ii) the right to enforce or exercise any assignment or collateral assignment of insurance or insurance proceeds; (iii) the right to any priority of payment arising from or related to (i) or (ii) hereinabove; and (iv) the right to enforce or exercise any right to payment, claim or cause of action granted or arising under the Claimant Agreement, any Pre-Petition Settlement Agreement, the Collateral Trust Agreement, the Security Agreement or any other agreement related thereto or contemplated thereby, including the Class 3 and 11 Settlement Agreement. "Futures Representative" means the Person appointed by the Bankruptcy Court to represent the rights and interests of the Unknown Asbestos Claimants, who shall be R. Scott Williams, Esquire, or such other individual appointed by the Bankruptcy Court, pursuant to section 524(g) of the Bankruptcy Code. "General Unsecured Claim" means an Unsecured Claim other than an Asbestos Claim, ABI Claim, Workers' Compensation Claim or a Senior Note Claim. "GHR/Kenesis Actions" means (a) any right, process, proceeding or action to recover funds or property on account of that certain Order of the Bankruptcy Court Granting Cross-Motion for Disgorgement of Fees Paid to Gilbert, Heintz & Randolph LLP, dated March 27, 2006, as Amended by Order, dated March 31, 2006; and (b) any other Causes of Action, including for malpractice, against Gilbert, Heintz & Randolph LLP or The Kenesis Group LLC. 13 EXHIBIT A TO THE DISCLOSURE STATEMENT "GHR/Kenesis Litigation Trust" means the trust to be established pursuant to Section 6.1(o) of the Plan as of the Effective Date pursuant to the GHR/Kenesis Litigation Trust Agreement. "GHR/Kenesis Litigation Trust Agreement" means that certain GHR/Kenesis Litigation Trust Agreement, effective as of the Effective Date, substantially in the form annexed hereto as Exhibit "I," as it may be modified from time to time in accordance with the terms thereof. "GHR/Kenesis Litigation Trustee" means the Person appointed pursuant to Section 6.1(o) of the Plan for the purpose of acting as Trustee of the GHR/Kenesis Litigation Trust in accordance with the terms and conditions contained in the Plan, the GHR/Kenesis Litigation Trust and the Confirmation Order. "Governmental Unit" means any domestic, foreign, provincial, federal, state, local or municipal (a) government, or (b) governmental agency, commission, department, bureau, ministry or other governmental entity. "Impaired" means when used with reference to a Claim or Interest, a Claim or Interest that is impaired within the meaning of section 1124 of the Bankruptcy Code. "Indenture" means the Indenture by and between Congoleum Corporation, as Issuer, and First Union National Bank, as Trustee, dated as of August 3, 1998, as supplemented and amended from time to time, relating to the Senior Notes. "Indenture Trustee" means HSBC Bank USA, N.A., as successor to First Union National Bank, not individually but as indenture trustee under the Indenture, and its successors and assigns. "Indirect Asbestos Claim" means (i) any Claim based on a right of contribution, reimbursement, subrogation, or indemnity (as those terms are defined by the non-bankruptcy law of any relevant jurisdiction) arising out of or based on an Asbestos Personal Injury Claim, another Indirect Asbestos Claim or an Unknown Asbestos Claim, (ii) any other derivative or indirect Claim of any kind whatsoever, whether in the nature of or sounding in contract, tort, warranty or any other theory of law, equity or admiralty, by reason of an Asbestos Personal Injury Claim, another Indirect Asbestos Claim or an Unknown Asbestos Claim (including, without limitation, any Claim (A) for attorneys' fees arising or incurred in connection with any Asbestos Personal Injury Claim, another Indirect Direct Asbestos Claim, an Unknown Asbestos Claim or an Asbestos Insurance Action or (B) arising out of or based on the rejection of any executory contract related to or involving asbestos), and (iii) any Claim arising out of Asbestos Insurance Policies or settlement agreements related thereto, in each case other than ABI Asbestos Claims or Asbestos Property Damage Claims. "Injunctions" means the Discharge Injunction, the Asbestos Channeling Injunction, the Anti-Suit Injunction and any other injunctions entered by Order of the Bankruptcy Court or the District Court in the Reorganization Cases (including but not limited to any injunction contained in any Final Order approving any Asbestos Insurance Settlement Agreement). 14 EXHIBIT A TO THE DISCLOSURE STATEMENT "Insurance Assignment Agreement" means the insurance assignment agreement referenced in Section 6.1(c) of the Plan and substantially in the form attached as Exhibit "C" to the Plan. "Intercompany Agreements" means the: (i) Personal Services Agreement dated as of March 11, 1993, by and between ABI and Congoleum and all amendments thereto; (ii) Business Relations Agreement, dated as of March 11, 1993, by and between ABI and Congoleum and all amendments thereto; (iii) Stockholders Agreement, dated as of March 11, 1993, by and among Hillside Industries Incorporated, ABI, Congoleum Holdings Incorporated and Congoleum and all amendments thereto; and (iv) Tax Sharing Agreement, dated as of November 1, 1996, by and between ABI and Congoleum. "Interest" means any equity interest in the Debtors existing immediately prior to the Effective Date, including without limitation, the Congoleum Interests and the Subsidiary Interests. "IRC" means the Internal Revenue Code of 1986, as amended. "Joint Venture Agreement" means that Joint Venture Agreement, dated as of December 16, 1992, by and among American Biltrite Inc., Resilient Holdings Incorporated, Congoleum, Hillside Industries Incorporated and Hillside Capital Incorporated, as amended by the Closing Agreement, dated as of March 11, 1993, by and among the same parties. "Lender Secured Claim" means any Claim of Wachovia arising under or relating to the Existing Credit Agreement, the Existing Subsidiary Guaranty and any related documents. "Lien" means, with respect to any asset or property, any properly perfected and unavoidable mortgage, lien, pledge, charge, security interest, encumbrance or other security device of any kind pertaining to or affecting such asset or property. "New Class A Common Stock" means the 3,800,000 shares of Congoleum Class A common stock, par value $.01 per share, to be issued by Reorganized Congoleum to the Plan Trust on the Effective Date if the holders of the Senior Note Claims vote to accept the Plan, and any additional shares of Congoleum Class A common stock, par value $0.1 per share, required to be issued in accordance with the anti-dilution provisions set forth on Exhibit "E" to the Plan if the holders of the Senior Note Claims vote to accept the Plan. "New Convertible Security" means the convertible promissory note to be issued by Reorganized Congoleum and contributed to the Plan Trust on the Effective Date in satisfaction of section 524(g) of the Bankruptcy Code if the holders of the Senior Note Claims vote to accept the Plan, in the form attached hereto as Exhibit J. "New Indenture" means the Indenture by and between Congoleum Corporation, as Issuer, and [Bank], as Trustee, dated as of the Effective Date relating to the New Senior Notes substantially in the form attached as Exhibit "H" to the Plan. 15 EXHIBIT A TO THE DISCLOSURE STATEMENT "New Senior Notes" means the $100 million aggregate principal amount of 10% Senior Notes due August 2011 to be issued to the holders of the Senior Notes by Reorganized Congoleum on the Effective Date and guaranteed by the other Reorganized Debtors and any subsidiaries of the Reorganized Debtors if the holders of the Senior Note Claims (as a Class) vote to accept the Plan. Interest on the New Senior Notes will be payable semi-annually at the rate of 10% per annum. The New Senior Notes will be secured by a lien on or security interest in all of the Reorganized Debtors' assets (subject to the limitations contained in the New Indenture and excluding the GHR/Kenesis Actions and any Causes of Action against any Bankruptcy Professionals), which security interest shall be subordinate in priority only to the security for the Amended Credit Agreement or any other working capital exit facility, provided that such Amended Credit Agreement or other working capital exit facility shall be on terms similar to the Existing Credit Agreement (except that the Amended Credit Agreement or other working capital exit facility may be modified to provide for a lien on or security interest in real estate and any other collateral securing the New Senior Notes). The liens and security interests securing the New Senior Notes shall not be pari passu with any other liens or security interests. The New Senior Notes shall be contractually senior in priority and right of payment to the Plan Trust Note and the New Convertible Security; provided, however, that in the absence of a default under the New Indenture, payments due under the Plan Trust Note and the New Convertible Security will be made in the ordinary course in accordance with their respective contractual terms. The New Senior Notes shall be in the form set forth in the New Indenture. "Non-Compensatory Damages" means any and all damages awarded by a court of competent jurisdiction that are penal in nature, including, without limitation, punitive, punitory, exemplary, vindictive, imaginary or presumptive damages. "Not Previously Determined Unsecured Asbestos Personal Injury Claim" means any Asbestos Personal Injury Claim other than a Secured Asbestos Claim or Previously Determined Unsecured Asbestos Personal Injury Claim, and includes, but is not limited to, any Unknown Asbestos Claim. "Omnibus Avoidance Action" means that certain Adversary Proceeding No. 05-06245 (KCF), which was filed in the Bankruptcy Court on behalf of the Debtors on December 3, 2005, as amended by the filing of a first amended complaint on December 30, 2005 and as it may be further amended. "Other Secured Claim" means a Secured Claim arising prior to the Petition Date against any of the Debtors other than a Lender Secured Claim or a Secured Asbestos Claim. "Participating Claimant" means a holder of an Asbestos Personal Injury Claim designated as a Participating Asbestos Claimant pursuant to the Claimant Agreement. "Pension Plans" means, collectively, that certain Congoleum Corporation Hourly Retirement Plan, that certain Congoleum Corporation Retirement Plan for Salaried Employees and that certain Congoleum Corporation Plant 2 Retirement Plan, in each case as the same may be amended from time to time. "Person" means any person, individual, partnership, corporation, limited liability company, joint venture company, association or other entity or being of whatever kind, whether or not operating or existing for profit, including, but not limited to, any "person" as such term is defined in section 101(41) of the Bankruptcy Code, but excluding any Governmental Unit. 16 EXHIBIT A TO THE DISCLOSURE STATEMENT "Petition Date" means December 31, 2003, the date on which the Debtors filed their petitions for relief commencing the Reorganization Cases. "Plan" means this Plan of Reorganization under Chapter 11 of the Bankruptcy Code and all exhibits and schedules annexed hereto or referenced herein, and any amendments or modifications thereto made in accordance with the Bankruptcy Code. "Plan Documents" means the Plan, the Plan Trust Agreement, the TDP, the New Convertible Security, the Plan Trust Note, the New Senior Notes, the Amended Credit Agreement or any other working capital exit facility, the New Indenture, the Pledge Agreement, the GHR/Kenesis Litigation Trust Agreement and the Insurance Assignment Agreement, and all exhibits and schedules to any of the foregoing. "Plan Supplement" means the compilation of documents, including any exhibits to the Plan not included herewith, that the Debtors may file with the Bankruptcy Court on or before the date that is five (5) Business Days prior to the Confirmation Hearing. "Plan Trust" means the trust to be established pursuant to the Plan Trust Agreement and Section 6.1(a) of the Plan as of the Effective Date. "Plan Trust Agreement" means that certain Congoleum Plan Trust Agreement, effective as of the Effective Date, substantially in the form annexed hereto as Exhibit "D," as it may be modified from time to time in accordance with the terms thereof. "Plan Trust Asbestos Claims" means, collectively, Asbestos Personal Injury Claims, Unknown Asbestos Claims and Allowed Asbestos Property Damage Claims. "Plan Trust Assets" means the assets to be delivered to the Plan Trust pursuant to the Plan Documents and shall include, without limitation, the following assets and any income, profits, and proceeds derived therefrom: (a) the New Class A Common Stock (including any shares of New Class A Common Stock required to be issued by Reorganized Congoleum in accordance with Exhibit E to the Plan) (if the holders of the Senior Note Claims (as a Class) vote to accept the Plan); (b) the New Convertible Security (if the holders of the Senior Note Claims (as a Class) vote to accept the Plan); (c) the Plan Trust Common Stock (if the holders of the Senior Note Claims (as a Class) do not vote to accept the Plan); (d) the Asbestos Insurance Rights; (e) the proceeds of the Asbestos Insurance Settlement Agreements (except for those certain proceeds of the Asbestos Insurance Settlement Agreement with Liberty Mutual Insurance Company, which are dedicated pursuant to the Plan to (i) reimburse the Debtors and/or Reorganized Congoleum for the Coverage Costs and (ii) to fund the $600,000 initial contribution to the GHR/Kenesis Actions Litigation Trust); (f) the proceeds of the Asbestos In-Place Insurance Coverage; (g) the proceeds of the Asbestos Insurance Actions; (h) all of the assets held by the Collateral Trust as of the Effective Date; (i) the proceeds of the Asbestos Insurance Action Recoveries; (j) the ABI Contribution; (k) Plan Trust Bankruptcy Causes of Action including, without limitation, the Avoidance Actions, to the extent not already adjudicated prior to the Effective Date and to the extent not compromised or 17 EXHIBIT A TO THE DISCLOSURE STATEMENT settled under the Plan; (l) other Causes of Action, other than Bankruptcy Causes of Action, related to Plan Trust Asbestos Claims and Plan Trust Assets to the extent not compromised or settled under the Plan, including, without limitation, the right to void any Asbestos Claim of a Qualified Pre-Petition Settlement Claimant or of a Qualified Participating Claimant whether because of failure to comply with the requirements of any applicable settlement agreement (including, without limitation, the Claimant Agreement) or because such Claim was not submitted in good faith or otherwise and including the right to pursue such Causes of Action, if any, in the name of any Debtor, if necessary; (m) the Plan Trust Note; (n) the rights granted to the Plan Trust pursuant to the Insurance Assignment Agreement; and (o) the Asbestos Property Damage Insurance Rights. "Plan Trust Bankruptcy Causes of Action" means all Causes of Action arising under the Bankruptcy Code, including any avoidance or recovery actions under sections 544, 545, 547, 548, 549, 550, 551 and 553 of the Bankruptcy Code, or under any similar state statutes, which seek recovery of or with respect to any payment by, or transfer of any interest in property of, any of the Debtors (except for any payments made on account of indemnification or reimbursement rights under the Joint Venture Agreement), which payment or transfer was made in respect of any claim, cause of action or other matter which constitutes or relates to a Plan Trust Asbestos Claim, or which would have constituted or related to a Plan Trust Asbestos Claim had such payment or transfer not been made. "Plan Trust Bylaws" means the bylaws as approved by the Plan Trustees, the Trust Advisory Committee and the Futures Representative, effective as of the Effective Date, as may be modified from time to time with the consent and approval of the Plan Trustees, the Trust Advisory Committee and the Futures Representative. "Plan Trust Common Stock" means the Reserved Common Stock to be allocated, pursuant to a Final Order of the Bankruptcy Court, to the Plan Trust in the event that the Senior Note Claims (as a Class) do not vote to accept the Plan. "Plan Trust Disputed Claim" means any Asbestos Claim of a Participating Claimant or a Pre-Petition Settlement Claimant who is either (a) a party to either of the Avoidance Actions or (b) may be joined as a party to either of the Avoidance Actions. "Plan Trust Documents" means the Plan Trust Agreement, the Plan Trust Bylaws, the TDP and the other agreements, instruments and documents governing the establishment, administration and operation of the Plan Trust, as amended or modified from time to time in accordance with the Plan and such documents. "Plan Trust Expenses" means any of the Asbestos Expenses and any other liabilities, costs or expenses of, or imposed upon, assumed by, or in respect of the Trusts (except for payments to holders of Asbestos Claims on account of such Asbestos Claims). "Plan Trust Note" means the promissory note due December 31, 2011 in the form attached hereto as Exhibit K, which shall be issued by Reorganized Congoleum to the Plan Trust as of the Effective Date with a principal amount in an amount so as to provide Reorganized Congoleum with $18,000,000 of total liquidity, as of December 31, 2006, when combined with cash on hand and available drawings under the Amended Credit Agreement or any other working capital exit facility entered into by the Reorganized Debtors, provided that such Amended Credit Agreement or other working capital facility is on terms 18 EXHIBIT A TO THE DISCLOSURE STATEMENT similar to the Existing Credit Agreement (except that the Amended Credit Agreement or other working capital exit facility may be modified to provide for a lien or security interest in real estate and any other collateral securing the New Senior Notes). If the Effective Date occurs after December 31, 2006, the total liquidity required by Reorganized Congoleum and thus, the principal amount of the Plan Trust Note, will be as mutually agreed by the Reorganized Debtors, the Asbestos Claimants' Committee, the Futures Representative and the Claimants' Representative, each acting in its sole discretion. The principal amount of Plan Trust Note, which is subject to review and approval by the Asbestos Claimants' Committee and Futures Representative, will not exceed $14,000,000; provided however, that the Asbestos Claimants' Committee and the Futures Representative may agree to increase such principal amount. Except for a lien on or security interest in distributions from the GHR/Kenesis Litigation Trust (after payment of fees and reimbursement of expenses of the GHR/Kenesis Litigation Trust) the Plan Trust Note shall not be secured by any other liens, security interests or collateral and the Plan Trust Note shall be contractually subordinate in priority and right of payment to the New Senior Notes provided, however, that in the absence of a default under the New Indenture, payments due under the Plan Trust Note shall be made in the ordinary course in accordance with its terms. "Plan Trustees" means the Persons appointed pursuant to Article VI of the Plan and the Plan Trust Agreement for the purpose of acting as Trustee(s) of the Plan Trust in accordance with the terms and conditions contained in the Plan, the Plan Trust Agreement and the Confirmation Order. "Pledge Agreement" means that certain Pledge Agreement, effective as of the Effective Date, substantially in the form annexed hereto as Exhibit "L," as it may be amended from time to time in accordance with the terms thereof. "Postpetition Interest" means interest accruing on and after the Petition Date on a Claim. "Pre-Petition Asbestos Claimants' Committee" means the unofficial pre-petition committee of representatives of holders of present Asbestos Personal Injury Claims, solely in its capacity as such, which committee consisted of the following representatives of the holders of present Asbestos Personal Injury Claims: Perry Weitz, Esquire, Joseph Rice, Esquire, Steven Kazan, Esquire, Russell Budd, Esquire, Bryan Blevins, Esquire, John Cooney, Esquire and Matt Bergmann, Esquire. "Pre-Petition Settlement Agreement" means a settlement agreement, other than the Claimant Agreement, executed prior to the Petition Date to resolve an Asbestos Personal Injury Claim under which some or all of the consideration due has yet to be paid. "Pre-Petition Settlement Claimant" means a holder of an Asbestos Personal Injury Claim who is a party to a Pre-Petition Settlement Agreement. "Previously Determined Unsecured Asbestos Personal Injury Claim" means the unsecured portion of the liquidated claim of a Participating Claimant (as described in the Claimant Agreement). 19 EXHIBIT A TO THE DISCLOSURE STATEMENT "Priority Claim" means any Claim (other than an Administrative Claim or a Priority Tax Claim) to the extent such Claim is entitled to a priority in payment under section 507(a) of the Bankruptcy Code. "Priority Tax Claim" means any Claim to the extent that such Claim is entitled to a priority in payment under section 507(a)(8) of the Bankruptcy Code. "Professional Fee Claim" means a Claim of a professional retained in the Reorganization Cases pursuant to sections 327, 328, 330, 331, 503(b) and 1103 of the Bankruptcy Code, or otherwise, including (i) such Claims of the Futures Representative and its professionals, for compensation or reimbursement of costs and expenses relating to services rendered on and after the Petition Date and prior to and including the Effective Date, and (ii) Claims under section 503(b)(3), (4) or (5) of the Bankruptcy Code. "Proof of Claim" means any proof of claim filed with the Bankruptcy Court or its duly appointed claims agent with respect to the Debtors pursuant to Bankruptcy Rule 3001 or 3002. "Pro Rata" means with reference to any distribution on account of any Claim or Interest in any Class, the proportion that the amount of such Claim or Interest bears to the aggregate amount of all Claims (including Disputed Claims but excluding Disallowed Claims) or Interests (including disputed Interests, but excluding Disallowed Interests) in such Class. "Protected Party" means any of the following parties: (a) the Released Parties; (b) any Entity that, pursuant to the Plan or after the Confirmation Date, becomes a direct or indirect transferee of, or successor to, the Plan Trust or the Reorganized Debtors; (c) ABI, the ABI Parties and Wachovia in its capacity as Lender under the Existing Credit Agreement to the fullest extent permitted by section 524(g)(4) of the Bankruptcy Code; (d) the Persons designated on Exhibit "F" (as such Exhibit may be amended on or before the Confirmation Date) as current distributors of the product lines currently manufactured, sold or otherwise produced by Congoleum; or (e) each Settling Asbestos Insurance Company. "Qualified Claimant" means any Pre-Petition Settlement Claimant or Participating Claimant entitled to receive payment from the Collateral Trust pursuant to the provisions of the Collateral Trust Agreement. "Qualified Participating Claimant" means any Participating Claimant who is a Qualified Claimant. "Qualified Pre-Petition Settlement Claimant" means any Pre-Petition Settlement Claimant who is a Qualified Claimant. 20 EXHIBIT A TO THE DISCLOSURE STATEMENT "Reinstated" or "Reinstatement" means (a) leaving unaltered the legal, equitable, and contractual rights to which a Claim or Interest entitles the holder of such Claim or Interest so as to leave such Claim or Interest Unimpaired or (b) notwithstanding any contractual provision or applicable law that entitles the holder of such Claim or Interest to demand or receive accelerated payment of such Claim or Interest after the occurrence of a default, (i) curing any such default that occurred before or after the Petition Date, other than a default of a kind specified in section 365(b)(2) of the Bankruptcy Code; (ii) reinstating the maturity of such Claim or Interest as such maturity existed before such default; and (iii) compensating the holder of such Claim or Interest for any damages incurred as a result of any legal, equitable or contractual rights to which such Claim or Interest entitles the holder of such Claim or Interest. "Released Non-Debtor Parties" means (a) the Futures Representative and his Representatives, (b) the Asbestos Claimants' Committee and its Representatives, (c) the Bondholders' Committee and its Representatives, and (d) the Additional Indemnitees. "Released Parties" means each of the Debtors, the Reorganized Debtors, their respective Representatives and the Released Non-Debtor Parties. "Reorganization Cases" means the cases filed by the Debtors under Chapter 11 of the Bankruptcy Code. "Reorganized Congoleum" means reorganized Congoleum on and after the Effective Date. "Reorganized Debtors" means the reorganized Debtors on and after the Effective Date. "Representatives" means, with respect to any Entity, the present and former directors, officers, members, employees, trustees, accountants (including independent certified public accountants), advisors, attorneys, consultants, experts or other agents of that Entity, or any other professionals of that Entity, in each case in their capacity as such; provided, however, that in no event shall "Representatives" mean Gilbert Heintz & Randolph LLP or Kenesis Group, LLP. "Reserved Common Stock" means 100% of the equity interests of Reorganized Congoleum to be allocated by a Final Order of the Bankruptcy Court between the holders of the Senior Note Claims and the Plan Trust in the event that the holders of the Senior Note Claims (as a Class) do not vote to accept the Plan. "Reset Date" means, with respect to the New Convertible Security, either (i) the First Indicated Date or (ii) the Second Indicated Date, as selected by the Plan Trust, provided that, if the Plan Trust does not select the First Indicated Date in the time period set forth in the New Convertible Security, then the Reset Date shall be the Second Indicated Date. "Schedules" means the schedules, statements and lists filed by the Debtors with the Bankruptcy Court pursuant to Bankruptcy Rule 1007, if such documents are filed, as they have been and may be amended or supplemented from time to time. "Sealed Avoidance Action" means that certain Adversary Proceeding No. 05-06461 (KCF), as it may be amended, which was filed under seal in the Bankruptcy Court on behalf of the Debtors on December 29, 2005, against (a) 21 EXHIBIT A TO THE DISCLOSURE STATEMENT Arthur J. Pergament, in his capacity as Collateral Trustee; (b) Joseph F. Rice and the law firm of Motley Rice LLC; (c) Perry Weitz and the law firm of Weitz & Luxenberg, P.C.; and (d) all holders of Asbestos Personal Injury Claims in Classes 2, 3 and 11 that are Pre-Petition Settlement Claimants or Participating Claimants. "Second Indicated Date" means the 90th Trading Day after the second anniversary of the Effective Date. "Secured Asbestos Claim" means: (a) an Asbestos Personal Injury Claim held by a Qualified Claimant to the extent that such Asbestos Personal Injury Claim is secured according to the provisions of the Collateral Trust Agreement; and (b) the Claims Handling Fee. "Secured Claim" means any Claim that is (a) secured in whole or part, as of the Petition Date, by a Lien which is valid, perfected and enforceable under applicable law and is not subject to avoidance under the Bankruptcy Code or applicable non-bankruptcy law, or (b) subject to setoff under section 553 of the Bankruptcy Code, but, with respect to both (a) and (b) above, only to the extent of the value, net of any senior lien, of the Estates' interest in the assets or property securing any such Claim or the amount subject to setoff, as the case may be. "Security Agreement" means that certain Superseding Security Agreement entered into by Congoleum and the Collateral Trustee, dated June 11, 2003, as the same may be amended from time to time. "Senior Note Claim" means any Claim of a holder of Senior Notes based upon the Senior Notes. "Senior Notes" means the 8.625% Senior Notes Due 2008 issued by Congoleum and outstanding as of the Petition Date. "Settling Asbestos Insurance Company" means any Asbestos Insurance Company that has, before the conclusion of the Confirmation Hearing before the United States Bankruptcy Court for the District of New Jersey, entered into an Asbestos Insurance Settlement Agreement that is sufficiently comprehensive in the determination of the Debtors to warrant treatment under section 524(g) of the Bankruptcy Code, which determination by the Debtors will be indicated by the inclusion of such Asbestos Insurance Company on a schedule of Settling Asbestos Insurance Companies filed by the Debtors with such United States Bankruptcy Court before the conclusion of the Confirmation Hearing before such United States Bankruptcy Court and approved by such United States Bankruptcy Court. "Subsidiary Debtors" means, collectively, Congoleum Sales, Inc. and Congoleum Fiscal, Inc. "Subsidiary Interests" means, collectively, the issued and outstanding shares of stock of the Subsidiary Debtors as of the Petition Date and any options, warrants or other contractual rights to acquire any shares of stock of the Subsidiary Debtors as of the Petition Date. "Substantial Contribution Claim" shall have the meaning ascribed thereto in Section 4.3 of the Plan. 22 EXHIBIT A TO THE DISCLOSURE STATEMENT "TDP" means the trust distribution procedures for the Plan Trust, substantially in the form attached as Exhibit "G" to the Plan, as it may be modified from time to time in accordance with the terms of the TDP and the Plan Trust Agreement. "Trading Day" means a day on which the principal national securities exchange on which the shares of Reorganized Congoleum's common stock are listed or admitted to trading is open for the transaction of business or, if the shares of common stock are not listed or admitted to trading on any national securities exchange, a Business Day. "Trust Advisory Committee" or "TAC" means a Trust Advisory Committee to be formed to represent all holders of Asbestos Personal Injury Claims to advise the Plan Trustees and to approve and consent to certain actions as specified herein and in the Plan Trust Agreement, solely in its capacity as such. "Trusts" means the Plan Trust and the Collateral Trust, collectively. "United States Trustee" means the Office of the United States Trustee for Region 3. "Unimpaired" means, with reference to a Claim or Interest, unimpaired within the meaning of section 1124 of the Bankruptcy Code. "Unknown Asbestos Claim" means any Asbestos Personal Injury Claim that, after the Confirmation Date, may be asserted in the future, so long as such Asbestos Personal Injury Claim has not been previously asserted. "Unknown Asbestos Claimant" means any Person that, after the Confirmation Date, may in the future assert an Unknown Asbestos Claim. "Unsecured Asbestos Personal Injury Claim" means any Asbestos Personal Injury Claim other than a Secured Asbestos Claim. Unsecured Asbestos Personal Injury Claims consist of Not Previously Determined Unsecured Asbestos Personal Injury Claims and Previously Determined Unsecured Asbestos Personal Injury Claims. "Unsecured Claim" means any Claim against any Debtor arising prior to the Petition Date (regardless of whether such Claim is covered by insurance) to the extent that such Claim is neither secured nor entitled to priority under the Bankruptcy Code or by a Final Order of the Bankruptcy Court, including, but not limited to: (a) any Claim arising from the rejection of an executory contract or unexpired lease under section 365 of the Bankruptcy Code, and (b) any portion of a Claim to the extent the value of the holder's interest in the applicable Estate's interest in the property securing such Claim is less than the amount of the Claim, or to the extent that the amount of the Claim subject to setoff is less than the amount of the Claim, as determined pursuant to section 506(a) of the Bankruptcy Code. "Voting Agent" means Logan & Company, Inc. "Wachovia" shall have the meaning ascribed to such term in Section 5.1(d). "Workers' Compensation Claim" means any Claim (a) for benefits under a state-mandated workers' compensation system, that a past, present, or future employee of the Debtors and their predecessors is receiving, or may in the 23 EXHIBIT A TO THE DISCLOSURE STATEMENT future have a right to receive, and/or (b) for reimbursement brought by any insurance company as a result of payments made to or for the benefit of such employees and fees and expenses incurred under any insurance policies covering such employee claims. 1.3 Rules of Interpretation: Application of Definitions, Rules of Construction, and Computation of Time. Wherever from the context it appears appropriate, each term stated in either 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 neuter. For purposes of the Plan: (a) any reference in the Plan to a contract, instrument, release, indenture, or other agreement or document being in a particular form or on particular terms and conditions means that the document shall be substantially in that form or substantially on those terms and conditions; (b) any reference in the Plan to an existing document or exhibit filed or to be filed means the document or exhibit as it may have been or may be amended, modified, or supplemented; (c) unless otherwise specified, all references in the Plan to Sections, Schedules, and Exhibits are references to sections, schedules, and exhibits of or to the Plan. Unless otherwise specified, the words "herein," "hereof," "hereto," "hereunder," and other words of similar meaning refer to the Plan as a whole and not to any particular section, subsection, or clause contained in the Plan. The rules of construction contained in section 102 of the Bankruptcy Code shall apply to the construction of the Plan. The headings in the Plan are for convenience of reference only and shall not expand, limit, or otherwise affect the provisions of the Plan. Unless otherwise indicated herein, all references to dollars are to United States dollars. Unless otherwise expressly provided herein, in computing any period of time prescribed or allowed by the Plan, the provisions of Bankruptcy Rule 9006(a) shall apply. 1.4 Exhibits and Schedules. All exhibits and schedules are incorporated into and are a part of the Plan as if set forth in full herein. ARTICLE II COMPROMISES AND SETTLEMENTS OF CLAIMS 2.1 Proposed Settlement Between the Debtors and Qualified Pre-Petition Settlement Claimants. The Plan shall implement a compromise and settlement with respect to the Asbestos Claims of the Qualified Pre-Petition Settlement Claimants if the Class 2 Settlement is approved by the Bankruptcy Court. Pursuant to Bankruptcy Rule 9019 and section 1123(b)(3) of the Bankruptcy Code and consistent with section 1129 of the Bankruptcy Code, the Plan shall constitute a motion for approval of, and the Confirmation Order may authorize and constitute Bankruptcy Court approval of, the Class 2 Settlement. (a) On the Effective Date, pursuant to Bankruptcy Rule 9019 and section 1123(b)(3) of the Bankruptcy Code, in full and final satisfaction of the Secured Asbestos Claims of the Qualified Pre-Petition Settlement Claimants, and for good and valuable consideration including the Qualified Pre-Petition Settlement Claimants' agreement to the treatment specified in the Plan for the Secured Asbestos Claims of the Qualified Pre-Petition Settlement Claimants and the Claims and Interests asserted by other parties in interest, the Class 2 Settlement shall be effectuated in accordance with the following terms if the Class 2 Settlement is approved by the Bankruptcy Court: 24 EXHIBIT A TO THE DISCLOSURE STATEMENT (i) Each Secured Asbestos Claim of a Qualified Pre-Petition Settlement Claimant shall be deemed allowed by the Confirmation Order as undisputed, uncontingent and liquidated in the reduced settlement amount of fifty percent (50%) of the amount agreed under the respective Pre-Petition Settlement Agreement, which reduced amount, without interest, shall be paid by the Plan Trust in accordance with the TDP as soon after the Effective Date as possible. (ii) Each Qualified Pre-Petition Settlement Claimant shall release his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the respective Pre-Petition Settlement Agreements and his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets. (iii) All Causes of Action pending against the Qualified Pre-Petition Settlement Claimants, including the Avoidance Actions, shall be dismissed with prejudice, as against the Qualified Pre-Petition Settlement Claimants except for Causes of Action against any Qualified Pre-Petition Settlement Claimant who asserts a right to hold, exercise or enforce any lien, security interest or payment priority under any Pre-Petition Settlement Agreement or any right to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets if it is determined that such Causes of Action have not been resolved by the Plan, the Class 2 Settlement, the Confirmation Order or otherwise (which excepted Causes of Action shall continue and shall be transferred to the Plan Trust). (iv) Other than rights to the treatment provided in Article V of the Plan or as otherwise provided in the Plan or the Plan Documents, on and after the Effective Date, each Qualified Pre-Petition Settlement Asbestos Claimant shall be deemed to have unconditionally released the Reorganized Debtors, the Released Non-Debtor Parties, the Pre-Petition Asbestos Claimants' Committee, the Asbestos Claimants' Committee, the Claimants' Representative and their current and former Representatives from any and all Claims, obligations, rights, suits, damages, causes of action, remedies, and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity, or otherwise, that such Entity would have been legally entitled to assert (whether individually or collectively), based in whole or in part upon any act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date by the Debtors or the Reorganized Debtors, the Reorganization Cases, or the negotiation, formulation, and preparation of the Plan, the Plan Documents or any related agreements, instruments or other documents. For the avoidance of doubt, in no event shall any such party be released in the case of the gross negligence or willful misconduct of such party. (b) In the event that the Class 2 Settlement is not approved by a Final Order of the Bankruptcy Court, agreement by the Qualified Pre-Petition Settlement Claimants and the Debtors to the Class 2 Settlement shall not be deemed an admission or used as evidence by any party, all Causes of Action pending against the Qualified Pre-Petition Settlement Claimants and all defenses thereto shall be fully reserved and transferred to the Plan Trust; and the Bankruptcy Court shall determine the validity and priority of each such Class 2 Secured Asbestos Claim after the Effective Date. 25 EXHIBIT A TO THE DISCLOSURE STATEMENT 2.2 Proposed Settlement Between the Debtors and the Qualified Participating Claimants. The Plan shall implement a compromise and settlement with respect to the Asbestos Claims of the Qualified Participating Claimants if the Class 3 and 11 Settlement is approved by the Bankruptcy Court. Pursuant to Bankruptcy Rule 9019 and section 1123(b)(3) of the Bankruptcy Code and consistent with section 1129 of the Bankruptcy Code, the Plan shall constitute a motion for approval of, and the Confirmation Order may authorize and constitute Bankruptcy Court approval of, the Class 3 and 11 Settlement. (a) On the Effective Date, pursuant to Bankruptcy Rule 9019 and section 1123(b)(3) of the Bankruptcy Code, in full and final satisfaction of the Asbestos Claims of the Qualified Participating Claimants, and for good and valuable consideration including the Qualified Participating Claimants' agreement to the treatment specified in the Plan for the Asbestos Claims of the Qualified Participating Claimants and the Claims and Interests asserted by other parties in interest, the Class 3 and 11 Settlement shall be effectuated in accordance with the following terms if the Class 3 and 11 Settlement is approved by the Bankruptcy Court: (i) Each Asbestos Claim of a Qualified Participating Claimant shall be deemed allowed by the Confirmation Order as undisputed, uncontingent and liquidated in the total and maximum amount of $250, which amount shall be paid by the Plan Trust pari passu with the "Other Asbestos Disease (Level 1 - Cash Discount Payment)" Asbestos Claims in accordance with the TDP as soon after the Effective Date as practicable; provided, however, that each Qualified Participating Claimant may elect to forbear from exercising its right to such $250 amount and any and all rights under the Claimant Agreement, the Collateral Trust Agreement and the Security Agreement, in which case such forbearing Qualified Participating Claimant shall receive the treatment afforded to Class 10 - Not Previously Determined Unsecured Asbestos Personal Injury Claims. (ii) Each Qualified Participating Claimant shall release his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Claimant Agreement and his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets. (iii) All Causes of Action pending against the Qualified Participating Claimants, including the Avoidance Actions, shall be dismissed with prejudice, as against the Qualified Participating Claimants except for Causes of Action against any Qualified Participating Claimant who asserts a right to hold, exercise or enforce any lien, security interest or payment priority under the Claimant Agreement or any right to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets if it is determined that such Causes of Action have not been resolved by the Plan, the Class 3 and 11 Settlement, the Confirmation Order or otherwise (which excepted Causes of Action shall continue and shall be transferred to the Plan Trust). (iv) Other than rights to the treatment provided in Article V of the Plan or as otherwise provided in the Plan or the Plan Documents, on and after the Effective Date, each Qualified Participating Claimant shall be deemed to have unconditionally released the Reorganized Debtors, the Released Non-Debtor Parties, the Pre-Petition Asbestos Claimants' Committee, the Asbestos Claimants' Committee, the Claimants' Representative and their current and former 26 EXHIBIT A TO THE DISCLOSURE STATEMENT Representatives from any and all Claims, obligations, rights, suits, damages, causes of action, remedies, and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity, or otherwise, that such Entity would have been legally entitled to assert (whether individually or collectively), based in whole or in part upon any act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date by the Debtors or the Reorganized Debtors, the Reorganization Cases, or the negotiation, formulation, and preparation of the Plan, the Plan Documents or any related agreements, instruments or other documents. For the avoidance of doubt, in no event shall any such party be released in the case of the gross negligence or willful misconduct of such party. (b) In the event that the Class 3 and 11 Settlement is not approved by a Final Order of the Bankruptcy Court, agreement by the Qualified Participating Claimants and the Debtors to the Class 3 and 11 Settlement shall not be deemed an admission or used as evidence by any party, all Causes of Action pending against the Qualified Participating Claimants and all defenses thereto shall be fully reserved and transferred to the Plan Trust; and the Bankruptcy Court shall determine the validity and priority of each such Class 3 Secured Asbestos Claim and Class 11 Previously Determined Unsecured Asbestos Personal Injury Claim after the Effective Date. ARTICLE III CLASSIFICATION OF CLAIMS AND INTERESTS 3.1 Generally. Pursuant to section 1122 of the Bankruptcy Code, set forth below is a designation of Classes of Claims and Interests. A Claim or Interest is classified in a particular Class only to the extent that the Claim or Interest qualifies within the description of the Class and is classified in a different Class to the extent the Claim or Interest qualifies within the description of that different Class. Solely for voting purposes, Claims against each Estate are classified as Claims against the Estates as a whole. The Plan does not provide for substantive consolidation of the Estates. In accordance with Section 5.3 of the Plan, the structure of the Plan shall not operate to impose liability on any Reorganized Debtor for the Claims against any other Debtor or the debts and obligations of any other Reorganized Debtor. 3.2 Unclassified Claims. In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims, including Substantial Contribution Claims, and Priority Tax Claims are not classified and are excluded from the Classes set forth in Section 3.3 of the Plan. The treatment accorded Administrative Claims, Substantial Contribution Claims and Priority Tax Claims is set forth in Article IV of the Plan. 3.3 Classes. In accordance with section 1122 of the Bankruptcy Code, the following constitute the Classes of Claims against and Interests in the Debtors: (a) Class 1 - Priority Claims. Class 1 consists of all Priority Claims. Class 1 is Unimpaired. (b) Class 2 - Secured Asbestos Claims of Qualified Pre-Petition Settlement Claimants. Class 2 consists of all Secured Asbestos Claims of 27 EXHIBIT A TO THE DISCLOSURE STATEMENT Qualified Pre-Petition Settlement Claimants to the extent secured under the terms of the Collateral Trust Agreement. Class 2 is Impaired. (c) Class 3 - Secured Asbestos Claims of Qualified Participating Claimants. Class 3 consists of all Secured Asbestos Claims of Qualified Participating Claimants to the extent secured under the terms of the Collateral Trust Agreement. Class 3 is Impaired. (d) Class 4 - Lender Secured Claims. Class 4 consists of the Lender Secured Claims. Class 4 is Unimpaired. (e) Class 5 - Other Secured Claims. Class 5 consists of all Other Secured Claims, each of which will be within a separate subclass, with each such subclass to be deemed a separate Class for all purposes. Class 5 is (or these subclasses are) Unimpaired. (f) Class 6 - Senior Note Claims. Class 6 consists of all Senior Note Claims. Class 6 is Impaired. (g) Class 7 - General Unsecured Claims. Class 7 consists of all General Unsecured Claims. Class 7 is Unimpaired. (h) Class 8 - Workers' Compensation Claims. Class 8 consists of all Workers' Compensation Claims. Class 8 is Unimpaired. (i) Class 9 - ABI Claims. Class 9 consists of all ABI Claims. Class 9 is Impaired. (j) Class 10 - Not Previously Determined Unsecured Asbestos Personal Injury Claims. Class 10 consists of all Not Previously Determined Unsecured Asbestos Personal Injury Claims. Class 10 is Impaired. (k) Class 11 - Previously Determined Unsecured Asbestos Personal Injury Claims. Class 11 consists of all Previously Determined Unsecured Asbestos Personal Injury Claims. Class 11 is Impaired. (l) Class 12 - Asbestos Property Damage Claims. Class 12 consists of all Asbestos Property Damage Claims. Class 12 is Impaired. (m) Class 13 - Congoleum Interests. Class 13 consists of all Congoleum Interests. Class 13 is Impaired. (n) Class 14 - Subsidiary Interests. Class 14 consists of all Subsidiary Interests. Class 14 is Unimpaired. 28 EXHIBIT A TO THE DISCLOSURE STATEMENT ARTICLE IV TREATMENT OF ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS 4.1 Administrative Claims. On the Distribution Date, each holder of an Allowed Administrative Claim, except as otherwise provided for herein, and subject to the requirements of Section 14.11 of the Plan, shall receive, in full satisfaction, settlement, release, extinguishment, and discharge of such Allowed Administrative Claim, (a) Cash equal to the unpaid portion of such Allowed Administrative Claim or (b) such different treatment as to which the applicable Debtor and such holder shall have agreed upon in writing; provided, however, that Allowed Administrative Claims representing (i) post-petition liabilities incurred in the ordinary course of business by the Debtors and (ii) post-petition contractual liabilities arising under loans or advances to the Debtors, whether or not incurred in the ordinary course of business, shall be paid by the Reorganized Debtors in accordance with the terms and conditions of the particular transactions relating to such liabilities and any agreements relating thereto. 4.2 Priority Tax Claims. On the Distribution Date, each holder of an Allowed Priority Tax Claim shall receive, in full satisfaction, settlement, release, and discharge of and in exchange for such Allowed Priority Tax Claim, (a) Cash equal to the unpaid portion of such Allowed Priority Tax Claim, (b) such different treatment as to which the applicable Debtor and such holder shall have agreed upon in writing, or (c) at the Reorganized Debtors' sole discretion, deferred Cash payments having a value, as of the Effective Date, equal to such Allowed Priority Tax Claim, over a period not exceeding six (6) years after the date of assessment of such Allowed Priority Tax Claim. 4.3 Substantial Contribution Claims. Any Entity who requests compensation or expense reimbursement for making a substantial contribution in the Reorganization Cases pursuant to sections 503(b)(3), (4) and (5) of the Bankruptcy Code ("Substantial Contribution Claim") must file an application with the clerk of the Bankruptcy Court on or before a date that is sixty (60) days subsequent to the Confirmation Date and serve such application on counsel for the Debtors, counsel for the Bondholders' Committee, counsel for the Futures Representative and counsel for the Asbestos Claimants' Committee and on all other parties as otherwise required by the Bankruptcy Court and the Bankruptcy Code, or be forever barred from seeking such compensation or expense reimbursement. All Allowed Substantial Contribution Claims shall be paid by the Reorganized Debtors within sixty (60) days of allowance by the Bankruptcy Court. ARTICLE V TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS 5.1 Claims and Interests. (a) Class 1 - Priority Claims. On the Distribution Date, each holder of an Allowed Priority Claim shall receive, in full satisfaction, settlement, release, and discharge of and in exchange for such Allowed Priority Claim, either (i) the Allowed Amount of its Priority Claim, in Cash, or (ii) such 29 EXHIBIT A TO THE DISCLOSURE STATEMENT different treatment as may be agreed to by such holder and the Reorganized Debtors. Class 1 Claims are Unimpaired and the holders of Class 1 Claims are deemed to have accepted the Plan and, accordingly, are not entitled to vote on the Plan. (b) Class 2 - Secured Asbestos Claims of Qualified Pre-Petition Settlement Claimants. As of the Effective Date, all liability for all Secured Asbestos Claims of Qualified Pre-Petition Settlement Claimants shall be assumed, automatically and without further act or deed, by the Plan Trust and the Reorganized Debtors shall have no liability therefor. Each such Qualified Pre-Petition Settlement Claimant will, in respect of its Secured Asbestos Claim (except to the extent that such Claim has been expunged), be paid by the Plan Trust, in full satisfaction, settlement, release, and discharge of and in exchange for such Claim, in Cash in accordance with the provisions of the Plan Documents. Effective as of the Effective Date and subject to entry of a Final Order of the Bankruptcy Court approving the Class 2 Settlement, each Qualified Pre-Petition Settlement Claimant shall have irrevocably consented or be deemed to have irrevocably consented to (i) release his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the respective Pre-Petition Settlement Agreements and his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to Plan Trust Assets; and (ii) reduce the amount of its Secured Asbestos Claim to 50% of the amount agreed under the respective Pre-Petition Settlement Agreement, which reduced amount shall be paid by the Plan Trust in accordance with the TDP as soon after the Effective Date as practicable. In exchange therefor, all Causes of Action pending against the Qualified Pre-Petition Settlement Claimants shall be dismissed with prejudice, except for Causes of Action against any Qualified Pre-Petition Settlement Claimant who asserts a right to hold, exercise or enforce any lien, security interest or payment priority under any Pre-Petition Settlement Agreement or any right to hold or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets if it is determined that such Causes of Action have not been resolved by the Plan, the Class 2 Settlement, the Confirmation Order or otherwise (which excepted Causes of Action shall continue and shall be transferred to the Plan Trust). In the event that the Class 2 Settlement is not approved by a Final Order of the Bankruptcy Court, agreement by the Qualified Pre-Petition Settlement Claimants and the Debtors to the Class 2 Settlement shall not be deemed an admission or used as evidence by any party, all Causes of Action pending against the Qualified Pre-Petition Settlement Claimants and all defenses thereto shall be fully reserved and the Bankruptcy Court shall determine and allow or disallow the amount and priority of each such Class 2 Secured Asbestos Claim after the Effective Date. Class 2 is Impaired and holders of Class 2 Claims are entitled to vote to accept or reject the Plan. (c) Class 3 - Secured Asbestos Claims of Qualified Participating Claimants. As of the Effective Date, all liability for all Secured Asbestos Claims of Qualified Participating Claimants shall be assumed, automatically and without further act or deed, by the Plan Trust and the Reorganized Debtors shall have no liability therefor. Each such Qualified Participating Claimant will, in respect of its Secured Asbestos Claim (except to the extent that such Claim has been expunged), be paid by the Plan Trust, in full satisfaction, settlement, release, and discharge of and in exchange for such Claim, in Cash in accordance with the provisions of the Plan Documents. 30 EXHIBIT A TO THE DISCLOSURE STATEMENT Effective as of the Effective Date and subject to entry of a Final Order of the Bankruptcy Court approving the Class 3 and 11 Settlement, each Qualified Participating Claimant shall have irrevocably consented or be deemed to have irrevocably consented to (i) release his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Claimant Agreement and his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets; and (ii) reduce the amount of its entire Asbestos Claim to the total and maximum amount of $250, which amount shall be paid by the Plan Trust pari passu with the "Other Asbestos Disease (Level 1 - Cash Discount Payment)" Asbestos Claims in accordance with the TDP as soon after the Effective Date as practicable; provided, however, that each such Qualified Participating Claimant may elect to irrevocably consent to the Forbearance of his, her or its right to (x) such $250 amount and (y) any and all rights under the Claimant Agreement, the Collateral Trust Agreement and the Security Agreement, in which case such forbearing Qualified Participating Claimant shall receive the treatment afforded to Class 10 - Not Previously Determined Unsecured Asbestos Personal Injury Claims on account of its Class 3 and Class 11 Asbestos Personal Injury Claim. In exchange therefor, all Causes of Action pending against the Qualified Participating Claimants shall be dismissed with prejudice, except for Causes of Action against any Qualified Participating Claimant who asserts a right to hold, exercise or enforce any lien, security interest or payment priority under the Claimant Agreement or any right to hold or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets if it is determined that such Causes of Action have not been resolved by the Plan, the Class 3 and 11 Settlement, the Confirmation Order or otherwise (which excepted Causes of Action shall continue and shall be transferred to the Plan Trust). In the event that the Class 3 and 11 Settlement is not approved by a Final Order of the Bankruptcy Court, agreement by the Qualified Participating Claimants and the Debtors to the Class 3 and 11 Settlement shall not be deemed an admission or used as evidence by any party, all Causes of Action pending against the Qualified Participating Claimants and all defenses thereto shall be fully reserved and the Bankruptcy Court shall determine and allow or disallow the amount and priority of each such Class 3 Secured Asbestos Claim after the Effective Date. Class 3 is Impaired and holders of Class 3 Claims are entitled to vote to accept or reject the Plan. (d) Class 4 - Lender Secured Claims. On the Effective Date, the Existing Credit Agreement, as ratified, amended and approved in accordance with the Financing Order (as hereinafter defined), will be amended and restated in accordance with the terms of the Amended Credit Agreement and the holder of the Allowed Lender Secured Claim shall be entitled to all the rights and benefits under the Amended Credit Agreement and related documents. The Amended Credit Agreement will be on terms and conditions similar to the Existing Credit Agreement (except that the Amended Credit Agreement may be modified to provide for a lien on or security interest in real estate and any other collateral securing the New Senior Notes) and mutually acceptable to the Debtors and Wachovia Bank, National Association, successor by merger to Congress Financial Corporation ("Wachovia"). Alternatively, if, as of the Confirmation Hearing, the Debtors and the holder of the Lender Secured Claim have not agreed upon the terms of the Amended Credit Agreement, the Lender Secured Claim shall be paid in full indefeasibly on the Effective Date or as soon thereafter as practicable and 31 EXHIBIT A TO THE DISCLOSURE STATEMENT Wachovia shall be released from any and all liabilities and causes of action in accordance with the Final Order (1) Authorizing Debtors' Use of Cash Collateral, (2) Authorizing Debtors to Obtain Post-Petition Financing, (3) Granting Senior Liens and Priority Administrative Expense Status Pursuant to 11 U.S.C. ss.ss.105 and 364(c), (4) Modifying the Automatic Stay Pursuant to 11 U.S.C. ss.362, and (5) Authorizing Debtors to Enter into Agreements with Congress Financial Corporation [docket no. 435](the "Financing Order"). Nothing herein requires that Wachovia permit the use of collateral, including cash collateral, or finance the Debtors after Confirmation other than with Wachovia's prior written consent. Class 4 is Unimpaired and the holder of the Class 4 Claim is deemed to have accepted the Plan and, accordingly, is not required to vote on the Plan. Notwithstanding anything to the contrary contained in the Plan, the Confirmation Order, or otherwise, the Obligations under and as defined in the Existing Credit Agreement (as the same has heretofore been or may hereafter be amended, modified, ratified, restated, extended, renewed or replaced) and all the rights, claims, liens and priorities and other protections provided to Wachovia shall survive the Confirmation Date and continue in full force and effect in accordance with the terms and conditions of the Financing Order and the Existing Credit Agreement. (e) Class 5 - Other Secured Claims. Each holder of an Allowed Other Secured Claim shall retain unaltered the legal, equitable and contractual rights (including, but not limited to, any Liens that secure such Claim) to which such Claim entitles such holder and such Allowed Other Secured Claim shall be Reinstated on the Effective Date. Class 5 is Unimpaired and the holders of Class 5 Claims are deemed to have accepted the Plan and, accordingly, are not entitled to vote on the Plan. (f) Class 6 - Senior Note Claims. On the Effective Date, provided that the holders of the Senior Note Claims (as a Class) vote to accept the Plan by the requisite number and amount required by the Bankruptcy Code, the Senior Notes shall be cancelled and Reorganized Congoleum shall issue the New Senior Notes. In the event that the AIG Contingencies and Conditions are satisfied, the Additional Bondholder Recovery shall be immediately paid to holders of the Senior Note Claims once the Plan Trust has received or obtained the lesser of (i) $77.1 million in aggregate Cash and (ii) the aggregate amount in Cash of the sum of (x) $5 million and (y) the Plan Trust's liability (including the amounts, if any, held in reserve by the Plan Trust pursuant to Section 3.2 of the Plan Trust Agreement) on account of the Asbestos Personal Injury Claims of Qualified Claimants, Allowed Asbestos Property Damage Claims, the Plan Trust Note, Plan Trust Expenses in the amount of $[___] and the initial contribution of $600,000 to the GHR/Kenesis Litigation Trust. The New Senior Notes shall be secured by a lien on or security interest in all of the Reorganized Debtors' assets (subject to the limitations contained in the New Indenture, and excluding the GHR/Kenesis Actions and any Causes of Action against any Bankruptcy Professionals), which security shall be subordinate in priority only to the security for the Amended Credit Agreement or any other working capital exit facility entered into by the Reorganized Debtors, provided that such Amended Credit Agreement or other working capital exit facility contains terms similar to the Existing Credit Agreement (except that the Amended Credit Agreement or other working capital exit facility may be modified to provide for a lien on or security interest in real estate and any other collateral securing the New Senior Notes). The liens securing the New Senior Notes shall not be pari passu with any other liens or security interests. The New Senior Notes shall be guaranteed by each of the Reorganized Debtors. The New Senior Notes shall be contractually senior in priority and right of payment to amounts due under the New Convertible Security and the Plan Trust Note; provided, however, that in the absence of a default under the New Indenture, payments due under the Plan Trust Note and the New Convertible Security shall be made in the ordinary course in accordance with their respective contractual terms. 32 EXHIBIT A TO THE DISCLOSURE STATEMENT In the event that the holders of the Senior Note Claims (as a Class) do not vote to accept the Plan and the treatment afforded hereinabove by the requisite number and amount required by the Bankruptcy Code, then the Senior Notes shall be cancelled and the Senior Note Claims shall receive their pro rata share of the Reserved Common Stock with the Plan Trust, as determined by a Final Order of the Bankruptcy Court (the "Allocation Proceeding"). The initial hearing on any Allocation Proceeding shall not occur until at least 45 days after the balloting report of the Voting Agent is filed with the Bankruptcy Court. In no event shall any distribution to the holders of the Senior Note Claims provided for herein be on account of any accrued and unpaid interest on account of the Senior Notes nor shall the holders of the Senior Note Claims have any right to any Asbestos Insurance Rights, Asbestos Insurance Action Recoveries, the GHR/Kenesis Actions or any Causes of Action against any Bankruptcy Professional. Class 6 is Impaired and holders of Class 6 Claims are entitled to vote to accept or reject the Plan. (g) Class 7 - General Unsecured Claims. Each holder of an Allowed General Unsecured Claim shall retain unaltered the legal, equitable and contractual rights to which such Claim entitles such holder and such Allowed General Unsecured Claim shall be Reinstated on the Effective Date. Class 7 is Unimpaired and the holders of Class 7 Claims are deemed to have accepted the Plan and, accordingly, are not entitled to vote on the Plan. (h) Class 8 - Workers' Compensation Claims. Each holder of an Allowed Workers' Compensation Claim shall be paid in the ordinary course pursuant to such rights that exist under any state workers' compensation system or laws applicable to such Claims. Class 8 is Unimpaired and the holders of Class 8 Claims are deemed to have accepted the Plan and, accordingly, are not entitled to vote on the Plan. (i) Class 9 - ABI Claims. On the Effective Date, the ABI Claims shall receive the following treatment: (i) all ABI Asbestos Personal Injury Indemnity Claims, ABI Asbestos Property Damage Indemnity Claims and ABI Asbestos Claims shall be deemed Disallowed and expunged; and (ii) all ABI Claims (other than ABI Asbestos Personal Injury Indemnity Claims, ABI Asbestos Property Damage Indemnity Claims and ABI Asbestos Claims) shall be Reinstated, and shall be payable by, and enforceable obligations of, the Reorganized Debtors. Class 9 is Impaired and the holder of the Class 9 Claims is entitled to vote to accept or reject the Plan. Notwithstanding anything in the Plan, the holder of the Class 9 Claims shall not be required to file a Proof of Claim. 33 EXHIBIT A TO THE DISCLOSURE STATEMENT (j) Class 10 - Not Previously Determined Unsecured Asbestos Personal Injury Claims. As of the Effective Date, all liability for all Not Previously Determined Unsecured Asbestos Personal Injury Claims as well as liability for all future Demands and Unknown Asbestos Claims shall be assumed, automatically and without further act or deed, by the Plan Trust and the Reorganized Debtors shall have no liability therefor. Each Not Previously Determined Unsecured Asbestos Personal Injury Claim, future Demand and Unknown Asbestos Claim shall be determined, liquidated and treated pursuant to the Plan Trust Agreement and the TDP. The TDP shall apply to all holders of Not Previously Determined Unsecured Asbestos Personal Injury Claims, Unknown Asbestos Claims and Demands, including any such holder who elects to resort to the legal system and obtains a judgment for money damages. Class 10 is Impaired and holders of Class 10 Claims are entitled to vote to accept or reject the Plan. (k) Class 11 - Previously Determined Unsecured Asbestos Personal Injury Claims. As of the Effective Date, all liability for all Previously Determined Unsecured Asbestos Personal Injury Claims shall be deemed satisfied in their entirety and shall not receive any additional payment or consideration under the Plan other than as provided in Section 5.1(c) of the Plan and the Class 3 and 11 Settlement Agreement. Class 11 is Impaired and holders of Class 11 Claims are entitled to vote to accept or reject the Plan. (l) Class 12 - Asbestos Property Damage Claims. As of the Effective Date, all liability for all Allowed Asbestos Property Damage Claims shall be assumed, automatically and without further act or deed, by the Plan Trust and the Reorganized Debtors shall have no liability therefor. Each Allowed Asbestos Property Damage Claim shall be paid solely from the Asbestos Property Damage Claim Sub-Account on account of the unpaid Allowed Amount of such Claim pursuant to the Plan Trust Agreement. After the assets in the Asbestos Property Damage Claim Sub-Account have been exhausted, the Plan Trust shall have no further liability or obligation for or in respect of any Asbestos Property Damage Claims. All Asbestos Property Damage Claims as to which a Proof of Claim was not filed prior to the expiration of the Asbestos Property Damage Claim Bar Date shall be deemed Disallowed. Class 12 Claims are Impaired and the holders of Class 12 Claims are entitled to vote to accept or reject the Plan. (m) Class 13 - Congoleum Interests. On the Effective Date, in the event that the holders of the Senior Note Claims (Class 6) vote to accept the Plan by the requisite number and amount required by the Bankruptcy Code, the holders of the Congoleum Interests shall retain such Interests; provided, however, on the Effective Date, the New Class A Common Stock and the New Convertible Security, which shall be contributed to the Plan Trust, shall be issued. In the event that the holders of the Senior Note Claims do not vote to accept the Plan by the requisite number and amount required by the Bankruptcy Code, the Congoleum Interests shall be cancelled, the holders of the Congoleum Interests shall retain nothing on account of such Interests and the Reserved Common Stock shall be issued and held in escrow pending allocation of the Reserved Common Stock between the Plan Trust and the Senior Note Claims by a Final Order of the Bankruptcy Court. Class 13 is Impaired and the holders of Class 13 Congoleum Interests are entitled to vote to accept or reject the Plan. (n) Class 14 - Subsidiary Interests. On the Effective Date, the holder of the Subsidiary Interests shall retain such Subsidiary Interests. Class 14 is Unimpaired and the holder of Class 14 Subsidiary Interests is deemed to have accepted the Plan, and accordingly, is not entitled to vote on the Plan. 34 EXHIBIT A TO THE DISCLOSURE STATEMENT 5.2 Reservation of Rights Regarding Claims. Except as otherwise explicitly provided in the Plan, nothing shall affect the Debtors' or the Reorganized Debtors' rights and defenses, both legal and equitable, with respect to any Claims, including, but not limited to, all rights with respect to legal and equitable defenses to alleged rights of setoff or recoupment. Except as otherwise explicitly provided in the Plan, nothing shall affect any of the Plan Trust's rights and defenses, both legal and equitable, with respect to any Asbestos Claims, including, but not limited to, all rights with respect to legal and equitable defenses to alleged rights of setoff or recoupment. 5.3 Separate Liabilities of Reorganized Debtors. The structure of the Plan shall not operate to impose liability on any Reorganized Debtor for the Claims against any other Debtor or the debts and obligations of any other Reorganized Debtor. After the Effective Date, each Reorganized Debtor shall be separately liable for its post-Confirmation debts and obligations. ARTICLE VI IMPLEMENTATION OF THE PLAN 6.1 The Plan Trust and the GHR/Kenesis Litigation Trust. (a) Establishment and Purpose of the Plan Trust. On the Effective Date, the Plan Trust shall be established in accordance with the Plan Trust Agreement. The Plan Trust shall be a "qualified settlement fund" within the meaning of section 468B of the IRC and the Treasury Regulations promulgated thereunder. The purpose of the Plan Trust shall be to, among other things: (i) pay all Plan Trust Asbestos Claims in accordance with the Plan, the Plan Trust Agreement, the TDP and the Confirmation Order; (ii) preserve, hold, manage, and maximize the Plan Trust Assets for use in paying and satisfying Plan Trust Asbestos Claims in accordance with the Plan Trust Agreement and the TDP; (iii) prosecute, settle and manage the disposition of the Asbestos In-Place Insurance Coverage; and (iv) prosecute, settle, and manage Asbestos Insurance Actions and Direct Actions. (b) Funding and Receipt of Plan Trust Assets. On the Effective Date, Reorganized Congoleum shall issue the New Class A Common Stock (including any shares of New Class A Common Stock required to be issued by Reorganized Congoleum in accordance with Exhibit E to the Plan), the Plan Trust Note and the New Convertible Security (in the event that the Senior Note Claims (as a Class) vote to accept the Plan) or the Reserved Common Stock (in the event that the Senior Note Claims (as a Class) do not vote to accept the Plan) to be issued to the Plan Trust in accordance with the Plan. Reorganized Congoleum shall issue any additional shares of New Class A Common Stock required to be issued in accordance with Exhibit E to the Plan and shall otherwise comply with Exhibit E to the Plan for so long as Exhibit E is applicable (but only in the event that the Senior Note Claims (as a Class) vote to accept the Plan). Reorganized Congoleum's obligations to the Plan Trust on account of the Plan Trust Note and the New Convertible Security shall be secured only by a pledge of Reorganized Congoleum's interest in all proceeds of the GHR/Kenesis Actions (after payment 35 EXHIBIT A TO THE DISCLOSURE STATEMENT of fees and reimbursement of expenses of the GHR/Kenesis Litigation Trust) and all such proceeds shall be used by Reorganized Congoleum as follows: (i) first, to pay principal and accrued interest under the Plan Trust Note until such time as the Plan Trust Note has been paid in full; (ii) second, to pay principal and accrued interest under the New Convertible Security until such time as the New Convertible Security has been paid in full or is no longer outstanding; provided, however, that the New Convertible Security shall not be satisfied in full or retired before the Reset Date and any proceeds of the GHR/Kenesis Actions that are received by the Plan Trust prior to the Reset Date shall be held by the Plan Trust in an interest-bearing account and applied to amounts outstanding under the New Convertible Security immediately after the Reset Date; and (iii) thereafter, the GHR/Kenesis Litigation Trust shall distribute any remaining or further proceeds to Reorganized Congoleum. All Plan Trust Assets shall be transferred to, vested in, and assumed by, the Plan Trust free and clear of all Claims, Liens and encumbrances; provided, however, that to the extent that certain Plan Trust Assets, because of their nature or because they will accrue subsequent to the Effective Date, cannot be transferred to, vested in, and assumed by the Plan Trust on the Effective Date, such Plan Trust Assets shall be transferred to, vested in, and assumed by the Plan Trust free and clear of Claims, Liens and encumbrances, as soon as practicable after the Effective Date. On the Effective Date, ABI shall deliver the ABI Contribution to the Plan Trust by wire transfer of immediately available funds. (c) Insurance Assignment Agreement. On the Effective Date, the Debtors shall deliver the Insurance Assignment Agreement attached hereto as Exhibit "C." Such agreement shall be valid, binding and enforceable. The Insurance Assignment Agreement shall transfer claims and rights set forth therein as Debtors may have, subject to any and all Asbestos Insurer Coverage Defenses. (d) Creation of Asbestos Property Damage Claim Sub-Account. On the Effective Date, the Plan Trust shall cause the Asbestos Property Damage Insurance Rights and any proceeds thereof, including $1.2 million from the proceeds of that certain settlement agreement between the Debtors and Liberty Mutual Insurance Company approved by the Bankruptcy Court by order dated July 30, 2004, to be held in the Asbestos Property Damage Claim Sub-Account. In accordance with the terms of the Plan Trust Agreement, the Plan Trustees shall be permitted to transfer monies from the Asbestos Property Damage Claim Sub-Account to the Asbestos Personal Injury Claim Sub-Account, from time to time, to the extent that the funds in the Asbestos Property Damage Claim Sub-Account exceed the aggregate amount of all unpaid Asbestos Property Damage Claims that have been filed prior to the Asbestos Property Damage Claim Bar Date, and a reasonable reserve for Plan Trust Expenses and indemnification costs or expenses, in either case, related to Asbestos Property Damage Claims. (e) Transfer of Assets and Dissolution of the Collateral Trust. On the Effective Date, pursuant to the terms of the Collateral Trust Agreement, all of the Collateral Trust's right, title and interest in and to any assets or properties then held by the Collateral Trust shall automatically be transferred and assigned to, and vest in, the Plan Trust, free and clear of all Claims, Liens and encumbrances, and all rights with respect to such assets and properties shall be enforceable by the Plan Trust. (f) Assumption of Liabilities by the Plan Trust. On the Effective Date, all liabilities, obligations and responsibilities relating to all Plan Trust Asbestos Claims and Asbestos Expenses shall be transferred to the Plan Trust as set forth herein and the Plan Trustees, on behalf of the Plan Trust, 36 EXHIBIT A TO THE DISCLOSURE STATEMENT shall expressly assume all liability for all Plan Trust Asbestos Claims, Demands and Asbestos Expenses as set forth herein, subject to the provisions of the Plan Trust Agreement. With the exception of the liabilities identified hereinabove in this Section 6.1(f), in no event shall the Plan Trust assume any of the liabilities, obligations or responsibilities of the Debtors or the Reorganized Debtors. (g) Discharge of Liabilities to Holders of Asbestos Claims. Except as provided in the Plan and the Confirmation Order, the transfer to, vesting in, and assumption by the Plan Trust of the Plan Trust Assets as contemplated by the Plan shall, among other things, discharge the Debtors and the Reorganized Debtors from and in respect of all Plan Trust Asbestos Claims. (h) TDP. From and after the Effective Date, the Plan Trust shall pay the Plan Trust Asbestos Claims in accordance with the Plan Trust Agreement, the TDP and, if approved by Final Order of the Bankruptcy Court, the Class 2 Settlement and the Class 3 and 11 Settlement. The Plan Trustees shall have the power to administer, amend, supplement or modify the TDP in accordance with the terms thereof. (i) Payment of Allowed Asbestos Property Damage Claims. From and after the Effective Date, the Plan Trust shall cause the payment of Allowed Asbestos Property Damage Claims from the Asbestos Property Damage Claim Sub-Account in accordance with the Plan Trust Agreement, provided, however that once the assets in the Asbestos Property Damage Claim Sub-Account have been exhausted, the Plan Trust shall have no further liability or obligation for or in respect of any Asbestos Property Damage Claims. (j) Excess Plan Trust Assets. To the extent there are any Plan Trust Assets remaining after the payment in full of all Plan Trust Asbestos Claims and all Plan Trust Expenses (or provision has been made therefor) in accordance with the Plan Trust Agreement and the TDP, such excess Plan Trust Assets shall be transferred to a tax-exempt organization qualified under section 501(c)(3) of the IRC, which charity is to be determined by the Plan Trustees; provided, however, that such charitable purpose, if practicable, shall be related to the treatment of or research regarding asbestos-related disorders. (k) Plan Trust Expenses. The Plan Trust shall pay all Plan Trust Expenses from the Plan Trust Assets in accordance with the Plan Trust Agreement. Neither the Debtors, the Reorganized Debtors, ABI nor their Affiliates shall have any obligation to pay any Plan Trust Expenses. Notwithstanding any provision herein to the contrary, on the Effective Date, (i) the Collateral Trustee shall provide the Plan Trust with a certification setting forth the amount of Asbestos Expenses incurred by or on behalf of, or imposed on, the Collateral Trust, or otherwise payable by the Collateral Trust, in each case prior to the Effective Date and all appropriate invoices and other backup regarding such Asbestos Expenses, including without limitation, amounts which may be due to the Claims Reviewer (or to Congoleum to reimburse it for amounts it paid to the Claims Reviewer) for services performed prior to the Effective Date and (ii) the Plan Trust shall only assume Asbestos Expenses from periods prior to the Effective Date if and to the extent set forth on such certification. The Plan Trustees, each member of the TAC, the Futures Representative and the Representatives of each of the foregoing will have a lien upon the Plan Trust Assets which will be prior to any lien thereon, and the Plan Trust will grant a security interest in the Plan Trust Assets, all proceeds thereof and all accounts into which such proceeds or the Plan Trust Assets are deposited or maintained to secure payment of amounts payable to them as compensation or indemnification. 37 EXHIBIT A TO THE DISCLOSURE STATEMENT (l) Appointment of the Initial Plan Trustees. Prior to the Confirmation Hearing, the Debtors, with the approval of the Futures Representative and the Asbestos Claimants' Committee, shall nominate the initial Plan Trustees. Effective as of the Effective Date, the Bankruptcy Court shall appoint the initial Plan Trustees to serve as Plan Trustees in accordance with the Plan Trust Agreement. For purposes of performing his or her duties and fulfilling his or her obligations under the Plan Trust Agreement, the TDP and the Plan, the Plan Trustees shall be deemed to be a party in interest within the meaning of section 1109(b) of the Bankruptcy Code. The Plan Trustees shall be the "administrator" of the Plan Trust as that term is used in Treas. Reg. Section 1.468B-2(k)(3). (m) The Futures Representative. On and after the Effective Date, the Futures Representative shall continue to serve as the Futures Representative pursuant to the terms of the Plan Trust Agreement and shall have the functions and rights provided in the Plan Trust Documents. (n) Appointment of Trust Advisory Committee Members. The Asbestos Claimants' Committee shall designate the initial members of the TAC. Effective as of the Effective Date, the Bankruptcy Court shall appoint the initial members of the TAC (and thereupon the TAC shall be formed) to serve as members of the TAC in accordance with the Plan Trust Agreement. (o) Establishment and Purpose of the GHR/Kenesis Litigation Trust. On the Effective Date, the GHR/Kenesis Litigation Trust shall be established in accordance with the GHR/Kenesis Litigation Trust Agreement for the benefit of Reorganized Congoleum. Effective as of the Effective Date, the Reorganized Debtors shall assign to the GHR/Kenesis Litigation Trust without further act or deed (i) the GHR/Kenesis Actions and (ii) proceeds realized from the prosecution of the GHR/Kenesis Actions in accordance with section 1123(b)(3)(B) of the Bankruptcy Code. Pursuant to this Section 6.1(o), the Reorganized Debtors grant, assign, transfer, convey and deliver to the GHR/Kenesis Litigation Trustee, on behalf of and for the benefit of the Reorganized Debtors, control of all of the Debtors' right, title and interest in the GHR/Kenesis Actions and the proceeds of such Actions. The GHR/Kenesis Litigation Trust shall be funded on the Effective Date with $600,000 from the proceeds of that certain Asbestos Insurance Settlement Agreement with Liberty Mutual Insurance Company to provide for payment of the fees and expenses of the GHR/Kenesis Litigation Trustee. As soon as practicable after the Effective Date, the Bondholders' Committee shall provide to the GHR/Kenesis Litigation Trustee all discovery obtained by the Bondholders' Committee in connection with the GHR/Kenesis Actions and any relevant work product related thereto. The reasonable fees and expenses of the Bondholders' Committee incurred in connection with producing such information to the GHR/Kenesis Litigation Trustee shall be paid by the GHR/Kenesis Litigation Trust within ten (10) days of the receipt of an invoice for such reasonable fees and expenses. The GHR/Kenesis Litigation Trustee shall be nominated by the Debtors, with the consent of the Asbestos Claimants' Committee and the Futures Representative, no later than fifteen (15) days prior to the commencement of the Confirmation Hearing and the appointment of the GHR/Kenesis Litigation Trustee shall be subject to approval by the Bankruptcy Court. The purpose of the GHR/Kenesis Litigation Trust shall be to, among other things (i) pursue the 38 EXHIBIT A TO THE DISCLOSURE STATEMENT collection of amounts owed to the Debtors' Estates on account of the GHR/Kenesis Actions for the benefit of Reorganized Congoleum; (ii) investigate, pursue, prosecute, settle, manage and resolve, as appropriate, the GHR/Kenesis Actions for the benefit of Reorganized Congoleum; and (iii) remit to the Plan Trust, on behalf of Reorganized Congoleum all proceeds of the GHR/Kenesis Actions (after payment of fees and reimbursement for expenses of the GHR/Kenesis Litigation Trust) as security for Reorganized Congoleum's obligations to the Plan Trust on account of the New Convertible Security and the Plan Trust Note and shall be used by Reorganized Congoleum as follows: (x) first, to pay principal and accrued interest under the Plan Trust Note until such time as the Plan Trust Note has been paid in full; (y) second, to pay principal and accrued interest under the New Convertible Security until such time as the New Convertible Security has been paid in full or is no longer outstanding; provided, however, that the New Convertible Security shall not be satisfied in full or retired before the Reset Date and any proceeds of the GHR/Kenesis Actions that are received by the Plan Trust on account of the New Convertible Security prior to the Reset Date shall be held by the Plan Trust in an interest bearing account and applied to amounts outstanding under the New Convertible Security immediately after the Reset Date; and (z) thereafter, the GHR/Litigation Trust shall distribute any remaining or further proceeds to Reorganized Congoleum. (p) Institution and Maintenance of Legal and Other Proceedings. As of the Effective Date, the Plan Trust shall be empowered to initiate, prosecute, defend, and resolve all legal actions and other proceedings related to any asset, liability, or responsibility of the Plan Trust including, without limitation, the Avoidance Actions, to the extent not adjudicated, compromised or settled prior to the Effective Date. Further, as of the Effective Date, the GHR/Kenesis Litigation Trust shall be empowered to initiate, prosecute, defend, and resolve all legal actions and other proceedings related to the GHR/Kenesis Actions, to the extent not adjudicated, compromised or settled prior to the Effective Date. The Plan Trust and the GHR/Kenesis Litigation Trust, as applicable, shall be empowered to initiate, prosecute, defend, and resolve all such actions in the name of the Debtors and/or the Reorganized Debtors if deemed necessary or appropriate by the Plan Trustees or the GHR/Kenesis Litigation Trustee; provided, however, that any compromise or settlement of any GHR/Kenesis Action or the Avoidance Actions shall be subject to approval by the Bankruptcy Court. Except as otherwise provided by law or agreement, the Plan Trust shall be responsible for the payment of all damages, awards, judgments, settlements, expenses, costs, fees, and other charges incurred subsequent to Confirmation arising from or associated with any legal action or other proceeding brought pursuant to this Section 6.1(p) and shall pay or reimburse all deductibles, retrospective premium adjustments, or other charges which may arise from the receipt of insurance proceeds by the Plan Trust. Without in any way limiting the foregoing and subject to any Asbestos Insurer Coverage Defenses, the Plan Trust shall be empowered to elect to (or not to), initiate, prosecute, defend, settle, and resolve all Plan Trust Bankruptcy Causes of Action, Asbestos Insurance Actions and Direct Actions, and to maintain, administer, preserve, or pursue the Asbestos-In-Place Insurance Coverage, the Asbestos Insurance Action Recoveries, Asbestos Insurance Rights and the Asbestos Insurance Policies. (q) Preservation of Insurance Claims. The discharge and release of the Debtors and Released Non-Debtor Parties from all Claims as provided herein, and the injunctive protection provided to the Debtors, Reorganized Debtors, Released Non-Debtor Parties and Released Parties with respect to Demands as provided herein, shall neither diminish nor impair the enforceability of any of 39 EXHIBIT A TO THE DISCLOSURE STATEMENT the Asbestos Insurance Policies by any Entity except (i) to the extent that any such Asbestos Insurance Company is also a Settling Asbestos Insurance Company or (ii) that all Asbestos Insurer Coverage Defenses are preserved. (r) Indemnification by the Plan Trust. As and to the extent provided in the Plan Trust Agreement, the Plan Trust (and to the extent specified in Section 4.6(c) of the Plan Trust Agreement, the Reorganized Debtors) shall indemnify and hold harmless each of the Debtors, the Reorganized Debtors, the Pre-Petition Asbestos Claimants' Committee, the Asbestos Claimants' Committee, the Plan Trustees, the Claimants' Representative, the Collateral Trustee, any officer and employee of the Plan Trust, the Futures Representative, each member of the TAC and, with respect to each of the foregoing, their respective past, present and future Representatives. (s) Coverage Costs. Notwithstanding anything in the Plan to the contrary, Coverage Costs shall be paid to the Reorganized Debtors in accordance with the terms of that certain settlement agreement with Liberty Mutual Insurance Company, which was approved by the Bankruptcy Court by an Order dated June 29, 2004. (t) Plan Trust Note. On the Effective Date, the Plan Trust shall provide a loan to Reorganized Congoleum in the principal amount of the Plan Trust Note, with the proceeds to be used only for Reorganized Congoleum's working capital and general corporate purposes, and Reorganized Congoleum shall issue the Plan Trust Note to the Plan Trust. The Plan Trust Note shall be in all respects pari passu in priority and right of payment with the New Convertible Security; provided, however, that pursuant to the GHR/Kenesis Litigation Trust any proceeds of the GHR/Kenesis Actions shall be pledged to the Plan Trust by Reorganized Congoleum to secure Reorganized Congoleum's obligations to the Plan Trust on account of the New Convertible Security and Plan Trust Note and shall be used to reduce Reorganized Congoleum's obligations to the Plan Trust by (i) first, to pay principal and accrued interest under the Plan Trust Note until such time as the Plan Trust Note has been paid in full; (ii) second, to pay principal and accrued interest under the New Convertible Security until such time as the New Convertible Security has been paid in full or is no longer outstanding; provided, however, that the New Convertible Security shall not be satisfied in full or retired before the Reset Date and any proceeds of the GHR/Kenesis Actions that are received by the Plan Trust on account of the New Convertible Security prior to the Reset Date shall be held by the Plan Trust in an interest bearing account and applied to amounts outstanding under the New Convertible Security immediately after the Reset Date; and (iii) thereafter, the GHR/Litigation Trust shall distribute any remaining or further proceeds to Reorganized Congoleum. The Plan Trust shall not have liens on or security interests in any assets of the Reorganized Debtors other than the GHR/Kenesis Actions. The Plan Trust Note shall be contractually subordinate in priority and right of payment to the New Senior Notes; provided, however, that in the absence of a default under the New Indenture, payments due under the Plan Trust Note shall be made in the ordinary course in accordance with its terms. 6.2 Intercompany Settlement. In consideration of the treatment set forth in Section 5.1(i) with respect to the ABI Claims, the ABI Contribution, and for other good and valuable consideration, (a) on the Effective Date, Reorganized Congoleum, with the consent of ABI, shall assume and cure its defaults, if any, under each of the Intercompany Agreements, pursuant to Section 9.1(d) of the Plan; (b) on the Effective Date, Reorganized Congoleum shall 40 EXHIBIT A TO THE DISCLOSURE STATEMENT assume the Joint Venture Agreement, pursuant to Section 9.1(c) of the Plan; and (c) ABI and the ABI Parties shall be entitled to the protections of the Asbestos Channeling Injunction provided for in Section 12.6 of the Plan to the extent that any of ABI and the ABI Parties is, within the meaning of section 524(g)(4)(A)(ii) of the Bankruptcy Code, alleged to be directly or indirectly liable for the conduct of, Claims against, or Demands on the Debtors to the extent such alleged liability of ABI or any of the ABI Parties arises by reason of its (I) ownership of a financial interest in any Debtor, a past or present affiliate of any Debtor, or a predecessor in interest of any Debtor, (II) involvement in the management of any Debtor or a predecessor in interest of any Debtor, or service as an officer, director or employee of any Debtor or a related party, or (III) involvement in a transaction changing the corporate structure, or in a loan or other financial transaction affecting the financial condition, of any Debtor or a related party, including but not limited to - - (aa) involvement in providing financing (debt or equity), or advice to an entity involved in such transaction, or (bb) acquiring or selling a financial interest in an entity as part of such a transaction. For purposes of this paragraph, the term "related party" shall have the meaning ascribed to such term in section 524(g)(4)(A)(iii) of the Bankruptcy Code. 6.3 Certificate of Incorporation and Bylaws. The certificates of incorporation and bylaws of each Debtor shall, as of the Effective Date, be amended to the extent necessary to comply with section 1123(a)(6) of the Bankruptcy Code. 6.4 Management of the Reorganized Debtors. On and after the Effective Date, the business and affairs of the Reorganized Debtors will be managed by the respective boards of directors of the Reorganized Debtors. The existing senior officers and directors of the Debtors shall continue to serve in their same respective capacities after the Effective Date for the Reorganized Debtors. The Reorganized Debtors shall continue to maintain independent directors in accordance with the listing requirements of the American Stock Exchange and applicable law, which directors shall, from the Effective Date and continuing until Reorganized Congoleum's obligations to the Plan Trust are fulfilled, also have no financial interest, past or present, in ABI or its affiliates or any business owned and controlled by Richard, Roger or William Marcus. In addition, any transaction between the Reorganized Debtors and any affiliate, insider or subsidiary of Reorganized Congoleum shall be approved by a standing committee of such independent directors. 6.5 Amended Credit Agreement. On the Effective Date, the Amended Credit Agreement or such other working capital exit facility entered into by the Reorganized Debtors, which Amended Credit Agreement or other working capital exit facility shall contain terms similar to the Existing Credit Agreement (except that the Amended Credit Agreement or other working capital exit facility may be modified to provide for a lien on or security interest in real estate and any other collateral securing the New Senior Notes), together with a new promissory note evidencing the obligation of Reorganized Congoleum thereunder, and all other documents, instruments and agreements to be entered into, delivered or confirmed thereunder on the Effective Date, shall become effective. The new promissory note issued pursuant to the Amended Credit Agreement, if applicable, and all obligations under the Amended Credit Agreement, if applicable, and related documents shall be repaid as set forth in the Amended Credit Agreement, if applicable. 6.6 Transfer Taxes. The issuance, transfer, or exchange of any of the securities. issued under, or the transfer of any other assets or property pursuant to or in connection with the Plan or the making or delivery of an instrument of transfer under or in connection with the Plan shall not, pursuant to section 1146 of the Bankruptcy Code, be taxed under any law imposing a stamp tax, transfer tax or other similar tax. 41 EXHIBIT A TO THE DISCLOSURE STATEMENT 6.7 Section 346 Injunction. In accordance with section 346 of the Bankruptcy Code for the purposes of any state or local law imposing a tax, income will not be realized by the Estates, the Debtors or the Reorganized Debtors by reason of the forgiveness or discharge of indebtedness resulting from the consummation of the Plan. As a result, each state or local taxing authority is permanently enjoined and restrained, after the Confirmation Date, from commencing, continuing or taking any act to impose, collect or recover in any manner any tax against the Debtors or the Reorganized Debtors arising by reason of the forgiveness or discharge of indebtedness under the Plan. 6.8 Effectuating Documents and Further Transactions. The Chief Executive Officer, President, Chief Financial Officer or any Vice President of any Debtor shall be authorized to execute, deliver, file or record such contracts, instruments, releases, indentures, and other agreements or documents and take or direct such actions as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan. The Secretary or any Assistant Secretary of any Debtor shall be authorized to certify or attest to any of the foregoing actions. 6.9 Corporate Action. All matters provided for under the Plan involving the corporate structure of the Debtors or the Reorganized Debtors, or any corporate action to be taken by, or required of the Debtors or the Reorganized Debtors shall be deemed to have occurred and be effective as provided herein, and shall be authorized and approved in all respects without any requirement for further action by the stockholders or directors of any of such entities. 6.10 Allocation of Reserved Common Stock. In the event that the holders of the Senior Note Claims (as a Class) do not vote to accept the Plan, as of the Effective Date, the Reserved Common Stock shall be issued and held in escrow pending a Final Order of the Bankruptcy Court allocating the Reserved Common Stock between the Plan Trust and the Senior Note Claims. 6.11 Transfer Limitations under Section 382(1)(5) of the IRC. If Reorganized Congoleum is eligible for and avails itself of the exception described in Section 382(1)(5) of the IRC, Reorganized Congoleum's equity interests, from and after the Effective Date, will be subject to such restrictions that, in the determination of Reorganized Congoleum, are necessary to ensure that Reorganized Congoleum will not experience another "ownership change" as defined in Section 382(g) of the IRC within the period described in Section 382(1)(5)(D) of the IRC. 6.12 Escrowed $5 Million. In order to satisfy the Additional Bondholder Recovery, the Reorganized Debtors shall receive or retain in escrow $5 million of Asbestos Insurance Action Recoveries on and following the Effective Date until the following conditions shall have been satisfied: (i) the AIG Contingencies and Conditions shall have been satisfied; and (ii) the Plan Trust has received or obtained the lesser of (x) $77.1 million in aggregate Cash and (y) the aggregate amount in Cash of the sum of (a) $5 million and the Plan Trust's liability (including the amounts, if any, held in reserve by the Plan 42 EXHIBIT A TO THE DISCLOSURE STATEMENT Trust pursuant to Section 3.2 of the Plan Trust Agreement) on account of the Asbestos Personal Injury Claims of Qualified Claimants, Allowed Asbestos Property Damage Claims, the Plan Trust Note, Plan Trust Expenses in the amount of $[___] and the initial contribution of $600,000 to the GHR/Kenesis Litigation Trust. Upon satisfaction of the foregoing conditions, the Reorganized Debtors shall immediately pay the $5 million of escrowed Cash to the Indenture Trustee for distribution to holders of Senior Note Claims. Should any of the foregoing conditions fail, then the Reorganized Debtors shall pay the $5 million of escrowed Cash to the Plan Trust. ARTICLE VII PROVISIONS GOVERNING DISTRIBUTIONS WITH RESPECT TO CLAIMS OTHER THAN PLAN TRUST ASBESTOS CLAIMS 7.1 Plan Distributions. The Disbursing Agent shall make all distributions required under the Plan (other than distributions to holders of Plan Trust Asbestos Claims and Senior Note Claims). Distributions shall be made on the Distribution Date (unless otherwise provided herein or ordered by the Bankruptcy Court) with respect to all Claims except for Plan Trust Asbestos Claims. Distributions to be made on the Distribution Date shall be deemed actually made on the Distribution Date if made either (a) on the Distribution Date or (b) as soon as practicable thereafter. With respect to Plan Trust Asbestos Claims, distributions to holders of Plan Trust Asbestos Claims shall be made in accordance with the Plan Trust Agreement and/or the TDP, as applicable. With respect to Senior Note Claims, distributions will be made by the Indenture Trustee, whose reasonable fees and expenses in connection with such distributions shall be paid by Reorganized Congoleum. 7.2 Delivery of Distributions. Distributions to holders of Allowed Claims other than Asbestos Claims shall be made by the Disbursing Agent or the Indenture Trustee, as applicable, (a) at the holder's last known address, or (b) at the address in any written notice of address change delivered to the Disbursing Agent or the Plan Trustees, as applicable. If any holder's distribution is returned as undeliverable, no further distributions to such holder shall be made, unless and until the Disbursing Agent is notified of such holder's then current address, at which time all missed distributions shall be made to such holder without interest. Amounts in respect of undeliverable distributions made through the Disbursing Agent shall be returned to the appropriate Reorganized Debtor until such distributions are claimed or become unclaimed property pursuant to Section 7.4 of the Plan. With respect to Plan Trust Asbestos Claims, distributions to the holders of Plan Trust Asbestos Claims shall be made in accordance with the Plan Trust Agreement and/or the TDP, as applicable. With respect to Senior Note Claims, distributions to holders of Senior Note Claims shall be made in accordance with the Indenture. 7.3 Withholding of Taxes. The Disbursing Agent shall withhold from any assets or property distributed under the Plan any assets or property that must be withheld pursuant to applicable law. 7.4 Unclaimed Property. Any Cash, assets and other property to be distributed on account of any Claim other than a Plan Trust Asbestos Claim under the Plan that remain unclaimed (including by an Entity's failure to negotiate a check issued to such Entity) or otherwise not deliverable to the Entity entitled thereto before the later of (a) one year after the date of distribution or (b) 120 calendar days after an order allowing such Entity's Claim becomes a Final 43 EXHIBIT A TO THE DISCLOSURE STATEMENT Order, shall become vested in, and shall be transferred and delivered to, the Reorganized Debtors. In such event, such Entity's Claim shall no longer be deemed to be Allowed and such Entity shall be deemed to have waived its rights to such payments or distributions under the Plan pursuant to section 1143 of the Bankruptcy Code and shall have no further Claim in respect of such distribution and shall not participate in any further distributions under the Plan with respect to such Claim. ARTICLE VIII RESOLUTION OF DISPUTED CLAIMS 8.1 Disallowance of Improperly Filed Claims. Subject to section 502(j) of the Bankruptcy Code and Bankruptcy Rules 3008 and 9006, any Administrative Claim, Asbestos Property Damage Claim or Claim (other than Asbestos Personal Injury Claims and ABI Claims) for which the filing of a Proof of Claim, application or motion with the Bankruptcy Court is required under the terms of the Bankruptcy Code, the Bankruptcy Rules, any order of the Bankruptcy Court (including one providing a Bar Date) or the Plan shall be Disallowed if and, to the extent that such Proof of Claim (or other filing) is not timely and properly made. 8.2 Prosecution of Objections to Claims. Unless otherwise ordered by the Bankruptcy Court after notice and a hearing, after the Effective Date the Reorganized Debtors shall have the exclusive right to make and file objections to Proofs of Claims, other than Proofs of Claims in respect of Asbestos Personal Injury Claims, Unknown Asbestos Claims, Professional Fee Claims and ABI Asbestos Claims, at any time on or before ninety (90) days after the later of (i) the Effective Date or (ii) the date on which such Claim was filed with the Bankruptcy Court unless no Proof of Claim is required to be filed pursuant to Bankruptcy Rule 3002, the Plan or any order of the Bankruptcy Court; provided, however, that (x) this deadline may be extended by the Bankruptcy Court on motion by the Debtors or the Reorganized Debtors, as applicable, and (y) neither the Debtors, the Reorganized Debtors nor any other Person may file an objection to any (1) Claim that was Allowed by a Final Order entered during the Reorganization Cases, or (2) Claim Allowed by the Plan. In addition, unless otherwise ordered by the Bankruptcy Court after notice and a hearing, after the Effective Date the Reorganized Debtors, subject to Sections 14.5 and 14.11 of the Plan, shall have the exclusive right to make and file objections to Administrative Claims and to amend the Schedules or to object to any Claim specified on the Schedules, at any time on or before sixty (60) days after the later of (i) the Effective Date or (ii) the date on which such Claim was filed with the Bankruptcy Court unless no Proof of Claim is required to be filed pursuant to Bankruptcy Rule 3002, the Plan or any order of the Bankruptcy Court; provided, however, that (x) this deadline may be extended by the Bankruptcy Court on motion by the Debtors or the Reorganized Debtors, as applicable, (y) neither the Debtors, the Reorganized Debtors nor any other Person may file an objection to any (1) Claim that was Allowed by a Final Order entered during the Reorganization Cases, or (2) Claim Allowed by the Plan, and (z) with respect to any Administrative Claim referred to in sub-clause (a)(4) of the definition of Administrative Expense, no objection may be filed with respect to any such Administrative Expense other than with respect to the reasonableness of such Administrative Expense or whether such Administrative Expense was incurred in accordance with Section 6.6 of the Indenture. Without prejudice to the right of 44 EXHIBIT A TO THE DISCLOSURE STATEMENT any Asbestos Insurance Company to assert any Asbestos Insurer Coverage Defenses, after the Effective Date, only the Plan Trustees shall have the authority to contest Asbestos Personal Injury Claims, Unknown Asbestos Claims and Asbestos Property Damage Claims and litigate to judgment, settle or withdraw such objections and each Asbestos Personal Injury Claim, Unknown Asbestos Claim and Asbestos Property Damage Claim, whether or not a Proof of Claim was filed with the Bankruptcy Court, shall be satisfied exclusively in accordance with the Plan Trust Documents. 8.3 No Distributions Pending Allowance. Notwithstanding any other provision hereof, if a Claim or any portion of a Claim is a Disputed Claim, no payment or distribution shall be made on account of such Disputed Claim, unless and until such Disputed Claim becomes an Allowed Claim. 8.4 Distributions After Allowance. Payments and distributions to each holder of a Claim that is Disputed, or that is not Allowed, to the extent that such Claim ultimately becomes Allowed, shall be made in accordance with the provisions hereof governing the Class of Claims in which such Claim is classified. As soon as practicable after the date that the order or judgment of the Bankruptcy Court allowing any Disputed Claim (other than a disputed Asbestos Claim) becomes a Final Order, the Reorganized Debtors shall distribute to the holder of such Claim any payment or property that would have been distributed to such holder if the Claim had been Allowed as of the Effective Date (or such other date on which such distribution would have been made). ARTICLE IX TREATMENT OF EXECUTORY CONTRACTS, UNEXPIRED LEASES AND SETTLEMENTS 9.1 Assumption of Unexpired Leases and Executory Contracts. (a) Assumption. Except for any unexpired lease or executory contract that the Debtors reject or designate as being subject to rejection on or before the Effective Date, and except for the Joint Venture Agreement, as of the Effective Date, all executory contracts and unexpired leases not previously assumed by the Debtors pursuant to section 365 of the Bankruptcy Code shall be deemed to have been assumed by the Debtors, subject to Section 6.2, and the Plan shall constitute a motion to assume such executory contracts and unexpired leases. Subject to the occurrence of the Effective Date, entry of the Confirmation Order by the Bankruptcy Court shall constitute approval of such assumptions pursuant to section 365(a) of the Bankruptcy Code and a finding by the Bankruptcy Court that each such assumption is in the best interests of the Debtors, the Estates and all parties in interest in the Reorganization Cases. With respect to each such executory contract or unexpired lease assumed by the Debtors, unless otherwise determined by the Bankruptcy Court pursuant to a Final Order or agreed to by the parties thereto on or before the Effective Date, any defaults of the Debtors with respect to such assumed executory contracts or leases existing as of the Effective Date shall be cured in the ordinary course of the Reorganized Debtors' business promptly after any such default becomes known to the Debtors and, if disputed, established pursuant to applicable law by the Bankruptcy Court, and the assumed executory contracts or leases shall be binding upon and enforceable upon the parties thereto, subject to any rights and defenses existing thereunder. Subject to the occurrence of the Effective Date, upon payment of such cure amount all defaults of the Debtors existing as of the Confirmation Date with respect to such executory contract or unexpired lease shall be deemed cured. 45 EXHIBIT A TO THE DISCLOSURE STATEMENT (b) Rejection. Notwithstanding subpart (a) of this Section 9.1, the Debtors may reject those executory contracts and unexpired leases listed on an exhibit to be provided to the Bankruptcy Court in advance of the Confirmation Hearing (as such list may be amended or supplemented up to and including the Confirmation Date). (c) Assumption of Joint Venture Agreement. On the Effective Date, the Joint Venture Agreement shall be deemed to have been assumed by Reorganized Congoleum, and the obligations of Reorganized Congoleum to ABI thereunder shall be subject to the provisions set forth in the Plan. (d) Assumption of Intercompany Agreements. On the Effective Date, the Intercompany Agreements shall be deemed to have been assumed by Reorganized Congoleum. 9.2 Damages Upon Rejection. The Bankruptcy Court shall determine the dollar amount, if any, of the Claim of any Entity seeking damages by reason of the rejection of any executory contract or unexpired lease; provided, however, that such Entity must file a Proof of Claim with the Bankruptcy Court on or before thirty (30) calendar days following the later of the Confirmation Date or the date of rejection of the executory contract or unexpired lease. To the extent that any such Claim is Allowed by the Bankruptcy Court by Final Order, such Claim shall become, and shall be treated for all purposes under the Plan as, a Class 7 General Unsecured Claim, and the holder thereof shall receive distributions as a holder of an Allowed Claim in such Class pursuant to the Plan. The Debtors shall notify those Entities that may assert a Claim for damages from the rejection of an executory contract or unexpired lease of this bar date for filing a Proof of Claim in connection therewith. 9.3 Executory and Other Settlements. Prior to the Effective Date, the Debtors may seek Bankruptcy Court approval of additional settlements with holders of Asbestos Claims. The Plan Trust, or the Reorganized Debtors, as may be appropriate, shall make payments in accordance with the terms of any settlement under the terms of this Section 9.3 and a Final Order approving such settlement and the Plan Trust Agreement and/or the TDP, as applicable, with respect to the Plan Trust Asbestos Claims. 9.4 Insurance Agreements. Except to the extent expressly set forth in any Asbestos Insurance Settlement Agreement, nothing contained in the Plan or any negotiations leading up to the Plan, including this Section 9.4, shall constitute a waiver of: (i) any claim, right, or cause of action that any of the Debtors or the Plan Trust, as applicable, may have against any insurer, including under any insurance agreement; or (ii) any Asbestos Insurer Coverage Defenses that any Asbestos Insurance Company may have against the Debtors or the Plan Trust. The discharge and release provisions contained in the Plan shall neither diminish nor impair the duties or obligations of any Debtor or any other Entity under any Asbestos Insurance Policy or agreement relating thereto, nor shall the discharge and release provisions contained in the Plan diminish nor impair the duties, obligations or the Asbestos Insurer Coverage Defenses of any Asbestos Insurance Company under any Asbestos Insurance Policy or agreement relating thereto. 9.5 Compensation and Benefits Programs. 46 EXHIBIT A TO THE DISCLOSURE STATEMENT (a) Unless otherwise agreed to by the affected parties or modified by order of the Bankruptcy Court, all of the Debtors' obligations under employment and severance policies, and all compensation and benefit plan, policies, and programs shall be treated as though they are executory contracts that are deemed assumed under the Plan. (b) As of the Effective Date, the Pension Plans shall be deemed to have been assumed by Reorganized Congoleum. Reorganized Congoleum shall continue the Pension Plans, satisfy the minimum funding standards pursuant to 26 U.S.C. ss. 412 and 29 U.S.C. ss. 1082, and administer the Pension Plans in accordance with their terms and the provisions of ERISA. Furthermore, nothing in the Plan shall be construed as discharging, releasing or relieving the Debtors or any Reorganized Debtor, or any party, in any capacity, from any liability imposed under any law or regulatory provision with respect to the Pension Plans or the Pension Benefit Guaranty Corporation ("PBGC"). The PBGC and the Pension Plans shall not be enjoined or precluded from enforcing such liability as a result of any provision of the Plan or the Confirmation Order. Notwithstanding anything in this Section 9.5, the Plan Trust shall not assume any of the liabilities, obligations, or responsibilities of the Debtors or the Reorganized Debtors with respect to the Pension Plans or the PBGC. 9.6 Retiree Benefits. Notwithstanding any other provisions of the Plan (other than the last sentence of this Section 9.6), any payments that are due to any individual for the purpose of providing or reimbursing payments for retired employees and their spouses and dependents for medical, surgical, or hospital care benefits, or benefits in the event of sickness, accident, disability, or death under any plan, fund, or program (through the purchase of insurance or otherwise) maintained or established in whole or in part by the Debtors prior to the Petition Date shall be continued for the duration of the period, if any, that the Debtors have obligated themselves to provide such benefits. Notwithstanding the foregoing, no employee or retired employee (nor their spouses or dependents and beneficiaries) of the Debtors or the Reorganized Debtors shall be entitled to assert any Asbestos Claim against the Debtors or the Reorganized Debtors. 9.7 Indemnification of Directors, Officer and Employees. The obligations of the Debtors to indemnify any Person serving at any time on or prior to the Effective Date as one of their directors, officers or employees by reason of such Person's service in such capacity, or as a director, officer or employee of any other corporation or legal entity, to the extent provided in the Debtors' constituent documents, or by a written agreement with the Debtors, or pursuant to applicable general corporation law, each as applicable, shall be deemed and treated as executory contracts that are assumed by the Reorganized Debtors pursuant to the Plan and section 365 of the Bankruptcy Code as of the Effective Date. Accordingly, such indemnification obligations shall be treated as General Unsecured Claims and shall survive Unimpaired and unaffected by entry of the Confirmation Order, irrespective of whether such indemnification is owed for an act or event occurring before or after the Petition Date. ARTICLE X ACCEPTANCE OR REJECTION OF THE PLAN 10.1 Classes Entitled to Vote. The holders of Claims or Interests in each Impaired Class of Claims or Interests, i.e., Classes 2, 3, 6, 9, 10, 11, 12 and 13, whose Claims or Interests are Allowed or temporarily allowed for voting purposes, are entitled to vote to accept or reject the Plan. 47 EXHIBIT A TO THE DISCLOSURE STATEMENT 10.2 Acceptance by Impaired Classes of Claims. Pursuant to section 1126(c) of the Bankruptcy Code, an Impaired Class of Claims shall have accepted the Plan if (a) the holders of at least two-thirds in dollar amount of the claims actually voting in such Class (other than Claims held by any holder designated pursuant to section 1126(e) of the Bankruptcy Code) have voted to accept the Plan and (b) more than one-half in number of such claims actually voting in such Class (other than Claims held by any holder designated pursuant to section 1126(e) of the Bankruptcy Code) have voted to accept the Plan. 10.3 Acceptance by Impaired Class of Interests. Pursuant to section 1126(d) of the Bankruptcy Code, an Impaired Class of Interests shall have accepted the Plan if the holders of at least two-thirds in amount of the Allowed Interests actually voting in such Class (other than Interests held by any holder designated pursuant to section 1126(e) of the Bankruptcy Code) have voted to accept the Plan. 10.4 Acceptance Pursuant to Section 524(g) of the Bankruptcy Code. The Plan shall have been voted upon favorably as required by section 524(g)(2)(B)(ii)(IV)(bb) of the Bankruptcy Code. 10.5 Presumed Acceptance of Plan. Classes 1, 4, 5, 7, 8 and 14 are Unimpaired. Under section 1126(f) of the Bankruptcy Code, the holders of Claims and Interests in such Classes are conclusively presumed to have voted to accept the Plan. 10.6 Reservation of Rights. In the event that any Impaired Class fails to accept the Plan by the requisite numbers and amounts required by the Bankruptcy Code, the Debtors reserve the right to seek confirmation of the Plan by means of the fair and equitable power contained in section 1129(b) of the Bankruptcy Code. ARTICLE XI CONDITIONS TO CONFIRMATION AND EFFECTIVENESS 11.1 Conditions to Confirmation. Confirmation of the Plan shall not occur unless each of the following conditions has been satisfied or waived in accordance with Section 11.3 below. These conditions to Confirmation, which are designed, among other things, to ensure that the Injunctions, releases, and discharges set forth in Article XII shall be effective, binding and enforceable, are as follows: (a) The Bankruptcy Court shall have made specific findings and determinations, among others, in substantially the following form: (i) The Discharge Injunction and the Asbestos Channeling Injunction are to be implemented in connection with the Plan and the Plan Trust; 48 EXHIBIT A TO THE DISCLOSURE STATEMENT (ii) As of the Petition Date, Congoleum has been named as a defendant in personal injury, wrongful death or property damage actions seeking recovery for damages allegedly caused by the presence of, or exposure to, asbestos or asbestos-containing products; (iii) The Plan Trust, upon the Effective Date, shall assume the liabilities of the Debtors with respect to Plan Trust Asbestos Claims and Demands; (iv) The Plan Trust is to be funded in part by securities of Reorganized Congoleum in the form of the New Class A Common Stock and the New Convertible Security and constitutes an obligation of Reorganized Congoleum to make future payments to the Plan Trust; (v) In the event that the holders of the Senior Note Claims (Class 6) vote (as a Class) to accept the Plan, the Plan Trust, on the Effective Date, will hold the New Class A Common Stock and the New Convertible Security, and if certain contingencies occur, the Plan Trust will be entitled to redeem or convert the New Convertible Security, and, in accordance with the terms of the New Convertible Security, own a majority of the voting shares of the common stock of Reorganized Congoleum; (vi) In the event that the holders of the Senior Note Claims (as a Class) do not vote to accept the Plan, then the Plan Trust shall receive its allocable share of the Reserved Common Stock as determined by a Final Order of the Bankruptcy Court; (vii) The Plan Trust is to use its assets and income to pay Plan Trust Asbestos Claims and Plan Trust Expenses; (viii) Congoleum is likely to be subject to substantial future Demands for payment arising out of the same or similar conduct or events that gave rise to the Plan Trust Asbestos Claims, which are addressed by the Asbestos Channeling Injunction; (ix) The actual amounts, numbers and timing of future Demands cannot be determined; (x) Pursuit of Demands outside the procedures prescribed by the Plan and the TDP is likely to threaten the Plan's purpose to deal equitably with Plan Trust Asbestos Claims and future Demands; (xi) The Plan establishes separate Classes of Asbestos Personal Injury Claims that are to be addressed by the Plan Trust and at least seventy-five percent (75%) of the Asbestos Claimants voting in such Classes have accepted the Plan; (xii) Pursuant to court orders or otherwise, the Plan Trust shall operate through mechanisms such as structured, periodic or supplemental payments, Pro Rata distributions, matrices or periodic review of estimates of the numbers and values of Asbestos Personal Injury Claims or other comparable mechanisms, that provide reasonable assurance that the Plan Trust shall value, and be in a financial position to pay, Asbestos Personal Injury Claims and Demands therefor in substantially the same manner; 49 EXHIBIT A TO THE DISCLOSURE STATEMENT (xiii) The Futures Representative was appointed by the Bankruptcy Court as part of the proceedings leading to the issuance of the Discharge Injunction and the Asbestos Channeling Injunction for the purpose of, among other things, protecting the rights of persons that might subsequently assert Demands of the kind that are addressed in the Discharge Injunction and the Asbestos Channeling Injunction and transferred to the Plan Trust; (xiv) In light of the benefits provided, or to be provided, to the Plan Trust on behalf of each Protected Party, the Asbestos Channeling Injunction is fair and equitable with respect to the persons that might subsequently assert Demands against any Protected Party; (xv) The Plan otherwise complies with section 524(g) of the Bankruptcy Code; (xvi) Congoleum's contributions to the Plan Trust and ABI's contribution of the ABI Contribution to the Plan Trust provided for herein, together with the Asbestos Insurance Assignment, constitute substantial assets of the Plan Trust and the reorganization; (xvii) The duties and obligations of the insurers that issued policies and their successors and assigns, or, with respect to any insolvent insurers, their liquidators and/or the state insurance guaranty funds that bear responsibility with respect to such rights under such policies which constitute the Asbestos Insurance Rights and Asbestos Property Damage Insurance Rights are not eliminated or diminished by the transfer pursuant to the Plan of the Debtors' rights in the Asbestos Insurance Rights and Asbestos Property Damage Insurance Rights pursuant to the Insurance Assignment Agreement; (xviii) The Settling Asbestos Insurance Companies are entitled to the benefits of the Asbestos Channeling Injunction with respect to Plan Trust Asbestos Claims; (xix) After Confirmation, each Asbestos Insurance Settlement Agreement of a Settling Asbestos Insurance Company and each Final Order of the Bankruptcy Court approving such Settlement Agreements shall be binding upon and inure to the benefit of the Plan Trust and the Plan Trustees, and each of the foregoing shall become fully bound by all of the terms and conditions of each such Asbestos Insurance Settlement Agreement without need for further act or documentation of any kind; (xx) After Confirmation, none of the Debtors, ABI, the Futures Representative, the Plan Trustees, the Asbestos Claimants' Committee, and the Claimants' Representative shall seek to terminate, reduce or limit the scope of the Asbestos Channeling Injunction or any other injunction contained in the Plan that inures to the benefit of any Settling Asbestos Insurance Company or ABI; and (xxi) At least 95% in amount of the allowed and valid votes with respect to the Plan for each of Classes 2 and 3 shall have accepted the Plan. (b) Confirmation Order. The Bankruptcy Court shall have made such findings and determinations regarding the Plan as shall enable the entry of the Confirmation Order and any other order entered in conjunction therewith, each of which shall be in form and substance acceptable to the Debtors, the 50 EXHIBIT A TO THE DISCLOSURE STATEMENT Asbestos Claimants' Committee, the Futures Representative, the Bondholders' Committee and ABI and, insofar as such findings and determinations affect the Financing Order or the rights of Wachovia thereunder, Wachovia. 11.2 Conditions to Effectiveness. Notwithstanding any other provision of the Plan or the Confirmation Order, the Effective Date of the Plan shall not occur unless and until each of the following conditions has been satisfied or waived in accordance with Section 11.3 below: (a) Confirmation Order. The Confirmation Order shall have been entered by the Bankruptcy Court and affirmed by the District Court or entered by the District Court and the Confirmation Order and any order of the District Court shall be in form and substance acceptable to the Debtors, the Asbestos Claimants' Committee, the Futures Representative, the Bondholders' Committee and ABI and the Confirmation Order (and affirming order of the District Court) shall have become a Final Order; provided, however, that the Effective Date may occur at a point in time when the Confirmation Order is not a Final Order at the option of the Debtors, with the written consent of ABI, unless the effectiveness of the Confirmation Order has been stayed, reversed or vacated. The Effective Date may occur, again at the option of the Debtors, with the written consent of ABI, on the first Business Day immediately following the expiration or other termination of any stay of effectiveness of the Confirmation Order. (b) Injunctions. The Discharge Injunction, the Asbestos Channeling Injunction and the Anti-Suit Injunction shall be in full force and effect. (c) Amended Credit Agreement. The Amended Credit Agreement or such other working capital exit facility entered into by the Reorganized Debtors which Amended Credit Agreement or other working capital exit facility shall contain terms similar to the Existing Credit Agreement (except that the Amended Credit Agreement or other working capital exit facility may be modified to provide for a lien on or security interest in real estate and any other collateral securing the New Senior Notes), and all documents to be executed in connection with the Amended Credit Agreement or such other exit facility, in form and substance reasonably satisfactory to the Debtors, shall not restrict Reorganized Congoleum's obligations to make scheduled interest payments on the New Senior Notes, the Plan Trust Note and the New Convertible Security except as provided in the New Convertible Security, and shall have been executed and delivered and all conditions precedent to effectiveness thereof shall have been satisfied or waived by the parties thereto. (d) Plan Documents. The Plan Documents necessary or appropriate to implement the Plan (which shall include without limitation, the New Convertible Security, the Plan Trust Note, the New Senior Notes, the Amended Credit Agreement or any other working capital exit facility, the Plan Trust Documents and the Insurance Assignment Agreement) shall have been executed, delivered and, where applicable, filed with the appropriate governmental authorities; all conditions precedent to the effectiveness of each of such Plan Documents shall have been satisfied or waived by the respective parties thereto; and the Plan Documents shall be in full force and effect. (e) New Senior Notes. The New Indenture shall have been executed and authorized and the New Senior Notes shall have been delivered in accordance with the New Indenture and shall constitute valid senior secured indebtedness of the Reorganized Debtors. 51 EXHIBIT A TO THE DISCLOSURE STATEMENT (f) Other Assurances. The Debtors shall have obtained either (i) a private letter ruling from the Internal Revenue Service establishing that the Plan Trust is a "qualified settlement fund" pursuant to Section 468(B) of the IRC and the regulations issued pursuant thereto, or (ii) other decisions, opinions or assurances regarding certain tax consequences of the Plan, satisfactory to the Debtors, the Reorganized Debtors, the Futures Representative and the Asbestos Claimants' Committee. (g) Other Approvals, Documents and Actions. All authorizations, consents and regulatory approvals required, if any, in connection with the consummation of the Plan shall have been obtained, and all actions, documents, and agreements necessary to implement the Plan shall have been effected or executed. (h) Insurance Settlement Protocol. The Debtors shall have obtained the consent of the Asbestos Claimants' Committee and the Futures Representative prior to reaching a compromise or settlement of any Asbestos Insurance Policy on or after August 4, 2006. 11.3 Waiver of Conditions. Each of the conditions set forth in Sections 11.1 and 11.2 above may be waived in whole or in part by the Debtors, with the written consent of ABI and, solely with respect to Section 11.2(f) above, the Asbestos Claimants' Committee and the Futures Representative and, solely with respect to Section 11.1(a)(xxi), 11.1(b) and 11.2(d) above, the Claimants' Representative, the Asbestos Claimants' Committee and the Futures Representative, each in its sole discretion, and, solely with respect to Sections 11.1(b) and 11.2(c), (d) and (e) above, the Bondholders' Committee, in its sole discretion, without any notice to other parties in interest or the Bankruptcy Court and without a hearing. The failure of the Debtors to exercise any of the foregoing rights shall not be deemed a waiver of any other rights, and each such right shall be deemed an ongoing right that may be asserted at any time. ARTICLE XII INJUNCTIONS, RELEASES AND DISCHARGE 12.1 Discharge. (a) Except as specifically provided in the Plan, the Plan Documents or in the Confirmation Order, as of the Effective Date, Confirmation shall discharge the Debtors and the Reorganized Debtors pursuant to section 1141(d)(1)(A) of the Bankruptcy Code from any and all Claims of any nature whatsoever and Demands including, without limitation, any Claims, demands and liabilities that arose before Confirmation, and all debts of the kind specified in section 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not (a) a Proof of Claim based on such Claim was filed or deemed filed under section 501 of the Bankruptcy Code, or such Claim was listed on the Schedules of the Debtors, (b) such Claim is or was Allowed under section 502 of the Bankruptcy Code, or (c) the holder of such Claim has voted on or accepted the Plan. Except as specifically provided in the Plan or Plan Documents, the rights that are provided in the Plan as of the Effective Date shall be in exchange for and in complete satisfaction, settlement and discharge of all Claims (including without limitation Asbestos Claims) or Demands against, Liens on, and interests in the Debtors or the Reorganized Debtors or any of their assets or properties. Notwithstanding anything herein to the contrary, nothing in this Section 12.1 shall affect the right of any Asbestos Insurance Company to assert any Asbestos Insurer Coverage Defenses. 52 EXHIBIT A TO THE DISCLOSURE STATEMENT (b) Notwithstanding any other provision of the Plan to the contrary, Confirmation shall not discharge any pre-Petition Date or post-Petition Date, pre-Confirmation Date liability that may be due from any of the Debtors to the Internal Revenue Service as currently set forth in that certain Proof of Claim filed by the Internal Revenue Service in the alleged amounts of $6,608,626.01 and $8,760,686.95 and that certain Administrative Expense Claim in the alleged amount of $4,002,431.97. Should any pre-Petition Date or post-Petition Date, pre-Confirmation Date tax liabilities be determined by the Internal Revenue Service to be due from any of the Debtors for any of the tax periods reflected by such Proof of Claim or Administrative Expense Claim, such liabilities shall be determined administratively or in a judicial forum in the manner in which such liabilities would have been resolved had these Reorganization Cases not been commenced. Any resulting liabilities determined pursuant to a Final Order or other final determination shall be paid as if these Reorganization Cases had not been commenced. 12.2 Release of Representatives of the Debtors. To the extent permitted by law applicable to cases under the Bankruptcy Code in the judicial district in which the Bankruptcy Court is located, except as otherwise specifically provided in the Plan and the Plan Documents, for good and valuable consideration, the receipt and sufficiency of which is acknowledged in the Plan, all current and former Representatives of the Debtors, on and after the Effective Date, are released from any and all Claims, obligations, rights, suits, damages, causes of action, remedies and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity or otherwise, that any Entity would have been legally entitled to assert in its own right (whether individually or collectively) or on behalf of the holder of any Claim or Interest or other Entity, based in whole or in part, upon any act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date, for claims or liabilities resulting from their services as officers or directors of the Debtors or to the extent such claims or liabilities relate to the business, operations or management of the Debtors prior to the Effective Date or to their conduct as professionals or advisors to any of the Debtors. For the avoidance of doubt, in no event shall any such Representative be released in the case of the gross negligence or willful misconduct of such Representative. 12.3 Exculpation. To the extent permitted by law applicable to cases under the Bankruptcy Code in the judicial district in which the Bankruptcy Court is located, as of the Effective Date, (a) each of the Reorganized Debtors, the Debtors, the Futures Representative, the Pre-Petition Asbestos Claimants' Committee, the Asbestos Claimants' Committee, the Bondholders' Committee, the Plan Trustees, ABI and any of their respective Representatives (i) shall not have or incur any liability to any Entity for any act or omission in connection with or arising out of the negotiation of the Plan or any Plan Document, negotiation of the settlement provided in the Collateral Trust, negotiation of the settlement provided in the Claimant Agreement, the pursuit of confirmation of the Plan, the consummation of the Plan, the Collateral Trust Agreement, the Claimant Agreement, the Security Agreement, the administration of the Plan or the property to be distributed under the Plan or the Class 2 and Class 3 and 11 Settlements, provided, however, that this exculpation provision shall not apply to Asbestos Insurer Coverage Defenses; and (ii) in all respects shall be entitled to rely upon the advice of counsel with respect to their duties and 53 EXHIBIT A TO THE DISCLOSURE STATEMENT responsibilities under the Plan and the other Plan Documents, provided, however, that in no event shall the Pre-Petition Asbestos Claimants' Committee be exculpated from liability under this Section 12.3 for any relief granted or any costs or expenses incurred in connection with the Avoidance Actions and in no event shall this Section 12.3 exculpate any party from liability for any claim asserted in the Avoidance Actions; and (b) the Claimants' Representative shall not have or incur any liability to any Entity in connection with or arising out of the receipt of a two million dollars ($2,000,000) advance from the Debtors prior to the Petition Date on account of the Claimants' Representatives' fees and expenses. For the avoidance of doubt, in no event shall any such party be exculpated from liability under this Section 12.3 in the case of the gross negligence or willful misconduct of such party. 12.4 Releases by Holders of Claims. To the extent permitted by law applicable to cases under the Bankruptcy Code in the judicial district in which the Bankruptcy Court is located, other than rights to the treatment provided in Article V of the Plan or as otherwise provided in the Plan or the Plan Documents herein, on and after the Effective Date, each holder of a Claim who has accepted the Plan shall be deemed to have unconditionally released the Released Non-Debtor Parties, the Pre-Petition Asbestos Claimants' Committee, the Asbestos Claimants' Committee, the Bondholders' Committee and their current and former Representatives from any and all Claims, obligations, rights, suits, damages, causes of action, remedies, and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity, or otherwise, that such Entity would have been legally entitled to assert (whether individually or collectively), based in whole or in part upon any act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date by the Debtors or the Reorganized Debtors, the Reorganization Cases, or the negotiation, formulation, and preparation of the Plan, the Plan Documents or any related agreements, instruments or other documents, provided, however, that in no event shall the Pre-Petition Asbestos Claimants' Committee be released from liability for any relief granted or any costs or expenses incurred in connection with the Avoidance Actions and in no event shall this Section 12.4 release any party from liability for any claim asserted in the Avoidance Actions. In addition, pursuant to this Section 12.4 and the Confirmation Order, which may include release(s) for the benefit of any Settling Asbestos Insurance Company consistent with the terms of this Section 12.4 and the terms of the relevant Asbestos Insurance Settlement Agreement, any holder of a Plan Trust Asbestos Claim that receives a payment from the Plan Trust shall be deemed to have unconditionally released the Plan Trust and each Settling Insurance Company from any and all Claims, obligations, rights, suits, damages, causes of action, remedies, and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity, or otherwise, arising from, relating to, or involving the manufacture, sale, distribution, installation, formulation, marketing, transport, handling or any other activity involving any asbestos containing products of Congoleum and any of Congoleum entities identified in the Confirmation Order, which may incorporate the terms of one or more Asbestos Insurance Settlement Agreement, or their premises to the extent such Claim arises from, relates to or involves exposure to asbestos, including without limitation, any operation claims, contribution claims, direct action claims, and insurance coverage claims. For the avoidance of doubt, in no event shall any such party be released under this Section 12.4 in the case of the gross negligence or willful misconduct of such party. 54 EXHIBIT A TO THE DISCLOSURE STATEMENT 12.5 Discharge Injunction. Except as specifically provided in the Plan Documents to the contrary, the satisfaction, release, and discharge set forth in Section 12.1 shall also operate as an injunction, pursuant to sections 105, 524(g) and 1141 of the Bankruptcy Code, prohibiting and enjoining the commencement or continuation of any action, the employment of process or any act to collect, recover from, or offset (a) any Claim or Demand against or Interest in the Debtors, the Reorganized Debtors, the Collateral Trust, or the Plan Trust by any Entity and (b) any cause of action, whether known or unknown, against the Released Parties based on such Claim or Interest described in subpart (a) of this Section 12.5. 12.6 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: (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. 55 EXHIBIT A TO THE DISCLOSURE STATEMENT 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; provided, however, none of the Debtors, the Reorganized Debtors, the Plan Trust or any of their respective successors or assigns may assert against ABI or any ABI Entity any claim, right or cause of action arising out of or related to any 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. 12.7 Reservation of Rights. Notwithstanding any other provision of the Plan to the contrary, the satisfaction, release and discharge, and the Injunctions set forth in Article XII, shall not serve to satisfy, discharge, release, or enjoin (a) claims by the Plan Trust, the Reorganized Debtors, ABI, and their Affiliates, or any other Entity, as the case may be, against (i) the Plan Trust for payment of Plan Trust Asbestos Claims in accordance with the Plan, the Plan Trust Agreement and the TDP, as applicable, (ii) the Plan Trust for the payment of Plan Trust Expenses, or (iii) the Reorganized Debtors, the Plan Trust, or any other Entity, to enforce the provisions of Section 6.2 or any provision of the Plan or another Plan Document, or (b) the rights of any Asbestos Insurance Company to assert any claim, debt, obligation, cause of action or liability for payment against any other Asbestos Insurance Company that is not a Settling Asbestos Insurance Company. 12.8 Rights Against Non-Debtors under Securities Laws. Notwithstanding any language to the contrary contained in the Disclosure Statement, Plan, and/or Confirmation Order, no provision shall release any non-Debtor, including any current and/or former officer and/or director of the Debtors and/or any non-Debtor included in the Released Non-Debtor Parties, from liability to the United States Securities and Exchange Commission, in connection with any legal action or claim brought by such governmental unit against such Person(s). 12.9 Rights Against Debtors Under Environmental Laws. Environmental rights and Claims of Governmental Units under applicable Environmental Laws shall survive the Reorganization Cases, shall not be discharged, impaired or adversely affected by the Plan and the Reorganization Cases and shall be determined in the manner and by the administrative or judicial tribunals in which such rights or Claims would have been resolved or adjudicated if the Reorganization Cases had not been commenced. Governmental Units need not file any Proofs of Claim under Environmental Laws in the Reorganization Cases in order to preserve Claims under Environmental Laws. Nothing in the Confirmation Order or Plan shall be construed as releasing or relieving any Entity of any liability under any Environmental Law. 56 EXHIBIT A TO THE DISCLOSURE STATEMENT 12.10 Disallowed Claims and Disallowed Interests. On and after the Effective Date, the Debtors shall be fully and finally discharged from any liability or obligation on a Disallowed Claim or a Disallowed Interest and any order creating a Disallowed Claim or a Disallowed Interest that is not a Final Order as of the Effective Date solely because of an Entity's right to move for reconsideration of such order pursuant to section 502 of the Bankruptcy Code or Bankruptcy Rule 3008 will nevertheless become and be deemed to be a Final Order on the Effective Date. The Confirmation Order, except as otherwise provided herein, or unless the Bankruptcy Court orders otherwise, shall constitute an order: (a) disallowing all Claims (other than Plan Trust Asbestos Claims that have not been previously expunged by Final Order of the Bankruptcy Court or withdrawn) and Interests to the extent such Claims and Interests are not allowable under any provision of section 502 of the Bankruptcy Code, including, but not limited to, time-barred Claims, and Claims for unmatured interest, and (b) disallowing or subordinating, as the case may be, any Claims, or portions of Claims, for penalties or Non-Compensatory Damages. 12.11 Anti-Suit Injunction. With respect to any Settling Asbestos Insurance Company, this Section 12.11 and the Confirmation Order, which may include anti-suit injunction(s) for the benefit of any Settling Asbestos Insurance Company consistent with the terms of this Section 12.11 and the terms of the relevant Asbestos Insurance Settlement Agreement, 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 any Settling Asbestos Insurance Company arising out of, relating to, or in connection with an Asbestos Insurance Policy or any other insurance policy or rights under such other insurance policy issued to or insuring the relationship of the relevant Settling Asbestos Insurance Companies with, the relevant Congoleum entities that are insureds under such policies, but such injunction pursuant to section 105(a) of the Bankruptcy Code shall not affect or modify the rights of Persons insured under policies of insurance except to the extent released in an Asbestos Insurance Settlement Agreement. 12.12 Insurance Neutrality. (a) Nothing in the Plan, the Plan Documents, the Confirmation Order, or any finding of fact and/or conclusion of law with respect to the Confirmation of the Plan or any order or opinion entered on appeal of the Confirmation Order, shall limit the right of any Asbestos Insurance Company to assert any Asbestos Insurer Coverage Defense. (b) The Plan, the Plan Documents and the Confirmation Order shall be binding on the Debtors, the Reorganized Debtors, the Plan Trust and the beneficiaries of the Plan Trust. The obligations, if any, of the Plan Trust to pay holders of Asbestos Personal Injury Claims and Demands shall be determined pursuant to the Plan and the Plan Documents. None of (I) the Bankruptcy Court's approval of the Plan or the Plan Documents, (II) the Confirmation Order or any finding and conclusions entered with respect to Confirmation, nor (III) any estimation or valuation of Asbestos Personal Injury Claims, either individually or in the aggregate (including, without limitation, any agreement as to the valuation of Asbestos Personal Injury Claims) in the Bankruptcy Case shall, with respect to any Asbestos Insurance Company (including on the basis of the decisions in UNR Industries, Inc. v. Continental Casualty Co., 942 F.2d 1101 (7th Cir. 1991) or Fuller-Austin Insulation Co. v. Fireman's Fund Inc., et al., Case No. BC 116 835, 2002 WL 31005090 (Cal. Superior Ct. August 6, 2002)), constitute a trial or hearing on the merits or an adjudication or judgment; or accelerate the obligations, if any, of any Asbestos Insurance Company under its Asbestos Insurance Policies; or be used as evidence in any forum to prove: 57 EXHIBIT A TO THE DISCLOSURE STATEMENT (i) that any of the Debtors, the Plan Trust, or any Asbestos Insurance Company is liable for, or otherwise obligated to pay with respect to, any individual Asbestos Personal Injury Claim or Demand; (ii) that the procedures established by the Plan, including the Trust Distribution Procedures, for evaluating and paying Asbestos Personal Injury Claims and Demands are reasonable; (iii) that the procedures established by the Plan, including the Trust Distribution Procedures, for evaluating and paying Asbestos Personal Injury Claims and Demands are consistent with any procedures that were used to evaluate or settle Asbestos Personal Injury Claims against the Debtors before the Petition Date; (iv) that the settlement of, or the value assigned to, any individual Asbestos Person Injury Claim pursuant to the Asbestos Personal Injury Trust Distribution Procedures was reasonable and/or otherwise appropriate; (v) that any of the Asbestos Insurance Companies participated in and/or consented to the negotiation of the Plan or any of the Plan Documents; (vi) that any of the Debtors or the Plan Trust has suffered an insured loss with respect to any Asbestos Personal Injury Claim or Demand; or (vii) as to (A) the liability of the Debtors or the Plan Trust for Asbestos Personal Injury Claims or Demands, whether such Claims or Demands are considered individually or on an aggregate basis; or (B) the value of such Asbestos Personal Injury Claims or Demands, individually or in the aggregate. (c) Nothing in the Plan or the Plan Documents shall affect or limit, or be construed as affecting or limiting, the protection afforded to any Settling Asbestos Insurance Company by the Injunctions under the Plan. (d) Nothing in this Section 12.12 is intended or shall be construed to preclude otherwise applicable principles of res judicata or collateral estoppel from being applied against any Asbestos Insurance Company with respect to any issue that is actually litigated by such Asbestos Insurance Company as part of its objections, if any, to Confirmation of the Plan or as part of any contested matter or adversary proceeding filed by such Asbestos Insurance Company in conjunction with or related to Confirmation of the Plan. (e) Nothing in the Plan, the Plan Documents, the Confirmation Order, or any finding of fact and/or conclusion of law with respect to the Confirmation or consummation of the Plan shall limit the right, if any, of (i) any Asbestos Insurance Company, in any Asbestos Insurance Action, to assert any Asbestos Insurance Coverage Defense, including by presenting evidence and/or argument 58 EXHIBIT A TO THE DISCLOSURE STATEMENT with respect to any of the matters specified in clauses (i) through (vii) of this Section 12.12 or (ii) any other party in any such Asbestos Insurance Action to assert any appropriate position. Except as provided in Section 12.12(d) above, none of the matters specified in clauses (i) through (vii) of this Section 12.12 shall have any res judicata or collateral estoppel effect against any Asbestos Insurance Company. ARTICLE XIII MATTERS INCIDENT TO PLAN CONFIRMATION 13.1 Term of Certain Injunctions and Automatic Stay. (a) All of the injunctions and/or automatic stays provided for in or in connection with the Reorganization Cases, whether pursuant to section 105, 362, 524(g), or any other provision of the Bankruptcy Code or other applicable law, in existence immediately prior to Confirmation shall remain in full force and effect until the Injunctions become effective, and thereafter if so provided by the Plan, the Confirmation Order, or by their own terms. In addition, on and after Confirmation, the Debtors may seek such further orders as they may deem necessary to preserve the status quo during the time between Confirmation and the Effective Date. (b) Each of the Injunctions shall become effective on the Effective Date and shall continue in effect at all times thereafter. Notwithstanding anything to the contrary contained in the Plan, all actions in the nature of those to be enjoined by the Injunctions shall be enjoined during the period between the Confirmation Date and the Effective Date. 13.2 No Successor Liability. Except as otherwise expressly provided in the Plan, the Debtors, the Reorganized Debtors, ABI, their Affiliates, Asbestos Claimants' Committee, the Bondholders' Committee, the Pre-Petition Asbestos Claimants' Committee, the Plan Trust and the Futures Representative do not, pursuant to the Plan or otherwise, assume, agree to perform, pay, or indemnify creditors or otherwise have any responsibilities for any liabilities or obligations of the Debtors relating to or arising out of the operations of or assets of the Debtors, whether arising prior to, on, or after the Confirmation Date. Neither the Debtors, the Reorganized Debtors, ABI, their Affiliates, nor the Plan Trust is, or shall be, a successor to the Debtors by reason of any theory of law or equity, and none shall have any successor or transferee liability of any kind or character, except that the Reorganized Debtors and the Plan Trust shall assume the obligations specified in the Plan Documents and the Confirmation Order. 13.3 Revesting. Except as otherwise expressly provided in the Plan, on the Effective Date, each Reorganized Debtor shall be vested with all of the assets and property of its former Estate, free and clear of all Claims, Liens, charges and other interests of holders of Claims or Interests, and may operate its business free of any restrictions imposed by the Bankruptcy Code or by the Bankruptcy Court. 13.4 Vesting and Enforcement of Causes of Action. Pursuant to section 1123(b)(3)(B) of the Bankruptcy Code, except as otherwise provided in the Plan, the Reorganized Debtors shall be vested with and have the right to enforce against any Entity any and all of the Debtors' Causes of Action other than Causes of Action related to Plan Trust Asbestos Claims and Plan Trust Assets (including the right to pursue such claims, if any, in the name of any Debtor if 59 EXHIBIT A TO THE DISCLOSURE STATEMENT necessary), with the proceeds of the recovery of any such actions to be property of the Reorganized Debtors; provided, however, that nothing herein shall alter, amend, or modify the injunctions (including the Injunctions), releases, or discharges provided herein. Pursuant to section 1123(b)(3)(B) of the Bankruptcy Code, except as otherwise provided in the Plan, the Plan Trust shall be vested with and have the right to enforce against any Entity any and all of the Debtors' Causes of Action relating to any Plan Trust Asbestos Claims or any Plan Trust Assets, including, without limitation, the right to void any Asbestos Claim of a Qualified Pre-Petition Settlement Claimant or of a Qualified Participating Claimant whether because of failure to comply with the requirements of any applicable settlement agreement (including the Claimant Agreement) or because such Claim was not submitted in good faith or otherwise and including the right to pursue such claims, if any, in the name of any Debtor, if necessary; and for this purpose the Plan Trust shall be designated as a representative of the Estates, with the proceeds of the recovery of any such actions to be property of the Plan Trust; provided, however, that nothing herein shall alter, amend, or modify the injunctions (including the Injunctions), releases, or discharges provided herein. 13.5 Plan Trust Bankruptcy Causes of Action. On the Effective Date, the Debtors shall assign to the Plan Trust all Plan Trust Bankruptcy Causes of Action; provided, however, that any Plan Trust Bankruptcy Cause of Action, including counts VII and XVI of the Omnibus Avoidance Action, arising from the advance of two million dollars ($2,000,000) to the Claimants' Representative prior to the Petition Date on account of the Claimants' Representatives' fees and expenses, shall not be assigned to the Plan Trust and shall be unconditionally released by the Debtors and their Estates in accordance with Section 12.3 of the Plan. All such Plan Trust Bankruptcy Causes of Action shall constitute part of the Plan Trust Assets, and shall be transferred to and vested in the Plan Trust as of the Effective Date, free and clear of all Claims, Liens and encumbrances of every nature. The Plan Trust shall be deemed the appointed representative of the Debtors' estates to, and may, enforce, pursue, litigate, abandon, compromise and settle any such Plan Trust Bankruptcy Cause of Action, as it deems appropriate. 13.6 Bankruptcy Causes of Action. On the Effective Date, all Bankruptcy Causes of Action shall be preserved for enforcement solely by the Reorganized Debtors; provided, however, that the Reorganized Debtors shall not retain any such Bankruptcy Causes of Action against any parties indemnified by the Plan Trust pursuant to Section 4.6 of the Plan Trust Agreement. ARTICLE XIV MISCELLANEOUS 14.1 Jurisdiction. Until the Reorganization Cases are closed, the Bankruptcy Court shall retain the fullest and most extensive jurisdiction permissible, including that necessary to ensure that the purposes and intent of the Plan are carried out. Except as otherwise provided in the Plan, the Bankruptcy Court shall retain jurisdiction to hear and determine all Claims against and Interests in the Debtors, and to adjudicate and enforce all other causes of action which may exist on behalf of the Debtors. Nothing contained herein shall prevent the Debtors, the Reorganized Debtors, or the Plan Trust from taking such action as may be necessary in the enforcement of any cause of action which the Debtors have or may have and which may not have been enforced or prosecuted by the Debtors, which cause of action shall survive Confirmation 60 EXHIBIT A TO THE DISCLOSURE STATEMENT of the Plan and shall not be affected thereby except as specifically provided herein. Nothing contained herein concerning the retention of jurisdiction by the Bankruptcy Court shall be deemed to be a retention of exclusive jurisdiction with respect to any Asbestos Insurance Action; rather any court other than the Bankruptcy Court which has jurisdiction over an Asbestos Insurance Action shall have the continuing right to exercise such jurisdiction. 14.2 General Retention. Following the Confirmation of the Plan, the administration of the Reorganization Cases will continue at least until the completion of the transfers contemplated to be accomplished on the Effective Date. Moreover, the Plan Trust shall be subject to the continuing jurisdiction of the Bankruptcy Court to the extent required by the requirements of section 468B of the IRC and the regulations issued pursuant thereto. The Bankruptcy Court shall also retain jurisdiction for the purpose of classification of any Claim and the re-examination of Claims that have been Allowed for purposes of voting, and the determination of such objections as may be filed with the Bankruptcy Court with respect to any Claim. The failure by the Debtors to object to, or examine, any Claim for the purposes of voting, shall not be deemed a waiver of the right of the Debtors, the Reorganized Debtors, or the Plan Trust, as the case may be, to object to or re-examine such Claim in whole or in part. 14.3 Specific Purposes. In addition to the foregoing, the Bankruptcy Court shall retain jurisdiction for the following specific purposes after Confirmation: (a) to modify the Plan after Confirmation, pursuant to the provisions of the Bankruptcy Code and the Bankruptcy Rules; (b) to correct any defect, cure any omission, reconcile any inconsistency, or make any other necessary changes or modifications in or to the Plan, the Plan Documents or the Confirmation Order as may be necessary to carry out the purposes and intent of the Plan, including the adjustment of the date(s) of performance under the Plan Documents in the event that the Effective Date does not occur as provided herein so that the intended effect of the Plan may be substantially realized thereby; (c) to assure the performance by the Disbursing Agent, the Indenture Trustee and the Plan Trustees of their respective obligations to make distributions under the Plan; (d) to enforce and interpret the terms and conditions of the Plan Documents; (e) to enter such orders or judgments, including, but not limited to, injunctions as are necessary to (i) enforce the title, rights, and powers of the Debtors, the Reorganized Debtors, the Plan Trust, ABI, the Futures Representative and the Trust Advisory Committee or (ii) enable holders of Claims to pursue their rights against any Entity that may be liable therefor pursuant to applicable law or otherwise, including, but not limited to, Bankruptcy Court orders; (f) to hear and determine any motions or contested matters involving taxes, tax refunds, tax attributes, tax benefits, tax proceedings, and similar or related matters with respect to the Debtors, the Reorganized Debtors, or the Plan Trust relating to tax periods or portions thereof ending on or before the Effective Date, arising on account of transactions contemplated by the Plan Documents, or relating to the period of administration of the Reorganization Cases; 61 EXHIBIT A TO THE DISCLOSURE STATEMENT (g) to hear and determine all applications for compensation of professionals and reimbursement of expenses under sections 330, 331, or 503(b) of the Bankruptcy Code; (h) to hear and determine any causes of action arising during the period from the Petition Date through the Effective Date; (i) to hear and determine any claim, causes of action, dispute or other matter in any way related to the Plan Documents or the transactions contemplated thereby, against the Debtors, the Reorganized Debtors, ABI, the ABI Parties, the Trust Advisory Committee, the Plan Trust, the Collateral Trust, the Plan Trustees, the Collateral Trustee or the Futures Representative and each of their respective Representatives; (j) to hear and determine any and all motions pending as of Confirmation for the rejection, assumption, or assignment of executory contracts or unexpired leases and the allowance of any Claim resulting therefrom; (k) to hear and determine such other matters and for such other purposes as may be provided in the Confirmation Order; (l) to consider and act on the compromise and settlement of any Claim against or Interest in the Debtors or their Estates; (m) to hear and determine all questions and disputes regarding title to the assets of the Debtors, their Estates, the Reorganized Debtors or the Plan Trust; (n) to hear and determine any other matters related hereto, including the implementation and enforcement of all orders entered by the Bankruptcy Court in these Reorganization Cases; (o) to retain continuing jurisdiction with regard to the Plan Trust sufficient to satisfy the requirements of the Treasury Regulations promulgated under section 468B of the IRC (including Treas. Reg. Section 1.468B-1(c)(1)); (p) to hear and determine any and all applications brought by the Plan Trustees to amend, modify, alter, waive, or repeal any provision of the Plan Trust Agreement or the TDP; (q) to enter such orders as are necessary to implement and enforce the Injunctions and the other injunctions described herein, including, without limitation, orders extending the protections afforded by section 524(g)(4) of the Bankruptcy Code to the Protected Parties, including without limitation, ABI, the ABI Parties and the Settling Asbestos Insurance Companies; and (r) to hear and determine any motions or contested matters involving or related to the GHR/Kenesis Actions or the GHR/Kenesis Litigation Trust. Notwithstanding anything to the contrary in this Section 14.3, (i) the allowance of Plan Trust Asbestos Claims (other than Asbestos Property Damage Claims) and the forum in which such allowance will be determined, governed by, and in accordance with the Plan Trust Agreement and the Trust Distribution Procedures and (ii) the Bankruptcy Court will have concurrent rather than exclusive jurisdiction with respect to disputes relating to rights under insurance policies included in the Plan Trust Assets. 62 EXHIBIT A TO THE DISCLOSURE STATEMENT 14.4 Payment of Statutory Fees. All fees payable pursuant to section 1930 of title 28 of the United States Code, as determined by the Bankruptcy Court at the Confirmation Hearing, shall be paid by the Debtors on or before the Effective Date and thereafter by the Reorganized Debtors as due until the Reorganization Cases are closed, converted or dismissed. 14.5 The Asbestos Claimants' Committee, the Futures Representative and the Bondholders' Committee. The Asbestos Claimants' Committee shall continue in existence until the Effective Date, with the Debtors to pay the reasonable fees and expenses of the Asbestos Claimants' Committee and the Futures Representative through that date as well, in accordance with any fee and expense procedures promulgated during the Reorganization Cases. After the Effective Date, the Futures Representative shall (a) continue in existence and the rights, duties and responsibilities of the Futures Representative shall be as set forth in the Plan Trust Documents and (b) have the right to prosecute and/or object to applications for Professional Fee Claims. The Representatives retained by the Futures Representative during the Reorganization Cases shall, as of the Effective Date, be released and discharged of and from all further authority, duties, responsibilities and obligations related to, or arising from, the Reorganization Cases. On the Effective Date, the Bondholders' Committee shall be dissolved except for the purposes of: (a) prosecuting any appeal or request for reconsideration or stay pending appeal of the Confirmation Order; (b) pending adversary proceedings; (c) enforcing the Additional Bondholder Recovery, if applicable; and (d) prosecuting and/or objecting to Professional Fee claims, and the members, attorneys, accountants, and other professionals thereof shall be released and discharged of and from all further authority, duties, responsibilities, liabilities, and obligations related to, or arising from, the Reorganization Cases. On the Effective Date, the Trust Advisory Committee will assume those powers, duties, and responsibilities as provided in the Plan Trust Agreement. 14.6 Revocation of Plan. The Debtors reserve the right to revoke and withdraw the Plan before the entry of the Confirmation Order. If the Debtors revoke or withdraw the Plan, or if Confirmation does not occur, then, with respect to all parties in interest, the Plan shall be deemed null and void and nothing contained herein shall be deemed to constitute a waiver or release of any Claims by or against the Debtors or any other Entity or to prejudice in any manner the rights of the Debtors or such Entity in any further proceedings involving the Debtors. 14.7 Modification of Plan. The Debtors, with the written consent of ABI, may propose amendments to or modifications of any of the Plan Documents under section 1127 of the Bankruptcy Code at any time prior to the Confirmation Date. After Confirmation, the Debtors, with the written consent of the Futures Representative, the Plan Trustees, the Bondholders' Committee and ABI, may remedy any defects or omissions or reconcile any inconsistencies in the Plan or the Confirmation Order or any other order entered for the purpose of implementing the Plan in such manner as may be necessary to carry out the purposes and intent of the Plan, provided, however, that none of the Debtors, ABI, the Futures Representative, the Plan Trustees, the Asbestos Claimants' Committee, the Bondholders' Committee and the Claimants' Representative shall seek to terminate, reduce or limit the scope of the Asbestos Channeling Injunction or any other injunction contained in the Plan that inures to the benefit of any Settling Asbestos Insurance Company. Anything in the Plan or in 63 EXHIBIT A TO THE DISCLOSURE STATEMENT any Plan Document to the contrary notwithstanding, following Confirmation but prior to the Effective Date, the Plan Documents shall not be modified, supplemented, changed or amended in any material respect except with the written consent of ABI (to the extent that any such modification, supplementation, change, or amendment impairs or affects the rights of ABI, or the Affiliates under the Plan), the Futures Representative, the Bondholders' Committee (to the extent that any such modification, supplement, change or amendment impairs or affects the rights of holders of Senior Note Claims) and the Debtors. Unless otherwise provided in the Confirmation Order or other order of a court of competent jurisdiction in the event of a conflict between the terms or provisions of the Plan and the Plan Trust Documents, the terms of the Plan shall control; provided, however, the New Indenture shall control any conflict involving the New Senior Notes. 14.8 Modification of Payment Terms. The Reorganized Debtors reserve the right to modify the treatment of any Allowed Claim (other than a Plan Trust Asbestos Claim), as provided in section 1123(a)(4) of the Bankruptcy Code, at any time after the Effective Date upon the consent of the holder of such Allowed Claim, and solely with respect to any Allowed ABI Claim, with the additional consent of the Futures Representative and the Plan Trustees. 14.9 Entire Agreement. The Plan Documents and the Plan Trust Documents set forth the entire agreement and undertakings relating to the subject matter thereof and supersede all prior discussions and documents. No Entity shall be bound by any terms, conditions, definitions, warranties, understandings, or representations with respect to the subject matter hereof, other than as expressly provided for herein or as may hereafter be agreed to by the parties in writing. 14.10 Headings. Headings are utilized in the Plan for convenience and reference only and shall not constitute a part of the Plan for any other purpose. 14.11 Professional Fee Claims. All final requests for payment of Professional Fee Claims must be filed and served on the Reorganized Debtors and their counsel no later than 60 days after the Effective Date, unless otherwise ordered by the Bankruptcy Court. Objections to any application of such Bankruptcy Professionals or other Entities for compensation or reimbursement of expenses must be filed and served on the respective applicant and its counsel no later than the first Business Day following 30 days (or such other period as may be allowed by order of the Bankruptcy Court) after the date on which the applicable application for compensation or reimbursement was received. The Reorganized Debtors may pay the reasonable charges that they incur on and after the Effective Date for Bankruptcy Professionals' fees, disbursements, expenses or related support services without application to the Bankruptcy Court. The Reorganized Debtors shall pay the reasonable fees and expenses of the Bondholders' Committee after the Effective Date in connection with the purposes set forth in Section 14.5 of this Plan, without application to the Bankruptcy Court. 14.12 Recordable Order. Upon Confirmation of the Plan, the Confirmation Order shall be deemed to be in recordable form, and shall be accepted by any recording officer for filing and recording purposes without further or additional orders, certifications, or other supporting documents. 14.13 Governing Law. Except to the extent that federal law (including, but not limited to, the Bankruptcy Code and the Bankruptcy Rules) is applicable or where the Plan provides otherwise, the rights and obligations arising under the 64 EXHIBIT A TO THE DISCLOSURE STATEMENT Plan shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof that would require application of any other law. 14.14 No Admission. Nothing contained in the Plan or in the Disclosure Statement shall be deemed as an admission by the Debtors, with respect to any matter set forth herein or therein, including, without limitation, liability on any Claim or the propriety of any Claims classification. 14.15 Consent to Jurisdiction. Upon default under the Plan or any Plan Documents, the Debtors, the Reorganized Debtors, the Affiliates, ABI, the Plan Trust, the Trust Advisory Committee, the Futures Representative, and the Plan Trustees consent to the jurisdiction of the Bankruptcy Court, or any successor thereto, and agree that it shall be the preferred forum for all proceedings relating to such default. 14.16 Setoffs. Subject to the limitations provided in section 553 of the Bankruptcy Code, the Debtors or the Plan Trust, as applicable, may, but shall not be required to, setoff against any Claim and the-payments or other distributions to be made pursuant to the Plan in respect of such Claim, claims of any nature whatsoever the Debtors may have against the holder of such Claim, but neither the failure to do so nor the allowance of any Claim hereunder shall constitute a waiver or release by the Debtors of any such claim that the Debtors may have against such holder; provided that Reorganized Congoleum may not offset any obligations under the New Convertible Security, the Plan Trust Note or the New Class A Common Stock (including any shares of New Class A Common Stock required to be issued by Reorganized Congoleum in accordance with Exhibit E to the Plan) against any claim that Reorganized Congoleum may have against the Plan Trust. 14.17 Successors and Assigns. The rights, duties, and obligations of any Entity named or referred to in the Plan shall be binding upon, and shall inure to the benefit of, the successors and assigns of such Entity. 14.18 Non-Debtor Waiver of Rights. Non-Debtor parties shall have the right to voluntarily waive any rights, benefits or protections that are afforded to them under the provisions of the Plan or any order issued in furtherance of the Plan, and such waiver shall supersede such rights, benefits or protections. Any such waiver shall only be effective if such party expressly and specifically waives in writing one or more of such rights, benefits or protections. 14.19 Further Authorizations. The Debtors, the Reorganized Debtors, the Plan Trust, ABI and the Futures Representative, if and to the extent necessary, may seek with notice to the others such orders, judgments, injunctions, and rulings that any of them deem necessary to further carry out the intentions and purposes of, and give full effect to the provisions of, the Plan. 14.20 Notices. All notices, requests, elections, or demands in connection with the Plan shall be in writing and shall be mailed by registered or certified mail, return receipt requested, to: 65 EXHIBIT A TO THE DISCLOSURE STATEMENT If to the Debtors: Pillsbury Winthrop Shaw Pittman LLP 1540 Broadway New York, NY 10033-4039 Attn: Richard L. Epling Robin L. Spear Kerry A. Brennan Okin, Hollander & DeLuca, LLP Parker Plaza 400 Kelby Street Fort Lee, NJ 07024 Attn: Paul S. Hollander James J. DeLuca If to the Futures Representative: R. Scott Williams, Esquire Haskell Slaughter Young & Rediker, L.L.C. 2001 Park Place North, Suite 1400 Birmingham, AL 35203 and Orrick, Herrington & Sutcliffe LLP 3050 K Street, N.W. Washington, DC 20007 Attn: Roger Frankel Richard Wyron Jonathon Guy If to the Asbestos Claimants' Committee: Caplin & Drysdale, Chtd. One Thomas Circle, N.W. Washington, D.C. 20005 Attn: Peter Van N. Lockwood Ronald Reinsel If to the Bondholders' Committee: Akin Gump Strauss Hauer & Feld LLP 590 Madison Avenue New York, NY 10022 Attn: Michael S. Stamer 66 EXHIBIT A TO THE DISCLOSURE STATEMENT Akin Gump Strauss Hauer & Feld LLP 1333 New Hampshire Avenue, N.W. Washington D.C. 20036 Attn: James R. Savin If to the Claimants' Representative: Stutzman, Bromberg, Esserman & Plifka 2323 Bryan Street, Suite 2200 Dallas, TX 75201 Attn: Sander Esserman 14.21 Duty to Cooperate. Notwithstanding anything herein to the contrary, nothing in the Plan, the Plan Documents or the Confirmation Order shall relieve (by way of injunction or otherwise) any of the Debtors or Reorganized Debtors or any other Entity which is or claims to be an insured or entitled to indemnity under an Asbestos Insurance Policy from any duty to cooperate that may be required by any such insurance policy under applicable law with respect to the defense and/or settlement of any Claim for which coverage is sought under such Asbestos Insurance Policy. To the extent that any entity incurs costs in satisfying such duty to cooperate with respect to Asbestos Personal Injury Claims, the Plan Trust shall reimburse such entity for all such reasonable out-of-pocket expenses. [Remainder of page intentionally left blank.] 67 EXHIBIT A TO THE DISCLOSURE STATEMENT CONGOLEUM CORPORATION By: /s/ HOWARD N. FEIST III -------------------------------- Name: Howard N. Feist III Title: Chief Financial Officer and Secretary CONGOLEUM SALES, INC. By: /s/ HOWARD N. FEIST III -------------------------------- Name: Howard N. Feist III Title: Vice President, Treasurer and Secretary CONGOLEUM FISCAL, INC. By: /s/ HOWARD N. FEIST III -------------------------------- Name: Howard N. Feist III Title: Vice President, Treasurer and Secretary THE ASBESTOS CLAIMANTS' COMMITTEE By: /s/ RONALD REINSEL -------------------------------- Name: Ronald Reinsel Title: Counsel to Asbestos Claimants' Committee EXHIBIT A TO THE PLAN Congoleum Corporation Schedule of Property Damage Insurance Policies - ------------------------------------------------------------------------------- Effective Date Company Policy Number - ------------------------------------------------------------------------------- 01/01/55-01/01/56 Liberty LB-24-914417-55 - ------------------------------------------------------------------------------- 01/01/56-01/01/57 Liberty LP-24-692115-56 - ------------------------------------------------------------------------------- 01/01/57-01/01/58 Liberty LP-6032-900078-37 - ------------------------------------------------------------------------------- 01/01/58-01/01/59 Liberty LP-6032-900078-38 - ------------------------------------------------------------------------------- 01/01/59-01/01/60 Liberty LP-6032-900078-39 - ------------------------------------------------------------------------------- 01/01/60-01/01/61 Liberty LP-632-004138-040-93 - ------------------------------------------------------------------------------- 01/01/61-01/01/62 Liberty LP-632-0041 38-041-93 - ------------------------------------------------------------------------------- 01/01/62-01/01/63 Liberty LP-632-0041 38-042-93 - ------------------------------------------------------------------------------- 01/01/63-01/01/64 Liberty LP-632-0041 38-043-93 - ------------------------------------------------------------------------------- 01/01/64-01/01/65 Liberty LP-632-0041 38-044-93 - ------------------------------------------------------------------------------- 01/01/65-01/01/66 Liberty LP-632-0041 38-045-93 - ------------------------------------------------------------------------------- 01/01/66-01/01/67 Liberty LP-632-0041 38-046-93 - ------------------------------------------------------------------------------- 01/01/67-01/01/68 Liberty LG1-632-0041 38-047-9 - ------------------------------------------------------------------------------- 01/01/68-01/01/69 Liberty LG1-632-0041 38-048-9 - ------------------------------------------------------------------------------- 01/01/69-01/01/70 Liberty LG1-632-0041 38-049-9 - ------------------------------------------------------------------------------- 01/01/70-01/01/71 Liberty LGI-632-0041 38-040-9 - ------------------------------------------------------------------------------- 01/01/71-01/01/72 Liberty LG1-632-0041 38-041-9 - ------------------------------------------------------------------------------- 01/01/72-01/01/73 Liberty LG1-632-0041 38-042-9 - ------------------------------------------------------------------------------- 01/01/75-03/01/76 Wausau 0526-00-084282 - ------------------------------------------------------------------------------- EXHIBIT B TO THE PLAN Exhibit B to the Plan "Collateral Trust Agreement" EXHIBIT B TO THE PLAN COLLATERAL TRUST AGREEMENT This irrevocable trust agreement (the "Collateral Trust Agreement") is entered into by and between Congoleum Corporation, a Delaware Corporation ("Congoleum"), Arthur J. Pergament, solely in his capacity as the Collateral Trustee hereunder (the "Collateral Trustee"), and Wilmington Trust Company, a Delaware banking corporation, solely in its capacity as Delaware Trustee hereunder ("Delaware Trustee") (the Collateral Trustee and Delaware Trustee are sometimes referred to herein as "Trustee" or collectively as the "Trustees") (Congoleum and the Trustees collectively, the "Parties"). RECITALS WHEREAS, numerous individuals have asserted asbestos-related bodily injury claims against Congoleum (each an "Asbestos Claimant" and collectively, the "Asbestos Claimants"), each alleging exposure to an asbestos-containing product manufactured, sold, or distributed by Congoleum or for which Congoleum otherwise may have legal liability (the "Asbestos Claims"), and it is anticipated that additional asbestos-related bodily injury claims will continue to be asserted against Congoleum (collectively, the "Asbestos Actions"); and WHEREAS, Congoleum and certain Asbestos Claimants, contemporaneously herewith, are executing a settlement agreement, titled Settlement Agreement Between Congoleum Corporation and Various Asbestos Claimants (the "Claimant Agreement"); and WHEREAS, Congoleum entered into settlement agreements prior to the Claimant Agreement to resolve certain Asbestos Claims, under which some or all of the consideration has yet to be paid (the "Pre-Existing Settlement Agreements"); and WHEREAS, Congoleum may enter into additional settlement agreements to resolve certain Asbestos Claims that are scheduled for trial prior to the commencement of an anticipated chapter 11 reorganization case for Congoleum in an aggregate amount not to exceed $15,000,000.00 (the "Trial-Listed Settlement Agreements"); and 2 EXHIBIT B TO THE PLAN WHEREAS, Congoleum, contemporaneously herewith, is executing an agreement titled Security Agreement ("Security Agreement"), granting to the Collateral Trust (as defined below) a present and continuing security interest in certain insurance proceeds; and WHEREAS, Congoleum, to the extent permissible under applicable law, intends that the Collateral Trust be characterized as a Qualified Settlement Fund pursuant to Section 468B of the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder ("QSF"); and WHEREAS, Congoleum has asked the Trustees to act as the Collateral Trustee and the Delaware Trustee, as applicable, and the Trustees have agreed to accept this appointment under the terms hereof; and WHEREAS, the Parties desire to enter into this Collateral Trust Agreement to confirm their agreements with respect to (i) the establishment, maintenance, investment and disbursement of the Trust Assets (as defined below); and (ii) certain other matters relating to the foregoing, as hereafter provided. NOW, THEREFORE, the Parties hereby agree as follows: AGREEMENT I. Establishment of THE Collateral Trust A. Creation and Name. The Parties hereby create a trust known as the "Congoleum Collateral Trust," which is the "Collateral Trust" provided for and referred to in the Claimant Agreement. The Collateral Trustee may transact the business and affairs of the Collateral Trust in the name "Congoleum Collateral Trust." 3 EXHIBIT B TO THE PLAN B. Purpose. The purpose of the Collateral Trust is: (i) to hold security interests in the Collateral (as defined in the Security Agreement); (ii) to receive Insurance Proceeds (as defined in the Security Agreement); and (3) to pay amounts owed by Congoleum to various parties to Pre-Existing Settlement Agreements, Trial-Listed Settlement Agreements, and Claimant Agreement, and otherwise to meet the purposes and requirements stated in those agreements. II. Payment of Claims and Collateral Trust Administration A. Qualified Claims. Subject to the terms and conditions herein and in the Claimant Agreement, the following persons and entities shall be entitled to receive payment from the Collateral Trust in the following amounts: 1. An Asbestos Claimant as to which Congoleum notifies the Collateral Trustee in writing that such Asbestos Claimant who entered into a Pre-Existing Settlement Agreement or a Trial-Listed Settlement Agreement with Congoleum has satisfied the requirements to qualify for payment under the terms of the applicable Pre-Existing Settlement Agreement or Trial-Listed Settlement Agreement (an Asbestos Claimant who has qualified under either a Pre-Existing Settlement Agreement or a Trial-Listed Settlement Agreement shall be referred to herein as a "Qualified First Priority Claimant"). Such Qualified First Priority Claimant shall be paid the applicable amount specified in the notice of satisfaction of the requirements for payment provided by Congoleum to the Trustee (the "First Priority Settlement Amount"). First Priority Settlement Amounts shall be paid in the order in which such Asbestos Claimants become Qualified First Priority Claimants. Each Qualified First Priority Claimant's First Priority Settlement Amount shall be fully secured, and shall be reduced by the amount of all payments received by the Qualified First Priority Claimant from Congoleum, the Collateral Trust, or any successor trust. 4 EXHIBIT B TO THE PLAN 2. An Asbestos Claimant as to which the Claims Reviewer (as defined below) notifies the Trustee in writing that an Asbestos Claimant has satisfied the requirements to qualify as a Participating Asbestos Claimant (as defined in the Claimant Agreement). Such Participating Asbestos Claimant shall have a secured claim (the "Asbestos Claimant's Secured Claim") equal to seventy-five percent (75%) of the Participating Asbestos Claimant's Settlement Amount (as defined in the Claimant Agreement). Each Asbestos Claimant's Secured Claim shall be reduced by the amount of all payments received by the Participating Asbestos Claimant from the Collateral Trust or any successor trust. 3. A claims-handling entity ("Claims Reviewer") as designated by Congoleum with the consent of Claimants' Counsel (as defined in the Claimant Agreement) shall be paid its fees and costs as agreed (the "Claims Handling Fee"). Congoleum shall be reimbursed by the Collateral Trust for all or part of the Claims Handling Fee paid by Congoleum. B. Payment of Qualified Claims. The Collateral Trustee shall make payments from the Trust Assets (as defined below) from time to time to the extent that the Collateral Trustee believes it is prudent in light of the funds available for distribution, the requirements of II.B.6 and II.F. below, and other factors, as follows: 1. The Collateral Trustee shall pay the Settlement Amounts owed to the Qualified First Priority Claimants in the order in which the Qualified First Priority Claimants become Qualified First Priority Claimants based upon notice from Congoleum. 5 EXHIBIT B TO THE PLAN 2. Following the payment in full of the Qualified First Priority Claimants, the Collateral Trustee shall pay to the Claims Reviewer and/or reimburse Congoleum for the Claims Handling Fee that has been paid by Congoleum to the Claims Reviewer. 3. Following the payment in full of the Claims Handling Fee, the Collateral Trustee shall pay subsequent distributions up to $200 million in total distributions to Participating Asbestos Claimants on a pro-rata basis in accordance with Section II.C in an amount not to exceed each Participating Asbestos Claimants' Secured Claim. 4. Following the payment of distributions aggregating $200 million to participating Asbestos Claimants, the Collateral Trustee shall pay all subsequent distributions as follows: a. Fifty percent (50%) to Participating Asbestos Claimants on a pro-rata basis in accordance with Section II.C in an amount not to exceed each Participating Asbestos Claimants' Secured Claim; and b. The remainder to a reserve account, which the Collateral Trustee shall maintain and hold until it is distributed pursuant to Section II.B.5 (the "Reserve"). 5. Upon or as soon as practicable after the establishment by Congoleum of a trust qualified as a QSF pursuant to a confirmed plan of reorganization in a case commenced by Congoleum as a debtor under chapter 11 of title 11 U.S.C., that preserves the rights of the beneficiaries hereunder and provides for the transfer of the Trust Assets, including the Reserve to a plan trust (the "Plan Trust"), the Collateral Trustee shall release the security interests granted by the Security Agreement and pay any remaining Trust Assets to the Plan Trust in accordance with the plan of reorganization. If no Plan Trust is established on or before the later of (a) three (3) years from the date of this Collateral Trust Agreement or (b) such time as all Participating Asbestos Claimants' Secured Claims are paid in full, the Collateral Trustee transfer any remaining Trust Assets, including the Reserve, to Congoleum. 6 EXHIBIT B TO THE PLAN 6. Notwithstanding anything in this Collateral Trust Agreement to the contrary, from time to time the Collateral Trustee shall deduct from the Trust Assets and shall pay (a) such amounts as are reasonably necessary to pay Administrative Expenses (as defined below), and (b) any and all attorneys' fees or other professional fees, and related expenses and disbursements, incurred by or on behalf of Congoleum or any Congoleum successor in connection with the pursuit by Congoleum or any Congoleum successor of Congoleum's insurance coverage. C. Pro-Rata Distributions to Participating Asbestos Claimants. All distributions from the Collateral Trust to Participating Asbestos Claimants shall be allocated to individual Participating Asbestos Claimants by multiplying the aggregate amount of the distribution to be made by a fraction, the numerator of which is the unpaid amount of the Participating Asbestos Claimant's Secured Claim and the denominator of which is the total of all remaining unpaid Participating Asbestos Claimants' Secured Claims. D. Trust Assets. 1. In furtherance of the purposes of the Collateral Trust, the Collateral Trustee, on behalf of the Collateral Trust, shall receive and accept from Congoleum, or directly from Congoleum's liability insurers, Insurance Proceeds and other assets, if any, as designated in the Claimant Agreement (the "Trust Assets"). To the extent that the Collateral Trustee receives payments or other assets that are not properly Trust Assets, the Collateral Trustee shall promptly thereafter notify Congoleum and shall remit such payments or forward such assets to or as directed by Congoleum no later than five (5) business days after the receipt of such payments or assets. Interest and other investment income accrued on the Trust Assets shall become part of the Trust Assets. 7 EXHIBIT B TO THE PLAN 2. So long as the Collateral Trust exists, the Collateral Trustee shall, from time to time, invest and reinvest the Trust Assets in accordance with the investment guidelines attached hereto as Appendix A (the "Investment Guidelines"). The Collateral Trustee shall have the right to liquidate any investment held, in order to provide funds necessary to make distributions of the Trust Assets pursuant to this Collateral Trust Agreement. Absent gross negligence or willful misappropriation, the Collateral Trustee shall not have any liability for any loss sustained as a result of any investment made pursuant to this Collateral Trust Agreement or as a result of any liquidation of any investment prior to its maturity. The Collateral Trustee shall have the power to exercise all rights with respect to the Collateral Trust's investments consistent with the Collateral Trustee's fiduciary duties to the Collateral Trust and in accordance with the Investment Guidelines. E. Grant of Security Interest. 1. Subject to the Claimant Agreement and the Security Agreement, the Collateral Trust shall have security interests in the Collateral (as defined in the Claimant Agreement and the Security Agreement). The Collateral Trustee shall have the power and authority to enforce the Collateral Trust's interest in the Collateral in accordance with the Collateral Trust Agreement, the Security Agreement, the Claimant Agreement, and applicable law. 8 EXHIBIT B TO THE PLAN 2. Within ten (10) days following Congoleum's grant of the security interest, the Collateral Trustee shall take any and all actions that are necessary to establish and protect the security interest in the Collateral, including the filing of one or more UCC-1 financing statements. Congoleum agrees to execute and deliver promptly such financing statements and other documents, and do such other things, as the Collateral Trustee shall reasonably request, to effectuate the Collateral Trustee's actions hereunder, within three (3) business days of the Execution Date. F. Administrative Expenses. 1. The Collateral Trustee shall have the power to appoint such officers and hire such employees and engage such legal, financial, accounting, investment, auditing, forecasting and other professionals, service providers or consultants as the business of the Collateral Trust reasonably requires, and to delegate to such persons such powers and authorities as the fiduciary duties of the Collateral Trustee permits and as the Collateral Trustee deems necessary in order to carry out the terms of this Collateral Trust Agreement. The Collateral Trustee shall serve copies of statements and invoices for fees and expenses of the Collateral Trustee, prior to the payment of any such statements or invoices, upon the parties listed (the "Notice Parties"), and in the manner set out, in Section IV.F. Such statements or invoices may be paid by the Collateral Trustee unless, within ten (10) days after such service, any of the Notice Parties serves upon the Collateral Trustee and the other Notice Parties its objection to payment of all or part of such statement or invoice. The portion(s) of any statement or invoice with respect to which an objection is served may not be paid until the objection thereto is settled or is resolved in accordance with Section IV.L of this Collateral Trust Agreement. 9 EXHIBIT B TO THE PLAN 2. The Collateral Trustee shall periodically estimate the funds that shall be necessary to pay administrative expenses incurred or expected to be incurred pursuant to the execution of the Collateral Trustee's duties ("Administrative Expenses"). Such Administrative Expenses shall include, without limitation, reasonable compensation of the Trustees and any and all Collateral Trust employees, payment of the reasonable fees of all professionals and consultants reasonably engaged by the Collateral Trust, and the reasonable expenses of operating and administering the Collateral Trust. Pursuant to Section II.B.6 of this Collateral Trust Agreement, the Collateral Trustee shall, from time to time, set aside from the Trust Assets amounts sufficient to pay the estimated Administrative Expenses ("Administrative Funds") and shall not use Administrative Funds for any other purpose, except as otherwise required by this Collateral Trust Agreement. In the event that the Administrative Funds are insufficient to pay all Administrative Expenses in full, the Collateral Trustee shall pay any unpaid Administrative Expenses from Trust Assets. III. The TrusteeS A. Appointment of the Trustees. 1. There shall be one (1) Collateral Trustee. The initial Collateral Trustee shall be Arthur J. Pergament. 2. So long as required by the Delaware Act, there shall be one (1) Delaware Trustee who or which shall be (i) a natural person who is a resident of the State of Delaware or (ii) if not a natural person, an entity which has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable law. The initial Delaware Trustee shall be Wilmington Trust Company. 10 EXHIBIT B TO THE PLAN 3. In the event of a vacancy in the position of either Trustee pursuant to Section III.B hereto or otherwise, the vacancy shall be filled by agreement of Congoleum and Claimants' Counsel or by order of a court of competent jurisdiction. Immediately upon the appointment of such a successor Trustee, all rights, titles, duties, powers and authority of the predecessor Trustee shall be vested in, and undertaken by, the successor Trustee without any further act. No successor Trustee shall be liable personally for any act or omission of his or her predecessor Trustee. B. Term of Service. 1. Each Trustee shall serve until the earlier of (a) his or her resignation pursuant to Section III.B.2 hereto, (b) his or her removal pursuant to Section III.B.3 hereto, or (c) the termination of the Collateral Trust pursuant to Section IV.C hereto. 2. Each Trustee may resign at any time by written notice to Congoleum and the Claimants' Counsel. Such notice shall specify a date when such resignation shall take effect, which shall not be less than ninety (90) days after the date such notice is given, absent the written consent of Congoleum to an earlier date. 3. Each Trustee may be removed with or without cause at any time by written notice signed by Congoleum and Claimants' Counsel. Upon any such removal, such removed Trustee shall be entitled to any reimbursement and indemnification set forth in this Collateral Trust Agreement which remains due and owing at the time of such removal. Such removal shall be effective when a successor Trustee is appointed pursuant to Section III.A.3 above and the successor Trustee has accepted the appointment in writing. 11 EXHIBIT B TO THE PLAN C. Duties and Powers of the Collateral Trustee. The Collateral Trustee is and shall act as a fiduciary to the Collateral Trust in accordance with the provisions of this Collateral Trust Agreement. The Collateral Trustee at all times shall administer the Collateral Trust and the Trust Assets to provide reasonable assurance that the Collateral Trust shall be in a financial position to maximize payment of all Qualified Claims. Subject to the limitations set forth in this Collateral Trust Agreement, the Collateral Trustee shall have the power to take any and all reasonable actions that, in the Collateral Trustee's judgment, are necessary or proper to fulfill the purposes of the Collateral Trust, including, without limitation, each power expressly granted in this Collateral Trust Agreement and any power reasonably incidental thereto. D. Liability of the Trustees. Each Trustee shall not be liable to the Collateral Trust, to any Asbestos Claimant, or to any other person except for such Trustee's own breach of trust committed in bad faith, or for gross negligence or willful misappropriation. E. Tax Duties of the Collateral Trustee. The Collateral Trustee shall cause a Federal Employer Identification Number ("FEIN") for the Collateral Trust to be obtained and shall cause the annual income tax returns to be filed on the basis of a December 31 year end. The Collateral Trustee shall take all steps necessary to ensure that all tax obligations of the Collateral Trust are satisfied and all tax obligations imposed upon the Collateral Trust are paid. To the extent necessary to satisfy this objective, the Collateral Trustee is hereby authorized, among other things, to (i) obtain a tax identification number for the Collateral Trust, (ii) communicate with the Internal Revenue Service and state and local taxing authorities on behalf of the Collateral Trust, (iii) make payment of taxes on behalf of the Collateral Trust (which taxes will be paid out of the Trust Assets), (iv) file all applicable tax returns for the Collateral Trust to the extent permissible under applicable law, and (v) withhold taxes on payments made pursuant to this Collateral Trust Agreement as required by applicable law. To the extent permissible under applicable law, the Collateral Trustee shall jointly with Congoleum prepare and file a "relation-back election" under Treasury Regulation ss. 1.468B-1(j)(2)(ii), and shall otherwise cooperate with Congoleum in its efforts to cause the Collateral Trust to qualify as a QSF for federal income tax purposes. 12 EXHIBIT B TO THE PLAN F. Compensation and Expenses of the Collateral Trustee. The Collateral Trustee shall receive compensation from the Collateral Trust for his or her service as Collateral Trustee in the amount of $195.00 per hour devoted to Collateral Trust business. The hourly rate of compensation payable to the Collateral Trustee hereunder shall be subject to adjustment periodically, with the consent of Claimants' Counsel (as defined in the Claimant Agreement) and Congoleum. The Collateral Trust shall reimburse the Collateral Trustee for all reasonable out-of-pocket costs and expenses incurred by the Collateral Trustee in connection with the performance of his or her duties hereunder. G. Reporting Duties of the Collateral Trustee. The Collateral Trustee shall submit to Congoleum and to Claimants' Counsel periodic reports as such parties shall reasonably request. Congoleum or Claimants' Counsel shall have the right to conduct from time to time a financial audit of the Collateral Trust at such party's own expense. H. Power to Act on Behalf of the Collateral Trust. The Collateral Trustee shall have the power to act on behalf of the Collateral Trust, including, without limitation, the power to: 1. initiate any judicial, administrative, arbitrative or other proceeding only with the consent of Claimant's Counsel, as representatives of the beneficiaries of the Trust, provided that if Claimant's Counsel withholds such consent, the Collateral Trustee may seek such consent from a court of competent jurisdiction; 13 EXHIBIT B TO THE PLAN 2. be sued and participate, as a party or otherwise, in any judicial, administrative, arbitrative or other proceeding; 3. execute and deliver such instruments as the Collateral Trustee considers proper in administering the Collateral Trust; and 4. enter into such arrangements with third parties as is deemed by the Collateral Trustee to be necessary in carrying out the purposes of the Collateral Trust, provided such arrangements do not conflict with any other provision of this Collateral Trust Agreement or the Claimant Agreement. I. Delaware Trustee. Notwithstanding any other provision of this Collateral Trust Agreement, the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties or responsibilities of the Collateral Trustee described in this Collateral Trust Agreement. The Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of Section 3807 of chapter 38 of Title 12 of the Delaware Code, 12 Del. C.ss.ss.3801 et seq. (the "Delaware Act"). J. Compensation and Expenses of the Delaware Trustee. The Delaware Trustee shall receive compensation from the Trust for its service as Delaware Trustee at the rates detailed in a mutually acceptable fee agreement. The fee agreement may be modified with the prior written consent of the Claimants' Counsel and Congoleum. The Trust shall reimburse the Delaware Trustee as a part of the Administrative Expenses for all reasonable out-of-pocket costs and expenses incurred by the Delaware Trustee in connection with the performance of its duties hereunder, at the rates detailed in the fee agreement. To the extent that Congoleum pays any fees or costs to the Delaware Trustee on behalf of the Trust, the Trust shall promptly reimburse Congoleum for the fees and costs so paid as monies are available in the Trust. 14 EXHIBIT B TO THE PLAN IV. General Provisions A. Irrevocability. The Collateral Trust is irrevocable. B. Effective Date. This Collateral Trust Agreement shall be effective on the date on which both Parties have signed and delivered the Collateral Trust Agreement. C. Termination. The Collateral Trust shall terminate upon the earliest of: (i) the payment in full of all of the Participating Asbestos Claimant's Secured Claims and the distribution of all Trust Assets pursuant to the terms of this Collateral Trust Agreement; (ii) the distribution of all Trust Assets pursuant to the terms of this Collateral Trust Agreement and the Trustee's determination that no further steps to recover any assets subject to the Security Interest are commercially reasonable; (iii) the transfer of the Trust Assets to the Plan Trust pursuant to the terms of this Collateral Trust Agreement; or (iv) the payment of the Trust Assets to Congoleum pursuant to the terms of Section II.B.5. D. Amendments. The Trustee, with the unanimous consent of Congoleum and Claimants' Counsel, may modify and amend this Collateral Trust Agreement. Any modification made pursuant to this Section IV.D must be made in writing. E. Incorporation by Reference. All terms and conditions contained in the Claimant Agreement shall be incorporated in this Agreement by reference. Capitalized terms not otherwise defined herein shall have the meanings accorded to them in the Claimant Agreement. F. Notices. All notices hereunder shall be in writing and shall be deemed to have been sufficiently given or served for all purposes (if mailed) three (3) calendar days after being deposited, postage prepaid, in the United States Mail, registered or certified mail, or (if delivered by express courier) one (1) business day after being delivered to such courier, or (if delivered in person or via facsimile with faxed confirmation) the same day as delivery if delivered on a business day before 4:30 p.m. EST or EDT (as applicable) or if not so delivered, on the next succeeding business day, except with respect to notices issued to the Collateral Trustee, such notices shall be deemed received on the date actually received by the Collateral Trustee. Notice to the Claimants' Counsel shall be deemed notice to each Asbestos Claimant. Notices shall be addressed as follows: 15 EXHIBIT B TO THE PLAN Congoleum: Roger Marcus Congoleum Corporation 3500 Quakerbridge Road P.O. Box 3127 Mercerville, New Jersey 08616 (609) 584-3000 - Telephone No. (609) 584-3655 - Facsimile No. With copies to: Bette Orr, Esq. Gilbert, Heintz & Randolph. LLP 1100 New York Avenue 7th Floor Washington, DC 20005 (202) 772-2200 - Telephone No. (202) 772-3333 - Facsimile No. Norman L. Pernick, Esq. Saul Ewing LLP 222 Delaware Avenue Suite 1200 Wilmington, DE 19899 (302) 421-6800 - Telephone No. (302) 421-6813 - Facsimile No. Mark Chehi, Esq. Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square P.O. Box 636 Wilmington, DE 19899 (302) 651-3000 - Telephone No. (302) 651-3001 - Facsimile No. 16 EXHIBIT B TO THE PLAN Collateral Trustee: Arthur Pergament Pergament Advisors 950 Third Avenue, 3rd Floor New York, NY 10022 (212) 754-7913 (212) 994-6229 Delaware Trustee: James J. McGinley Vice President and Sales Manager Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Claimants' Counsel: Perry Weitz, Esq. Weitz & Luxenberg 180 Maiden Lane New York, NY 10038 (212) 558-5500 - Telephone No. (212) 344-5461 - Facsimile No. Joseph F. Rice, Esq. 28 Bridgeside Boulevard P.O. Box 1792 Mt. Pleasant, SC 29464 (843) 216-9000 - Telephone No. (843) 216-9290 - Facsimile No. G. Successors and Assigns. This Collateral Trust Agreement shall be binding upon the Parties and their respective successors and assigns. H. Entire Agreement. This Collateral Trust Agreement contains the complete and entire understanding of the Parties with respect to the subject matter hereof, and no changes shall be recognized as valid unless they are made in writing and signed by the parties as required by Section IV.D hereto. 17 EXHIBIT B TO THE PLAN I. Headings. The headings used in this Collateral Trust Agreement are included for convenience only and neither constitute a portion of this Collateral Trust Agreement nor in any manner affect the construction of the provisions of this Collateral Trust Agreement. J. Invalidity; Illegality. The invalidity, illegality, or unenforceability of any provision of this Collateral Trust Agreement pursuant to a judicial or tribunal decree shall not affect the validity or enforceability of any other provision of this Collateral Trust Agreement, all of which shall remain in full force and effect. K. Governing Law. The Collateral Trust Agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of Delaware (excluding conflict of law rules), including all matters of construction, validity and performance; provided, however, that there shall not be applicable to the Collateral Trust, the Trustees or this Collateral Trust Agreement, any provisions of the laws (statutory or common) of the State of Delaware, other than the Delaware Act, pertaining to trusts that relate to or regulate, in a manner inconsistent with the terms hereof (i) the filing with any court or governmental body or agency of trustee accounts or schedule of trustee fees and charges, (ii) affirmative requirements to post bonds for trustees, officers, agents, or employees of a trust, (iii) the necessity for obtaining court or other governmental approval concerning the acquisition holding or disposition of real personal property, (iv) fees or other sums payable to trustees, officers, agents, or employees of a trust, (v) the allocation of receipts and expenditures to income and principal, (vi) restrictions or limitations on the permissible nature, amount or concentration of trust investments or requirements relating to the titling, storage or other manner of holding or investing trust assets, or (vii) the establishment of fiduciary or other standards or responsibilities or limitations on the acts or powers of trustees. 18 EXHIBIT B TO THE PLAN L. Dispute Resolution. Any dispute arising out of or relating to this contract including the breach, termination or validity thereof shall be settled by arbitration in accordance with the CPR Rules for Non-Administered Arbitration in effect on the date of this Collateral Trust Agreement, by a sole arbitrator who shall be drawn from the CPR judicial list of distinguished neutrals. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. ss.ss. 1-16, and judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. The place of arbitration shall be Wilmington, Delaware. The arbitrator is not empowered to award damages in excess of compensatory damages and each party expressly waives and foregoes any right to punitive, exemplary or similar damages unless a statute requires that compensatory damages be increased in specified manner. The statute of limitations of the State of Delaware applicable to the commencement of a lawsuit shall apply to the commencement of arbitration hereunder. M. Counterparts. This Collateral Trust Agreement may be executed in any number of counterparts. Each of such counterparts for all purposes shall be deemed to be an original, and all such counterparts together shall constitute but one and the same Agreement. 19 EXHIBIT B TO THE PLAN IN WITNESS WHEREOF, the parties have caused this Collateral Trust Agreement to be duly executed this 16th day of April 2003. CONGOLEUM CORPORATION By /s/ Howard N. Feist III ------------------------------------ Howard N. Feist III Chief Financial Officer COLLATERAL TRUSTEE By /s/ Arthur J. Pergament ------------------------------------- Arthur J. Pergament DELAWARE TRUSTEE By /s/ Janet H. Havrilla ------------------------------------ Janet H. Havrilla Financial Services Officer Wilmington Trust Company 20 EXHIBIT B TO THE PLAN APPENDIX A INVESTMENT GUIDELINES 1. United States-Direct Obligations (e.g., Treasury Bills, Notes and Bonds). Any United States direct obligation that has a maturity of not more than 2 years from the date of purchase. 2. Government Agencies and Instrumentalities-Direct or Indirect Obligations (e.g., notes issued by the Federal Home Loan Bank and Federal National Mortgage Association). Any government agency or instrumentality direct or indirect obligation that has a maturity of not more than 2 years from the date of purchase. 3. Commercial Paper. Any commercial paper note of a foreign or domestic corporation that has a maturity of not more than six months and that is rated no lower than A-1 by S&P or P-1 by Moody's. 4. Medium Term Notes. Any promissory note of a domestic corporation that has a maturity of not more than 2 years from the date of purchase and that is rated no lower than A by S&P or Moody's. 5. Bank Securities. Any foreign or domestic banker's acceptance, certificate of deposit, time deposit or note that has a maturity of not more than 1 year from the date of purchase and that is rated no lower than A by Moody's or S&P. 6. Municipal Securities. Any issue that includes direct or indirect obligations of any state, county, city or other qualifying entity. A short-term issue may be rated no lower than MIG 1 or SP-1; a long-term issue may be rated no lower than A by S&P or Moody's. Issues must have a maturity or redemption option of not more than 2 years from the date of purchase. 7. Money Market Fund. Any money market fund that has minimum net assets of $500 million and an average portfolio maturity of not more than 180 days. 8. Other (e.g., U.S. dollar asset-backed securities, private placements, U.S. dollar obligations of foreign governments, supra-national organizations and domestic and foreign corporations). Any other investment that has a maturity of not less than 1 year from the date of purchase and that is rated no lower than A by Moody's or S&P. 21 EXHIBIT B TO THE PLAN FIRST AMENDMENT TO COLLATERAL TRUST AGREEMENT This first amendment to the Collateral Trust Agreement ("Amendment to the Collateral Trust Agreement") is entered into by and among Congoleum Corporation, a Delaware Corporation ("Congoleum"), Arthur J. Pergament, solely in his capacity as the Collateral Trustee hereunder (the "Collateral Trustee") and Wilmington Trust Company, a Delaware banking corporation, solely in its capacity as Delaware Trustee (the "Delaware Trustee") (Congoleum, the Collateral Trustee, and the Delaware Trustee, collectively, the "Parties"), with the consent of Claimants' Counsel, as designated in the Settlement Agreement Between Congoleum Corporation And Various Asbestos Claimants. RECITALS WHEREAS Congoleum, the Collateral Trustee and the Delaware Trustee entered into the Collateral Trust Agreement pursuant to which a statutory trust under the Delaware Statutory Trust Act was created on April 17, 2003; and WHEREAS, Congoleum and various Asbestos Claimants executed a settlement agreement dated April 10, 2003, titled Settlement Agreement Between Congoleum Corporation and Various Asbestos Claimants (the "Claimant Agreement"); and WHEREAS, Congoleum and various Asbestos Claimants contemporaneously herewith are executing that certain first amendment to the Claimant Agreement (the "Amendment to the Claimant Agreement"); and WHEREAS, on or about April 11, 2003 and April 17, 2003, respectively, Congoleum executed agreements titled "Security Agreement" and "Second Security Agreement" (collectively, the "Security Agreements") granting to the Collateral Trust a present and continuing security interest in certain insurance proceeds; and EXHIBIT B TO THE PLAN WHEREAS, Congoleum and the Collateral Trustee contemporaneously herewith have terminated the Security Agreements by the means of the Termination Agreement and entered into a subsequent security agreement ("Superceding Security Agreement"); and WHEREAS, the Parties desire to enter into this Amendment to the Collateral Trust Agreement to confirm their agreement with respect to (i) the termination of the Security Agreements; (ii) the execution of the Superceding Security Agreement, (iii) certain technical corrections to the Collateral Trust Agreement; and (iv) certain other matters relating to the foregoing, as hereafter provided; and WHEREAS, Section IV.D. of the Collateral Trust Agreement authorizes the Trustee, with the unanimous consent of Congoleum and Claimants' Counsel to modify and amend the Collateral Trust Agreement. NOW, THEREFORE, the Parties hereby agree that the Collateral Trust Agreement shall be amended as follows: AGREEMENT 1. The paragraph below shall be added to the Claimant Agreement as Section I.C: C. Nontransferability of Beneficial Interests. The beneficial interests in the Collateral Trust are not transferable or assignable, except as may be provided under operation of law or after the death of an Asbestos Claimant pursuant to a will or the law applicable to decedent's estates. The beneficial interests in the Collateral Trust shall not be evidenced by a separate certificate. Nothing in this paragraph I.C shall in any way restrict the ability of the Collateral Trust to transfer the Trust Assets to any trust established pursuant to a plan of reorganization for Congoleum under chapter 11 of the United States Bankruptcy Code. 2 EXHIBIT B TO THE PLAN 2. Sections II.E.1 and 2 of the Collateral Trust Agreement shall be replaced in their entirety with: E. Enforcement of Security Interest. The Collateral Trustee shall have the power and authority to enforce the Collateral Trust's interest in the Collateral in accordance with the Superceding Security Agreement and applicable law. 3. Sections IV.C and IV.D of the Collateral Trust Agreement shall be replaced in their entirety with: C. Termination. The Collateral Trust shall terminate upon the earliest of: (i) the payment in full of all of the Participating Asbestos Claimant's Secured Claims and the distribution of all Trust Assets pursuant to the terms of this Collateral Trust Agreement; (ii) the distribution of all Trust Assets pursuant to the terms of this Collateral Trust Agreement and the Collateral Trustee's determination that no further steps to recover any assets subject to the Security Interest are commercially reasonable; (iii) the transfer of the Trust Assets to the Plan Trust pursuant to the terms of this Collateral Trust Agreement; (iv) the payment of the Trust Assets to Congoleum pursuant to the terms of Section II.B.5; or (v) the expiration of any Perpetuities Period applicable to the Collateral Trust, provided that, to the extent permitted by applicable law, Congoleum directs that the Rule Against Perpetuities shall not apply to the Collateral Trust and that the Collateral Trust shall not be limited by a Perpetuities Period. "Perpetuities Period" shall mean the period (if any) defined by any applicable rule against perpetuities (the "Applicable Rule") within which interests in the Collateral Trust must vest in order to be valid when created. The Perpetuities Period includes any period in gross permitted by the Applicable Rule, such as twenty-one (21) years. If 3 EXHIBIT B TO THE PLAN the Perpetuities Period is defined with reference to a given date or the death of the last survivor of a class of individuals living on a given date (the "Measuring Lives"), the date shall be the date prescribed by the Applicable Rule and the Measuring Lives shall be the members of the class of persons living on that date who are authorized to receive any payment from the Collateral Trust prior to its termination. If the Applicable Rule applies differently to different kinds of Trust Assets, a direction to terminate the Collateral Trust upon the expiration of the Perpetuities Period shall be applied separately to the different kinds of property. If Trust Assets transferred to the Collateral Trustee at different times have different Perpetuities Periods, a direction to terminate the Collateral Trust upon the expiration of the Perpetuities Period shall be applied separately to the different Trust Assets, provided that (i) Trust Assets for which no sufficient record exists to determine the date of transfer shall be deemed for this purpose to have been transferred on the earliest possible date, and (ii) an insurance policy or the proceeds of an insurance policy shall be deemed transferred on the date the policy is acquired by the Collateral Trust regardless of the dates on which premiums are subsequently paid. If the Collateral Trust suspends the power of alienation or permits accumulations within the meaning of any Applicable Rule limiting the period for such suspension or accumulations then this provision shall apply to such suspension or accumulations as if they were non-vested interests. Upon the termination of the Collateral Trust pursuant to the application of any Perpetuities Period, the Collateral Trustee shall pay the remaining principal to Congoleum. D. Amendments. The Collateral Trustee, with the unanimous consent of Congoleum and Claimants' Counsel, may modify and amend this Collateral Trust Agreement. Any modification made pursuant to this Section IV.D must be made in writing. The ability of the Collateral Trustee, Congoleum and Claimants' Counsel to amend this Collateral Trust Agreement in accordance with this Section IV.D shall not be restricted by any third party not a party hereto, including without limitation any Asbestos Claimant. Notwithstanding the foregoing or any other provision of this Collateral Trust Agreement, no modification or amendment to this Collateral Trust Agreement shall be effective to alter the rights or duties of the Delaware Trustee unless consented to in writing by the Delaware Trustee. 4 EXHIBIT B TO THE PLAN 4. Other than expressly provided for herein, the terms of the Collateral Trust Agreement shall remain in full force and effect. 5. The Collateral Trust Agreement and this Amendment to the Collateral Trust Agreement (collectively, the "Agreements") constitute a single integrated written contract expressing the entire agreement among the parties hereto with respect to the subject matter hereof. The Agreements supercede any prior understandings and agreements between or among the parties with respect to the subject matter of the Agreements. Any statements, promises or inducements, whether made by any party or any agents of any party, that are not contained in the Agreements shall not be valid or binding. The failure or invalidation of any provision of the Agreements shall not in any way affect the validity or performance of any party pursuant to any other provision of the Agreements. 6. References in the Claimant Agreement, the Superceding Security Agreement and the Collateral Trust Agreement to the "Collateral Trust Agreement" shall be deemed references to the Agreements. 7. This Amendment to the Collateral Trust Agreement may be executed in any number of counterparts. Each of such counterparts for all purposes shall be deemed to be an original, and all such counterparts together shall constitute but one and the same Amendment to the Collateral Trust Agreement. 5 EXHIBIT B TO THE PLAN IN WITNESS WHEREOF, the Parties have caused this Amendment to the Collateral Trust Agreement to be duly executed this 6th day of June 2003. CONGOLEUM CORPORATION By /s/ Howard N. Feist III -------------------------------- Howard N. Feist III Chief Financial Officer COLLATERAL TRUSTEE By /s/ Arthur J. Pergament -------------------------------- Arthur J. Pergament DELAWARE TRUSTEE By /s/ Ronney Perkins -------------------------------- Ronney Perkins Assistant Vice President Wilmington Trust Company CONSENT: By their signatures below, Claimants' Counsel, as designated in the Settlement Agreement Between Congoleum Corporation And Various Asbestos Claimants, indicate their consent to the execution of this Amendment to the Collateral Trust Agreement. /s/ Perry Weitz ------------------------------------ Perry Weitz, Esq. /s/ Joseph F. Rice ------------------------------------ Joseph F. Rice, Esq. 6 EXHIBIT C TO THE PLAN Exhibit C to the Plan ASBESTOS INSURANCE RIGHTS ASSIGNMENT AGREEMENT 1 EXHIBIT C TO THE PLAN ASBESTOS INSURANCE RIGHTS ASSIGNMENT AGREEMENT This ASBESTOS INSURANCE RIGHTS ASSIGNMENT AGREEMENT (this "Agreement") is made as of [ ], 2006 by and among Congoleum Corporation, Congoleum Sales, Inc. and Congoleum Fiscal, Inc. (collectively, the "Insurance Contributors") and the Plan Trust. Capitalized terms used herein without definition shall have the meanings given to such terms in the Tenth Modified Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al. (as amended, modified or supplemented from time to time in accordance with the terms thereof, the "Plan"). WHEREAS, to protect themselves from certain risks resulting from their businesses, the Insurance Contributors purchased liability insurance policies; WHEREAS, numerous individuals, business organizations, and other persons have asserted asbestos-related personal injury claims against Congoleum and certain affiliated entities; WHEREAS, on December 31, 2003, Congoleum and certain affiliated entities filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey; WHEREAS, the Plan was confirmed on [ ], and has become effective; WHEREAS, the Plan provides that the Insurance Contributors will assign the Asbestos Insurance Rights to the Plan Trust; WHEREAS, the Insurance Contributors wish to implement the terms of the Plan; and WHEREAS, the Insurance Contributors are receiving good and valuable consideration in exchange for the transfers, grants, assignments, and promises made in this Agreement, including the releases and indemnification described in the Plan and related documents, the receipt and sufficiency of which is acknowledged and agreed; NOW, THEREFORE, subject to and on the terms and conditions herein set forth, the Insurance Contributors and the Plan Trust hereby agree as follows: I. ASSIGNMENT TO THE PLAN TRUST A. Effective upon the Effective Date, the Insurance Contributors hereby irrevocably transfer and assign to the Plan Trust any and all of their Asbestos Insurance Rights and all rights and claims asserted in the pending Coverage Litigation (including without limitation cash and other proceeds of all such rights and claims received by any Insurance Contributor and/or any Debtor during the pendency of the Reorganization Cases), free and clear of all Claims, Liens and encumbrances, provided, however, that such transfer and assignment of the Asbestos Insurance Rights shall be subject to the terms of the Plan and the Plan Trust Agreement. B. The Plan Trust and the Insurance Contributors intend that the Asbestos Insurance Assignment be made to the maximum extent permitted under applicable law. C. The Asbestos Insurance Assignment is not an assignment of any insurance policy. 2 EXHIBIT C TO THE PLAN D. Upon request by the Plan Trust and at the cost of the Plan Trust (as provided in Section II herein), an Insurance Contributor or Reorganized Debtor, as applicable, shall (i), provided that the Plan Trust provides reasonable evidence of its ability to promptly pay all costs incurred in such effort, use its best efforts to pursue any of the Asbestos Insurance Rights for the benefit of and to the fullest extent required by the Plan Trust, and (ii) immediately transfer any amounts recovered under or on account of any of the Asbestos Insurance Rights to the Plan Trust; provided, however, that while any such amounts are held by or under the control of an Insurance Contributor or Reorganized Debtor, such amounts (and any interest earned thereon) shall be segregated and held in trust for the benefit of the Plan Trust. II. COOPERATION A. To the fullest extent permitted by applicable law, the Insurance Contributors and/or Reorganized Debtors, as the case may be, shall provide the Plan Trust with such cooperation as the Plan Trust may reasonably request in connection with the pursuit by the Plan Trust of the Asbestos Insurance Rights. Such cooperation shall include, but not be limited to, making their books, records, employees, agents and professionals available to the Plan Trust. The Plan Trust shall reimburse the Insurance Contributors and/or Reorganized Debtors, as the case may be, for their reasonable out-of-pocket costs and expenses (including reasonable attorneys' and consultants' fees) incurred (i) in connection with providing the cooperation described in the preceding sentences, and (ii) in connection with the pursuit of Asbestos Insurance Rights as provided in Section I.D. above. Such reimbursement shall be paid promptly following request for reimbursement accompanied by appropriate documentation. B. Notwithstanding anything in the Plan Documents to the contrary, the Insurance Contributors and/or Reorganized Debtors, as the case may be, as part of every settlement with any one or more London Market insurer(s) (including Equitas), hereby agree that the Plan Trust, in its sole discretion, may effectuate a complete policy buy-back of any policies subscribed by any one or more London Market insurer(s) (following which the Insurance Contributors and/or Reorganized Debtors shall retain no coverage with respect to such insurer(s)). The Insurance Contributors and/or Reorganized Debtors, as the case may be, hereby waive their rights to any proceeds of all such settlements, and all proceeds of each such settlement (other than as reimbursement in accordance with the Collateral Trust Agreement and the Plan Documents of Coverage Costs and/or the Claims Handling Fee) shall be held for the benefit of Asbestos Claimants in accordance with the Plan Documents. C. The Insurance Contributors and/or Reorganized Debtors, as the case may be, upon request of the Plan Trustee, shall evaluate additional requests for complete policy commutations. To the extent that additional complete policy commutations do not materially impair the Insurance Contributors' and/or Reorganized Debtors', as the case may be, ongoing need for insurance coverage for potential non-asbestos liabilities and such additional releases are reasonably necessary to permit the realization of asbestos-related insurance settlements, the Insurance Contributors and/or Reorganized Debtors, as the case may be, will cooperate with the Plan Trustee to provide additional policy commutations. Such additional policy commutations may be conditioned upon a reasonable allocation of policy proceeds or other provisions to protect Congoleum from potential non-asbestos liabilities as may be agreed between the Insurance Contributors and/or Reorganized Debtors, as the case may be, and the Plan Trustee. D. The Insurance Contributors and/or Reorganized Debtors, as the case may be, agree that their collection or use, if any, of proceeds of any Asbestos Insurance Policy, to the extent permitted under the Plan Documents, (i) will not reduce any aggregate, per occurrence or other policy limit of any Asbestos Insurance Policy that is or could potentially be applicable to Asbestos Claims, and (ii) will not in any way interfere with the Plan Trust's exercise of any Asbestos Insurance Rights. 3 EXHIBIT C TO THE PLAN III. MISCELLANEOUS A. Binding Effect, Assignment, Third Party Beneficiaries. This Agreement shall be binding on each of the parties hereto and their respective successors and assigns. This Agreement is not intended, and shall not be construed, deemed or interpreted, to confer on any person or entity not a party hereto any rights or remedies hereunder. B. Entire Agreement; Amendment; Waivers. This Agreement, the Plan and the other Plan Documents shall constitute the entire agreement and understanding among the parties to this Agreement with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, among the parties hereto relating to the subject matter of this Agreement. This Agreement may not be amended or modified, and no provision hereof may be waived, except by an agreement in writing signed by the party against whom enforcement of any such amendment, modification or waiver is sought. C. Governing Law. This Agreement and the rights and obligations of the parties hereto under this Agreement shall be governed by and construed and enforced in accordance with the substantive laws of the State of Delaware, without regard to any conflicts of law provisions thereof that would result in the application of the laws of any other jurisdiction. D. Counterparts. This Agreement may be executed in multiple counterparts, each of which will be an original, but all of which together will constitute one and the same agreement. [SIGNATURE PAGE FOLLOWS] 4 EXHIBIT C TO THE PLAN IN WITNESS WHEREOF, the parties hereto have caused this Asbestos Insurance Rights Assignment Agreement to be duly executed by their respective duly authorized representatives as of the date first above written. CONGOLEUM CORPORATION By: ______________________ Its: ______________________ CONGOLEUM SALES, INC. By: ______________________ Its: ______________________ CONGOLEUM FISCAL, INC. By: ______________________ Its: ______________________ CONGOLEUM PLAN TRUST By: _____________________ Trustee: _____________________ By: _____________________ Trustee: _____________________ By: _____________________ Trustee: _____________________ 5 EXHIBIT D TO THE PLAN Exhibit D to the Plan "Congoleum Plan Trust Agreement" EXHIBIT D TO THE PLAN CONGOLEUM PLAN TRUST AGREEMENT TABLE OF CONTENTS Page ---- SECTION 1 AGREEMENT OF TRUST...................................................2 1.1 Creation and Name.....................................................2 1.2 Purpose...............................................................2 1.3 Transfer of Assets....................................................2 1.4 Acceptance of Assets and Assumption of Liabilities....................3 SECTION 2 POWERS AND TRUST ADMINISTRATION......................................4 2.1 Powers................................................................4 2.2 General Administration................................................6 2.3 Claims Administration.................................................9 SECTION 3 ACCOUNTS, INVESTMENTS, AND PAYMENTS..................................9 3.1 Accounts..............................................................9 3.2 Plan Trust Disputed Claims Reserve...................................10 3.3 Investments..........................................................11 3.4 Source of Payments...................................................12 3.5 Payments of Allowed Asbestos Property Damage Claims..................12 3.6 Payment of Plan Trust Expenses.......................................13 3.7 Indemnification Payments.............................................13 SECTION 4 PLAN TRUSTEES AND DELAWARE TRUSTEE..................................14 4.1 Number...............................................................14 4.2 Term of Service......................................................14 4.3 Appointment of Successor Plan Trustees...............................15 4.4 Liability of Plan Trustees, Delaware Trustee, Officers and Employees........................................................... 15 4.5 Compensation and Expenses of Plan Trustees...........................15 4.6 Indemnification of Plan Trustees, Additional Indemnitees, Claimants' Representative and Collateral Trustee................................16 4.7 Plan Trustees' Lien..................................................18 4.8 Plan Trustees' Employment of Experts; Delaware Trustee's Employment of Counsel................................................18 4.9 Plan Trustees' Independence..........................................18 i EXHIBIT D TO THE PLAN 4.10 Bond.................................................................18 4.11 Delaware Trustee.....................................................19 SECTION 5 PLAN TRUST ADVISORY COMMITTEE.......................................20 5.1 Members..............................................................20 5.2 Duties...............................................................20 5.3 Consent of TAC With Respect to Avoidance Actions, etc................20 5.4 Term of Office.......................................................20 5.5 Appointment of Successor.............................................20 5.6 TAC's Employment of Professionals....................................21 5.7 Compensation and Expenses of the TAC.................................21 5.8 Procedures for Consultation With and Obtaining the Consent of the TAC..............................................................22 5.9 Copies to the TAC....................................................23 SECTION 6 THE FUTURES REPRESENTATIVE..........................................23 6.1 Duties...............................................................23 6.2 Term of Office.......................................................23 6.3 Appointment of Successor.............................................23 6.4 Futures Representative's Employment of Professionals.................24 6.5 Compensation and Expenses of the Futures Representative..............24 6.6 Procedures for Consultation with and Obtaining the Consent of the Futures Representative...............................................25 6.7 Copies to Futures Representative.....................................26 SECTION 7 GENERAL PROVISIONS..................................................26 7.1 Irrevocability.......................................................26 7.2 Dissolution..........................................................26 7.3 Amendments...........................................................27 7.4 Meetings.............................................................27 7.5 Severability.........................................................27 7.6 Notices..............................................................28 7.7 Successors and Assigns...............................................30 7.8 Limitation on Claim Interests for Securities Laws Purposes...........30 7.9 Entire Agreement; No Waiver..........................................30 7.10 Headings.............................................................30 7.11 Governing Law........................................................30 ii EXHIBIT D TO THE PLAN 7.12 Settlor Representative and Cooperation...............................30 7.13 Dispute Resolution...................................................30 7.14 Enforcement and Administration.......................................31 7.15 Effectiveness........................................................31 7.16 Counterpart Signatures...............................................31 iii EXHIBIT D TO THE PLAN CONGOLEUM PLAN TRUST AGREEMENT This Congoleum Plan Trust Agreement (this "Plan Trust Agreement"), dated the date set forth on the signature page hereof and effective as of the Effective Date, is entered into by Congoleum Corporation, Congoleum Sales, Inc., and Congoleum Fiscal, Inc. (collectively referred to as the "Debtors," "Congoleum," or the "Settlors"), the debtors and debtors-in-possession in Case No. 03-51524 in the United States Bankruptcy Court for the District of New Jersey; the Futures Representative; the Asbestos Claimants Committee ("ACC"); the Plan Trustees, the Delaware Trustee and the members of the Trust Advisory Committee ("TAC") identified on the signature page hereof and appointed at Confirmation pursuant to the confirmed Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., and the Asbestos Claimants' Committee dated as of September 15, 2006 (the "Plan"), as such Plan may be amended, modified or supplemented from time to time. All capitalized terms not otherwise defined herein shall have their respective meanings as set forth in the Plan, and such definitions are incorporated herein by reference. All capitalized terms not defined herein or defined in the Plan, but defined in the Bankruptcy Code or Bankruptcy Rules, shall have the meanings ascribed to them by the Bankruptcy Code and Bankruptcy Rules, and such definitions are incorporated herein by reference. WHEREAS, at the time of the entry of the order for relief in the Chapter 11 case, Congoleum was named as a defendant in actions seeking recovery for damages allegedly caused by the presence of or exposure to asbestos or asbestos-containing products for which Congoleum, its predecessors, successors and assigns have legal liability ("Plan Trust Asbestos Claims" as defined in the Plan); and WHEREAS, Congoleum has reorganized under the provisions of Chapter 11 of the Bankruptcy Code in a case pending in the United States Bankruptcy Court for the District of New Jersey, known as In re Congoleum Corporation et al., Case No. 03-51524; and WHEREAS, the Plan has been confirmed by the Bankruptcy Court; and WHEREAS, the Plan provides, inter alia, for the creation of the Plan Trust; and WHEREAS, pursuant to the Plan, the Plan Trust is to use its assets and income to satisfy all Plan Trust Asbestos Claims; and WHEREAS, it is the intent of Congoleum, the Plan Trustees, the ACC, the TAC, and the Futures Representative that the Plan Trust be administered, maintained, and operated at all times through mechanisms that provide reasonable assurance that the Plan Trust will satisfy all Plan Trust Asbestos Claims pursuant to this Plan Trust Agreement and the TDP that is attached hereto as Exhibit A in substantially the same manner, and in strict compliance with the terms of this Plan Trust Agreement; and WHEREAS, pursuant to the Plan, the Plan Trust is intended to qualify as a "qualified settlement fund" within the meaning of section 1.468B-1 et seq. of the Treasury Regulations promulgated under section 468B of the Internal Revenue Code ("IRC"); and EXHIBIT D TO THE PLAN WHEREAS, the Bankruptcy Court has determined that the Plan Trust and the Plan satisfy all the prerequisites for an injunction pursuant to section 524(g) of the Bankruptcy Code, and such injunction has been entered in connection with the Confirmation Order; NOW, THEREFORE, it is hereby agreed as follows: SECTION 1 AGREEMENT OF TRUST 1.1 Creation and Name. The Debtors as Settlors hereby create a trust known as the "Congoleum Plan Trust," which is the Plan Trust provided for and referred to in the Plan. The Plan Trustees may transact the business and affairs of the Plan Trust in the name of the Plan Trust. It is the intention of the parties hereto that the trust created hereby constitutes a statutory trust under Chapter 38 of title 12 of the Delaware Code, 12 Del. C. ss. 3801 et seq. (the "Act") and that this document, together with the by-laws described herein, constitute the governing instruments of the Plan Trust. The Plan Trustees and the Delaware Trustee are hereby authorized and directed to execute and file a Certificate of Trust with the Delaware Secretary of State in the form attached hereto as Exhibit B. 1.2 Purpose. The purpose of the Plan Trust is to assume the liabilities of Congoleum, its predecessors and successors in interest, for all Plan Trust Asbestos Claims, and to use the Plan Trust's assets and income to pay the holders of all Plan Trust Asbestos Claims in accordance with this Plan Trust Agreement and the TDP in such a way that such holders of Plan Trust Asbestos Claims are treated fairly, equitably and reasonably in light of the limited assets available to satisfy such claims, and to otherwise comply in all respects with the requirements of a trust set forth in section 524(g)(2)(B) of the Bankruptcy Code. All Plan Trust Asbestos Claims (other than the Asbestos Property Damage Claims) shall be determined, liquidated, and paid pursuant to this Plan Trust Agreement and the TDP. Asbestos Property Damage Claims shall be determined pursuant to the Plan and paid, if Allowed, pursuant to this Plan Trust Agreement. In addition, the Plan Trust shall prosecute, settle and manage the disposition of the Asbestos In-Place Insurance Coverage and prosecute, settle and manage Asbestos Insurance Actions and Direct Actions. 1.3 Transfer of Assets. Pursuant to the Plan, the Plan Trust Assets have been transferred and assigned to the Plan Trust to settle and discharge all Plan Trust Asbestos Claims. Any insurance proceeds subject to the Security Agreement and/or the Collateral Trust Agreement are transferred and assigned to and assumed by the Plan Trust subject to any lien and/or security interests reflected in such agreements, in the event that such Agreements are found valid, enforceable and unavoidable by a final nonappealable order of a court of competent jurisdiction, or by a settlement agreement approved by the Bankruptcy Court. Pursuant to the Plan, Reorganized Congoleum and others may also transfer and assign additional assets to the Plan Trust from time to time. In all events, such assets will be transferred to the Plan Trust free and clear of any liens or other claims by Congoleum, Reorganized Congoleum, any creditor, or other entity. Congoleum, Reorganized Congoleum, and any other transferors shall also execute and deliver such documents to the Plan Trust as the Plan Trustees reasonably request to transfer and assign the Plan Trust Assets to the Plan Trust. 2 EXHIBIT D TO THE PLAN 1.4 Acceptance of Assets and Assumption of Liabilities. (a) In furtherance of the purposes of the Plan Trust, the Plan Trustees, on behalf of the Plan Trust, hereby expressly accept the transfer and assignment to the Plan Trust of the Plan Trust Assets in the time and manner as contemplated in the Plan Documents. (b) In furtherance of the purposes of the Plan Trust, the Plan Trustees, on behalf of the Plan Trust, expressly assume all liabilities, obligations and responsibilities relating to all Plan Trust Asbestos Claims and Asbestos Expenses. Except as otherwise provided in this Plan Trust Agreement and the TDP, the Plan Trust shall have all defenses, cross-claims, offsets, and recoupments, as well as rights of indemnification, contribution, subrogation, and similar rights, regarding such claims that Congoleum or Reorganized Congoleum has or would have had under applicable law. Regardless of the foregoing, however, a claimant must meet otherwise applicable federal, state and foreign statutes of limitations and repose, except that a claimant may establish that such statutes were tolled by operation of law or as provided in the TDP. (c) No provision herein or in the TDP shall be construed to mandate distributions on any claims or other actions that would contravene the Plan Trust's compliance with the requirements of a qualified settlement fund within the meaning of section 1.468B-1 et seq. of the Treasury Regulations promulgated under section 468B of the IRC. (d) The Plan Trust shall indemnify, defend and hold harmless each of the Debtors, the Reorganized Debtors and their past, present and future Representatives for any expenses, costs and fees (including reasonable attorneys' fees and costs, but excluding any such expenses, costs and fees incurred prior to the Effective Date), judgments, settlements or other liabilities arising from or incurred in connection with, any Plan Trust Asbestos Claim, including but not limited to indemnification or contribution for Plan Trust Asbestos Claims prosecuted against the Reorganized Debtors after the Effective Date but excluding (i) any amounts paid prior to or on the Effective Date by the Debtors or their past or present Representatives and (ii) any amounts paid or incurred by any Reorganized Debtor or its Representatives, whether before or after the Effective Date, in connection with defending, objecting to, or otherwise related to any proceedings to determine whether an Asbestos Property Damage Claim is or should be Allowed. Notwithstanding anything in this Section 1.4 to the contrary, the Plan Trust shall reimburse and pay promptly the Reorganized Debtors, from the proceeds of the Asbestos Insurance Action Recoveries, for the Claims Handling Fee and, to the extent provided under the terms of the Asbestos Insurance Settlement Agreement with Liberty Mutual Insurance Company, for the Coverage Costs, to the extent such Claims Handling Fee and Coverage Costs have not been reimbursed or paid to the Debtors or Reorganized Debtors, as applicable, from Asbestos Insurance Action Recoveries received on or after the Petition Date. (e) Nothing in this Plan Trust Agreement shall be construed in any way to limit the scope, enforceability, or effectiveness of the Injunctions issued in connection with the Plan or the Plan Trust's assumption of all liability for Plan Trust Asbestos Claims, subject to the provisions of Section 1.4(b) above. 3 EXHIBIT D TO THE PLAN SECTION 2 POWERS AND TRUST ADMINISTRATION 2.1 Powers. (a) The Plan Trustees are and shall act as the fiduciaries to the Plan Trust in accordance with the provisions of this Plan Trust Agreement and the Plan. The Plan Trustees shall, at all times, administer the Plan Trust and the Plan Trust Assets in accordance with the purposes set forth in Section 1.2 above. Subject to the limitations set forth in this Plan Trust Agreement, the Plan Trustees shall have the power to take any and all actions that, in the judgment of the Plan Trustees, are necessary or proper to fulfill the purposes of the Plan Trust, including, without limitation, each power expressly granted in this Section 2.1, any power reasonably incidental thereto, and any trust power now or hereafter permitted under the laws of the State of New Jersey. (b) Except as required by applicable law or otherwise specified herein, the Plan Trustees need not obtain the order or approval of any court in the exercise of any power or discretion conferred hereunder. (c) Without limiting the generality of Section 2.1(a) above, and except as limited below, the Plan Trustees shall have the power to: (i) receive and hold the Plan Trust Assets, vote the New Class A Common Stock (and any Reserved Common Stock), and exercise all rights with respect to, and sell, any securities issued by Reorganized Congoleum that are included in the Plan Trust Assets, subject to any restrictions set forth in the Amended and Restated Certificate of Incorporation of Reorganized Congoleum; (ii) invest the monies held from time to time by the Plan Trust; (iii) sell, transfer, or exchange any or all of the Plan Trust Assets at such prices and upon such terms as the Plan Trustees may consider proper, consistent with the other terms of this Plan Trust Agreement; (iv) enter into leasing and financing agreements with third parties to the extent such agreements are reasonably necessary to permit the Plan Trust to operate; (v) pay liabilities and expenses of the Plan Trust, including, but not limited to, Plan Trust Expenses; (vi) establish such funds, reserves and accounts within the Plan Trust estate, as deemed by the Plan Trustees to be useful in carrying out the purposes of the Plan Trust; (vii) sue and be sued and participate, as a party or otherwise, in any judicial, administrative, arbitrative, or other proceeding; 4 EXHIBIT D TO THE PLAN (viii) establish, supervise and administer the Plan Trust in accordance with the TDP and the terms thereof; (ix) appoint such officers and hire such employees and engage such legal, financial, accounting, investment, auditing and forecasting, and other consultants and agents as the business of the Plan Trust requires, and delegate to such persons such powers and authorities as the fiduciary duties of the Plan Trustees permit and as the Plan Trustees, in their discretion, deem advisable or necessary in order to carry out the terms of the Plan Trust; (x) pay employees, legal, financial, accounting, investment, auditing, and forecasting, and other consultants, advisors, and agents, including those engaged by the Plan Trust in connection with its alternative dispute resolution activities, reasonable compensation; (xi) compensate the Plan Trustees, the TAC members, the Delaware Trustee and the Futures Representative as provided below, and their employees, legal, financial, accounting, investment and other advisors, consultants, independent contractors, and agents, and reimburse the Plan Trustees, the TAC members, the Delaware Trustee and the Futures Representative all reasonable out-of-pocket costs and expenses incurred by such persons in connection with the performance of their duties hereunder; (xii) execute and deliver such instruments as the Plan Trustees consider proper in administering the Plan Trust; (xiii)enter into such other arrangements with third parties as are deemed by the Plan Trustees to be useful in carrying out the purposes of the Plan Trust, provided such arrangements do not conflict with any other provision of this Plan Trust Agreement; (xiv) in accordance with Section 4.6 below, defend, indemnify and hold harmless (and purchase insurance indemnifying) (A) the Plan Trustees and (B) the TAC, the Futures Representative, the officers and employees of the Plan Trust, and any agents, advisors and consultants of the Plan Trust, the TAC or the Futures Representative (the "Additional Indemnitees"), to the fullest extent that a corporation or statutory trust organized under the law of the Plan Trust's situs is from time to time entitled to indemnify and/or insure its directors, trustees, officers, employees, agents, and representatives; (xv) indemnify the Entities to be indemnified in accordance with Section 1.4 and Section 4.6 and purchase insurance or make other such arrangements for the Plan Trust and those Entities for whom the Plan Trust has an indemnification obligation hereunder; (xvi) delegate any or all of the authority herein conferred with respect to the investment of all or any portion of the Plan Trust Assets to any one or more reputable individuals or recognized institutional investment advisors or investment managers without liability for any action taken or omission made because of any such delegation, except as provided in Section 4.4 below; 5 EXHIBIT D TO THE PLAN (xvii) consult with Reorganized Congoleum, the TAC and the Futures Representative at such times and with respect to such issues relating to the conduct of the Plan Trust as the Plan Trustees may consider necessary, appropriate or desirable; and (xviii) make, pursue (by litigation or otherwise), collect, compromise or settle, in the name of the Plan Trust or the name of Reorganized Congoleum, any claim, right, action, or cause of action included in the Plan Trust Assets, including, but not limited to, insurance recoveries, before any court of competent jurisdiction; provided that settlement of actions before the Bankruptcy Court require the approval of the Bankruptcy Court after notice to Reorganized Congoleum. (d) The Plan Trustees shall not have the power to guarantee any debt of other persons. (e) The Plan Trustees shall give the TAC, the Futures Representative and Reorganized Congoleum prompt notice of any act performed or taken pursuant to Sections 2.1(c)(i), (iii), (vii), or (xv) above, and any act proposed to be performed or taken pursuant to Section 2.2(f) below. 2.2 General Administration. (a) The Plan Trustees shall adopt, with the consent of the TAC and the Futures Representative, and act in accordance with the Plan Trust Bylaws. To the extent not inconsistent with the terms of this Plan Trust Agreement, the Plan Trust Bylaws shall govern the affairs of the Plan Trust. In the event of an inconsistency between the Plan Trust Bylaws and this Plan Trust Agreement, this Plan Trust Agreement shall govern. (b) The Plan Trustees shall (i) timely file such income tax and other returns and statements and shall timely pay all taxes required to be paid, (ii) comply with all withholding obligations, as required under the applicable provisions of the IRC and of any state law and the regulations promulgated thereunder, (iii) meet without limitation all requirements necessary to qualify and maintain qualification of the Plan Trust as a qualified settlement fund within the meaning of section 1.468B-1 et seq. of the Treasury Regulations promulgated under section 468B of the IRC, and (iv) take no action that could cause the Plan Trust to fail to qualify as a qualified settlement fund within the meaning of section 1.468B-1 et seq. of the Treasury Regulations promulgated under section 468B of the IRC. (c) The Plan Trustees shall timely account to the Bankruptcy Court, regardless of whether the Reorganization Cases are closed, as follows: (i) The Plan Trustees shall cause to be prepared and filed with the Bankruptcy Court, as soon as available, and in any event within one hundred and twenty (120) days following the end of each fiscal year, an annual report containing financial statements of the Plan Trust (including, without limitation, a balance sheet of the Plan Trust as of the end of such fiscal year and a statement of operations for such fiscal year) audited by a firm of independent certified public accountants selected by the Plan Trustees and accompanied by an opinion of such firm as to the fairness of the financial statements' presentation of the cash and investments available for the payment of claims and as to the conformity of the financial statements with generally accepted accounting principles. The Plan Trustees shall provide a copy of such report to the TAC, the Futures Representative, and Reorganized Congoleum when such report is so filed with the Bankruptcy Court. 6 EXHIBIT D TO THE PLAN (ii) Simultaneously with delivery of each set of financial statements referred to in Section 2.2(c)(i) above, the Plan Trustees shall cause to be prepared and filed with the Bankruptcy Court a report containing a summary regarding the number and type of Plan Trust Asbestos Claims disposed of, and the amount paid in respect of such Plan Trust Asbestos Claims, during the period covered by the financial statements. The Plan Trustees shall provide a copy of such report to the TAC, the Futures Representative and Reorganized Congoleum when such report is filed. (iii) All materials required to be filed with the Bankruptcy Court by this Section 2.2(c) shall be available for inspection by the public in accordance with procedures established by the Bankruptcy Court and shall be filed with the Office of the United States Trustee for the District of New Jersey. (d) The Plan Trustees shall cause to be prepared as soon as practicable prior to the commencement of each fiscal year a budget and cash flow projections covering such fiscal year and the succeeding four fiscal years. The budget and cash flow projections shall include determining the Maximum Annual Payment pursuant to Section 2.5 of the TDP, and the Claims Payment Ratio pursuant to Section 2.6 of the TDP. The Plan Trustees shall provide a copy of the budget and cash flow projections to the TAC and the Futures Representative. (e) The Plan Trustees shall consult with the TAC and the Futures Representative (i) on the general implementation and administration of the Plan Trust; (ii) on the general implementation and administration of the TDP; and (iii) on such other matters as may be required under this Plan Trust Agreement and the TDP. (f) The Plan Trustees shall be required to obtain the consent of the TAC and the Futures Representative pursuant to the Consent Process set forth in Section 5.8(b) and 6.6(b) below, in addition to any other instances elsewhere enumerated, in order: (i) to determine and thereafter redetermine the Payment Percentage described in Section 2.4 of the TDP as provided in Section 5.2 of the TDP; (ii) to change the Claims Payment Ratio described in Section 2.6 of the TDP in the event that the requirements for such a change as set forth in said provision have been met; (iii) to change the Disease Levels, Scheduled Values and/or Medical/Exposure Criteria set forth in Section 6.2(a)(3) of the TDP, and/or the Average Values and/or Maximum Values set forth in Section 6.2(b)(3) of the TDP; (iv) to establish and/or to change the Claims Materials to be provided holders of Plan Trust Asbestos Claims under Section 7.1 of the TDP; 7 EXHIBIT D TO THE PLAN (v) to require that claimants provide additional kinds of medical and/or exposure evidence pursuant to Sections 6.6(b) and 8.1 of the TDP; (vi) to adopt or thereafter change the form of release to be provided pursuant to Section 8.8 of the TDP; (vii) amend any provision of the TDP in accordance with the terms thereof; (viii) to adopt the Plan Trust Bylaws in accordance with Section 2.2, above, or thereafter to amend the Plan Trust Bylaws in accordance with the terms thereof; (ix) to terminate the Plan Trust pursuant to Section 7.2 below; (x) to settle the liability of any insurer under any insurance policy or legal action related thereto; (xi) subject to Section 5.3 below, to settle either of the Avoidance Actions or any other legal action relating to the validity, enforceability or voidability of any Plan Trust Disputed Claim; (xii) to change the compensation and/or per diem of the members of the TAC, the Futures Representative or Plan Trustees, other than to reflect cost-of-living increases or changes approved by the Bankruptcy Court as otherwise provided herein; (xiii) to take structural or other actions to minimize any tax on the Plan Trust Assets; (xiv) to vote the stock of any Reorganized Debtor for purposes of appointing members of the Board of Directors of such Reorganized Debtor; (xv) to acquire an interest in or to merge any asbestos claims resolution organization formed by the Plan Trust with another asbestos claims resolution organization that is not specifically created by this Plan Trust Agreement or the TDP, or to contract with another asbestos claims resolution organization or other entity that is not specifically created by this Plan Trust Agreement or the TDP, or permit any other party to join in any asbestos claims resolution organization that is formed by the Plan Trust pursuant to this Plan Trust Agreement or the TDP; provided that such merger, acquisition, contract or joinder shall not (a) subject Reorganized Congoleum, or any successors in interest thereto, to any risk of having any Plan Trust Asbestos Claim asserted against it or them, or (b) otherwise jeopardize the validity or enforceability of the section 524(g) injunction; and provided further that the terms of such merger will require the surviving organization to make decisions about the allowability and value of claims in accordance with Section 2.1 of the TDP which requires that such decisions be based on the provisions of the TDP; (xvi) to sell, pledge, transfer or otherwise dispose of any securities issued by any Reorganized Debtor subject to any restrictions imposed by the Plan; 8 EXHIBIT D TO THE PLAN (xvii) to settle any Plan Trust Bankruptcy Causes of Action; or (xviii) to determine whether the Reset Date shall occur on the First Indicated Date or the Second Indicated Date. (g) The Plan Trustees shall meet with the TAC and the Futures Representative no less often than quarterly during the first two years following the Effective Date and thereafter at least two times per year. The Plan Trustees shall meet in the interim with the TAC and the Futures Representative when so requested by either at mutually convenient times and locations. (h) The Plan Trustees, upon notice from the Futures Representative or the TAC requesting consideration of one or more issues, shall at their next regular meeting, if practicable in view of pending business, or, if appropriate, at a specially called meeting, place on their agenda and consider such issues. (i) Periodically, but not less often than once a year, the Plan Trustees shall make available to the Futures Representative, the TAC and any holder (or the personal representative or attorney of such holder) of a Plan Trust Asbestos Claim on file with the Plan Trust that has not been paid in accordance with, or finally rejected pursuant to, the TDP the number of claims by disease levels that have been resolved both by individual review and by arbitration, as well as by trial, indicating the amounts of the awards and the averages of the awards by jurisdiction pursuant to Section 8.10 of the TDP. 2.3 Claims Administration. The Plan Trustees shall promptly proceed to implement the TDP. SECTION 3 ACCOUNTS, INVESTMENTS, AND PAYMENTS 3.1 Accounts. (a) The Plan Trustees may, from time to time, create such accounts and reserves within the Plan Trust estate as they may deem necessary, prudent, or useful in order to provide for the payment of Plan Trust Expenses and payment of Plan Trust Asbestos Claims in accordance with the TDP and may, with respect to any such account or reserve, restrict the use of monies therein. In addition, the Plan Trustees shall establish, as soon as practicable after the Effective Date, two separate and distinct accounts (maintained in separate banking and/or other accounts including accounts established by book entry) to be designated the "Asbestos Personal Injury Claim Sub-Account" and the "Asbestos Property Damage Claim Sub-Account," and none of the assets held in the Asbestos Personal Injury Claim Sub-Account or the Asbestos Property Damage Claim Sub-Account shall be commingled with assets held by the Plan Trust in any other account. In addition, separate books and records shall be kept with respect to each of the Asbestos Personal Injury Claim Sub-Account and the Asbestos Property Damage Claim Sub-Account. (b) All Plan Trust Assets and other property held by or received by the Plan Trust (other than the Asbestos Property Damage Insurance Rights and all proceeds thereof and earnings thereon), and all proceeds thereof and earnings 9 EXHIBIT D TO THE PLAN thereon, shall be held solely in the Asbestos Personal Injury Claim Sub-Account and shall be used to pay Plan Trust PI Asbestos Claims, as well as Plan Trust Expenses and indemnification costs or expenses, in either case related to Plan Trust PI Asbestos Claims. (c) All amounts received by the Plan Trust in respect of the Asbestos Property Damage Insurance Rights, and all proceeds thereof and earnings thereon, shall be held solely in the Asbestos Property Damage Claim Sub-Account and shall be used to pay Allowed Asbestos Property Damage Claims, as well as Plan Trust Expenses and indemnification costs or expenses, in either case related to Asbestos Property Damage Claims. Notwithstanding the foregoing, the Plan Trustees may transfer monies from the Asbestos Property Damage Claim Sub-Account to the Asbestos Personal Injury Claim Sub-Account, from time to time, to the extent that the funds in the Asbestos Property Damage Claim Sub-Account exceed the aggregate face amount of all unpaid Asbestos Property Damage Claims filed prior to the Asbestos Property Damage Claim Bar Date and a reasonable reserve for Plan Trust Expenses and indemnification costs or expenses, in either case related to Asbestos Property Damage Claims. 3.2 Plan Trust Disputed Claims Reserve. Within six (6) months of the Initial Claims Filing Date (as defined in the TDP), in the event that the Class 2 Settlement or the Class 3 and 11 Settlement is not approved by the Final Order of the Bankruptcy Court, the Plan Trustees shall create a reserve of funds in the Asbestos Personal Injury Claim Sub-Account for all Plan Trust Disputed Claims held by holders of Plan Trust PI Asbestos Claims (the "Plan Trust Disputed Claims Reserve"); provided, however, that such Plan Trust Disputed Claim Reserve shall not exceed $23.25 million. In the event that any such Plan Trust Disputed Claims and/or any lien or security interest with respect to such claims are determined by a final, non-appealable order of the Bankruptcy Court, or by a final and binding settlement agreement approved by the Bankruptcy Court, to be valid, enforceable and unavoidable, such claims shall be entitled to treatment by the Plan Trust in accordance with the liquidated amount of such claims and any valid lien or security interest therefor, and shall be paid by the Plan Trust from the funds in the Plan Trust Disputed Claims Reserve. In the event that any such Plan Trust Disputed Claims are determined by a final, non-appealable order of the Bankruptcy Court, or by a final and binding settlement agreement approved by the Bankruptcy Court, to be valid, enforceable and unavoidable, but any lien or security interest with respect to such claims is found to be invalid, unenforceable and avoidable, an amount equal to the Payment Percentage times the liquidated amount of such claims shall be paid by the Plan Trust from the Plan Trust Disputed Claims Reserve. Any additional funds in the Plan Trust Disputed Claims Reserve attributable to such claims shall be deposited in the Asbestos Personal Injury Claim Sub-Account and made available for distribution by the Plan Trust in accordance with the terms of this Plan Trust Agreement and the TDP. In the event that any such Plan Trust Disputed Claims are determined by a final, non-appealable order of the Bankruptcy Court, or by a final and binding settlement agreement approved by the Bankruptcy Court, to be to be invalid, unenforceable or void, any funds in the Plan Trust Disputed Claims Reserve attributable to such claims shall be deposited in the Asbestos Personal Injury 10 EXHIBIT D TO THE PLAN Claim Sub-Account and made available for distribution by the Plan Trust in accordance with the terms of this Plan Trust Agreement and the TDP. The holders of such Plan Trust Disputed Claims may file their claims with the Plan Trust for determination and treatment under the TDP in a manner consistent with such settlement or order. 3.3 Investments. Investment of monies held in the Plan Trust shall be administered in the manner in which individuals of ordinary prudence, discretion, and judgment would act in the management of their own affairs, subject to the following limitations and provisions: (a) The Plan Trust shall not acquire, directly or indirectly, equity in any entity (other than Reorganized Congoleum or any successor to Reorganized Congoleum) or business enterprise if, immediately following such acquisition, the Plan Trust would hold more than 5% of the equity in such entity or business enterprise. The Plan Trust shall not hold, directly or indirectly, more than 10% of the equity in any entity (other than Reorganized Congoleum or any successor to Reorganized Congoleum) or business enterprise. (b) Excluding any securities issued by the Debtors or Reorganized Congoleum, the Plan Trust shall not acquire or hold any long-term debt securities unless (i) such securities are Plan Trust Assets under the Plan, (ii) such securities are rated "Baa" or higher by Moody's, "BBB" or higher by Standard & Poor's ("S&P's"), or have been given an equivalent investment grade rating by another nationally recognized statistical rating agency, or (iii) have been issued or fully guaranteed as to principal and interest by the United States of America or any agency or instrumentality thereof. (c) The Plan Trust shall not acquire or hold for longer than ninety (90) days any commercial paper unless such commercial paper is rated "Prime 1" or higher by Moody's or "A 1" or higher by S&P's, or has been given an equivalent rating by another nationally recognized statistical rating agency. (d) Excluding any securities issued by the Debtors or Reorganized Congoleum, or transferred to the Plan Trust in accordance with the provisions of the Plan, the Plan Trust shall not acquire or hold any common or preferred stock or convertible securities unless such stock or securities are rated "A" or higher by Moody's or "A" or higher by S&P's, or have been given an equivalent investment grade rating by another nationally recognized statistical rating agency. (e) The Plan Trust shall not acquire any debt securities or other instruments issued by any entity (other than debt securities or other instruments issued or fully guaranteed as to principal and interest by the United States of America or any agency or instrumentality thereof and other than debt securities or other instruments of Reorganized Congoleum or any successor to Reorganized Congoleum) if, following such acquisition, the aggregate market value of all debt securities and instruments issued by such entity held by the Plan Trust would exceed 2% of the aggregate value of the Plan Trust's assets. The Plan Trust shall not hold any debt securities or other instruments issued by any entity (other than debt securities or other instruments issued or fully guaranteed as to principal and interest by the United States of America or any agency or instrumentality thereof and other than debt securities or other instruments of Reorganized Congoleum or any successor to Reorganized Congoleum) to the extent that the aggregate market value of all securities and instruments issued by such entity held by the Plan Trust would exceed 5% of the aggregate value of the Plan Trust's assets. 11 EXHIBIT D TO THE PLAN (f) The Plan Trust shall not acquire or hold any certificates of deposit unless all publicly held, long-term debt securities, if any, of the financial institution issuing the certificate of deposit and the holding company, if any, of which such financial institution is a subsidiary, meet the standards set forth in Section 3.3(b) above. (g) The Plan Trust may acquire and hold any securities or instruments issued by Reorganized Congoleum or any successor to Reorganized Congoleum, or obtained as proceeds of litigation or otherwise to resolve disputes, without regard to the limitations set forth in Subsections (a)-(f) above. (h) The Plan Trust shall not acquire or hold any repurchase obligations unless, in the opinion of the Plan Trustees, they are adequately collateralized. (i) The Plan Trust shall not acquire or hold any options. 3.4 Source of Payments. All Plan Trust expenses and payments and all liabilities with respect to claims shall be payable solely by the Plan Trustees out of the Plan Trust Assets. Neither Congoleum, Reorganized Congoleum, their subsidiaries, any successor in interest, the present or former directors, officers, employees or agents of Congoleum, Reorganized Congoleum, nor the Plan Trustees, the TAC or Futures Representative, or any of their officers, agents, advisors, or employees shall be liable for the payment of any Plan Trust Asbestos Claim, Plan Trust Expense or any other liability of the Plan Trust. 3.5 Payments of Allowed Asbestos Property Damage Claims. (a) All Asbestos Property Damage Claims filed before the Asbestos Property Damage Claim Bar Date shall be Allowed or Disallowed by a Final Order (whether such Final Order resolves a contested matter or adversary proceeding, approves a compromise or settlement or otherwise). The Plan Trust shall only be obligated to pay Asbestos Property Damage Claims that (i) were filed prior to the Asbestos Property Damage Claim Bar Date and (ii) have been Allowed (and the Plan Trust shall only be obligated to pay such Asbestos Property Damage Claims to the extent so Allowed) by a Final Order. The Plan Trust shall not make any distributions with respect to Allowed Asbestos Property Damage Claims until all Asbestos Property Damage Claims have been Allowed or Disallowed by Final Order. Any Asbestos Property Damage Claims filed after the Asbestos Property Damage Claim Bar Date shall, pursuant to the terms of the Plan, be automatically Disallowed, with no further action of any Entity. (b) Payments to holders of Allowed Asbestos Property Damage Claims shall be made solely from the Asbestos Property Damage Claim Sub-Account. (c) Subject to the terms and conditions of Section 3.5(d), with respect to any distribution in respect of Allowed Asbestos Property Damage Claims, each holder of an Allowed Asbestos Property Damage Claim shall be paid a pro rata portion of such holder's Allowed Asbestos Property Damage Claim determined by multiplying the aggregate amount of the distribution to be made by a fraction, the numerator of which is the amount of such holder's Allowed Asbestos Property 12 EXHIBIT D TO THE PLAN Damage Claim and the denominator of which is the total of all Allowed Asbestos Property Damage Claims until the assets in the Asbestos Property Damage Claim Sub-Account are exhausted; provided that the aggregate of all distributions made hereunder to a holder of an Allowed Asbestos Property Damage Claim shall not exceed the Allowed Amount of such holder's Allowed Asbestos Property Damage Claim; and provided further that once all of the assets in the Asbestos Property Damage Claim Sub-Account have been exhausted, the Plan Trust shall have no further obligation or liability in respect of Allowed Asbestos Property Damage Claims. (d) The Plan Trustees shall determine the timing and the appropriate method for making payments in respect of Allowed Asbestos Property Damage Claims, subject to the requirements and general principles of this Plan Trust Agreement and the Plan. Methods for making payments in respect of Allowed Asbestos Personal Damage Claims may include payment on an installment basis. In the event that the Plan Trust faces periods of limited liquidity in the Asbestos Property Damage Claim Sub-Account, the Plan Trustees may defer, delay, limit, or suspend altogether, payments or a portion thereof in respect of Allowed Asbestos Property Damage Claims. 3.6 Payment of Plan Trust Expenses. (a) All Plan Trust Expenses and all liabilities of the Plan Trust with respect to all Asbestos Personal Injury Claims and Plan Trust Assets and proceeds thereof and earnings thereon (other than that the Asbestos Property Damage Insurance Rights and proceeds thereof and earnings thereon), shall be payable by the Plan Trust solely out of the Asbestos Personal Injury Claim Sub-Account. All Plan Trust Expenses and all liabilities with respect to Asbestos Property Damage Claims (and the Asbestos Property Damage Insurance Rights and proceeds thereof and earnings thereon) shall be payable by the Plan Trust solely out of the Asbestos Property Damage Claim Sub-Account. If Plan Trust Expenses and liabilities relate to more than one of the categories described in the preceding sentences, such Plan Trust Expenses and liabilities shall be satisfied from one or more of the accounts as determined by the Plan Trustees in their sole discretion. Notwithstanding any other provision of this Plan Trust Agreement or the Plan, the Plan Trust shall have no further liability or obligation for or in respect of Plan Trust Expenses or other liabilities relating to Asbestos Property Damage Claims once all of the assets in the Asbestos Property Damage Claim Sub-Account have been exhausted. (b) Notwithstanding anything in this Plan Trust Agreement or the TDP to the contrary, the Plan Trustees shall deduct from the Plan Trust's assets and shall pay such amounts as are required to pay the Plan Trust Expenses after receipt by the Plan Trustees of evidence satisfactory to them of the applicable Plan Trust Expense and provided that the Plan Trustees do not contest the amount of such Plan Trust Expense. 3.7 Indemnification Payments. Any claim for indemnification from the Plan Trust and all costs and expenses associated therewith shall be satisfied as follows: (a) If an indemnification claim relates solely to or arises solely in connection with an Asbestos Personal Injury Claim, such claim shall be satisfied solely from assets held in the Asbestos Personal Injury Claim Sub-Account; 13 EXHIBIT D TO THE PLAN (b) If an indemnification claim relates solely to or arises solely in connection with an Asbestos Property Damage Claim, such claim shall be satisfied solely from assets held in the Asbestos Property Damage Claim Sub-Account; (c) If an indemnification claim relates to or arises in connection with both Asbestos Personal Injury Claims and Asbestos Property Damage Claims, or if such indemnification claim does not clearly relate to or arise in connection with Asbestos Personal Injury Claims or Asbestos Property Damage Claims, such claim shall be satisfied from assets held in the Asbestos Personal Injury Claim Sub-Account and the Asbestos Property Damage Claim Sub-Account in such relative proportion as the Plan Trustees determine in their sole discretion. Notwithstanding any other provision of this Plan Trust Agreement or the Plan, the Plan Trust shall have no further liability or obligation for or in respect of indemnification relating to or arising from Asbestos Property Damage Claims and all costs and expenses associated therewith once all of the assets in the Asbestos Property Damage Claim Sub-Account have been exhausted. SECTION 4 PLAN TRUSTEES AND DELAWARE TRUSTEE 4.1 Number. In addition to the Delaware Trustee appointed pursuant to Section 4.11 hereof, there shall be three (3) Plan Trustees who shall be initially those persons named on the signature page hereof, namely ___________, _____________ and _____________. 4.2 Term of Service. (a) The initial Plan Trustees named pursuant to Section 4.1 above shall serve staggered terms of three (3), four (4) and five (5) years, respectively, as indicated on the signature page hereof. Thereafter each term of service shall be five (5) years. The initial Plan Trustees shall serve from the Effective Date until the earlier of (i) the end of his or her term, (ii) his or her death, (iii) his or her resignation pursuant to Section 4.2(b) below, (iv) his or her removal pursuant to Section 4.2(c) below, or (v) the termination of the Plan Trust pursuant to Section 7.2 below. (b) A Plan Trustee may resign at any time by written notice to the remaining Plan Trustees, the TAC and the Futures Representative. Such notice shall specify a date when such resignation shall take place, which shall not be less than ninety (90) days after the date such notice is given, where practicable. (c) A Plan Trustee may be removed by unanimous vote of the remaining Plan Trustees in the event that he or she becomes unable to discharge his or her duties hereunder due to accident or physical or mental deterioration, or for other good cause. Good cause shall be deemed to include, without limitation, any substantial failure to comply with the general administration provisions of Section 2.2 above, a consistent pattern of neglect and failure to perform or participate in performing the duties of the Plan Trustees hereunder, or repeated non-attendance at scheduled meetings. Such removal shall require the approval of the Bankruptcy Court and shall take effect at such time as the Bankruptcy Court shall determine. 14 EXHIBIT D TO THE PLAN 4.3 Appointment of Successor Plan Trustees. (a) In the event of a vacancy in the position of a Plan Trustee, whether by term expiration, resignation or removal, the remaining Plan Trustees shall consult with the TAC and the Futures Representative concerning appointment of a successor Plan Trustee. The vacancy shall be filled by the unanimous vote of the remaining Plan Trustees unless a majority of the TAC or the Futures Representative vetoes the appointment. In the event that the remaining Plan Trustees cannot agree on a successor Plan Trustee, or a majority of the TAC or the Futures Representative vetoes the appointment of a successor Plan Trustee, the Bankruptcy Court shall make the appointment. Nothing shall prevent the reappointment of a Plan Trustee for an additional term or terms. (b) Immediately upon the appointment of any successor Plan Trustee, all rights, titles, duties, powers and authority of the predecessor Plan Trustee hereunder shall be vested in, and undertaken by, the successor Plan Trustee without any further act. No successor Plan Trustee shall be liable personally for any act or omission of his or her predecessor Plan Trustees. (c) Each successor Plan Trustee shall serve until the earlier of (i) the end of a full term of five (5) years if the predecessor Plan Trustee completed his or her term, (ii) the end of the remainder of the term of the Plan Trustee whom he or she is replacing if said predecessor Plan Trustee did not complete said term, (iii) his or her death, (iv) his or her resignation pursuant to Section 4.2(b) above, (v) his or her removal pursuant to Section 4.2(c) above, or (vi) the termination of the Plan Trust pursuant to Section 7.2 below. 4.4 Liability of Plan Trustees, Delaware Trustee, Officers and Employees. The Plan Trustees, the Delaware Trustee, and the individuals identified as Additional Indemnitees in Section 2.1(c)(xiv) above shall not be liable to the Plan Trust, to any individual holding a Plan Trust Asbestos Claim, or to any other person, except for such individual's own breach of trust committed in bad faith or willful misappropriation. In addition, the Plan Trustees, the Delaware Trustee and the Additional Indemnitees shall not be liable for any act or omission of any other Plan Trustee, the Delaware Trustee or Additional Indemnitee unless such person acted with bad faith in the selection or retention of such other Plan Trustee, the Delaware Trustee or Additional Indemnitee. 4.5 Compensation and Expenses of Plan Trustees. (a) The Plan Trustees shall receive compensation in accordance with Section 3.6 above, from the Plan Trust for their services as Plan Trustees in the amount of $60,000.00 per annum, plus a per diem allowance for meetings or other Plan Trust business performed in the amount of $1,500.00. For purposes of Section 7.4 below, the Plan Trustees shall determine the scope and duration of activities that constitute a meeting and, if the Plan Trustees elect to provide for payment for activities of less than a full day's duration, may provide for partial payment of per diem amounts on a proportional basis for activities of less than a full day's duration. The per annum and per diem compensation payable to the Plan Trustees hereunder shall be reviewed every three (3) years and appropriately adjusted for changes in the cost of living with the consent of the TAC and the Futures Representative. Any other changes in compensation of the Plan Trustees shall be made subject to the approval of the Bankruptcy Court. The Delaware Trustee shall be paid such compensation as is agreed pursuant to a separate fee agreement. 15 EXHIBIT D TO THE PLAN (b) The Plan Trust will promptly reimburse the Plan Trustees in accordance with Section 3.6 above, for all reasonable out-of-pocket costs and expenses incurred by the Plan Trustees in connection with the performance of their duties hereunder following submission of appropriate documentation evidencing payment of such costs or expenses. (c) The Plan Trust shall include a description of the amounts paid under this Section 4.5 in the accounts to be filed with the Bankruptcy Court and provided to the TAC, the Futures Representative, and Reorganized Congoleum pursuant to Section 2.2(c)(i). 4.6 Indemnification of Plan Trustees, Additional Indemnitees, Claimants' Representative and Collateral Trustee. (a) The Plan Trust shall indemnify and defend the Plan Trustees, the members of the TAC and the Futures Representative in the performance of their duties hereunder to the fullest extent that a statutory trust organized under the laws of the state of Delaware is from time to time entitled to indemnify and defend such persons against any and all liabilities, expenses, claims, damages or losses incurred by them in the performance of their duties hereunder or in connection with activities undertaken by them prior to the Effective Date in connection with the formation, establishment, or funding of the Plan Trust. The Plan Trust shall indemnify any of the Additional Indemnitees in the performance of their duties hereunder to the fullest extent that a corporation or trust organized under the laws of the Plan Trust's jurisdiction of organization is from time to time entitled to indemnify and defend such persons against any and all liabilities, expenses, claims, damages or losses incurred by them in the performance of their duties hereunder or in connection with activities undertaken by them prior to the Effective Date in connection with the formation, establishment or funding of the Plan Trust. Notwithstanding the foregoing, the Plan Trustees and the Additional Indemnitees shall not be indemnified or defended in any way for any liability, expense, claim, damage, or loss for which he, she or it is ultimately liable under Section 4.4 above. (b) Reasonable expenses, costs and fees (including attorneys' fees and costs) incurred by or on behalf of a Plan Trustee or Additional Indemnitee in connection with any action, suit, or proceeding, whether civil, administrative or arbitrative, from which they are indemnified by the Plan Trust pursuant to Section 4.6(a) above, shall be paid by the Plan Trust in advance of the final disposition thereof upon receipt of an undertaking, by or on behalf of the Plan Trustees or Additional Indemnitee, to repay such amount in the event that it shall be determined ultimately by final order that such Plan Trustee or Additional Indemnitee is not entitled to be indemnified by the Plan Trust. (c) Subject to the limitations set forth in this Section 4.6(c), the Plan Trust and the Reorganized Debtors shall indemnify and hold harmless each of the Claimants' Representative and the Collateral Trustee to the extent that such Entity was or is a party, or is threatened to be made a party, to any threatened or pending judicial, administrative or arbitrative action, suit or proceeding by reason of any act or omission of such Entity with respect to the negotiation and implementation of modifications to the Plan, the other Plan Documents and the Collateral Trust Agreement contemplated by the Tenth Modified Joint Plan of 16 EXHIBIT D TO THE PLAN Reorganization of the Debtors and made on or after May 30, 2006 to the fullest extent that a trust or a corporation organized under the laws of the State of Delaware is from time to time entitled to indemnify and defend its officers, directors, trustees and employees, against any and all liabilities, expenses (including reasonable attorneys' fees and expenses), claims, damages or losses incurred by each such Entity in connection with or resulting from such action, suit or proceeding. To the extent that the Claimants' Representative or the Collateral Trustee seek indemnification under this Section 4.6(c), the Reorganized Debtors shall be responsible to pay the first one million dollars ($1,000,000) of indemnifiable liabilities, expenses, claims, damages and losses sought under this Section 4.6(c). Thereafter, the Reorganized Debtors and the Plan Trust shall each be responsible, severally and not jointly, to pay on a pari passu basis one half of up to four million dollars ($4,000,000) of any additional liabilities, expenses, claims, damages and losses indemnifiable under this Section 4.6(c), provided that the Reorganized Debtors' maximum obligation under this Section 4.6(c) shall in no event exceed the aggregate sum of three million dollars ($3,000,000). Thereafter, the Plan Trust shall be solely responsible for any additional liabilities, expenses, claims, damages and losses indemnifiable under this Section 4.6(c). If the Claimants' Representative or Collateral Trustee seeks indemnification under this Section 4.6(c) (each, an "Indemnified Party"), such Indemnified Party shall give the Reorganized Debtors and the Plan Trust prompt written notice of the basis upon which such Indemnified Party seeks indemnification under this Section 4.6(c) (an "Indemnification Claim Notice"). In no event shall the Plan Trust or the Reorganized Debtors be liable for any liabilities, expenses, claims, damages or losses that result from a delay in providing the Indemnification Claim Notice. Each Indemnification Claim Notice shall contain a description of the action, suit or proceeding related to the claim for indemnification and each Indemnified Party shall furnish promptly to the Plan Trust and the Reorganized Debtors copies of all papers and official documents received by it in respect thereof. At their option, the Reorganized Debtors may assume the defense of any action, suit or proceeding upon which the Indemnified Parties intend to base a request for indemnification by giving written notice to such Indemnified Party within fourteen (14) days after the Reorganized Debtors' receipt of an Indemnification Claim Notice. The assumption of the defense of such action, suit or proceeding shall not be construed as an acknowledgement that the Reorganized Debtors or the Plan Trust are liable to indemnify any Indemnified Party in respect thereof, nor shall it constitute a waiver by the Reorganized Debtors or the Plan Trust of any defense any of them may assert against any Indemnified Party's claim for indemnification. In the event that it is ultimately determined that the Reorganized Debtors and/or the Plan Trust are not obligated to indemnify, defend or hold harmless any Indemnified Party in respect of any action, suit or proceeding for which indemnification is sought under this Section 4.6(c), such Indemnified Party shall reimburse the Reorganized Debtors for any and all costs and expenses (including attorneys' fees and costs) incurred by the Reorganized Debtors in defense of such action, suit or proceeding. Regardless of whether the Reorganized Debtors choose to defend or prosecute any such action, suit or proceeding, no Indemnified Party shall admit any liability with respect to, or settle, compromise or discharge, any such action, suit or proceeding without the prior written consent of the Reorganized Debtors and the Plan Trust, which consent shall not be unreasonably withheld. The Reorganized Debtors and the Plan Trust shall not be liable for any settlement or disposition of a claim by any Indemnified Party that is reached without the prior written consent of the Reorganized Debtors and the Plan Trust. If the Reorganized Debtors choose to defend or prosecute any action, suit or proceeding for which indemnification 17 EXHIBIT D TO THE PLAN shall be requested, (i) the Indemnified Parties shall reasonably cooperate in the defense or prosecution thereof and (ii) the Reorganized Debtors shall keep the Plan Trust reasonably informed of the status of, and issues in, the action, suit or proceeding and shall consult with the Plan Trust in connection with the defense or prosecution thereof (subject to any applicable privileges). In addition, if the Reorganized Debtors choose to defend or prosecute any action, suit or proceeding for which indemnification shall be requested, the Reorganized Debtors shall not settle such action, suit or proceeding without the prior written consent of the Plan Trust, which consent shall not be unreasonably withheld. (d) The Plan Trustees may purchase and maintain reasonable amounts and types of insurance on behalf of an individual who is or was a Plan Trustee, Additional Indemnitee, Claimants' Representative or Collateral Trustee, including against liability asserted against or incurred by such individual in that capacity or arising from his or her status as a Plan Trustee, TAC member, Futures Representative, Claimants' Representative, Collateral Trustee, officer, employee, agent or other representative. 4.7 Plan Trustees' Lien. The Plan Trustees, the Additional Indemnitees, the Claimants' Representative and the Collateral Trustee shall have a first priority lien upon the Plan Trust Assets to secure the payment of any amounts payable to them pursuant to Section 4.6 above. 4.8 Plan Trustees' Employment of Experts; Delaware Trustee's Employment of Counsel. (a) The Plan Trustees may, but shall not be required to, retain and/or consult with counsel, accountants, appraisers, auditors and forecasters, and other parties ("Professionals") deemed by the Plan Trustees to be qualified as experts on the matters submitted to them, and, in the absence of gross negligence, the written opinion of or information provided by any such party deemed by the Plan Trustees to be an expert on the particular matter on any matters submitted to such party by the Plan Trustees shall be full and complete authorization and protection in respect of any action taken or not taken by the Plan Trustees hereunder in good faith and in accordance with the written opinion of or information provided by any such party. (b) The Delaware Trustee shall be permitted to retain counsel only in such circumstances as required in the exercise of its obligations hereunder and compliance with the advice of such counsel shall be full and complete authorization and protection for actions taken or not taken by the Delaware Trustee in good faith in compliance with such advice. 4.9 Plan Trustees' Independence. The Plan Trustees shall not, during the term of their service, hold a financial interest in, act as attorney or agent for, or serve as any other professional for Reorganized Congoleum. Notwithstanding the foregoing, any Plan Trustee may serve, without any additional compensation other than the per diem compensation to be paid by the Plan Trust pursuant to Section 4.5(a) above, as a director of Reorganized Congoleum. No Plan Trustee shall act as an attorney for any person who holds an asbestos claim. 4.10 Bond. The Plan Trustees and the Delaware Trustee shall not be required to post any bond or other form of surety or security unless otherwise ordered by the Bankruptcy Court. 18 EXHIBIT D TO THE PLAN 4.11 Delaware Trustee. (a) There shall at all times be a Delaware Trustee. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware or (ii) a legal entity that has its principal place of business in the State of Delaware, otherwise meets the requirements of applicable Delaware law and shall act through one or more persons authorized to bind such entity. If at any time the Delaware Trustee shall cease to be eligible in accordance with the provisions of this Section 4.11, it shall resign immediately in the manner and with the effect hereinafter specified in Section 4.11(c) below. For the avoidance of doubt, the Delaware Trustee will only have such rights and obligations as expressly provided by reference to the Delaware Trustee hereunder. (b) The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities, of the Plan Trustees set forth herein. The Delaware Trustee shall be one of the trustees of the Plan Trust for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Act and for taking such actions as are required to be taken by a Delaware Trustee under the Act. The duties (including fiduciary duties), liabilities and obligations of the Delaware Trustee shall be limited to (i) accepting legal process served on the Plan Trust in the State of Delaware and (ii) the execution of any certificates required to be filed with the Secretary of State of the State of Delaware that the Delaware Trustee is required to execute under Section 3811 of the Act and there shall be no other duties (including fiduciary duties) or obligations, express or implied, at law or in equity, of the Delaware Trustee. (c) The Delaware Trustee shall serve until such time as the Plan Trustees remove the Delaware Trustee or the Delaware Trustee resigns and a successor Delaware Trustee is appointed by the Plan Trustees in accordance with the terms of Section 4.11(d) below. The Delaware Trustee may resign at any time upon the giving of at least 60 days' advance written notice to the Plan Trustees; provided, that such resignation shall not become effective unless and until a successor Delaware Trustee shall have been appointed by the Plan Trustees in accordance with Section 4.11(d) below. If the Plan Trustees do not act within such 60-day period, the Delaware Trustee may apply to the Court of Chancery of the State of Delaware for the appointment of a successor Delaware Trustee. (d) Upon the resignation or removal of the Delaware Trustee, the Plan Trustees shall appoint a successor Delaware Trustee by delivering a written instrument to the outgoing Delaware Trustee. Any successor Delaware Trustee must satisfy the requirements of Section 3807 of the Act. Any resignation or removal of the Delaware Trustee and appointment of a successor Delaware Trustee shall not become effective until a written acceptance of appointment is delivered by the successor Delaware Trustee to the outgoing Delaware Trustee and the Plan Trustees and any fees and expenses due to the outgoing Delaware Trustee are paid. Following compliance with the preceding sentence, the successor Delaware Trustee shall become fully vested with all of the rights, powers, duties and obligations of the outgoing Delaware Trustee under this Agreement, with like effect as if originally named as Delaware Trustee, and the outgoing Delaware Trustee shall be discharged of its duties and obligations under this Agreement. 19 EXHIBIT D TO THE PLAN SECTION 5 PLAN TRUST ADVISORY COMMITTEE 5.1 Members. The TAC shall consist of five (5) members, who shall initially be the persons named on the signature page hereof, namely Russell Budd, Esq., Steven Kazan, Esq., Joseph Rice, Esq., Robert Taylor, Esq., and Perry Weitz, Esq. 5.2 Duties. The members of the TAC shall serve in a fiduciary capacity representing all holders of present Plan Trust Asbestos Claims. Subject to Section 5.3 below, the Plan Trustees must consult with the TAC on matters identified in Section 2.2(e) above and in other provisions herein, and must obtain the consent of the TAC on matters identified in Section 2.2(f) above. Where provided in the TDP, certain other actions by the Plan Trustees are also subject to the consent of the TAC. 5.3 Consent of TAC With Respect to Avoidance Actions, etc. If the Plan Trustees seek the consent of the TAC with respect to a matter identified in Section 2.2(f)(ix) above, a TAC member who is a Claimants' Counsel, as defined in the Claimant Agreement, or who is a member, employee or associate of a firm of such Claimants' Counsel, shall not take part in the decision of the TAC as to whether to grant such consent, or in any decision of the TAC regarding the resolution of any dispute concerning such matter pursuant to Section 7.13 below. 5.4 Term of Office. (a) The initial members of the TAC appointed in accordance with Section 5.1 above shall serve staggered terms of three-, four-, or five-year terms as indicated on the signature page hereof. Thereafter, each term of service shall be five (5) years. A member of the TAC shall serve until the earlier of (i) his or her death, (ii) his or her resignation pursuant to Section 5.4(b) below, (iii) his or her removal pursuant to Section 5.4(c) below, (iv) the end of his or her term as provided above, or (v) the termination of the Plan Trust pursuant to Section 7.2 below. (b) A member of the TAC may resign at any time by written notice to the other members of the TAC, the Plan Trustees and the Futures Representative. Such notice shall specify a date when such resignation shall take effect, which shall not be less than ninety (90) days after the date such notice is given, where practicable. (c) A member of the TAC may be removed in the event that he or she becomes unable to discharge his or her duties hereunder due to accident, physical deterioration, mental incompetence, or a consistent pattern of neglect and failure to perform or to participate in performing the duties of such member hereunder, such as repeated non-attendance at scheduled meetings, or for other good cause. Such removal shall be made at the recommendation of the remaining members of the TAC with the approval of the Bankruptcy Court. 5.5 Appointment of Successor. (a) In the event of a vacancy caused by the resignation, expiration of the term, or death of a TAC member, his or her successor shall be pre-selected by the TAC member whose has resigned, is deceased or whose term has expired, or by his or her law firm in the event that such member has not pre-selected a 20 EXHIBIT D TO THE PLAN successor. Nothing shall prevent a TAC member or his or her law firm from pre-selecting that TAC member to succeed himself or herself at the expiration of his or her term, and there shall be no limit on the number of terms that a TAC member may serve. If neither the member nor the law firm exercises the right to make such a selection, the successor shall be chosen by a majority vote of the remaining TAC members. If a majority of the remaining members cannot agree, the Bankruptcy Court shall appoint the successor. In the event of a vacancy caused by the removal of a TAC member, the remaining members of the TAC by majority vote shall name the successor. If the majority of the remaining members of the TAC cannot reach agreement, the Bankruptcy Court shall appoint the successor. (b) Each successor TAC member shall serve until the earlier of (i) his or her death, (ii) his or her resignation pursuant to Section 5.4(b) above, (iii) his or her removal pursuant to Section 5.4(c) above, (iv) the expiration of his or her term pursuant to Section 5.4(a) above, or (v) the termination of the Plan Trust pursuant to Section 7.2 below. 5.6 TAC's Employment of Professionals. (a) The TAC may, but is not required to, retain and/or consult Professionals deemed by the TAC to be qualified as experts on matters submitted to the TAC. The TAC and its Professionals shall at all times have complete access to the Plan Trust's officers, employees and agents, as well as to the Professionals retained by the Plan Trust, and shall also have complete access to all information generated by them or otherwise available to the Plan Trust or the Plan Trustees. In the absence of gross negligence, the written opinion of or information provided by any Professional deemed by the TAC to be qualified as an expert on the particular matter submitted to the TAC shall be full and complete authorization and protection in support of any action taken or not taken by the TAC in good faith and in accordance with the written opinion of or information provided by the Professional. (b) The Plan Trust shall promptly reimburse, or pay directly if so instructed, the TAC for all reasonable fees and costs associated with the TAC's employment of legal counsel pursuant to this provision in connection with the TAC's performance of its duties hereunder. The Plan Trust shall also promptly reimburse, or pay directly if so instructed, the TAC for all reasonable fees and costs associated with the TAC's employment of any other Professional pursuant to this provision in connection with the TAC's performance of its duties hereunder; provided, however, that (i) the TAC has first submitted to the Plan Trust a written request for such reimbursement setting forth the reasons (A) why the TAC desires to employ such Professional, and (B) why the TAC cannot rely on Professionals retained by the Plan Trust to meet the needs of the TAC for such expertise or advice, and (ii) the Plan Trust has approved the TAC's request for reimbursement in writing. If the Plan Trust agrees to pay for the TAC Professional, such reimbursement shall be treated as a Plan Trust Expense. If the Plan Trust declines to pay for the TAC Professional, it must set forth its reasons in writing. If the TAC still desires to employ such Professional at Plan Trust expense, the TAC and/or the Plan Trustees shall resolve their dispute pursuant to Section 7.13 below. 5.7 Compensation and Expenses of the TAC. The members of the TAC shall receive compensation from the Plan Trust for their services as TAC members in the form of a reasonable hourly rate set by the Plan Trustees for attendance at meetings or other conduct of Plan Trust business. The members of the TAC shall 21 EXHIBIT D TO THE PLAN also be reimbursed promptly for all reasonable out-of-pocket costs and expenses incurred in connection with the performance of their duties hereunder. Such reimbursement or direct payment shall be deemed a Plan Trust Expense. The Plan Trust shall include a description of the amounts paid under this Section 5.7 in the accounts to be filed with the Bankruptcy Court and provided to the Plan Trustees, the Futures Representative, and Reorganized Congoleum pursuant to Section 2.2(c)(i). 5.8 Procedures for Consultation With and Obtaining the Consent of the TAC. (a) Consultation Process. (i) In the event the Plan Trustees are required to consult with the TAC pursuant to Section 2.2(e) above or on other matters as provided herein, the Plan Trustees shall provide the TAC with written advance notice of the matter under consideration, and with all relevant information concerning the matter as is reasonably practicable under the circumstances. The Plan Trustees shall also provide the TAC with such reasonable access to the Professionals and other experts retained by the Plan Trust and its staff (if any) as the TAC may reasonably request during the time that the Plan Trustees are considering such matter, and shall also provide the TAC the opportunity, at reasonable times and for reasonable periods of time, to discuss and comment on such matter with the Plan Trustees. (ii) The Plan Trustees shall take into consideration the time required for the TAC, if its members so wish, to engage and consult with its own independent financial or investment advisors as to such matter. (b) Consent Process. (i) In the event the Plan Trustees are required to obtain the consent of the TAC pursuant to Section 2.2(f) above, the Trustees shall provide the TAC with a written notice stating that their consent is being sought pursuant to that provision, describing in detail the nature and scope of the action the Plan Trustees propose to take, and explaining in detail the reasons why the Plan Trustees desire to take such action. The Plan Trustees shall provide the TAC as much relevant additional information concerning the proposed action as is reasonably practicable under the circumstances. The Plan Trustees shall also provide the TAC with such reasonable access to the Professionals and other experts retained by the Plan Trust and its staff (if any) as the TAC may reasonably request during the time that the Plan Trustees are considering such action, and shall also provide the TAC the opportunity, at reasonable times and for reasonable periods of time, to discuss and comment on such action with the Plan Trustees. (ii) The TAC must consider in good faith and in a timely fashion any request for its consent by the Plan Trustees, and must in any event advise the Plan Trustees in writing of its consent or its objection to the proposed action within 30 days of receiving the original request for consent from the Plan Trustees. The TAC may not withhold its consent unreasonably. If the TAC decides to withhold its consent, it must explain in detail its objections to the proposed action. If the TAC does not advise the Plan Trustees in writing of its consent or its objections to the action within thirty (30) days of receiving notice regarding such request, the TAC's consent to the proposed actions shall be deemed to have been affirmatively granted. 22 EXHIBIT D TO THE PLAN (iii) If, after following the procedures specified in this Section 5.8(b), the TAC continues to object to the proposed action and to withhold its consent to the proposed action, the Plan Trustees and/or the TAC shall resolve their dispute pursuant to Section 7.13. However, the burden of proof with respect to the validity of the TAC's objection and withholding of its consent shall be on the TAC. 5.9 Copies to the TAC. The Plan Trustees shall provide the TAC with copies of all notices and other written information provided to the Futures Representative pursuant to this Plan Trust Agreement. SECTION 6 THE FUTURES REPRESENTATIVE 6.1 Duties. The initial Futures Representative shall be the individual appointed by the Bankruptcy Court to serve in such capacity. He shall serve in a fiduciary capacity, representing the interests of the holders of future Plan Trust Asbestos Claims for the purpose of protecting the rights of such persons. The Plan Trustees must consult with the Futures Representative on matters identified in Section 2.2(e) above and on certain other matters provided herein, and must obtain the consent of the Futures Representative on matters identified in Section 2.2(f) above. Where provided in the TDP, certain other actions by the Plan Trust or Plan Trustees are also subject to the consent of the Futures Representative. 6.2 Term of Office. (a) The Futures Representative shall serve until the earlier of (i) his or her death, (ii) his or her resignation pursuant to Section 6.2(b) below, (iii) his or her removal pursuant to Section 6.2(c) below, or (iv) the termination of the Plan Trust pursuant to Section 7.2 below. (b) The Futures Representative may resign at any time by written notice to the Plan Trustees. Such notice shall specify a date when such resignation shall take effect, which shall not be less than ninety (90) days after the date such notice is given, where practicable. (c) The Futures Representative may be removed by the Bankruptcy Court in the event he or she becomes unable to discharge his or her duties hereunder due to accident, physical deterioration, mental incompetence, or a consistent pattern of neglect and failure to perform or to participate in performing the duties hereunder, such as repeated non-attendance at scheduled meetings, or for other good cause. 6.3 Appointment of Successor. A vacancy caused by death or resignation shall be filled with an individual nominated prior to the effective date of the resignation or the death by the resigning or deceased Futures Representative, and a vacancy caused by removal of the Futures Representative shall be filled with an individual nominated by the Plan Trustees in consultation with the TAC, subject to the approval of the Bankruptcy Court. In the event a majority of the Plan Trustees cannot agree, or a nominee has not been pre-selected, the successor shall be chosen by the Bankruptcy Court. 23 EXHIBIT D TO THE PLAN 6.4 Futures Representative's Employment of Professionals. (a) The Futures Representative may, but is not required to, retain and/or consult Professionals deemed by the Futures Representative to be qualified as experts on matters submitted to the Futures Representative. The Futures Representative and his or her Professionals shall at all times have complete access to the Plan Trust's officers, employees and agents, as well as to the Professionals retained by the Plan Trust, and shall also have complete access to all information generated by them or otherwise available to the Plan Trust or the Plan Trustees. In the absence of gross negligence, the written opinion of or information provided by any Professional deemed by the Futures Representative to be qualified as an expert on the particular matter submitted to the Futures Representative shall be full and complete authorization and protection in support of any action taken, or not taken, by the Futures Representative in good faith and in accordance with the written opinion of or information provided by the Professional. (b) The Plan Trust shall promptly reimburse, or pay directly if so instructed, the Futures Representative for all reasonable fees and costs associated with the Futures Representative's employment of legal counsel pursuant to this provision in connection with the Futures Representative's performance of his or her duties hereunder. The Plan Trust shall also promptly reimburse, or pay directly if so instructed, the Futures Representative for all reasonable fees and costs associated with the Futures Representative's employment of any other Professionals pursuant to this provision in connection with the Futures Representative's performance of his or her duties hereunder; provided, however, that (i) the Futures Representative has first submitted to the Plan Trust a written request for such reimbursement setting forth the reasons (A) why the Futures Representative desires to employ the Professional, and (B) why the Futures Representative cannot rely on Professionals retained by the Plan Trust to meet the needs of the Futures Representative for such expertise or advice, and (ii) the Plan Trust has approved the Futures Representative's request for reimbursement in writing. If the Plan Trust agrees to pay for the Futures Representative's Professional, such reimbursement shall be treated as a Plan Trust Expense. If the Plan Trust declines to pay for the Futures Representative's Professional, it must set forth its reasons in writing. If the Futures Representative still desires to employ the Professional at Plan Trust expense, the Futures Representative and/or the Plan Trustees shall resolve their dispute pursuant to Section 7.13 below. 6.5 Compensation and Expenses of the Futures Representative. The Futures Representative shall receive compensation from the Plan Trust in the form of payment at the Futures Representative's normal hourly rate for services performed. The Plan Trust will promptly reimburse the Futures Representative for all reasonable out-of-pocket costs and expenses incurred by the Futures Representative in connection with the performance of his or her duties hereunder. Such reimbursement or direct payment shall be deemed a Plan Trust Expense. The Plan Trust shall include a description of the amounts paid under this Section 6.5 in the accounts to be filed with the Bankruptcy Court and provided to the Plan Trustees, the Futures Representative, and Reorganized Congoleum pursuant to Section 2.2(c)(i). 24 EXHIBIT D TO THE PLAN 6.6 Procedures for Consultation with and Obtaining the Consent of the Futures Representative. (a) Consultation Process. (i) In the event the Plan Trustees are required to consult with the Futures Representative pursuant to Section 2.2(e) above or on any other matters specified herein, the Plan Trustees shall provide the Futures Representative with written advance notice of the matter under consideration, and with all relevant information concerning the matter as is reasonably practicable under the circumstances. The Plan Trustees shall also provide the Futures Representative with such reasonable access to Professionals and other experts retained by the Plan Trust and its staff (if any) as the Futures Representative may reasonably request during the time that the Plan Trustees are considering such matter, and shall also provide the Futures Representative the opportunity, at reasonable times and for reasonable periods of time, to discuss and comment on such matter with the Plan Trustees. (ii) The Plan Trustees shall take into consideration the time required for the Futures Representative, if he or she so wishes, to engage and consult with his or her own independent financial, actuarial or investment advisors as to such matter. (b) Consent Process. (i) In the event the Plan Trustees are required to obtain the consent of the Futures Representative pursuant to Section 2.2(f) above, the Plan Trustees shall provide the Futures Representative with a written notice stating that his or her consent is being sought pursuant to that provision, describing in detail the nature and scope of the action the Plan Trustees propose to take, and explaining in detail the reasons why the Plan Trustees desire to take such action. The Plan Trustees shall provide the Futures Representative as much relevant additional information concerning the proposed action as is reasonably practicable under the circumstances. The Plan Trustees shall also provide the Futures Representative with such reasonable access to the Professionals and other experts retained by the Plan Trust and its staff (if any) as the Futures Representative may reasonably request during the time that the Plan Trustees are considering such action, and shall also provide the Futures Representative the opportunity, at reasonable times and for reasonable periods of time, to discuss and comment on such action with the Plan Trustees. (ii) The Futures Representative must consider in good faith and in a timely fashion any request for his or her consent by the Plan Trustees, and must in any event advise the Plan Trustees in writing of his or her consent or objection to the proposed action within thirty (30) days of receiving the original request for consent from the Plan Trustees. The Futures Representative may not withhold his or her consent unreasonably. If the Futures Representative decides to withhold consent, he or she must explain in detail his or her objections to the proposed action. If the Futures Representative does not advise the Plan Trustees in writing of his or her consent or objections to the proposed action within thirty (30) days of receiving the notice from the Plan Trustees regarding such consent, the Futures Representative's consent shall be deemed to have been affirmatively granted. 25 EXHIBIT D TO THE PLAN (iii) If, after following the procedures specified in this Section 6.6(b), the Futures Representative continues to object to the proposed action and to withhold its consent to the proposed action, the Plan Trustees and/or the Futures Representative shall resolve their dispute pursuant to Section 7.13. However, the burden of proof with respect to the validity of the Futures Representative's objection and withholding of his or her consent shall be on the Futures Representative. 6.7 Copies to Futures Representative. The Plan Trustees shall provide the Futures Representative with copies of all notices and other written information provided to the TAC pursuant to this Plan Trust Agreement. SECTION 7 GENERAL PROVISIONS 7.1 Irrevocability. The Plan Trust is irrevocable. 7.2 Dissolution. (a) The term for which the Plan Trust is to exist shall commence on the date of the filing of the Certificate of Trust and shall terminate pursuant to the provisions of this Section 7.2. (b) The Plan Trust shall automatically dissolve on the date ninety (90) days after the first to occur of the following events (the "Dissolution Date"): (i) the Plan Trustees decide to dissolve the Plan Trust because (A) they deem it unlikely that new asbestos claims will be filed against the Plan Trust, (B) all Plan Trust Asbestos Claims duly filed with the Plan Trust have been liquidated and paid to the extent provided in this Plan Trust Agreement and the TDP or have been disallowed by a final, non-appealable order, to the extent possible based upon the funds available through the Plan, and (C) twelve (12) consecutive months have elapsed during which no new asbestos claim has been filed with the Plan Trust; or (ii) if the Plan Trustees have procured and have in place irrevocable insurance policies and have established claims handling agreements and other necessary arrangements with suitable third parties adequate to discharge all expected remaining obligations and expenses of the Plan Trust in a manner consistent with this Plan Trust Agreement and the TDP, the date on which the Bankruptcy Court enters an order approving such insurance and other arrangements and such order becomes a final order; or (iii) to the extent that any rule against perpetuities shall be deemed applicable to the Plan Trust, twenty-one (21) years less ninety-one (91) days pass after the death of the last survivor of all of the descendants of the late Joseph P. Kennedy, Sr., father of the late President John F. Kennedy, living on the date hereof. 26 EXHIBIT D TO THE PLAN (c) On the Dissolution Date or as soon as reasonably practicable after the wind-up of the Plan Trust's affairs by the Plan Trustees and payment of all the Plan Trust's liabilities has been provided for (including, without limitation, Plan Trust Expenses) as required by applicable law including Section 3808 of the Act, all assets remaining in the Plan Trust estate shall be given to such organization(s) exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, which tax-exempt organization(s) shall be selected by the Plan Trustees using their reasonable discretion; provided, however, that (i) if practicable, the activities of the selected tax-exempt organization(s) shall be related to the treatment of, research on, or the relief of suffering of individuals suffering from asbestos related lung disorders, and (ii) the tax-exempt organization(s) shall not bear any relationship to Reorganized Congoleum within the meaning of section 468B(d)(3) of the Internal Revenue Code. Notwithstanding any contrary provision of the Plan and related documents, this Section 7.2(c) cannot be modified or amended. (d) Following the dissolution and distribution of the assets of the Plan Trust, the Plan Trust shall terminate and the Plan Trustees, or any one of them, shall execute and cause a Certificate of Cancellation of the Certificate of Trust of the Plan Trust to be filed in accordance with the Act. Notwithstanding anything to the contrary contained in this Agreement, the existence of the Plan Trust as a separate legal entity shall continue until the filing of such Certificate of Cancellation. 7.3 Amendments. Except as otherwise provided herein, the Plan Trustees, after consultation with the TAC and the Futures Representative, and subject to the unanimous consent of the TAC and the Futures Representative, may modify or amend this Plan Trust Agreement and the Plan Trust Bylaws. The Plan Trustees, after consultation with the TAC and the Futures Representative, and subject to the consent of the TAC and the Futures Representative, may modify or amend the TDP; provided, however, that no amendment to the TDP shall be inconsistent with the provisions limiting amendments to that document provided therein, and in particular the provisions limiting amendment of the Claims Payment Ratio set forth in Section 2.6 of the TDP and of the Payment Percentage set forth in Section 4.2 of the TDP. Any modification or amendment made pursuant to this Section must be done in writing. Notwithstanding anything contained in this Plan Trust Agreement to the contrary, neither this Plan Trust Agreement, the Plan Trust Bylaws, the TDP, nor any document annexed to the foregoing shall be modified or amended in any way that could jeopardize, impair, or modify the applicability of section 524(g) of the Bankruptcy Code, the efficacy or enforceability of the injunction entered thereunder, or the Plan Trust's qualified settlement fund status under section 468B of the Internal Revenue Code. 7.4 Meetings. The Plan Trustees, the TAC, and the Futures Representative shall be deemed to have attended a meeting in the event such person participates in a substantial portion of such meeting by conferring, in person or by telephone conference call, on Plan Trust matters with the TAC, the Futures Representative, or Plan Trustees, as applicable. The Plan Trustees, the TAC and the Futures Representative shall have complete discretion to determine whether a meeting, as described herein, occurred for purposes of Sections 4.5, 5.7, and 6.5 above. 7.5 Severability. Should any provision in this Plan Trust Agreement be determined to be unenforceable, such determination shall in no way limit or affect the enforceability and operative effect of any and all other provisions of this Plan Trust Agreement. 27 EXHIBIT D TO THE PLAN 7.6 Notices. Notices to persons asserting claims shall be given by first class mail, postage prepaid, at the address of such person, or, where applicable, such person's legal representative, in each case as provided on such person's claim form submitted to the Plan Trust with respect to his or her Plan Trust Asbestos Claim. (a) Any notices or other communications required or permitted hereunder to the following parties shall be in writing and delivered at the addresses designated below, or sent by electronic mail (email) or facsimile pursuant to the instructions listed below, or mailed by registered or certified mail, return receipt requested, postage prepaid, addressed as follows, or to such other address or addresses as may hereafter be furnished in writing to each of the other parties listed below in compliance with the terms hereof. To the Plan Trust through the Plan Trustees: To the TAC: Russell Budd 3102 Oak Lawn Avenue Suite 1100 Dallas, TX 75219 E-mail: rbudd@baronbudd.com Steven Kazan Kazan, McClain, Abrams, Fernandez, Lyons & Farrise 171 Twelfth Street, Third Floor Oakland, California 94607 Facsimile: 510-835-4913 E-mail: skazan@kazanlaw.com Robert Taylor, II One Allen Center 3400 Penthouse 500 Dallas Street Houston Texas, 77002 E-mail: rebadolezal@rgtaylorlaw.com Joseph F. Rice Motley Rice LLC 28 Bridgeside Blvd Post Office Box 1792 Mt. Pleasant, SC 29465 E-mail: jrice@motleyrice.com Perry Weitz Weitz & Luxenberg, P.C. 180 Maiden Lane New York, New York 10038-4925 Facsimile: 212-344-5461 E-mail: pweitz@weitzlux.com 28 EXHIBIT D TO THE PLAN To the Futures Representative: R. Scott Williams Haskell Slaughter Young & Rediker, LLC 1400 Park Place Tower 2001 Park Place North Birmingham, AL 35203 Fax: (205) 324-1133 To Debtors, Settlors, or Reorganized Debtors: Congoleum Corporation 3500 Quakerbridge Road P.O. Box 3127 Mercerville, NJ 08619-0127 Attention: Roger Marcus Fax: 609-584-3685 Congoleum Sales, Inc. c/o Congoleum Corporation 3500 Quakerbridge Road P.O. Box 3127 Mercerville, NJ 08619-0127 Attention: Roger Marcus Fax: 609-584-3685 Congoleum Fiscal, Inc. c/o Congoleum Corporation 3500 Quakerbridge Road P.O. Box 3127 Mercerville, NJ 08619-0127 Attention: Roger Marcus Fax: 609-584-3685 With a copy to (which copy shall not constitute notice): Richard L. Epling, Esq. Pillsbury Winthrop Shaw Pittman LLP 1540 Broadway New York, NY 10036-4039 Fax: 212-858-1500 29 EXHIBIT D TO THE PLAN (b) All such notices and communications if mailed shall be effective when physically delivered at the designated addresses or, if electronically transmitted, when the communication is received at the designated addresses and confirmed by the recipient by return transmission. 7.7 Successors and Assigns. The provisions of this Plan Trust Agreement shall be binding upon and inure to the benefit of Congoleum, the Plan Trust, the Plan Trustees and Reorganized Congoleum, and their respective successors and assigns, except that neither Congoleum, the Plan Trust, the Plan nor Reorganized Congoleum may assign or otherwise transfer any of its, or their, rights or obligations under this Plan Trust Agreement except, in the case of the Plan Trust and the Plan Trustees, as contemplated by Section 2.1 above. 7.8 Limitation on Claim Interests for Securities Laws Purposes. Plan Trust Asbestos Claims, and any interests therein (a) shall not be assigned, conveyed, hypothecated, pledged or otherwise transferred, voluntarily or involuntarily, directly or indirectly, except by will or under the laws of descent and distribution; (b) shall not be evidenced by a certificate or other instrument; (c) shall not possess any voting rights; and (d) shall not be entitled to receive any dividends or interest; provided, however, that clause (a) of this Section 7.8 shall not apply to the holder of a claim that is subrogated to a Plan Trust Asbestos Claim as a result of its satisfaction of such Plan Trust Asbestos Claim. 7.9 Entire Agreement; No Waiver. The entire agreement of the parties relating to the subject matter of this Plan Trust Agreement is contained herein and in the documents referred to herein, and this Plan Trust Agreement and such documents supersede any prior oral or written agreements concerning the subject matter hereof. No failure to exercise or delay in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any further exercise thereof or of any other right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of rights under law or in equity. 7.10 Headings. The headings used in this Plan Trust Agreement are inserted for convenience only and do not constitute a portion of this Plan Trust Agreement, nor in any manner affect the construction of the provisions of this Plan Trust Agreement. 7.11 Governing Law. This Plan Trust Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware without regard to Delaware conflict of law principles. 7.12 Settlor Representative and Cooperation. Congoleum is hereby irrevocably designated as the Settlor, and it is hereby authorized to take any action required of the Settlor in connection with the Plan Trust Agreement. Congoleum agrees to cooperate in implementing the goals and objectives of this Plan Trust. 7.13 Dispute Resolution. Any disputes that arise under this Plan Trust Agreement or under the TDP shall be resolved by submission of the matter to an alternative dispute resolution ("ADR") process mutually agreeable to the parties involved. Should any party to the ADR process be dissatisfied with the decision of the arbitrator(s), that party may apply to the Bankruptcy Court for a judicial determination of the matter. In either case, if the dispute arose 30 EXHIBIT D TO THE PLAN pursuant to the consent provision set forth in Section 5.8(b) (in the case of the TAC) or Section 6.6(b) (in the case of the Futures Representative), the burden of proof shall be on the party or parties who withheld consent to show that the objection was valid. Should the dispute not be resolved by ADR process within thirty (30) days after submission, the parties are relieved of the requirement to pursue ADR prior to application to the Bankruptcy Court. Notwithstanding anything else herein contained, to the extent any provision of this Plan Trust Agreement is inconsistent with any provision of the Plan or the TDP, the Plan or the TDP shall control. 7.14 Enforcement and Administration. The provisions of this Plan Trust Agreement and the TDP attached hereto shall be enforced by the Bankruptcy Court pursuant to the Plan. The parties hereby further acknowledge and agree that the Bankruptcy Court shall have exclusive jurisdiction over the settlement of the accounts of the Plan Trustees and over any disputes hereunder not resolved by alternative dispute resolution in accordance with Section 7.13 above. 7.15 Effectiveness. This Plan Trust Agreement shall not become effective until it has been executed and delivered by all the parties hereto. 7.16 Counterpart Signatures. This Plan Trust Agreement may be executed in any number of counterparts, each of which shall constitute an original, but such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Plan Trust Agreement this _____ day of ________________________, _______. CONGOLEUM CORPORATION, SETTLOR, by Name: ______________________________________ Title: _____________________________________ CONGOLEUM SALES, INC., SETTLOR, by Name: ______________________________________ Title: _____________________________________ 31 EXHIBIT D TO THE PLAN CONGOLEUM FISCAL, INC., SETTLOR, by Name: ______________________________________ Title: _____________________________________ PLAN TRUSTEES __________________________________________ Name: Expiration Date of Initial Term: Third Anniversary of the date of this Agreement __________________________________________ Name: Expiration Date of Initial Term: Fourth Anniversary of the date of this Agreement __________________________________________ Name: Expiration Date of Initial Term: Fifth Anniversary of the date of this Agreement ASBESTOS CLAIMANTS' COMMITTEE __________________________________________ TRUST ADVISORY COMMITTEE __________________________________________ Name: Expiration Date of Initial Term: Third Anniversary of the date of this Agreement 32 EXHIBIT D TO THE PLAN __________________________________________ Name: Expiration Date of Initial Term: Third Anniversary of the date of this Agreement __________________________________________ Name: Expiration Date of Initial Term: Fourth Anniversary of the date of this Agreement __________________________________________ Name: Expiration Date of Initial Term: Fourth Anniversary of the date of this Agreement __________________________________________ Name: Expiration Date of Initial Term: Fifth Anniversary of the date of this Agreement FUTURES REPRESENTATIVE __________________________________________ R. Scott Williams, Esq. 33 EXHIBIT D TO THE PLAN EXHIBIT B CERTIFICATE OF TRUST [TO COME] Exhibit E to the Plan "Anti-Dilution Provisions for New Class A Common Stock" EXHIBIT E TO THE PLAN If at any time after the Effective Date (but subject to the last paragraph hereof), Reorganized Congoleum shall issue (other than in an Excluded Issuance (as defined below)) shares of Class A Common Stock (or rights, warrants or other securities convertible into or exchangeable for shares of Class A Common Stock), at a price per share (or having an exercise, conversion or exchange price per share) less than the fair market value of the Class A Common Stock on the date of issuance (a "Dilutive Issuance"), then Reorganized Congoleum shall issue immediately following the close of trading on the tenth trading date (the "Adjustment Date") following the date of such Dilutive Issuance (the "Dilutive Issuance Closing Date") additional shares of Class A Common Stock to the Plan Trust (the "Additional Shares") so that the fair market value on the Adjustment Date of (1) the New Class A Common Stock issued pursuant to Section 6.1(b) of this Plan on the Effective Date (the "Initial Shares") plus (2) the Additional Shares equals the fair market value of the Initial Shares (plus any previously issued Additional Shares) on the Dilutive Issuance Closing Date. "Excluded Issuance" shall mean (1) issuances pursuant to Reorganized Congoleum's stock option plans existing on the Effective Date (including any amendments thereto after the Effective Date) or any future stock option or restricted plan approved by the Board of Directors of Reorganized Congoleum; (2) issuances in a public offering; (3) issuances to banks, equipment lessors or other financial institutions, pursuant to a debt financing or equipment leasing approved by the Board of Directors of Reorganized Congoleum; (4) issuances to suppliers or third party service providers in connection with the provision of goods or services approved by the Board of Directors of Reorganized Congoleum and consistent with the past practices of Congoleum; and (5) issuances in connection with sponsored research, collaboration, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by the Board of Directors of Reorganized Congoleum and consistent with the past practices of Congoleum. "fair market value" shall be determined in good faith by the Board of Directors of Reorganized Congoleum (which determination shall be conclusive); provided that if the Class A Common Stock is traded on a securities exchange or the Nasdaq stock market, "fair market value" shall be based on the average of the closing prices of the Class A Common Stock thereon over the twenty trading days (during which trades occur) ending one day prior to the date of determination, it being understood that the Board of Directors shall apply an appropriate discount for shares that are "restricted" pursuant to SEC rules and regulations. After the Effective Date (but subject to the last paragraph hereof), Reorganized Congoleum shall not authorize or issue (i) any shares of capital stock, other than shares of Class A Common Stock, or (ii) any rights to acquire capital stock, other than shares of Class A Common Stock, or (iii) any securities convertible into or exchangeable for shares of capital stock, other than shares of Class A Common Stock, without the prior written consent of the Plan Trust, which shall not be unreasonably withheld. 2 EXHIBIT E TO THE PLAN The provisions of this Exhibit E shall no longer be applicable at such time as the Plan Trust first holds less than ten percent (10%) of the Class A Common Stock of Reorganized Congoleum, it being understood that if the Plan Trust were to acquire thereafter ten percent (10%) or more of such Class A Common Stock, these provisions shall continue to no longer be applicable. 3 Exhibit F to the Plan "Congoleum's Current Distributors" EXHIBIT F TO THE PLAN Congoleum Current Distributors Mohawk Industries, Inc. Pacific American Lumber, Inc. Albert F. Fitzgerald, Inc. All Tile, Inc. Bayard Sales, Corp. Bishop Distributing CMH Flooring Products, Inc. Fargo Glass & Paint Company Floor Covering, Inc. Rosele Heck, Co. Tri-State Wholesale Flooring, Inc. LaSalle Bristol, LP W.G. McMahon Canada, Ltd. Omni Floorcoverings, Ltd. (Ontario) Tapis Kraus Quebec EXHIBIT G TO THE PLAN Exhibit G to the Plan "Congoleum Plan Trust Distribution Procedures" EXHIBIT G TO THE PLAN CONGOLEUM PLAN TRUST DISTRIBUTION PROCEDURES SECTION I INTRODUCTION.......................................................1 SECTION II OVERVIEW..........................................................1 2.2 Claims Liquidation Procedures.................................2 2.3 Settled Claims................................................3 2.4 Application of the Payment Percentage.........................3 2.5 Plan Trust's Determination of the Maximum Annual Payment and Maximum Available Payment.................................4 2.6 Claims Payment Ratio..........................................4 2.7 Indirect Plan Trust Asbestos Claims...........................6 SECTION III CLAIMS HANDLING FEE, PLAN TRUST EXPENSES, AND COVERAGE COSTS................................................6 SECTION IV TDP ADMINISTRATION................................................6 4.1 Plan Trust Advisory Committee and Futures Representative......6 4.2 Consent and Consultation Procedures...........................7 SECTION V PAYMENT PERCENTAGE; PERIODIC ESTIMATES.............................7 5.1 Uncertainty of Congoleum's Personal Injury Asbestos Liabilities...................................................7 5.2 Computation of Payment Percentage.............................7 5.3 Applicability of the Payment Percentage.......................8 SECTION VI RESOLUTION OF SETTLED CLAIMS AND PLAN TRUST PI ASBESTOS CLAIMS....9 6.1 Ordering, Processing and Payment of Claims....................9 (a) Ordering of Claims.......................................9 (1) Settled Claims.......................................9 (2) Effect of Statutes of Limitation and Repose.........11 (b) Processing of Claims....................................12 (c) Payment of Claims.......................................12 6.2 Resolution of Plan Trust PI Asbestos Claims..................12 (a) Expedited Review Process................................13 (1) In General..........................................13 (2) Claims Processing Under Expedited Review............14 (3) Disease Levels, Scheduled Values and Medical/Exposure Criteria...........................14 (b) Individual Review Process...............................17 (1) In General..........................................17 (A) Review of Medical/Exposure Criteria............18 i EXHIBIT G TO THE PLAN (B) Review of Liquidated Value.....................18 (2) Valuation Factors to Be Considered in Individual Review..............................................19 (3) Scheduled, Average and Maximum Values...............20 6.3 Categorizing Claims as Extraordinary and/or Exigent Hardship.20 (a) Exigent Hardship Claims.................................21 6.4 Secondary Exposure Claims....................................21 6.5 Indirect Plan Trust Asbestos Claims..........................21 6.6 Evidentiary Requirements.....................................23 (a) Medical Evidence........................................23 (1) In General..........................................23 (A) Disease Levels I - IV..........................23 (B) Disease Levels V - VIII........................24 (2) Credibility of Medical Evidence.....................24 (b) Exposure Evidence.......................................24 (1) In General..........................................24 (2) Significant Occupational Exposure...................25 6.7 Claims Audit Program.........................................25 6.8 Second Disease (Malignancy) Claims...........................26 6.9 Arbitration..................................................26 (a) Establishment of ADR Procedures.........................26 (b) Claims Eligible for Arbitration.........................27 (c) Limitations on and Payment of Arbitration Awards........27 6.10 Litigation...................................................27 SECTION VII CLAIMS MATERIALS................................................27 7.1 Claims Materials.............................................27 7.2 Content of Claims Materials..................................28 7.3 Withdrawal or Deferral of Claims.............................28 7.4 Filing Requirements and Fees.................................28 7.5 Confidentiality of Claimants' Submissions....................28 SECTION VIII GENERAL GUIDELINES FOR LIQUIDATING AND PAYING CLAIMS...........29 8.1 Showing Required.............................................29 8.2 Costs Considered.............................................29 8.3 Discretion to Vary the Order and Amounts of Payments in Event of Limited Liquidity...................................29 8.4 Punitive Damages.............................................30 8.5 Interest.....................................................30 (a) In General..............................................30 (b) Plan Trust PI Asbestos Claims...........................30 8.6 Suits in the Tort System.....................................31 8.7 Payment of Judgments for Money Damages.......................31 8.8 Releases.....................................................31 8.9 Third-Party Services.........................................32 8.10 Plan Trust Disclosure of Information.........................32 ii EXHIBIT G TO THE PLAN SECTION IX MISCELLANEOUS....................................................32 9.1 Amendments...................................................32 9.2 Severability.................................................32 9.3 Governing Law................................................32 iii EXHIBIT G TO THE PLAN The Congoleum Plan Trust Distribution Procedures (this "TDP") contained herein provide for resolving all asbestos-related personal injury and death claims caused by exposure to products for which, Congoleum Corporation, Congoleum Sales, Inc., and Congoleum Fiscal, Inc., (collectively referred to as the "Debtors" or "Congoleum"), and their predecessors, successors, and assigns, have legal responsibility as the result of the manufacture, distribution, installation or use of Congoleum products containing asbestos or exposure to asbestos or asbestos-containing products in a Congoleum facility, which consist of Asbestos Personal Injury Claims and Unknown Asbestos Claims, as provided in and required by the confirmed Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code for Congoleum Corporation, et al., (the "Plan") and the Congoleum Plan Trust Agreement (the "Plan Trust Agreement"). The Plan and Plan Trust Agreement establish the Congoleum Plan Trust ("Plan Trust"). The Plan Trustees shall implement and administer this TDP in accordance with the Plan Trust Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Plan and the Plan Trust Agreement. SECTION I Introduction 1.1 Purpose. This TDP has been adopted pursuant to the Plan Trust Agreement. It is designed to (a) provide fair, equitable and substantially similar treatment for all Asbestos Personal Injury Claims and Unknown Asbestos Claims that may presently exist or may arise in the future and (b) pay or treat, as applicable, the Asbestos Personal Injury Claims that have been settled pursuant to the Plan under the Class 2 Settlement or the Class 3 and 11 Settlement (hereinafter for all purposes of this TDP defined as "Settled Claims") in accordance with the Class 2 Settlement and Class 3 and 11 Settlement, as applicable, or, if the Class 2 Settlement or the Class 3 and 11 Settlement are not approved and the Asbestos Personal Injury Claims of Qualified Claimants in Classes 2, 3 or 11, as applicable, are deemed Plan Trust Disputed Claims, to treat such Plan Trust Disputed Claims as provided in a Final Order of the Bankruptcy Court adjudicating such Claims. 1.2 Interpretation. Except as may otherwise be provided below, nothing in this TDP shall be deemed to create a substantive right for any claimant. SECTION II Overview 2.1 Plan Trust Goals. The goal of the Plan Trust is to treat all claimants equitably and in accordance with their legal rights. This TDP furthers that goal by setting forth procedures for processing and paying Congoleum's several share of the unpaid portion of the liquidated value of Asbestos Personal Injury Claims (other than the Settled Claims and Plan Trust Disputed Claims, which are addressed in Sections 2.3 and 6.1(a)(1) below) and Unknown Asbestos Claims (hereinafter for all purposes of this TDP defined as "Plan Trust PI Asbestos Claims") generally on an impartial, first-in first-out ("FIFO") basis, with the EXHIBIT G TO THE PLAN intention of paying all claimants over time as equivalent a share as possible of the value of their claims based on historical values for substantially similar claims in the tort system.(1) To this end, this TDP establishes a schedule of eight asbestos-related diseases ("Disease Levels"), seven of which have presumptive medical and exposure requirements ("Medical/Exposure Criteria") and specific liquidated values ("Scheduled Values"), and eight of which have both anticipated average values ("Average Values") and caps on their liquidated values ("Maximum Values"). The Disease Levels, Medical/Exposure Criteria, Scheduled Values, Average Values and Maximum Values, which are set forth in Section 6.2 below, have all been selected and derived with the intention of achieving a fair allocation of the Plan Trust funds as among claimants suffering from different disease processes in light of the best available information considering the settlement history of Congoleum and the rights claimants would have in the tort system absent the bankruptcy. 2.2 Claims Liquidation Procedures. Plan Trust PI Asbestos Claims shall be processed based on their place in the FIFO Processing Queue to be established pursuant to Section 6.1(a)(2) below. The Plan Trust shall take all reasonable steps to resolve Plan Trust PI Asbestos Claims as efficiently and expeditiously as possible at each stage of claims processing and arbitration, which steps may include conducting settlement discussions with claimants' representatives with respect to more than one claim at a time, provided that the claimants' respective positions in the FIFO Processing Queue are maintained; and each claim is individually evaluated pursuant to the valuation factors set forth in Section 6.2(b)(2) below. The Plan Trust shall also make every effort to resolve each year at least that number of Plan Trust PI Asbestos Claims required to exhaust the Maximum Annual Payment and the Maximum Available Payment for Category A and Category B claims, as those terms are defined below. The Plan Trust shall liquidate all Plan Trust PI Asbestos Claims except Foreign Claims (as defined below) that meet the presumptive Medical/Exposure Criteria of Disease Levels I - V, VII and VIII under the Expedited Review Process described in Section 6.2(a) below. Claims involving Disease Levels I - V, VII and VIII that do not meet the presumptive Medical/Exposure Criteria for the relevant Disease Level may undergo the Plan Trust's Individual Review Process described in Section 6.2(b) below. In such a case, notwithstanding that the claim does not meet the presumptive Medical/Exposure Criteria for the relevant Disease Level, the Plan Trust can offer the claimant an amount up to the Scheduled Value of that Disease Level if the Plan Trust is satisfied that the claimant has presented a claim that would be cognizable and valid in the tort system. Plan Trust PI Asbestos Claims involving Disease Levels IV - VIII tend to raise more complex valuation issues than the Plan Trust PI Asbestos Claims in Disease Levels I - III. Accordingly, claimants holding claims involving these Disease Levels may in addition or alternatively seek to establish a liquidated value for the claim that is greater than its Scheduled Value by electing the Plan Trust's Individual Review Process. However, the liquidated value of a more serious Disease Level IV, V, VII or VIII claim that undergoes the Individual Review Process for valuation purposes may be determined to be less than its Scheduled Value, and in any event shall not exceed the Maximum Value for the - ---------- (1) As used in this TDP, the phrase "in the tort system" shall include only claims asserted by way of litigation and not claims asserted against a trust established for the benefit of asbestos personal injury claimants pursuant to section 524(g) and/or section 105 of the Bankruptcy Code or any other applicable law (an "Asbestos Claim Trust"). 2 EXHIBIT G TO THE PLAN relevant Disease Level set forth in Section 6.2(b)(3) below, unless the claim qualifies as an Extraordinary Claim as defined in Section 6.3(a) below, in which case its liquidated value cannot exceed the Maximum Value specified in that provision for such claims. Level VI (Lung Cancer 2) claims and all Foreign Claims may be liquidated only pursuant to the Plan Trust's Individual Review Process. Based upon Congoleum's claims settlement history in light of applicable tort law, and current projections of present and future unliquidated claims, the Scheduled Values and Maximum Values set forth in Section 6.2(b)(3) have been established for each of the five more serious Disease Levels that are eligible for Individual Review of their liquidated values, with the expectation that the combination of settlements at the Scheduled Values and those resulting from the Individual Review Process should result in the Average Values also set forth in that provision. Subject to Section 2.3, below, regarding Settled Claims, all unresolved disputes over a claimant's medical condition, exposure history and/or the liquidated value of the claim shall be subject to binding or non-binding arbitration as set forth in Section 6.9 below, at the election of the claimant, under the ADR Procedures that are provided in Attachment A hereto. Plan Trust PI Asbestos Claims that are the subject of a dispute with the Plan Trust that cannot be resolved by non-binding arbitration may enter the tort system as provided in Sections 6.10 and 8.6 below. However, if and when a claimant obtains a judgment in the tort system, the judgment shall be payable (subject to the Payment Percentage, Maximum Available Payment, and Claims Payment Ratio provisions set forth below) as provided in Section 8.7 below. 2.3 Settled Claims. Under the terms of the Plan, which incorporates the Class 2 Settlement and the Class 3 and 11 Settlement, each Qualified Claimant has settled his, her or its Asbestos Personal Injury Claim under the Plan and shall have his, her or its claim processed and paid pursuant to Section 6.1(a)(1) below. In the event that the Class 2 Settlement or the Class 3 and 11 Settlement is not approved by the Bankruptcy Court, the Plan Trust Disputed Claims of the Qualified Claimants shall be treated as provided in a Final Order of the Bankruptcy Court and, if applicable, shall be paid from the Plan Trust Disputed Claims Reserve, in accordance with Section 3.2 of the Plan Trust Agreement. 2.4 Application of the Payment Percentage. After the liquidated value of a Plan Trust PI Asbestos Claim other than a claim involving Other Asbestos Disease (Disease Level I - Cash Discount Payment), as defined in Section 6.2(a)(3) below, is determined pursuant to the procedures set forth herein for Expedited Review, Individual Review, arbitration, or litigation in the tort system, the claimant shall ultimately receive a pro-rata share of that value based on a Payment Percentage described in Section 5.2 below. After the Plan Trust is established, an initial Payment Percentage shall be set pursuant to Section 5.2, below, by the Plan Trustees, the TAC and the Futures Representative (who are described in Section 4.1, below). The initial Payment Percentage shall be calculated on the assumption that the Average Values set forth in Section 6.2(b)(3), below, shall be achieved with respect to existing present claims and projected future claims involving Disease Levels II - - VIII. 3 EXHIBIT G TO THE PLAN The Payment Percentage may thereafter be adjusted upwards or downwards from time to time by the Plan Trustees with the consent of the TAC and the Futures Representative to reflect then-current estimates of the Plan Trust's assets and its liabilities, as well as then-estimated value of then-pending and future claims. Any adjustment to the initial Payment Percentage shall be made only pursuant to Section 5.2 below. If the Payment Percentage is increased over time, claimants whose claims were liquidated and paid in prior periods under the TDP shall receive additional payments only as provided in Section 5.2 below. Because there is uncertainty in the prediction of both the number and severity of future Plan Trust PI Asbestos Claims, and the amount of the Plan Trust' assets, no guarantee can be made of any Payment Percentage of a Plan Trust PI Asbestos Claim's liquidated value. 2.5 Plan Trust's Determination of the Maximum Annual Payment and Maximum Available Payment. The Plan Trust shall estimate or model the amount of cash flow anticipated to be necessary over its entire life to ensure that funds shall be available to treat all present and future Congoleum claimants as similarly as possible. In each year, the Plan Trust shall be empowered to pay out all of the income earned during the year, together with a portion of its principal, calculated so that the application of Plan Trust funds over its life shall correspond with the needs created by the anticipated flow of claims (the "Maximum Annual Payment"), taking into account the Payment Percentage provisions set forth in Sections 2.4 above and 5.2 below. The Plan Trust's distributions to all claimants for that year shall not exceed the Maximum Annual Payment determined for that year. In distributing the Maximum Annual Payment, the Plan Trust shall, after making reservation for any Plan Trust Disputed Claims, as provided for in Section 3.2 of the Plan Trust Agreement, if applicable, and after reimbursing the Reorganized Debtors for the Claims Handling Fee, as provided in Section 1.4(d) of the Plan Trust Agreement, first allocate the amount in question to the Settled Claims and then to liquidated Plan Trust PI Asbestos Claims involving Disease Level I (Cash Discount Payment), in proportion to the aggregate value of each group of claims. The remaining portion of the Maximum Annual Payment (the "Maximum Available Payment"), if any, shall then be allocated and used to satisfy all other liquidated Plan Trust PI Asbestos Claims, subject to the Claims Payment Ratio set forth in Section 2.6 below. In the event there are insufficient funds in any year to pay the total number of outstanding Settled Claims and/or previously liquidated Disease Level I Claims, the available funds allocated to that group of claims shall be paid to the maximum extent to claimants in the particular group based on their place in their respective FIFO Payment Queue. Claims in either group for which there are insufficient funds shall be carried over to the next year, and placed at the head of their FIFO Payment Queue. 2.6 Claims Payment Ratio. Based upon Congoleum's claims settlement history and analysis of present and future claims, a Claims Payment Ratio has been determined which, as of the Effective Date, has been set at 75% for Category A claims, which consist of Plan Trust PI Asbestos Claims involving severe asbestosis and malignancies (Disease Levels IV - VIII) that were unliquidated as of the Petition Date, and at 25% for Category B claims, which are Plan Trust PI Asbestos Claims involving non-malignant Asbestosis or Pleural Disease (Disease Levels II and III) that were similarly unliquidated as of the Petition Date. However, the Claims Payment Ratio shall not apply to any Settled Claims, Plan Trust Disputed Claims (unless so provided by a Final Order of the Bankruptcy Court), or to any claims for Other Asbestos Disease (Disease Level I - Cash Discount Payment). 4 EXHIBIT G TO THE PLAN In each year, after the determination of the Maximum Available Payment described in Section 2.5 above, 75% of that amount shall be available to pay Category A claims and 25% shall be available to pay Category B claims that have been liquidated since the Petition Date. In the event there are insufficient funds in any year to pay the liquidated claims within either or both of the Categories, the available funds allocated to the particular Category shall be paid to the maximum extent to claimants in that Category based on their place in the FIFO Payment Queue described in Section 6.1(c) below, which shall be based upon the date of claim liquidation. Claims for which there are insufficient funds allocated to the relevant Category shall be carried over to the next year where they shall be placed at the head of the FIFO Payment Queue. If there are excess funds in either or both Categories, because there is an insufficient amount of liquidated claims to exhaust the respective Maximum Available Payment amount for that Category, then the excess funds for either or both Categories shall be rolled over and remain dedicated to the respective Category to which they were originally allocated. The 75%/25% Claims Payment Ratio and its rollover provision shall apply to all Plan Trust Voting Claims except (i) Settled Claims (other than Settled Claims held by Qualified Participating Claimants that have elected to be treated as Plan Trust Asbestos PI Claims) and (ii) Other Asbestos Disease claims (Disease Level I - Cash Discount Payment). The term "Plan Trust Voting Claims" includes (i) claims filed against Congoleum in the tort system prior to the Petition Date of December 31, 2003, including the Claimant Agreement and any other Pre-Petition Settlement Agreements; and all claims filed against another defendant in the tort system prior to the Petition Date; provided, however, that (1) either (a) the holder of a claim described in subsection (i) or (ii) above, or his or her authorized agent, actually voted to accept or reject the Plan pursuant to the voting procedures established by the Bankruptcy Court, unless such holder certifies to the satisfaction of the Plan Trustees that he or she was prevented from voting in this proceeding as a result of circumstances resulting in a state of emergency affecting, as the case may be, the holder's residence, principal place of business or legal representative's place of business at which the holder or his or her legal representative receives notice and/or maintains material records relating to his or her Plan Trust Voting Claim or (b) the holder of a claim is deemed, pursuant to the Plan, to have agreed to the Class 3 and 11 Settlement Agreement, as applicable; and provided further that (2) the claim was subsequently filed with the Plan Trust pursuant to Section 6.1 below by the Initial Claims Filing Date defined in Section 6.1(a)(2) below. Thereafter, both the Claims Payment Ratio and its rollover provision shall be continued absent circumstances, such as a significant change in law or medicine, necessitating amendment to avoid a manifest injustice. However, the accumulation, rollover and subsequent delay of claims resulting from the application of the Claims Payment Ratio shall not, in and of itself, constitute such circumstances. In addition, an increase in the numbers of Category B claims beyond those predicted or expected shall not be considered as a factor in deciding whether to reduce the percentage allocated to Category A claims. In considering whether to make any amendments to the Claims Payment Ratio and/or its rollover provisions, the Plan Trustees shall consider the reasons for which the Claims Payment Ratio and its rollover provisions were adopted, the settlement history that gave rise to its calculation, and the foreseeability or lack of foreseeability of the reasons why there would be any need to make an amendment. In that regard, the Plan Trustees should keep in mind the interplay between the Payment Percentage and the Claims Payment Ratio as it affects the net cash actually paid to claimants. 5 EXHIBIT G TO THE PLAN In any event, no amendment to the Claims Payment Ratio to reduce the percentage allocation to Category A claims may be made without the unanimous consent of the TAC and the Futures Representative. The percentage allocated to Category A claims shall be reviewed as soon as practicable after the first anniversary of the date the Plan Trust first accepts for processing proof of claims forms and the other materials required to file a claim with the Plan Trust, and may be increased at any time thereafter, with the consent of the TAC and the Futures Representative. In case of any amendments to the Claims Payment Ratio, consents shall be governed by the consent process set forth in Sections 5.8(b) and 6.6(b) of the Plan Trust Agreement, however, failure to obtain consent shall not be subject to the dispute resolution provisions of Section 7.13 thereof. The Plan Trustees, with the consent of the TAC and the Futures Representative, may offer the option of a reduced Payment Percentage to holders of claims in either Category A or Category B in return for prompter payment (the "Reduced Payment Option"). 2.7 Indirect Plan Trust Asbestos Claims. As set forth in Section 6.5 below, Indirect Asbestos Claims, if any, shall be subject to the same categorization, evaluation, and payment provisions of this TDP as all other Plan Trust PI Asbestos Claims. SECTION III Claims Handling Fee, Plan Trust Expenses and Coverage Costs Notwithstanding any other provision contained in this TDP, (i) the holder of the Claim for the Claims Handling Fee shall be paid as provided in the Plan Trust Agreement; and (ii) distributions to Plan Trust PI Asbestos Claims shall not be prior to the payment of or reserve for Plan Trust Expenses nor prior to payment of or reimbursement for Coverage Costs in accordance with Section 1.4(d) of the Plan Trust Agreement. SECTION IV TDP Administration 4.1 Plan Trust Advisory Committee and Futures Representative. Pursuant to the Plan and the Plan Trust Agreement, the Plan Trustees shall initially consist of three members, two of which shall be designated by the Asbestos Claimants' Committee and one of which shall be designated by the Futures Representative. In addition, pursuant to the Plan and the Plan Trust Agreement, the Plan Trust and this TDP shall be administered by the Plan Trustees in consultation with the TAC, which represents the interests of holders of present Plan Trust PI Asbestos Claims, and the Futures Representative, who represents the interests of holders of Plan Trust PI Asbestos Claims that shall be asserted in the future. The Plan Trustees shall obtain the consent of the TAC and the Futures Representative on 6 EXHIBIT G TO THE PLAN any amendments to this TDP pursuant to Section 9.1 below, and on such other matters as are otherwise required below and in Section 2.2(f) of the Plan Trust Agreement. The Plan Trustees shall also consult with the TAC and the Futures Representative on such matters as are provided below and in Section 2.2(e) of the Plan Trust Agreement. The initial Plan Trustees, the initial members of the TAC and the initial Futures Representative are identified in the Plan Trust Agreement. 4.2 Consent and Consultation Procedures. In those circumstances in which consultation or consent is required, the Plan Trustees shall provide written notice to the TAC and the Futures Representative of the specific amendment or other action that is proposed. The Plan Trustees shall not implement such amendment nor take such action unless and until the parties have engaged in the Consultation Process described in Sections 5.8(a) and 6.6(a), or the Consent Process described in Sections 5.8(b) and 6.6(b), of the Plan Trust Agreement, respectively. SECTION V Payment Percentage; Periodic Estimates 5.1 Uncertainty of Congoleum's Personal Injury Asbestos Liabilities. As discussed above, there is inherent uncertainty regarding Congoleum's total asbestos-related tort liabilities, as well as the total value of the assets available to the Plan Trust to pay Plan Trust PI Asbestos Claims. Consequently, there is inherent uncertainty regarding the amounts that holders of Plan Trust PI Asbestos Claims shall receive. To seek to ensure substantially equivalent treatment of all present and future Plan Trust PI Asbestos Claims, the Plan Trustees must determine from time to time the percentage of full liquidated value that holders of present and future Plan Trust PI Asbestos Claims shall be likely to receive, i.e., the "Payment Percentage" described in Section 2.4 above and Section 5.2 below. 5.2 Computation of Payment Percentage. As provided in Section 2.4 above, an initial Payment Percentage shall be set by the Plan Trustees with the consent of the TAC and the Futures Representative after the Plan Trust is established and sufficient information is available concerning the expected assets and liabilities of the Plan Trust over its lifetime. The Payment Percentage shall thereafter be subject to change pursuant to the terms of this TDP and the Plan Trust Agreement if the Plan Trustees determine that an adjustment is required. No less frequently than once every three years, commencing with the first day of January occurring after the Plan is consummated, the Plan Trustees shall reconsider the then applicable Payment Percentage to assure that it is based on accurate, current information and may, after such reconsideration, change the Payment Percentage if necessary with the consent of the TAC and the Futures Representative. The Plan Trustees shall also reconsider the then applicable Payment Percentage at shorter intervals if they deem such reconsideration to be appropriate or if requested to do so by the TAC or the Futures Representative. The Plan Trustees must base their determination of the Payment Percentage on current estimates of the number, types, and values of present and future Plan Trust PI Asbestos Claims, the value of the assets then available to the Plan Trust for their payment, taking into account payment of the Settled Claims, the Plan Trust Disputed Claims Reserve established under Section 3.2 of the Plan Trust Agreement, if applicable, all anticipated administrative and legal 7 EXHIBIT G TO THE PLAN expenses, and any other material matters that are reasonably likely to affect the sufficiency of funds to pay a comparable percentage of full value to all holders of Plan Trust PI Asbestos Claims. When making these determinations, the Plan Trustees shall exercise common sense and flexibly evaluate all relevant factors. The Payment Percentage applicable to Category A or Category B claims may not be reduced to alleviate delays in payments of claims in the other Category; both Categories of claims shall receive the same Payment Percentage, but the payment may be deferred as needed, and a Reduced Payment Option may be instituted as described in Section 2.6 above. The uncertainty surrounding the amount of the Plan Trust's future assets is due in significant part to the fact that the estimates of those assets do not take into account the possibility that the Plan Trust may receive substantial additional funds from successful recoveries of insurance proceeds that have been assigned to the Plan Trust with respect to which the coverage is presently in dispute or the solvency of the carrier is in doubt. In addition, as provided in Section 3.2 of the Plan Trust Agreement, in the event that the Class 2 Settlement or the Class 3 and 11 Settlement is not approved by the Bankruptcy Court, the Plan Trust is required to establish a Plan Trust Disputed Claim Reserve for Plan Trust Disputed Claims; provided that such Plan Trust Disputed Claim Reserve shall not exceed $23.25 million. There is also uncertainty surrounding the totality of the Plan Trust PI Asbestos Claims to be paid over time as well as the extent to which changes in existing federal and/or state law could affect the Plan Trust's liabilities under this TDP. If the Plan Trust successfully resolves an insurance coverage dispute or otherwise receives a substantial recovery of insurance proceeds, and/or if the value or volume of Plan Trust PI Asbestos Claims actually filed with the Plan Trust is significantly lower than originally estimated, and/or if the funds reserved for Plan Trust Disputed Claims, if applicable, are available to the Plan Trust for payment of other claims, the Plan Trust shall use those proceeds and/or claims savings, as the case may be, first to maintain the Payment Percentage then in effect. If the Plan Trustees, with the consent of the TAC and the Futures Representative, determine to increase the Payment Percentage, including the initial Payment Percentage applicable to Plan Trust Voting Claims, due to a material change in the estimates of the Plan Trust's future assets and/or liabilities, the Plan Trustees shall also make supplemental payments to all claimants who previously liquidated their claims against the Plan Trust and received payments based on a lower Payment Percentage. The amount of any such supplemental payment shall be the liquidated value of the claim in question times the newly adjusted Payment Percentage, less all amounts previously paid to the claimant with respect to the claim, not including the portion of such previously paid amounts that was attributable to interest. The Plan Trustees' obligation to make a supplemental payment to a claimant shall be suspended in the event the payment in question would be less than $100.00, and the amount of the suspended payment shall be added to the amount of any prior supplemental payment/payments that was/were also suspended because it/they would have been less than $100.00. However, the Plan Trustees shall pay any such aggregate supplemental payments due the claimant at such time that the total exceeds $100.00. 5.3 Applicability of the Payment Percentage. No holder of a Plan Trust Voting Claim, other than a Plan Trust Voting Claim for Settled Claims (other than Settled Claims held by Qualified Participating Claimants that have elected 8 EXHIBIT G TO THE PLAN to be treated as Plan Trust Asbestos PI Claims) or Other Asbestos Disease (Disease Level I - Cash Discount Payment) as defined in Section 6.2(a)(3) below, shall receive a payment that exceeds the initial Payment Percentage times the liquidated value of the claim. Except as otherwise provided in Section 6.1(c) below for Plan Trust PI Asbestos Claims involving deceased or incompetent claimants for which approval of the Plan Trust's offer by a court or through a probate process is required, no holder of any other Plan Trust Asbestos Claim, other than a Plan Trust Asbestos Claim for Other Asbestos Disease (Disease Level I - Cash Discount Payment) or a Settled Claim (other than a Settled Claim held by a Qualified Participating Claimant that has elected to be treated as a Plan Trust Asbestos PI Claim), shall receive a payment that exceeds the liquidated value of the claim times the Payment Percentage in effect at the time of payment. Plan Trust PI Asbestos Claims involving Other Asbestos Disease (Disease Level I - Cash Discount Payment) shall not be subject to the Payment Percentage, but shall instead be paid the full amount of their Scheduled Value as set forth in Section 6.2(a)(3) below. If a redetermination of the Payment Percentage has been proposed in writing by the Plan Trustees to the TAC and the Futures Representative but has not yet been adopted, the claimant shall receive the lower of the current Payment Percentage or the proposed Payment Percentage. However, if the proposed Payment Percentage was the lower amount but was not subsequently adopted, the claimant shall thereafter receive the difference between the lower proposed amount and the higher current amount. Conversely, if the proposed Payment Percentage was the higher amount and was subsequently adopted, the claimant shall thereafter receive the difference between the lower current amount and the higher adopted amount. SECTION VI Resolution of Settled Claims and Plan Trust PI Asbestos Claims 6.1 Ordering, Processing and Payment of Claims. (a) Ordering of Claims. (1) Settled Claims. As soon as reasonably practicable after the Effective Date and prior to payment of Plan Trust PI Asbestos Claims, the Plan Trust shall pay the Settled Claims, as provided below in this Section 6.1(a)(1), other than the Settled Claims of Qualified Participating Claimants that have elected to irrevocably consent to the Forbearance of his, her or its right to (a) the payment provided for in this Section 6.1(a)(1) and (b) any and all rights under the Claimant Agreement, the Collateral Trust Agreement and the Security Agreement, in which case such forbearing Qualified Participating Claimant shall receive the treatment afforded to Plan Trust PI Asbestos Claims as provided in Section 6.1(a)(2) below. The Settled Claims of Qualified Pre-Petition Settlement Claimants (Plan Class 2) shall be paid 50% of the specified amount agreed under the respective Pre-Petition Settlement Agreement (less all amounts in respect thereof previously received by the holder thereof from any Debtor or the Collateral Trust) in full satisfaction of its Asbestos Personal Injury Claim. Such payments shall be made out of the first proceeds of Asbestos Insurance Action Recoveries, net of payment of or reserve for any Plan Trust Expenses and any payment of or reimbursement for costs and reservation for the Plan Trust Disputed Claims 9 EXHIBIT G TO THE PLAN Reserve, if applicable, in accordance with Sections 3.6, 1.4(d) and 3.2, respectively, of the Plan Trust Agreement prior to payment of all Plan Trust PI Asbestos Claims but not prior to payment of or reimbursement for Coverage Costs in accordance with Sections 3.6 and 1.4(d), respectively, of the Plan Trust Agreement. The Settled Claims of Qualified Pre-Petition Settlement Claimants shall be paid pari passu with the Settled Claims of Qualified Participating Claimants (except for such Qualified Participating Claimants that have elected to be treated as Plan Trust PI Asbestos Claims). The Settled Claims of Qualified Participating Claimants (Plan Classes 3 and 11) shall be paid the total and maximum amount of $250 in full satisfaction of its Asbestos Personal Injury Claim; provided, however, that each such Qualified Participating Claimant may elect to irrevocably consent to the Forbearance of his, her or its right to (x) such $250 amount and (y) any and all rights under the Claimant Agreement, the Collateral Trust Agreement and the Security Agreement, in which case such forbearing Qualified Participating Claimant shall receive the treatment afforded to Plan Trust PI Asbestos Claims. Such payments shall be made out of the first proceeds of Asbestos Insurance Action Recoveries, net of payment of or reserve for any Plan Trust Expenses and any payment of or reimbursement for Coverage Costs and reservation for the Plan Trust Disputed Claims Reserve, if applicable, in accordance with Sections 3.2, 3.6 and 1.4(d) the Plan Trust Agreement, respectively, prior to payment of all Plan Trust PI Asbestos Claims, but not prior to payment of or reserve for Plan Trust Expenses nor prior to payment of or reimbursement for Coverage Costs in accordance with Sections 3.6 and 1.4(d), respectively, of the Plan Trust Agreement. The Settled Claims of Qualified Participating Claimants (except for such Qualified Participating Claimants that have elected to be treated as Plan Trust PI Asbestos Claims) shall be paid pari passu with the Settled Claims of Qualified Pre-Petition Settlement Claimants. In the event that the Class 2 Settlement or the Class 3 and 11 Settlement is not approved by the Bankruptcy Court, the Plan Trust Disputed Claims of the Qualified Claimants shall be treated as provided in a Final Order of the Bankruptcy Court and, if applicable, shall be paid from the Plan Trust Disputed Claims Reserve in accordance with Section 3.2 of the Plan Trust Agreement. (2) Establishment of the FIFO Processing Queue. After the payment of the Settled Claims, or reservation for the Plan Trust Disputed Claims, as applicable, the Plan Trust shall order Plan Trust PI Asbestos Claims that are sufficiently complete to be reviewed for processing purposes on a FIFO basis except as otherwise provided herein (the "FIFO Processing Queue"). For all claims filed on or before the date six months after the date that the Plan Trust first makes available the proof of claim forms and other claims materials required to file a claim with the Plan Trust (the "Initial Claims Filing Date"), a claimant's position in the FIFO Processing Queue shall be determined as of the earlier of (i) the date prior to December 31, 2003 (the "Petition Date") (if any) that the specific claim was either filed against Congoleum in the tort system or was actually submitted to Congoleum pursuant to an administrative settlement agreement; (ii) the date before the Petition Date that a claim was filed against another defendant in the tort system if at the time the claim was subject to a tolling agreement or applicable law; (iii) the date after the Petition Date (if any) but before the Initial Claims Filing Date that the claim was filed against another defendant in the 10 EXHIBIT G TO THE PLAN tort system; (iv) the date after the Petition Date but before the Effective Date that a proof of claim was filed against Congoleum in this Chapter 11 proceeding; or (v) the date a ballot was submitted on behalf of the claimant for purposes of voting to accept or reject the Plan pursuant to the voting procedures approved by the Bankruptcy Court. Following the Initial Claims Filing Date, the claimant's position in the FIFO Processing Queue shall be determined by the date the claim is filed with the Plan Trust. If any claims are filed on the same date, the claimant's position in the FIFO Processing Queue shall be determined by the date of the diagnosis of the asbestos-related disease. If any claims are filed and diagnosed on the same date, the claimant's position in the FIFO Processing Queue shall be determined by the claimant's date of birth, with older claimants given priority over younger claimants. Qualified Participating Claimants that have elected to be treated as Plan Trust PI Asbestos Claims shall be deemed to have been filed with the Plan Trust on the Effective Date for purposes of the FIFO Processing Queue even if filed at anytime thereafter. The FIFO Processing Queue and FIFO Payment Queue (as defined in Section 6.1(c) below) do not apply to Plan Trust Disputed Claims, treatment of which shall be determined by a Final Order of the Bankruptcy Court. (3) Effect of Statutes of Limitation and Repose.All Plan Trust PI Asbestos Claims must meet either (i) for claims first filed in the tort system against Congoleum prior to the Petition Date, the applicable federal, state or foreign statute of limitation and repose that was in effect at the time of the filing of the claim in the tort system, or (ii) for claims not filed against Congoleum in the tort system prior to the Petition Date, the applicable federal, state or foreign statute of limitation that was in effect at the time of the filing with the Plan Trust. However, the running of the relevant statute of limitation shall be tolled as of the earliest of (A) the actual filing of the claim against Congoleum prior to the Petition Date, whether in the tort system or by submission of the claim to Congoleum pursuant to an administrative settlement agreement, including the Claimant Agreement or any other disputed Pre-Petition Settlement Agreement; (B) the filing of the claim against another defendant in the tort system prior to the Petition Date if the claim was tolled against Congoleum at the time by a written agreement with Congoleum; (C) the filing of a claim against another defendant in the tort system after the Petition Date but prior to the Initial Claims Filing Date; (D) the date after the Petition Date but before the Effective Date that a proof of claim was filed against Congoleum in this Chapter 11 proceeding; (E) the filing of the claim, or submitting a ballot on any Congoleum Plan, for voting purposes in this Chapter 11 proceeding; or (F) the filing of a proof of claim with the requisite supporting documentation with the Plan Trust after the Initial Claims Filing Date. If a Plan Trust PI Asbestos Claim meets any of the tolling provisions described in the preceding paragraph and the claim was not barred by the applicable federal, state or foreign statute of limitation at the time of the tolling event, it shall be treated as timely filed if it is actually filed with the Plan Trust within three (3) years after the Initial Claims Filing Date; provided, however, that if a Plan Trust Disputed Claim meets any of the tolling provisions described in the preceding paragraph and the claim was not barred by the applicable federal, state or foreign statute of limitation at the time of the tolling event, it shall be treated as timely filed if it is actually filed with the Plan Trust within six (6) months of a Final Order adjudicating such Plan Trust Disputed Claim, and/or the liens or security interests with respect 11 EXHIBIT G TO THE PLAN to such claim, or within three (3) years after the Initial Claims Filing Date, whichever occurs later. Plan Trust PI Asbestos Claims of electing Qualified Participating Claimants shall be filed within three (3) years after the Initial Claims Filing Date. In addition, for an asbestos-related disease that was first diagnosed after the Petition Date, irrespective of the application of any relevant federal, state or foreign statute of limitation or repose, any claims may be filed with the Plan Trust within three (3) years after the date of diagnosis or within three (3) years after the Initial Claims Filing Date, whichever occurs later. However, the processing of any Plan Trust PI Asbestos Claim by the Plan Trust may be deferred at the election of the claimant pursuant to Section 7.3 below. (b) Processing of Claims. As a general practice, the Plan Trust shall review its claims files on a regular basis and notify all claimants whose claims are likely to come up in the FIFO Processing Queue in the near future. (c) Payment of Claims. Plan Trust PI Asbestos Claims that have been liquidated by the Expedited Review Process as provided in Section 6.2(a) below, by the Individual Review Process as provided in Section 6.2(b) below, by arbitration as provided in Section 6.9 below, or by litigation in the tort system provided in Section 6.10 below, shall be paid in FIFO order based on the date their liquidation became final (the "FIFO Payment Queue"), all such payments being subject to the applicable Payment Percentage, the Maximum Available Payment, and the Claims Payment Ratio, except as otherwise provided herein. Where the claimant is deceased or incompetent, and the settlement and payment of his or her claim must be approved by a court of competent jurisdiction or through a probate process prior to acceptance of the claim by the claimant's representative, an offer made by the Plan Trust on the claim shall remain open so long as proceedings before that court or in that probate process remain pending, provided that the Plan Trust has been furnished with evidence that the settlement offer has been submitted to such court or in the probate process for approval. If the offer is ultimately approved by the court or through the probate process and accepted by the claimant's representative, the Plan Trust shall pay the claim in the amount so offered, multiplied by the Payment Percentage in effect at the time the offer was first made. If any claims are liquidated on the same date, the claimant's position in the FIFO Payment Queue shall be determined by the date of the diagnosis of the claimant's asbestos-related disease. If any claims are liquidated on the same date and the respective holders' asbestos-related diseases were diagnosed on the same date, the position of those claims in the FIFO Payment Queue shall be determined by the Plan Trust based on the dates of the claimants' birth, with older claimants given priority over younger claimants. 6.2 Resolution of Plan Trust PI Asbestos Claims Within six months after the establishment of the Plan Trust, the Plan Trustees, with the consent of the TAC and the Futures Representative, shall adopt procedures for reviewing and liquidating all Plan Trust PI Asbestos Claims, which shall include deadlines for processing such claims. Such procedures shall also require that claimants seeking resolution of Plan Trust PI Asbestos Claims must first file a proof of claim form, together with the required supporting documentation, in accordance with the provisions of Sections 7.1 and 7.2 below. It is anticipated that the Plan Trust shall provide an initial response to the claimant within six months of receiving the proof of claim form. 12 EXHIBIT G TO THE PLAN The proof of claim form shall require the claimant to assert his or her claim for the highest Disease Level for which the claim qualifies at the time of filing. Irrespective of the Disease Level alleged on the proof of claim form, all claims shall be deemed to be a claim for the highest Disease Level for which the claim qualifies at the time of filing, and all lower Disease Levels for which the claim may also qualify at the time of filing or in the future shall be treated as subsumed into the higher Disease Level for both processing and payment purposes. Upon filing of a valid proof of claim form with the required supporting documentation, the claimant shall be placed in the FIFO Processing Queue in accordance with the ordering criteria described in Section 6.1(a)(2) above. The Plan Trust shall provide the claimant with six-months notice of the date by which it expects to reach the claim in the FIFO Processing Queue, following which the claimant shall promptly (i) advise the Plan Trust whether the claim should be liquidated under the Plan Trust's Expedited Review Process described in Section 6.2(a) below or, in certain circumstances, under the Plan Trust's Individual Review Process described in Section 6.2(b) below; (ii) provide the Plan Trust with any additional medical and/or exposure evidence that was not provided with the original claim submission; and (iii) advise the Plan Trust of any change in the claimant's Disease Level. If a claimant fails to respond to the Plan Trust's notice prior to the reaching of the claim in the FIFO Processing Queue, the Plan Trust shall process and liquidate the claim under the Expedited Review Process based upon the medical/exposure evidence previously submitted by the claimant, although the claimant shall retain the right to request Individual Review as described in Section 6.2(b) below. (a) Expedited Review Process. (1) In General. The Plan Trust's Expedited Review Process is designed primarily to provide an expeditious, efficient and consistent method for liquidating all Plan Trust PI Asbestos Claims (except those involving Lung Cancer 2 - Disease Level VI and all Foreign Claims (as defined below), which shall only be liquidated pursuant to the Plan Trust's Individual Review Process), where the claim can easily be verified by the Plan Trust as meeting the presumptive Medical/Exposure Criteria for the relevant Disease Level. Thus, claims that undergo Expedited Review and meet the presumptive Medical/Exposure Criteria for the relevant Disease Level shall be paid the Scheduled Value for such Disease Level set forth in Section 6.2(a)(3) below. However, except for claims involving Other Asbestos Disease (Disease Level I), all claims liquidated by Expedited Review shall be subject to the applicable Payment Percentage, the Maximum Available Payment, and the Claims Payment Ratio limitations set forth above. Claimants holding claims that cannot be liquidated by Expedited Review because they do not meet the presumptive Medical/Exposure Criteria for the relevant Disease Level may elect the Plan Trust's Individual Review Process set forth in Section 6.2(b) below. 13 EXHIBIT G TO THE PLAN Further, the claimant's eligibility to receive the Scheduled Value for his or her Plan Trust Asbestos Claim pursuant to the Expedited Review Process shall be determined solely by reference to the Medical/Exposure Criteria set forth below for each of the Disease Levels eligible for Expedited Review. (2) Claims Processing Under Expedited Review. All claimants seeking liquidation of their claims pursuant to Expedited Review shall file the Plan Trust's proof of claim form. As a proof of claim form is reached in the FIFO Processing Queue, the Plan Trust shall determine whether the claim described therein meets the Medical/Exposure Criteria for one of the seven Disease Levels eligible for Expedited Review, and shall advise the claimant of its determination. If a Disease Level is determined, the Plan Trust shall tender to the claimant an offer of payment of the Scheduled Value for the relevant Disease Level multiplied by the applicable Payment Percentage, together with a form of release approved by the Plan Trust. If the claimant accepts the Scheduled Value and returns the release properly executed, the claim shall be placed in the FIFO Payment Queue, following which the Plan Trust shall disburse payment subject to the limitations of the Maximum Available Payment and Claims Payment Ratio, if any. (3) Disease Levels, Scheduled Values and Medical/Exposure Criteria. The eight Disease Levels covered by this TDP, together with the Medical/Exposure Criteria for each and the Scheduled Values for the seven Disease Levels eligible for Expedited Review, are set forth below. These Disease Levels, Scheduled Values, and Medical/Exposure Criteria shall apply to all Plan Trust Voting Claims filed with the Plan Trust on or before the Initial Claims Filing Date provided in Section 6.1(a)(2) above for which the claimant elects the Expedited Review Process. Thereafter, for purposes of administering the Expedited Review Process and with the consent of the TAC and the Futures Representative, the Plan Trustees may add to, change, or eliminate Disease Levels, Scheduled Values, or Medical/Exposure Criteria; develop subcategories of Disease Levels, Scheduled Values or Medical/Exposure Criteria; or determine that a novel or exceptional asbestos personal injury claim is compensable even though it does not meet the Medical/Exposure Criteria for any of the then current Disease Levels. Disease Level Scheduled Value Medical/Exposure Criteria - ------------- --------------- ------------------------- Mesothelioma (Level VIII) $265,000 Diagnosis(2) of mesothelioma; and (2) Congoleum Exposure prior to December 31, 1982, as defined in Section 6.6(b)(3). Lung Cancer 1 (Level VII) $45,000 (1) Diagnosis of a primary lung cancer plus evidence of an underlying Bilateral Asbestos-Related Nonmalignant Disease,(3) (2) six months Congoleum Exposure prior to December 31, 1982, (3) - ---------- (2) The requirements for a diagnosis of an asbestos-related disease that may be compensated under the provisions of this TDP are set forth in Section 6.6 below. (3) Evidence of "Bilateral Asbestos-Related Nonmalignant Disease," for purposes of meeting the criteria for establishing Disease Levels I, II, III, V and VII, means either (i) a chest X-ray read by a qualified B reader of 1/0 or higher on the ILO scale or (ii)(x) a chest X-ray read by a qualified B reader or other Qualified Physician, (y) a CT scan read by a Qualified Physician, or (z) pathology, in each case showing either bilateral interstitial fibrosis, bilateral pleural plaques, bilateral pleural thickening, or bilateral pleural calcification. Solely for claims 14 EXHIBIT G TO THE PLAN Disease Level Scheduled Value Medical/Exposure Criteria - ------------- --------------- ------------------------- Significant Occupational Exposure(4) to asbestos, and (4) supporting medical documentation establishing asbestos exposure as a contributing factor in causing the lung cancer in question. Lung Cancer 2 (Level VI) Individual (1) Diagnosis of a primary lung Evaluation cancer; (2) Congoleum Exposure prior to December 31, 1982, and (3) supporting medical documentation establishing asbestos exposure as a contributing factor in causing the lung cancer in question. Lung Cancer 2 (Level VI) claims are claims that do not meet the more stringent medical and/or exposure requirements of Lung Cancer 1 (Level VII) claims. All claims in this Disease Level shall be individually evaluated. The estimated likely average of the individual evaluation awards for this category is $15,000, with such awards capped at $24,000 unless the claim qualifies for Extraordinary Claim treatment. Level VI claims that show no evidence of either an underlying Bilateral Asbestos-Related Non-malignant Disease or - ---------- filed against Congoleum or another asbestos defendant in the tort system prior to the Petition Date, if an ILO reading is not available, either (i) a chest X-ray or a CT scan read by a Qualified Physician, or (ii) pathology, in each case showing bilateral interstitial fibrosis, bilateral pleural plaques, bilateral pleural thickening, or bilateral pleural calcification consistent with or compatible with a diagnosis of asbestos-related disease, shall be evidence of a Bilateral Asbestos-Related Nonmalignant Disease for purposes of meeting the presumptive medical requirements of Disease Levels I, II, III, V and VII. Pathological proof of asbestosis may be based on the pathological grading system for asbestosis described in the Special Issue of the Archives of Pathology and Laboratory Medicine, "Asbestos-associated Diseases," Vol. 106, No. 11, App. 3 (October 8, 1982). For all purposes of this TDP, a "Qualified Physician" is a physician whose is board-certified (or in the case of Canadian claims or Foreign Claims, a physician who is certified or qualified under comparable medical standards or criteria of the jurisdiction in question) in one or more relevant specialized fields of medicine such as pulmonology, radiology, internal medicine or occupational medicine; provided, however, subject to the provisions of Section 6.6(a)(1)(A), that the requirement for board certification in this provision shall not apply to otherwise qualified physicians whose X-ray and/or CT scan readings are submitted for deceased holders of Plan Trust PI Asbestos Claims. (4) The term "Significant Occupational Exposure" is defined in Section 6.7(b)(2) below. 15 EXHIBIT G TO THE PLAN Disease Level Scheduled Value Medical/Exposure Criteria - ------------- --------------- ------------------------- Significant Occupational Exposure may be individually evaluated, although it is not expected that such claims shall be treated as having any significant value, especially if the claimant is also a Smoker.(5) In any event, no presumption of validity shall be available for any claims in this category. Other Cancer (Level V) $20,000 (1) Diagnosis of a primary colo-rectal, laryngeal, esophageal, pharyngeal, or stomach cancer, plus evidence of an underlying Bilateral Asbestos-Related Nonmalignant Disease, (2) six months Congoleum Exposure prior to December 31, 1982, (3) Significant Occupational Exposure to asbestos, and (4) supporting medical documentation establishing asbestos exposure as a contributing factor in causing the other cancer in question. Severe Asbestosis (Level IV) $30,000 (1) Diagnosis of asbestosis with ILO of 2/1 or greater, or asbestosis determined by pathological evidence of asbestos, plus (a) TLC less than 65%, or (b) FVC less than 65% and FEV1/FVC ratio greater than 65%, (2) six months Congoleum Exposure prior to December 31, 1982, (3) Significant Occupational Exposure to asbestos, and (4) supporting medical documentation establishing asbestos exposure as a contributing factor in causing the pulmonary disease in question. - ---------- (5) There is no distinction between Non-Smokers and Smokers for either Lung Cancer 1 (Level VII) or Lung Cancer 2 (Level VI), although a claimant who meets the more stringent requirements of Lung Cancer 1 (Level VII) (evidence of an underlying Bilateral Asbestos-Related Nonmalignant Disease plus Significant Occupational Exposure), and who is also a Non-Smoker, may wish to have his or her claim individually evaluated by the Plan Trust. In such a case, absent circumstances that would otherwise reduce the value of the claim, it is anticipated that the liquidated value of the claim might well exceed the $45,000 Scheduled Value for Lung Cancer 1 (Level VII) shown above. "Non-Smoker" means a claimant who either (a) never smoked or (b) has not smoked during any portion of the twelve (12) years immediately prior to the diagnosis of the lung cancer. 16 EXHIBIT G TO THE PLAN Disease Level Scheduled Value Medical/Exposure Criteria - ------------- --------------- ------------------------- Asbestosis/Pleural Disease $3,600 (1) Diagnosis of Bilateral (Level III) Asbestos-Related Nonmalignant Disease, plus (a) TLC less than 80%, or (b) FVC less than 80% and FEV1/FVC ratio greater than or equal to 65%, and (2) six months Congoleum Exposure prior to December 31, 1982, (3) Significant Occupational Exposure to asbestos, and (4) supporting medical documentation establishing asbestos exposure as a contributing factor in causing the pulmonary disease in question. Asbestosis/Pleural Disease $1,200 (1) Diagnosis of a Bilateral (Level II) Asbestos-Related Nonmalignant Disease, and (2) six months Congoleum Exposure prior to December 31, 1982, and (3) five years cumulative occupational exposure to asbestos. Other Asbestos Disease $250 (1) Diagnosis of a Bilateral (Level I - Cash Discount Asbestos-Related Nonmalignant Payment) Disease or an asbestos-related malignancy other than mesothelioma, and (2) Congoleum Exposure prior to December 31, 1982. (b) Individual Review Process. (1) In General. Subject to the provisions set forth below, a Congoleum claimant may elect to have his or her Plan Trust PI Asbestos Claim reviewed for purposes of determining whether the claim would be compensable in the tort system even though it does not meet the presumptive Medical/Exposure Criteria for any of the Disease Levels set forth in Section 6.2(a)(3). In addition or alternatively, a Congoleum claimant may elect to have a claim undergo the Individual Review Process for purposes of determining whether the liquidated value of claim involving Disease Levels IV, V, VII or VIII exceeds the Scheduled Value for the relevant Disease Level also set forth in said provision. However, until such time as the Plan Trust has made an offer on a claim pursuant to Individual Review, the claimant may change his or her Individual Review election and have the claim liquidated pursuant to the Plan Trust's Expedited Review Process. In the event of such a change in the processing election, the claimant shall nevertheless retain his or her place in the FIFO Processing Queue. The liquidated value of all Foreign Claims payable under this TDP shall be established only under the Plan Trust's Individual Review Process. Because Plan Trust PI Asbestos Claims of individuals exposed in Canada who were resident in Canada when such claims were filed were routinely litigated and resolved in the 17 EXHIBIT G TO THE PLAN courts of the United States, and because the resolution history of these claims has been included in developing the Expedited Review Process, such claims shall not be considered Foreign Claims hereunder and shall be eligible for liquidation under the Expedited Review Process. Accordingly, a "Foreign Claim" is a Plan Trust PI Asbestos Claim with respect to which the claimant's exposure to an asbestos-containing product occurred outside of the United States and its Territories and Possessions, and outside of the Provinces and Territories of Canada. In reviewing such Foreign Claims, the Plan Trust shall take into account all relevant procedural and substantive legal rules to which the claims would be subject in the Claimant's Jurisdiction as defined in Section 6.2(b)(2) below. The Plan Trust shall determine the liquidated value of Foreign Claims based on historical settlements and verdicts in the Claimant's Jurisdiction as well as the other valuation factors set forth in Section 6.2(b)(2) below. For purposes of the Individual Review Process for Foreign Claims, the Plan Trustees, with the consent of the TAC and the Futures Representative, may develop separate Medical/Exposure Criteria and standards, as well as separate requirements for physician and other professional qualifications, which shall be applicable to all Foreign Claims channeled to the Plan Trust; provided however, that such criteria, standards or requirements shall not effectuate substantive changes to the claims eligibility requirements under this TDP, but rather shall be made only for the purpose of adapting those requirements to the particular licensing provisions and/or medical customs or practices of the foreign country in question. At such time as the Plan Trust has sufficient historical settlement, verdict and other valuation data for claims from a particular foreign jurisdiction, the Plan Trustees, with the consent of the TAC and the Futures Representative, may also establish a separate valuation matrix for any such Foreign Claims based on that data. (A) Review of Medical/Exposure Criteria. The Plan Trust's Individual Review Process provides a claimant with an opportunity for individual consideration and evaluation of a Plan Trust PI Asbestos Claim that fails to meet the presumptive Medical/Exposure Criteria for Disease Levels I - V, VII or VIII. In such a case, the Plan Trust shall either deny the claim or, if the Plan Trust is satisfied that the claimant has presented a claim that would be cognizable and valid in the tort system, the Plan Trust can offer the claimant a liquidated value amount up to the Scheduled Value for that Disease Level. (B) Review of Liquidated Value. Claimants holding claims in the five more serious Disease Levels IV - VIII shall also be eligible to seek Individual Review of the liquidated value of their claims, as well as of their medical exposure evidence. The Individual Review Process is intended to result in payments equal to the full liquidated value for each claim multiplied by the Payment Percentage; however, the liquidated value of any Plan Trust PI Asbestos Claim that undergoes Individual Review may be determined to be less than the Scheduled Value the claimant would have received under Expedited Review. Moreover, the liquidated value for a claim involving Disease Levels IV - VIII shall not exceed the Maximum Value for the relevant Disease Level set forth in Section 6.2(b)(3) below, 18 EXHIBIT G TO THE PLAN unless the claim meets the requirements of an Extraordinary Claim described in Section 6.3(a) below, in which case its liquidated value cannot exceed the Maximum Value set forth in that provision for such claims. Because the detailed examination and valuation process pursuant to Individual Review requires substantial time and effort, claimants electing to undergo the Individual Review Process may be paid the liquidated value of their Plan Trust PI Asbestos Claims later than would have been the case had the claimant elected the Expedited Review Process. Subject to the provisions of Section 6.7, the Plan Trust shall devote reasonable resources to the review of all claims to ensure that there is a reasonable balance maintained in reviewing all classes of claims. (2) Valuation Factors to Be Considered in Individual Review. The Plan Trust shall liquidate the value of each Plan Trust PI Asbestos Claim that undergoes Individual Review based on the historic liquidated values of other similarly situated claims in the tort system for the same Disease Level. The Plan Trust shall thus take into consideration all of the factors that affect the severity of damages and values within the tort system including, but not limited to, (i) the degree to which the characteristics of a claim differ from the presumptive Medical/Exposure Criteria for the Disease Level in question; (ii) factors such as the claimant's age, disability, employment status, disruption of household, family or recreational activities, dependencies, special damages, and pain and suffering; (iii) evidence that the claimant's damages were (or were not) caused by asbestos exposure, including exposure to an asbestos-containing product or to conduct for which Congoleum has legal responsibility prior to December 31, 1982 (for example, alternative causes, and the strength of documentation of injuries); (iv) the industry of exposure; (v) settlements and verdicts in the Claimant's Jurisdiction for similarly situated claims; and (vi) settlements and verdict histories for the claimant's law firm for similarly situated claims. For these purposes, the "Claimant's Jurisdiction" is the jurisdiction in which the claim was filed (if at all) against Congoleum in the tort system prior to the Petition Date. If the claim was not filed against Congoleum in the tort system prior to the Petition Date, the claimant may elect as the Claimant's Jurisdiction either (i) the jurisdiction in which the claimant resides at the time of diagnosis or when the claim is filed with the Plan Trust; or (ii) a jurisdiction in which the claimant experienced exposure to an asbestos-containing product manufactured, produced or distributed by Congoleum or in a Congoleum facility. With respect to the "Claimant's Jurisdiction" in the event a personal representative or authorized agent makes a claim under this TDP for wrongful death with respect to which the governing law of the Claimant's Jurisdiction could only be the Alabama Wrongful Death Statute, the Claimant's Jurisdiction for such claim shall be the State of New Jersey, and such claimant's damages shall be determined pursuant to the statutory and common laws of the State of New Jersey without regard to its choice of law principles. The choice of law provision in Section 8.4 below applicable to any claim with respect to which, but for this choice of law provision, the applicable law of the Claimant's Jurisdiction pursuant to this Section 6.2(b)(2) is determined to be the Alabama Wrongful Death Statute, shall only govern the rights between the Plan Trust and the claimant, and, to the extent the Plan Trust seeks recovery from any entity that provided insurance coverage to Congoleum, the Alabama Wrongful Death Statute shall govern. 19 EXHIBIT G TO THE PLAN (3) Scheduled, Average and Maximum Values. The Scheduled, Average and Maximum Values for claims involving Disease Levels I - VIII are the following:
Scheduled Disease Scheduled Value Average Value Maximum Value - ----------------- --------------- ------------- ------------- Mesothelioma (Level VIII) $265,000 $330,000 $530,000 Lung Cancer 1 (Level VII) $45,000 $56,250 $90,000 Lung Cancer 2 (Level VI) None $15,000 $24,000 Other Cancer (Level V) $20,000 $25,000 $40,000 Severe Asbestosis (Level IV) $30,000 $37,500 $60,000 Asbestosis/Pleural Disease $3,600 $3,600 $3,600 (Level III) Asbestosis/Pleural Disease $1,200 $1,200 $1,200 (Level II) Other Asbestos Disease -- Cash $250 $250 $250 Discount Payment (Level I)
These Scheduled Values, Average Values and Maximum Values shall apply to all Plan Trust Voting Claims other than the Settled Claims filed with the Plan Trust on or before the Initial Claims Filing Date as provided in Section 6.1(a)(2) above. Thereafter, the Plan Trustees, with the consent of the TAC and the Futures Representative pursuant to Sections 5.8(b) and 6.6(b) of the Plan Trust Agreement, may change these valuation amounts for good cause and consistent with other restrictions on the amendment power. 6.3 Categorizing Claims as Extraordinary and/or Exigent Hardship. (a) Extraordinary Claims "Extraordinary Claim" means a Plan Trust PI Asbestos Claim that otherwise satisfies the Medical Criteria for Disease Levels IV -VIII, and that is held by a claimant whose exposure to asbestos (i) occurred primarily as a result of working in a manufacturing facility of Congoleum during a period in which Congoleum was manufacturing asbestos-containing products at that facility, or (ii) was at least 75% the result of exposure to an asbestos-containing product, and in either case there is little likelihood of a substantial recovery elsewhere. All such Extraordinary Claims shall be presented for Individual Review and, if valid, shall be entitled to an award of up to a Maximum Value of five (5) times the Scheduled Value set forth in Section 6.2(b)(3) for claims qualifying for Disease Levels IV -V, VII and VIII, and five (5) times the Average Value for claims in Disease Level VI, multiplied by the applicable Payment Percentage. 20 EXHIBIT G TO THE PLAN Any dispute as to Extraordinary Claim status shall be submitted to a special Extraordinary Claims Panel established by the Plan Trust with the consent of the TAC and the Futures Representative. All decisions of the Extraordinary Claims Panel shall be final and not subject to any further administrative or judicial review. An Extraordinary Claim, following its liquidation, shall be placed in the FIFO Payment Queue ahead of all other Plan Trust PI Asbestos Claims except Disease Level I Claims and Exigent Hardship Claims, which shall be paid first in that order in said Queue, based on its date of liquidation, subject to the Maximum Available Payment and Claims Payment Ratio described above. (b) Exigent Hardship Claims. At any time the Plan Trust may liquidate and pay Plan Trust PI Asbestos Claims that qualify as Exigent Hardship Claims as defined below. Such claims may be considered separately no matter what the order of processing otherwise would have been under this TDP. An Exigent Hardship Claim, following its liquidation, shall be placed first in the FIFO Payment Queue ahead of all other liquidated Plan Trust PI Asbestos Claims except Disease Level I Claims, subject to the Maximum Available Payment and Claims Payment Ratio described above. A Plan Trust Asbestos Claim qualifies for payment as an Exigent Hardship Claim if the claim meets the Medical/Exposure Criteria for Severe Asbestosis (Disease Level IV) or an asbestos-related malignancy (Disease Levels V-VIII), and the Plan Trust, in its sole discretion, determines (i) that the claimant needs financial assistance on an immediate basis based on the claimant's expenses and all sources of available income, and (ii) that there is a causal connection between the claimant's dire financial condition and the claimant's asbestos-related disease. 6.4 Secondary Exposure Claims. If a claimant alleges an asbestos-related disease resulting solely from exposure to an occupationally exposed person, such as a family member, the claimant may seek Individual Review of his or her claim pursuant to Section 6.2(b) above. In such a case, the claimant must establish that the occupationally exposed person would have met the requirements of Congoleum Exposure under this TDP that would have been applicable had that person filed a direct claim against the Plan Trust. In addition, the claimant with secondary exposure must establish that he or she is suffering from one of the eight Disease Levels described in Section 6.2(a)(3) above or an asbestos-related disease otherwise compensable under this TDP, that his or her own exposure to the occupationally exposed person occurred within the same time frame as the occupationally exposed person was exposed to an asbestos-containing product manufactured, produced or distributed by Congoleum, or in a Congoleum facility, and that such secondary exposure was a cause of the claimed disease. All other liquidation and payment rights and limitations under this TDP shall be applicable to such claims. 6.5 Indirect Plan Trust Asbestos Claims. Indirect asbestos claims asserted against the Plan Trust based upon theories of contribution or indemnification under applicable law ("Indirect Asbestos Claims") shall be treated as presumptively valid and paid by the Plan Trust subject to the applicable Payment Percentage if (a) such claim satisfied the requirements of the bar date for such claims established by the Bankruptcy Court, if applicable, and is not otherwise disallowed by Section 502(e) of the Bankruptcy Code or subordinated under Section 509(c) of the Bankruptcy Code, and (b) the holder of such claim (the "Indirect Claimant") establishes to the satisfaction of the Plan Trustees that (i) the Indirect Claimant has paid in full the liability and obligation of the Plan Trust to the individual claimant to whom the Plan Trust would otherwise 21 EXHIBIT G TO THE PLAN have had a liability or obligation under these Procedures (the "Direct Claimant"), (ii) the Direct Claimant and the Indirect Claimant have forever and fully released the Plan Trust from all liability to the Direct Claimant, and (iii) the claim is not otherwise barred by a statute of limitation or repose or by other applicable law. In no event shall any Indirect Claimant have any rights against the Plan Trust superior to the rights of the related Direct Claimant against the Plan Trust, including any rights with respect to the timing, amount or manner of payment. In addition, no Indirect Claim may be liquidated and paid in an amount that exceeds what the Indirect Claimant has actually paid the related Direct Claimant. To establish a presumptively valid Indirect Asbestos Claim, the Indirect Claimant's aggregate liability for the Direct Claimant's claim must also have been fixed, liquidated and paid fully by the Indirect Claimant by settlement (with an appropriate full release in favor of the Plan Trust) or a Final Order (as defined in the Plan) provided that such claim is valid under the applicable state law. In any case where the Indirect Claimant has satisfied the claim of a Direct Claimant against the Plan Trust under applicable law by way of a settlement, the Indirect Claimant shall obtain for the benefit of the Plan Trust a release in form and substance satisfactory to the Plan Trustees. If an Indirect Claimant cannot meet the presumptive requirements set forth above, including the requirement that the Indirect Claimant provide the Plan Trust with a full release of the Direct Claimant's claim, the Indirect Claimant may request that the Plan Trust review the Indirect Plan Trust Asbestos Claim individually to determine whether the Indirect Claimant can establish under applicable state law that the Indirect Claimant has paid all or a portion of a liability or obligation that the Plan Trust had to the Direct Claimant as of the Effective Date of this TDP. If the Indirect Claimant can show that it has paid all or a portion of such a liability or obligation, the Plan Trust shall reimburse the Indirect Claimant the amount of the liability or obligation so paid, times the then applicable Payment Percentage. However, in no event shall such reimbursement to the Indirect Claimant be greater than the amount to which the Direct Claimant would have otherwise been entitled. Further, the liquidated value of any Indirect Asbestos Claim paid by the Plan Trust to an Indirect Claimant shall be treated as an offset to or reduction of the full liquidated value of any Plan Trust PI Asbestos Claim that might be subsequently asserted by the Direct Claimant against the Plan Trust. Any dispute between the Plan Trust and an Indirect Claimant over whether the Indirect Claimant has a right to reimbursement for any amount paid to a Direct Claimant shall be subject to the ADR procedures provided in Section 6.9 below and set forth in Attachment A hereto. If such dispute is not resolved by said ADR procedures, the Indirect Claimant may litigate the dispute in the tort system pursuant to Sections 6.10 and 8.6 below. The Plan Trustees may develop and approve a separate proof of claim form for Indirect Asbestos Claims. Indirect Asbestos Claims that have not been disallowed, discharged, or otherwise resolved by prior order of the Bankruptcy Court shall be processed in accordance with procedures to be developed and implemented by the Plan Trustees consistent with the provisions of this Section 6.5, which procedures (a) shall determine the validity, allowability and enforceability of such claims; and (b) shall otherwise provide the same liquidation and payment procedures and rights to the holders of such claims as the Plan Trust would have afforded the holders of the underlying valid Plan Trust PI Asbestos Claims. Nothing in this TDP is intended to preclude a trust to which asbestos-related liabilities are channeled from asserting an Indirect Asbestos Claim against the Plan Trust subject to the requirements set forth herein. 22 EXHIBIT G TO THE PLAN 6.6 Evidentiary Requirements. (a) Medical Evidence. (1) In General. All diagnoses of a Disease Level shall be accompanied by either (i) a statement by the physician providing the diagnosis that at least 10 years have elapsed between the date of first exposure to asbestos or asbestos-containing products and the diagnosis, or (ii) a history of the claimant's exposure sufficient to establish a 10-year latency period. A finding by a physician after the Petition Date that a claimant's disease is "consistent with" or "compatible with" asbestosis alone shall not be treated by the Plan Trust as a diagnosis. (A) Disease Levels I - IV. Except for claims filed against Congoleum or any other asbestos defendant in the tort system prior to the Petition Date, all diagnoses of a non-malignant asbestos-related disease (Disease Levels I-IV) shall be based in the case of a claimant who was living at the time the claim was filed, upon a physical examination of the claimant by the physician providing the diagnosis of the asbestos-related disease. All living claimants must also provide (i) for Disease Levels I-III, evidence of Bilateral Asbestos-Related Nonmalignant Disease (as defined in Footnote 3 above); (ii) for Disease Level IV,(6) an ILO reading of 2/1 or greater or pathological evidence of asbestosis, and (iii) for Disease Levels III and IV, pulmonary function testing.(7) In the case of a claimant who was deceased at the time the claim was filed, all diagnoses of a non-malignant asbestos-related disease (Disease Levels I-IV) shall be based upon either (i) a physical examination of the claimant by the physician providing the diagnosis of the asbestos-related disease; or (ii) pathological evidence of the non-malignant asbestos-related disease; or (iii) in the case of Disease Levels I-III, evidence of Bilateral Asbestos-Related Nonmalignant Disease (as defined in Footnote 3 above), and for Disease Level IV, either an ILO reading of 2/1 or greater or pathological evidence of asbestosis; and (iv) for either Disease Level III or IV, pulmonary function testing. - ---------- (6) All diagnoses of Asbestos is Pleural Disease (Disease Levels II and III) not based on pathology shall be presumed to be based on findings of bilateral asbestosis or pleural disease, and all diagnoses of Mesothelioma (Disease Level VIII) shall be presumed to be based on findings that the disease involves a malignancy. However, the Plan Trust may rebut such presumptions. (7) "Pulmonary Function Testing" or "PFT" shall mean testing that is in material compliance with the quality criteria established by the American Thoracic Society ("ATS") and is performed on equipment which is in material compliance with ATS standards for technical quality and calibration. PFT performed in a hospital accredited by the JCAHO, or performed, reviewed or supervised by a board certified pulmonologist or other Qualified Physician shall be presumed to comply with ATS standards, and the claimant may submit a summary report of the testing. If the PFT was not performed in an JCAHO-accredited hospital, or performed, reviewed or supervised by a board certified pulmonologist or other Qualified Physician, the claimant must submit the full report of the testing (as opposed to a summary report); provided however that if the PFT was conducted prior to the Effective Date of the Plan, and the full PFT report is not available, the claimant must submit a signed declaration in the form provided by the Plan Trust certifying that the PFT was conducted in material compliance with ATS standards. 23 EXHIBIT G TO THE PLAN (B) Disease Levels V - VIII. All diagnoses of an asbestos-related malignancy (Disease Levels V - VIII) shall be based upon either (i) a physical examination of the claimant by the physician providing the diagnosis of the asbestos-related disease, or (ii) a diagnosis of such a malignant Disease Level by a board-certified pathologist. (C) Exception to the Exception for Certain Pre-Petition Claims. If the holder of a Plan Trust Asbestos Claim that was filed against Congoleum or any other defendant in the tort system prior to the Petition Date has available a report of a diagnosing physician engaged by the holder or his or her law firm who conducted a physical examination of the holder as described in Sections 6.6(a)(1)(A), or if the holder has filed such medical evidence with another asbestos-related personal injury settlement trust that requires such evidence without regard to whether the claimant or the law firm engaged the diagnosing physician, the holder shall provide such medical evidence to the Plan Trust notwithstanding the exception in Section 6.6(a)(1)(A). (2) Credibility of Medical Evidence. Before making any payment to a claimant, the Plan Trust must have reasonable confidence that the medical evidence provided in support of the claim is competent medical evidence of an asbestos-related injury, and consistent with recognized medical standards. The Plan Trust may require the submission of X-rays, CT scans, detailed results of pulmonary function tests, laboratory tests, tissue samples, results of medical examination or reviews of other medical evidence, and will require that any medical evidence submitted comply with recognized medical standards regarding equipment, testing methods and procedures to assure that such evidence is reliable.(8) Medical evidence (i) that is of a kind shown to have been received in evidence by a state or federal judge at trial, or (ii) that is a diagnosis by a physician shown to have previously qualified as a medical expert with respect to the asbestos-related disease in question before a state or federal judge, is presumptively reliable, although the Plan Trust may seek to rebut the presumption. In the event that the Plan Trust reasonably determines that any individual or entity has engaged in a pattern or practice of providing unreliable medical evidence to the Plan Trust, to any other Asbestos Claims Trusts, or in connection with any court proceedings, it shall decline to accept evidence from such provider. In addition, claimants who otherwise meet the requirements of this TDP for payment of a Plan Trust PI Asbestos Claim shall be paid irrespective of the results in any litigation at any time between the claimant and any other defendant in the tort system. However, any relevant evidence submitted in a proceeding in the tort system, other than any findings of fact, a verdict, or a judgment, involving another defendant may be introduced by either the claimant or the Plan Trust in any Individual Review proceeding conducted pursuant to Section 6.2(b) or any Extraordinary Claim proceeding conducted pursuant to Section 6.3(a). (b) Exposure Evidence. (1) In General. As set forth above in Section 6.2(a)(3), to qualify for any Disease Level, the claimant must demonstrate a minimum exposure to an asbestos-containing product manufactured, produced or distributed by - ---------- (8) Provided, however, the provisions of footnote 7, supra, regarding PFT, are applicable. 24 EXHIBIT G TO THE PLAN Congoleum, or to asbestos or asbestos-containing products in a Congoleum facility. Claims based on conspiracy theories that involve no such Congoleum exposure are not compensable under this TDP. To meet the presumptive exposure requirements of Expedited Review set forth in Section 6.2(a)(3) above, the claimant must show (i) for all Disease Levels, Congoleum Exposure as defined in Section 6.6(b)(3) below prior to December 31, 1982; (ii) for Asbestosis/Pleural Disease (Disease Level II), six months Congoleum Exposure prior to December 31, 1982, plus five years cumulative occupational exposure to asbestos; and (iii) for Asbestosis/Pleural Disease (Disease Level III), Severe Asbestosis (Disease Level IV), Other Cancer (Disease Level V) or Lung Cancer 1 (Disease Level VII), the claimant must show six months Congoleum Exposure prior to December 31, 1982, plus Significant Occupational Exposure to asbestos. If the claimant cannot meet the relevant presumptive exposure requirements for a Disease Level eligible for Expedited Review, the claimant may seek Individual Review pursuant to Section 6.2(b) of his or her claim based on exposure to an asbestos-containing product or to asbestos or asbestos-containing products in a Congoleum facility. (2) Significant Occupational Exposure. "Significant Occupational Exposure" means employment for a cumulative period of at least five years with a minimum of two years prior to December 31, 1982, in an industry and an occupation in which the claimant (a) handled asbestos fibers on a regular basis; (b) fabricated asbestos-containing products so that the claimant in the fabrication process was exposed on a regular basis to asbestos fibers; (c) altered, repaired or otherwise worked with an asbestos-containing product such that the claimant was exposed on a regular basis to asbestos fibers; or (d) was employed in an industry and occupation such that the claimant worked on a regular basis in close proximity to the activities described in (a), (b) and/or (c). (3) Congoleum Exposure. The claimant must demonstrate "Congoleum Exposure," which is defined as meaningful and credible exposure, which occurred prior to December 31, 1982, to asbestos or asbestos-containing products in a Congoleum facility, or to asbestos or asbestos-containing products supplied, specified, manufactured, installed, maintained, or repaired by Congoleum and/or any entity, including a Congoleum contracting unit, for which Congoleum has legal responsibility (a "Congoleum Product"). The Plan Trust shall consider meaningful and credible evidence, including an affidavit or sworn statement of the claimant based on personal knowledge, an affidavit or sworn statement of a co-worker, or the affidavit or sworn statement of a family member in the case of a deceased claimant (providing the Plan Trust finds such evidence reasonably reliable), invoices, employment, construction or similar records, or other credible evidence. The Plan Trust can also require submission of other or additional evidence of exposure when it deems such to be necessary. The Plan Trust shall require other or additional evidence to demonstrate the nexus between the exposure to a Congoleum Product and the claimant's asbestos-related disease. The specific exposure information required by the Plan Trust to process a claim under either Expedited or Individual Review shall be set forth on the proof of claim form to be used by the Plan Trust. The Plan Trust can also require submission of other or additional evidence of exposure when it deems such to be necessary. 6.7 Claims Audit Program. The Plan Trustees shall develop reasonable and efficient methods for auditing the reliability of medical evidence, which may include additional reading of X-rays, CT scans and verification of pulmonary 25 EXHIBIT G TO THE PLAN function tests, as well as the reliability of evidence of exposure to asbestos, including exposure to asbestos-containing products manufactured, produced or distributed by Congoleum prior to December 31, 1982. The Plan Trustees may retain such persons or consultants as it deems reasonable and necessary to perform the audit of medical and exposure evidence, subject to the consent of the TAC and Futures Representative. In the event that the Plan Trust reasonably determines that any individual or entity has engaged in a pattern or practice of providing unreliable medical evidence to the Plan Trust, to any other Asbestos Claims Trust, or in connection with any court proceeding, it shall decline to accept evidence from such provider. Further, in the event that an audit reveals that fraudulent information has been provided to the Plan Trust, the Plan Trust may penalize any claimant or claimant's attorney by disallowing the Plan Trust PI Asbestos Claim or by other means including, but not limited to, requiring the source of the fraudulent information to pay the costs associated with the audit and any future audit or audits, reordering the priority of payment of all affected claimants' Plan Trust Asbestos Claims, raising the level of scrutiny of additional information submitted from the same source or sources, refusing to accept additional evidence from the same source or sources, seeking the prosecution of the claimant or claimant's attorney for presenting a fraudulent claim in violation of 18 U.S.C. ss.152, and seeking sanctions from the Bankruptcy Court. 6.8 Second Disease (Malignancy) Claims. The holder of a Plan Trust PI Asbestos Claim involving a non-malignant asbestos-related disease (Disease Levels I through IV) may assert a new Plan Trust PI Asbestos Claim against the Plan Trust for a malignant disease (Disease Levels V - VIII) that is subsequently diagnosed. Any additional payments to which such claimant may be entitled with respect to such malignant asbestos-related disease shall not be reduced by the amount paid for the non-malignant asbestos-related disease, provided that the malignant disease had not been diagnosed by the time the claimant was paid with respect to the original claim involving the non-malignant disease. 6.9 Arbitration. (a) Establishment of ADR Procedures. The Plan Trustees, with the consent of the TAC and the Futures Representative, shall institute binding and non-binding arbitration procedures in accordance with the Alternative Dispute Resolution ("ADR") Procedures included in Attachment A hereto for resolving disputes concerning whether the Plan Trust's outright rejection or denial of a claim was proper, or whether the claimant's medical condition or exposure history meets the requirements of this TDP for purposes of categorizing a claim involving Disease Levels I - VIII. Binding and non-binding arbitration shall also be available for resolving disputes over the liquidated value of a claim involving Disease Levels IV - VIII, as well as disputes over the validity of an Indirect Asbestos Claim. In all arbitrations, the arbitrator shall consider the same medical and exposure evidentiary requirements that are set forth in Section 6.6 above. In the case of an arbitration involving the liquidated value of a claim involving Disease Levels IV - VIII, the arbitrator shall consider the same valuation factors that are set forth in Section 6.2(b)(2) above. With respect to all claims eligible for arbitration, the claimant, but not the Plan Trust, may elect either non-binding or binding arbitration. The ADR Procedures set forth in Attachment A hereto may be modified by the Plan Trustees with the consent of the TAC and the Futures Representative. 26 EXHIBIT G TO THE PLAN (b) Claims Eligible for Arbitration. In order to be eligible for arbitration, the claimant must first complete the Individual Review Process with respect to the disputed issue as well as either the Pro Bono Evaluation or the Mediation processes set forth in the ADR Procedures. Individual Review shall be treated as completed for these purposes when the claim has been individually reviewed by the Plan Trust, the Plan Trust has made an offer on the claim, the claimant has rejected the liquidated value resulting from the Individual Review, and the claimant has notified the Plan Trust of the rejection in writing. Individual Review shall also be treated as completed if the Plan Trust has rejected the claim. (c) Limitations on and Payment of Arbitration Awards. In the case of a non-Extraordinary Claim involving Disease Levels I - III, the arbitrator shall not return an award in excess of the Scheduled Value for such claim. In the case of a non-Extraordinary Claim involving Disease Levels IV - VIII, the arbitrator shall not return an award in excess of the Maximum Value for the appropriate Disease Level as set forth in Section 6.2(b)(3) above, and for an Extraordinary Claim involving one of those Disease Levels, the arbitrator shall not return an award greater than the maximum value for such a claim as set forth in Section 6.3 above. A claimant who submits to arbitration and who accepts the arbitral award shall receive payments in the same manner as one who accepts the Plan Trust's original valuation of the claim. 6.10 Litigation. Claimants who elect non-binding arbitration and then reject their arbitral awards retain the right to institute a lawsuit in the tort system against the Plan Trust pursuant to Section 8.6 below. However, a claimant shall be eligible for payment of a judgment for monetary damages obtained in the tort system from the Plan Trust's available cash only as provided in Section 8.7 below. SECTION VII Claims Materials 7.1 Claims Materials. The Plan Trust shall prepare suitable and efficient claims materials ("Claims Materials") for all Plan Trust PI Asbestos Claims, and shall provide such Claims Materials upon a written request for such materials to the Plan Trust. In addition, a separate claim form for Plan Trust PI Asbestos Claims that constitute Indirect Asbestos Claims may be developed. The proof of claim form to be submitted to the Plan Trust shall require the claimant to assert the highest Disease Level for which the claim qualifies at the time of filing. The proof of claim form shall also include a certification by the claimant or his or her attorney sufficient to meet the requirements of Rule 11(b) of the Federal Rules of Civil Procedure. In developing its claim filing procedures, the Plan Trust shall make every effort to provide claimants with the opportunity to utilize currently available technology at their discretion, including filing claims and supporting documentation over the internet and electronically by disk or CD-rom. The initial proof of claim form(s) (and subsequent changes thereto) shall be adopted by the Plan Trustees, with the consent of the TAC and the Futures Representative. 27 EXHIBIT G TO THE PLAN 7.2 Content of Claims Materials. The Claims Materials shall include a copy of this TDP, such instructions as the Plan Trustees shall approve, and a detailed proof of claim form. If feasible, the forms used by the Plan Trust to obtain claims information shall be the same or substantially similar to those used by other asbestos claims resolution organizations. Instead of collecting some or all of the claims information from a claimant or the claimant's attorney, the Plan Trust may also obtain such information from electronic data bases maintained by any other asbestos claims resolution organization. However, the Plan Trust shall inform the claimant that it plans to obtain information as available from such other organizations and may do so unless the claimant objects in writing or provides such information directly to the Plan Trust. If requested by the claimant, the Plan Trust shall accept information provided electronically. The claimant may, but shall not be required to, provide the Plan Trust with evidence of recovery from other asbestos defendants and claims resolution organizations. 7.3 Withdrawal or Deferral of Claims. A claimant can withdraw a Plan Trust PI Asbestos Claim at any time upon written notice to the Plan Trust and file another claim subsequently without affecting the status of the claim for statute of limitations purposes, but any such claim filed after withdrawal shall be given a place in the FIFO Processing Queue based on the date of such subsequent filing. A claimant can also request that the processing of his or her Plan Trust PI Asbestos Claim by the Plan Trust be deferred for a period not to exceed three (3) years without affecting the status of the claim for statute of limitation purposes, in which case the claimant shall also retain his or her original place in the FIFO Processing Queue. Except for Plan Trust PI Asbestos Claims held by representatives of deceased or incompetent claimants for which court or probate approval of the Plan Trust's offer is required, or a Plan Trust PI Asbestos Claim for which deferral status has been granted, a claim shall be deemed to have been withdrawn if the claimant neither accepts, rejects, nor initiates arbitration within six months of the Plan Trust's offer of payment or rejection of the claim. Upon written request and good cause, the Plan Trust may extend the withdrawal or deferral period for an additional six months. 7.4 Filing Requirements and Fees. The Plan Trustees shall have the discretion to determine, with the consent of the TAC and the Futures Representative, (a) whether a claimant must have previously filed an asbestos-related personal injury claim in the tort system to be eligible to file the claim with the Plan Trust and (b) whether a filing fee should be required for any Plan Trust PI Asbestos Claims. 7.5 Confidentiality of Claimants' Submissions. All submissions to the Plan Trust by a holder of a Plan Trust PI Asbestos Claim of a proof of claim form and materials related thereto shall be treated as made in the course of settlement discussions between the holder and the Plan Trust, and intended by the parties to be confidential and to be protected by all applicable state and federal privileges, including but not limited to those directly applicable to settlement discussions. The Plan Trust will preserve the confidentiality of such claimant submissions, and shall disclose the contents thereof only, with the permission of the holder, to another trust established for the benefit of asbestos personal injury claimants pursuant to section 524(g) and/or section 105 of the Bankruptcy Code or other applicable law, to such other persons as authorized by the holder, or in response to a valid subpoena of such materials issued by the Bankruptcy Court. Furthermore, the Plan Trust shall provide counsel for the holder a copy of any such subpoena immediately upon being served. The Plan Trust shall on its own initiative or upon request of the claimant in question take all necessary and appropriate steps to preserve said privileges before the Bankruptcy Court and before those courts having appellate jurisdiction related thereto. 28 EXHIBIT G TO THE PLAN SECTION VIII General Guidelines for Liquidating and Paying Claims 8.1 Showing Required. To establish a valid Plan Trust PI Asbestos Claim, a claimant must meet the requirements set forth in this TDP. The Plan Trust may require the submission of X-rays, CT scans, laboratory tests, medical examinations or reviews, other medical evidence, or any other evidence to support or verify the claim, and may further require that medical evidence submitted comply with recognized medical standards regarding equipment, testing methods, and procedures to assure that such evidence is reliable. 8.2 Costs Considered. Notwithstanding any provisions of this TDP to the contrary, the Plan Trustees shall always give appropriate consideration to the cost of investigating and uncovering invalid Plan Trust PI Asbestos Claims so that the payment of valid Plan Trust PI Asbestos Claims is not further impaired by such processes with respect to issues related to the validity of the medical evidence supporting a Plan Trust PI Asbestos Claim. The Plan Trustees shall also have the latitude to make judgments regarding the amount of transaction costs to be expended by the Plan Trust so that valid Plan Trust PI Asbestos Claims are not unduly further impaired by the costs of additional investigation. Nothing herein shall prevent the Plan Trustees, in appropriate circumstances, from contesting the validity of any claim against the Plan Trust whatever the costs, or to decline to accept medical evidence from sources that the Plan Trustees have determined to be unreliable pursuant to the Claims Audit Program described in Section 6.7 above. 8.3 Discretion to Vary the Order and Amounts of Payments in Event of Limited Liquidity. Consistent with the provisions hereof and subject to the FIFO Processing and Payment Queues, the Maximum Annual Payment, the Maximum Available Payment and the Claims Payment Ratio requirements set forth above, the Plan Trustees shall proceed as quickly as possible to liquidate valid Plan Trust PI Asbestos Claims, and shall make payments to holders of such claims in accordance with this TDP promptly as funds become available and as claims are liquidated, while maintaining sufficient resources to pay future valid claims in substantially the same manner. Because the Plan Trust's income over time remains uncertain, and decisions about payments must be based on estimates that cannot be done precisely, they may have to be revised in light of experiences over time, and there can be no guarantee of any specific level of payment to claimants. However, the Plan Trustees shall use their best efforts to treat similar claims in substantially the same manner, consistent with their duties as Plan Trustees, the purposes of the Plan Trust, the established allocation of funds to claims in Categories A and B, and the practical limitations imposed by the inability to predict the future with precision. 29 EXHIBIT G TO THE PLAN In the event that the Plan Trust faces temporary periods of limited liquidity, the Plan Trustees may, with the consent of the TAC and the Futures Representative, suspend the normal order of payment and may temporarily limit or suspend payments altogether, and may offer a Reduced Payment Option as described in Section 2.6 above. 8.4 Punitive Damages. Except as provided below for claims asserted under the Alabama Wrongful Death Statute, in determining the value of any liquidated or unliquidated Plan Trust PI Asbestos Claim, punitive or exemplary damages, i.e., damages other than compensatory damages, shall not be considered or allowed, notwithstanding their availability in the tort system. Similarly, no punitive or exemplary damages shall be payable with respect to any claim litigated against the Plan Trust in the tort system pursuant to Sections 6.10 above and 8.6 below. The only damages that may be awarded pursuant to this TDP to Alabama Claimants who are deceased and whose personal representatives pursue their claims only under the Alabama Wrongful Death Statute shall be compensatory damages determined pursuant to the statutory and common law of the State of New Jersey, without regard to its choice of law principles. The choice of law provision in this Section 8.4 applicable to any claim with respect to which, but for this choice of law provision, the applicable law of the Claimant's Jurisdiction pursuant to Section 6.3(b)(2) is determined to be the Alabama Wrongful Death Statute, shall only govern the rights between the Plan Trust and the claimant including, but not limited to, suits in the tort system pursuant to Section 8.6, and to the extent the Plan Trust seeks recovery from any entity that provided insurance to Congoleum, the Alabama Wrongful Death Statute shall govern. 8.5 Interest. (a) In General. Except for any Plan Trust PI Asbestos Claim involving Other Asbestos Disease (Disease Level I - Cash Discount Payment) and subject to the limitations set forth below, interest shall be paid on all Plan Trust PI Asbestos Claims with respect to which the claimant has had to wait a year or more for payment, provided, however, that no claimant shall receive interest for a period in excess of seven (7) years. The initial interest rate shall be six percent (6%) simple interest per annum for each of the first five (5) years after the Effective Date; thereafter, the Plan Trustees shall have the discretion to change the annual interest rate with the consent of the TAC and the Futures Representative. (b) Plan Trust PI Asbestos Claims. Interest shall be payable on the Scheduled Value of any Plan Trust PI Asbestos Claim that meets the requirements of Disease Levels II - V, VII and VIII, whether the claim is liquidated under Expedited Review, Individual Review, or by arbitration. No interest shall be paid on any claim involving Disease Level I or on any claim liquidated in the tort system pursuant to Section 6.10 above and Section 8.6 below. Interest on an unliquidated Plan Trust PI Asbestos Claim that meets the requirements of Disease Level VI shall be based on the Average Value of such a claim. Interest on all such unliquidated claims shall be measured from the date of payment back to the earliest of the date that is one year after the date on which (a) the claim was filed against Congoleum prior to the Petition Date; (b) the claim was filed against another defendant in the tort system on or after the Petition Date but before the Effective Date; (c) the claim was filed with the Bankruptcy Court during the pendency of the Chapter 11 proceeding; or (d) the claim was filed with the Plan Trust after the Effective Date. Provided, however, that interest on any Plan Trust Disputed Claim shall be measured from the date of payment back to one year after the date on which the claim was filed with the Plan Trust. 30 EXHIBIT G TO THE PLAN 8.6 Suits in the Tort System. If the holder of a disputed claim disagrees with the Plan Trust's determination regarding the Disease Level of the claim, the claimant's exposure history or the liquidated value of the claim, and if the holder has first submitted the claim to non-binding arbitration as provided in Section 6.9 above, the holder may file a lawsuit in the Claimant's Jurisdiction as defined in Section 6.2(b)(2) above. Any such lawsuit must be filed by the claimant in his or her own right and name and not as a member or representative of a class, and no such lawsuit may be consolidated with any other lawsuit. All defenses (including, with respect to the Plan Trust, all defenses which could have been asserted by Congoleum) shall be available to both sides at trial; however, the Plan Trust may waive any defense and/or concede any issue of fact or law. If the claimant was alive at the time the initial pre-petition complaint was filed or on the date the proof of claim form was filed with the Plan Trust, the case shall be treated as a personal injury case with all personal injury damages to be considered even if the claimant has died during the pendency of the claim. 8.7 Payment of Judgments for Money Damages. If and when a claimant obtains a judgment in the tort system, the claim shall be placed in the FIFO Payment Queue based on the date on which the judgment became final. Thereafter, the claimant shall receive from the Plan Trust an initial payment (subject to the applicable Payment Percentage, the Maximum Available Payment, and the Claims Payment Ratio provisions set forth above) of an amount equal to the greater of (i) the Plan Trust's last offer to the claimant or (ii) the award that the claimant declined in non-binding arbitration. The claimant shall receive the balance of the judgment, if any, in five equal installments in years six (6) through ten (10) following the year of the initial payment (also subject to the applicable Payment Percentage, the Maximum Available Payment and the Claims Payment Ratio provisions above). In the case of non-Extraordinary Claims involving Disease Levels I, II and III, the total amounts paid with respect to such claims shall not exceed the relevant Scheduled Value for such Disease Levels as set forth in Section 6.2(b)(3) above. In the case of claims involving a non-malignant asbestos-related disease that does not attain classification under Disease Levels I, II or III, the amount payable shall not exceed the Scheduled Value for the Disease Level most comparable to the disease proven. In the case of non-Extraordinary Claims involving severe asbestosis and malignancies (Disease Levels IV - VIII), the total amounts paid with respect to such claims shall not exceed the Maximum Values for such Disease Levels set forth in Section 6.2(b)(3). In the case of Extraordinary Claims, the total amounts paid with respect to such claims shall not exceed the Maximum Value for such claims set forth in Section 6.2(b)(3) above. Under no circumstances shall interest be paid pursuant to Section 8.5 or under any statute on any judgments obtained in the tort system. 8.8 Releases. The Plan Trustees shall have the discretion to determine the form and substance of the releases to be provided to the Plan Trust in order to maximize recovery for claimants against other tortfeasors without increasing the risk or amount of claims for indemnification or contribution from the Plan Trust. As a condition to making any payment to a claimant, the Plan Trust shall obtain a general, partial, or limited release as appropriate in accordance with the applicable state or other law. If allowed by state law, the endorsing of a check or draft for payment by or on behalf of a claimant shall constitute such a release. 31 EXHIBIT G TO THE PLAN 8.9 Third-Party Services. Nothing in this TDP shall preclude the Plan Trust from contracting with another asbestos claims resolution organization to provide services to the Plan Trust so long as decisions about the categorization and liquidated value of Plan Trust PI Asbestos Claims are based on the relevant provisions of this TDP, including the Disease Levels, Scheduled Values, Average Values, Maximum Values, and Medical/Exposure Criteria set forth above. 8.10 Plan Trust Disclosure of Information. Periodically, but not less often than once a year, the Plan Trust shall make available to claimants and other interested parties, the number of claims by Disease Levels that have been resolved both by the Individual Review Process and by arbitration as well as by litigation in the tort system indicating the amounts of the awards and the averages of the awards by jurisdiction. SECTION IX Miscellaneous 9.1 Amendments. Except as otherwise provided herein, the Plan Trustees may amend, modify, delete, or add to any provisions of this TDP (including, without limitation, amendments to conform this TDP to advances in scientific or medical knowledge or other changes in circumstances), provided they first obtain the consent of the TAC and the Futures Representative pursuant to the Consent Process set forth in Sections 5.8(b) and 6.6(b) of the Plan Trust Agreement, except that the right to amend the Claims Payment Ratio is governed by the restrictions in Section 2.6 above, and the right to adjust the Payment Percentage is governed by Section 5.2 above. Nothing herein is intended to preclude the TAC or the Futures Representative from proposing to the Plan Trustees, in writing, amendments to the TDP. Any amendment proposed by the TAC or the Futures Representative shall remain subject to Section 7.3 of the Plan Trust Agreement. Notwithstanding anything herein to the contrary, no amendment may weaken the medical or product exposure requirements of this TDP. 9.2 Severability. Should any provision contained in this TDP be determined to be unenforceable, such determination shall in no way limit or affect the enforceability and operative effect of any and all other provisions of this TDP. Should any provision contained in this TDP be determined to be inconsistent with or contrary to Congoleum's obligations to any insurance company providing insurance coverage to Congoleum in respect of claims for personal injury based on exposure to an asbestos-containing product manufactured, produced or distributed by Congoleum, or in a Congoleum facility, the Plan Trustees with the consent of the TAC and the Futures Representative may amend this TDP and/or the Plan Trust Agreement to make the provisions of either or both documents consistent with the duties and obligations of Congoleum to said insurance company. 9.3 Governing Law. Except for purposes of determining the liquidated value of any Plan Trust PI Asbestos Claim, administration of this TDP shall be governed by, and construed in accordance with, the laws of the State of New Jersey. The law governing the liquidation of Plan Trust PI Asbestos Claims in the case of Individual Review, arbitration or litigation in the tort system shall be the law of the Claimant's Jurisdiction as described in Section 6.2(b)(2) above. 32 EXHIBIT G TO THE PLAN ATTACHMENT A CONGOLEUM PLAN TRUST ALTERNATIVE DISPUTE RESOLUTION PROCEDURES CONGOLEUM PLAN TRUST ALTERNATIVE DISPUTE RESOLUTION PROCEDURES Pursuant to Section 6.9(a) of the Congoleum Plan Trust Distribution Procedures (the "TDP"), the Congoleum Plan Trust (the "Plan Trust") hereby establishes the following alternative dispute resolution ("ADR") procedures. All capitalized terms herein shall be as defined and/or referenced within the TDP. I. OVERVIEW The Plan Trust shall appoint a Private Adjudication Center, at the cost of the Plan Trust, to administer the ADR proceedings. To initiate these procedures, the claimant must make a written request to the Plan Trust. Within twenty (20) days of a claimant's request for ADR, the Plan Trust will send the claimant an ADR packet containing the documents necessary to pursue the ADR process. The ADR procedures shall not be construed as imparting to any claimant any substantive or procedural rights beyond those conferred by the TDP. The ADR process available to the claimant includes both non-binding and binding elements. In addition, there are mandatory as well as voluntary options that can/will be utilized by the claimant and the Plan Trust in proceeding toward settlement. As a general matter, the ADR procedures must be pursued by claimants on an individual basis. As a general matter, claims of different claimants cannot be grouped together even if the claimants are represented by the same counsel, unless the Plan Trust, in its sole discretion, decides it would be expeditious to conduct ADR proceedings with respect to more than one claim involving differently exposed claimants with those claimants' representative. In such a case, however, the arbitrator, mediator or other neutral party must individually value each such claim using the valuation factors set forth in Section 6.2(b)(2) of the TDP, and the claimants' positions in the Plan Trust's FIFO Processing and Payment Queues must be separately maintained. The requisite steps in the process are as follows, in order: Mandatory ADR Proceedings (Two Stages) Stage One (Claimant Must Select One): 1. Pro Bono Evaluation 2. Mediation Stage Two: Arbitration (Binding or Non-Binding) Initiation of ADR Within twenty (20) days of a claimant's request for ADR, the Plan Trust will send the claimant an ADR packet containing a copy of these procedures and the following: 1. A Summary Outline of the ADR procedures with the time limits identified; 2. Form Affidavit of Completeness; 3. Election Form for Pro Bono Evaluation; 4. Request for Mediation Form; 5. Election Form and Agreement to submit to Binding Arbitration; and 6. Election Form and Agreement to submit to Non-binding Arbitration. A claimant who wishes to proceed through the ADR process must engage in one of the two ADR options (pro bono evaluation or mediation) before any form of arbitration. Only after either party rejects a non-binding arbitration award, may a claimant proceed to then commence a lawsuit in the tort system. It is the claimant's responsibility to comply with the ADR time deadlines. Although the deadlines may be extended by agreement or for cause shown, failure to comply with a deadline without obtaining an extension may result in withdrawal of the claim. Promptly after a claimant fails to comply with a specified deadline without obtaining an extension, the Plan Trust shall send the claimant written notice of the failure to comply. If the claimant does not take any action on the claim, then thirty (30) days thereafter the claim will be deemed withdrawn under Section 6.3 of the TDP. If the claimant requests arbitration, either binding or non-binding, then the Plan Trust shall execute the appropriate election form and agreement. If the claimant requests binding arbitration, then the claimant and the Plan Trust waive their respective rights to seek a jury trial as set forth in the TDP upon execution of the Agreement for Binding Arbitration. If either party rejects a non-binding arbitration award, and the claimant has otherwise complied with the requirements of these ADR/Arbitration procedures and the Plan, then the claimant may commence a lawsuit against the Plan Trust in the Claimant's Jurisdiction as that term is defined in Section 6.2(b)(2) of the TDP. II. ADR PROCEEDINGS SUMMARY A. Showing Required As set forth in the TDP, in order to establish a valid Plan Trust Asbestos Claim, a claimant must among other things make a demonstration of Congoleum Exposure or Significant Occupational Exposure, as such terms are defined in the TDP. B. Pro Bono Evaluation This ADR alternative consists of an evaluation of the claim by an evaluator selected from a pro bono panel. The panel shall be comprised of asbestos litigation attorneys as mutually agreed upon between the Plan Trust Advisory Committee (the "TAC") and the Trustees. The TAC will be provided, on a quarterly basis, with a list of the pro bono panelists. Each evaluation will have a pro bono evaluator randomly selected by the Private Adjudication Center from the list of pro bono panelists. Within fifteen (15) days of the claimant's request for the pro bono evaluation, the individual pro bono evaluator shall be randomly chosen from the approved panel. 2 A pro bono evaluation will be done by document submission. The identity of the pro bono evaluator will not be disclosed to the claimant and the claimant's attorney. The Plan Trust encourages identification of and not anonymity as to the alleged injured party so that medical records can be transmitted in their original form. The Private Adjudication Center will communicate to the parties the pro bono evaluator's written evaluation. The parties will communicate their respective rejection or acceptance of settlement upon the terms of the written evaluation. If either or both parties reject settlement upon those terms, then the claimant may submit an Election Form and Agreement for Binding or Non-binding Arbitration. C. Mediation The claimant may request telephone mediation as an ADR alternative. This process will require detailed written submissions to familiarize the mediator with the respective positions. The Plan Trust shall establish and maintain a list of qualified regional mediators compensated by the Plan Trust. The Private Adjudication Center shall select a qualified mediator from the list based upon location of claimant within fifteen (15) days after receipt of the Request for Mediation Form signed by the claimant and the Plan Trust. Claims shall be handled by each mediator in the order received by him or her, to the extent practicable. Any party may be represented by legal counsel. The mediator shall review the claim and the positions of the parties, such information as the parties may wish to submit as to a fair and equitable settlement, and all documents and medical reports relevant to the claim as submitted by the parties. At least five (5) business days prior to the mediation conference, claimant and the Plan Trust shall each submit to the mediator a detailed written submission consisting of a confidential statement outlining the claimant's medical condition, Congoleum Exposure or Significant Occupational Exposure, as such terms are defined in the TDP and each party's detailed position on overall claim value. The mediator shall confer with the parties and/or their legal representatives, individually and jointly. Such conference shall be conducted by telephone unless both parties agree otherwise. A representative of the Plan Trust with settlement authority must participate in the conference. The mediator may request, but not require, that the claimant personally participate in the conference. Such conference shall be in the nature of a settlement conference. The mediator shall work with both sides toward reaching an acceptable, reasonable settlement. The mediator does not have the authority to impose a settlement on the parties. Ten (10) days after the conclusion of the mediation, if the parties have not settled the matter, the claimant may submit to the Plan Trust an Election Form and Agreement for Binding or Non-binding Arbitration. 3 D. Binding and Non-binding Arbitration Procedures Upon completion of either pro bono evaluation or mediation, the claimant may request non-binding and/or binding arbitration. Binding arbitration will be conducted in the "final offer" format also known as "baseball style" arbitration. If the claim is arbitrated in either the binding or non-binding format, then the arbitrator shall return an award no greater than the Maximum Value for the category in which the claim properly falls in the Tables set forth in the TDP, unless the Extraordinary Claims Panel has previously determined that the claim should receive extraordinary claim treatment. In that case, the arbitrator shall return an award no greater than the Maximum Value for such claim as set forth in Section 6.2(b)(3) of the TDP. If the claimant requests arbitration, either binding or non-binding, then the Plan Trust shall execute the appropriate Election Form and Agreement. The Plan Trust may not decline the claimant's election of either binding or non-binding arbitration, but reserves all rights to reject any award in a non-binding arbitration proceeding. If the parties agree to engage in binding arbitration, then the claimant and the Plan Trust waive their respective rights to seek a jury trial as set forth in the TDP. III. RULES GOVERNING PRO BONO EVALUATION AND MEDIATION Within ninety (90) days of a claimant's receipt of the ADR packet from the Plan Trust, the claimant must elect one of the two ADR procedures and return the appropriate form to the Plan Trust along with an executed Affidavit of Completeness. A. Rules Governing Pro Bono Evaluation 1. Election and Time Limits a. If the claimant chooses pro bono evaluation, then within ninety (90) days of claimant's receipt of the ADR packet, the claimant must send the Plan Trust the Election Form for Pro Bono Evaluation. (See Attachment A). The claimant or his/her attorney shall personally sign the Election Form for Pro Bono Evaluation. b. The claimant must also sign an Affidavit of Completeness (See Attachment B) and return it to the Plan Trust with a copy to the Private Adjudication Center within ninety (90) days of receipt of the ADR packet. The claim will not proceed until the Plan Trust has received a completed Election Form and Affidavit of Completeness from the claimant. The Affidavit of Completeness shall verify that all information to be considered in the ADR process has been provided to the Plan Trust while the claim was under review by the Plan Trust. 4 c. After receiving the signed Election Form and Affidavit of Completeness, the Plan Trust shall review and sign the Election Form within five (5) business days of receipt. d. Within fifteen (15) days from the date the Plan Trust notifies the claimant's counsel of the Plan Trust's consent to the Election Form, the Plan Trust shall send a copy of the signed Election Form, the Affidavit of Completeness together with complete copies of all materials submitted to the Plan Trust by the claimant and factual information in the Plan Trust file, if any, gathered by the Plan Trust from other sources, and a completed Affidavit of Accuracy to the claimant's counsel and the Private Adjudication Center who will forward the materials to the selected pro bono evaluator at the time the evaluator is selected. The Plan Trust may not send the Private Adjudication Center any materials in the Plan Trust file that have not previously been provided to the claimant. 2. Selection of the Pro Bono Evaluator Within fifteen (15) days of the date the Private Adjudication Center receives the claimant's election agreement, the Private Adjudication Center shall randomly select the pro bono evaluator from the list of pro bono panelists and notify the parties that the evaluator has been designated without disclosing the identity of the evaluator. The pro bono evaluator shall be selected from a panel of asbestos litigation plaintiff attorneys who have volunteered to serve the Plan Trust at the request of the TAC. Pro bono assignments will be made on a rotating basis. The identity of the pro bono evaluator shall not be disclosed to the claimant and the claimant's attorney. The injured party should not be anonymous so that medical records can be transmitted in their original form. 3. Submission of Written Arguments Fifteen (15) days after the Plan Trust sends the complete file materials to the Private Adjudication Center, the claimant and the Plan Trust shall simultaneously exchange and submit written arguments to the Private Adjudication Center. The Private Adjudication Center will immediately forward the written arguments to the pro bono evaluator. The written arguments shall comply with the following rules: a. The argument shall not exceed ten (10) double spaced typewritten pages. In order to preserve anonymity in a pro bono evaluation, the name of counsel should not be mentioned. The argument may not introduce factual matter not contained in the documents in the Plan Trust's file. The evaluator shall disregard any argument that does not comply with this rule. 5 b. When a party fails to submit the written argument within the fifteen (15) days, the party waives written argument and the pro bono evaluator shall disregard any argument received after that time. 4. Evaluation of Documents The pro bono evaluation is only a document review with complete anonymity preserved between claimant's counsel and the pro bono evaluator. The documents that the pro bono evaluator may consider shall be limited to the following: a. The documents in Plan Trust's file forwarded to the pro bono evaluator. b. The claimant's Affidavit of Completeness and the Plan Trust's Affidavit of Accuracy. c. The written arguments of the claimant and the Plan Trust that comply with the rules for written arguments set forth above. d. Before the Private Adjudication Center forwards any documents to the pro bono evaluator it will redact all references to claimant's counsel. 5. Written Evaluation and Procedure for Acceptance/Rejection Within fifteen (15) days after the submission of written arguments, the pro bono evaluator shall submit a written evaluation of the claim to the Private Adjudication Center who will promptly mail it to the parties. Within fifteen (15) days after receipt of the pro bono evaluator's written evaluation, the claimant and the Plan Trust will each communicate in writing to the Private Adjudication Center whether they will accept the amount of the pro bono evaluator's written evaluation to settle the claim. If both parties accept, then the Private Adjudication Center will immediately inform both parties that they have achieved a settlement and the Plan Trust shall pay the claim pursuant to the TDP. If either or both parties reject the pro bono evaluator's written evaluation, then within five (5) business days of receipt of both parties' written communication, the Private Adjudication Center shall send each party a notice of rejection of pro bono evaluator's written evaluation that will not indicate whether the opposing party has accepted or rejected the pro bono evaluator's written evaluation amount. 6 6. Arbitration May Proceed After Rejection of Pro Bono Evaluator's Written Evaluation Within sixty (60) days after receipt of the notice of rejection of pro bono evaluator's written evaluation, the claimant may request arbitration by returning to the Plan Trust a signed Election Form and Agreement for either Binding or Non-binding Arbitration. B. Rules Governing Mediation 1. Election If the claimant chooses mediation, then the claimant shall submit to the Plan Trust a signed Request for Mediation Form (Attachment C) along with an executed Affidavit of Completeness within ninety (90) days of claimant's receipt of the ADR packet. Within five (5) business days of the Plan Trust's receipt of the signed Request for Mediation Form, the Plan Trust shall review and sign the form and forward a signed copy along with an executed Affidavit of Accuracy to the claimant and the Private Adjudication Center. 2. Selection of Mediator Within fifteen (15) days of the signed Request for Mediation Form, the Private Adjudication Center shall retain a mediator from the approved list of mediators. The Private Adjudication Center shall select the mediator based upon the region in which the claimant is located. The mediator shall be compensated by the Plan Trust. The Private Adjudication Center shall schedule a mediation conference within sixty (60) days after receipt of the signed Request for Mediation Form. The mediation will be conducted by telephone conference unless the parties agree otherwise. Scheduling of the conference shall be coordinated with the mediator and the conferences shall take place in the order received by the mediator, to the extent practicable. 3. Submission of Materials to Mediator At least five (5) business days prior to the mediation conference, the claimant and the Plan Trust shall each submit to the mediator a detailed written submission consisting of a confidential statement outlining the claimant's medical condition, Congoleum Exposure or Significant Occupational Exposure, as defined by the TDP and each party's position on overall claim value. The parties may also submit to the mediator documents and medical reports that they believe are relevant to the claim. The mediator shall review the claim and the positions of the parties and the other information that the parties submit prior to the mediation conference. The mediation briefs shall comply with the following rules: 7 a. The confidential statement should not exceed ten (10) double spaced typewritten pages exclusive of attachments. b. The submission may not introduce factual matter not contained in the documents in the Plan Trust's file as certified by the Affidavit of Completeness. 4. Mediation Conference Any party may be represented by legal counsel at the mediation conference. The mediator shall confer with the parties' legal representatives and, if the claimant is present and consents, with the claimant. A representative of the Plan Trust with settlement authority must participate in the conference. The mediator may request, but not require, that the claimant personally participate in the conference. 5. Negotiations at the Mediation Conference The mediator may facilitate settlement in any manner the mediator believes is appropriate. The mediator will help the parties focus on their underlying interests, explore resolution alternatives and develop settlement options. The mediator will decide when to hold joint conferences, and when to confer separately with each party. The parties are expected to initiate and convey to the mediator proposals for settlement. Each party shall provide a rationale for any settlement terms proposed. Finally, if the parties fail to develop mutually acceptable settlement terms, before terminating the procedure, and only with the consent of the parties, (a) the mediator may submit to the parties a final settlement proposal; and (b) if the mediator believes he/she is qualified to do so, the mediator may give the parties an evaluation (which if all parties choose, and the mediator agrees, may be in writing) of the likely outcome of the case if it were tried to final judgment, subject to any limitations under the Plan, the TDP and ethical codes. 6. Confidentiality of Mediation The entire mediation process is confidential. Unless agreed among all the parties or required to do so by law, the parties and the mediator shall not disclose to any person who is not associated with participants in the process, including any judicial officer, any information regarding the process (including pre-process exchanges and agreements), contents (including written and oral information), settlement terms or outcome of the proceeding. Under this procedure, the entire process is a compromise negotiation subject to Federal Rule of Evidence 408 and all state counterparts, together with any applicable statute protecting the confidentiality of mediation. All offers, promises, conduct and statements, whether oral or written, made in the course of the proceeding by any of the parties, their agents, employees, experts and attorneys, and by the mediator are confidential. 8 Such offers, promises, conduct and statements are privileged under any applicable mediation privilege and are inadmissible and not discoverable for any purpose, including impeachment, in litigation between the parties. However, any written or oral information or other materials submitted to the mediator by either the Plan Trust or the claimant may be submitted by either party to the arbitrator in an arbitration that takes place under these ADR procedures. In addition, evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable solely as a result of its presentation or use during the mediation. The exchange of any tangible material shall be without prejudice to any claim that such material is privileged or protected as work-product within the meaning of Federal Rule of Civil Procedure 26 and all state and local counterparts. The mediator and any documents and information in the mediator's possession will not be subpoenaed in any such investigation, action or proceeding, and all parties will oppose any effort to have the mediator or documents subpoenaed. The mediator will promptly advise the parties of any attempt to compel him/her to divulge information received in mediation. 7. Submission of Written Offers After Mediation At the conclusion of the mediation, the mediator shall require the parties to exchange written settlement offers that shall remain open for ten (10) days. If after the expiration of that ten (10) day period neither party accepts the other's written offer or the parties do not otherwise settle the matter, then the claimant may request binding or non-binding arbitration by sending to the Plan Trust the appropriate signed Election Form and Agreement for either Binding or Non-binding Arbitration. IV. RULES GOVERNING NON-BINDING AND BINDING ARBITRATION A. Election by the Claimant The Plan Trust shall review the Election Form and Agreement for Binding or Non-binding Arbitration (Attachments D and E) and within five (5) business days of receipt the Plan Trust shall sign the Agreement and shall immediately send a fully signed Arbitration Agreement to the Private Adjudication Center. 9 B. Selection of the Arbitrator 1. As soon as reasonably possible after the receipt of the signed Arbitration Agreement, but no more than fifteen (15) days after the receipt of the signed Arbitration Agreement, the Private Adjudication Center shall select three potential arbitrators from a rotating list kept by the Private Adjudication Center. Assignments of arbitrators will be made on a rotating basis nationally, by the Private Adjudication Center. The Private Adjudication Center shall promptly notify the arbitrators and the parties of the potential arbitrators' selection. If a potential arbitrator is unable or unwilling to serve, then a replacement selection will be made prior to notifying the Plan Trust and the claimant of the potential arbitrators selected. 2. Within seven (7) days of receipt of the list of potential arbitrators, the Plan Trust may select, and identify to the Private Adjudication Center, one potential arbitrator to be stricken from the list. The Private Adjudication Center shall then promptly notify the claimant of the Plan Trust's selection, whereupon, within seven (7) days of the receipt of such notification, the claimant may select, and identify to the Private Adjudication Center, a second potential arbitrator to be stricken from the list. The Private Adjudication Center shall then notify all parties which potential arbitrator remains and will conduct the arbitration. If either the Plan Trust or the claimant, or both, fails to exercise the right to strike an arbitrator from the list of potential arbitrators, the Private Adjudication Center shall appoint from those potential arbitrators remaining the arbitrator next in rotation on the Plan Trust's rotating list. 3. Any appointed arbitrator shall disclose to the Private Adjudication Center any circumstances likely to affect impartiality, including any bias or any financial or personal interest in the result of the arbitration or any past or present relationship with the parties or representatives. Upon receipt of such information from the arbitrator or another source, the Private Adjudication Center shall communicate the information to the parties and, if the administrator deems necessary, to the arbitrator and others. Upon objection of a party to the continued service, the Private Adjudication Center shall determine whether the arbitrator should be disqualified and shall inform the parties of the decision, which shall be final. C. Extraordinary Claims and Those Reviewed by the Extraordinary Claims Panel In the event that the Extraordinary Claims Panel has deemed the claim worthy of extraordinary treatment, the Private Adjudication Center shall forward to the arbitrator the written decision of the Extraordinary Claims Panel, and the parties may submit a final request that exceeds the values ascribed to the type of injury in the TDP. In such circumstances, the arbitrator may issue an award in accordance with such a final offer/request. 10 In the event that the Extraordinary Claims Panel declined to give extraordinary treatment to the claim, the arbitrator shall not be informed of the Extraordinary Claims Panel's decision, and the claimant must confine his/her award to the values ascribed to the type of injury in the TDP because the arbitrator may not award an amount in excess of the Maximum Value assigned to the appropriate category for the injury in the TDP. The Plan Trust will not engage in non-binding or binding arbitration, and reserves the unilateral right to withdraw from a signed non-binding or binding arbitration agreement at any time, where the claimant's final offer and award demand exceeds the Maximum Value assigned to the type of injury in the TDP and the Extraordinary Claims Panel has declined to give extraordinary treatment to the claim. D. Final Offer or "Baseball Style" Binding Arbitration All binding arbitration shall be conducted in the "final offer" format also known as "baseball style" arbitration. In the course of submitting the arbitration materials, as explained in these rules, the parties shall submit their final offer of settlement which shall also serve as the party's demand for arbitration award. The arbitrator must choose from one of these two demands in determining the amount of the arbitration award. E. Submission of Pre-Hearing Statements Within twenty (20) days of the appointment of an arbitrator each party shall submit to the opposing party and to the arbitrator a written statement (not to exceed ten (10) double spaced pages) containing that party's positions and arguments. Each party may then submit a supplement to its written statement (not to exceed five (5) double spaced pages) following the initial pre-hearing conference to respond to the opposing party's positions and arguments and addressing issues raised at the initial pre-hearing conference. Supplements must be sent to the opposing party and to the arbitrator within ten (10) days after the date of the pre-hearing conference. The Private Adjudication Center will provide the arbitrator with a complete schedule of categories of injuries and Scheduled, Average and Maximum Values therefor in the TDP. F. Initial Pre-Hearing Conference, Scheduling Hearing Date, Optional Video Conference for Arbitration Hearing 1. Within fifteen (15) calendar days of the receipt of both party's briefs, the Private Adjudication Center shall contact the claimant, the arbitrator, and the Plan Trust to schedule the initial pre-hearing conference. The pre-hearing conference shall be presided over by the arbitrator and held by telephone conference call. 11 2. During the initial pre-hearing conference, the arbitrator shall schedule the date and select the location of the arbitration hearing either at the location of the arbitrator or a location mutually agreeable to the parties. The arbitration hearing should be scheduled not less than forty-five (45) days, and not more than sixty (60) days, from the date of the initial pre-hearing conference. The Private Adjudication Center will mail a confirmation notice of this date to the claimant and the Plan Trust. 3. At the election of the claimant, the arbitration hearing may be conducted by video conference. If the claimant so elects, then the claimant must state that election in writing prior to the initial pre-hearing conference. The Private Adjudication Center will make appropriate arrangements for the Plan Trust and the arbitrator to participate by video conference. The Plan Trust shall pay for its and the arbitrator's cost for use of video conference equipment and facilities. The claimant shall only be responsible for his/her costs (including participation by claimant's counsel). 4. During the initial pre-trial conference, the arbitrator shall seek to achieve agreement between the parties on: a. narrowing the issues (through methods including but not limited to stipulation of facts); b. whether the claimant will appear at the hearing (at the claimant's sole discretion); c. any legal issues; d. and any other matters that will expedite the arbitration proceedings. If appropriate or if the parties do not agree on these issues, then the arbitrator must issue orders governing the process. G. No Discovery With Limited Exceptions There shall be no discovery except as specifically provided below. The purpose of the arbitration is to resolve differences between the Plan Trust and the claimant based only on the documents that have been previously submitted to the Plan Trust by the claimant and any other documents relied upon by the Plan Trust to make a settlement offer to the claimant or to disallow the claim. However, if the Plan Trust commissions an independent medical examination or a third-party medical review upon which the Plan Trust relies in evaluating the claimant's claim, then the claimant may depose the medical professional conducting the review or examination after having a reasonable opportunity to study any report or written opinion generated by the medical professional. 12 H. No Record of Proceedings Unless Requested by Arbitrator There will be no record or transcript of the proceedings unless the arbitrator requests a transcript to assist him/her in reviewing the evidence or otherwise to aid in the decision making process. In the event an arbitrator requests a transcript prior to the arbitration, then the Plan Trust shall arrange for a court reporter and shall pay all expenses associated with the preparation of the transcript. In no event, however, will the transcript be made available to the parties, nor shall any time required for preparation of the transcript affect the time for the arbitrator to render a decision. I. Postponement of Hearing The arbitrator for good cause may postpone any hearing upon the request of a party or upon the arbitrator's own initiative, and shall also grant such postponement when all of the parties agree. J. Duration of Hearings The arbitrator shall complete the hearing in one day except for good cause shown. The arbitrator shall set time limits on the respective presentations, and shall enforce those set limits. The parties shall request no more than three hours apiece for presentation of their cases. K. Procedure at Arbitration Hearing 1. Testimony Under Oath or Affirmation If the claimant or any other witness testifies, such testimony shall be under oath or affirmation administered by the arbitrator. 2. Conduct of Hearing At the opening of the arbitration hearing, the arbitrator shall make a written record of the time, place, and date of the hearing, and the presence of the parties and counsel. 3. Evidence a. Rules of Evidence: The arbitrator is not required to apply the rules of evidence used in judicial proceedings, provided, however that the arbitrator shall apply the attorney-client privilege and the work product privilege. The arbitrator shall determine the applicability of any privilege or immunity and the admissibility, relevance, materiality and weight of the evidence offered. b. Admission of Evidence: The evidence that the arbitrator may consider shall be limited to the following: 13 (i) The documents supplied to the Plan Trust prior to the execution of the Affidavit of Completeness; (ii) Non-binding or binding arbitration election agreement; (iii) Testimony of the claimant. The claimant may offer evidence regarding the nature and extent of compensable damages, including physical injuries, and/or the market share of Congoleum Products, if there is a claim of greater than average market share. The Plan Trust may cross-examine on these issues. At the claimant's option, a claimant's deposition, including videotaped testimony, shall be admissible into evidence in lieu of live testimony. (iv) Any additional deposition testimony taken by the Plan Trust or the claimant, and provided to both sides, prior to the initiation of ADR. (v) Any evidence submitted in mediation. (vi) Closing arguments of the claimant and the Plan Trust. The arguments shall be limited to the evidence contained and the issues raised in the documents or testimony referred to above and shall be limited to 1/2 hour for each party. The arbitrator shall disregard any effort to introduce further evidence or issues in argument. L. Arbitration in the Absence of a Party or Representative The claimant may choose whether or not to attend the arbitration in person in his/her sole discretion. The arbitration may proceed in the absence of any party or representative who, after due notice, chooses not to be present, fails to be present or fails to obtain a postponement if he/she desires to be present but cannot. An award shall not be made against a party solely for the failure to appear. The arbitrator shall require the party who is present to submit such evidence as the arbitrator may require for the making of an award. M. Conclusion of Hearing and Submission of Post-Hearing Briefs When the parties state that they have no further evidence or witnesses to offer, and after the parties have made their closing arguments, if any, the arbitrator shall declare the hearing closed. Post-hearing briefs will be permitted only upon order of the arbitrator and shall be served upon the arbitrator no later than ten (10) days after the hearing is closed. Such briefs shall be no longer than five (5) double spaced pages. The time limit within which the arbitrator is required to make the award shall commence to run upon the closing of the hearing or the submission of post-hearing briefs, whichever is later. 14 N. Option to Waive Oral Hearings The parties may request a waiver of oral hearings. Oral hearings will only be waived if all parties consent. O. Arbitration Decision 1. The arbitrator shall issue a decision no later than fifteen (15) calendar days after the date of the close of the hearing or submission of post-hearing briefs, whichever is later. 2. The decision shall state only the amount of the award, if any. The decision shall not state reasons for the award. An arbitrator shall not be permitted to award punitive, exemplary, trebled or other like damages or attorneys' fees, and prejudgment and post-judgment interest and costs shall not be sought or allowed. The award shall dispose of all monetary claims presented to the arbitrator and shall determine fully the only issue to be decided pursuant to the arbitration agreement: the amount, if any, at which the claim value should be fixed. To assist the arbitrator, the Private Adjudication Center will provide the arbitrator with a schedule setting forth the Disease Levels and the Scheduled, Average and Maximum Values associated with each category. Unless the Extraordinary Claims Panel has determined that a claim is entitled to extraordinary treatment during the claims review process, the arbitrator's award shall not exceed the Maximum Value amount for --- the appropriate Category in the TDP. P. Payment of Award Pursuant to the terms of the arbitration agreement, the Plan Trust will promptly send to the claimant the appropriate Release. The Plan Trust will then pay the claim based upon the binding or, if accepted by both parties, the non-binding award, in accordance with the TDP in effect at that time. Q. Rejection of Non-binding Award 1. A party in a non-binding arbitration proceeding that wishes to reject the award must notify the other party within thirty (30) days from the date a non-binding award is issued. If no rejection is received or sent by the Plan Trust, then the decision will stand and the award will be deemed accepted by both parties and the Plan Trust will promptly send to the claimant the appropriate Release. The Plan Trust will then pay the claim in accordance with the Claim Resolution Procedures in effect at that time. 15 2. Procedure for Rejected Award a. Rejection by Claimant If claimant has sent the Plan Trust timely notification of rejection of a non-binding award and wishes to pursue the claim, then the claimant must notify the Plan Trust through correspondence postmarked no later than sixty (60) days from the date of the non-binding award. If notification is received within the sixty (60) day deadline and claimant wishes to pursue the claim, then the Plan Trust will within fifteen (15) days of receipt of this notification send the claimant an authorization to commence litigation. b. Rejection by Plan Trust If the Plan Trust rejects the non-binding award, then claimant may elect binding arbitration or request that the Plan Trust forward the authorization to commence litigation. V. GENERAL ADR PROCEDURES GOVERNING PRO BONO EVALUATION, MEDIATION, NON-BINDING ARBITRATION, AND BINDING ARBITRATION A. ADR Submissions The claimant's submissions (with the exception of the binding arbitration's written argument) will be reviewed by the ADR administrator before they are submitted to the pro bono evaluator, mediator or arbitrator. If they contain materials not previously submitted in support of the claim, then the Plan Trust claims department will review the additional information and determine the effect, if any, it would have on the Plan Trust's evaluation of the claim. In appropriate situations, a new offer may be made to the claimant. If an attorney or other agent represents the claimant, both the attorney and the claimant must also sign the Election and Agreement for Binding Arbitration. The attorney or agent may not sign in place of, or for, the claimant unless the claimant is incapacitated, incompetent or deceased and the attorney or agent has been designated legally to act on the claimant's behalf. Documentation of this legal designation will be required. B. No Grouping or Bundling of Claims As a general matter, there shall be no grouping or bundling of claims by separate claimants at any stage of the ADR or arbitrations even if the claims are related and/or the claimants have the same counsel. Each claimant must proceed individually through the ADR and arbitration processes with all claims that claimant may have or represent. This provision is intended to separate claims of different exposed persons and has no effect upon multiple claims brought by a claimant's representative, such as heirs of a deceased 16 worker. However, the Plan Trust, in its sole discretion, may decide that it would be expeditious to allow the conduct of arbitration proceeding with respect to more than one claim of different exposed persons, provided that the arbitrator individually values each such claim in accordance with the valuation factors set forth in Section 6.2(b)(2) of the TDP, and the respective claimants' separate positions in the Plan Trust's FIFO Processing and Payment Queues are maintained. C. No Ex Parte Communication There shall be no ex parte communication between the arbitrator or pro bono evaluator and any counsel or party in any matter. All correspondence between the arbitrator or pro bono evaluator and the parties will be facilitated by the Private Adjudication Center. D. Claims and Defenses All available claims and defenses which exist under the law subject to the claimant's election under the TDP shall be available to both sides. E. Costs of ADR 1. ADR expenses The Plan Trust will pay the arbitrator's fee for non-binding or binding arbitration up to two thousand dollars ($2,000.00) per claim depending on the length of the hearing. The pro bono evaluator is a volunteer and thus no fee will be incurred. The Plan Trust will assume costs of meeting and hearing facilities for arbitration. Claimants will pay their costs and attorney fees, including any expenses incurred should the claimant testify. 2. Filing Fee No filing fee is required of the claimant for any ADR selection, unless the Plan Trust with the consent of the TAC and the Futures Representative decide that it would be in the best interests of the Plan Trust and its beneficiaries to adopt such a fee. F. Waiver of Objection to Rules Infraction Either party who continues with the pro bono evaluation, mediation, non-binding arbitration, or binding arbitration proceeding after knowing that any provision or requirement of the applicable rules has not been complied with, and who fails to state a timely objection in writing to the arbitrator, mediator or pro bono evaluator, shall be deemed to have waived the right to object. A timely objection by a claimant must be stated in writing and mailed to the Plan Trust with instructions to forward the objection to the Private Adjudication Center and to the arbitrator, mediator or pro bono evaluator. A timely objection by the Plan Trust will be mailed to the claimant and to the Private Adjudication Center with instructions to forward to the arbitrator, mediator or pro bono evaluator. 17 G. Serving of Notices and Other Papers Each party to the ADR and arbitration agreements shall be deemed to have consented that any papers, notices, or processes necessary or proper for the initiation or continuation of ADR and Arbitration proceedings under these rules may be served upon such party as follows: 1. By regular U.S. mail or overnight courier addressed to such party or their attorneys at their last known address; 2. By facsimile transmission or electronic mail, if a copy of the transmitted papers is mailed addressed to the party or their attorney at their last known address within twenty-four (24) hours of the facsimile transmission or electronic mail; or, 3. By personal service, within or without the state where the pro bono evaluation, mediation or arbitration is to be held, whether the party is within or without the United States of America. H. Time Limits Triggered Upon Receipt 1. Documents sent by U.S. mail under these rules shall be deemed received three (3) business days after the date of postmark. Documents sent via overnight mail shall be deemed received on the next business day after mailing. 2. Documents sent via facsimile transmission or electronic mail shall be deemed received on the business day that the transmission is sent. I. Exclusion of Liability Neither the Private Adjudication Center nor the mediator, nor the arbitrator nor pro bono evaluator shall be liable to any party for any act or omission in connection with any evaluation conducted under these rules. J. Relationship of Rules to Election Form for Pro Bono Evaluation, Request for Mediation, Non-binding Arbitration Agreement or Binding Arbitration Agreement These Rules shall be deemed a part of, and incorporated by reference in, every duly executed ADR agreement or arbitration agreement and shall be binding on all parties. 18 K. Arbitrator/Mediator/Pro Bono Evaluator Immunity Arbitrators, mediators or pro bono evaluators who serve pursuant to these rules shall have the same immunity as judges for their official acts. L. Jurisdiction Any dispute under these rules shall be subject to the jurisdiction of the United States Bankruptcy Court for the District of Delaware. M. Statement of Confidentiality 1. All ADR and arbitration proceedings and information relating to the proceeding will be confidential. Neither party shall disclose the information obtained during the proceedings, nor the valuation placed on the case by an arbitrator or pro bono evaluator, to anyone or use such information or valuation in any further proceeding except as necessary to maintain the Plan Trust's obligation to report to the Bankruptcy Court and to provide ongoing evaluation by the Plan Trust and TAC. Except for documents prepared by a non-party which are introduced as evidence before an arbitrator or pro bono evaluator, any document prepared by another party, attorney or other participant in anticipation of the ADR is privileged and shall not be disclosed to any court or arbitrator/pro bono evaluator or construed for any purpose as an admission against interest. 2. All ADR and arbitration proceedings shall be deemed a settlement conference pursuant to Rule 408 of the Federal Rules of Evidence. Except by agreement of the parties, the parties will not introduce into evidence in any other proceedings the fact that there was an arbitration, the nature or amount of the award, and written submissions may not be used for purposes of showing accord and satisfaction or res judicata. In binding arbitration, the decision of the arbitrator may be admissible in the event the claimant improperly seeks to litigate the claim. The binding arbitration award shall be admissible in support of a motion to enjoin such litigation. No arbitrator or pro bono evaluator will ever be subpoenaed or otherwise required by any party or any third party, to testify or produce records, notes or work product in any future proceedings. N. Amendments Except as otherwise ruled by the Bankruptcy Court, these rules, as they may from time to time be amended by the Plan Trustees with the consent of the TAC and the Futures Representative, will be binding on all parties in the form in which they are in force on the date the claimant signs the election agreement. 19 O. Time Limits The time limits included in these procedures are to be strictly enforced. Any time limit set forth herein may be extended by agreement of the parties or for cause shown to the neutral party presiding over the particular ADR or arbitration proceeding. Any request for extension, however, shall first be made to the opposing party and then if the parties cannot agree, shall be submitted to the Private Adjudication Center who will request a ruling from the pro bono evaluator, mediator, or arbitrator as the case may be. Although the deadlines may be extended by agreement or for cause shown, failure to comply with a deadline without obtaining an extension may result in withdrawal of the claim. Promptly after a claimant fails to comply with a specified deadline without obtaining an extension, the Plan Trust shall send the claimant written notice of the failure to comply. If the claimant does not take any action on the claim, then thirty (30) days thereafter the claim will be deemed withdrawn under Section 6.3 of the TDP. 20 CONGOLEUM PLAN TRUST ELECTION FORM FOR PRO BONO EVALUATION I, ___________________________________ ("Claimant"), Claim No. _____________, hereby elect and agree to: Non-Binding document evaluation of my claim by an individual selected from a Panel of Pro Bono Evaluators who volunteered to serve at the request of the Plan Trust Advisory Committee pursuant to Section 6.9(b) of the TDP. Unless the box below is initialed, the undersigned waives anonymity of the claimant in the Pro Bono Evaluation of this claim. The Plan Trust encourages leaving this box blank and waiving anonymity so that medical records may be transmitted in their original form. |_| Dated: _____________________________, ______. ________________________________ Claimant or Claimant's Attorney Accepted and Consented to: CONGOLEUM PLAN TRUST By: _________________________________ _______________________________ Title Dated: ______________________________ Attachment A STATE OF ______________________ ) ) SS: COUNTY OF ____________________ ) AFFIDAVIT OF COMPLETENESS I, ______________________________________, as the person [or legal representative of the person] who has filed a claim against the Congoleum Plan Trust, being duly sworn, depose and say: I have furnished all information which I wish to be considered in the valuation of claim number ______________________. I certify (or declare) under penalty of perjury, that the foregoing is true and correct. By _____________________________________________ Claimant or Legal Representative of Claimant Date _________________________ Sworn to before me this _______ day of __________________________, _______. ____________________________________________ Attachment B CONGOLEUM PLAN TRUST REQUEST FOR MEDIATION FORM I, ___________________________________ ("Claimant"), Claim No. _____________, hereby elect and agree to: Attempt in good faith to resolve the dispute with the Plan Trust relating to my claim promptly by confidential Mediation under the terms set forth for Mediation procedure established by the Plan Trust under Sections 6.9(b) of the TDP. I have been provided with a copy of the rules relating to Mediation established by the Plan Trust. I understand and agree to abide by those rules in the course of the Mediation. Dated: _____________________________, ______. ______________________________________ Claimant or Claimant's Attorney Accepted and Consented to: CONGOLEUM PLAN TRUST By: _________________________________ _______________________________ Title Dated: ______________________________ Attachment C CONGOLEUM PLAN TRUST ELECTION FORM AND AGREEMENT FOR BINDING ARBITRATION I, ___________________________________ ("Claimant"), Claim No. _____________, hereby elect and agree to: Submit all disputes with the Plan Trust relating to my claim to Binding Arbitration under the terms set forth for Binding Arbitration procedure established by the Plan Trust under Section 6.9(a) of the TDP. I have been provided with a copy of the rules relating to Binding Arbitration established by the Plan Trust. I understand and agree to abide by those rules in the course of the Binding Arbitration. I understand that as a result of this agreement if accepted by the Plan Trust, I will waive my rights to litigate my claim in Court including the right to trial by jury and I will be bound by the arbitration award. Dated: _____________________________, _______. ______________________________________ Claimant ______________________________________ Claimant's Attorney Claimant and attorney must both sign Accepted and Consented to: By accepting this agreement the Plan Trust waives its rights to litigate the claimant's claim in Court including the right to trial by jury and agrees to be bound by the arbitration award. CONGOLEUM PLAN TRUST By: _________________________________ _______________________________ Title Dated: ______________________________ Attachment D CONGOLEUM PLAN TRUST ELECTION FORM AND AGREEMENT FOR NON-BINDING ARBITRATION I, ___________________________________ ("Claimant"), Claim No. _____________, hereby elect and agree to: Submit all disputes with the Plan Trust relating to my claim to Non-Binding Arbitration under the terms set forth for Non-Binding Arbitration procedure established by the Plan Trust under Section 6.9(a) of the TDP. I have been provided with a copy of the rules relating to Non-Binding Arbitration established by the Plan Trust. I understand and agree to abide by those rules in the course of the Non-Binding Arbitration. Dated: _____________________________, _______. ______________________________________ Claimant or Claimant's Attorney Accepted and Consented to: CONGOLEUM PLAN TRUST By: _________________________________ _______________________________ Title Dated: ______________________________ Attachment E Exhibit H to the Plan "New Indenture" [TO BE FILED ON OR BEFORE SEPTEMBER 22, 2006] EXHIBIT I TO THE PLAN Exhibit I to the Plan "GHR/Kenesis Litigation Trust Agreement" EXHIBIT I TO THE PLAN LITIGATION TRUST AGREEMENT This LITIGATION TRUST AGREEMENT, dated as of the date set forth on the signature page hereof and effective as of the Effective Date (the "GHR/Kenesis Litigation Trust"), is by and among Congoleum Corporation, Congoleum Sales, Inc. and Congoleum Fiscal, Inc. (collectively referred to as the "Debtors," "Congoleum," or the "Settlors"), the debtors and debtors-in-possession in Case No. 03-51524 in the United States Bankruptcy Court for the district of New Jersey; the Futures Representative; the Asbestos Claimants' Committee and [ ], as Trustee (the "Trustee"). RECITALS WHEREAS, on or about [ ], the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court) entered an order confirming the Tenth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al. and the Asbestos Claimants' Committee, dated as of September 15, 2006 (as it may thereafter be amended, restated or otherwise modified, the "Plan"); and WHEREAS, pursuant to the Plan, (i) the GHR/Kenesis Actions and (ii) proceeds realized from the prosecution of the GHR/Kenesis Actions (the "Proceeds") have been, on the date hereof, assigned to the GHR/Kenesis Litigation Trust created by this Agreement (the "Trust"), on behalf of and for the benefit of Reorganized Congoleum pursuant to the Plan (the "Beneficiary"), by the Debtors in accordance with section 1123(b)(3)(B) of the Bankruptcy Code; and WHEREAS, the Trust is being created pursuant to this Agreement for the sole purpose of coordinating the prosecution, direction, settlement, collection and enforcement of the GHR/Kenesis Actions on behalf of and for the benefit of the Beneficiary and to distribute the Proceeds to the Plan Trust on behalf of the Beneficiary in accordance herewith; and WHEREAS, pursuant to Section 6.1(o) of the Plan, the Debtors are deemed to have granted, assigned, transferred, conveyed and delivered to the Trustee, on behalf of and for the benefit of the Beneficiary, control of, all of the Debtors' right, title and interest in, the GHR/Kenesis Actions and to the Proceeds; and WHEREAS, pursuant to Section 6.1(o) of the Plan, the costs of the Trust shall be funded by a one time capital contribution (the "Initial Contribution") of $600,000 to be made from the proceeds of the Asbestos Insurance Settlement Agreement with Liberty Mutual Insurance Company on, or as soon as practicable after, the Effective Date; and WHEREAS, the Bankruptcy Court shall have original but not exclusive jurisdiction over the GHR/Kenesis Litigation Trust, the Trustee, the GHR/Kenesis Actions and the Trust Assets, as provided herein. DECLARATION OF TRUST NOW THEREFORE, in order to declare the terms and conditions hereof, and in consideration of the Recitals, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the EXHIBIT I TO THE PLAN terms and conditions of the Plan and this Agreement, the Debtors have executed this Agreement and absolutely and irrevocably assign to the Trustee, and to its successors and assigns, on behalf of and for the benefit of the Beneficiary, the Initial Contribution and all right, title and interest of Reorganized Congoleum in the GHR/Kenesis Actions and the Proceeds; TO HAVE AND TO HOLD unto the Trustee and its successors in trust; PROVIDED, HOWEVER, that upon termination of the Trust in accordance with Section 4.01 hereof, this Agreement shall cease, terminate and be of no further force and effect. IT IS HEREBY FURTHER COVENANTED AND DECLARED, that the GHR/Kenesis Actions and the Proceeds, the Initial Contribution and all other property held from time to time by the Trustee under this Agreement and any earnings thereon (collectively, the "Trust Assets") are to be held and applied by the Trustee solely for the benefit of the Beneficiary and for no other party, subject to the further covenants, conditions and terms hereinafter set forth. ARTICLE I DEFINITIONS 1.01 Certain Terms Defined. Terms defined in the Plan, and not otherwise defined herein, shall, when used herein (including in the Recitals hereto), have the meanings ascribed to such terms in the Plan. 1.02 Meanings of Other Terms. Except where the context otherwise requires, words importing the masculine gender include the feminine and the neuter, if appropriate, words importing the singular number shall include the plural number and vice versa and words importing persons shall include firms, associations, corporations and other entities. All references herein to Articles, Sections and other subdivisions, unless referring specifically to the Plan or provisions of the Bankruptcy Code, Bankruptcy Rules or other law, statute or regulation, refer to the corresponding Articles, Sections and other subdivisions of this Agreement, and the words herein and words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivisions of this Agreement. ARTICLE II TRUSTEE'S ACCEPTANCE 2.01 Acceptance. The Trustee accepts the Trust created by this Agreement and the transfer and assignment to the Trust, on behalf of and for the benefit of the Beneficiary, of the Initial Contribution, the GHR/Kenesis Actions and the Proceeds as set forth in the Plan, and agrees to observe and perform the Trust, upon and subject to the terms and conditions set forth herein and in the Plan. 2.02 Purpose of Trust. The sole purpose of this Agreement is to implement Sections 6(o) and (p) of the Plan by providing for the vesting in the Trustee of the ownership of and the responsibility for the protection and conservation of the Trust Assets on behalf of and for the benefit of the Beneficiary. Such responsibility shall be limited to the retention, prosecution, direction, settlement, collection and enforcement of the GHR/Kenesis Actions by the Trustee on behalf of and for the benefit of the Beneficiary, including the powers with 2 EXHIBIT I TO THE PLAN respect thereto set forth in Article VII hereof; the collection of the Proceeds, the temporary investment thereof and other Trust moneys, including, but not limited to, the Initial Contribution, as provided in Section 7.03 hereof, the payment of the costs and expenses of the GHR/Kenesis Actions, the making of any other payments provided to be made from the Trust as set forth in the Plan and this Agreement and the distribution of the Proceeds, any income earned thereon and other Trust moneys to the Beneficiary in accordance with the provisions of the Plan and this Agreement. 2.03 Incidents of Ownership. The Beneficiary shall be the sole beneficiary of the Trust and the Trustee shall retain only such incidents of ownership as are necessary to undertake the actions and transactions authorized herein on their behalf. ARTICLE III BENEFICIARY 3.01 Beneficial Interests. The interest of the Beneficiary in the Trust Assets (the "Beneficial Interest") shall be 100% of the Trust Assets after the payment of the fees and expenses of the Trustee; provided, however, that the Distributable Proceeds (as defined in Section 4.03 herein) are hereby pledged to the Plan Trust by the Beneficiary and the Trustee to secure the Beneficiary's obligations under the Plan Trust Note and the New Convertible Security, and such Distributable Proceeds shall be used as follows: (i) first, to pay principal and accrued interest under the Plan Trust Note until such time as the Plan Trust Note has been paid in full; (ii) second, to pay principal and accrued interest under the New Convertible Security until such time as the New Convertible Security has been paid in full or is no longer outstanding; provided, however, that the New Convertible Security shall not be satisfied in full or retired before the Reset Date and any proceeds of the GHR/Kenesis Actions that are received by the Plan Trust on account of the New Convertible Security prior to the Reset Date shall be held by the Plan Trust in an interest bearing account and applied to amounts outstanding under the New Convertible Security immediately after the Reset Date; and (iii) thereafter, any remaining or further Distributable Proceeds shall be paid to the Beneficiary. 3.02 Rights of Beneficiary. Except as expressly provided hereunder, the Beneficiary shall have no title to, right to, possession of, management of or control of the Trust or the Trust Assets. The whole title to all the Trust's assets shall be vested in the Trustee and the sole interest of the Beneficiary shall be the rights and benefits given under this Agreement and the Plan. 3.03 Further Assurances. Each of the Beneficiary and the Trust agree that from time to time it will execute and deliver all further instruments and documents, and take all further action, that may be necessary, or that the Plan Trust may reasonably request, in order to perfect and protect the security interest granted or purported to be granted in Section 3.01 hereof or to enable the Plan Trust to exercise and enforce its rights and remedies with respect to any of the Trust Assets (after payment of fees and reimbursement of expenses of the Trust) upon an Event of Default under, and as defined in, the Plan Trust Note or an Event of Default under, and as defined in, the New Convertible Security. 3 EXHIBIT I TO THE PLAN ARTICLE IV DURATION AND TERMINATION OF TRUST 4.01 Duration. The existence of the Trust shall terminate on the earlier of: (a) the date on which all of the Trust Assets have been liquidated and the proceeds thereof distributed to or on behalf of the Beneficiary, or (b) two years after the Effective Date; provided, however, that the Trustee may extend the term of the Trust, provided that he receives Bankruptcy Court approval for cause within six months after the beginning of the extended term. Notwithstanding anything to the contrary in this Agreement, in no event shall the Trustee unduly prolong the duration of the Trust, and the Trustee shall at all times endeavor to prosecute, direct, settle or compromise expeditiously the GHR/Kenesis Actions, so as to distribute the Trust Assets to or on behalf of the Beneficiary and terminate the Trust as soon as practicable in accordance with this Agreement. 4.02 Termination by Beneficiary. The Trust may not be terminated at any time by the Beneficiary. 4.03 Continuance of Trust for Winding Up. After the termination of the Trust and solely for the purpose of liquidating and winding up the affairs of the Trust, the Trustee shall continue to act as such until its duties have been fully performed. Upon distribution of all Proceeds and any investment income earned on Trust Assets not used to pay expenses associated with prosecution of the GHR/Kenesis Actions (collectively, the "Distributable Proceeds") and any remaining moneys or other assets after termination of the Trust and liquidation of any remaining Trust Assets, the Trustee shall retain the books, records and files which shall have been delivered to or created by the Trustee. At the Trustee's discretion, all of such records and documents may be destroyed at any time after six years from the distribution of all Distributable Proceeds (unless such records and documents are necessary to fulfill the Trustee's obligations pursuant to Section 5.06 hereunder). Except as otherwise specifically provided herein, upon the distribution of all Distributable Proceeds, the Trustee shall be deemed discharged and have no further duties or obligations hereunder except to account to the GHR/Kenesis Litigation Trust Advisory Committee (the "Litigation Trust Advisory Committee") as provided in Section 5.03 hereof and as may be imposed on the Trustee by virtue of Section 5.06 and Article VI hereof. ARTICLE V ADMINISTRATION OF TRUST ESTATE 5.01 Payment of Claims, Expenses and Liabilities. The Trustee shall pay from the Trust Assets all claims, expenses, charges, liabilities and obligations of the Trust as contemplated by this Agreement and as required by law. 5.02 Distributions. (a) The Trustee shall make distributions to the Plan Trust on behalf of the Beneficiary of the Distributable Proceeds in accordance with the provisions of this Agreement at each such time as the Trustee has available at least $5,000 in Distributable Proceeds for distribution to the Beneficiary; provided, however, that, notwithstanding the foregoing, the Trustee must make a distribution of all Distributable Proceeds to the Plan Trust on behalf of the Beneficiary at least once per year after taking into account any payments that must be made in accordance with Section 5.01 hereof and after retaining such moneys as it determines is necessary to pay the on-going costs 4 EXHIBIT I TO THE PLAN and expenses of prosecuting the GHR/Kenesis Actions, provided, further, that, notwithstanding the preceding clause, the Trustee must distribute at least 50% of the Distributable Proceeds on an annual basis to the Plan Trust on behalf of the Beneficiary. Notwithstanding any provision herein to the contrary, the Trustee shall make a final distribution of the Distributable Proceeds to the Plan Trust on behalf of the Beneficiary and any remaining trust moneys and other Trust Assets in accordance with the terms of this Agreement prior to the termination of the Trust in accordance with Section 4.01 hereof. All Distributions shall be used to satisfy the Beneficiary's obligations to the Plan Trust in accordance with Article III of this Agreement. 5.03 Reports. The Trustee shall file with the Bankruptcy Court: (a) unaudited quarterly financial reports and an audited annual financial report regarding the financial condition and results of operation of the Trust, and (b) a quarterly report concerning the status of all GHR/Kenesis Actions which have been filed with a court of competent jurisdiction. The Trustee shall provide a copy of such reports to the members of the Litigation Trust Advisory Committee. 5.04 Notice of Change of Address. The Beneficiary shall be responsible for providing the Trustee with written notice of any change in address. The Trustee is not obligated to make any effort to determine the correct address of the Beneficiary. 5.05 Fiscal Year. The fiscal year of the Trust shall be the calendar year. 5.06 Books and Records. The Trustee shall maintain, in respect of the Trust, books and records relating to the assets and the income of the Trust and the payment of expenses of the Trust, in such detail and for such period of time as may be necessary to enable it to make full and proper reports in respect thereof in accordance with the provisions of Section 5.03 and Article VI hereof and to comply with applicable provisions of law. 5.07 Cash Payments. All payments required to be made by the Trustee to or on behalf of the Beneficiary shall be made in Cash denominated in U.S. dollars and, if in check form, drawn on a domestic bank selected by the Trustee. 5.08 GHR/Litigation Trust Advisory Committee. The GHR/Litigation Trust Advisory Committee shall consist of three (3) members; one member being appointed by each of the Plan Trustees, the Reorganized Debtors and the Futures Representative effective as of the Effective Date. The Litigation Trust Advisory Committee shall serve in a fiduciary capacity representing the interests of the Beneficiary to carry out the terms of this Litigation Trust Agreement and the Plan. ARTICLE VI TAX MATTERS 6.01 For all federal income tax purposes, the Beneficiary will be treated as the grantor and deemed owner of the Trust. The Trustee will file returns for the Trust as a grantor trust pursuant to Section 1.671-4(a) of the Income Tax Regulations and will issue to the Beneficiary appropriate tax forms and statements required under the IRC and Treasury Regulations to permit the Beneficiary to report and pay tax on its share of the Trust's taxable income. 5 EXHIBIT I TO THE PLAN 6.02 For all federal income tax purposes, the GHR/Kenesis Actions and the right to receive the Proceeds will be treated by the Debtors, Reorganized Congoleum, Beneficiary and the Trustee as having had no value at the time of their transfer to the Trusts on behalf and for the benefit of the Beneficiary. 6.03 The Trustee will take such actions as are necessary to make certain that all of the Trust's taxable income (including, but not limited to, all Proceeds and earnings, if any, on Trust Assets) will be subject to federal income tax on a current basis. ARTICLE VII POWERS OF AND LIMITATIONS ON THE TRUSTEE 7.01 Powers of the Trustee. Without limiting, but subject to the remaining provisions herein, the Trustee shall be expressly authorized to: (a) execute any documents and take any other actions related to, or in connection with, the liquidation of the Trust Assets and the exercise of the Trustee's powers granted herein; (b) hold legal title to any and all rights of the Beneficiary in or arising from the Trust Assets; (c) protect and enforce the rights to the Trust Assets vested in the Trustee by this Agreement by any method deemed appropriate including, without limitation, by judicial proceedings or pursuant to any applicable bankruptcy, insolvency, moratorium or similar law and general principles of equity; (d) have exclusive power to prosecute and enforce the GHR/Kenesis Actions; (e) have exclusive power to settle or otherwise compromise the GHR/Kenesis Actions, subject, however, to Bankruptcy Court approval; (f) file, if necessary, any and all tax information returns with respect to the Trust and pay taxes properly payable by the Trust, if any, and make distributions to or on behalf of the Beneficiary net of such taxes; (g) make all necessary filings in accordance with any applicable law, statute or regulation, including, but not limited to, the Exchange Act; (h) determine and satisfy any and all ordinary course liabilities created, incurred or assumed by the Trust, (i) pay all ordinary course expenses and make all other payment relating to the Trust; 6 EXHIBIT I TO THE PLAN (j) retain and pay professionals, including but not limited to attorneys, necessary to carry out its obligations hereunder; (k) invest moneys received by the Trust or otherwise held by the Trust in accordance with Section 7.03 hereof; and (l) in the event that the Trustee determines that the Beneficiary or the Trust may, will or have become subject to adverse tax consequences, in its sole discretion, take such actions that will, or are intended to, alleviate such adverse tax consequences. 7.02 Limitations on Trustee. (a) The Trustee shall not at any time, on behalf of the Trust or the Beneficiary, enter into or engage in any trade or business. (b) No part of the Trust Assets shall be used or disposed of by the Trustee in furtherance of any trade or business. The Trustee shall, on behalf of the Trust, hold the Trust out as a trust in the process of liquidation and not as an investment company. The Trustee shall be restricted to the prosecution, enforcement and settlement on behalf of and for the benefit of the Beneficiary of the GHR/Kenesis Actions, the payments and distribution of the Proceeds for the purposes set forth in this Agreement and the conservation and protection of the Trust Assets and the administration thereof in accordance with the provisions of this Agreement. 7.03 Investment of Trust Moneys. The Trustee shall invest the moneys received by the Trust or otherwise held in the Trust Estate in (i) short-term certificates of deposit or money market accounts maintained by or issued by domestic banks having in excess of $1 billion in capital and surplus and one of the two highest ratings given by both Moody's and Standard & Poors, (ii) insured demand deposit accounts or certificates of deposit maintained by or issued by any savings institution or commercial bank insured by the United States government or any agency thereof and (iii) short-term marketable direct obligations of, or guaranteed as to principal and interest by, the United States government or any agency thereof provided, however, that the maturities of any of the foregoing shall not exceed 30 days. ARTICLE VIII CONCERNING THE TRUSTEE 8.01 Generally. The Trustee accepts and undertakes to discharge the Trust created by this Agreement upon the terms and conditions hereof. The Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of its own affairs. No provisions of this Agreement shall be construed to relieve the Trustee from liability for its own reckless or its own intentional or willful and wanton misconduct resulting in personal gain, except that: (a) the Trustee shall not be liable for any action taken in good faith in reliance upon the advice of professionals; (b) the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Trustee; and 7 EXHIBIT I TO THE PLAN (c) the Trustee shall not be liable for any error of judgment made in good faith. 8.02 Reliance by Trustee. Except as otherwise provided in this Agreement: (a) the Trustee may rely and shall be protected in acting upon any resolution, statement, instrument, opinion, report, notice, request, consent, order or other paper or document reasonably believed by the Trustee to be genuine and to have been signed or presented by the proper party or parties; (b) the Trustee may consult with independent legal counsel to be selected by it and the advice or opinion of such counsel shall be full and complete personal protection to the Trustee and agents of the Trust in respect of any action taken or suffered by it in good faith and in reliance on, or in accordance with, such advice or opinion; and (c) persons dealing with the Trustee shall look only to the Trust Assets to satisfy any liability incurred by the Trustee to such person in carrying out the terms of this Agreement, and the Trustee shall have no personal or individual obligation to satisfy any such liability. 8.03 Liability to Third Persons. The Beneficiary shall not be subject to any liability whatsoever, in tort, contract or otherwise, to any person in connection with the Trust Assets or the affairs of the Trust, and no Trustee or agent of the Trust shall be subject to any personal liability whatsoever, in tort, contract or otherwise, to any person in connection with the Trust Assets or the affairs of this Trust, except for its own recklessness or its own intentional or willful and wanton misconduct resulting in personal gain; and all such persons shall look solely to the Trust Assets for satisfaction of claims of any nature arising in connection with affairs of the Trust. 8.04 Nonliability of Trustee for Acts of Others. Nothing contained in this Trust Agreement shall be deemed to be an assumption by the Trustee of say of the liabilities, obligations or duties of any of the other parties hereto or of the Debtors or Reorganized Congoleum; and shall not be deemed to be or contain a covenant or agreement by the Trustee to assume or accept any such liability, obligation or duty. Any successor Trustee may accept and rely upon any accounting made by or on behalf of any predecessor Trustee hereunder, and any statement or representation made as to the assets comprising the Trust Assets or as to any other fact bearing upon the prior administration of the Trust. A Trustee shall not be liable for having accepted and relied upon such accounting, statement or representation if it is later proved to be incomplete, inaccurate or untrue. A Trustee or successor Trustee shall not be liable for any act or omission of any predecessor Trustee, nor have a duty to enforce any claims against any predecessor Trustee on account of any such act or omission. 8.05 Indemnity. The Trustee, the employees, officers, directors and principals of the Trust, and the members of the Litigation Trust Advisory Committee (collectively, the "Indemnified Parties") shall be indemnified by the Trust from any losses, claims, damages, liabilities or expenses (including, without limitation, reasonable attorneys' fees, disbursements and related expenses) which the Indemnified Parties may incur or to which the Indemnified Parties may become subject in connection with any action, suit, proceeding or investigation brought by or threatened against the Indemnified Parties on account of the acts or omissions of the Indemnified Parties in their capacities 8 EXHIBIT I TO THE PLAN as the employees, officers, directors of the Trust and members of the Litigation Trust Advisory Committee, including, without limitation, the GHR/Kenesis Actions, provided, however, that the Trust shall not be liable to indemnify the Indemnified Parties for any of its acts or omissions constituting fraud, gross negligence or willful misconduct, and, provided further, that nothing in this Section 8.05 shall be deemed to restrict the Trustee's right to receive an indemnity based on acts or omissions taken in accordance with the provisions of Sections 8.01 and 8.02 hereof. Notwithstanding any provision herein to the contrary, the Indemnified Parties shall be entitled to obtain advances from the Trust to cover their expenses of defending themselves in any action brought against them as a result of the acts or omissions of the Indemnified Parties in their capacities as employees, officers, directors of the Trust and members of the Litigation Trust Advisory Committee, provided, however, that the Indemnified Parties receiving such advances shall repay the amounts so advanced to the Trust upon the entry of a Final Order finding that such Indemnified Parties were not entitled to any indemnity under the provisions of this Section 8.05. 8.06 Bond. The Trustee shall serve without bond. ARTICLE IX COMPENSATION OF TRUSTEE 9.01 Amount of Compensation. The Trustee shall receive compensation for its services in accordance with the terms set forth in that certain letter agreement dated as of [ ] between the Debtors and the Trustee. 9.02 Expenses. The Trustee shall be entitled to reimburse itself from the Trust for all reasonable out-of-pocket expenses actually incurred by it in the performance of its duties in accordance with this Agreement. ARTICLE X TRUSTEE AND SUCCESSOR TRUSTEES 10.01 Generally. The Trustee shall initially be [ ]. The Trustee represents that it is a [limited liability corporation] organized under the laws of the State of Delaware. If the Trustee shall ever change its name or reorganize, reincorporate or merge with or into or consolidate with any other entity, such Trustee shall be deemed to be a continuing entity and shall continue to act as a Trustee hereunder with the same liabilities, duties, powers, rights, titles, discretion and privileges as are herein specified for a Trustee. 10.02 Resignation or Removal. The Trustee may resign and be discharged from the trusts hereby created by giving at least 30 days prior written notice thereof to the Beneficiary. Such resignation shall become effective on the later to occur of (a) the date specified in such written notice, or (b) the effective date of the appointment of a successor Trustee in accordance with Section 10.04 hereof and such successor's acceptance of such appointment. 10.03 Removal. The Trustee may be removed, with or without cause, by the vote of Litigation Trust Advisory Committee. Such resignation shall become effective on the later to occur of (a) the date such action is taken by the Litigation Trust Advisory Committee, or (b) the effective date of the appointment of a successor Trustee in accordance with Section 10.04 hereof and such successor's acceptance of such appointment, but in no event more than thirty days after action is taken by the Litigation Trust Advisory Committee. 9 EXHIBIT I TO THE PLAN 10.04 Appointment of Successor. In the event of the death, resignation, removal, incompetency, bankruptcy or insolvency of the Trustee, a vacancy shall be deemed to exist and a successor shall be appointed by a majority vote of the Litigation Trust Advisory Committee and such appointment shall be confirmed by order of the Bankruptcy Court entered within sixty (60) days of such appointment. 10.05 Acceptance of Appointment by Successor Trustee. The death, resignation, removal, incompetency, bankruptcy or insolvency of the Trustee shall not operate to terminate the Trust created by this Agreement or to revoke any existing agency created pursuant to the terms of this Agreement or invalidate any action theretofore taken by the Trustee. Any successor Trustee appointed hereunder shall execute an instrument accepting its appointment and shall deliver one counterpart thereof to the Bankruptcy Court for filing, and, in case of the Trustee's resignation, to the retiring Trustee. Thereupon, such successor shall, without any further act, become vested with all the liabilities, duties, power, rights, title, discretion and privileges of its predecessor in the Trust with like effect as if originally named Trustee and shall be deemed appointed pursuant to Section 1123(b) (3) (B) of the Bankruptcy Code to retain and enforce the GHR/Kenesis Actions for the benefit of the Beneficiary; provided, however, that the successor's appointment shall be confirmed by order of the Bankruptcy Court entered within sixty (60) days of the date of his, her or its appointment. The retiring Trustee shall duly assign, transfer and deliver to such successor all property and money held by such retiring Trustee hereunder and shall, as directed by the Bankruptcy Court or reasonably requested by such successor, execute and deliver an instrument or instruments conveying and transferring to such successor upon the trust herein expressed, all the liabilities, duties, powers, rights, title, discretion and privileges of such retiring Trustee. ARTICLE XI CONCERNING THE BENEFICIARY 11.01 No Suits by Beneficiary. No Beneficiary shall have any right by virtue of any provision of this Agreement to institute any action or proceeding at law or in equity against any party other than the Trustee upon or under or with respect to the Trust Assets. 11.02 Requirement of Undertaking. The Trustee may request the Bankruptcy Court to require, in any suit for the enforcement of any right or remedy under this Agreement, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, including reasonable attorneys' fees, against any party litigant in such suit; provided, however, that the provisions of this Section 11.02 shall not apply to any suit by the Trustee. ARTICLE XII JURISDICTION The parties agree that the Bankruptcy Court shall have jurisdiction over the Trust, the Trustee, the GHR/Kenesis Actions and the remaining Trust Assets, including, without limitation, jurisdiction to determine all controversies and disputes arising under or in connection with this Agreement. Nevertheless, the Trustee shall have power and authority to bring any action in any court of competent jurisdiction to prosecute the GHR/Kenesis Actions. 10 EXHIBIT I TO THE PLAN ARTICLE XIII MISCELLANEOUS PROVISIONS 13.01 Construction. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware and the United States of America; provided that the Trust and any interpretation or enforcement of the provisions of this Agreement shall be subject to the jurisdiction of the Bankruptcy Court as contemplated by Article XII hereof. The Trustee's interpretation of the provisions of this Agreement and the provisions of the Plan as they relate to the prosecution of the GHR/Kenesis Actions shall be deemed conclusive in the absence of a contrary interpretation of the Bankruptcy Court. 13.02 Severability. In the event any provision of this Agreement or the application thereof to any person or circumstances shall be determined by Final Order of a court of proper jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement or the application of such provision to persons or circumstances or in jurisdictions other than those as to or in which it is held invalid or unenforceable, shall not be affected thereby, and each provision of this Agreement shall be valid and enforced to the fullest extent permitted by law. 13.03 Cooperation. Reorganized Congoleum shall provide the Trustee, at no cost to the Trustee, the Trust or the Beneficiary, with such access to its books, records and employees as the Trustee may reasonably request for the purpose of performing its duties and exercising its duties hereunder, including, without limitation, to assist the Trustee in prosecuting the GHR/Kenesis Actions. 13.04 Notices. Any notice or other communication required or permitted to be made in accordance with this Agreement shall be in writing and shall be deemed to have been sufficiently given, for all purposes, if delivered personally or by telecopier or other telegraphic means or mailed by first class mail: (i) if to the Trustee, to: [ ]. (ii) if to the Beneficiary, to: Howard N. Feist III, Congoleum Corporation, 3500 Quakerbridge Road, P.O. Box 3127, Mercerville, New Jersey 08619; Fax: (609) 584-3685 with a copy to Pillsbury Winthrop Shaw Pittman LLP, 1540 Broadway, New York, New York 10036, Attn: Richard L. Epling, Esq.; Fax: (212) 858-1500. (iii) if to the Plan Trustees to: [ ]. (iv) if to the Futures Representative to: R. Scott Williams, Esq., Haskell Slaughter Young & Rediker, L.L.C., 2001 Park Place North, Suite 1400, Birmingham, AL 35203; Fax: (205) 324-1133 and Orrick, Herrington & Sutcliffe LLP, 3050 K Street, N.W., Washington, DC 20007, Attn: Richard Wyron, Esq.; Fax: (202) 339-8500. 11 EXHIBIT I TO THE PLAN 13.05 Headings. The headings contained in this Agreement are solely for convenience of reference and shall not affect the meaning or interpretation of this Agreement or of any term or provision hereof. 13.06 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. 12 Exhibit I to the Plan "GHR/Kenesis Litigation Trust IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be duly executed by their respective officers and the Trustee herein has executed this Agreement, as Trustee, effective as of the date first above written. The Trustee By: ________________________________ Name: Title: Congoleum Corporation By: ________________________________ Name: Title: Congoleum Sales, Inc. By: ________________________________ Name: Title: Congoleum Fiscal, Inc. By: ________________________________ Name: Title: The Futures Representative By: ________________________________ Name: Title: The Plan Trustees By: ________________________________ Name: Title: By: ________________________________ Name: Title: By: ________________________________ Name: Title: EXHIBIT J TO THE PLAN Exhibit J to the Plan "Convertible Note" THIS NOTE AND THE SHARES ISSUABLE ON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT, AND NEITHER THIS NOTE NOR ANY SHARES ISSUABLE ON CONVERSION THEREOF MAY BE TRANSFERRED, SOLD OR OFFERED FOR SALE, IN WHOLE OR IN PART, UNLESS (1) THERE IS AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITY UNDER THE ACT AND QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAW, (2) SUCH TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 UNDER THE ACT AND PURSUANT TO QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAW OR EXEMPTION THEREFROM, OR (3) THERE IS AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED AS TO SAID TRANSFER, SALE OR OFFER. SUBORDINATED CONVERTIBLE NOTE [Date] FOR VALUE RECEIVED, the undersigned, CONGOLEUM CORPORATION, a Delaware corporation (the "Borrower"), hereby unconditionally promises to pay to the order of the Congoleum Plan Trust created pursuant to the Plan referred to below (the "Plan Trust"), in lawful money of the United States and in immediately available funds as and when due in accordance with the terms set forth herein, the principal sum of Two Million Seven Hundred Thirty-Eight Thousand Two Hundred Thirty-Four Dollars and Seventy-Five Cents ($2,738,234.75) (the "Original Principal Amount"), as the Original Principal Amount may be increased on the Reset Date (as defined in the Plan referred to below) (the "Outstanding Principal Amount"). RECITALS A. On or about [_____________], the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court") entered an order confirming the Tenth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., and the Asbestos Claimants' Committee, dated as of September 15, 2006 (as it may thereafter be amended, restated or otherwise modified, the "Plan"), filed by the Debtors and the Asbestos Claimants' Committee (as such term is defined in the Plan). Capitalized terms used in this Note and not defined shall have the respective meanings ascribed to them in the Plan. B. Pursuant to the Plan, the Borrower is required to issue this Subordinated Convertible Note (the "Note") to the Plan Trust. EXHIBIT J TO THE PLAN C. This Note will be secured by the Borrower's right to Distributable Proceeds (as defined in the GHR/Kenesis Litigation Trust Agreement, "Distributable Proceeds") in accordance with the terms of the Pledge Agreement. D. Concurrently herewith this Note is being subordinated to (i) the Obligations (as such term is defined in the [Amended Credit Agreement]) under the [Amended Credit Agreement or other working capital exit facility], pursuant to that certain [Subordination Agreement] dated as of even date herewith executed by the Plan Trust in favor of [___________], as lender under the [Amended Credit Agreement or other working capital exit facility], and (ii) the Obligations (as such term is defined in the New Indenture) under the New Indenture, pursuant to that certain [Subordination Agreement] dated as of even date herewith executed by the Plan Trust in favor of [__________], as Trustee for the benefit of the holders of the New Senior Notes. In consideration of the foregoing, the parties hereto hereby agree as follows: AGREEMENT 1. Maturity Date; Prepayment; Redemption of Note. 1.1 Unless the Conversion contemplated by Section 7 shall have previously occurred, the Outstanding Principal Amount of this Note, and all unpaid interest thereon, are due in full on [_______________]1 (the "Maturity Date"). 1.2 Notwithstanding the foregoing, Distributable Proceeds disbursed from the GHR/Kenesis Litigation Trust shall be remitted by the GHR/Kenesis Litigation Trustee to the Plan Trust on behalf of the Borrower and, so long as all principal and interest under the Plan Trust Note shall have been paid in full, applied by the Plan Trust as a prepayment of the obligations under this Note as follows: (i) first, to the prepayment of any accrued and unpaid interest under this Note, until such interest is paid in full and (ii) second, to the prepayment of the Outstanding Principal Amount of this Note. Notwithstanding the foregoing, if the Plan Trust shall receive any Distributable Proceeds on account of this Note prior to the Reset Date, the Plan Trust shall hold such amounts in an interest bearing account and, upon the occurrence of the Reset Date, shall immediately apply such proceeds (and any interest thereon) to this Note as contemplated by the immediately preceding sentence. 1.3 At the option of the Borrower or the Plan Trust, on and after [___________]2 (the "Tenth Anniversary") and prior to any Conversion, this Note may be prepaid, in whole or in part (each, an "Optional Redemption"), without premium or penalty, upon at least two Business Days' written notice from the party exercising such Optional Redemption to the other party to this Note. - -------------------------- (1) Insert 15th anniversary of the Effective Date. (2) Insert 10th anniversary of the Effective Date. 2 EXHIBIT J TO THE PLAN 2. Potential Increase in Outstanding Principal Amount on Reset Date. 2.1 The Outstanding Principal Amount shall be subject to increase on the Reset Date in an amount, if any, by which the Re-Measurement Value, as defined below, exceeds the Original Principal Amount (such excess amount, the "Additional Principal Amount"). The "Re-Measurement Value" shall equal the product of (a) 36% multiplied by (b) the product of (i) the number of shares of common stock of the Borrower outstanding as of the close of business on the Reset Date multiplied by (ii) the average trading price per share of the Borrower's Class A Common Stock (or such other class of common stock of the Borrower that has been registered under the Act, or the Securities Exchange Act of 1934, as amended, and is listed for trading on a national securities exchange in the United States, if such Class A Common Stock is not so registered and listed) at the close of trading for the 90 consecutive Trading Days ending on the Reset Date; provided, however, that if none of the Borrower's common stock is listed for trading on a national securities exchange in the United States for the relevant measurement period, the Re-Measurement Value shall equal the product of 36% multiplied by the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), per share of Class A Common Stock (or such other class of common stock of the Borrower that is so reported, if the Class A Common Stock is not so reported) for each Trading Day over the 90 consecutive Trading Day period ending on the Reset Date (as adjusted for any stock dividends, splits or combinations, or transactions of similar effect), or if none of the Borrower's common stock is so reported for the relevant measurement period, the Re-Measurement Value shall equal the product of 36% multiplied by the equity valuation of the Borrower as of the Reset Date, as determined by the Board of Directors of the Borrower in good faith. 2.2 Within five Business Days after the First Indicated Date, the Plan Trust shall give written notice to the Borrower as to whether it has selected or rejected the First Indicated Date as the Reset Date, provided, however, if the Plan Trust fails to give such notice, the Plan Trust shall be deemed to have rejected the First Indicated Date as the Reset Date. If the Plan Trust has selected the First Indicated Date as the Reset Date then, on the Business Day immediately succeeding receipt of such notice, the Outstanding Principal Amount of this Note shall be automatically deemed to equal the sum of (i) the Original Principal Amount of Note on such Reset Date and (ii) the Additional Principal Amount. If the Plan Trust has rejected the First Indicated Date as the Reset Date, then the Second Indicated Date shall be the Reset Date and, on the Business Day immediately succeeding such Reset Date, the Outstanding Principal Amount of this Note shall be automatically deemed to equal the sum of (i) the Original Principal Amount of Note on such Reset Date and (ii) the Additional Principal Amount. 3 EXHIBIT J TO THE PLAN 2.3 If the Reset Date (whether occurring on the First Indicated Date or the Second Indicated Date) shall result in an increase in the Outstanding Principal Amount of this Note, then the Borrower shall, as soon as reasonably practicable after the Reset Date, execute an allonge to this Note modifying this Note to set forth a principal amount equal to such new amount., and deliver such allonge to the Plan Trust. 3. Interest. 3.1 The Borrower agrees to pay interest on the Outstanding Principal Amount semi-annually in arrears on [February 1 and August 1] (each an "Interest Payment Date") of each year, commencing with [February 1, 2007], at the rate of 9% per annum; provided that, if this Note shall be outstanding on the Tenth Anniversary, the interest rate applicable to this Note shall be reduced to 5% per annum effective on and after the Tenth Anniversary. Interest will be calculated on the basis of a 360-day year, consisting of twelve 30-day months. 3.2 In no event shall the interest rate payable under this Note exceed the highest rate permissible under any applicable law; provided, however, that, anything contained herein to the contrary notwithstanding, if said rate at any time exceeds the maximum allowable under applicable law, then the Borrower shall be liable only for the payment of such maximum as allowed by law, and payment received from the Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the Outstanding Principal Amount to the extent of such excess. 4. Payments Generally. Payments of principal, interest and any other amount due hereunder shall be made to the Plan Trust at its address referred to in Section 12, or to such other address as the Plan Trust may notify the Borrower in writing. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. 5. Conditions. Acceptance of this Note by the Plan Trust is subject to the receipt by the Plan Trust, in each case in form and substance reasonably acceptable to the Plan Trust, of the following: 5.1 this Note, the Pledge Agreement, the Wachovia Subordination Agreement and the Indenture Subordination Agreement, in each case duly executed by the parties thereto; 5.2 with respect to the Borrower, (i) its certificate of incorporation and bylaws and (ii) resolutions authorizing the Loan Documents to which the Borrower is party, in each case certified by an appropriate officer of the Borrower; 5.3 an incumbency certificate of the Borrower with respect to the officer(s) of the Borrower authorized to execute the Loan Documents to which the Borrower is party; and 4 EXHIBIT J TO THE PLAN 5.4 appropriate UCC lien searches as to the Borrower, none of which shall evidence Liens not permitted by this Note. 6. Covenants. So long as this Note shall be outstanding, the Borrower shall: 6.1 preserve and maintain its corporate existence and good standing in the state of its formation; 6.2 keep adequate records and books of account, in which full and correct entries shall be made in accordance with GAAP of all financial transactions of the Borrower; 6.3 comply with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property except (1) where failure to do so could not reasonably be expected to have a material and adverse effect on the Borrower's business or operations and (2) for taxes being contested in good faith by appropriate proceedings and for which adequate reserves have been established to the extent required by GAAP; 6.4 maintain, with financially sound and reputable insurance companies or associations, insurance on such of its property in at least such amounts and against such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and 6.5 not create, incur, assume or suffer to exist any Liens upon the Collateral, other than (i) the Lien on the Collateral granted to the Plan Trust under the Pledge Agreement, (ii) the Lien on the Collateral granted to the Plan Trust in support of the Plan Trust Note and (iii) Liens for taxes, assessments and governmental charges that are not yet delinquent or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which adequate reserves have been established or other provisions have been made in accordance with GAAP. 7. Conversion. 7.1 Upon the occurrence and at any time during the continuance of an Event of Default under Section 8.1(i) hereof, the Plan Trust shall have the right, but not the obligation, to convert (the "Conversion") the Outstanding Principal Amount, and all accrued and unpaid interest thereon, into the Designated Amount of Borrower's Class A Common Stock (the "Class A Common Stock"). Any exercise of such right by the Plan Trust shall be by delivery to the Borrower of a written notice of conversion in the form of Exhibit A attached hereto not less than five Business Days prior to the date (the "Conversion Date") upon which the Conversion is to occur. Notwithstanding any provision herein to the contrary, no Conversion shall take place until the Reset Date has occurred. 5 EXHIBIT J TO THE PLAN 7.2 On the Conversion Date, the Borrower shall deliver to the Plan Trust one or more share certificates evidencing, in the aggregate, the Designated Amount of Class A Common Stock. No fractional shares of Class A Common Stock shall be issued hereunder; instead, the number of shares issued upon Conversion shall be rounded up to the nearest whole share. 7.3 Delivery on the Conversion Date to the Plan Trust of the Designated Amount of Class A Common Stock shall be against delivery to the Borrower of this Note, marked "cancelled". No interest shall accrue on the Conversion Date, or on any date thereafter. On and after the Conversion Date, the Pledge Agreement shall be deemed terminated, and all Collateral released (it being understood that the "Pledge Agreement" referred to in the Plan Trust Note shall continue in effect, and the collateral pledged thereunder shall not be released or limited as a result of the Conversion). The Plan Trust shall execute such releases, UCC terminations, and similar documents, and take such actions, as the Borrower shall reasonably request to evidence and effect such termination and release. 7.4 Unless and until the Conversion shall occur, the Borrower will reserve from its authorized and unissued Class A Common Stock a sufficient number of shares to provide for the issuance of Class A Common Stock upon Conversion. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. The Borrower agrees that its issuance of this Note shall constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing and issuing stock certificates to execute and issue the Designated Amount of Class A Common Stock upon Conversion. 7.5 If the Borrower at any time shall, by reclassification or otherwise, change its Class A Common Stock into securities of a different class or classes, this Note shall thereafter be deemed to evidence the right to purchase the class of securities receivable by holders of Class A Common Stock as the result of such change, provided that, notwithstanding the foregoing, the Conversion shall always result in the issuance of stock of the Borrower giving the Plan Trust the voting and economic interest contemplated by the defined term Designated Amount contained in Section 11 hereof. 7.6 The Plan Trust acknowledges that it has been advised by the Borrower that neither this Note nor any stock which may be issued pursuant hereto have been registered under the Act, that this Note is being issued and the stock issuable upon Conversion may be issued on the basis of Section 1145 of the Bankruptcy Code. The Plan Trust acknowledges that it has been informed by the Borrower of, or is otherwise familiar with, the nature of the limitations imposed by the Act and the rules and regulations thereunder on the transfer of securities. 7.7 Unless registered pursuant to the provisions of the Act, the certificate(s) issued upon any Conversion shall bear the following legend, in addition to any other legends that may be applicable to such stock at such time: 6 EXHIBIT J TO THE PLAN "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT OR SUCH OTHER LAWS." 7.8 Any documentary, stamp or similar issue or transfer tax due as a result of the issuance of shares upon Conversion shall be payable by the Plan Trust. 8. Events of Default. If any of the following events (each an "Event of Default") shall occur and be continuing: 8.1 (i) the Borrower shall fail to make any payment of principal under this Note when due, or (ii) the Borrower shall fail to pay any interest hereunder within 30 days after the date due; or 8.2 any representation or warranty made to the Plan Trust by the Borrower herein or in the Pledge Agreement shall prove to have been incorrect or misleading in any material respect when made; or 8.3 the Borrower shall default in the observance or performance of any covenant contained in this Note or the Pledge Agreement and such default shall continue unremedied for a period of 60 days after written notice thereof from the Plan Trust to the Borrower; or 8.4 (x) the Borrower shall fail to pay at maturity or shall default in the obligation to pay the principal of, interest on, or any other payment obligation when due on one or more classes of its Indebtedness (other than this Note), having, individually or in the aggregate, an outstanding principal amount in excess of $7,500,000 which permits the acceleration of the maturity of such Indebtedness or (y) in the case of a default other than a payment default referred to in clause (x), when one or more classes of its Indebtedness (other than this Note), having, individually or in the aggregate, an outstanding principal amount in excess of $7,500,000 is payable prior to its stated maturity by or on behalf of the holders thereof; or 8.5 a court having jurisdiction shall enter a decree or order for relief in respect of the Borrower in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Borrower or for any substantial part of the property of the Borrower or ordering the winding up or liquidation of the affairs of the Borrower and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or 7 EXHIBIT J TO THE PLAN 8.6 the Borrower shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Borrower or for any substantial part of the property of the Borrower, or the Borrower shall make any general assignment for the benefit of creditors; or 8.7 the entry by a court of competent jurisdiction of one or more judgments or orders against the Borrower or any of its respective property or assets in an aggregate amount in excess of $5,000,000 that are not covered by insurance written by third parties, which judgments or orders have not been vacated, discharged, satisfied or stayed pending appeal within 60 days from the entry thereof; or 8.8 the Lien created under the Pledge Agreement shall for any reason (other than pursuant to the terms thereof or due to an act or omission by the Plan Trust), cease to be a valid and perfected first priority (except as permitted by Section 6.6) Lien in any material portion of the Collateral, and such default shall continue unremedied for a period of 15 days after written notice thereof from the Plan Trust to the Borrower; then, the Plan Trust may, by notice to the Borrower, declare the Outstanding Principal Amount, and all interest thereon, to be forthwith due and payable, whereupon the Outstanding Principal Amount and all such interest shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided that, with respect to the occurrence of an Event of Default described in clauses 8.5 or 8.6 above, the Outstanding Principal Amount and all interest thereon shall automatically become due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower. 9. Representations. 9.1 The Borrower represents and warrants to the Plan Trust as follows: 9.1.1 The Borrower is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. The Borrower is in compliance with all laws, rules and regulations applicable to it, except where the failure to be in compliance could not reasonably be expected to have a material and adverse effect on the Borrower's business or operations. 9.1.2 The execution, delivery and performance by the Borrower of the Loan Documents to which it is party are within its powers, have been duly authorized by all necessary corporate action and do not contravene any applicable law, rule, regulation or order binding on or affecting the Borrower. 8 EXHIBIT J TO THE PLAN 9.1.3 Except for the Confirmation Order, no authorization, approval or other action by, or notice to or filing with, any governmental authority is required for the due execution, delivery and performance by the Borrower of the Loan Documents to which it is party; 9.1.4 Each Loan Document to which the Borrower is party is the legal, valid and binding obligation of the Borrower, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 9.1.5 The Borrower is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 9.2 The Plan Trust represents and warrants to the Borrower as follows: 9.2.1 The Plan Trust will be acquiring this Note for its own account and not with a view to distribution of this Note or any stock issued upon Conversion. The Plan Trust understands that this Note has not been registered under the Act or under any state securities laws and may not be sold or transferred unless it is subsequently registered under the Act and any applicable state or other securities laws, or unless exemptions from registration under such laws are available and complied with. 10. Amendments. No amendment or waiver of any provision of this Note, or consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Plan Trust and the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 11. Definitions. Capitalized terms not otherwise defined herein or in the Plan shall have the following respective meanings: "Bankruptcy Code": Title 11 of the United States Code, 11 U.S.C.ss.ss.101, et seq., as amended. "Borrower": as defined in the preamble hereto. "Capitalized Lease Obligation": an obligation under a lease that is required to be classified and accounted for as a capital lease obligation under GAAP and, for purposes of this Note, the amount of such obligation at any date shall be the capitalized amount of such obligation at such date, determined in accordance with such principles. 9 EXHIBIT J TO THE PLAN "Capital Stock": any and all shares, interests, participation or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), any and all warrants, options or rights to purchase or any other securities convertible into any of the foregoing. "Class A Common Stock": as defined in Section 7.1. "Collateral": all of the property subject to the Lien created by the Pledge Agreement. "Default": any of the events specified in Section 8, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Designated Amount": with respect to a Conversion, the number of shares of Class A Common Stock of the Borrower that, when combined with the New Class A Common, result in the Plan Trust being the beneficial owner of (i) 51% of the Borrower's voting Capital Stock and (ii) 51% of the economic interest in the Borrower's Capital Stock, in each case on a fully-diluted basis. "Event of Default": as defined in Section 8. "GAAP": generally accepted accounting principles in the United States in effect from time to time. "Indebtedness": with respect to any Person, at any date, any of the following, without duplication, (i) any liability, contingent or otherwise, of such Person (A) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (B) evidenced by a note, bond, debenture or similar instrument or letters of credit (including a purchase money obligation) or (C) for the payment of money relating to a Capitalized Lease Obligation or other obligation (whether issued or assumed) relating to the deferred purchase price of property; (ii) all conditional sale obligations and all obligations under any title retention agreement (even if the rights and remedies of the seller under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business that are not overdue by 120 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted; (iii) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction entered into in the ordinary course of business; (iv) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on any asset or property (including, without limitation, leasehold interests and any other tangible or intangible property) of such Person, whether or not such Indebtedness is assumed by such Person or is not otherwise such Person's legal liability, provided that if the obligations so secured have not been assumed in full by such Person or are otherwise not such Person's legal liability in full, the amount of such indebtedness for the purposes of this definition shall be limited to the lesser of the amount of the Indebtedness secured by such Lien or the fair market value of the assets or property securing such Lien; and (v) all Indebtedness of others guaranteed, directly or indirectly, by such Person or that is otherwise its legal liability 10 EXHIBIT J TO THE PLAN or which such Person has agreed to purchase or repurchase or in respect of which such Person has agreed contingently to supply or advance funds. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date, provided that the amount outstanding at any time of any Indebtedness issued with original issue discount is the full amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP. "Indenture Subordination Agreement": that certain [Subordination Agreement] dated as of even date herewith executed by the Plan Trust in favor of [__________], as Trustee for the benefit of the holders of the New Senior Notes, as it may be amended or otherwise modified from time to time in accordance with the terms thereof. "Interest Payment Date": as defined in Section 3.1. "Lien": with respect to any Person, any mortgage, pledge, lien, encumbrance, easement, restriction, covenant, right-of-way, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property of such Person, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option, right of first refusal or other similar agreement to sell, in each case securing obligations of such Person and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute or statutes) of any jurisdiction other than to reflect ownership by a third party of property leased to such Person under a lease that is not in the nature of a conditional sale or title retention agreement). "Loan Documents": this Note, the Pledge Agreement, the Wachovia Subordination Agreement, the Indenture Subordination Agreement, and any other agreement made by the Borrower in connection herewith. "Pledge Agreement": that certain Pledge Agreement executed by the Borrower in favor of the Plan Trust, as it may be amended or otherwise modified from time to time in accordance with the terms thereof. "Wachovia Subordination Agreement": that certain [Subordination Agreement] dated as of even date herewith executed by the Plan Trust in favor of Wachovia, as lender under the Amended Credit Agreement, as it may be amended or otherwise modified from time to time in accordance with the terms thereof. 12. Notices. Any notice or demand which by any provision of this Note is required or permitted to be given or served to or on the Borrower shall be given or served by (i) delivery in person, (ii) telecopy (confirmed by copy sent by first-class mail) or (iii) certified or registered mail, return receipt requested, in each case addressed to Congoleum Corporation, 3500 Quakerbridge Road, Mercerville, New Jersey 08619, Attention: Chief Financial Officer (Telecopy No.: (609) 584-3555), or to such other address as the Borrower may notice to the Plan Trust in writing in accordance with 11 EXHIBIT J TO THE PLAN the provisions hereof. Any notice, direction, request or demand by the Borrower to or upon the Plan Trust shall be deemed to have been sufficiently given or made, for all purposes, if given or served by one of the methods described in the first sentence of this Section, addressed to [insert contact information for Plan Trust], or to such other address as the Plan Trust may notice to the Borrower in writing in accordance with the provisions hereof. 13. No Waiver; Remedies. No failure on the part of the Plan Trust to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein are cumulative and not exclusive of any remedies provided by law. 14. Binding Effect; Assignment. This Note shall be binding upon and inure to the benefit of the Plan Trust and its successors and assigns, provided that the Plan Trust may not assign, transfer or encumber this Note without the prior written consent of the Borrower. 15. Governing Law. THIS NOTE SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF DELAWARE, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN CHOICE OF LAW RULES) OF SAID STATE. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW JERSEY STATE COURT SITTING IN NEW JERSEY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH UNITED STATES FEDERAL OR NEW JERSEY STATE COURT. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDINGS IN SUCH RESPECTIVE JURISDICTIONS. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY COURT IN OR OF THE STATE OF NEW JERSEY BY THE DELIVERY OF COPIES OF SUCH PROCESS TO THE BORROWER, AT ITS ADDRESS SPECIFIED IN SECTION 12 HEREOF OR BY CERTIFIED MAIL DIRECT TO SUCH ADDRESS. 12 16. Integration. This Note sets forth the entire agreement between the Borrower and the Plan Trust relating to the subject matter hereof. IN WITNESS WHEREOF, the Borrower and the Plan Trust have caused this Note to be executed by their respective duly authorized representatives, as of the date first above written. CONGOLEUM CORPORATION, a Delaware corporation By: ____________________________________ Name: __________________________________ Title: _________________________________ CONGOLEUM PLAN TRUST By: ____________________________________, as Trustee By: ____________________________________, as Trustee By: ____________________________________, as Trustee 13 EXHIBIT A NOTICE OF CONVERSION Congoleum Corporation 3500 Quakerbridge Road Mercerville, New Jersey 08619 Attention: Chief Financial Officer (Telecopy No.: (609) 584-3555) The Plan Trust hereby exercises it right to convert the outstanding principal and interest under the Subordinated Convertible Note of Congoleum Corporation (the "Note"). The Conversion Date shall be [______________]. Attached hereto is the original Note, which has been marked "cancelled" by the Plan Trust. Dated: _____________, ____ CONGOLEUM PLAN TRUST By: __________________________________, as Trustee By: __________________________________, as Trustee By: __________________________________, as Trustee 14 EXHIBIT K TO THE PLAN Exhibit K to the Plan "Plan Trust Promissory Note" SUBORDINATED PLAN TRUST PROMISSORY NOTE $[__________] [Date] FOR VALUE RECEIVED, the undersigned, CONGOLEUM CORPORATION, a Delaware corporation (the "Borrower"), hereby unconditionally promises to pay to the order of the Congoleum Plan Trust created pursuant to the Plan referred to below (the "Plan Trust"), in lawful money of the United States and in immediately available funds as and when due in accordance with the terms set forth herein, the principal sum of [______________________] ($[___________]) (the "Loan"). RECITALS A. On or about [_____________], the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court") entered an order confirming the Tenth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., and the Asbestos Claimants' Committee, dated as of September 15, 2006 (as it may thereafter be amended, restated or otherwise modified, the "Plan"), filed by the Debtors and the Asbestos Claimants' Committee (as such term is defined in the Plan). Capitalized terms used in this Note and not defined shall have the respective meanings ascribed to them in the Plan. B. Pursuant to the Plan, the Plan Trust is required to make the Loan to the Borrower, and the Borrower is required to issue this Note to the Plan Trust. C. This Note will be secured by the Borrower's right to Distributable Proceeds (as defined in the GHR/Kenesis Litigation Trust Agreement, "Distributable Proceeds") in accordance with the terms of the Pledge Agreement. D. Concurrently herewith this Note is being subordinated to (i) the Obligations (as such term is defined in the [Amended Credit Agreement]) under the [Amended Credit Agreement or other working capital exit facility], pursuant to that certain [Subordination Agreement] dated as of even date herewith executed by the Plan Trust in favor of [_________], as lender under the [Amended Credit Agreement or other working capital exit facility], and (ii) the Obligations (as such term is defined in the New Indenture) under the New Indenture, pursuant to that certain [Subordination Agreement] dated as of even date herewith executed by the Plan Trust in favor of [__________], as Trustee for the benefit of the holders of the New Senior Notes. In consideration of the foregoing, the parties hereto hereby agree as follows: AGREEMENT 1. Repayment of Loan. EXHIBIT K TO THE PLAN (a) The principal amount of the Loan and all unpaid interest thereon are due in full on December 31, 2011 (the "Maturity Date"). Notwithstanding the foregoing, Distributable Proceeds disbursed from the GHR/Kenesis Litigation Trust shall remitted by the GHR/Kenesis Litigation Trustee to the Plan Trust on behalf of the Borrower and applied by the Plan Trust as a prepayment of the obligations under this Note as follows: (i) first, to the prepayment of any accrued and unpaid interest on the Loan, until such interest is paid in full and (ii) second, to the prepayment of the outstanding principal balance of the Loan. (b) The Borrower may, at any time and from time to time, prepay the Loan, in whole or in part, without premium or penalty, upon at least two Business Days' written notice to the Plan Trust. 2. Interest (a) The Borrower agrees to pay interest on the Loan semi-annually in arrears on [February 1 and August 1] (each an "Interest Payment Date") of each year, commencing with [February 1, 2007], at the rate of 10% per annum. Interest will be calculated on the basis of a 360-day year, consisting of twelve 30-day months. (b) In no event shall the interest rate payable under this Note exceed the highest rate permissible under any applicable law; provided, however, that, anything contained herein to the contrary notwithstanding, if said rate at any time exceeds the maximum allowable under applicable law, then the Borrower shall be liable only for the payment of such maximum as allowed by law, and payment received from the Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Loan to the extent of such excess. 3. Payments Generally. Payments of principal, interest and any other amount due hereunder shall be made to the Plan Trust at its address referred to in Section 10, or to such other address as the Plan Trust may notify the Borrower in writing. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. 4. Representations and Warranties. The Borrower represents and warrants to the Plan Trust as follows: (a) The Borrower is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. The Borrower is in compliance with all laws, rules and regulations applicable to it, except where the failure to be in compliance could not reasonably be expected to have a material and adverse effect on the Borrower's business or operations. (b) The execution, delivery and performance by the Borrower of the Loan Documents to which it is party are within its powers, have been duly authorized by all necessary corporate action and do not contravene any applicable law, rule, regulation or order binding on or affecting the Borrower. 2 EXHIBIT K TO THE PLAN (c) Except for the Confirmation Order, no authorization, approval or other action by, or notice to or filing with, any governmental authority is required for the due execution, delivery and performance by the Borrower of the Loan Documents to which it is party; (d) Each Loan Document to which the Borrower is party is the legal, valid and binding obligation of the Borrower, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. (e) The Borrower is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5. Conditions to Loan. The agreement of the Plan Trust to make the Loan is subject to the receipt by the Plan Trust, in each case in form and substance reasonably acceptable to the Plan Trust, of the following: (a) this Note, the Pledge Agreement, the Wachovia Subordination Agreement and the Indenture Subordination Agreement, in each case duly executed by the parties thereto; (b) with respect to the Borrower, (i) its certificate of incorporation and bylaws and (ii) resolutions authorizing the Loan Documents to which the Borrower is party, in each case certified by an appropriate officer of the Borrower; (c) an incumbency certificate of the Borrower with respect to the officer(s) of the Borrower authorized to execute the Loan Documents to which the Borrower is party; and (d) appropriate UCC lien searches as to the Borrower, none of which shall evidence Liens not permitted by this Note. 6. Covenants. So long as the Loan shall be outstanding, the Borrower shall: (a) preserve and maintain its corporate existence and good standing in the state of its formation; (b) keep adequate records and books of account, in which full and correct entries shall be made in accordance with GAAP of all financial transactions of the Borrower; (c) comply with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property except (1) where failure to do so could not reasonably be expected to have a material and adverse effect on the Borrower's business or operations and (2) for taxes being contested in good faith by appropriate proceedings and for which adequate reserves have been established to the extent required by GAAP; (d) maintain, with financially sound and reputable insurance companies or associations, insurance on such of its property in at least such amounts and against such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and 3 EXHIBIT K TO THE PLAN (e) not create, incur, assume or suffer to exist any Liens upon the Collateral, other than (i) the Lien on the Collateral granted to the Plan Trust under the Pledge Agreement, (ii) the Lien on the Collateral granted to the Plan Trust in support of the New Convertible Security and (iii) Liens for taxes, assessments and governmental charges that are not yet delinquent or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which adequate reserves have been established or other provisions have been made in accordance with GAAP. 7. Events of Default. If any of the following events (each an "Event of Default") shall occur and be continuing: (a) the Borrower shall fail to make any payment of principal of the Loan when due, or shall fail to pay any interest on the Loan within 30 days after the applicable Interest Payment Date; or (b) any representation or warranty made to the Plan Trust by the Borrower herein or in the Pledge Agreement shall prove to have been incorrect or misleading in any material respect when made; or (c) the Borrower shall default in the observance or performance of any covenant contained in this Note or the Pledge Agreement and such default shall continue unremedied for a period of 60 days after written notice thereof from the Plan Trust to the Borrower; or (d) (x) the Borrower shall fail to pay at maturity or shall default in the obligation to pay the principal of, interest on, or any other payment obligation when due on one or more classes of its Indebtedness (other than the Loan), having, individually or in the aggregate, an outstanding principal amount in excess of $7,5000,000 which permits the acceleration of the maturity of such Indebtedness or (y) in the case of a default other than a payment default referred to in clause (x), when one or more classes of its Indebtedness (other than the Loan), having, individually or in the aggregate, an outstanding principal amount in excess of $7,500,000 is payable prior to its stated maturity by or on behalf of the holders thereof; or (e) a court having jurisdiction shall enter a decree or order for relief in respect of the Borrower in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Borrower or for any substantial part of the property of the Borrower or ordering the winding up or liquidation of the affairs of the Borrower and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (f) the Borrower shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Borrower or for any substantial part of the property of the Borrower, or the Borrower shall make any general assignment for the benefit of creditors; or 4 EXHIBIT K TO THE PLAN (g) the entry by a court of competent jurisdiction of one or more judgments or orders against the Borrower or any of its respective property or assets in an aggregate amount in excess of $5,000,000 that are not covered by insurance written by third parties, which judgments or orders have not been vacated, discharged, satisfied or stayed pending appeal within 60 days from the entry thereof; or (h) the Lien created under the Pledge Agreement shall for any reason (other than pursuant to the terms thereof or due to an act or omission by the Plan Trust), cease to be a valid and perfected first priority (except as permitted by Section 6(f)) Lien in any material portion of the Collateral, and such default shall continue unremedied for a period of 15 days after written notice thereof from the Plan Trust to the Borrower; then, the Plan Trust may, by notice to the Borrower, declare the Loan and this Note, and all interest thereon, to be forthwith due and payable, whereupon the Loan and this Note and all such interest shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided that, with respect to the occurrence of an Event of Default described in clauses (e) or (f) above, the Loan, this Note and all interest thereon shall automatically become due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower. 8. Amendments. No amendment or waiver of any provision of this Note, or consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Plan Trust and the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 9. Definitions. Capitalized terms not otherwise defined herein or in the Plan shall have the following respective meanings: "Borrower": as defined in the preamble hereto. "Capitalized Lease Obligation": an obligation under a lease that is required to be classified and accounted for as a capital lease obligation under GAAP and, for purposes of this Note, the amount of such obligation at any date shall be the capitalized amount of such obligation at such date, determined in accordance with such principles. "Collateral": all of the property subject to the Lien created by the Pledge Agreement. "Default": any of the events specified in Section 7, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Event of Default": as defined in Section 7. "GAAP": generally accepted accounting principles in the United States in effect from time to time. 5 EXHIBIT K TO THE PLAN "Indebtedness": with respect to any Person, at any date, any of the following, without duplication, (i) any liability, contingent or otherwise, of such Person (A) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (B) evidenced by a note, bond, debenture or similar instrument or letters of credit (including a purchase money obligation) or (C) for the payment of money relating to a Capitalized Lease Obligation or other obligation (whether issued or assumed) relating to the deferred purchase price of property; (ii) all conditional sale obligations and all obligations under any title retention agreement (even if the rights and remedies of the seller under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business that are not overdue by 120 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted; (iii) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction entered into in the ordinary course of business; (iv) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on any asset or property (including, without limitation, leasehold interests and any other tangible or intangible property) of such Person, whether or not such Indebtedness is assumed by such Person or is not otherwise such Person's legal liability, provided that if the obligations so secured have not been assumed in full by such Person or are otherwise not such Person's legal liability in full, the amount of such indebtedness for the purposes of this definition shall be limited to the lesser of the amount of the Indebtedness secured by such Lien or the fair market value of the assets or property securing such Lien; and (v) all Indebtedness of others guaranteed, directly or indirectly, by such Person or that is otherwise its legal liability or which such Person has agreed to purchase or repurchase or in respect of which such Person has agreed contingently to supply or advance funds. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date, provided that the amount outstanding at any time of any Indebtedness issued with original issue discount is the full amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP. "Indenture Subordination Agreement": that certain [Subordination Agreement] dated as of even date herewith executed by the Plan Trust in favor of [__________], as Trustee for the benefit of the holders of the New Senior Notes, as it may be amended or otherwise modified from time to time in accordance with the terms thereof. "Interest Payment Date": as defined in Section 2. "Lien": with respect to any Person, any mortgage, pledge, lien, encumbrance, easement, restriction, covenant, right-of-way, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property of such Person, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option, right of first refusal or other similar agreement to sell, in each case securing obligations of such Person and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute or statutes) of any jurisdiction other than to reflect ownership by a third party of property leased to such Person under a lease that is not in the nature of a conditional sale or title retention agreement). 6 EXHIBIT K TO THE PLAN "Loan Documents": this Note, the Pledge Agreement, the Wachovia Subordination Agreement, the Indenture Subordination Agreement, and any other agreement made by the Borrower in connection herewith. "Loan": as defined in the preamble to this Note. "Pledge Agreement": that certain Pledge Agreement executed by the Borrower in favor of the Plan Trust, as it may be amended or otherwise modified from time to time in accordance with the terms thereof. "Wachovia Subordination Agreement": that certain [Subordination Agreement] dated as of even date herewith executed by the Plan Trust in favor of Wachovia, as lender under the Amended Credit Agreement, as it may be amended or otherwise modified from time to time in accordance with the terms thereof. 10. Notices. Any notice or demand which by any provision of this Note is required or permitted to be given or served to or on the Borrower shall be given or served by (i) delivery in person, (ii) telecopy (confirmed by copy sent by first-class mail) or (iii) certified or registered mail, return receipt requested, in each case addressed to Congoleum Corporation, 3500 Quakerbridge Road, Mercerville, New Jersey 08619, Attention: Chief Financial Officer (Telecopy No.: (609) 584-3555), or to such other address as the Borrower may notice to the Plan Trust in writing in accordance with the provisions hereof. Any notice, direction, request or demand by the Borrower to or upon the Plan Trust shall be deemed to have been sufficiently given or made, for all purposes, if given or served by one of the methods described in the first sentence of this Section, addressed to [insert contact information for Plan Trust], or to such other address as the Plan Trust may notice to the Borrower in writing in accordance with the provisions hereof. 11. No Waiver; Remedies. No failure on the part of the Plan Trust to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein are cumulative and not exclusive of any remedies provided by law. 12. Binding Effect; Assignment. This Note shall be binding upon and inure to the benefit of the Plan Trust and its successors and assigns, provided that the Plan Trust may not assign, transfer or encumber this Note without the prior written consent of the Borrower. 13. Governing Law. THIS NOTE SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF DELAWARE, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN CHOICE OF LAW RULES) OF SAID STATE. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW JERSEY STATE COURT SITTING IN NEW JERSEY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE AND THE BORROWER HEREBY 7 EXHIBIT K TO THE PLAN IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH UNITED STATES FEDERAL OR NEW JERSEY STATE COURT. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDINGS IN SUCH RESPECTIVE JURISDICTIONS. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY COURT IN OR OF THE STATE OF NEW JERSEY BY THE DELIVERY OF COPIES OF SUCH PROCESS TO THE BORROWER, AT ITS ADDRESS SPECIFIED IN SECTION 10 HEREOF OR BY CERTIFIED MAIL DIRECT TO SUCH ADDRESS. 8 EXHIBIT K TO THE PLAN 14. Integration. This Note sets forth the entire agreement between the Borrower and the Plan Trust relating to the subject matter hereof. IN WITNESS WHEREOF, the Borrower and the Plan Trust have caused this Note to be executed by their respective duly authorized representatives, as of the date first above written. CONGOLEUM CORPORATION, a Delaware corporation By: ____________________________________ Name: __________________________________ Title: _________________________________ CONGOLEUM PLAN TRUST By: ____________________________________, as Trustee By: ____________________________________, as Trustee By: ____________________________________, as Trustee 9 EXHIBIT L TO THE PLAN Exhibit L to the Plan "Pledge Agreement" PLEDGE AGREEMENT This Pledge Agreement (this "Agreement"), dated as of [_____________], is made by CONGOLEUM CORPORATION, a Delaware corporation (the "Pledgor"), in favor of the CONGOLEUM PLAN TRUST created pursuant to the Plan referred to below (the "Plan Trust"). Recitals A. On or about [_____________], the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court") entered an order confirming the Tenth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., and the Asbestos Claimants' Committee, dated as of September 15, 2006 (as it may thereafter be amended, restated or otherwise modified, the "Plan"), filed by the Debtors and the Asbestos Claimants' Committee (as such term is defined in the Plan). Capitalized terms used in this Agreement and not defined shall have the respective meanings ascribed to them in the Plan. B. Pursuant to the Plan, (i) the GHR/Kenesis Actions and (ii) proceeds realized from the prosecution of the GHR/Kenesis Actions have been, on the date hereof, assigned to the GHR/Kenesis Litigation Trust (the "Trust"), on behalf of and for the benefit of the Pledgor. C. Also pursuant to the Plan, the Pledgor is concurrently herewith issuing in favor of the Plan Trust (i) the Plan Trust Note and (ii) the New Convertible Security. The Plan requires the Pledgor to secure its obligations under the Plan Trust Note and the New Convertible Security by granting to the Plan Trust a security interest in, and lien on, the Collateral (as defined below). In consideration of the foregoing, the parties hereto hereby agree as follows: AGREEMENT 1. Definitions. Unless the context otherwise requires, terms defined in the Uniform Commercial Code of the State of Delaware (the "Uniform Commercial Code") and not otherwise defined in this Agreement or in the Plan shall have the meanings defined for those terms in the Uniform Commercial Code. 2. Grant of Security. The Pledgor hereby assigns and pledges to the Plan Trust, and hereby grants to the Plan Trust a security interest in, all of the Pledgor's right, title and interest in and to all Distributable Proceeds (as defined in the GHR/Kenesis Litigation Trust Agreement), whether now owned or hereafter acquired, whether now or hereafter existing and wherever located (the "Collateral"). 3. Security for Obligations. This Agreement and the pledges made and security interests granted herein secure the prompt payment and full performance of all obligations of the Pledgor now or hereafter existing under the Plan Trust Note and the New Convertible Security, whether for principal, interest or EXHIBIT L TO THE PLAN otherwise, including, without limitation, all obligations of the Pledgor now or hereafter existing under this Agreement, and all interest that accrues at the then applicable rate specified in the Plan Trust Note or the New Convertible Security, as applicable, on all or any part of any of such obligations after the filing of any petition or pleading against the Pledgor for a proceeding under any bankruptcy or related law (collectively, the "Secured Obligations"). 4. Representations and Warranties. The Pledgor represents and warrants as set forth below. (a) Agreement Authorized; No Consents. The execution, delivery and performance by the Pledgor of this Agreement are within its powers, have been duly authorized by all necessary corporate action and do not contravene any applicable law, rule, regulation or order binding on or affecting the Pledgor. Except for the Confirmation Order and the filing of an appropriate UCC-1 Financing Statement (the "UCC-1 Financing Statement") covering the Collateral with the office of the Secretary of State of the State of Delaware, no authorization, approval or other action by, or notice to or filing with, any governmental authority is required for the due execution, delivery and performance by the Pledgor of this Agreement. (b) Legal Name of Pledgor, Etc. As of the Effective Date, Pledgor's exact legal name and state of incorporation are as set forth in the Pledgor's signature block to this Agreement. (c) Ownership of Collateral. As of the Effective Date, the Pledgor is the legal and beneficial owner of the Collateral. (d) Agreement Binding and Enforceable. This Agreement is the legal, valid and binding obligation of the Pledgor, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. (e) Valid and Perfected Security Interest. This Agreement and the filing of the UCC-1 Financing Statement with the Secretary of State of the State of Delaware creates a valid and perfected security interest in the Collateral, securing the payment of the Secured Obligations. 5. Further Assurances. (a) The Pledgor agrees that from time to time it will execute and deliver all further instruments and documents, and take all further action, that may be necessary, or that the Plan Trust may reasonably request, in order to perfect and protect the security interest granted or purported to be granted hereby or to enable the Plan Trust to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral. (b) The Pledgor hereby authorizes the Plan Trust to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Pledgor where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. 2 EXHIBIT L TO THE PLAN 6. Legal Name. The Pledgor will not change its legal name or state of incorporation except upon not less than 10 days' prior notice to the Plan Trust and prior compliance with all applicable requirements of Section 5 hereof necessary to perfect the Plan Trust's security interest hereunder. 7. Transfers and Other Liens. The Pledgor will not (i) sell, assign or otherwise dispose of any of the Collateral or (ii) create or permit to exist any Lien on the Collateral except for the security interest created by this Agreement. 8. Remedies. If (i) any Event of Default under, and as defined in, the Plan Trust Note, or (ii) any Event of Default under, and as defined in, the New Convertible Security, occurs and is continuing, the provisions set forth below shall apply. (a) The Plan Trust may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party on default under the Uniform Commercial Code (whether or not the Uniform Commercial Code applies to the affected Collateral). (b) The proceeds resulting from the collection, liquidation, sale or other disposition of the Collateral shall be applied first, to the satisfaction of the Secured Obligations in the order set forth in the Plan Trust Note and the New Convertible Security and second, any surplus remaining after the satisfaction of the Secured Obligations to be paid over to the Pledgor. (c) The Plan Trust may exercise any and all rights and remedies of the Pledgor with respect to the Collateral, including any and all rights of the Pledgor to demand or otherwise require payment by the GHR/Kenesis Litigation Trustee of the Distributable Proceeds (as defined in the GHR/Kenesis Litigation Trust Agreement) in accordance with the terms of the GHR/Kenesis Litigation Trust Agreement. 9. Amendments, Etc. No amendment or waiver of any provision of this Pledge Agreement, or consent to any departure by the Pledgor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Plan Trust and the Pledgor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 10. No Waiver; Remedies. No failure on the part of the Plan Trust to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, and no single or partial exercise of any right hereunder shall preclude any other or further exercise thereof or the exercise of any other right. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 11. Binding Effect; Assignment. This Agreement shall inure to the benefit of the Plan Trust and its successors and assigns, provided that the Plan Trust may not assign, transfer or encumber this Agreement without the prior written consent of the Pledgor. The Pledgor may not assign, transfer or encumber this Agreement or its rights or obligations hereunder without the prior written consent of the Plan Trust. 3 EXHIBIT L TO THE PLAN 12. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF DELAWARE, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN CHOICE OF LAW RULES) OF SAID STATE. THE PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW JERSEY STATE COURT SITTING IN NEW JERSEY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE PLEDGOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH UNITED STATES FEDERAL OR NEW JERSEY STATE COURT. THE PLEDGOR IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDINGS IN SUCH RESPECTIVE JURISDICTIONS. THE PLEDGOR IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY COURT IN OR OF THE STATE OF NEW JERSEY BY THE DELIVERY OF COPIES OF SUCH PROCESS TO THE PLEDGOR, AT ITS ADDRESS SPECIFIED IN SECTION 13 HEREOF OR BY CERTIFIED MAIL DIRECT TO SUCH ADDRESS. 13. Notices. Any notice which by any provision of this Agreement is required or permitted to be given or served to or on the Pledgor shall be given or served by (i) delivery in person, (ii) telecopy (confirmed by copy sent by first-class mail) or (iii) certified or registered mail, return receipt requested, in each case addressed to Congoleum Corporation, 3500 Quakerbridge Road, Mercerville, New Jersey 08619, Attention: Chief Financial Officer (Telecopy No.: (609) 584-3555), or to such other address as the Pledgor may notice to the Plan Trust in writing in accordance with the provisions hereof. Any notice, direction, request or demand by the Pledgor to or upon the Plan Trust shall be deemed to have been sufficiently given or made, for all purposes, if given or served by one of the methods described in the first sentence of this Section, addressed to [insert contact information for Plan Trust], or to such other address as the Plan Trust may notice to the Pledgor in writing in accordance with the provisions hereof. 14. Release of Pledgor. This Agreement and all obligations of the Pledgor hereunder and all security interests granted hereby shall be released and terminated when all Secured Obligations have been paid in full in cash. Upon such release and termination, all rights in and to the Collateral shall automatically revert to the Pledgor, and the Plan Trust shall return any Collateral in its possession to the Pledgor, and shall endorse, execute, deliver, record and file all instruments and documents, and do all other acts and things, reasonably required for the return of the Collateral to the Pledgor and to evidence or document the release of the security interests arising under this Agreement, all as requested by the Pledgor. 4 EXHIBIT L TO THE PLAN IN WITNESS WHEREOF, the Pledgor has executed this Agreement by its duly authorized representative as of the date first written above. PLEDGOR CONGOLEUM CORPORATION, a Delaware corporation By: ____________________________________ Name: __________________________________ Title: _________________________________ Accepted and Agreed to as of this ___ day of __________, 200_ on behalf of the GHR/Kenesis Litigation Trust: __________________________________ as Trustee Accepted and Agreed to as of this ___ day of __________, 200_ on behalf of the Congoleum Plan Trust: __________________________________ as Trustee __________________________________ as Trustee __________________________________ as Trustee EX-99.2 3 ex99-2.txt Exhibit 99.2 - -------------------------------------------------------------------------------- ANY TERM USED IN CAPITALIZED FORM THAT IS NOT DEFINED HEREIN BUT THAT IS DEFINED IN THE TENTH MODIFIED JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE OF CONGOLEUM CORPORATION ("CONGOLEUM"), CONGOLEUM SALES, INC. ("CSI") AND CONGOLEUM FISCAL, INC. ("CFI," AND TOGETHER WITH CONGOLEUM AND CSI, THE "COMPANY") AND THE ASBESTOS CLAIMANTS' COMMITTEE (COLLECTIVELY, THE "PLAN PROPONENTS") DATED AS OF SEPTEMBER 15, 2006, ATTACHED HERETO AS EXHIBIT A, SHALL HAVE THE MEANING ASCRIBED TO SUCH TERM THEREIN AND SUCH DEFINITIONS ARE INCORPORATED HEREIN BY REFERENCE. - -------------------------------------------------------------------------------- PILLSBURY WINTHROP SHAW PITTMAN LLP 1540 Broadway New York, NY 10036-4039 Richard L. Epling Robin L. Spear Kerry A. Brennan And OKIN, HOLLANDER & DELUCA, LLP Parker Plaza 400 Kelby Street Fort Lee, New Jersey 07024 Paul S. Hollander James J. DeLuca Attorneys for Debtors and Debtors-In-Possession UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW JERSEY In re: Chapter 11 CONGOLEUM CORPORATION, et al., Case No. 03-51524 (KCF) Debtors. Jointly Administered - ------------------------------------ PROPOSED DISCLOSURE STATEMENT WITH RESPECT TO THE TENTH MODIFIED JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE OF CONGOLEUM CORPORATION, ET AL., AND THE ASBESTOS CLAIMANTS' COMMITTEE, DATED AS OF SEPTEMBER 15, 2006 THIS DISCLOSURE STATEMENT SOLICITS ACCEPTANCES OF THE PLAN AND CONTAINS INFORMATION RELEVANT TO A DECISION TO ACCEPT OR REJECT THE PLAN. - -------------------------------------------------------------------------------- THE VOTING DEADLINE TO ACCEPT OR REJECT THE PLAN IS 5:00 P.M. PREVAILING EASTERN TIME ON [ ], 2006, UNLESS OTHERWISE ORDERED BY THE BANKRUPTCY COURT (THE "VOTING DEADLINE"). IN ORDER TO BE COUNTED, BALLOTS MUST BE RECEIVED BY LOGAN & COMPANY, INC. (THE "VOTING AGENT") AT: LOGAN & COMPANY, INC., RE: CONGOLEUM CORPORATION, 546 VALLEY ROAD, UPPER MONTCLAIR, NEW JERSEY 07043, ON OR BEFORE THE VOTING DEADLINE. - -------------------------------------------------------------------------------- The Company is providing this Disclosure Statement and the Exhibits hereto, the accompanying ballots, and the related materials delivered herewith pursuant to section 1126(b) of the Bankruptcy Code, in connection with this solicitation ("Solicitation") of votes for the Tenth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., and the Asbestos Claimants' Committee, dated as of September 15, 2006 (the "Plan"), a copy of which is annexed to this Disclosure Statement as Exhibit A. This Disclosure Statement is to be used solely in connection with an evaluation of the Plan; use of this Disclosure Statement for any other purpose is not authorized. This Disclosure Statement may not be reproduced or provided to others (other than to those advisors of any recipient of this Disclosure Statement who may review the information contained herein to assist such recipient in his, her or its evaluation of the Plan) without the prior written consent of the Company. THE PLAN PROVIDES, AMONG OTHER THINGS, FOR THE ISSUANCE OF INJUNCTIONS UNDER SECTIONS 105(a) AND 524(g) OF THE BANKRUPTCY CODE THAT RESULT IN THE CHANNELING OF ALL ASBESTOS RELATED LIABILITIES OF THE COMPANY INTO A TRUST AS MORE FULLY DESCRIBED HEREIN. SEE SECTION 6.9(g) - "DISCHARGE INJUNCTION" AND SECTION 6.9(h) - "ASBESTOS CHANNELING INJUNCTION" FOR A DESCRIPTION OF SUCH INJUNCTIONS. IF THE HOLDERS OF THE SENIOR NOTE CLAIMS VOTE TO ACCEPT THE PLAN, THE PLAN PROVIDES FOR THE ISSUANCE OF 3,800,000 SHARES OF CONGOLEUM CLASS A COMMON STOCK TO THE PLAN TRUST AND, IF CERTAIN CONTINGENCIES OCCUR, FOR THE ISSUANCE OF AN ADDITIONAL NUMBER OF SHARES OF CONGOLEUM CLASS A COMMON STOCK (OR THE EQUIVALENT THEREOF ON A FULLY DILUTED BASIS), WHICH WHEN COMBINED WITH SUCH 3,800,000 SHARES OF CLASS A COMMON STOCK WILL RESULT IN THE PLAN TRUST OWNING 51% OF THE VOTING COMMON SHARES OF REORGANIZED CONGOLEUM. IF THE HOLDERS OF THE SENIOR NOTE CLAIMS DO NOT VOTE TO ACCEPT THE PLAN, THE INTERESTS SHALL BE CANCELLED AND THE BANKRUPTCY COURT WILL ALLOCATE THE CONGOLEUM COMMON STOCK BETWEEN THE HOLDERS OF THE SENIOR NOTE CLAIMS AND THE PLAN TRUST. BY VOTING IN FAVOR OF THE PLAN, HOLDERS OF INTERESTS SHALL BE DEEMED TO HAVE CONSENTED TO THE ISSUANCE OF SHARES UNDER THE PLAN. The Plan is the result of negotiations between the Company, the Asbestos Claimants' Committee, the Bondholders' Committee, the Futures Representative and the Claimants' Representative. The Asbestos Claimants' Committee, [the Bondholders' Committee and the Claimants' Representative] support the Plan and recommend that you vote to accept the Plan because it is in the best interests of all Asbestos Claimants, holders of Unknown Asbestos Claims and Demands and the Senior Notes and represents a fair recovery for holders of Class 2, 3, [6,] 10 and 11 Claims and Unknown Asbestos Claims and Demands given the Company's debt structure and the facts and circumstances of the Company's Reorganization Cases. The Futures Representative approves of the basic economic terms of the Plan, including the Class 2 Settlement and the Class 3 Settlement; the treatment of the Senior Note Claims, the ABI Claims and the Congoleum Interests; however, the Futures Representative has not yet approved the final language of the Plan and the Plan Documents, including the TDP. i The Company has operated and intends to continue operating its business in the ordinary course during the Reorganization Cases. Asbestos Personal Injury Claims, Asbestos Property Damage Claims, Senior Note Claims, ABI Claims and Congoleum Interests are Impaired under the Plan; the Claims of Congoleum's other creditors and Interest holders are not Impaired under the Plan. Because acceptance of the Plan will constitute acceptance of all the provisions thereof, holders of Asbestos Personal Injury Claims, Asbestos Property Damage Claims, Senior Note Claims, ABI Claims and Congoleum Interests are urged to consider carefully the information regarding treatment of their Claims and Interests contained in this Disclosure Statement. Since the Plan's treatment of Asbestos Property Damage Claims is identical to the treatment set forth in the Fourth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., dated as of November 12, 2004 (the "Fourth Modified Plan"), holders of Asbestos Property Damage Claims are not being resolicited. The effectiveness of the Plan is subject to several material conditions precedent. There can be no assurance that those conditions will be satisfied. The Plan Proponents presently intend to seek to consummate the Plan as promptly as practicable after the Confirmation Date. There can be no assurance, however, as to when or whether the Confirmation Date and the Effective Date actually will occur. Distributions under the Plan to creditors of the Company (other than distributions to holders of Plan Trust Asbestos Claims) will be the responsibility of the Reorganized Debtors. Pursuant to section 524(g) of the Bankruptcy Code, distributions under the Plan to holders of Plan Trust Asbestos Claims will be the responsibility of the Plan Trust and the Reorganized Debtors will have no liability therefor. The terms of the Plan have been developed in the course of ongoing discussions and negotiations among Congoleum, the Asbestos Claimants' Committee, the Bondholders' Committee, the Futures Representative, the Claimants' Representative, ABI and certain others. The boards of directors of each of Congoleum, CSI and CFI and the Asbestos Claimants' Committee, the Bondholders' Committee and the Claimants' Representative have approved the Plan and strongly recommend that holders of Claims and Interests entitled to vote on the Plan for purposes of sections 1126 and 524(g) of the Bankruptcy Code vote to accept it. The Futures Representative approves of the basic economic terms of the Plan, including the Class 2 Settlement and the Class 3 and 11 Settlement; the treatment of the Senior Note Claims, the ABI Claims and the Congoleum Interests; however, the Futures Representative has not yet approved the final language of the Plan and the Plan Documents, including the TDP. Without approval of the arrangements set forth in the Plan, there can be no assurance that the Company will be able to emerge from an alternative case under Chapter 11 of the Bankruptcy Code, and not be forced into liquidation under Chapter 7 of the Bankruptcy Code. The Company believes that if it is liquidated under Chapter 7, the distributions to Creditors would be delayed and would be significantly lower than the distributions contemplated by and under the Plan. See Section 7.3(a)(1) -"Best Interests Test" below. ii THE PLAN PROPONENTS BELIEVE THAT THE PLAN IS IN THE BEST INTERESTS OF THE COMPANY'S CREDITORS (INCLUDING THE HOLDERS OF ASBESTOS PERSONAL INJURY CLAIMS AND ASBESTOS PROPERTY DAMAGE CLAIMS). ACCORDINGLY, CREDITORS AND INTEREST HOLDERS ENTITLED TO VOTE IN FAVOR OF THE PLAN FOR PURPOSES OF SECTION 1126 OF THE BANKRUPTCY CODE OR FOR PURPOSES OF SECTION 524(g) OF THE BANKRUPTCY CODE ARE URGED TO VOTE IN FAVOR OF THE PLAN. TO BE COUNTED, YOUR BALLOT MUST BE DULY COMPLETED, EXECUTED, AND ACTUALLY RECEIVED BY THE VOTING AGENT NO LATER THAN 5:00 P.M., PREVAILING EASTERN TIME, ON [ ], 2006, UNLESS OTHERWISE ORDERED BY THE BANKRUPTCY COURT. CREDITORS AND INTEREST HOLDERS ARE ENCOURAGED TO READ AND CONSIDER CAREFULLY THIS ENTIRE DISCLOSURE STATEMENT, INCLUDING THE PLAN ANNEXED HERETO AS EXHIBIT A, AND THE MATTERS DESCRIBED IN THIS DISCLOSURE STATEMENT UNDER ARTICLE 10, "RISKS OF THE PLAN" AND ARTICLE 11, "ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN," PRIOR TO CASTING THEIR VOTES. In making a decision, creditors and Interest holders must rely on their own examination of the Company and the terms of the Plan, including the merits and risks involved. Creditors and Interest holders should not construe the contents of this Disclosure Statement as providing any legal, business, financial or tax advice. Each Creditor or Interest holder should consult with his, her or its own legal, business, financial and tax advisors with respect to any such matters concerning this Disclosure Statement, this Solicitation, the Plan and the transactions contemplated thereby. This Disclosure Statement has not been filed with or reviewed by the Securities and Exchange Commission or any securities regulatory authority of any state under the Securities Act of 1933, as amended, or under any state securities or "blue sky" laws. The Plan has not been approved or disapproved by the Securities and Exchange Commission, and neither the Securities and Exchange Commission nor any state securities commission has passed upon the accuracy or adequacy of the information contained herein. Any representation to the contrary is a criminal offense. This Disclosure Statement does not constitute an offer of securities. No Person has been authorized by the Plan Proponents in connection with the Plan or this Solicitation to give any information or to make any representation other than as contained in this Disclosure Statement and the exhibits annexed hereto or incorporated by reference or referred to herein, and, if given or made, such information or representation may not be relied upon as having been authorized or made by the Company. The statements contained in this Disclosure Statement are made as of the date hereof, and the delivery of this Disclosure Statement will not, under any circumstance, create any implication that the information contained herein is correct at any time subsequent to the date hereof. Estimates, if any, in respect of a Claim set forth in this Disclosure Statement or any exhibit hereto may vary from the amount ultimately Allowed in respect of such Claim by the Bankruptcy Court. iii THE SUMMARIES OF THE PLAN AND OTHER DOCUMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN ITSELF, THE EXHIBITS THERETO AND ALL DOCUMENTS DESCRIBED HEREIN AND THEREIN. Copies of any agreement described herein but not provided herewith may be obtained by contacting the Voting Agent in writing at: Logan & Company, Inc., Re: Congoleum Corporation, 546 Valley Road, Upper Montclair, New Jersey 07043. The information contained in this Disclosure Statement, including, but not limited to, the information regarding the history, businesses, and operations of the Company, the historical financial information of the Company and the liquidation analysis relating to the Company is included herein solely for purposes of soliciting the acceptances required to confirm the Plan under section 1126(c) of the Bankruptcy Code and to obtain the Injunctions set forth in the Plan under section 524(g) of the Bankruptcy Code. As to any contested matters that may arise, however, such information is not to be construed as admissions or stipulations but rather as statements made in settlement negotiations. iv TABLE OF CONTENTS Page ---- ARTICLE 1 INTRODUCTION.......................................................1 1.1. This Solicitation - Purpose of Disclosure Statement..............1 1.2. Voting Procedures................................................2 1.3. Voting Deadline..................................................3 1.4. Overview of the Reorganization...................................3 1.5. Overview of the Plan.............................................3 1.6. Summary Description of Classes and Distributions................10 ARTICLE 2 GENERAL INFORMATION...............................................18 2.1. Business of the Company Generally...............................18 2.2. Factors Leading to the Need for Bankruptcy Relief...............21 ARTICLE 3 THE PRE-PETITION PROCESS AND PAYMENT OF ASBESTOS CLAIMS...........29 3.1. The Company's Reasons for Negotiating a Prepackaged Plan........29 3.2. The Initial Negotiation Process.................................29 3.3. Selection of the Futures Representative.........................33 3.4. Formation of the Pre-Petition Asbestos Claimants' Committee.....34 3.5. Due Diligence Review............................................34 3.6. Pre-Petition Plan Negotiations..................................35 3.7. Pre-Petition Solicitation.......................................35 ARTICLE 4 THE COMPANY: CORPORATE STRUCTURE AND MANAGEMENT...................36 4.1. Boards of Directors of the Company..............................36 4.2. Management of the Company.......................................37 4.3. Directors and Officers of the Reorganized Debtors...............39 4.4. Employees and Union Contracts...................................40 4.5. Debt and Equity Structure.......................................40 4.6. Other Matters...................................................43 v ARTICLE 5 EVENTS DURING THE REORGANIZATION CASES............................45 5.1. Commencement of the Reorganization Cases........................45 5.2. Administration of the Reorganization Cases......................45 5.3. Asbestos Claimants' and Bondholders' Committee..................47 5.4. Bankruptcy Court Appointment of Futures Representative..........47 5.5. Retention of Professionals......................................48 5.6. Motion for Relief from Stay.....................................50 5.7. Developments with Regard to Certain Pre-Petition Claims.........51 5.8. Tolling Agreements With Respect to Asbestos Personal Injury Claims - Related Avoidance Actions.......................51 5.9. Tolling Agreements With Respect to Other Avoidance Actions......53 5.10. Asbestos Personal Injury Claims - Related Avoidance Actions.....54 5.11. Settlements with Insurers and Brokers...........................57 5.12. Fourth Modified Plan and Subsequent Changes.....................62 5.13. Mediation and the Consensual Ninth and Tenth Modified Plans.....63 5.14. Standing of Insurers to be Heard................................71 5.15. Discovery Conducted by the Parties..............................72 5.16. Expiration of Debtors' Exclusivity to File a Plan and Solicit Acceptances Thereof.............................................72 5.17. Confirmation Hearing............................................73 ARTICLE 6 SUMMARY OF THE PLAN...............................................73 6.1. General.........................................................73 6.2. The Class 2 Settlement and Class 3 and 11 Settlement............73 6.3. Classification..................................................76 6.4. Treatment of Administrative Claims and Priority Tax Claims......77 6.5. Treatment of Classified Claims and Interests....................78 6.6. Means for Execution of the Plan.................................85 6.7. Executory Contracts and Unexpired Leases........................91 6.8. Compensation and Benefits Programs..............................92 6.9. Injunctions, Releases and Discharge.............................92 6.10. Matters Incident to Plan Confirmation..........................100 6.11. Retention of Jurisdiction......................................101 vi 6.12. Miscellaneous Provisions.......................................104 ARTICLE 7 CONFIRMATION OF THE PLAN.........................................107 7.1. Acceptance or Rejection of the Plan............................107 7.2. Confirmation Hearing...........................................112 7.3. Requirements for Confirmation..................................112 7.4. Effect of Confirmation.........................................121 ARTICLE 8 PLAN TRUST AND ASBESTOS CLAIMS RESOLUTION MATTERS................122 8.1. Establishment and Purpose of the Plan Trust....................122 8.2. Funding and Receipt of Plan Trust Assets.......................123 8.3. Discharge of Liabilities to Holders of Asbestos Claims.........124 8.4. Excess Plan Trust Assets.......................................124 8.5. Plan Trust Expenses............................................124 8.6. Appointment of the Initial Plan Trustees.......................125 8.7. The Futures Representative.....................................125 8.8. Appointment of Members of the Trust Advisory Committee.........125 8.9. Assumption of Liabilities......................................125 8.10. Indemnification by the Plan Trust..............................125 8.11. Establishment of the TDP.......................................126 8.12. Establishment and Purpose of the GHR/Kenesis Litigation Trust..126 8.13. The Plan Trust Note............................................127 ARTICLE 9 ESTIMATED CLAIMS BY CLASS........................................127 9.1. Claims other than Asbestos Claims..............................128 9.2. Asbestos Claims................................................129 ARTICLE 10 RISKS OF THE PLAN...............................................129 10.1. General........................................................129 10.2. Confirmation Risks.............................................129 10.3. Insurance Coverage for Plan Trust Asbestos Claims..............130 10.4. Distributions under the TDP....................................131 10.5. Risk of Post-Confirmation Default..............................132 vii ARTICLE 11 ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN.......132 11.1. Liquidation under Chapter 7....................................132 11.2. Alternative Plan of Reorganization.............................133 ARTICLE 12 CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.............133 12.1. Tax Consequences to Reorganized Congoleum......................134 12.2. Tax Consequences to the Plan Trust.............................139 12.3. Tax Consequences to Certain Impaired Holders of Claims.........139 ARTICLE 13 FINANCIAL INFORMATION...........................................142 13.1. General........................................................142 ARTICLE 14 SOURCES OF INFORMATION PROVIDED AND THE ACCOUNTING METHOD USED..143 14.1. Sources of Information.........................................143 14.2. Accounting Method..............................................143 viii EXHIBITS Exhibit A Tenth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., and the Asbestos Claimants' Committee, dated as of September 15, 2006 Exhibit B Liquidation Analysis Exhibit C Audited Financial Statements of Congoleum Corporation for the Year Ended December 31, 2005 Exhibit D Unaudited Financial Statements of Congoleum Corporation for the Quarter Ended June 30, 2006 Exhibit E Claimant Agreement ix ARTICLE 1 INTRODUCTION 1.1. This Solicitation - Purpose of Disclosure Statement The Company transmits this Disclosure Statement, pursuant to section 1126(b) of the Bankruptcy Code, for use in this Solicitation of votes to accept the Plan. The Company is commencing this Solicitation after extended discussions with, and the Plan is the product of negotiations among, the Plan Proponents, the Bondholders' Committee, the Claimants' Representative, the Futures Representative and certain others. This Solicitation is being conducted in order to obtain sufficient acceptances to enable the Plan to be confirmed by the Bankruptcy Court pursuant to the provisions of the Bankruptcy Code. This Disclosure Statement is being transmitted in order to provide adequate information to enable holders of Asbestos Personal Injury Claims, Senior Note Claims, ABI Claims and Congoleum Interests, who are Impaired under the Plan, to make an informed judgment in exercising their right to vote to accept or reject the Plan under section 1126 of the Bankruptcy Code. In addition, because all Plan Trust Asbestos Claims will be channeled into and addressed by the Plan Trust following the Effective Date of the Plan, this Disclosure Statement is being transmitted in order to provide adequate information to enable all holders of Asbestos Personal Injury Claims to make an informed judgment in exercising their right to vote to accept or reject the Plan under section 524(g) of the Bankruptcy Code. This Disclosure Statement is not being transmitted to holders of Asbestos Property Damage Claims because the Plan's treatment of Asbestos Property Damage Claims is identical to the treatment set forth in the Fourth Modified Plan and holders of Asbestos Property Damage Claims are therefore not being resolicited. The Plan incorporates and proposes to implement the Class 2 Settlement and the Class 3 and 11 Settlement, which constitute a proposed settlement and compromise with respect to the Secured Asbestos Claims held by the Qualified Claimants in Classes 2, 3 and 11 and provide for the treatment provided to the Qualified Claimants on account of their Class 2, 3 and 11 Asbestos Personal Injury Claims. The Company, as well as the Asbestos Claimants' Committee and the Claimants' Representative, believe that the Plan, the Class 2 Settlement and the Class 3 and 11 Settlement provide the best recoveries possible for the holders of Asbestos Personal Injury Claims, Unknown Asbestos Claims and Demands against the Debtors and thus strongly recommend that holders of Class 2, 3, 10 and 11 Asbestos Claims vote to accept Plan. The Futures Representative approves of the basic economic terms of the Plan, including the Class 2 Settlement and the Class 3 Settlement; the treatment of the Senior Note Claims, the ABI Claims and the Congoleum Interests; however, the Futures Representative has not yet approved the final language of the Plan and the Plan Documents, including the TDP. The Plan Proponents[, the Bondholders' Committee,] the Claimants' Representative and ABI strongly recommend the Plan as being a fair and equitable method to address the Company's ongoing asbestos liability issues and encourage the Plan's acceptance by creditors entitled to vote. 1.2. Voting Procedures The Company is soliciting acceptances of the Plan from (a) all known Asbestos Claimants or their authorized representatives, except those Asbestos Claimants whose claims have been expunged or withdrawn pursuant to a Final Order of the Bankruptcy Court, (b) all known holders of Senior Note Claims, (c) ABI as the holder of the ABI Claims and certain Congoleum Interests, and (d) all known holders of Congoleum Interests. In order to facilitate the solicitation of votes to accept or reject the Plan timely following the anticipated approval of the adequacy of the Disclosure Statement on October 26, 2006, the Company will cause the Voting Agent to commence collection of certain information pertaining to Asbestos Claimants and the holders of Senior Note Claims or, in the case of Asbestos Claimants, update previously collected information as soon as reasonably possible. The Voting Agent will send both a notice of collection of information and a notice of voting procedures to counsel for Asbestos Claimants requesting that such counsel update or provide, as applicable, the Voting Agent with, for each client, the name, address, social security number, class designation, amount of claim and disease level of the client, as applicable, prior to the hearing on the Disclosure Statement, or as soon thereafter as possible. Counsel will also be requested to advise the Voting Agent whether the solicitation package should be sent directly to the holder or to counsel in accordance with the voting procedures. The Company also intends to cause the Voting Agent to commence collection of certain information pertaining to the holders of Senior Note Claims and Congoleum Interests as soon as reasonably possible. In response to requests, the Voting Agent will send solicitation packages, in such format as has been approved by the Bankruptcy Court, containing notice of the time for voting on the Plan, filing objections and the hearing on confirmation, the order approving the Disclosure Statement, the Disclosure Statement and Plan, appropriate ballots or master ballots, and voting instructions, among other things, to known Asbestos Claimants, holders of Senior Note Claims, holders of Congoleum Interests and ABI, or their counsel. Asbestos Claimants, holders of Senior Note Claims, holders of Congoleum Interests and ABI, or their counsel, should read the solicitation package materials carefully and follow the voting instructions listed on the ballot or master ballot. Asbestos Claimants, known holders of Senior Note Claims, known holders of Congoleum Interests and ABI, or their counsel, should only use the appropriate ballot(s) corresponding to the class for which a vote is being cast. Only those Asbestos Claimants whose Asbestos Personal Injury Claims are allowed for voting purposes will be entitled to vote on the Plan. If at least two-thirds in dollar amount and more than one-half in number of the claims of each Impaired Class of Claims that have voted on the Plan vote to accept the Plan, and at least seventy-five percent (75%) of Asbestos Claimants to be channeled into and addressed by the Plan Trust that have voted to accept the Plan and such votes are received by the Voting Deadline (the "Requisite Acceptances"), the Company expects to seek confirmation of the Plan promptly, the holders of Asbestos Property Damage Claims already having voted to accept the treatment of such Claims by the requisite number and amount. If the Company does not receive the Requisite Acceptances by the Voting Deadline, or unforeseen events occur, it will be forced to evaluate other available options. 2 1.3. Voting Deadline IN ORDER TO BE COUNTED FOR VOTING PURPOSES, BALLOTS MUST ACTUALLY BE RECEIVED BY THE VOTING AGENT BY 5:00 P.M. PREVAILING EASTERN TIME ON [ ], 2006 UNLESS OTHERWISE ORDERED BY THE BANKRUPTCY COURT, AT THE FOLLOWING ADDRESS: Logan & Company, Inc. Re: Congoleum Corporation 546 Valley Road Upper Montclair, New Jersey 07043 1.4. Overview of the Reorganization (a) Brief Explanation of Chapter 11 Chapter 11 is the principal business reorganization chapter of the Bankruptcy Code. Under Chapter 11, a debtor is authorized to reorganize its business for the benefit of its creditors and shareholders. In addition to permitting rehabilitation of the debtor, Chapter 11 promotes equality of treatment of creditors and equity security holders who hold substantially similar claims against or interests in the debtor and its assets. In furtherance of these two goals, upon the filing of a petition for relief under Chapter 11, section 362 of the Bankruptcy Code provides for an automatic stay of substantially all acts and proceedings against the debtor and its property, including all attempts to collect claims or enforce liens that arose prior to the commencement of the Chapter 11 case. THE CONSUMMATION OF A PLAN OF REORGANIZATION IS THE PRINCIPAL OBJECTIVE OF A CHAPTER 11 CASE. A PLAN OF REORGANIZATION SETS FORTH THE MEANS FOR TREATING CLAIMS AGAINST AND EQUITY INTERESTS IN A DEBTOR. CONFIRMATION OF A PLAN OF REORGANIZATION BY THE BANKRUPTCY COURT MAKES THE PLAN BINDING UPON THE DEBTOR, ANY PERSON OR ENTITY ACQUIRING PROPERTY UNDER THE PLAN, AND ANY CREDITOR OF, OR INTEREST HOLDER IN, THE DEBTOR, WHETHER OR NOT SUCH CREDITOR OR INTEREST HOLDER (I) IS IMPAIRED UNDER OR HAS ACCEPTED THE PLAN OR (II) RECEIVES OR RETAINS ANY PROPERTY UNDER THE PLAN. SUBJECT TO CERTAIN LIMITED EXCEPTIONS AND OTHER THAN AS PROVIDED IN THE PLAN ITSELF OR IN THE CONFIRMATION ORDER, THE CONFIRMATION ORDER DISCHARGES THE DEBTOR FROM ANY DEBT THAT AROSE PRIOR TO THE DATE OF CONFIRMATION OF THE PLAN AND SUBSTITUTES THEREFOR THE OBLIGATIONS SPECIFIED UNDER THE CONFIRMED PLAN. 1.5. Overview of the Plan The following is a brief summary of certain information contained elsewhere in this Disclosure Statement and in the Plan. The summary is necessarily incomplete and is qualified in its entirety by reference to the more detailed information appearing elsewhere in this Disclosure Statement, the exhibits hereto and the other Plan Documents. 3 The Plan is a product of extensive efforts by Congoleum, ABI, the Asbestos Claimants' Committee, the Bondholders' Committee, the Claimants' Representative and certain others to negotiate a plan of reorganization for the Company that is fair and equitable to all parties in interest and that provides for the issuance of injunctions under sections 105(a) and 524(g) of the Bankruptcy Code that result in the channeling of asbestos related liabilities of Congoleum and the derivative asbestos related liabilities of ABI to the Plan Trust. The Plan provides for, among other things, a compromise and settlement of the Asbestos Personal Injury Claims in Classes 2, 3 and 11, payment in full of Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed Priority Claims, Allowed General Unsecured Claims and the establishment of the Plan Trust to satisfy Plan Trust Asbestos Claims. Lender Secured Claims and Other Secured Claims are not Impaired or affected by the Plan. The Plan, the Class 2 Settlement and the Class 3 and 11 Settlement will be binding on all parties holding Claims, whether asserted or not, against Congoleum. The essential elements of the reorganization contemplated by the Plan include, among other things: (a) A compromise and settlement of the Asbestos Personal Injury Claims that were settled prior to the Petition Date under the Claimant Agreement and the Pre-Petition Settlement Agreements. (b) the creation of the Plan Trust which is intended to be a "qualified settlement fund" within the meaning of Section 1.468B - 1(a) of the Treasury Regulations promulgated under Section 468B of the IRC, that will assume the liabilities of the Debtors with respect to all Plan Trust Asbestos Claims and will use Plan Trust Assets and income to pay Plan Trust Asbestos Claims as provided in the Plan and the Plan Trust Documents; (c) the creation of the GHR/Kenesis Litigation Trust which will pursue the GHR/Kenesis Actions for the benefit of Reorganized Congoleum with all proceeds pledged to the Plan Trust as security for Reorganized Congoleum's obligations to the Plan Trust on account of the Plan Trust Note and the New Convertible Security; (d) the funding of the Plan Trust with the Plan Trust Assets; (e) the classification of Claims and Interests and the treatment of such Claims and Interests under the Plan; (f) the payment of Claims in accordance with the requirements of the Bankruptcy Code; (g) the establishment and implementation of the TDP as provided in the Plan Trust Agreement for the fair and even-handed resolution of Asbestos Personal Injury Claims; 4 (h) the issuance by Reorganized Congoleum of the New Senior Notes to the holders of Senior Note Claims in the event that the holders of the Senior Note Claims (as a Class) vote to accept the Plan; (i) the issuance by Reorganized Congoleum of the Plan Trust Note to the Plan Trust; (j) the procedure for addressing and resolving Disputed Claims; (k) the issuance of certain injunctions, including but not limited to, the Discharge Injunction, the Anti-Suit Injunction and the Asbestos Channeling Injunction; (l) amendment and restatement of the Existing Credit Agreement or, in the alternative, entry into another working capital exit facility similar to the Existing Credit Agreement; (m) the governance and management of the Reorganized Debtors; and (n) the retention of jurisdiction by the Bankruptcy Court. Collateral Trust. The Collateral Trust was established in April 2003, and amended on June 6, 2003, pursuant to the terms of the Asbestos Settlement Documents. All Qualified Pre-Petition Settlement Claimants and all those Asbestos Claimants who pursuant to the Claimant Agreement have settled asbestos related bodily injury claims against Congoleum and have thereby become Participating Claimants were to have been paid in accordance with the Claimant Agreement and the Collateral Trust Agreement. The Asbestos Claims of Pre-Petition Settlement Claimants and Participating Claimants (collectively, "Qualified Claimants") were granted security interests as and to the extent provided in the Asbestos Settlement Documents, which security interests are being forborne in accordance with the Class 2 Settlement and the Class 3 Settlement set forth in the Plan and the treatment of such Asbestos Claims described in the Plan. See Section 6.2 below - - "The Class 2 Settlement and Class 3 and 11 Settlement" for a description of the Class 2 Settlement and the Class 3 and 11 Settlement and Section 6.5 below - - "Treatment of Classified Claims and Interests" for a description of the treatment afforded to the Qualified Claimants under the Plan. The Collateral (as defined in the Security Agreement) securing the Asbestos Claims of the Qualified Claimants is held by the Collateral Trust and generally includes all of Congoleum's right to receive payment from its insurers, net of, among other things, fees, expenses and disbursements incurred in connection with efforts to collect such amounts, as more fully described in the Security Agreement. The Collateral Trust by its own terms terminates upon, among other things, the transfer of the assets of the Collateral Trust to the Plan Trust on the Effective Date, as provided in the Plan. Plan Trust. On the Effective Date of the Plan, all then asserted Plan Trust Asbestos Claims, including the Claims asserted by Qualified Claimants, will be assumed by and transferred to the Plan Trust. With the exception of any Plan Trust Disputed Claims and the Claims subject to the Class 2 Settlement and, in certain circumstances, the Class 3 and 11 Settlement, all Asbestos Personal Injury Claims assumed by and transferred to the Plan Trust will be determined, liquidated and treated pursuant to the Plan Trust and the TDP without priority of payment and in all respects pari passu with each other. 5 The Plan Trust will be funded with the Plan Trust Assets which will include, without limitation, the following assets and any income, profits and proceeds derived therefrom: o the New Class A Common Stock (if the holders of the Senior Note Claims (as a Class) vote to accept the Plan); o the New Convertible Security (if the holders of the Senior Note Claims (as a Class) vote to accept the Plan); o the Plan Trust Common Stock (if the holders of the Senior Note Claims (as a Class) do not vote to accept the Plan); o the Asbestos Insurance Rights; o the proceeds of the Asbestos Insurance Settlement Agreements except for those certain proceeds of the Asbestos Insurance Settlement Agreement with Liberty Mutual Insurance Company, which are dedicated pursuant to the Plan to (i) reimburse the Debtors and/or Reorganized Congoleum for the Coverage Costs and (ii) to fund the $600,000 initial contribution to the GHR/Kenesis Actions Litigation Trust; o the proceeds of the Asbestos In-Place Insurance Coverage; o the proceeds of the Asbestos Insurance Actions; o the proceeds of the Asbestos Insurance Action Recoveries; o the Asbestos Property Damage Insurance Rights; o the ABI Contribution; o all of the assets held by the Collateral Trust as of the Effective Date; o Plan Trust Bankruptcy Causes of Action including, without limitation, the Avoidance Actions, to the extent not already adjudicated prior to the Effective Date and to the extent not compromised or settled under the Plan; o other Causes of Action, other than Bankruptcy Causes of Action, related to Plan Trust Asbestos Claims and Plan Trust Assets to the extent not compromised or settled under the Plan, including, without limitation, the right to void any Asbestos Claim of a Qualified Pre-Petition Settlement Claimant or of a Qualified Participating Claimant whether because of failure to comply with the requirements of any applicable settlement agreement (including, without limitation, the Claimant Agreement) or because such Claim was not submitted in good faith or otherwise and including the right to pursue such Causes of Action, if any, in the name of any Debtor, if necessary; o the Plan Trust Note; 6 o the right to receive distributions from the GHR/Kenesis Litigation Trust on behalf of Recognized Congoleum as security for Reorganized Congoleum's obligations to the Plan Trust on account of the New Convertible Security and the Plan Trust Note; and o the rights granted to the Plan Trust pursuant to the Insurance Assignment Agreement. Upon a default of the obligation to pay interest on the New Convertible Security and a failure to cure such default within any cure period, the Plan Trust, as holder of the New Convertible Security, will generally be entitled to convert the New Convertible Security into the number of Shares of Class A Common Stock (on a fully diluted basis with all Class B Common Stock converted to Class A Common Stock), which when combined with the New Class A Common Stock, will result in the Plan Trust owning 51% of the voting common shares and total economic equity value of Reorganized Congoleum on a fully diluted basis. Class 2 Settlement and Class 3 and 11 Settlement: The Plan will implement a compromise and settlement with respect to the Asbestos Claims of the Qualified Claimants. Pursuant to Bankruptcy Rule 9019 and section 1123(b)(3) of the Bankruptcy Code and consistent with section 1129 of the Bankruptcy Code, the Plan will constitute a motion for approval of, and the Confirmation Order may authorize and constitute Bankruptcy Court approval of, the Class 2 Settlement and the Class 3 and 11 Settlement (collectively, the "Qualified Claimant Settlements"). Under the Qualified Claimant Settlements, on the Effective Date, in full and final satisfaction of the Asbestos Personal Injury Claims of the Qualified Claimants, and for good and valuable consideration including the Qualified Claimants' agreement to the treatment specified in the Plan for the Qualified Claimants and the Claims and Interests asserted by other parties in interest, the Qualified Claimant Settlements will be effectuated. See Section 6.2 below - - "The Class 2 Settlement and Class 3 and 11 Settlement" for a description of the Qualified Claimant Settlements. Treatment of Secured Asbestos Claims: Effective as of the Effective Date and subject to entry of a Final Order of the Bankruptcy Court approving the Qualified Claimant Settlements, each holder of a Secured Asbestos Claim will have irrevocably consented or be deemed to have irrevocably consented to release his, her or its rights, if any, under the Claimant Agreement or the respective Pre-Petition Settlement Agreement, as applicable, if any, and his, her or its rights, if any, under the Collateral Trust Agreement and the Security Agreement in and to Plan Trust Assets; and reduce the amount of his, her or its Asbestos Claim as provided in the Qualified Claimant Settlements (50% of the amount agreed under the respective Pre-Petition Settlement Agreement, in the case of each Qualified Pre-Petition Settlement Claimant, and $250, in the case of each Qualified Participating Claimant) with such reduced amount paid by the Plan Trust in accordance with the TDP as soon after the Effective Date as practicable; provided, however, that each Qualified Participating Claimant may elect to irrevocably consent to the Forbearance of his, her or its right to (x) such $250 amount and (y) any and all rights under the Claimant Agreement, the Collateral Trust Agreement and the Security Agreement, in which case such forbearing Qualified Participating Claimant will receive the treatment afforded to Class 10 - Not Previously Determined Unsecured Asbestos Personal Injury Claims on account of its Class 3 and Class 11 Asbestos Personal Injury Claim. In exchange therefor, all Causes of Action pending against the Qualified Claimants 7 will be dismissed with prejudice, except for Causes of Action against any Qualified Claimant who asserts a right to hold, exercise or enforce any lien, security interest or payment priority under any Pre-Petition Settlement Agreement or the Claimant Agreement or any right to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets if it is determined that such Causes of Action have not been resolved by the Plan, the Class 2 Settlement, the Class 3 and 11 Settlement, the Confirmation Order or otherwise (which excepted Causes of Action will continue and will be transferred to the Plan Trust). In the event that the Qualified Claimant Settlements are not approved by a Final Order of the Bankruptcy Court, agreement by the Qualified Claimants and the Debtors to the Qualified Claimant Settlements will not be deemed an admission or used as evidence by any party, all Causes of Action pending against the Qualified Claimants and all defenses thereto will be fully reserved and the Bankruptcy Court will determine and allow or disallow the amount and priority of each such Secured Asbestos Claim after the Effective Date. Treatment of Unsecured Asbestos Personal Injury Claims: Effective as of the Effective Date, all liability for all Previously Determined Unsecured Asbestos Personal Injury Claims will be deemed satisfied in their entirety and will not receive any additional payment or consideration under the Plan other than as provided in Section 5.1(c) of the Plan and the Class 3 and 11 Settlement Agreement. As of the Effective Date, all liability for all Not Previously Determined Unsecured Asbestos Personal Injury Claims as well as liability for all future Demands and Unknown Asbestos Claims will be assumed, automatically and without further act or deed, by the Plan Trust and the Reorganized Debtors will have no liability therefor. Each Not Previously Determined Unsecured Asbestos Personal Injury Claim, future Demand and Unknown Asbestos Claim will be determined, liquidated and treated pursuant to the Plan Trust Agreement and the TDP. The TDP will apply to all holders of Not Previously Determined Unsecured Asbestos Personal Injury Claims, Unknown Asbestos Claims and Demands, including any such holder who elects to resort to the legal system and obtains a judgment for money damages. Treatment of Asbestos Property Damage Claims: Allowed Asbestos Property Damage Claims will be paid from the Asbestos Property Damage Claim Sub-Account in accordance with procedures established pursuant to the Plan Trust Agreement. Indemnification Under the Plan Trust: As and to the extent provided in the Plan Trust Agreement, the Reorganized Debtors will be entitled to indemnification from the Plan Trust for any expenses, costs and fees (including reasonable attorneys' fees and costs, but excluding any such expenses, costs and fees incurred prior to the Effective Date), judgments, settlements, or other liabilities arising from or incurred in connection with any Plan Trust Asbestos Claim, including, but not limited to, indemnification or contribution for Plan Trust Asbestos Claims prosecuted against the Reorganized Debtors after the Effective Date but excluding any amounts paid prior to or on the Effective Date by the Debtors or their past or present Representatives and any amounts paid or incurred by the Reorganized Debtors or their Representatives whether before or after the Effective Date, in connection with defending, objecting to, or otherwise related to any proceedings to determine whether an Asbestos Property Damage Claim is or should be Allowed. Notwithstanding anything in Section 1.4 of the Plan Trust Agreement to the contrary, the Plan Trust will reimburse and pay promptly the Reorganized Debtors, from the proceeds of the Asbestos Insurance 8 Action Recoveries, for the Claims Handling Fee and, to the extent provided under the terms of the Asbestos Insurance Settlement Agreement with Liberty Mutual Insurance Company, for Coverage Costs to the extent that such Coverage Costs have not been reimbursed or paid to the Debtors or the Reorganized Debtors, as applicable, from Asbestos Insurance Action Recoveries received on or after the Petition Date. Based upon Congoleum's knowledge of its current and future operations, current and future financial projections and current Asbestos Claims, and the general asbestos liabilities of similarly situated companies, it is anticipated that the Plan Trust may not be able to pay in full all Plan Trust Asbestos Claims as they are liquidated and may not be able to pay all Plan Trust Asbestos Claims in full over time. However, it can be stated with certainty that (a) Congoleum has committed substantial resources for the payment of Plan Trust Asbestos Claims, far exceeding those resources allocated to any other creditor group under the Plan; and (b) the mechanisms of the Plan Trust have been designed to provide reasonable assurance that the Plan Trust will value, and will be in a financial position to pay, similar present and future Plan Trust Asbestos Claims against the Debtors in substantially the same manner. The Plan Trust will be administered by the Plan Trustee pursuant to the Plan Trust Agreement and the procedures contained therein. GHR/Kenesis Litigation Trust: The Plan provides for the assignment of (i) the GHR/Kenesis Actions and (ii) proceeds realized from the prosecution of the GHR/Kenesis Actions to the GHR/Kenesis Litigation Trust for the benefit of Reorganized Congoleum. The Plan further provides for the pledge of all such proceeds (after the payment of fees and reimbursement of expenses to the GHR/Kenesis Litigation Trustee) by Reorganized Congoleum to the Plan Trust as security for Reorganized Congoleum's obligations to the Plan Trust on account of the New Convertible Security and the Plan Trust Note. Injunctions: The Plan will permit the businesses of the Reorganized Debtors to operate free of asbestos-related claims and litigation, through the operation of the following injunctions pursuant to sections 105, 524(g) and 1141 of the Bankruptcy Code (the "Injunctions"): Discharge Injunction: The Reorganized Debtors will be protected from Claims and litigation by Congoleum's discharge and the Discharge Injunction, which will prohibit and enjoin the taking of any legal action against Congoleum, Reorganized Congoleum and others based upon any Claim, Asbestos Claim or Demand. For a complete description of the Discharge Injunction, see Section 12.5 of the Plan. Asbestos Channeling Injunction: The Plan provides for an injunction pursuant to section 524(g) of the Bankruptcy Code with respect to Plan Trust Asbestos Claims against the Debtors, Reorganized Debtors and any Protected Party. Anti-Suit Injunction: The Plan provides for an injunction pursuant to section 105(a) of the Bankruptcy Code to protect Settling Asbestos Insurance Companies from non-asbestos liability released under any Asbestos Insurance Settlement Agreement. 9 Management: On the Effective Date, the management, control and operation of the Reorganized Debtors will become the responsibility of the boards of directors of the Reorganized Debtors. The boards of directors will be comprised of the same person(s) who serve as director(s) of the Debtors immediately prior to the Confirmation Hearing. The current officers of the Company will serve as the initial officers of the Reorganized Debtors. Plan Classes: The Plan divides all Claims and Interests into 14 different Classes. Each Claim will receive the same treatment as all other Claims in the same Class under the Plan, so that the applicable terms of the Plan for each Claim depend upon its classification. Section 1.6 -- "Summary Description of Classes and Distributions" below, contains a summary description of the treatment of each Class under the Plan, including whether the Class is Impaired or Unimpaired by the Plan and whether the Claims in the Class are channeled into and addressed by the Plan Trust. If a Class is Impaired by the Plan, that Class is entitled to vote to accept or reject the Plan under section 1126 of the Bankruptcy Code to the extent Allowed or temporarily allowed for voting purposes. If the Claims in a Class are channeled to, addressed, processed and paid by the Plan Trust in accordance with the Plan Trust and the TDP, that Class is entitled to vote in favor of or against the Plan under section 524(g) of the Bankruptcy Code. TDP: The TDP to be adopted by the Plan Trust pursuant to the Plan Trust Agreement will establish procedures to assign a value to all Claims under the TDP (the "TDP Valued Asbestos Claims") and determine the timing and amount of payments to be made in respect of all Asbestos Personal Injury Claims. It is anticipated that the TDP will reduce expenses significantly, which expenses would otherwise reduce Plan Trust Assets available for distribution. All holders of TDP Valued Asbestos Claims will benefit from such cost savings, by maximizing the assets which are to be used for the payment of such Claims. A copy of the current form of the TDP is attached as Exhibit "G" of the Plan. It is possible that the TDP may be modified prior to the Effective Date and after the Effective Date from time to time in accordance with the terms of the TDP and the Trust Agreement. 1.6. Summary Description of Classes and Distributions The distributions to each Class are summarized in the table set forth below. The table is qualified in its entirety by reference to the more detailed and complete descriptions set forth in the Plan and elsewhere in this Disclosure Statement. (a) Treatment of Administrative Claims and Priority Tax Claims Description of Claims Description of Distribution or Treatment Under the - --------------------- -------------------------------------------------- Plan ---- Administrative Claims Unless the Debtors and the holder of an Allowed Administrative Claim agree to a different treatment, each holder of an Allowed Administrative Claim will receive Cash for the unpaid portion of such Allowed Administrative Claim on the Distribution Date. However, Administrative Claims incurred by the Debtors during the Reorganization Cases in the ordinary course of business or under a loan or advance which are not paid on or before the Effective Date will be paid by the Reorganized Debtors in accordance with the terms and conditions of the particular transactions relating to such liabilities and any agreements relating thereto. 10 Description of Claims Description of Distribution or Treatment Under the - --------------------- -------------------------------------------------- Plan ---- Priority Tax Claims Unless the holder of a Priority Tax Claim agrees to a different treatment, each holder of an Allowed Priority Tax Claim will either (a) be paid in Cash in full on the Distribution Date or (b) at the Reorganized Debtors' sole discretion, receive deferred Cash payments over a period not to exceed six years after the date of assessment of a value equal to such Allowed Priority Tax Claim as of the Effective Date. (b) Treatment of Classified Claims and Interests Description of Claims or Description of Distribution or Treatment Under the - ------------------------ -------------------------------------------------- Interests Plan - --------- ---- Class 1 - Priority Unless the Debtors and the holder of an Allowed Claims Priority Claim agree to a different treatment, each Allowed Priority Claim will be paid in full on the Distribution Date. Class 1 is Unimpaired by the Plan. Class 2 - Secured As of the Effective Date, all liability for all Asbestos Claims of Secured Asbestos Claims of Qualified Pre-Petition Qualified Pre-Petition Settlement Claimants will be assumed, automatically Settlement Claimants and without further act or deed, by the Plan Trust and the Reorganized Debtors will have no liability therefor. Each such Qualified Pre-Petition Settlement Claimant will, in respect of its Secured Asbestos Claim (except to the extent that such Claim has been expunged), be paid by the Plan Trust, in full satisfaction, settlement, release, and discharge of and in exchange for such Claim, in Cash in accordance with the provisions of the Plan Documents. Effective as of the Effective Date and subject to entry of a Final Order of the Bankruptcy Court approving the Class 2 Settlement, each Qualified Pre-Petition Settlement Claimant will have irrevocably consented or be deemed to have irrevocably consented to (i) release his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the respective Pre-Petition Settlement Agreements and his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to Plan Trust Assets; and (ii) reduce the amount of its Secured Asbestos Claim to 50% of the amount agreed under the respective Pre-Petition Settlement Agreement, `which reduced amount will be paid by the Plan Trust in accordance with the TDP as soon after the Effective Date as practicable. In exchange therefor, all Causes of Action pending against the Qualified Pre-Petition 11 Description of Claims or Description of Distribution or Treatment Under the - ------------------------ -------------------------------------------------- Interests Plan - --------- ---- Settlement Claimants will be dismissed with prejudice, as against the Qualified Pre-Petition Settlement Claimants except for Causes of Action against any Qualified Pre-Petition Settlement Claimant who asserts a right to hold, exercise or enforce any lien, security interest or payment priority under any Pre-Petition Settlement Agreement or any right to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets if it is determined that such Causes of Action have not been resolved by the Plan, the Class 2 Settlement, the Confirmation Order or otherwise (which excepted Causes of Action will continue and will be transferred to the Plan Trust). In the event that the Class 2 Settlement is not approved by a Final Order of the Bankruptcy Court, agreement by the Qualified Pre-Petition Settlement Claimants and the Debtors to the Class 2 Settlement will not be deemed an admission or used as evidence by any party, all Causes of Action pending against the Qualified Pre-Petition Settlement Claimants and all defenses thereto will be fully reserved and the Bankruptcy Court will determine and allow or disallow the amount and priority of each such Class 2 Secured Asbestos Claim after the Effective Date. Class 2 is Impaired and holders of Class 2 Claims are entitled to vote to accept or reject the Plan. Class 3 - Secured As of the Effective Date, all liability for all Asbestos Claims of Secured Asbestos Claims of Qualified Participating Participating Claimants Claimants will be assumed, automatically and without further act or deed, by the Plan Trust and the Reorganized Debtors will have no liability therefor. Each such Qualified Participating Claimant will, in respect of its Secured Asbestos Claim, be paid by the Plan Trust, in full satisfaction, settlement, release (except to the extent that such Claim has been expunged), and discharge of and in exchange for such Claim, in Cash in accordance with the provisions of the Plan Documents. Effective as of the Effective Date and subject to entry of a Final Order of the Bankruptcy Court approving the Class 3 and 11 Settlement, each Qualified Participating Claimant will have irrevocably consented or be deemed to have irrevocably consented to (i) release his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Claimant Agreement and his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets; and (ii) reduce the amount of its entire Asbestos Claim to the total and maximum 12 Description of Claims or Description of Distribution or Treatment Under the - ------------------------ -------------------------------------------------- Interests Plan - --------- ---- amount of $250, which amount will be paid by the Plan Trust pari passu with the "Other Asbestos Disease (Level 1 - Cash Discount Payment)" Asbestos Claims in accordance with the TDP as soon after the Effective Date as practicable; provided, however, that each such Qualified Participating Claimant may elect to irrevocably consent to the Forbearance of his, her or its right to (x) such $250 amount and (y) any and all rights under the Claimant Agreement, the Collateral Trust Agreement and the Security Agreement, in which case such forbearing Qualified Participating Claimant will receive the treatment afforded to Class 10 - Not Previously Determined Unsecured Asbestos Personal Injury Claims on account of its Class 3 and Class 11 Asbestos Personal Injury Claim. In exchange therefor, all Causes of Action pending against the Qualified Participating Claimants will be dismissed with prejudice, as against the Qualified Participating Claimants except for Causes of Action against any Qualified Participating Claimant who asserts a right to hold, exercise or enforce any lien, security interest or payment priority under the Claimant Agreement or any right to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets if it is determined that such Causes of Action have not been resolved by the Plan, the Class 3 and 11 Settlement, the Confirmation Order or otherwise (which excepted Causes of Action will continue and will be transferred to the Plan Trust). In the event that the Class 3 and 11 Settlement is not approved by a Final Order of the Bankruptcy Court, agreement by the Qualified Participating Claimants and the Debtors to the Class 3 and 11 Settlement will not be deemed an admission or used as evidence by any party, all Causes of Action pending against the Qualified Participating Claimants and all defenses thereto will be fully reserved and the Bankruptcy Court will determine and allow or disallow the amount and priority of each such Class 3 Secured Asbestos Claim after the Effective Date. Class 3 is Impaired and holders of Class 3 Claims are entitled to vote to accept or reject the Plan. Class 4 - Lender Secured On the Effective Date, the Existing Credit Agreement, Claims as ratified, amended and approved in accordance with the Financing Order (as hereinafter defined), will be amended and restated in accordance with the terms of the Amended Credit Agreement and the holder of the Allowed Lender Secured Claim will be entitled to all the rights and benefits under the Amended Credit Agreement and related documents. The Amended Credit 13 Description of Claims or Description of Distribution or Treatment Under the - ------------------------ -------------------------------------------------- Interests Plan - --------- ---- Agreement will be on terms and conditions similar to the Existing Credit Agreement (except that the Amended Credit Agreement may be modified to provide for a lien on or security interest in real estate and any other collateral securing the New Senior Notes) and mutually acceptable to the Debtors and Wachovia Bank, National Association, successor by merger to Congress Financial Corporation ("Wachovia"). Alternatively, if, as of the Confirmation Hearing, the Debtors and the holder of the Lender Secured Claim have not agreed upon the terms of the Amended Credit Agreement, the Lender Secured Claim will be paid in full indefeasibly on the Effective Date or as soon thereafter as practicable and Wachovia will be released from any and all liabilities and causes of action in accordance with the Final Order (1) Authorizing Debtors' Use of Cash Collateral, (2) Authorizing Debtors to Obtain Post-Petition Financing, (3) Granting Senior Liens and Priority Administrative Expense Status Pursuant to 11 U.S.C. ss. 105 and 364(c), (4) Modifying the Automatic Stay Pursuant to 11 U.S.C. ss. 362, and (5) Authorizing Debtors to Enter into Agreements with Congress Financial Corporation [docket no. 435](the "Financing Order"). Nothing in the Plan requires that Wachovia permit the use of collateral, including cash collateral, or finance the Debtors after Confirmation other than with Wachovia's prior written consent. Class 4 is Unimpaired and the holder of the Class 4 Claim is deemed to have accepted the Plan and, accordingly, is not required to vote on the Plan. Notwithstanding anything to the contrary contained in the Plan, the Confirmation Order, or otherwise, the Obligations under and as defined in the Existing Credit Agreement (as the same has heretofore been or may hereafter be amended, modified, ratified, restated, extended, renewed or replaced) and all the rights, claims, liens and priorities and other protections provided to Wachovia will survive the Confirmation Date and continue in full force and effect in accordance with the terms and conditions of the Financing Order and the Existing Credit Agreement. Class 5 - Other Secured Each holder of an Allowed Other Secured Claim will Claims retain unaltered the legal, equitable and contractual rights (including, but not limited to, any Liens that secure such Claim) to which such Claim entitles such holder and such Allowed Other Secured Claim will be Reinstated on the Effective Date. Class 5 is Unimpaired. 14 Description of Claims or Description of Distribution or Treatment Under the - ------------------------ -------------------------------------------------- Interests Plan - --------- ---- Class 6 - Senior Note On the Effective Date, provided that the holders of Claims the Senior Note Claims (as a Class) vote to accept the Plan by the requisite number and amount required by the Bankruptcy Code, the Senior Notes will be cancelled and Reorganized Congoleum will issue the New Senior Notes. In the event that the AIG Contingencies and Conditions are satisfied, the Additional Bondholder Recovery will be immediately paid to holders of the Senior Note Claims once the Plan Trust has received or obtained the lesser of (i) $77.1 million in aggregate Cash and (ii) the aggregate amount in Cash of the sum of (x) $5 million and (y) the Plan Trust's liability (including the amounts, if any, held in reserve by the Plan Trust pursuant to Section 3.2 of the Plan Trust Agreement) on account of the Asbestos Personal Injury Claims of Qualified Claimants, Allowed Asbestos Property Damage Claims, the Plan Trust Note, Plan Trust Expenses in the amount of $[_] and the initial contribution of $600,000 to the GHR/Kenesis Litigation Trust. The New Senior Notes will be secured by a lien on or security interest in all of the Reorganized Debtors' assets (subject to the limitations contained in the New Indenture, and excluding the GHR/Kenesis Actions and any Causes of Action against any Bankruptcy Professionals), which security will be subordinate in priority only to the security for the Amended Credit Agreement or any other working capital exit facility entered into by the Reorganized Debtors, provided that such Amended Credit Agreement or other working capital exit facility contains terms similar to the Existing Credit Agreement (except that the Amended Credit Agreement or other working capital exit facility may be modified to provide for a lien on or security interest in real estate and any other collateral securing the New Senior Notes). The liens securing the New Senior Notes will not be pari passu with any other liens or security interests. The New Senior Notes will be guaranteed by each of the Reorganized Debtors. The New Senior Notes will be contractually senior in priority and right of payment to amounts due under the New Convertible Security and the Plan Trust Note; provided, however, that in the absence of a default under the New Indenture, payments due under the Plan Trust Note and the New Convertible Security will be made in the ordinary course in accordance with their respective contractual terms. In the event that the holders of the Senior Note Claims (as a Class) do not vote to accept the Plan and the treatment afforded hereinabove by the requisite number and amount required by the Bankruptcy Code, then the Senior Notes will be cancelled and the Senior Note Claims will receive their pro rata share of the Reserved Common Stock with the Plan Trust, as determined by a Final Order of the Bankruptcy Court (the "Allocation Proceeding"). The initial hearing on any Allocation Proceeding will not occur until at least 45 days 15 Description of Claims or Description of Distribution or Treatment Under the - ------------------------ -------------------------------------------------- Interests Plan - --------- ---- after the balloting report of the Voting Agent is filed with the Bankruptcy Court. In no event will any distribution to the holders of the Senior Note Claims provided for herein be on account of any accrued and unpaid interest on account of the Senior Note Notes nor will the holders of the Senior Note Claims have any right to any Asbestos Insurance Rights, Asbestos Insurance Action Recoveries, the GHR/Kenesis Actions or any Causes of Action against any Bankruptcy Professional. Class 6 is Impaired and holders of Class 6 Claims are entitled to vote to accept or reject the Plan. Class 7 - General General Unsecured Claims arise from or are related to Unsecured Claims the Company's present business operations and do not involve or relate to Asbestos Claims. To the extent such General Unsecured Claims remain unpaid prior to the Effective Date, each holder of an Allowed General Unsecured Claim will retain unaltered the legal, equitable and contractual rights to which such Claim entitles such holder and such Allowed General Unsecured Claim will be Reinstated on the Effective Date. Class 7 is Unimpaired. Class 8 - Workers' Each holder of an Allowed Workers' Compensation Claim Compensation Claims will be paid in the ordinary course pursuant to such rights that exist under any state workers' compensation system or laws applicable to such Claims. Class 8 is Unimpaired. Class 9 - ABI Claims ABI, as the holder of the ABI Claims, will receive the following treatment: (a) all ABI Claims (other than ABI Asbestos Personal Injury Indemnity Claims, ABI Asbestos Property Damage Indemnity Claims and ABI Asbestos Claims) will be Reinstated, and will be payable by and become enforceable obligations of the Reorganized Debtors; and (b) the ABI Asbestos Personal Injury Indemnity Claims, the ABI Asbestos Property Damage Indemnity Claims and ABI Asbestos Claims will be deemed Disallowed and expunged. Class 9 is Impaired and the holder of the Class 9 Claims is entitled to vote to accept or reject the Plan. Class 10 - Not As of the Effective Date, all liability for all Not Previously Determined Previously Determined Unsecured Asbestos Personal Unsecured Asbestos Injury Claims as well as liability for all future Personal Injury Claims Demands and Unknown Asbestos Claims will be assumed, automatically and without further act or deed, by the Plan Trust and the Reorganized Debtors will have no liability therefor. Each Not Previously Determined Unsecured Asbestos Personal Injury Claim, future Demand and Unknown Asbestos Claim will be determined, liquidated and treated pursuant to the Plan Trust 16 Description of Claims or Description of Distribution or Treatment Under the - ------------------------ -------------------------------------------------- Interests Plan - --------- ---- Agreement and the TDP. The TDP will apply to all holders of Not Previously Determined Unsecured Asbestos Personal Injury Claims, Unknown Asbestos Claims and Demands, including any such holder who elects to resort to the legal system and obtains a judgment for money damages. Class 10 is Impaired and holders of Class 10 Claims are entitled to vote to accept or reject the Plan. Class 11 - Previously As of the Effective Date, all liability for all Determined Unsecured Previously Determined Unsecured Asbestos Personal Asbestos Personal Injury Injury Claims will be deemed satisfied in their Claims entirety and will not receive any additional payment or consideration under the Plan other than as provided in Section 5.1(c) of the Plan and the Class 3 and 11 Settlement Agreement. Class 11 is Impaired and holders of Class 11 Claims are entitled to vote to accept or reject the Plan. Class 12 - Asbestos As of the Effective Date, all liability for all Property Damage Claims Allowed Asbestos Property Damage Claims will be assumed, automatically and without further act or deed, by the Plan Trust and the Reorganized Debtors will have no liability therefor. Each Allowed Asbestos Property Damage Claim will be paid solely from the Asbestos Property Damage Claim Sub-Account on account of the unpaid Allowed Amount of such Claim pursuant to the Plan Trust Agreement. After the assets in the Asbestos Property Damage Claim Sub-Account have been exhausted, the Plan Trust will have no further liability or obligation for or in respect of any Asbestos Property Damage Claims. All Asbestos Property Damage Claims as to which a Proof of Claim was not filed prior to the expiration of the Asbestos Property Damage Claim Bar Date will be deemed Disallowed. Class 12 is Impaired and the requisite number and amount of holders of Allowed Class 12 Claims voted to accept or reject the treatment of their Claims under the Fourth Modified Plan and will not be resolicited with respect to the Tenth Modified Plan. Class 13 - Congoleum On the Effective Date, in the event that the holders Interests of the Senior Note Claims (Class 6) vote to accept the Plan by the requisite number and amount required by the Bankruptcy Code, the holders of the Congoleum Interests will retain such Interests; provided, however, on the Effective Date, the New Class A Common Stock and the New Convertible Security, which will be contributed to the Plan Trust, will be issued. In the event that the holders of the Senior Note Claims do not vote to accept the Plan by the requisite number and amount required by the 17 Description of Claims or Description of Distribution or Treatment Under the - ------------------------ -------------------------------------------------- Interests Plan - --------- ---- Bankruptcy Code, the Congoleum Interests will be cancelled, the holders of the Congoleum Interests will retain nothing on account of such Interests and the Reserved Common Stock will be issued and held in escrow pending allocation of the Reserved Common Stock between the Plan Trust and the Senior Note Claims by a Final Order of the Bankruptcy Court. Class 13 is Impaired and the holders of Class 13 Congoleum Interests are entitled to vote to accept or reject the Plan. Class 14 - Subsidiary On the Effective Date, the holders of the Subsidiary Interests Interests will retain such Interests. Class 14 is Unimpaired. ARTICLE 2 GENERAL INFORMATION 2.1. Business of the Company Generally (a) Congoleum Congoleum was incorporated in Delaware in 1986, but traces its history in the flooring business back to Nairn Linoleum Co. which began in 1886. Congoleum is the result of a 1986 merger between Resilco, Inc., a then subsidiary of a company previously known as Congoleum Industries, Inc., which subsidiary owned the resilient flooring operations that were later owned by Congoleum, and Resilient Acquisition Inc., a company formed for the purposes of merging with Resilco, Inc. The surviving corporation to that merger changed its name to Congoleum Corporation. In 1993, the business and assets of Congoleum and those of the Amtico Tile Division of ABI, which consisted of ABI's then existing U.S. flooring division (the "Tile Division"), were combined (the "Acquisition"). The Acquisition was effected through the organization of a new corporation, Congoleum Holdings Incorporated ("Congoleum Holdings"), to which Hillside Industries Incorporated ("Hillside Industries") contributed all of the outstanding capital stock of Resilient Holdings Incorporated ("Resilient"), the owner of all of the outstanding capital stock of Congoleum, and to which ABI contributed the assets and certain liabilities of the Tile Division. Upon consummation of the Acquisition, Congoleum Holdings owned all of the outstanding capital stock of Resilient, which, in turn, owned all of the outstanding capital stock of Congoleum, and Congoleum owned the Tile Division. The assets and liabilities comprising the Tile Division which were acquired by Congoleum in the Acquisition are held directly by Congoleum. Pursuant to the Acquisition, subject to certain exceptions, Congoleum is obligated to indemnify ABI for, among other things, all liabilities relating to ABI's former Tile Division, including, among others, liabilities related to product liability asbestos claims, to the extent that insurance 18 proceeds related thereto are not actually recovered by ABI or ABI is not reimbursed or indemnified for those liabilities by any other source or entity (the "ABI Indemnification"). As of December 31, 2003, pursuant to the ABI Indemnification, Congoleum has paid ABI an aggregate amount of approximately $2.3 million for indemnified costs, expenses and liabilities incurred by ABI for asbestos-related claims pertaining to ABI's former Tile Division. In 1995, Congoleum completed a public offering (the "Offering") of 4,650,000 shares of its Class A common stock, par value $0.01 per share (the "Class A Common Stock"). The Class A Common Stock is entitled to one vote per share. Upon completion of the Offering, Congoleum implemented a Plan of Repurchase pursuant to which its two-tiered holding company ownership structure was eliminated through the merger of Congoleum Holdings, Resilient and Congoleum, pursuant to which Congoleum was the surviving corporation. Congoleum used most of the proceeds from the Offering to repurchase most of the shares of its Class B common stock, par value $0.01 per share (the "Class B Common Stock"), owned by Hillside (the "Repurchase"), which was, indirectly, the majority stockholder of Congoleum prior to the Repurchase. Congoleum's Class B Common Stock is generally entitled to two votes per share. As a result of the Repurchase, ABI acquired voting control of Congoleum. Since the Repurchase, ABI's equity ownership interest in Congoleum has further increased as a result of Congoleum's repurchases of its common stock combined with open market purchases by ABI of Congoleum's common stock. As of June 30, 2006, ABI's ownership of 151,100 shares of Class A Common Stock and 4,395,605 shares of Class B common stock represented 69.4% of the voting control of Congoleum. Congoleum produces both sheet and tile floor covering products with a wide variety of product features, designs and colors. Congoleum also produces through-chip inlaid products for both residential and commercial markets. In addition, Congoleum purchases sundries and accessory products for resale. Congoleum's products serve both the residential and commercial hard-surface flooring markets, and are used in remodeling, manufactured housing, new construction and commercial applications. Congoleum owns four manufacturing facilities located in Maryland, Pennsylvania and New Jersey and leases corporate and marketing offices in Mercerville, New Jersey, which are described as follows: Location Owned/Leased Usage Square Feet - -------------------------------------------------------------------------------- Finksburg, MD Owned Felt 107,000 Marcus Hook, PA Owned Sheet Flooring 1,000,000 Trenton, NJ Owned Sheet Flooring 1,050,000 Trenton, NJ Owned Tile Flooring 282,000 Mercerville, NJ Leased Corporate Offices 55,902 The Finksburg facility consists primarily of a 16-foot wide felt production line. The Marcus Hook facility is capable of manufacturing rotogravure printed sheet flooring in widths of up to 16 feet. Major production lines at this facility include a 12-foot wide oven, two 16-foot wide ovens, a 12-foot wide printing press and a 16-foot wide printing press. 19 The Trenton sheet facility is capable of manufacturing rotogravure printed and through-chip inlaid sheet products in widths up to 6 feet. Major production lines, all six-foot wide, include an oven, a rotary laminating line and a press. The examination, packing and warehousing of all sheet products (except products for the manufactured housing segment) occur at the Trenton plant distribution center. The Trenton tile facility consists of three major production lines, a four-foot wide commercial tile line, a two-foot wide residential tile line and a one-foot wide residential tile line. Productive capacity and extent of utilization of Congoleum's facilities are dependent on a number of factors, including the size, construction, and quantity of product being manufactured, some of which also dictate which production line(s) must be utilized to make a given product. Congoleum's major production lines were operated an average of 77% of the hours available on a five-day, three-shift basis in 2005, with the corresponding figure for individual production lines ranging from 43% to 103%. Although many of Congoleum's manufacturing facilities have been substantially depreciated, Congoleum has generally maintained and improved the productive capacity of these facilities over time through a program of regular capital expenditures. Congoleum considers its manufacturing facilities to be adequate for its present and anticipated near-term production needs. Congoleum is one of many defendants in a large number of actions filed by individuals alleging injuries resulting from exposure to asbestos and asbestos-containing products, including resilient sheet vinyl and tile manufactured by Congoleum and tile manufactured by the Tile Division or, in the worker's compensation cases, from exposure to asbestos in the course of employment with Congoleum. Congoleum discontinued the manufacture of asbestos-containing sheet products in 1983 and asbestos-containing tile products in 1974. Congoleum purchased liability insurance policies that it believes obligates the insurers to provide coverage for Asbestos Claims. A description of Congoleum's historical asbestos liabilities is set forth in Section 2.2(a) -- "Factors Leading to the Need for Bankruptcy Relief - Asbestos Claims Against Congoleum" below. A description of certain Congoleum insurance assets relating to Asbestos Claims is located in Section 2.2(b) -- "Congoleum's Insurance Coverage for Asbestos-Related Personal Injury Claims" below. A more detailed description of Congoleum's business and other material assets is located in Article 4 -- "The Company: Corporate Structure and Management" below. (b) CFI CFI was incorporated on January 24, 2003 under the laws of the State of New York as a wholly owned subsidiary of Congoleum Financial Corporation, which was a wholly owned subsidiary of Congoleum. On January 27, 2003, Congoleum Financial Corporation was merged with and into CFI, with CFI surviving the merger, and the separate legal existence of Congoleum Financial Corporation ceased. CFI is a wholly owned subsidiary of Congoleum and a limited guarantor of Congoleum's obligations under the Existing Credit Agreement. 20 Congoleum Financial Corporation was incorporated on November 12, 1998 under the laws of the State of Delaware. Congoleum Financial Corporation's business included providing debt financing to Congoleum. As of the date of this Disclosure Statement, Congoleum did not have any debt outstanding with CFI. (c) CSI CSI was incorporated on January 24, 2003 under the laws of the State of New York as a wholly owned subsidiary of Congoleum. CSI's business includes providing sales and promotion services for the purpose of promoting Congoleum's business. CSI is a limited guarantor of Congoleum's obligations under the Existing Credit Agreement. 2.2. Factors Leading to the Need for Bankruptcy Relief (a) Asbestos Claims Against Congoleum Congoleum, along with many other manufacturers, including several of its competitor sheet vinyl and tile manufacturers, became the subject of numerous claims by individuals asserting bodily injury as a result of alleged exposure to asbestos-containing products. As a result of the explosion of asbestos claims and litigation in recent years, and the increasing costs of settlement and defense, certain sheet vinyl and tile manufacturers and many others in related industries, including flooring manufacturers similar to Congoleum, have filed Chapter 11 proceedings. As of December 31, 2000, there were approximately 12,000 known claimants with Asbestos Personal Injury Claims pending against Congoleum. As of December 31, 2001, there were approximately 25,000 known claimants with Asbestos Personal Injury Claims pending against Congoleum. As of December 31, 2002, there were approximately 56,000 known claimants with Asbestos Personal Injury Claims pending against Congoleum. As of June 30, 2003, there were approximately 91,000 known claimants with Asbestos Personal Injury Claims pending against Congoleum. Thus, the number of known claimants with Asbestos Personal Injury Claims pending against Congoleum doubled from 2001 to 2002, and nearly doubled in the first six months of 2003. In the spring of 2001, two damages verdicts in the amount of approximately $18.2 million and $15.8 million, respectively, were rendered in favor of plaintiffs in asbestos personal injury claims brought by Kenneth Cook and Richard Arsenault in New York State Supreme Court, New York County. Under the reverse bifurcation procedure then in effect in New York, liability would still have to be established. The liability trial against Congoleum was scheduled for September 2002. Congoleum retained a leading jury consulting firm to conduct a mock trial to assess its likelihood of prevailing at trial. The mock jury trial was conducted in August 2002. Congoleum's defense attorney advised Congoleum that it was likely to lose at trial and that there was a risk for a joint and several finding against Congoleum. During the period following August 2002, Congoleum faced a situation in which its primary insurers claimed that their policies were exhausted (as supported by applicable New Jersey law at the time) while at the same time its excess carriers claimed that the primary layers were not exhausted and that therefore excess coverage was not available. This left Congoleum with no carriers ready and willing to pay claims or defense costs. Thus, Congoleum was placed in an untenable position as a result of the foregoing confluence of events. During the fourth quarter of 2002, Congoleum continued its efforts to attempt to secure insurance coverage from its excess insurance carriers and also began the process of seeking a global resolution in the form of a prepackaged bankruptcy. 21 During the fourth quarter of 2002, Congoleum engaged an outside actuary to conduct an updated analysis of Congoleum's asbestos-related liabilities. Developments during the latter part of 2002 included a significant increase in claims filed against Congoleum and higher settlement requirements, and the exhaustion of primary insurance coverage combined with a dispute of coverage by certain of its excess insurance carriers. These developments, together with an inability to reach agreement with excess carriers to provide coverage for the pending asbestos claims, in turn led to Congoleum's plan to file a plan of reorganization under Chapter 11 of the Bankruptcy Code. The study concluded that the minimum gross liability for the 56,567 known claimants at December 31, 2002, using average settlement payments by disease for claims settled in 2001 and 2002, was $310 million. This amount did not include defense costs, liability for the 30,000 additional claimants purportedly existing at December 31, 2002, for which Congoleum did not then have any record, or for future claims, which the study concluded could not be reasonably determined in light of the available data and uncertainty arising from an announcement on January 13, 2003 that Congoleum had decided to pursue a possible resolution of its asbestos crisis through a prepackaged bankruptcy filing. Congoleum's estimated minimum gross liability is substantially in excess of both the total assets of Congoleum (without giving effect to rights under insurance policies) as well as Congoleum's previous estimates made in prior periods of the maximum liability for both known and unasserted claims. Congoleum believes that (without giving effect to rights under insurance policies) it does not have the necessary financial resources to litigate and/or fund judgments and/or settlements of the asbestos claims in the ordinary course of business. Congoleum believes that its going concern or liquidation value is substantially less than the minimum gross liability for the known asbestos claims against it. Between January 1, 2003 and December 31, 2003, Congoleum settled with in excess of 79,000 Asbestos Claimants. See, however, Section 5.10 - "Asbestos Personal Injury Claims-Related Avoidance Actions" for a description of the Avoidance Actions related to these pre-petition settlement agreements and Section 6.2 - "Class 2 Settlement and Class 3 and 11 Settlement" for a description of the compromise and settlement related to these pre-petition settlement agreements. (b) Congoleum's Insurance Coverage for Asbestos-Related Personal Injury Claims To date, Congoleum has discovered excess insurance policies (in whole or in part), or evidence of excess policies, that were issued to Congoleum beginning in December 1953, and which Congoleum believes cover claims by third parties injured by its activities, including but not limited to claims alleging injury from asbestos. Such policies obligate the insurers to pay amounts that Congoleum becomes liable to pay in connection with, among other things, claims alleging bodily injury. Generally, such policies also obligate the insurers to pay defense costs in connection with claims against Congoleum, either in addition to the applicable limits of liability of the policies, as in the case of primary and some excess policies, or subject to such limits of liability. The discussion in this Section 2.2(b) applies only to policy periods through 1985. 22 The liability policies purchased by Congoleum generally provide two types of limits of liability. The first type, the "per occurrence" limit, generally limits the amount the insurer will pay in connection with a single "occurrence" to which the limit applies, as the term "occurrence" is defined in the policy. The second type, the "aggregate" limit, generally limits the total amount the insurer will pay in connection with all occurrences covered by the policy for bodily injury to which the aggregate limit applies. In the context of asbestos personal injury, the policies purchased by Congoleum generally provide coverage for two fundamental types of claims. The first type consists of claims in which the alleged exposure to asbestos is within the "products hazard" or the "completed operation's hazard" as those terms are defined in the policies. Such claims, referred to herein as "products" claims, include claims alleging exposure to asbestos-containing products manufactured or sold by Congoleum. In many states, asbestos claims within the "products hazard" may be considered a single occurrence subject to annual limits in each insurance policy. In addition, coverage for products claims may be subject to a specified annual aggregate limit of liability under some of the policies purchased by Congoleum. The second type of claim involves exposure not within the scope of the policies' products hazard or completed operations hazard. Such claims, referred to herein as "non-products" claims, include claims involving alleged exposure to asbestos-containing materials, whether or not manufactured by Congoleum while such materials were present at premises or facilities owned or operated by Congoleum or at locations where asbestos material may have been disposed of by Congoleum. Although non-products claims have been asserted against Congoleum, the vast majority of asbestos-related claims that have been brought to date are products claims. During the period in which Congoleum produced asbestos-containing products, Congoleum purchased primary and excess insurance policies providing in excess of $1 billion of limits of liability for general and product liability claims. Through August 2002, substantially all asbestos-related claims and defense costs were paid through primary insurance coverage. In February 2001 and then in August 2002, Congoleum received notice from its two lead primary insurance carriers that its primary insurance coverage was exhausted. The exhaustion of limits by one of the primary insurance companies was based on its contention that limits in successive policies were not cumulative for asbestos claims within the "products hazard" and that Congoleum was limited to only one per occurrence limit for multiple years of coverage for such claims. Certain excess insurance carriers claimed that the non-cumulation provisions of the primary policies were not binding on them and that there remained an additional $13 million in indemnity coverage plus related defense costs before their policies were implicated. On April 10, 2003, the New Jersey Supreme Court ruled in another case involving the same non-cumulation provisions as in the Congoleum primary policies (the "Spaulding Case") that the non-cumulation provisions are invalid under New Jersey law and that the primary policies provide coverage for the full amount of their annual limits for all successive policies. Although Congoleum was not a party to this case, the decision in the Spaulding Case was likely binding on Congoleum and its primary insurance company. Thus, based on the Spaulding Case decision, the primary 23 insurance company became obligated to provide the additional $13 million of coverage previously disputed by the excess carriers. After the Spaulding decision was decided, Congoleum entered into settlement negotiations and reached a settlement with the primary insurance company that had previously contended that limits in successive policies were not cumulative for asbestos claims within the "products hazard." Prior to the decision in Spaulding, Congoleum had entered into settlement agreements with asbestos claimants exceeding the $13 million amount of previously disputed coverage. The excess carriers objected to the reasonableness of these settlements. Congoleum believes that the excess carriers will continue to dispute the reasonableness of the settlements, contend that their policies still are not implicated and dispute their coverage for that and other various reasons in ongoing coverage litigation. The excess carriers have also raised various objections to Congoleum's reorganization strategy and negotiations. In addition, several of Congoleum's insurers contend that multiple year policies do not provide annual limits, but that stated limits are for the entire policy period, ranging from two years to up to five years. Several of Congoleum's insurers also contend that Congoleum is unable to establish that they issued policies to Congoleum and that policies Congoleum contends they issued were not issued and never existed. If the insurers are correct in their positions, which Congoleum disputes, then the amount of insurance available to pay asbestos liabilities would be substantially less than $1 billion. (c) Coverage Litigation There is insurance coverage litigation currently pending between Congoleum and its excess insurance carriers, and the guaranty funds and associations for the State of New Jersey. The litigation was initiated on September 15, 2001, by one of Congoleum's excess insurers. Congoleum has reached settlements with its insurance brokers in this litigation. Congoleum has also reached settlements with certain of its insurance carriers, which are described in Section 5.11 - "Settlements with Insurers and Brokers" below. On February 26, 2003, one of Congoleum's excess insurers filed a motion for preliminary and permanent injunctive relief seeking, among other things, an order enjoining Congoleum from entering into the Pre-Petition Settlement Agreement and compelling Congoleum to allow insurers to participate in the settlement discussions. The insurers also sought permission to file amended counterclaims against Congoleum objecting to the terms of the Pre-Petition Settlement Agreement. On March 26, 2003, the court denied the insurers' request for injunctive relief. The parties conducted extensive discovery. Congoleum produced numerous employees and other representatives for multiple days of depositions and produced hundreds of thousands of pages of documents relating to the Pre-Petition Settlement Agreement, the prepackaged bankruptcy proceeding, and other matters. Congoleum also served discovery requests and received discovery responses, and conducted depositions of numerous insurance company employees and representatives. On or about July 11, 2003, certain upper layer excess insurers (i.e., those in the second excess layer and above) filed a motion for summary judgment seeking to dismiss Congoleum's breach of contract claims as to such upper layer excess carriers. On August 26, 2003, the court granted the 24 defendants' motion. This ruling did not impact the declaratory judgment count of the coverage litigation. The court also held that the ruling is not a determination as to whether Congoleum had a right to enter into the Pre-Petition Settlement Agreement and may not be used by the insurers to determine Congoleum's ability to enforce insurance coverage for the Claims addressed in the Pre-Petition Settlement Agreement. The court also held that the question of whether there was a sound and reasonable basis for entering into the Pre-Petition Settlement Agreement was not and could not be decided by this motion. On September 10, 2003, one of Congoleum's excess insurers filed a motion for summary judgment seeking a ruling that the Pre-Petition Settlement Agreement is unreasonable and was not entered into in good faith as a matter of law. Most of the excess insurers joined in the application. On November 7, 2003, the court denied the insurers' motion for summary judgment in its entirety. In December 2003, several of Congoleum's excess insurers filed motions for summary judgment seeking a ruling that Congoleum had violated the duty to cooperate, consent to settle and anti-assignment provisions of their insurance policies and, as a result, the Pre-Petition Settlement Agreement was not enforceable against it. Most of the excess insurers joined in the application. On April 19, 2004, the court denied the insurers' motions for summary judgment in their entirety. On February 25, 2004, Congoleum filed an application for leave to file a Third Amended Complaint against the excess insurers to allege claims for breach of the implied covenant of good faith and fair dealing and for bad faith. On March 5, 2004, the court granted Congoleum's application for leave to file a Third Amended Complaint in its entirety. On or about March 12, 2004, Congoleum filed the Third Amended Complaint and served each excess insurer with a copy. On March 22, 2004, Congoleum filed an application for a jury trial during the Phase I trial. On April 19, 2004, the court denied Congoleum's application. Congoleum filed an application for leave to appeal, but the Appellate Division refused to consider the appeal of the jury trial ruling on an interlocutory basis. On August 12, 2004, the court entered a new case management order with respect to the pending insurance coverage litigation, Case Management Order No. IV ("CMO IV"), that divides the trial into three phases. CMO IV sets forth the deadlines for completing fact and expert discovery. CMO IV also established deadlines for dispositive and pre-trial motion practice. A new judge was assigned to the case effective February 23, 2005 and the schedule was modified as a result. On February 22, 2005, the court ruled on a series of summary judgment motions filed by various insurers. The court denied a motion for summary judgment filed by certain insurers, holding that there were disputed issues of fact regarding the intent of the settling parties and whether the claimants had released Congoleum from any liability for the asbestos bodily injury claims of the claimants who signed the Claimant Agreement and the other settlement agreements. 25 The court also denied another motion for summary judgment filed by various insurers who argued that they did not have to cover the liability arising from the Claimant Agreement because they had not consented to it. The court granted summary judgment regarding Congoleum's bad faith claims against excess insurers (other than first-layer excess insurers), holding the refusal of these excess insurers to cover the Claimant Agreement was at least fairly debatable and therefore not in bad faith. Subsequently, bad faith claims against first-layer insurers were dismissed by stipulation. However, the court must still determine whether the insurers fairly and honestly considered the Pre-Petition Settlement Agreement before refusing to consent to it. On March 18, 2005, the Debtors filed a motion in the Bankruptcy Court asking the Bankruptcy Court to vacate its prior order lifting the automatic stay in bankruptcy to permit the Coverage Action to proceed. The Debtors requested that the Coverage Action proceedings be stayed until the Debtors had completed their plan confirmation process in the Bankruptcy Court. A hearing on the Debtors' motion was held on April 12, 2005 and the motion was denied. The Phase 1 trial in the insurance coverage litigation began on August 2, 2005, and is continuing. The court has defined the scope of the Phase 1 trial as follows: All issues and claims relating to whether the insurers are obligated to provide coverage under the policies at issue in the litigation for the global claimant's agreement entered into by Congoleum, including but not limited to all issues and claims relating to both Congoleum's decision and conduct in entering into the Claimant Agreement and filing a pre-packaged bankruptcy and the insurance company defendants' decisions and conduct in opposing the Claimant Agreement and Congoleum's pre-packaged bankruptcy, the reasonableness and good faith of the Claimant Agreement, whether the Claimant Agreement breached any insurance policies and, if so, whether the insurance companies suffered any prejudice, and whether the insurance companies' opposition to the Claimant Agreement and bankruptcy and various other conduct by the insurers has breached their duties of good faith and fair dealing such that they are precluded from asserting that Congoleum's decision to enter into the Claimant Agreement constitutes any breach(es) on the part of Congoleum. In or about mid-November, 2005, and in early December 2005, certain insurers filed motions for summary judgment on the ground, inter alia, that the decision of the United States Court of Appeals for the Third Circuit reversing the Bankruptcy Court's order approving the retention of the Gilbert Heinz & Randolph firm in In re Congoleum, 426 F.3d 675 (3d Cir. 2005), and/or Congoleum's filing of avoidance actions in the Bankruptcy Court, entitled them to judgment as a matter of law on the Phase I issues. On March 16, 2006, the court denied the summary judgment motions filed by insurers, ruling that the motions, which were filed and argued before the close of plaintiff's case, were procedurally not ripe for decision and that there were questions of fact that prevented granting a summary judgment motion. Congoleum completed the presentation of its case-in-chief on April 28, 2006. Certain insurers thereafter moved for involuntary dismissal or judgment in their favor (the "directed verdict motions"), arguing that the evidence in the case, even when accepted as true and even after giving Congoleum 26 the benefit of all legitimate inferences that may be drawn from such evidence, as New Jersey law requires at the close of the plaintiff's case, was not sufficient to sustain a decision in Congoleum's favor on Phase I. A variety of theories were advanced by the insurers similar to those previously made in their earlier motions for summary judgment, including that (a) the settlements are unreasonable and were not negotiated or made in good faith; (b) the insurers were not in breach of their policies and, therefore, had the right to withhold their consent to the settlements if their objections were reasonable; (c) because the settlements were structured so as to be paid only from insurance proceeds, not by Congoleum, the insurers may avoid coverage entirely under the "legally obligated to pay" language of certain policies; (d) Congoleum cannot establish exhaustion of underlying limits of insurance; and (e) the evidence in the case does not allow for reasonable people to disagree on these points. Hearings on the directed verdict motions were held on June 2 and June 7, 2006. On July 13, 2006, the court denied the motions in their entirety as to all defendants. The court determined that, under the applicable legal standard, which forbids the court from making credibility determinations and requires the evidence and all inferences to be drawn from the evidence to be construed in Congoleum's favor at this stage of the case, there remained fact questions that could only be resolved at the conclusion of the trial. The court indicated that the trial would resume for presentation of the defense case, most likely beginning on September 11, 2006. It is not clear how long insurers will take to present their evidence, or whether Congoleum will present any rebuttal evidence. The court strongly encouraged the parties to cooperate in completing the case to avoid unnecessary delays. On or about June 1, 2006, certain London Market insurers filed a motion seeking various purported sanctions for alleged discovery violations, including an "adverse inference" that the Claimant Agreement was "the product of collusion and/or was unreasonable." Congoleum has opposed this motion. No argument date has been set. Some insurers contend that, if there is a ruling adverse to Congoleum in the Coverage Litigation, then the insurers will not owe coverage for claims resolved under the Claimant Agreement and/or under other pre-petition settlements. Insurers further contend that such result would also deprive individual claimants who were parties to the Claimant Agreement and other pre-petition settlements of the right to seek payment from the insurers under their insurance policies or from negotiating settlements with some or all of the insurers. Insurers also contend that such result would preclude Congoleum and claimants from agreeing to forbear under or amending the Claimant Agreement and other pre-petition settlements and would preclude claimants from seeking recovery under other claims payment standards, including bankruptcy TDPs, or under any amended agreements. Insurers contend that even if there is no insurance for the Claimant Agreement and/or other pre-petition settlements, the releases signed by the claimants are valid and binding and preclude recovery of insurance for these claimants under any claims resolution process. Congoleum intends to contest any attempt by the insurers to enlarge or expand upon a Phase I ruling that is adverse to Congoleum. However, there can be no assurances of the outcome of these matters. The Phase 2 trial will address all remaining coverage issues, including but not limited to trigger and allocation. Discovery is permitted on all issues, except for punitive damages. Pre-trial motions and trial dates for the Phase 2 and Phase 3 trials and discovery for the Phase 3 trial will be addressed by the court after the Phase 1 trial decision. 27 (d) Congoleum's Insurance Coverage for Asbestos Property Damage Claims The insurance policies purchased by Congoleum also provide coverage for claims asserting property damage. In the context of asbestos property damage, some, but not all, of Congoleum's primary policies provided separate property damage limits, and some policies included property damage limits within a combined single, overall policy aggregate or within the policy's products aggregate limit. Thus, the property damage limits have been exhausted for some years and not other years under Congoleum's primary policies. Congoleum has identified certain primary insurance policies, set forth on Exhibit "A" to the Plan, that provide separate property damage coverage limits. As a result of the Liberty Settlement, discussed in Section 5.11 below, approximately $1.25 million is earmarked for the payment of Asbestos Property Damage Claims. (e) Congoleum's Insolvent and Certain Run-Off Insurers The following U.S. based insurers of Congoleum that issued policies without asbestos exclusions are the subject of insolvency, liquidation, or rehabilitation proceedings: Midland Insurance Co., Transit Casualty Co., Highlands Insurance Co., Integrity Insurance Co., Mission Insurance Co., Holland-America Insurance Co., Western Employers Insurance Co., Home Insurance Co., and Protective National Insurance Co. of Omaha. A combined total of up to approximately $518 million of policy limits was issued by these insurers to or for the benefit of Congoleum; of these limits, up to approximately $272 million, $72 million, and $68 million were issued by Midland, Transit, and Highlands, respectively. The potentially available limits are in some cases subject to dispute, particularly in respect of policies of other than twelve-month policy periods. In March 2006, Congoleum received a Notice of Determination ("NOD") denying its claims in the Midland insolvency proceeding. Congoleum thereupon filed a timely objection to the NOD. The liquidator's adverse determination is now subject to judicial review. Congoleum's claims in the Transit proceedings were denied in 2000. According to the Transit liquidator, Congoleum did not challenge that denial, which therefore appears to have become final in 2000. Highlands has only recently proposed a plan of rehabilitation, which would impose a deadline for proofs of claim in 2007. The liquidator of Integrity reports that Congoleum's claims in that liquidation were disallowed. However, the running of all appeal periods has been tolled until the resolution of a pending appeal by Integrity's reinsurers. In certain insolvency proceedings, Congoleum may not have filed a timely claim. Although inquiry is ongoing, there do not appear to be claims pending in the liquidations of Mission, Holland-America, and Western Employers, which estates all established bar dates falling more than a decade prior to the Petition Date. Of the remaining insurers mentioned above, inquiry to date shows that Congoleum filed timely claims with the estates of Home and Protective National. A number of the London Market insurers of Congoleum that issued policies without asbestos exclusions are the subject of insolvency proceedings. The combined total of aggregate policy limits issued to or for the benefit of Congoleum by such insolvent London Market insurers that were not the subject of pre-petition settlements is approximately $5 million. Also, certain of the 28 solvent London Market insurers have proposed so-called solvent schemes of arrangement for the purpose of paying claims under their previously issued policies. Congoleum has received approximately $256,000 pursuant to certain of these solvent schemes of arrangement, which funds are being held in an account for transfer to the Plan Trust after confirmation. Congoleum is continuing to attempt to pursue its claims against insurers in insolvency and rehabilitation proceedings. However, there can be no assurance that Congoleum's claims will be allowed in any such proceedings or, if allowed, that Congoleum or the Plan Trust will receive any distribution on asbestos-related or other claims. ARTICLE 3 THE PRE-PETITION PROCESS AND PAYMENT OF ASBESTOS CLAIMS 3.1. The Company's Reasons for Negotiating a Prepackaged Plan As both the volume of Asbestos Personal Injury Claims and the associated costs of defense and settlements increased, and as its principal insurers refused to make further payments or became insolvent, Congoleum became concerned about its ability to continue in business and to pay fair compensation to claimants allegedly injured by its historical operations. Beginning in October 2002, Congoleum consulted with its counsel regarding ways to compensate legitimate Asbestos Claimants while preserving Congoleum's business, including utilization of the special provisions of the Bankruptcy Code, including section 524(g), to accomplish this purpose. In an effort to further reduce the cost and disruption of a bankruptcy filing, and to optimize the potential for preserving value, Congoleum simultaneously negotiated the Claimant Agreement, the Security Agreement and the Collateral Trust Agreement as described in Section 3.2 below. Congoleum also structured the plan of reorganization as a prepackaged plan, in which acceptances were solicited prior to filing the Reorganization Cases, in an effort to reduce the duration and expense of the contemplated bankruptcy proceedings and the risk that the contemplated bankruptcy proceedings would have a material adverse impact upon Congoleum's business. Votes were solicited for the prepackaged plan and the votes received were overwhelmingly in favor of the prepackaged plan. While the Debtors could have proceeded to seek confirmation of the prepackaged plan, after filing these Chapter 11 cases, the Debtors engaged in negotiations with various constituents in an effort to develop consensual modifications. 3.2. The Initial Negotiation Process (a) General Background Congoleum and the Claimants' Representative commenced preliminary negotiations in December 2002. The negotiations focused first on the desirability of a possible plan of reorganization and the settlements required to position Congoleum for filing such a plan, and then on the terms of such a plan. 29 In connection with its attempts to negotiate a global resolution of its asbestos liabilities in the form of a prepackaged plan of reorganization, Congoleum of necessity dealt with the counsel who represent the largest number of identified Asbestos Personal Injury Claims, the Claimants' Representative. The Claimants' Representative and Congoleum each evaluated the Asbestos Personal Injury Claims presently asserted against Congoleum. The parties examined historical data for Congoleum as well as other asbestos defendants. The Kenesis Group, LLP was retained by Congoleum to assist it in its assessment of Asbestos Personal Injury Claims values. An appropriate dollar figure for the settlement amounts was reached by the parties during the course of negotiations. As a result of these negotiations, Congoleum entered into the following agreements: (i) the Claimant Agreement with the Claimants' Representative pursuant to which Congoleum offered to settle existing Asbestos Claims and provide collateral for payment of a substantial portion of such claims (see Section 3.2(c) -- "Claimant Agreement," below, for a description of the Claimant Agreement); (ii) the Collateral Trust Agreement with the Collateral Trustee which provides, among other things and subject to certain conditions precedent, for the receipt of certain payments from insurers and payment thereof to certain Asbestos Claimants (see Section 3.2(e) -- "The Collateral Trust Agreement," below, for a description of the Collateral Trust Agreement); and (iii) the Security Agreement with the Collateral Trustee pursuant to which Congoleum granted a security interest in Congoleum's rights under and proceeds of insurance coverage for asbestos-related liabilities to the Collateral Trustee for the benefit of the holders of Secured Asbestos Claims (see Section 3.2(f) -- "The Security Agreement," below, for a description of the Security Agreement). Copies of any of the Asbestos Settlement Documents may be obtained by contacting the Voting Agent. The settlement amounts established under the Asbestos Settlement Documents represent heavily negotiated figures that take into account factors, including the cost of inflation, the increases in settlement costs and jury awards and the costs of litigating unsubstantiated claims. As a result of negotiations between the Debtors and the Asbestos Claimants' Committee, the Futures Representative and the Claimants' Representative, the Claimant Agreement as well as the other Asbestos Settlement Documents and Pre-Petition Settlement Agreements are being compromised and settled pursuant to the Plan, which incorporates the Class 2 Settlement and the Class 3 and 11 Settlement. See Section 6.2 -- "Class 2 Settlement and Class 3 and 11 Settlement" for a description of the Class 2 and Class 3 and 11 Settlement. (b) Negotiations with Asbestos Insurance Companies Before ultimately deciding to pursue a prepackaged plan of reorganization, beginning in July 2001 and continuing through December 2002, Congoleum attempted to reach agreement for insurance coverage with its numerous asbestos insurance companies (collectively, the "Insurance Companies"). Those 30 efforts were unsuccessful and Congoleum found itself facing potential serious cash flow problems due to the drain on resources from asbestos-related defense costs and concerns this uncertainty created on the part of suppliers and lenders. Considering its options, Congoleum decided to utilize the trust mechanisms provided by section 524(g) of the Bankruptcy Code to efficiently, promptly, and fairly resolve its asbestos liability claims. In a January 13, 2003 press release, Congoleum publicly stated its desire to resolve its asbestos liabilities by possibly filing a Chapter 11 prepackaged plan. Congoleum's insurance counsel, Dughi & Hewit P.C. ("D&H"), circulated the press release to all the Insurance Companies. The Insurance Companies expressed opposition to Congoleum's proposed plan to resolve its liability by filing a Chapter 11 prepackaged plan and requested meetings and on-going communications with Congoleum concerning, among other things, the negotiation and drafting of the Asbestos Settlement Documents. Congoleum met with representatives from several Insurance Companies four times during February and March of 2003 and also forwarded to them drafts of the Claimant Agreement (a copy of which is attached hereto as Exhibit "E"). The Insurance Companies requested some changes to the Asbestos Settlement Documents, and also continued to object to Congoleum entering into or finalizing the Claimant Agreement and other Asbestos Settlement Documents. Some of the changes to the Asbestos Settlement Documents requested by the Insurance Companies were implemented, but no settlement was reached between Congoleum and the Insurance Companies, and the Insurance Companies continued to object to terms contained in the Asbestos Settlement Documents. On April 18, 2003, Congoleum forwarded executed copies of the Claimant Agreement to, among other parties, the Insurance Companies. (c) Claimant Agreement Under the terms of the Claimant Agreement, the amounts due to Qualified Participating Claimants are fixed by the compensable disease matrix attached to the Claimant Agreement. Each Qualified Participating Claimant provided evidence of his or her bodily injury, sickness or disease and a verification that such Qualified Participating Claimant was exposed to asbestos or an asbestos-containing product for which Congoleum may have liability. In addition, each Qualified Participating Claimant submitted a release in a form acceptable to Congoleum. The Claims Reviewer reviewed such documentation submitted by each potential Qualified Participating Claimant in order to ensure its completeness and adequacy. If the documentation was incomplete or inadequate, the Claims Reviewer informed Claimants' Counsel and such potential Qualified Participating Claimant had the opportunity to remedy the deficiency within the timeframe provided in the Claimant Agreement. If the documentation was complete and adequate, the Claims Reviewer approved the Claim and forwarded such Claim for payment in accordance with the Claimant Agreement. The payment of the settlement amounts to the Qualified Participating Claimants is partially secured by a security interest granted to the Collateral Trustee in the Asbestos Insurance Collateral. See Section 3.2(f) -- "The Security Agreement" for a general description of the lien granted in the 31 Asbestos Insurance Rights. The security interest secures an amount equal to seventy-five percent of the aggregate of all of the amounts for which Qualified Participating Claims are settled under the Claimant Agreement. As a result of negotiations between the Debtors and the Asbestos Claimants' Committee, the Futures Representative and the Claimants' Representative, the Claimant Agreement as well as the other Asbestos Settlement Documents and Pre-Petition Settlement Agreements are being compromised and settled pursuant to the Plan, which incorporates the Class 2 Settlement and the Class 3 and 11 Settlement. See Section 6.2 -- "Class 2 Settlement and Class 3 and 11 Settlement" for a description of the Class 2 and Class 3 and 11 Settlement. See also Section 6.5 - -- "Treatment of Classified Claims and Interests" for a description of the treatment afforded to the Qualified Participating Claimants and Section 5.10 -- "Asbestos Personal Injury Claims - Related Avoidance Actions" for a description of the Omnibus Avoidance Action. Pursuant to the Claimant Agreement, Congoleum advanced $1,000,000 to each Claimants' Representative to pay out-of-pocket expenses, reasonable professionals' fees and expenses, and other costs such counsel may have incurred or may incur in connection with (i) the negotiation and implementation of the Asbestos Settlement Documents; (ii) the negotiation of a prepackaged chapter 11 plan of reorganization for Congoleum; (iii) due diligence investigations related to a possible chapter 11 plan of reorganization; and (iv) defending the Claimant Agreement. The Debtors sought to recover these payments in the Omnibus Avoidance Action; however, under Sections 12.3 and 13.5 of the Plan, the counts of the Omnibus Avoidance Action pertaining to these advances will be released by the Debtors and their Estates and will not be assigned to the Plan Trust. (d) Pre-Petition Settlement Agreements The Pre-Petition Settlement Agreements address the Claims of Pre-Petition Settlement Claimants with whom Congoleum entered into various settlement agreements. Pursuant to the Claimant Agreement, a UCC-1 financing statement was filed by the Collateral Trustee to perfect the lien securing the liabilities set forth in the Security Agreement. The Secured Asbestos Claims of Qualified Pre-Petition Settlement Claimants are secured to the full extent of their liquidated settlement amounts, as determined under the Collateral Trust Agreement and the respective Pre-Petition Settlement Agreement. As a result of negotiations between the Debtors and the Asbestos Claimants' Committee, the Futures Representative and the Claimants' Representative, the Claimant Agreement as well as the other Asbestos Settlement Documents and Pre-Petition Settlement Agreements are being compromised and settled pursuant to the Plan, which incorporates the Class 2 Settlement and the Class 3 and 11 Settlement. See Section 6.2 -- "Class 2 Settlement and Class 3 and 11 Settlement" for a description of the Class 2 and Class 3 and 11 Settlement. See also Section 6.5 - -- "Treatment of Classified Claims and Interests" for a description of the treatment afforded to the Qualified Pre-Petition Settlement Claimants and Section 5.10 -- "Asbestos Personal Injury Claims - Related Avoidance Actions" for a description of the Omnibus Avoidance Action. On the Effective Date, the Plan Trust will automatically assume all liability for Secured Asbestos Claims and the Reorganized Debtors will have no liability for Secured Asbestos Claims. On the Effective Date, all of the Collateral Trust's right, title and interest in and to any assets or properties then held by the Collateral Trust will automatically be transferred and assigned to, and vest in, the Plan Trust free and clear of all Liens, Claims and encumbrances, and all rights with respect to such assets and properties will be enforceable by the Plan Trust. 32 (e) The Collateral Trust Agreement Congoleum established the Collateral Trust to hold the security interest in the Asbestos Insurance Collateral (as defined therein) and to act as a vehicle to transfer the proceeds thereof to Secured Asbestos Claimants with respect to their Secured Asbestos Claims. Under the terms of the Collateral Trust Agreement, the Collateral Trust is the direct recipient of the proceeds of the Asbestos Insurance Collateral. The Collateral Trust will transfer all of its assets and liabilities to the Plan Trust upon or as soon as practicable after the Plan Trust's establishment and the Plan Trust provides for the transfer of such assets and liabilities. The Collateral Trustee is Arthur J. Pergament, who will serve until the earlier of his resignation or removal or the termination of the Collateral Trust. The Collateral Trustee at all times acts as a fiduciary of the Collateral Trust and in accordance with the Collateral Trust Agreement. The Collateral Trustee earns $195 per hour for his time devoted to business of the Collateral Trust. The hourly rate may be adjusted over time as appropriate with the consent of the Claimants' Representative. In addition, the Collateral Trustee is reimbursed for any reasonable out-of-pocket costs and expenses from the assets of the Collateral Trust. Wilmington Trust Company serves as the Delaware trustee for the Collateral Trust. The Delaware trustee is a trustee for the sole and limited purpose of fulfilling the requirements of Section 3807 of chapter 38 of Title 12 of the Delaware Code, 12 Del. C. ss.ss. 3801 et seq. The Delaware trustee receives compensation from the Collateral Trust for its service as Delaware trustee at the rates detailed in a mutually acceptable fee agreement. The Collateral Trust will reimburse the Delaware trustee for all reasonable out-of-pocket costs and expenses incurred by the Delaware trustee in connection with the performance of its duties, at the rates detailed in the fee agreement. (f) The Security Agreement Congoleum granted to the Collateral Trustee a security interest in the Asbestos Insurance Collateral (as defined in the Collateral Trust Agreement), which consists generally of (i) all of Congoleum's claims, causes of action and rights to receive payment from its insurers for its benefit to satisfy claims against it, net of certain fees and expenses, and (ii) the proceeds of any of the above, net of certain fees and expenses. The Asbestos Insurance Collateral secures all of the Secured Asbestos Claims. Upon the creation of the Plan Trust, the Collateral Trustee will release the security interest in the Asbestos Insurance Collateral granted by the Security Agreement. 3.3. Selection of the Futures Representative Congoleum considered candidates to serve as the Futures Representative to represent the interests of Asbestos Personal Injury Claimants who are presently unknown. After reviewing the qualifications and potential conflicts of certain candidates, and following careful deliberation, Congoleum asked R. Scott Williams to serve as the Futures Representative. 33 Mr. Williams is a member of the Litigation Practice Group of Haskell Slaughter Young & Rediker, L.L.C. Mr. Williams holds degrees from the University of Illinois at Urbana-Champaign (B.A. 1985) and the University of Alabama School of Law (J.D. 1988). Prior to joining Haskell Slaughter Young & Rediker, L.L.C., Mr. Williams served United States Senator Howell Heflin as counsel to the United States Senate Judiciary Committee and as judicial clerk to the Honorable Sharon Lovelace Blackburn of the United States District Court for the Northern District of Alabama. Mr. Williams was admitted to the Alabama Bar in 1988 and his practice specializes in bankruptcy and commercial litigation. Mr. Williams is a frequent lecturer and author on bankruptcy and commercial litigation related topics and he currently serves as a contributing editor to Collier on Bankruptcy (15th Ed. Revised). Mr. Williams is a past president of the Birmingham Bar Bankruptcy and Commercial Law Section and is a former member of the Birmingham Bar Executive Committee. In addition, Mr. Williams is an active member of the American Bankruptcy Institute and has served in a variety of leadership roles for that organization. Mr. Williams served as the futures representative in the prepackaged Chapter 11 case of In re Shook & Fletcher Insulation Co., U.S.B.C. N.D. Al., Case No.: 02-02771-BGC-11. Mr. Williams has never represented a current plaintiff, defendant, or insurer in connection with asbestos litigation against Congoleum, and, other than being selected as the Futures Representative, has never had a relationship with, or connection to, Congoleum or any of its Affiliates. Mr. Williams' appointment has been approved by the Bankruptcy Court. See Section 5.4 - "Bankruptcy Court Appointment of Futures Representative." 3.4. Formation of the Pre-Petition Asbestos Claimants' Committee During the course of the negotiations of the prepackaged plan documents, various representatives of the holders of Asbestos Personal Injury Claims engaged in discussions with the Claimants' Representative concerning the possible pre-packaged bankruptcy filing by the Company. Such discussions culminated in the formation of the Pre-Petition Asbestos Claimants' Committee which consisted of the following members: Perry Weitz, Esquire, Joe Rice, Esquire, Steve Kazan, Esquire, Russell Budd, Esquire, Bryan Blevins, Esquire, John Cooney, Esquire and Matt Bergmann, Esquire. The members of the Pre-Petition Asbestos Claimants' Committee represented a majority of the holders of Asbestos Personal Injury Claims and a diverse mix of the types of such Asbestos Claimants. 3.5. Due Diligence Review The Claimants' Representative engaged L. Tersigni Consulting, P.C. ("LTC") to conduct a due diligence investigation of (a) the business affairs of Congoleum, (b) the equity value of Congoleum, and (c) the feasibility of a plan of reorganization. The Pre-Petition Asbestos Claimants' Committee was also apprised of the results of the due diligence investigation undertaken by LTC and considered such results in connection with its review and approval of the prepackaged plan of reorganization. LTC's due diligence review consisted of a thorough investigation of the past and present business activities of Congoleum and the relationship between Congoleum and its Affiliates. Congoleum cooperated with LTC in its investigation and produced numerous documents in response to the requests of LTC. The Futures Representative and his professionals (including CIBC World Markets Corp.) conducted their own due diligence review, including consulting with advisors to the Company and the Claimants' Representative. 34 3.6. Pre-Petition Plan Negotiations In December 2002, Congoleum, the Claimants' Representative and ABI began preliminary negotiations regarding the terms of a prepackaged plan of reorganization. Congoleum, through its counsel, prepared a proposed draft plan of reorganization reflecting the tentative agreements reached among the parties. Counsel to Congoleum, the Claimants' Representative, the Futures Representative (subsequent to his appointment by the Debtors in June 2003), ABI and counsel to ABI reviewed the draft plan and related documents and engaged in extensive negotiations regarding many of the operative provisions of those documents. The goal of all parties to these negotiations, in addition to achieving the maximum benefit for their respective interests or clients, was to insure that the resulting plan documents were fair and equitable and satisfied the requirements of the Bankruptcy Code in general and section 524(g) of the Bankruptcy Code in particular. Prior to the final conclusion of such negotiations, the Pre-Petition Asbestos Claimants' Committee participated in the final negotiation, review and approval of the plan documents. 3.7. Pre-Petition Solicitation On October 27, 2003, the Debtors commenced a pre-petition solicitation with respect to a plan of reorganization (the "Pre-Petition Solicitation"). The solicitation materials consisted of a disclosure statement with a plan of reorganization attached as an exhibit thereto, a copy of the Pre-petition Solicitation and Voting Procedures, an appropriate ballot or ballots with instructions (depending upon which Class or Classes in which holders of Claims were entitled to vote), a self-addressed return envelope, letters in support of such plan from the Company and the Futures Representative, and in certain instances, letters from counsel to holders of Asbestos Personal Injury Claims to their respective clients (collectively, the "Pre-Petition Solicitation Package"). Votes were solicited from holders of Claims in Classes 2 and 3 and Classes 4, 9 and Class 10 and holders of Interests in former Class 12 (now Class 13). Class 4, which is now an Unimpaired Class, was designated as being an Impaired Class at the time of the Pre-Petition Solicitation. There were no known holders of Claims in former Class 11 (now Class 12) at the time of the Pre-Petition Solicitation and thus, votes could not be solicited from holders of Claims in that Class. Holders of Priority Tax Claims and holders of Claims in Classes 1, 5, 6 and 7 and holders of Interests in Classes 13 and 14 were sent Pre-Petition Solicitation Packages that included notices of non-voting status in lieu of ballots. Holders of Claims in Class 8 - Workers' Compensation Claims and holders of Claims in Class 7 who were employees of the Debtors were not sent Pre-Petition Solicitation Packages. Instead, such claimants were notified of such plan and their treatment under such plan separately by the Debtors. The initial deadline for voting for the Pre-Petition Solicitation, December 19, 2003, was extended by the Debtors to December 24, 2003. Based on the votes received for the Pre-Petition Solicitation, as well as other indications of support, such plan was overwhelmingly supported by a majority of the Debtors' creditors, including the holders of Asbestos Personal Injury 35 Claims. The prepackaged plan has been withdrawn by the Debtors, and the Debtors have substituted the proposed Tenth Modified Plan. As discussed below in Section 5.12 - "Fourth Modified Plan and Subsequent Changes", the Tenth Modified Plan is a significant departure from the prepackaged plan. Most significantly, the Tenth Modified Plan provides for the compromise and settlement of the Class 2, 3 and 11 Asbestos Claims and provides that all other Asbestos Personal Injury Claims to be channeled to the Plan Trust will be determined, liquidated and treated without priority of payment and in all respects pari passu with each other. ARTICLE 4 THE COMPANY: CORPORATE STRUCTURE AND MANAGEMENT 4.1. Boards of Directors of the Company (a) Congoleum The following table sets forth the name and principal occupation of each of the directors of Congoleum. Business Experience and Name Other Directorships - ---- ------------------- Mark N. Kaplan Of Counsel, Skadden, Arps, Slate, Meagher & Flom LLP, attorneys, since 1999. Director of American Biltrite Inc., DRS Technologies, Inc., REFAC Technology Development Corporation, Volt Information Sciences, Inc. and Autobytel Inc. Director of Congoleum since 1995. Richard G. Marcus Vice Chairman of Congoleum (since 1994) and a Director (since 1993). Director (since 1982), President (since 1983) and Chief Operating Officer (since 1992) of American Biltrite Inc. American Biltrite is the control shareholder of Congoleum and owns and operates other businesses selling tape and film, flooring and rubber products, and costume jewelry. Mark S. Newman Chairman of the Board since 1995, President and Chief Executive Officer since 1994 of DRS Technologies, Inc., a high technology defense electronics systems company. Director of Opticare Health Systems, Inc., SSG Precision Optronics, Governor Aerospace Industries Association, New Jersey Technology Council and REFAC Technology Development Corporation. Past Chairman AEA. Director of Congoleum since 2000. Roger S. Marcus Director, President and Chief Executive Officer of Congoleum (since 1993) and Chairman (since 1994). Mr. Marcus is also a Director (since 1981), Chairman of the Board (since 1992) and Chief Executive Officer (since 1983) of American Biltrite Inc. From 1983 to 1992, Mr. Marcus served as Vice Chairman of the Board of American Biltrite Inc. 36 Business Experience and Name Other Directorships - ---- ------------------- Jeffrey H. Coats Chief Executive Officer, President and Director of Mikronite Technologies Group Inc., an industrial technology company. Mr. Coats is also a Director of Autobytel Inc. and a Managing Director of Maverick Associates LLC, a financial consulting and investment company. Director of Congoleum since 2005. Adam H. Slutsky Chief Executive Officer of Mimeo.com, an online document production company. Director of Congoleum since 2005. William M. Marcus Director, Executive Vice President and Treasurer of American Biltrite Inc. since 1966. Director of Congoleum since 1993. C. Barnwell Straut Managing Director of Hillside Capital Incorporated, an investment firm, since 1976. Director of Congoleum since 1986. Roger S. Marcus and Richard G. Marcus are brothers, and William M. Marcus is their cousin. Roger S. Marcus and Richard G. Marcus were executive officers of Congoleum on December 31, 2003, when it filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code. (b) CFI The directors of CFI are Roger S. Marcus, Richard G. Marcus and Howard N. Feist III. See Section 4.1(a) - "Congoleum" above for information regarding Mssrs. Roger and Richard Marcus and Section 4.2(a) - "Management of the Company - Congoleum" below for information regarding Mr. Feist. (c) CSI The directors of CSI are Roger S. Marcus, Richard G. Marcus and Howard N. Feist III. See Section 4.1(a) - "Management of the Company - Congoleum" above for information regarding Mssrs. Roger and Richard Marcus and Section 4.2(a) - "Congoleum" below for information regarding Mr. Feist. 4.2. Management of the Company (a) Congoleum The following is a list of the executive officers of Congoleum and a brief description of their positions and certain biographical data. 37 Name Position with Congoleum ---- ----------------------- Roger S. Marcus Chairman of the Board, Chief Executive Officer and President Richard G. Marcus Vice Chairman Howard N. Feist III Chief Financial Officer and Secretary Dennis P. Jarosz Senior Vice President - Sales & Marketing Sidharth Nayar Senior Vice President - Finance John L. Russ III Senior Vice President - Operations Thomas A. Sciortino Senior Vice President - Administration Roger S. Marcus Roger S. Marcus has been a Director and President and Chief Executive Officer of Congoleum since 1993, and Chairman since 1994. Mr. Marcus is also a Director (since 1981), Chairman of the Board (since 1992) and Chief Executive Officer (since 1983) of ABI. From 1983 to 1992, Mr. Marcus served as Vice Chairman of ABI. Richard G. Marcus Richard G. Marcus has been Vice Chairman of Congoleum since 1994 and a Director since 1993. Mr. Marcus is also a Director (since 1982) and President (since 1983) and Chief Operating Officer (since 1992) of ABI. Howard N. Feist III Howard N. Feist III has been Chief Financial Officer and Secretary of Congoleum since 1988. Mr. Feist is also Vice President - Finance and Chief Financial Officer of ABI (since 2000). Dennis P. Jarosz Dennis P. Jarosz has been Senior Vice President - Sales & Marketing since 2002. Previously, he was Senior Vice President - Marketing since 1995. Prior thereto, he had served as Vice President - Marketing since 1993 and Vice President - Sales & Marketing of the Tile Division of ABI (since 1986). Sidharth Nayar Sidharth Nayar has been Senior Vice President - Finance of Congoleum since 1999. Prior thereto, he had served as Vice President - Controller since 1994 and prior to that he was Controller since 1990. 38 John L. Russ III John L. Russ III has been Senior Vice President - Operations since 2002. Prior thereto, he served as Executive Vice President for Borden Chemicals, Inc. (Forest Products Division), a supplier of resins and adhesives, since 1997. Prior to that he was Executive Vice President of Borden Chemicals and Plastics, a specialty resins manufacturer, since 1987. Thomas A. Sciortino Thomas A. Sciortino has been Senior Vice President - Administration of Congoleum since 1993. Prior thereto, he was Vice President - Finance of the Tile Division of ABI (since 1982). (b) CFI Roger S. Marcus is the President and Howard N. Feist III is the Vice-President, Treasurer and Secretary of CFI. (c) CSI Roger S. Marcus is the President and Howard N. Feist III is the Vice-President, Treasurer and Secretary of CSI. 4.3. Directors and Officers of the Reorganized Debtors (a) Boards of Directors The respective boards of directors of the Debtors immediately prior to the Confirmation Date will serve as the initial respective boards of directors of the Reorganized Debtors on and after the Effective Date. Each of the members of such initial boards of directors will serve until the first annual meeting of shareholders of the Reorganized Debtors and until his or her successor has been elected and qualified, or his or her earlier death, resignation or removal in accordance with the certificate of incorporation and by-laws. The Reorganized Debtors will, from the Effective Date and continuing until Reorganized Congoleum's obligations to the Plan Trust are fulfilled, continue to maintain independent directors in accordance with the listing requirements of the American Stock Exchange and applicable law, which directors will, from the Effective Date and continuing until Reorganized Congoleum's obligations to the Plan Trust are fulfilled, also have no financial interest, past or present, in ABI or its affiliates or any business owned and controlled by Richard, Roger or William Marcus. In addition, any transaction between the Reorganized Debtors and any affiliate, insider or subsidiary of Reorganized Congoleum will, from the Effective Date and continuing until Reorganized Congoleum's obligations to the Plan Trust are fulfilled, be approved by a standing committee of such independent directors. (b) Officers The respective officers of the Debtors immediately prior to the Confirmation Date will serve as the respective officers of the Reorganized Debtors on and after the Effective Date. Such officers will serve in accordance with any applicable employment agreement, by-laws and non-bankruptcy law. 39 4.4. Employees and Union Contracts As of December 31, 2005, Congoleum employed a total of approximately 833 personnel. Congoleum has entered into collective bargaining agreements with hourly employees at three of its plants and with the drivers of the trucks that provide interplant transportation. These agreements cover approximately 500 of Congoleum's employees. The Marcus Hook plant has a five-year collective bargaining agreement which expires in November 2008 and a separate five-year collective bargaining agreement which expires in January 2009. The Trenton sheet plant has a five-year collective bargaining agreement which was renewed in February 2006 and expires in January 2011. The Trenton tile plant has a five-year collective bargaining agreement which expires in May 2008. The Finksburg plant does not currently have a collective bargaining agreement, but on April 5, 2006, hourly employees at that plant voted to be represented by the United Steelworkers. In the past five years, there have been no significant strikes by employees at Congoleum and Congoleum believes that its employee relations are satisfactory. 4.5. Debt and Equity Structure (a) Summary of Pre-Petition Date Indebtedness (1) The Credit Facility On December 10, 2001, Congoleum entered into a revolving credit agreement (the "Credit Facility") with Wachovia which provides for revolving loans and a letter of credit facility in an aggregate principal amount of up to $30,000,000. Interest payable on revolving loans is equal to .25% above a designated prime rate or 2.75% over an adjusted Eurodollar rate, as applicable, depending on meeting the required covenants under the Credit Facility. The Credit Facility contains certain covenants which include a covenant requiring the maintenance of adjusted minimum tangible net worth and EBITDA (i.e., earnings before interest, taxes, depreciation and amortization) if borrowing availability falls below a certain level. It also includes restrictions on the incurrence of additional debt and limitations on capital expenditures. The covenants and conditions under the Credit Facility must be met in order for Congoleum to borrow under the Credit Facility. The repayment obligations of Congoleum are secured under the Credit Facility by a grant of a perfected security interest in certain of Congoleum's inventory and accounts receivable. In addition, Congoleum Financial Corporation and Congoleum Intellectual Properties, Inc., wholly owned subsidiaries of Congoleum as of the date of the Credit Facility, each granted a limited guarantee in favor of Wachovia with regard to the obligations of Congoleum under the Credit Facility. Pursuant to the terms of the Credit Facility, amounts received by Congoleum with regard to its accounts receivable and inventory which are subject to the security interest granted by Congoleum to Wachovia are to be deposited by Congoleum, and Congoleum is obligated to direct its customers to remit payments, into a lockbox or blocked account, which funds are controlled and used by Wachovia to offset outstanding amounts borrowed by Congoleum under the Credit Facility. 40 In September 2002, Congoleum and Wachovia amended the Credit Facility to revise certain financial and other covenants. In February 2003, Congoleum and Wachovia further amended the Credit Facility to revise certain financial and other covenants on terms negotiated to reflect the transactions contemplated by Congoleum's intended global settlement of its asbestos claims liability. Pursuant to this amendment, CSI and CFI granted a limited guarantee in favor of Wachovia with regard to the obligations of Congoleum under the Credit Facility, which limited guarantee is substantially similar to the limited guarantee that was previously granted by Congoleum Financial Corporation and Congoleum Intellectual Properties, Inc., which entities are no longer in existence. As of the Petition Date, the principal amount of all pre-petition obligations owed by the Debtors to Wachovia, both absolute and contingent, pursuant to the Credit Facility existing as of December 31, 2003 consisted of the principal amount of not less than $14,325,937, plus all interest accrued and accruing thereon and fees, costs, expenses and other charges accrued, accruing or chargeable with respect thereto. Wachovia has provided debtor-in-possession financing during the pendency of the Reorganization Cases. See Section 5.2(b) - - "Administration of the Reorganization Cases - DIP Financing". (2) The Senior Notes On August 3, 1998, Congoleum issued $100 million in aggregate principal amount of 8?% Senior Notes Due 2008 (the "Senior Notes") priced at 99.505 to yield 8.70%. Interest is payable on the Senior Notes semiannually on February 1 and August 1. The Senior Notes mature on August 1, 2008. The Senior Notes are redeemable at the option of Congoleum, in whole or in part, at any time on or after August 1, 2003 at predetermined redemption prices (ranging from 104% to 100%), plus accrued and unpaid interest to the date of redemption. The Indenture under which the notes were issued includes certain restrictions on additional indebtedness and uses of cash, including dividend payments. In March 2003, Congoleum and the trustee under the Indenture governing the Senior Notes (the "Indenture Trustee") amended the Indenture to expressly provide Congoleum, under the terms of that Indenture, with greater flexibility to pursue possible resolutions of its current and future asbestos claims liability, including negotiating a global settlement with current asbestos plaintiffs and the Futures Representative, and soliciting acceptances of and filing a prepackaged plan of reorganization under Chapter 11 of the Bankruptcy Code. Prior to the amendment, holders of a majority in aggregate principal amount of the Senior Notes outstanding as of the record date for determining the holders entitled to vote on the proposed amendment had consented to the amendment. In August 2003, Congoleum and the Indenture Trustee amended the Indenture to expressly provide Congoleum, under the terms of the Indenture, with greater flexibility to pursue approval of its pre-packaged plan of reorganization under Chapter 11 of the Bankruptcy Code. Prior to the amendment, holders of a majority in aggregate principal amount of the Senior Notes as of the record date for determining the holders entitled to vote on the proposed amendment had consented to the amendment. See Section 6.5(f) -- "Treatment of Classified Claims and Interests" for a description of the treatment of the Senior Notes under the Plan. 41 (b) Description of Capital Stock (1) Congoleum Congoleum has 31,000,000 shares of capital stock authorized, of which 20,000,000 shares are designated as Class A Common Stock, 10,000,000 shares are designated as Class B Common Stock and 1,000,000 shares are designated as preferred stock (the "Preferred Stock"). As of June 30, 2006, 3,663,390 shares of Class A Common Stock, 4,608,945 shares of Class B Common Stock and no shares of Preferred Stock were issued and outstanding. As of that date, ABI held 151,100 shares of Class A Common Stock and 4,395,605 shares of Class B Common Stock. Upon the filing of amended certificates of incorporation in connection with the Effective Date, the Debtors will be prohibited from issuing non-voting capital stock in accordance with section 1123(a)(5) of the Bankruptcy Code. (A) Class A Common Stock The Class A Common Stock is entitled to one vote per share and, generally, votes together with the Class B Common Stock as a single class. The Class A Common Stock and Class B Common Stock are on parity on a per share basis with respect to dividend and liquidation rights. On April 21, 2006, Congoleum received a letter from the American Stock Exchange (the "Amex") indicating that it does not meet the minimum income and stockholders' equity requirements for continued listing of the Class A Common Stock. The letter stated that Congoleum is not in compliance with Section 1003(a)(i) of the Amex Company Guide, with stockholders' equity of less than $2,000,000 and losses from continuing operations and/or net losses in two of its three most recent fiscal years; and Section 1003(a)(ii) of the Amex Company Guide, with stockholders' equity of less than $4,000,000 and losses from continuing operations and/or net losses in three of its four most recent fiscal years. The letter also stated that the Congoleum must submit a plan by May 22, 2006 advising the Amex of actions it has taken or will take to achieve compliance with the continued listing standards within eighteen months of receipt of the letter, and that this plan must be approved by the Amex, for Congoleum to maintain its listing. On June 5, 2006, Congoleum received notice that the Amex accepted Congoleum's plan to regain compliance with the continued listing requirements of the Amex and that the Amex will continue to list Congoleum shares. The continued listing is subject to Congoleum complying with the progress described in its plan to achieve compliance, which must be attained no later than October 13, 2007. (B) Class B Common Stock Generally, the Class B Common Stock is entitled to two votes per share and votes together with the Class A Common Stock as a single class. The Class B Common Stock is only entitled to one vote per share with regard to certain extraordinary transactions. The Class B Common Stock and Class A Common Stock are on parity on a per share basis with respect to dividend and liquidation rights. 42 A holder of Class B Common Stock may convert any shares of such stock into an equal number of shares of Class A Common Stock at any time at the holder's option. The Class B Common Stock is subject to automatic conversion into Class A Common Stock on a one-for-one basis upon the adoption of a resolution authorizing such conversion approved by the holders of a majority of the outstanding shares of Class B Common Stock voting as a separate class. In addition, any shares of Class B Common Stock sold or otherwise transferred to a person or entity other than an affiliate of the transferor will be automatically converted into an equal number of shares of Class A Common Stock upon such sale or transfer. A pledge of shares of Class B Common Stock is not considered a transfer for this purpose unless and until the pledge is enforced. Also, with respect to shares of Class B Common Stock held by ABI, those shares will automatically be converted into an equal number of shares of Class A Common Stock upon the occurrence of a "change of control" of ABI (as defined under Congoleum's Certificate of Incorporation). (2) CFI CFI has 1,000 shares of common stock, each share having a par value of $0.01, authorized, of which 100 shares are issued and outstanding and owned by Congoleum. (3) CSI CSI has 1,000 shares of common stock, each share having a par value of $0.01, authorized, of which 100 shares are issued and outstanding and owned by Congoleum. 4.6. Other Matters (a) Environmental Proceedings Congoleum is named, together with a large number (in most cases, hundreds) of other companies, as a potentially responsible party ("PRP") in pending proceedings under the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), and similar state laws. In addition, in four other instances, although not named as a PRP, Congoleum has received a request for information. The pending proceedings 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 in connection with those sites depends on many factors, including the volume of material contributed to the site, the number of other PRPs and their financial viability, the remediation methods and technology to be used and the extent to which costs may be recoverable from insurance. However, under CERCLA, and certain other laws, Congoleum, as a PRP, can be held jointly and severally liable for all environmental costs associated with a site. 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 43 of December 31, 1998 and a groundwater treatment system was installed thereafter. The Environmental Protection Agency ("EPA") has selected a remedy for the soil and shallow groundwater ("Operational Unit 1" or "OU-1"); however, the remedial investigation/feasibility study related to the deep groundwater ("OU-2") has not been completed. The PRP group, of which Congoleum is a part, has entered into a Consent Decree to perform the remedy for OU-1 and resolve natural resource damage claims. The Decree also requires the PRPs to perform the OU-2 remedy, assuming that the estimated cost of the remedy is not more than $10 million. If the estimated cost of the OU-2 remedy is more than $10 million, the PRPs may decline to perform it or they may elect to perform anyway. Cost estimates for the OU-1 and OU-2 work combined (including natural resource damages) range between $22 million and $34 million, with Congoleum's share ranging between approximately $1.0 million and $1.6 million. This assumes that all parties participate and that none cash-out and pay a premium; those two factors may account for some fluctuation in Congoleum's share. Fifty percent (50%) of Congoleum's share of the costs is presently being paid by one of its insurance carriers, whose remaining policy limits for this claim will cover approximately $0.3 million in additional costs. Congoleum expects to fund the balance to the extent further insurance coverage is not available. The Bankruptcy Court authorized the Debtors' entry into the Consent Decree and approved the transactions set forth in the Consent Decree by Order dated August 22, 2006. 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 $100,000 as financial assurance for certain remediation funding obligations. Estimated total cleanup costs of $1.6 million, including capital outlays and future maintenance costs for soil and groundwater remediation, are primarily based on engineering studies. Congoleum anticipates that these matters will be resolved over a period of years and that after application of expected insurance recoveries, funding the costs 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 financial position of Congoleum. (b) Other Matters Material to the Success of Reorganized Congoleum The success of Reorganized Congoleum is dependent upon several factors. One factor is the continuing contributions of key employees, both management and in the field. In addition, the relationships with its existing customer base and suppliers are important to Reorganized Congoleum's success. Finally, the performance of Reorganized Congoleum depends in part on Reorganized Congoleum's ability to obtain financing, either from its relationship with Wachovia or from alternative sources during the Reorganization Cases and thereafter. 44 ARTICLE 5 EVENTS DURING THE REORGANIZATION CASES 5.1. Commencement of the Reorganization Cases On December 31, 2003 (the "Petition Date"), Congoleum, CSI and CFI each filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. Each Debtor was authorized to operate its business and manage its properties as a debtor-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On or about January 7, 2004, the Bankruptcy Court entered an order providing for the joint administration of the Reorganization Cases. 5.2. Administration of the Reorganization Cases (a) Payment of Pre-Petition Debt Incurred in the Ordinary Course of Business On January 7, 2004, the Bankruptcy Court entered orders that authorized the Company to pay, in its discretion, all undisputed, unsecured pre-petition indebtedness and obligations (other than the Asbestos Claims, Senior Note Claims and any other indebtedness or liabilities that are impaired and to be restructured under the Plan) which were incurred in the ordinary course of business as such indebtedness and obligations mature in accordance with their terms, and to pay salaries, wages, benefits and other amounts owed to employees and consultants as such obligations become due, including obligations that were, or may have been, incurred prior to the Petition Date. (b) DIP Financing In order to fund ongoing business operations and to preserve the value of the Debtors' estates, the Debtors entered into a Ratification and Amendment Agreement (the "Ratification Agreement") with Wachovia to ratify and amend the Credit Facility in order to provide the Debtors with debtor-in-possession financing. The Debtors filed a Motion for Interim and Final Orders Pursuant to Sections 363(c) And 364(c) of the Bankruptcy Code and Bankruptcy Rule 4001 (1) Authorizing the Use of Cash Collateral, (2) Authorizing Debtors to Obtain Interim Post-Petition Financing, (3) Granting Senior Liens and Priority Administrative Expense Status, (4) Modifying the Automatic Stay, (5) Authorizing Debtors to Enter into Agreements with Congress Financial Corporation, and (6) Prescribing Form and Manner of Notice and Time for Final Hearing under Bankruptcy Rule 4001(C) (the "DIP Motion"). On March 8, 2004, the Bankruptcy Court entered a final order authorizing the Debtors to obtain debtor-in-possession financing on a final basis, effective as of February 2, 2004 (the "DIP Order"). In summary, Wachovia agreed, subject to the terms of the Ratification Agreement, to make post-petition loans to Congoleum in an aggregate principal amount not to exceed $30 million, including a sublimit of $5 million for letters of credit, subject to certain borrowing base and minimum excess availability restrictions. To secure this indebtedness, Wachovia was granted security interests in all of the collateral subject to security interests in the Credit Facility, all present and future accounts, all present and future acquired Inventory and all documents of title. In addition, the DIP Order 45 provides, inter alia, that the obligations of the Debtors under the Ratification Agreement will constitute, in accordance with section 364(c)(1) of the Bankruptcy Code, allowed administrative expense claims against the Debtors in the Reorganization Cases, with such claims having priority over all other administrative expense claims and all unsecured claims of the Debtors then existing or thereafter arising, of any kind or nature whatsoever including, without limitation, all administrative expenses of the kinds specified in sections 503(b) and 507(b) of the Bankruptcy Code. Reference should be made to the DIP Motion (including all exhibits thereto) and the Ratification Agreement, copies of which are on file with the Bankruptcy Court, for more details regarding the terms of the financing. On November 22, 2004, with the consent of Wachovia, the Debtors filed a motion pursuant to Section 364 of the Bankruptcy Code for an Order Approving Amendment to Post-Petition Financing Agreement, which was granted by the Bankruptcy Court by order dated December 14, 2004. This amendment (i) amended the budget; (ii) extended the term of the existing Credit Facility from December 31, 2004 to June 30, 2005; (iii) placed new limitations on capital expenditures; (iv) provided a new minimum EBITDA covenant and (v) eliminated the minimum tangible net worth requirement. A fee of $150,000 was paid to Wachovia upon approval of this amendment by the Bankruptcy Court. On May 12, 2005, with the consent of Wachovia, the Debtors filed a motion pursuant to Section 363 and 364 of the Bankruptcy Code for an Order Approving Third Amendment to Post-Petition Financing Agreement, which was granted by the Bankruptcy Court on June 6, 2005. This amendment (i) extends the existing Credit Facility from June 30, 2005 to December 31, 2005 and (ii) provides a new minimum EBITDA covenant. A fee of $125,000 was paid to Wachovia upon approval of this amendment by the Bankruptcy Court. On December 2, 2005, with the consent of Wachovia, the Debtors filed a motion pursuant to Section 363 and 364 of the Bankruptcy Code for an Order Approving Fourth Amendment to Post-Petition Financing Agreement, which was granted by the Bankruptcy Court on December 20, 2005. This amendment (i) extends the existing Credit Facility from December 31, 2005 to December 31, 2006 and (ii) provides a new minimum EBITDA covenant. A fee of $250,000 was paid to Wachovia upon approval of this amendment by the Bankruptcy Court. (c) Asbestos Property Damage Claim Bar Date At the time the Debtors commenced the Reorganization Cases, no Asbestos Property Damage Claims were being asserted against the Debtors. In order to bind holders of Asbestos Property Damage Claims to the Plan, the Debtors needed to ascertain whether any such claims existed, and if so, give such claimants notice and an opportunity to protect their interests. On January 13, 2004, the Debtors filed the Motion re: for Order (i) Establishing Asbestos Property Damage Claim Bar Date; (ii) Approving Property Damage Proof of Claim Form; and (iii) Approving Scope and Form of Notice (the "Asbestos Property Damage Claim Bar Date Motion"). The Bankruptcy Court, on February 2, 2004, entered an Order establishing May 3, 2004 as the deadline by which holders of Asbestos Property Damage Claims were required to assert such claims against the Debtors by the filing of an Asbestos Property Damage Proof of Claim Form or be forever barred from asserting any such claim against the Debtors, the Reorganized Debtors, the Plan Trust and other parties protected by the Bankruptcy Court's Orders or the Plan (the "Asbestos Property Damage Claim Bar Date Order"). 46 Because the Debtors were unaware of any holders of Asbestos Property Damage Claims, notice of the Asbestos Property Damage Claim Bar Date was provided by publication in certain national newspapers and newspaper inserts, such as The New York Times and Parade Magazine, as well as trade publications for certain industries. In response, thirty-six (36) Asbestos Property Damage Proofs of Claim were filed which asserted Asbestos Property Damage Claims of approximately $900,000 in the aggregate. After reviewing the Asbestos Property Damage Claims to ensure that such claims were based upon the existence of Congoleum manufactured asbestos-containing products in the buildings for which claims are asserted as well as to ensure that such claims complied in all other respects with the Asbestos Property Damage Claim Bar Date Order, the Debtors filed objections to certain of the claims. By Order dated January 18, 2005, several Asbestos Property Damage Claims were expunged. As a result, 19 Allowed Asbestos Property Damage Claims remain, which total approximately $133,000 in the aggregate. 5.3. Asbestos Claimants' and Bondholders' Committee Section 1102 of the Bankruptcy Code authorizes the appointment of a committee of holders of unsecured claims and such other committees as the United States Trustee or the Bankruptcy Court may determine to appoint. On March 23, 2004, a motion was filed requesting that the United States Trustee appoint an official committee of unsecured asbestos-related personal injury claimants. On April 19, 2004, the Bankruptcy Court entered an order requiring the appointment of the Asbestos Claimants' Committee. On April 21, 2004, the United States Trustee appointed the Asbestos Claimants' Committee, which currently consists of the following members: (i) Frank Cettina, c/o Weitz & Luxenberg, P.C.; (ii) Michael Edwards, c/o Baron & Budd, P.C.; (iii) Gerald and Mae Ferro, c/o Kazan, McClain, Abrams, Fernandez, Lyons & Farrise, a Professional Law Corporation; (iv) Harvey Overman, c/o Motley Rice, LLC; and (v) Lois J. Amati, c/o Robert Taylor, II, PC & Assocs. The Asbestos Claimants' Committee requested and obtained authority to employ the following professionals: (i) Caplin & Drysdale, Chartered as counsel to the Asbestos Claimants' Committee; and (ii) Goldstein Lem & Isaacson, P.C. as co-counsel to the Asbestos Claimants' Committee. On January 27, 2006, the United States Trustee appointed the Bondholders' Committee consisting of Deutsche Asset Management, Wells Capital Management and HSBC Bank USA, N.A., as Successor Indenture Trustee, to represent the interests of the holders of Senior Note Claims. As described in Section 6.5, - - "Treatment of Classified Claims and Interests," the Senior Note Claims are impaired by the Plan. 5.4. Bankruptcy Court Appointment of Futures Representative On February 18, 2004, the Bankruptcy Court entered an order approving the appointment of R. Scott Williams as the Futures Representative (the "Futures Representative Appointment Order"). Mr. Williams' qualifications to serve as Futures Representative, and the process by which he was selected, are set forth in Section 3.3 -- "Selection of the Futures Representative." Mr. Williams requested and obtained the authority to employ the following professionals: (i) Swidler Berlin LLP (formerly Swidler Berlin Shereff Friedman LLP) as co-counsel to Mr. Williams; (ii) Ravin Greenberg PC as co-counsel to Mr. Williams; and (iii) CIBC World Markets Corp. as financial advisor to Mr. Williams. In March 2006, Swidler Berlin LLP withdrew as co-counsel to Mr. Williams and Mr. Williams requested and obtained the authority to retain Orrick, Herrington & Sutcliffe LLP as co-counsel to Mr. Williams. In March 2006, Mr. Williams also requested and obtained the authority to employ Piper Jaffray & Co. as financial advisor to Mr. Williams. 47 On February 27, 2004, certain insurers of the Debtors appealed the Futures Representative Appointment Order. On August 9, 2004, the District Court entered an order affirming the Futures Representative Appointment Order. On September 8, 2004, the appellants appealed the District Court's order to the United States Court of Appeals for the Third Circuit (the "Court of Appeals"). By order dated February 23, 2005, with the agreement of the parties, the Court of Appeals dismissed the appeal. 5.5. Retention of Professionals The Debtors requested and obtained the authority to employ the following professionals: (i) Saul Ewing LLP ("Saul Ewing") as counsel to the Debtors; (ii) Gilbert Heintz & Randolph LLP ("GHR") as special insurance counsel to the Debtors; (iii) Dughi & Hewit PC (formerly, Dughi Hewit & Palatucci PC) as special insurance counsel to the Debtors; (iv) SSG Capital Advisors, L.P. as financial advisors to the Debtors; (v) Ernst & Young LLP as audit and tax advisors to the Debtors; (vi) Guiliani Capital Advisors LLC (formerly Ernst & Young Corporate Finance LLC) as restructuring advisor to the Debtors; (vii) Peterson Risk Consulting as insurance allocation consultant to the Debtors; and (viii) Daley-Hodkin, LLC as appraiser. Certain of the Debtors' insurers appealed the Bankruptcy Court's Orders authorizing the retention of Saul Ewing and GHR. On August 26, 2004 the District Court vacated the Bankruptcy Court's order authorizing the retention of Saul Ewing and remanded the matter to the Bankruptcy Court for further fact finding. A stay of this Order was subsequently entered by the District Court pending an appeal by the Debtors. On September 24, 2004, the Debtors appealed the District Court's order to the Court of Appeals. While the Debtors and Saul Ewing denied all allegations raised by the insurers challenging Saul Ewing's retention, they decided that further contesting those allegations could entail enduring a costly and potentially distracting appellate process. The Debtors and Saul Ewing did not want to add the prospect of delay, additional cost and unnecessary disruption to the Debtors' bankruptcy cases. Saul Ewing, in consultation with and consent of the Debtors, concluded that it should withdraw as the Debtors' counsel in order to avoid any potential distraction to the Debtors' reorganization efforts and potential additional cost to the Debtors' estates. On October 18, 2004, the Bankruptcy Court approved Saul Ewing's withdrawal as counsel to the Debtors and established a transition period during which Saul Ewing would complete certain work for the Debtors. The Debtors requested and obtained the authority to employ Pillsbury Winthrop Shaw Pittman LLP (formerly Pillsbury Winthrop LLP) and Okin, Hollander & DeLuca, LLP as substitute co-counsel to the Debtors. On August 9, 2004, the District Court affirmed the Bankruptcy Court's Order authorizing the retention of GHR. On September 8, 2004, the appellants appealed the District Court's order to the Court of Appeals. On October 13, 2005, the Court of Appeals determined that GHR had not obtained effective waivers of certain conflicts of interest, issued a decision disqualifying GHR as counsel to the Debtors (the "Disqualification Decision") and remanded the matter to the District Court for further proceedings 48 consistent with its opinion. On December 6, 2005, the Bankruptcy Court entered an Order authorizing the retention of Covington & Burling to represent the Debtors as co-counsel with Dughi & Hewit in the insurance coverage litigation and with respect to insurance settlement matters previously handled by GHR. As a result of the Disqualification Decision, by motion dated October 28, 2005, GHR sought an order authorizing the withdrawal of GHR as special counsel to the Debtors (the "Withdrawal Motion"). In response, certain insurers filed a Cross-Motion For Disgorgement of Fees (the "Cross-Motion"), which was contained in the certain insurers' objection to the Withdrawal Motion. The Cross-Motion was joined, in whole or in part, by several other insurers, the Bondholders' Committee and the Office of the United States Trustee. The Debtors sought mediation with respect to, inter alia, the Cross-Motion. The Bankruptcy Court held a hearing on the Cross-Motion on February 6, 2006 and issued an oral decision granting the Cross-Motion on February 7, 2006 (the "GHR Disgorgement Decision"). The Bankruptcy Court denied the Withdrawal Motion as moot at a hearing held on March 6, 2006. On February 27, 2006, the Bankruptcy Court stated that it would grant the Motion of United States Trustee for an Order Compelling Disgorgement of Funds Received by Gilbert Heintz & Randolph based on the identical reasoning contained in the GHR Disgorgement Decision. Accordingly, on March 27, 2006, the Bankruptcy Court entered an Order (the "Disgorgement Order") compelling GHR to disgorge all fees and expenses paid to it in connection with GHR's First through Sixth Fee Applications, such amounts totaling $9,662,486.71 and denying GHR's request for $3,312,151.53 in connection with its Seventh and Eighth Fee Applications. The Disgorgement Order provides for disgorgement within sixty (60) days of March 27, 2006, which was May 26, 2006. The Order further provides that GHR may reapply to the Bankruptcy Court for payment of third party litigation vendors it sought reimbursement for under its previously filed fee applications, provided that any approved amount be subject to setoff against the amount ordered to be disgorged. GHR has appealed the Disgorgement Order to the District Court. GHR's request for a stay of the Disgorgement Order pending appeal was denied by the Bankruptcy Court by Order, dated April 27, 2006. On April 28, 2006, GHR filed an Emergency Motion for a stay of the Disgorgement Order pending appeal with the District Court, which was denied by the District Court on May 15, 2006. On May 12, 2006, GHR filed an application with the Bankruptcy Court seeking reimbursement of $1,459,150.55 in expenses (the "GHR Expense Application") which, if the application is granted, will be setoff against the $9,662,486.71 ordered to be disgorged pursuant to the Disgorgement Order. On May 26, 2006, the Debtors filed a Cross-Motion to the GHR Expense Application seeking entry of judgment with respect to the Disgorgement Order and authorization to register the judgment in the districts where GHR maintains its assets. On July 27, 2006, the Debtors advised the Bankruptcy Court that the Debtors and the Bondholders' Committee had reached an agreement in principle with GHR, subject to documentation, settling GHR's liability under the Disgorgement Order. Pending documentation and Bankruptcy Court approval of the Settlement, the hearing on the GHR Expense Application and the Debtors' Cross-Motion has been adjourned to September 25, 2006. On or about February 19, 2004, the Debtors filed an application to retain The Kenesis Group LLC to perform post-petition services. On April 5, 2004, the Bankruptcy Court denied Kenesis' retention application. On December 8, 49 2005, certain insurers filed a Motion Seeking Disgorgement of Fees by Kenesis and Authority to Commence an Avoidance Action against Kenesis (the "Kenesis Disgorgement Motion") with the Bankruptcy Court. On February 6, 2006, the United States Trustee filed a separate Motion For Disgorgement of Fees by Kenesis and on February 8, 2006, the Debtors filed a Cross-Motion with respect to the Kenesis Disgorgement Motion. The Debtors' Cross-Motion sought disgorgement of fees for services rendered by Kenesis after the Petition Date. A hearing on the Kenesis Disgorgement Motion and the Debtors' Cross-Motion was held on February 14, 2006 at which the Bankruptcy Court rendered its decision (the "Kenesis Decision"). By the Kenesis Decision, the Bankruptcy Court granted, in part, the Debtors' Cross-Motion and the Kenesis Disgorgement Motion by ordering Kenesis to disgorge all fees related to services performed after the Petition Date. Kenesis was specifically ordered to disgorge the sum of $181,000, and the Debtors were directed to investigate whether additional disgorgement or fee recovery is appropriate under various legal theories. The Bankruptcy Court denied the Kenesis Disgorgement Motion to the extent that it sought disgorgement of fees for services rendered pre-Petition Date and denied the certain insurers' derivative standing to commence an avoidance action against Kenesis. In February 2006, Kenesis paid the Debtors $181,000 on account of the Kenesis Decision. On March 9, 2006, certain insurers filed a cross-motion to appoint an independent examiner for the GHR matters (the "Examiner Cross-Motion"). On April 3, 2006, the Bondholders' Committee filed a Motion for Entry of an Order Granting Leave, Standing and Authority to Prosecute Certain Causes of Actions on Behalf of the Estates Against Gilbert Heintz & Randolph, LLP (the "Bondholders' Standing Motion"). In response to the Bondholders' Standing Motion, by Order, dated April 20, 2006, the Bankruptcy Court granted the Bondholders' Committee standing on behalf of the Debtors to investigate and prosecute malpractice claims against GHR and further granted the Bondholders' Committee standing on behalf of the Debtors to investigate and pursue claims against Kenesis. Accordingly, the Debtors are no longer investigating potential additional claims against Kenesis, but are cooperating with the Bondholders' Committee in its investigation and prosecution of claims on the Debtors' behalf. The Bankruptcy Court denied the Examiner Motion and certain insurers have appealed the order (the "Examiner Appeal"). On July 13, 2006, the Debtors filed a motion to dismiss the Examiner Appeal, which is pending before the District Court. 5.6. Motion for Relief from Stay On January 6, 2004, certain of Congoleum's insurers filed the Motion of Certain Insurers for Declaration that Section 362(a) of the Bankruptcy Code is not Applicable, or, in the Alternative, for Relief from the Automatic Stay (the "Stay Motion"). The Stay Motion sought a declaration from the Bankruptcy Court that the Coverage Litigation between Congoleum and certain of its insurers, described in Section 2.2(c) above, was not subject to the automatic stay provisions of section 362 of the Bankruptcy Code or, in the alternative, requesting that the Bankruptcy Court grant relief from the automatic stay so that the Coverage Litigation could proceed during the pendency of the Reorganization Cases. On March 22, 2004, the Bankruptcy Court entered an order that permitted the claims asserted in the Coverage Litigation (except for certain claims for rescission of insurance policies issued to Congoleum) to proceed without making a finding as to whether or not the automatic stay provisions of section 362 of the Bankruptcy Code applied to the Coverage Litigation. A motion by the Debtors to vacate this order was denied by the Bankruptcy Court at a hearing held on April 12, 2005. 50 5.7. Developments with Regard to Certain Pre-Petition Claims On February 28, 2005, the Debtors filed the Objection to Asbestos Personal Injury Claims of Certain Pre-Petition Settlement Claimants (First Set) (the "Claims Objection") seeking the disallowance and expungement of the Asbestos Personal Injury Claims of certain of the Participating Claimants that participated in the Claimant Agreement. The Claims Objection asserted that certain of such claims were potentially invalid because they may have been barred by the statutes of limitations and therefore may not have been filed in good faith. Certain of the claims were withdrawn, and other claimants did not respond. By the Order Concerning Debtors' Objection to Asbestos Personal Injury Claims of Certain Pre-Petition Settlement Claimants (First Set), dated April 5, 2005 and the Consent Order Withdrawing Motion Without Prejudice, dated April 27, 2005, the Bankruptcy Court disallowed approximately 580 claims totaling approximately $4.3 million. On September 30, 2005, the Bankruptcy Court entered a Consent Order between the Debtor and Campbell Cherry in which Campbell Cherry agreed on behalf of certain of its clients to withdraw certain claims that had previously been approved under the Claimant Agreement and to forbear from exercising all rights under the Claimant Agreement with respect to such claims. The Consent Order related to claims with an approximate dollar value of $6.5 million. 5.8. Tolling Agreements With Respect to Asbestos Personal Injury Claims - Related Avoidance Actions On July 19, 2005, the Debtors filed a motion for the entry of an order authorizing and approving the form of tolling agreement ("Asbestos Personal Injury Claim Tolling Agreement") to be entered into between the Debtors and counsel (in their capacity as attorney-in-fact) for certain holders of Asbestos Personal Injury Claims pursuant to Bankruptcy Code ss.ss. 105(a) and 546(a). The Bankruptcy Court entered an order on August 11, 2005 granting the motion. The Debtors were authorized to request counsel for these claimants to enter into Asbestos Personal Injury Claim Tolling Agreements on behalf of their clients that extend and toll the time within which the Plan Trustee (or, if the Plan does not become effective and the Plan Trustee is not appointed, the Debtors) could commence any Plan Trust Bankruptcy Cause of Action with respect to the claimants' Asbestos Personal Injury Claims to and including December 31, 2006. The Asbestos Personal Injury Claim Tolling Agreements also extend and toll the time within which the Debtors may commence any other Bankruptcy Cause of Action with respect to the claimants' Asbestos Personal Injury Claims to and including December 31, 2006. As of December 31, 2005, of the 93 firms representing the approximately 79,000 holders of Secured Asbestos Claims, 56 firms signed tolling agreements, and 37 firms did not. The 37 non-signing firms represent approximately 41,800 creditors, or 53% of the total number of holders of Secured Asbestos Claims. The 56 signing firms represent approximately 37,200 creditors, or 47% of the total number of holders of Secured Asbestos Claims. 51 To the extent that claimants or their counsel did not voluntarily execute an Asbestos Personal Injury Claim Tolling Agreement, the Debtors commenced avoidance actions against such non-consenting claimants to preserve the interests of the Debtors' estates. The Avoidance Actions are described, in detail, in Section 5.10 below. Because the Debtors believed that there were Asbestos Claimants named as defendants who were prepared to waive their rights in the Claimant Agreement and other pre-petition settlements voluntarily and opt out of the Omnibus Avoidance Action, and since the commencement of the Omnibus Avoidance Action, the Debtors have entered into additional tolling agreements ("Asbestos Personal Injury Claim Tolling and Dismissal Agreements") with 16 law firms representing Asbestos Claimants who were named as defendants in the Omnibus Avoidance Action. These 16 signing firms represent approximately 7,800 creditors, or 9% of the total number of holders of Secured Asbestos Claims. Pursuant to these Asbestos Personal Injury Claim Tolling and Dismissal Agreements, these Asbestos Claimants have agreed to be bound by any order, decree, finding or judgment entered in the Omnibus Avoidance Action (including any order, decree, finding or judgment entered with respect to any additional claim that has not already been asserted) to the same extent that any party to the Omnibus Avoidance Action is bound. The Asbestos Personal Injury Claim Tolling and Dismissal Agreements further provide that these Asbestos Claimants have been dismissed without prejudice from the Omnibus Avoidance Action as defendants, but also that these Asbestos Claimants are still bound to any order, decree, finding or judgment entered in the Omnibus Avoidance Action regardless of their dismissal without prejudice. These Asbestos Personal Injury Claim Tolling and Dismissal Agreements also toll through December 31, 2006 the expiration of the time established by Bankruptcy Code ss. 546(a) to bring Plan Trust Bankruptcy Causes of Action or Bankruptcy Causes of Action with respect to the claims of these Asbestos Claimants. Since the commencement of the Omnibus Avoidance Action, the Debtors have also entered into additional tolling agreements with 10 law firms representing Asbestos Claimants who signed tolling agreements with the Debtors prior to the filing of the first complaint in the Omnibus Avoidance Action and were not previously named as defendants ("Asbestos Personal Injury Claim Tolling and Binding Agreements"). These 10 signing firms represent approximately 1,300 creditors, or 1.5% of the total number of holders of Secured Asbestos Claims. Pursuant to these Asbestos Personal Injury Claim Tolling and Binding Agreements, these Asbestos Claimants have agreed to be bound by any order, decree, finding or judgment entered in the Omnibus Avoidance Action. These Asbestos Personal Injury Claim Tolling and Binding Agreements also toll through December 31, 2006 the expiration of the time established by Bankruptcy Code ss. 546(a) to bring Plan Trust Bankruptcy Causes of Action or Bankruptcy Causes of Action with respect to the claims of these Asbestos Claimants. Finally, since the filing of the Debtors' motion for summary judgment with respect to counts I and II of the first amended complaint in the Omnibus Avoidance Action, Debtors have entered into additional tolling agreements with 17 law firms representing Asbestos Claimants who signed tolling agreements with the Debtors prior to the filing of the original complaint in the Omnibus Avoidance Action and who were not previously named as defendants ("Modified Asbestos Personal Injury Claim Tolling and Binding Agreements"). These 17 signing firms represent approximately 10,000 creditors, or 12% of the total number of holders of Secured Asbestos Claims. Pursuant to these Modified Asbestos Personal Injury Claim Tolling and Binding Agreements, these Asbestos 52 Claimants have agreed to be bound to the same extent that any party to the Omnibus Avoidance Action is bound, by (i) the ruling on any dispositive motion on the merits or (ii) any final judgment on the merits (except (A) any motion for entry of default or default judgment, or (B) any final judgment by default) entered in the Omnibus Avoidance Action as to counts I and II of the first amended complaint, regarding whether or not alleged pre-petition and post-petition transfers may be avoided under Bankruptcy Code ss.ss. 547 and 549. Unless these Asbestos Claimants signing the Modified Asbestos Personal Injury Claim Tolling and Binding Agreements have already been made a party to this proceeding, to the extent that any stipulation or settlement is offered to any party to the Omnibus Avoidance Action, the Debtors have also agreed to offer the same stipulation or settlement to the Asbestos Claimants signing Modified Asbestos Personal Injury Claim Tolling and Binding Agreements. These Modified Asbestos Personal Injury Claim Tolling and Binding Agreements also toll through December 31, 2006 the expiration of the time established by Bankruptcy Code ss. 546(a) to bring Plan Trust Bankruptcy Causes of Action or Bankruptcy Causes of Action with respect to the claims of these Asbestos Claimants. With respect to those Secured Asbestos Creditors who signed tolling agreements with the Debtors prior to the filing of the original complaint in the Omnibus Avoidance Action, but who have not signed either an Asbestos Personal Injury Claim Tolling and Binding Agreement or a Modified Asbestos Personal Injury Claim Tolling and Binding Agreement, the Debtors plan to add these claimants as defendants in the Omnibus Avoidance Action by amending the first amended complaint in that proceeding. 5.9. Tolling Agreements With Respect to Other Avoidance Actions On August 10, 2005, the Debtors filed a motion for the entry of an order authorizing and approving the form of tolling agreement ("Vendor Tolling Agreement") to be entered into between the Debtors and (i) certain individual directors and officers of the Debtors; (ii) related companies to the Debtors; (iii) professionals employed by the Debtors; and (iv) certain vendors, creditors and other parties that received transfers during the ninety days preceding the Petition Date with an aggregate value of $100,000.00 or greater, pursuant to Bankruptcy Code sections 105(a) and 546(a). The agreements toll the expiration of the time established by Bankruptcy Code ss. 546(a) to bring causes of action under Bankruptcy Code ss.ss. 544, 545, 547, 548, 549 or 553 until December 31, 2006. The Bankruptcy Court entered an order on September 8, 2005 granting the motion. Among others, the Debtors obtained signed tolling agreements from Congoleum Corporation, Congoleum Sales, Inc. and Congoleum Fiscal, Inc. in their corporate capacities (and not as debtors-in-possession); Richard and Roger Marcus; Howard N. Feist, III, Cyril C. Baldwin, Jr., John N. Irwin III, Mark N. Kaplan, Mark S. Newman, and C. Barnwell Straut; American Biltrite, Inc.; Skadden, Arps, Slate, Meagher & Flom; Gilbert, Heintz & Randolph; Dughi Hewit; and Kenesis Group LLC. The Debtors did not obtain signed tolling agreements from the following entities: Motley Rice, LLC; Weitz & Luxenberg P.C.; Ernst & Young LLP;; Liberty Mutual Insurance Group; Eastman Chemical Company; and Neville Chemical Company. The Debtors have named Motley Rice, LLC and Weitz & Luxenberg P.C. as defendants in the Omnibus Avoidance Action, which is discussed, in detail, in Section 5.10 below. Ernst & Young LLP was previously released from 53 its avoidance action liability, and therefore, the Debtors did not seek a tolling agreement from this entity. The Debtors investigated their potential claims against Liberty Mutual Insurance Group, Eastman Chemical Company, and Neville Chemical Company before the expiration of the ss. 546(a) deadline and determined that the commencement of avoidance actions against these entities was not appropriate. 5.10. Asbestos Personal Injury Claims - Related Avoidance Actions (a) Congoleum Corporation v. Arthur J. Pergament, et al., Adv. Proc. No. 05-06245 (KCF) On December 3, 2005, the Debtors commenced the Omnibus Avoidance Action by filing in the Bankruptcy Court a Complaint to Avoid Pre-Petition Liens, to Avoid and Recover Preferential Transfers of Property and Fraudulent Transfers of Property Pursuant to 11 U.S.C. ss.ss. 544, 547, 548, 549 and 550, and to Disallow Claims Pursuant to 11 U.S.C. ss. 502(d) against (a) Arthur J. Pergament, in his capacity as Collateral Trustee; (b) Joseph F. Rice and the law firm of Motley Rice LLC; (c) Perry Weitz and the law firm of Weitz & Luxenberg, P.C.; and (d) those holders of Secured Asbestos Claims that did not voluntarily execute an Asbestos Personal Injury Claim Tolling Agreement. The Debtors commenced the Omnibus Avoidance Action for the purpose of (i) avoiding and recovering certain preferential transfers of property made to the Asbestos Claimants as defendants; (ii) avoiding and recovering certain fraudulent transfers of property made to the Asbestos Claimants named as defendants; (iii) avoiding and/or determining the validity, priority, or extent of certain pre-petition liens granted to secure the claims of the Asbestos Claimants named as defendants; and (iv) preserving, for the benefit of the Debtors' estates and the Plan Trustee, the claims alleged therein. The Omnibus Avoidance Action also seeks to avoid and recover certain preferential and/or fraudulent transfers of property made to Joseph Rice and/or Motley Rice, and to avoid and recover certain preferential and/or fraudulent transfers of property made to Perry Weitz and/or Weitz & Luxenberg. An amended complaint was filed on December 30, 2005, providing additional factual background, clarifying certain language, and including an additional prayer for relief relating to payments made to Asbestos Claimants named as defendants pursuant to Pre-Petition Settlement Agreements. The amended complaint also corrects an error listing certain Asbestos Claimants named therein under multiple law firms, and removes as defendants certain Asbestos Claimants that executed tolling agreements after the filing of the original complaint. The Debtors anticipate filing a second amended complaint to, inter alia, add as defendants those Asbestos Claimants who have not yet signed Asbestos Personal Injury Claim Tolling and Binding Agreements or Modified Asbestos Personal Injury Claim Tolling and Binding Agreements, as these are described above. On December 8, 2005, Debtor filed a Notice of Plaintiff Congoleum Corporation's Motion Establishing Case Management Procedures and Establishing Briefing and Discovery Schedules, seeking an order with respect to organizing the phases of the action. At a hearing on December 28, 2005, the Bankruptcy Court approved, over certain objections, a case management order for the Omnibus Avoidance Action agreed upon by the Debtors and counsel for certain of the defendants. Pursuant to the case management order, the Omnibus Avoidance Action 54 is divided into three stages. The first stage of the Omnibus Avoidance Action focused on the avoidance of certain of the rights under the Claimant Agreement and other pre-petition settlements as preferential pre-petition and/or unauthorized post-petition transfers of the Debtors in property pursuant to Bankruptcy Code ss.ss. 547 and 549. The second stage of the Omnibus Avoidance Action will focus on (i) the avoidance and recovery of certain fraudulent transfers of property made to the Asbestos Claimants named as defendants pursuant to Bankruptcy Code ss. 548 and applicable state law, and (ii) avoiding and/or determining the validity, priority, or extent of the rights under the Claimant Agreement and other pre-petition settlements granted to secure the claims of all of the Asbestos Claimants named as defendants under Bankruptcy Code ss. 544. The third stage of the Omnibus Avoidance Action will focus on the avoidance and recovery of certain preferential and fraudulent transfers of property made to Joseph Rice and/or Motley Rice and Perry Weitz and/or Weitz & Luxenberg pursuant to Bankruptcy Code ss.ss. 547, 548, and 550 and applicable state law, and any additional claims that the Debtors may assert. In the first stage, each of the Asbestos Claimants named as defendants were required to answer only Counts I and II of the amended complaint pertaining to the preference and post-petition transfer issues. Such answer was due on January 30, 2006. On that date, counsel for the Collateral Trustee and certain of the Asbestos Claimants named as defendants filed a motion for more definite statement. On March 29, 2006, the Bondholders' Committee filed a motion to intervene in the Omnibus Avoidance Action, which the Bankruptcy Court granted pursuant to an order entered on April 25, 2006. On April 13, 2006, the Futures Representative filed a motion to intervene in the Omnibus Avoidance Action, which the Bankruptcy Court granted pursuant to an order entered on May 9, 2006. On March 16, 2006, the Debtors filed a motion for summary judgment with respect to the issues in Counts I and II of the amended complaint. On April 13, 2006, the Debtors filed an amended memorandum of law in support of the motion for summary judgment. The motion for summary judgment sought the avoidance of liens and security interests granted to the Asbestos Claimants named as defendants and the allowance of liquidated settlement amounts with respect to these claims during the ninety days before the Petition Date as voidable preferential transfers. The motion also sought the avoidance of liens and security interests granted to the Asbestos Claimants named as defendants and the allowance of liquidated settlement amounts with respect to these claims after the Petition Date, as voidable post-petition transfers. Specifically, the Debtors alleged in the amended memorandum of law that under the terms of the Claimant Agreement, the Collateral Trust Agreement, and the Security Agreement, the date that the Collateral Trustee was notified of a particular Asbestos Claimant's qualification as a Participating Claimant is the date the transfer of the lien and the liquidated settlement amount was made. As set forth in further detail in the amended memorandum of law, the Debtors alleged that this notification date was also the date the releases received from the Participating Claimants became effective, thereby completing the transfer of the liquidated settlement amount and the attachment of the lien. Since the first of these notices was not received by the Collateral Trustee until December 30, 2003, or during the period on or within ninety days before the Petition Date (the "Preference Period"), the Debtors alleged that the transfers with respect to the 61,283 Participating Claimants identified on this notice were made during 55 the Preference Period, and for this and other reasons are subject to avoidance under Bankruptcy Code ss. 547. Because the second and third of these notices were not received by the Collateral Trustee until February 27, 2004 and April 1, 2004, the Debtors alleged that the transfers with respect to the 18,347 Participating Claimants identified on these notices were made after the Petition Date, and for this and other reasons are subject to avoidance under Bankruptcy Code ss. 549. On April 27, 2006, the defendants who filed the motion for more definite statement filed their opposition to the summary judgment motion, which argued, inter alia, that the transfer of interests granted to the Collateral Trustee occurred and were perfected far outside the Preference Period, and that the dates of the notices to the Collateral Trustee were not relevant, since no interests of the Debtors in property or of property of the estate were made at those times. These defendants also filed a motion to strike as hearsay certain evidence provided by the Debtors in support of their summary judgment motion. On May 3, 2006, the Debtors filed a reply brief, re-alleging their arguments made in the amended memorandum of law and responding to the arguments made in the defendants' opposition. On May 8, 2006, the Bankruptcy Court held a hearing and heard argument from the Debtors, the defendants, the Bondholders' Committee, and the Futures Representative on the defendants' motion for more definite statement and the Debtors' motion for summary judgment. The Bankruptcy Court denied the motion for more definite statement and reserved decision on the motion for summary judgment. On June 19, 2006, the Bankruptcy Court issued an opinion denying the Debtors' summary judgment motion, and granting summary judgment on Counts I and II in favor of all of the defendants in the Omnibus Adversary Proceeding. The Bankruptcy Court held that the Security Agreement granted a security interest to the Collateral Trustee, not to the individual claimants, but that nothing in the Security Agreement made the grant of the security interest contingent on compliance with the terms of the Claimant Agreement. The Bankruptcy Court further found that the claimants gave value to support the Collateral Trustee's security interest at the time the Claimant Agreement was signed on April 10, 2003, by agreeing to submit their claims for settlement and to enter into a 150-day litigation moratorium. As a result, the Bankruptcy Court held that for the purposes of Bankruptcy Code ss.ss. 547 and 549, the date of the transfer to the Collateral Trustee was June 11, 2003, when the parties signed the Security Agreement, which was before the commencement of the Preference Period and before the Petition Date. The Bankruptcy Court further refuted the Debtors' summary judgment theory by holding that when the claimants' documentation was approved, they did not receive a transfer of a security interest from the Debtors, but rather became beneficiaries of the security interest granted to the Collateral Trustee. The parties have submitted a form of order regarding the Bankruptcy Court's ruling, but as of August 11, 2006, it has not been entered on the Bankruptcy Court's docket. The time in which defendants are required to file an answer to those counts of the Omnibus Avoidance Action pertaining to the issues in the second and third stages remains stayed until such time that the Bankruptcy Court enters a further order scheduling a proceeding on those issues. Similarly, all discovery and/or legal determinations relating to the second and third stages has been stayed until such time that the Bankruptcy Court enters a further scheduling order. 56 (b) Congoleum Corporation v. Arthur J. Pergament, et al., Adv. Proc. No. 05-06461 (KCF) On December 30, 2005, the Debtors commenced the Sealed Avoidance Action by filing under seal a Complaint to Avoid and Recover Fraudulent Transfers of Property Pursuant to 11 U.S.C. ss.ss. 544, 548, 550, the Uniform Fraudulent Transfer Act and Applicable State Law against (a) Arthur J. Pergament, in his capacity as Collateral Trustee; and (b) all holders of Secured Asbestos Claims, including those who voluntarily executed an Asbestos Personal Injury Claim Tolling Agreement. The Sealed Avoidance Action has been assigned Adversary Proceeding No. 05-06461 (KCF). The Debtors commenced the Sealed Avoidance Action for the purpose of (i) avoiding and recovering pursuant to Bankruptcy Code ss.ss. 548(a)(i)(A) and 550(a) transfers of property made to the Asbestos Claimants and (ii) avoiding and recovering pursuant to Bankruptcy Code ss.ss. 544(b) and 550(a), the Uniform Fraudulent Transfer Act, and applicable state law transfers of property made to the Asbestos Claimants. The Sealed Avoidance Action was also commenced for the purpose of preserving, for the benefit of the Debtors' estates and the Plan Trustee, the claims alleged therein. The Sealed Avoidance Action was also commenced as a separate adversary proceeding in order to resolve a motion to intervene filed by Continental Casualty Company and Continental Insurance Company (and joined by Century Indemnity Company, ACE American Insurance, ACE Property and Casualty Insurance Company) in the Omnibus Avoidance Action. As set forth in the Bankruptcy Court's Stipulation and Order Relating to Preservation of Certain Claims of the Debtor-in-Possession and CNA's Motion to Intervene and Century's Joinder to Such Motion (entered in the Omnibus Avoidance Action on December 28, 2005), the Debtors have not sought issuance of any summonses in the Sealed Avoidance Action and the Bankruptcy Court will not require issuance of a summons in the Sealed Avoidance Action until further order of the Bankruptcy Court. The Sealed Avoidance Action also has been stayed and all deadlines tolled until further order of the Bankruptcy Court. On April 13, 2006, Continental Casualty Company and Continental Insurance Company filed a motion to unseal the Sealed Avoidance Action, to which the Debtors filed an objection on May 1, 2006. The Debtors resolved the motion with Continental Casualty Company and Continental Insurance Company without holding a hearing, and the motion was withdrawn on May 18, 2006. On July 21, 2006, the Bondholders' Committee filed a Motion to Intervene pursuant to 11 U.S.C. ss. 1109(b) and Bankruptcy Rule 7024(a) in the Sealed Avoidance Action (the "Bondholders' Intervention Motion"). On August 14, 2006, the Bankruptcy Court granted the Bondholders' Intervention Motion. 5.11. Settlements with Insurers and Brokers (a) Liberty Mutual Settlement Agreement On June 24, 2004, the Debtors filed a motion for approval of a settlement agreement with Liberty Mutual Insurance Company ("Liberty"), which provided primary liability insurance coverage to Congoleum including coverage 57 for asbestos-related claims (the "Liberty Settlement"). On July 29, 2004, the Bankruptcy Court entered an order approving the Liberty Settlement. In summary, the Liberty Settlement provides that Liberty will contribute $14,450,000 for the benefit of the Debtors' Estates. Upon the Confirmation Order becoming a Final Order, Liberty agreed to contribute an additional $950,000 for the benefit of the Plan Trust. In exchange, the Debtors agreed, among other things, to designate Liberty as a Settling Asbestos Insurance Company, thereby entitling Liberty to the benefit of certain injunctions under the Plan pursuant to sections 105(a) and 524(g) of the Bankruptcy Code. Reference should be made to the Liberty Settlement, which is attached as an exhibit to the motion seeking approval of the Liberty Settlement and which is on file with the Bankruptcy Court for more details regarding the terms of the Liberty Settlement. (b) Marsh and Aon Settlements On September 28, 2004, the Debtors filed motions for the approval of settlement agreements with Marsh USA, Inc. et al. ("Marsh") and Aon Corporation et al. ("Aon"), both of which provided insurance brokerage services to Congoleum with respect to certain of the policies issued to Congoleum that provide coverage for Asbestos Personal Injury Claims (respectively, the "Marsh Settlement" and the "Aon Settlement"). On October 18, 2004, the Bankruptcy Court approved the Marsh and Aon Settlements. In summary, the Marsh and Aon Settlements provides that Marsh and Aon will contribute $40,000 and $75,000, respectively, for the benefit of the Debtors' Estates. Reference should be made to the Marsh Settlement and the Aon Settlement, which are attached as exhibits to the motions seeking approval of the Marsh and Aon Settlements and which are on file with the Bankruptcy Court for more details regarding the terms of those settlements. (c) AIG Settlement On May 13, 2005, the Debtors filed a Motion Pursuant to Bankruptcy Rule 9019 and Bankruptcy Code Section 363 Approving Insurance Settlement Agreement with Certain AIG Companies ("AIG") (the "AIG Settlement"). On June 28, 2005, the Bankruptcy Court approved the AIG Settlement. AIG provided excess liability insurance coverage to Congoleum for asbestos-related claims. Under the terms of the settlement, AIG will pay $103 million over ten years to the Plan Trust. In exchange, the Debtors agreed, among other things, to designate AIG as a Settling Asbestos Insurance Company, thereby entitling AIG to the benefit of certain injunctions under the Plan pursuant to sections 105(a) and 524(g) of the Bankruptcy Code. The settlement resolves coverage obligations of policies with a total of $114 million in liability limits for asbestos bodily injury claims, and is subject to final Bankruptcy Court approval and effectiveness of a plan that contains a Bankruptcy Code ss. 524(g) injunction. Reference should be made to the AIG Settlement, which is attached as an exhibit to the motion seeking approval of the AIG Settlement and which is on file with the Bankruptcy Court for more details regarding the terms of the AIG Settlement. An insurer appealed the approval order granted by the Bankruptcy Court to the District Court. AIG has recently reserved the right to argue that the Plan, if confirmed, could lead to the possibility that the AIG Settlement may be declared void; for its part, Congoleum has reserved its rights to oppose any such argument. The AIG Settlement further provides that any party may declare that the agreement is null and void if the Confirmation Order fails to become a Final Order by May 10, 2007. The District Court, however, entered an Order on September 8, 2006 that administratively terminated the appeal. 58 (d) Lloyd's and Equitas Settlement On June 27, 2005, the Debtors filed a Motion Pursuant to Bankruptcy Rule 9019 and Bankruptcy Code Section 363 Approving Insurance Settlement Agreement with Certain Underwriters at Lloyd's, London ("Lloyd's Underwriters") (the "Lloyd's Settlement"). Lloyd's Underwriters severally subscribed to certain policies of insurance under which Congoleum is an insured (the "London Policies"). Under the terms of the settlement, Lloyd's Underwriters will pay a total of $19.95 million to the Plan Trust and Lloyd's Underwriters and Equitas Limited, Equitas Reinsurance Limited, Equitas Holdings Limited, Equitas Management Services Limited, and Equitas Policyholders Trust Limited (collectively, "Equitas"), solely in their capacity as Lloyd's Underwriters' reinsurer and run-off agent, will be designated as Settling Asbestos Insurance Companies, thereby entitling Lloyd's Underwriters and Equitas to certain injunctions under the Plan pursuant to sections 105(a) and 524(g) of the Bankruptcy Code. The settlement is subject to the effectiveness of a plan that contains the Section 524(g) injunction specified in the Lloyd's Settlement. Reference should be made to the Lloyd's Settlement, which is attached as an exhibit to the motion seeking approval of the Lloyd's Settlement and which is on file with the Bankruptcy Court for more details regarding the terms of the Lloyd's Settlement. (e) Federal Settlement Agreement On August 4, 2005, the Debtors filed a Motion for Order Pursuant to Bankruptcy Rule 9019 Approving Insurance Settlement Agreement with Federal Insurance Company ("Federal") (the "Federal Settlement"). On October 11, 2005, the Bankruptcy Court approved the Federal Settlement. Federal provided certain liability insurance coverage to Congoleum for asbestos-related claims. Under the terms of the Federal Settlement, Federal will pay $4 million to the Plan Trust once a plan of reorganization with the Section 524(g) protection specified in the Federal Settlement agreement goes effective. In exchange, the Debtors agreed, among other things, to designate Federal as a Settling Asbestos Insurance Company, thereby entitling Federal to the benefit of certain injunctions under the Plan pursuant to sections 105(a) and 524(g) of the Bankruptcy Code. The Federal Settlement contains a downward adjustment mechanism which will permit to pay a settlement amount less than $4 million if certain market conditions occur. The purpose of the downward adjustment mechanism is to equalize the settlement percentage of Federal's settlement amount to the settlement percentages of other high level excess insurers that are similarly situated to Federal in these bankruptcy cases. Reference should be made to the Federal Settlement, which is attached as an exhibit to the motion seeking approval of the Federal Settlement and which is on file with the Bankruptcy Court for more details regarding the terms of the Federal Settlement. The Futures Representative has appealed the approval order granted by the Bankruptcy Court to the District Court where it is pending. (f) The Mt. McKinley and Everest Settlement On October 6, 2005, the Debtors filed a Motion for Order Pursuant to Bankruptcy Rule 9019 Authorizing and Approving Insurance Settlement Agreement Among Debtors, Plan Trust, Mt. McKinley Insurance Company ("Mt. McKinley")and Everest Reinsurance Company ("Everest") (the "Mt. McKinley and Everest Settlement"). Under the terms of the Mt. McKinley and Everest Settlement, 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 containing the Section 524(g) protection specified in the Mt. McKinley and Everest Settlement becomes effective. In exchange, the Debtors agreed, among other things, to 59 designate Mt. McKinley and Everest as Settling Asbestos Insurance Companies, thereby entitling Mt. McKinley and Everest to the benefit of certain injunctions under the Plan pursuant to sections 105(a) and 524(g) of the Bankruptcy Code. The Bankruptcy Court approved the Mt. McKinley and Everest Settlement on November 18, 2005. The Mt. McKinley and Everest Settlement is subject to the effectiveness of a plan of reorganization that contains a Bankruptcy Code ss. 524(g) injunction. Reference should be made to the Mt. McKinley and Everest Settlement, which is attached as an exhibit to the motion seeking approval of the Mt. McKinley and Everest Settlement and which is on file with the Bankruptcy Court for more details regarding the terms of the Mt. McKinley and Everest Settlement. The Futures Representative has appealed the approval order granted by the Bankruptcy Court to the District Court where it is pending. (g) The Harper Settlement On March 8, 2005, the Debtors filed a Motion for Order Pursuant to Bankruptcy Rule 9019 Authorizing and Approving Insurance Settlement Agreement With Harper Insurance Limited, Formerly Known as Turegum Insurance Company (the "Harper Settlement"). On April 4, 2006, the Bankruptcy Court approved the Harper Settlement. Under the terms of the Harper Settlement, Harper has agreed to pay the total amount of $1,375,000 to the Plan Trust within three business days of the Debtors notifying Harper of the order approving the Harper Settlement becoming a Final Order, the Confirmation Order becoming a Final Order and a Plan containing Bankruptcy Code ss. 524(g) injunction having become effective. In exchange, the Debtors agreed, among other things, to obtain, for the benefit of Harper, an injunction pursuant to section 524(g) of the Bankruptcy Code. Reference should be made to the Harper Settlement, which is attached as an exhibit to the motion seeking approval of the Harper Settlement and which is on file with the Bankruptcy Court for more details regarding the terms of the Harper Settlement. (h) The St. Paul Travelers Settlement and Buyback Agreement On May 3, 2006, the Debtors filed a Motion For Order Authorizing and Approving the 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 "St. Paul Travelers Settlement and Buyback Agreement"). The St. Paul Travelers Entities allegedly issued certain policies of insurance under which Congoleum is an insured (the "Subject Policies"). Under the terms of the settlement, a total of $25 million will be paid to the Plan Trust, or as otherwise ordered by the Bankruptcy Court, within 13 months of the occurrence of certain events, including confirmation of a plan of reorganization for the Debtors containing a section 524(g) plan trust and channeling injunction for Asbestos Claims. In exchange, the Debtors agreed, among other things, to designate the St. Paul Travelers Entities as Settling Asbestos Insurance Companies, thereby entitling the St. Paul Travelers Entities to the benefit of certain injunctions under the Plan pursuant to sections 105(a) and 524(g) of the Bankruptcy Code. The St. Paul Travelers Settlement and Buyback Agreement resolves coverage obligations under the Subject Policies with respect to both Asbestos and non-Asbestos Claims. The St. Paul Travelers Settlement and Buyback Agreement is subject to final Bankruptcy Court approval and effectiveness of a plan that contains a Bankruptcy Code ss. 524(g) injunction. Reference should be made to the terms of the St. Paul Travelers Settlement and Buyback Agreement, which is attached as an exhibit to the motion seeking approval of the St. Paul Travelers Settlement and Buyback Agreement and which is on file with the 60 Bankruptcy Court for more details on the St. Paul Travelers Settlement and Buyback Agreement. The FCR sought, and was granted, limited discovery with respect to the St. Paul Travelers Settlement. A hearing to consider the St. Paul Travelers Settlement and Buyback Agreement has been adjourned until such time that discovery can be reasonably completed. (i) The Fireman's Fund Settlement On May 8, 2006, the Debtors filed their Motion for 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 "Fireman's Fund Settlement"). Fireman's Fund Insurance Company ("Fireman's Fund") issued an insurance policy (the "Subject Policy") under which Congoleum is an insured. Under the terms of the settlement, Fireman's Fund will pay to Congoleum, or as otherwise directed by the Plan or the Confirmation Order, a total of $1 million within three (3) business days following the date that the Confirmation Order becomes a Final Order. In exchange, the Debtors will designate Fireman's Fund as Settling Asbestos Insurance Company thereby entitling Fireman's Fund to the benefit of certain injunctions under the Plan pursuant to sections 105(a) and 524(g) of the Bankruptcy Code. The settlement resolves coverage obligations under the Subject Policy of all Asbestos-Related Claims. The Fireman's Fund Settlement is subject to final Bankruptcy Court approval and effectiveness of a plan that contains a Bankruptcy Code ss. 524(g) injunction. Reference should be made to the Fireman's Fund Settlement, which is attached as an exhibit to the motion seeking approval of the Fireman's Fund Settlement and which is on file with the Bankruptcy Court for more details regarding the terms of the Fireman's Fund Settlement. A hearing to consider the Fireman's Fund Settlement is scheduled for September 25, 2006. (j) The Century Settlement On August 21, 2006, the Debtors filed their Motion for Order 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 (i) Authorizing Debtor to Enter into a Settlement and Compromise of Certain Claims, (ii) Approving Sale of Certain Insurance Policies Free and Clear of Liens, Claims, Interests and Other Encumbrances, and (iii) Approving the Settlement and Buyback Agreement and Releases by and between the Congoleum Entities and the Century Entities (the "Century Settlement and Buyback Agreement"). The Bankruptcy Court approved the Century Settlement and Buyback Agreement on September 11, 2006. Under the terms of the settlement, a total of $16.9 million will be paid to the Plan Trust, or as otherwise ordered by the Bankruptcy Court, within three years of the occurrence of certain events, including confirmation of a plan of reorganization for the Debtors containing a section 524(g) plan trust and channeling injunction for Asbestos Claims. In exchange, the Debtors agreed, among other things, to designate the Century Entities as Settling Asbestos Insurance Companies, thereby entitling the Century Entities to the benefit of certain injunctions under the Plan pursuant to sections 105(a) and 524(g) of the Bankruptcy Code. The Century Settlement and Buyback Agreement resolves coverage obligations under certain policies of insurance under which Congoleum is an insured with respect to both Asbestos and non-Asbestos Claims. The Century Settlement and Buyback Agreement is subject to final Bankruptcy Court approval and effectiveness of a plan that contains a Bankruptcy Code ss. 524(g) injunction. Reference should be made to the terms of the Century Settlement and Buyback Agreement, which is attached as an exhibit to the motion seeking approval of the Century Settlement and Buyback Agreement for more details on the Century Settlement and Buyback Agreement, and which is on file with the Bankruptcy Court. 61 5.12. Fourth Modified Plan and Subsequent Changes On November 12, 2004, the Debtors filed the Fourth Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al. (the "Fourth Modified Plan"). In January 2005, the Debtors commenced a solicitation with respect to the Fourth Modified Plan. Votes were solicited from holders of Claims in Classes 2, 3, 9, 10 and 11 and holders of Interests in former Class 12 (now Class 13) (the "Post-Petition Solicitation"). Based on the votes received for the Post-Petition Solicitation, the Fourth Modified Plan was overwhelmingly supported by a majority of the Debtors' creditors, including the holders of Asbestos Personal Injury Claims. In April 2005, while the parties were preparing for a contested confirmation hearing on the Fourth Modified Plan, the Debtors met with the Asbestos Claimants' Committee, the Futures Representative and the Claimants' Representative to discuss further modifications to the Fourth Modified Plan to eliminate or minimize certain objections to the Plan. These discussions led to an agreement in principle that holders of Secured Asbestos Claims would permanently forbear from enforcing their lien and/or security interest claims in and to the Plan Trust Assets and such creditors would share pro rata with holders of Unsecured Asbestos Personal Injury Claims and Demands from a single, common fund to be held in the Plan Trust. In July 2005, Congoleum filed an amended plan of reorganization (the "Sixth Modified 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 Modified Plan in August 2005. In September 2005, the Debtors learned that certain Claimants holding Asbestos Secured Claims represented by the Weitz & Luxenburg firm no longer supported the Sixth Modified Plan. The Debtors' attempts to negotiate a consensual resolution of the Weitz Claimants' objections proved to be unsuccessful, and on December 13, 2005, the Debtors withdrew the Sixth Modified Plan. Thereafter, the Debtors continued to have contacts and discussions with representatives of the Asbestos Claimants' Committee, the Futures Representative, certain of the Insurers, and, recently, representatives of the new Bondholders' Committee concerning the elements of a Seventh and Eighth Modified Plan. On February 3, 2006, the Debtors filed the Seventh Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al. (the "Seventh Modified Plan"). As a result of subsequent negotiations with the Asbestos Claimants' Committee and the Bondholders' Committee, on March 17, 2006, the Debtors filed the Eighth Modified Plan. The modifications reflected in the Seventh and Eighth Modified Plans, inter alia, included a request for the Forbearance of security interests by the holders of Secured Asbestos Claims in former Class 15 (now Classes 2 and 3) and a request for the Forbearance of any right to payment under the Pre-Petition Settlement 62 Agreements and the Claimant Agreement, as applicable, by holders of both Secured and Unsecured Asbestos Claims; impairment of the Senior Note Claims; the contribution of the New Class A Common Stock and the New Convertible Security to the Plan Trust; the addition of the Anti-Suit Injunction; "insurance neutrality" provisions; and the deletion of reimbursement for Coverage Costs, Claimants' Representative Fee Claims and indemnification of the Claimants' Representative and the Collateral Trustee. 5.13. Mediation and the Consensual Ninth and Tenth Modified Plans By the Bankruptcy Court's Order for Mediation, dated May 30, 2006, and with the agreement of the parties with an interest in the resolution of the Debtors' bankruptcy cases and/or the Coverage Litigation, including the non-settling insurance companies, the Asbestos Claimants' Committee, the Futures Representative, the Bondholders' Committee, the Claimants' Representative and the Debtors, the Bankruptcy Court ordered the mediation (the "Mediation") of all issues in the Debtors' bankruptcy cases before the honorable Mark B. Epstein and the honorable Judith H. Wizmur, Chief Judge of the United States Bankruptcy Court for the District of New Jersey. The Mediation commenced on June 8, 2006 and discussions under the auspices of the Mediation continue. During the course of the Mediation, the Debtors, the Asbestos Claimants' Committee, the Futures Representative, the Bondholders' Committee and the Claimants' Representative reached an agreement in principle on many of the issues presented in the Debtors' bankruptcy cases, which resolution is reflected in the Plan. The Asbestos Claimants' Committee[, the Bondholders' Committee and the Claimants' Representative] support the Plan. The Futures Representative approves of the basic economic terms of the Plan, including the Class 2 Settlement and the Class 3 Settlement; the treatment of the Senior Note Claims, the ABI Claims and the Congoleum Interests; however, the Futures Representative has not yet approved the final language of the Plan and the Plan Documents, including the TDP. The modifications reflected in the Plan are summarized as follows:1 1. The Class 2 Settlement - Section 2.1 of the Plan. The Class 2 Settlement is incorporated in Section 2.1 of the Plan and provides for the compromise and settlement of the Asbestos Personal Injury Claims held by the Qualified Pre-Petition Settlement Claimants and the Causes of Action, including the Avoidance Actions, pending against such Claimants. In summary, effective as of the Effective Date, the Qualified Pre-Petition Settlement Claimants will release any and all security interests, liens or priorities of payment securing their pre-petition settlement amounts and Asbestos Claims and will reduce such Claims to 50% of their pre-petition settled amounts, which 50% reduced amount will be paid by the Plan Trust as soon as practicable after the Effective Date. Provided that the Class 2 Settlement is approved by the Bankruptcy Court pursuant to the Plan, all Causes of Action as against the Qualified Pre-Petition Settlement Claimants, including the Avoidance Actions, will be dismissed with prejudice; except for Causes of Action against any Qualified - ---------- (1) The following summary of the modifications reflected in the Tenth Modified Plan is qualified in its entirety by reference to the more detailed and complete descriptions set forth in the Plan and elsewhere in the Disclosure Statement. 63 Pre-Petition Settlement Claimant who asserts a right to a security interest, lien or payment priority under any Pre-Petition Settlement Agreement, the Collateral Trust Agreement or the Security Agreement. 2. The Class 3 and 11 Settlement - Section 2.2 of the Plan. The Class 3 and 11 Settlement is incorporated in Section 2.2 of the Plan and provides for the compromise and settlement of the Asbestos Personal Injury Claims held by the Qualified Participating Claimants and the Causes of Action, including the Avoidance Actions, pending against such Claimants. In summary, effective as of the Effective Date, the Qualified Participating Claimants will release any and all security interests, liens or priorities of payment securing their pre-petition settlement amounts and right to payment under the Claimant Agreement, the Collateral Trust Agreement and the Security Agreement and such Claims will be deemed allowed in the maximum amount of $250, which amount will be paid by the Plan Trust as soon as practicable after the Effective Date; provided, however, that each Qualified Participating Claimant may elect to forbear from exercising its right the such $250 amount and any and all rights under the Claimant Agreement, the Collateral Trust Agreement and the Security Agreement in which case such Claimant will receive the treatment afforded to Class 10 - Not Previously Determined Unsecured Asbestos Personal Injury Claims. Provided that the Class 3 and 11 Settlement is approved by the Bankruptcy Court pursuant to the Plan, all Causes of Action as against the Qualified Participating Claimants, including the Avoidance Actions, will be dismissed with prejudice; except for Causes of Action against any Qualified Participating Claimant who asserts a right to a security interest, lien or payment priority under any Pre-Petition Settlement Agreement, the Collateral Trust Agreement or the Security Agreement. 3. Treatment of Class 2 Claims of Qualified Pre-Petition Settlement Claimants - Section 5.1(b) of the Plan. Section 5.1(b) of the Plan sets forth the treatment afforded to the Class 2 Claims of the Qualified Pre-Petition Settlement Claimants, which treatment is consistent with, and subject to approval of, the Class 2 Settlement. In sum, each Qualified Pre-Petition Settlement Claimant will have or will be deemed to have irrevocably consented to (a) release his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the respective Pre-Petition Settlement Agreement, the Collateral Trust Agreement and the Security Agreement; and (b) reduce the amount of its Secured Asbestos Claim to 50% of the amount agreed under the respective Pre-Petition Settlement Agreement, which reduced amount will be paid by the Plan Trust as soon after the Effective Date as practicable. In exchange, all Causes of Action pending against the Qualified Pre-Petition Settlement Claimants will be dismissed with prejudice except for Causes of Action against any Qualified Pre-Petition Settlement Claimant who asserts a right to hold, exercise or 64 enforce any lien, security interest or payment priority under any Pre-Petition Settlement Agreement or any right to hold or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets if it is determined that such Causes of Action have not been resolved by the Plan, the Class 2 Settlement, the Confirmation Order or otherwise (which excepted Causes of Action will continue and will be transferred to the Plan Trust). In the event that the Class 2 Settlement is not approved by a Final Order of the Bankruptcy Court, agreement by the Qualified Pre-Petition Settlement Claimants and the Debtors to the Class 2 Settlement will not be deemed an admission or used as evidence by any party, all Causes of Action pending against the Qualified Pre-Petition Settlement Claimants and all defenses thereto will be fully reserved and the Bankruptcy Court will determine and allow or disallow the amount and priority of each such Class 2 Secured Asbestos Claim after the Effective Date. 4. Treatment of Class 3 and 11 Claims of Qualified Participating Claimants - Sections 5.1(c) and (k) of the Plan. Sections 5.1(c) and (k) of the Plan set forth the treatment afforded to the Class 3 and 11 Claims of the Qualified Participating Claimants, which treatment is consistent with, and subject to approval of, the Class 3 and 11 Settlement. In sum, each Qualified Participating Claimant will have or will be deemed to have irrevocably consented to (a) release his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Claimant Agreement, the Collateral Trust Agreement and the Security Agreement; and (b) reduce the amount of its entire Asbestos Claim to the total and maximum amount of $250, which amount will be paid by the Plan Trust pari passu with the "Other Asbestos Disease (Level 1 - Cash Discount Payment)" Asbestos Claims in accordance with the TDP as soon after the Effective Date as practicable; provided, however, that each such Qualified Participating Claimant may elect to irrevocably consent to forbear from exercising his, her or its right to such $250 amount and any and all rights under the Claimant Agreement, the Collateral Trust Agreement and the Security Agreement, in which case such forbearing Qualified Participating Claimant will receive the treatment afforded to Class 10 - Not Previously Determined Unsecured Asbestos Personal Injury Claims on account of its Class 3 and Class 11 Asbestos Personal Injury Claim. In exchange, all Causes of Action pending against the Qualified Pre-Petition Settlement Claimants will be dismissed with prejudice except for Causes of Action against any Qualified Participating Claimant who asserts a right to hold, exercise or enforce any lien, security interest or payment priority under the Claimant Agreement or any right to hold or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets if it is determined that such Causes of Action have not been resolved by the Plan, the Class 3 and 11 Settlement, the Confirmation Order or otherwise (which excepted Causes of Action will continue and will be transferred to the Plan Trust). In the event that the Class 3 and 11 Settlement is not 65 approved by a Final Order of the Bankruptcy Court, agreement by the Qualified Participating Claimants and the Debtors to the Class 3 and 11 Settlement will not be deemed an admission or used as evidence by any party, all Causes of Action pending against the Qualified Participating Claimants and all defenses thereto will be fully reserved and the Bankruptcy Court will determine and allow or disallow the amount and priority of each such Class 3 Secured Asbestos Claim after the Effective Date. 5. Treatment of Class 10 - Not Previously Determined Unsecured Asbestos Personal Injury Claims - Section 5.1(j) of the Plan. Section 5.1(j) of the Plan sets forth the treatment of Class 10 - Not Previously Determined Unsecured Asbestos Personal Injury Claims, including the Claims held by Qualified Participating Claimants that elect to receive the treatment afforded to Class 10 Claims. In sum, each Not Previously Determined Unsecured Asbestos Personal Injury Claim will be determined, liquidated and treated pursuant to the Plan Trust Agreement and the TDP. 6. Treatment of Class 6 Senior Note Claims - Section 5.1(f) of the Plan. Section 5.1(f) of the Plan sets forth the treatment of Class 6 - Senior Note Claims. Provided that the holders of the Senior Note Claims (as a Class) vote to accept the Plan by the requisite number and amount required by the Bankruptcy Code, on the Effective Date, the Senior Notes will be cancelled and Reorganized Congoleum will issue the New Senior Notes. In the event that the AIG Contingencies and Conditions are satisfied, the Additional Bondholder Recovery will be immediately paid to holders of the Senior Note Claims once the Plan Trust has received or obtained the lesser of (i) $77.1 million in aggregate Cash and (ii) the aggregate amount in Cash of the sum of (x) $5 million and (y) the Plan Trust's liability (including the amounts, if any, held in reserve by the Plan Trust pursuant to Section 3.2 of the Plan Trust Agreement) on account of the Asbestos Personal Injury Claims of Qualified Claimants, Allowed Asbestos Property Damage Claims, the Plan Trust Note, Plan Trust Expenses in the amount of $[_] and the initial contribution of $600,000 to the GHR/Kenesis Litigation Trust. The New Senior Notes will be secured by a lien on or security interest in all of the Reorganized Debtors' assets (subject to the limitations contained in the New Indenture, and excluding the GHR/Kenesis Actions and any Causes of Action against any Bankruptcy Professionals), which security will be subordinate in priority only to the security for the Amended Credit Agreement or any other working capital exit facility entered into by the Reorganized Debtors, provided that such Amended Credit Agreement or other working capital exit facility contains terms similar to the Existing Credit Agreement (except that the Amended Credit Agreement or other working capital exit facility may be modified to provide for a lien on or security interest in real estate and any other collateral securing the New Senior Notes). The liens securing the New Senior Notes 66 will not be pari passu with any other liens or security interests. The New Senior Notes will be guaranteed by each of the Reorganized Debtors. The New Senior Notes will be contractually senior in priority and right of payment to amounts due under the New Convertible Security and the Plan Trust Note; provided, however, that in the absence of a default under the New Indenture, payments due under the Plan Trust Note and the New Convertible Security will be made in the ordinary course in accordance with their respective contractual terms. In the event that the holders of the Senior Note Claims (as a Class) do not vote to accept the Plan and the treatment afforded hereinabove by the requisite number and amount required by the Bankruptcy Code, then the Senior Notes will be cancelled and the Senior Note Claims will receive their pro rata share of the Reserved Common Stock with the Plan Trust, as determined by a Final Order of the Bankruptcy Court (the "Allocation Proceeding"). The initial hearing on any Allocation Proceeding will not occur until at least 45 days after the balloting report of the Voting Agreement is filed with the Bankruptcy Court. In no event will any distribution to the holders of the Senior Note Claims provided for herein be on account of any accrued and unpaid interest on account of the Senior Note Claims nor will the holders of the Senior Note Claims have any right to any Asbestos Insurance Rights, Asbestos Insurance Action Recoveries, the GHR/Kenesis Actions or any Causes of Actions against any Bankruptcy Professional. 7. Treatment of ABI Claims in Class 9 - Section 5.1(i) of the Plan. Section 5.1(i) of the Plan sets forth the treatment of Class 9 - ABI Claims. Under the Plan, the ABI Personal Injury Indemnity Claims, ABI Asbestos Claims and ABI Asbestos Property Damage Indemnity Claims will be deemed Disallowed and expunged and all other ABI Claims will be reinstated and payable by the Reorganized Debtors. 8. Treatment of Congoleum Interests in Class 13 - Section 5.1(m) of the Plan. Section 5.1(m) of the Plan sets forth the treatment of Class 13 - Congoleum Interests, which treatment depends upon whether the holders of the Class 6 Senior Note Claims (as a Class) vote to accept the Plan. If the holders of the Senior Note Claims (as a Class) vote to accept the Plan by the requisite number and amount required by the Bankruptcy Code, the holders of the Congoleum Interests will retain such Interests subject to dilution by the issuance of New Class A Common Stock and the New Convertible Security to be contributed to the Plan Trust on the Effective Date. If the holders of the Senior Note Claims do not vote to accept the Plan by the requisite number and amount required by the Bankruptcy Code, the Congoleum Interests will be cancelled, the holders of the Congoleum Interests will retain nothing on account of such Interests and 100% of the equity interests in Reorganized Congoleum will be issued and held in escrow pending allocation of such common stock between the Plan Trust and the Senior Note Claims by a Final Order of the Bankruptcy Court. 67 9. The GHR/Kenesis Litigation Trust - Sections 6.1(o) and (p) of the Plan. Section 6.1(o) of the Plan provides for the establishment of the GHR/Kenesis Litigation Trust on the Effective Date for the benefit of Reorganized Congoleum and the Plan Trust. The purpose of the GHR/Kenesis Litigation Trust will be to, among other things, (i) pursue the collection of amounts owed to the Debtors' Estates on account of the GHR/Kenesis Actions for the benefit of Reorganized Congoleum and the Plan Trust; (ii) investigate, pursue, prosecute, settle, manage and resolve, as appropriate, the GHR/Kenesis Actions for the benefit of Reorganized Congoleum and the Plan Trust; and (iii) distribute the proceeds of the GHR/Kenesis Actions to the Plan Trust on behalf of Reorganized Congoleum. The form of the GHR/Kenesis Litigation Trust Agreement is attached to the Plan as Exhibit I. 10. Indemnification of the Claimants' Representative and Collateral Trustee - Section 6.1(r) of the Plan and Section 4.6(c) of the Plan Trust Agreement. Under Sections 6.1(r) of the Plan and 4.6(c) of the Plan Trust Agreement, the Claimants' Representative and the Collateral Trustee will be entitled to be indemnified by the Plan Trust and Reorganized Congoleum for acts and omissions with respect to the negotiation and implementation of modifications to the Plan, the other Plan Documents and the Collateral Trust Agreement contemplated by the Tenth Modified Plan and made on or after May 30, 2006. Reorganized Congoleum will be responsible for the first $1,000,000 and for 50% of the next $4,000,000 in indemnified liabilities, expenses, claims, damages or losses under the indemnity provision. The Plan Trust will be responsible for the remaining liabilities, expenses, claims, damages or losses indemnified under the indemnity provision. 11. Reimbursement of Coverage Costs - Section 6.1(s) of the Plan. Section 6.1(s) of the Plan provides that Coverage Costs will be paid to Reorganized Congoleum in accordance with the terms of the Liberty Settlement. As of the date of this Disclosure Statement, approximately $3.7 million in reimbursable Coverage Costs remain due and owing to the Debtors under the terms of the Liberty Settlement. 12. Plan Trust Note - Section 6.1(t) of the Plan. Section 6.1(t) of the Plan provides that on the Effective Date, the Plan Trust will provide a loan to Reorganized Congoleum in the principal amount of the Plan Trust Note, with the proceeds to be used only for Reorganized Congoleum's working capital and general corporate purposes, and Reorganized Congoleum will issue the Plan Trust Note to the Plan Trust. The Plan Trust Note will be in all respects pari passu in priority and right of payment with the New Convertible Security; provided, however, that pursuant to the GHR/Kenesis Litigation Trust any proceeds of the GHR/Kenesis Actions will be pledged to the 68 Plan Trust by Reorganized Congoleum to secure Reorganized Congoleum's obligations to the Plan Trust on account of the New Convertible Security and Plan Trust Note and will be used to reduce Reorganized Congoleum's obligations to the Plan Trust by (i) first, to pay principal and accrued interest under the Plan Trust Note until such time as the Plan Trust Note has been paid in full; (ii) second, to pay principal and accrued interest under the New Convertible Security until such time as the New Convertible Security has been paid in full or is no longer outstanding; provided, however, that the New Convertible Security will not be satisfied in full or retired before the Reset Date and any proceeds of the GHR/Kenesis Actions that are received by the Plan Trust on account of the New Convertible Security prior to the Reset Date will be held by the Plan Trust in an interest bearing account and applied to amounts outstanding under the New Convertible Security immediately after the Reset Date; and (iii) thereafter, the GHR/Litigation Trust will distribute any remaining or further proceeds to Reorganized Congoleum. The Plan Trust will not have liens on or security interests in any assets of the Reorganized Debtors other than the GHR/Kenesis Actions. The Plan Trust Note will be contractually subordinate in priority and right of payment to the New Senior Notes; provided, however, that in the absence of a default under the New Indenture, payments due under the Plan Trust Note will be made in the ordinary course in accordance with its terms. 13. Management of Reorganized Debtors - Section 6.4 of the Plan. Section 6.4 of the Plan - "Management of Reorganized Debtors" has been revised to clarify that after the Effective Date, the Reorganized Debtors will continue to maintain independent directors in accordance with the listing requirements of the Amex and applicable law, which directors will, from the Effective Date and continuing until Reorganized Congoleum's obligations to the Plan Trust are fulfilled, also have no financial interest, past or present, in ABI or its affiliates or any business owned and controlled by Richard, Roger or William Marcus. In addition, any transaction between the Reorganized Debtors and any affiliate, insider or subsidiary of Reorganized Congoleum will be approved by a standing committee of such independent directors. 14. Amended Credit Agreement--Section 6.5 of the Plan. Section 6.5 of the Plan -- "Amended Credit Agreement" has been revised to clarify that on the Effective Date, the Amended Credit Agreement or such other working capital exit facility entered into by the Reorganized Debtors, which Amended Credit Agreement or other working capital exit facility will contain terms similar to the Existing Credit Agreement (except that the Amended Credit Agreement or other working capital exit facility may be modified to provide for a lien on or security interest in real estate and any other collateral securing the New Senior Notes), together with a new promissory note evidencing the obligation of Reorganized Congoleum thereunder, and all other documents, instruments and agreements to be entered into, delivered or confirmed thereunder on the 69 Effective Date, will become effective. The new promissory note issued pursuant to the Amended Credit Agreement, if applicable, and all obligations under the Amended Credit Agreement, if applicable, and related documents will be repaid as set forth in the Amended Credit Agreement, if applicable. 15. Allocation of Reserved Common Stock - Section 6.10 of the Plan. Section 6.10 - "Allocation of Reserved Common Stock" has been added to the Plan to address the allocation of 100% of the equity in Reorganized Congoleum between the Plan Trust and the holders of the Senior Note Claims in the event that the holders of the Senior Note Claims (as a Class) do not vote to accept the Plan. As of the Effective Date, the Reserved Common Stock will be issued and held in escrow pending a Final Order of the Bankruptcy Court allocating the Reserved Common Stock between the Plan Trust and the Senior Note Claims. 16. Escrowed $5 Million. In order to satisfy the Additional Bondholder Recovery, the Reorganized Debtors will receive or retain in escrow $5 million of Asbestos Insurance Action Recoveries on and following the Effective Date until the following conditions will have been satisfied: (i) the AIG Contingencies and Conditions will have been satisfied; and (ii) the Plan Trust has received or obtained the lesser of (x) $77.1 million in aggregate Cash and (y) the aggregate amount in Cash of the sum of (a) $5 million and the Plan Trust's liability (including the amounts, if any, held in reserve by the Plan Trust pursuant to Section 3.2 of the Plan Trust Agreement) on account of the Asbestos Personal Injury Claims of Qualified Claimants, Allowed Asbestos Property Damage Claims, the Plan Trust Note, Plan Trust Expenses in the amount of $[_] and the initial contribution of $600,000 to the GHR/Kenesis Litigation Trust. Upon satisfaction of the foregoing conditions, the Reorganized Debtors will pay the $5 million of escrowed Cash to the Indenture Trustee for distribution to holders of Senior Note Claims. Should any of the foregoing conditions fail, then the Reorganized Debtors will pay the $5 million of escrowed Cash to the Plan Trust. 16. Conditions to Confirmation - Sections 11.1(a)(vi) and (xxi) of the Plan. Subsections 11.1(a)(vi) and (xxi) have been added to the Plan to incorporate additional conditions to Confirmation. First, subsection 11.1(a)(vi) of the Plan provides that, as a condition to confirmation and in the event that the holders of the Senior Note Claims (as a Class) do not vote to accept the Plan, the Bankruptcy Court will have made a finding that the Plan Trust will receive its allocable share of the common stock of Reorganized Congoleum as determined by a Final Order of the Bankruptcy Court. Subsection 11.1(a)(xxi) of the Plan provides that at least 95% in amount of the allowed and valid votes with respect to the Plan for each of Classes 2 and 3 will have accepted the Plan subject to waiver of this condition by the Claimants' Representative, the Asbestos Claimants' Committee and the Futures Representative, each in its sole discretion. 70 17. Insurance Settlement Protocol - Section 11.2(h) of the Plan. Subsection 11.2(h) has been added to the Plan to require that as a condition to the Effective Date, the Debtors will have obtained the consent of the Asbestos Claimants' Committee and the Futures Representative prior to reaching a compromise or settlement of any Asbestos Insurance Policy on or after August 4, 2006. 18. Limited Exculpation and Release of Claimants' Representative - Sections 12.3 and 13.5 of the Plan. Section 12.3 and 13.5 of the Plan have been modified to reflect that the Claimants' Representative will not have or incur any liability in connection with the receipt of a $2 million advance from the Debtors prior to Petition Date on account of the Claimants' Representative's fees and expenses and that any Plan Trust Bankruptcy Cause of Action, including counts VII and XVI of the Omnibus Avoidance Action, arising from the receipt of such advance, will not be assigned to the Plan Trust and will be unconditionally released by the Debtors and their Estates. 19. Releases by Holders of Plan Trust Asbestos Claims - Section 12.4 of the Plan. Section 12.4 of the Plan - "Releases by Holders of Claims" has been revised to provide that any holder of a Plan Trust Asbestos Claim that accepts a payment from the Plan Trust will be deemed to have unconditionally released the Plan Trust and each Settling Insurance Company from any and all liability arising out of or relating to the manufacture, sale, distribution or use of any Congoleum product. 20. Expansion and Clarification of Insurance Neutrality Provisions- Sections 12.12 and 14.21 of the Plan and definition of Asbestos Insurer Coverage Defenses. Section 12.12 of the Plan - "Insurance Neutrality" and the definition of Asbestos Insurer Coverage Defenses have been revised and expanded to remove any doubt that (a) the Plan is insurance neutral with respect to all issues related to confirmation of the Plan except for the issue of the Asbestos Insurance Assignment to the extent that it is finally determined by the Bankruptcy Court that the Bankruptcy Code authorizes the Asbestos Insurance Assignment by preempting any terms of any Asbestos Insurance Policy or provisions of applicable non-bankruptcy law that otherwise might prohibit the Asbestos Insurance Assignment; and (b) all Asbestos Insurer Coverage Defenses are preserved. 5.14. Standing of Insurers to be Heard The Debtors filed motions challenging the standing of certain of Congoleum's insurers to raise objections and be heard in the Reorganization Cases, specifically with regard to the Disclosure Statement, the Second Modified Plan and the Fourth Modified Plan. The Bankruptcy Court ruled that the insurers do not have standing to raise objections and be heard with respect to the 71 Disclosure Statement. As to the Second Modified Plan and the Fourth Modified Plan, however, the Bankruptcy Court ruled that the insurers have standing to raise objections and be heard. Many of the insurers filed preliminary objections to the Second Modified Plan and objections to the Fourth Modified Plan (the "Plan Objections"). It is anticipated that insurers may file amended or supplemental objections in connection with the confirmation of the Tenth Modified Plan and the Plan Proponents may assert that such insurers lack standing to do so. 5.15. Discovery Conducted by the Parties (a) Fact Discovery In connection with the Plan Objections, the insurers and the Debtors engaged in extensive discovery in preparation for the Confirmation Hearing on the Fourth Modified Plan. The parties exchanged voluminous amounts of documents, as well as obtaining documents from representatives of the parties and certain other parties-in-interest in the Reorganization Cases, including many of the counsel to the holders of Asbestos Personal Injury Claims. Most of the Debtors' senior management, as well as certain professionals retained by the Debtors, have been deposed by the insurers. Likewise, the Debtors and insurers have agreed that discovery taken in the Coverage Action may be used in the Confirmation Hearing. (b) Expert Witness Discovery Both the Debtors and the insurers identified certain expert witnesses that they expected to call to testify at the Confirmation Hearing on prior plans. Expert witness reports were exchanged during discovery on the previous plans. In addition, supplemental expert reports and expert reports on newly developed issues may be exchanged in connection with the Plan. 5.16. Expiration of Debtors' Exclusivity to File a Plan and Solicit Acceptances Thereof The Bankruptcy Court had approved several extensions of exclusivity for the Debtors to file a plan and solicit acceptances thereof. On November 9, 2005, the Bankruptcy Court denied the Debtors' motion to extend the periods during which the Debtors had the exclusive right to file a plan and solicit acceptances thereof under section 1121(d) of the Bankruptcy Code (the "Exclusive Periods"), thus terminating the Debtors' exclusive right to file a plan of reorganization. As a result of this ruling, on December 2, 2005, Continental Casualty Company and Continental Insurance Company ("CNA") filed a Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code for Congoleum Corporation, Congoleum Sales, Inc. and Congoleum Fiscal, Inc. (the "CNA Plan"). On January 12, 2006, the Bankruptcy Court entered the Pre-Trial Order Scheduling (I) Submission Deadlines for Plan and Disclosure Statements and (II) Disclosure Statement Hearing (the "Pre-Trial Scheduling Order"). The Pre-Trial Scheduling Order required that the Debtors file a Seventh Modified Plan and a disclosure statement concerning the Seventh Modified Plan by February 3, 2006. On February 3, 2006, the Bondholders' Committee filed a Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code for Congoleum Corporation, Congoleum Sales, Inc. and Congoleum Fiscal, Inc. (the "Bondholders' Plan"). 72 On September 11, 2006 the Bankruptcy Court entered an Amended Pre-Trial Order, which required the Debtors to file the Tenth Modified Plan and a disclosure statement concerning the Tenth Modified Plan by September 15, 2006. CNA is required to file a disclosure statement concerning the CNA Plan by September 22, 2006. A hearing to consider the adequacy of the disclosure statement filed with respect to the CNA Plan, as well as the Tenth Modified Plan, has been scheduled for October 26, 2006 before the Bankruptcy Court. 5.17. Confirmation Hearing [The Confirmation Hearing is currently scheduled to commence on [ , 2006].] Notice of the Confirmation Hearing will be published in one or more newspapers of general circulation in locations where the Company has substantial business operations, and will be mailed to all known holders of Claims, at least 25 days before the date of the Confirmation Hearing, unless the Bankruptcy Court specifies otherwise. See Section 7.2 -- "Confirmation Hearing" below. Section 524(g) of the Bankruptcy Code requires that any confirmation order containing a supplemental injunction must be issued or affirmed by the District Court. If the Confirmation Order is not issued by the District Court exercising its bankruptcy jurisdiction, the Debtors will seek to have the Confirmation Order affirmed promptly by the District Court. See Section 7.3(e) - -- "Injunction Under Section 524(g) of the Bankruptcy Code". ARTICLE 6 SUMMARY OF THE PLAN 6.1. General The following is a summary intended as a brief overview of certain provisions of the Plan and the compromises and settlements incorporated in Plan and is qualified in its entirety by reference to the full text of the Plan, a copy of which is annexed hereto as Exhibit A. Other provisions of the Plan not summarized in this Article 6 may be summarized elsewhere in this Disclosure Statement. Holders of Claims and Interests are respectfully referred to the relevant provisions of the Bankruptcy Code and are encouraged to review the Plan and this Disclosure Statement with their counsel, or other advisors. 6.2. The Class 2 Settlement and Class 3 and 11 Settlement (a) Proposed Settlement Between the Debtors and Qualified Pre-Petition Settlement Claimants Section 2.1 of the Plan will implement a compromise and settlement with respect to the Asbestos Claims of the Qualified Pre-Petition Settlement Claimants. Pursuant to Bankruptcy Rule 9019 and section 1123(b)(3) of the Bankruptcy Code and consistent with section 1129 of the Bankruptcy Code, the Plan will constitute a motion for approval of, and the Confirmation Order may authorize and constitute Bankruptcy Court approval of, the Class 2 Settlement. On the Effective Date, pursuant to Bankruptcy Rule 9019 and section 1123(b)(3) of the Bankruptcy Code, in full and final satisfaction of the Secured Asbestos Claims of the Qualified Pre-Petition Settlement Claimants, and for good and valuable consideration including the Qualified Pre-Petition Settlement 73 Claimants' agreement to the treatment specified in the Plan for the Secured Asbestos Claims of the Qualified Pre-Petition Settlement Claimants and the Claims and Interests asserted by other parties in interest, the Class 2 Settlement will be effectuated in accordance with the following terms if the Class 2 Settlement is approved by the Bankruptcy Court: (i) Each Secured Asbestos Claim of a Qualified Pre-Petition Settlement Claimant will be deemed allowed by the Confirmation Order as undisputed, uncontingent and liquidated in the reduced settlement amount of fifty percent (50%) of the amount agreed under the respective Pre-Petition Settlement Agreement, which reduced amount, without interest, will be paid by the Plan Trust in accordance with the TDP as soon after the Effective Date as possible. (ii) Each Qualified Pre-Petition Settlement Claimant will release his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the respective Pre-Petition Settlement Agreements and his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets. (iii) All Causes of Action pending against the Qualified Pre-Petition Settlement Claimants, including the Avoidance Actions, will be dismissed with prejudice, as against the Qualified Pre-Petition Settlement Claimants; except for Causes of Action against any Qualified Pre-Petition Settlement Claimant who asserts a right to hold, exercise or enforce any lien, security interest or payment priority under any Pre-Petition Settlement Agreement or any right to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets if it is determined that such Causes of Action have not been resolved by the Plan, the Class 2 Settlement, the Confirmation Order or otherwise (which excepted Causes of Action will continue and will be transferred to the Plan Trust). (iv) Other than rights to the treatment provided in Article V of the Plan or as otherwise provided in the Plan or the Plan Documents, on and after the Effective Date, each Qualified Pre-Petition Settlement Asbestos Claimant will be deemed to have unconditionally released the Reorganized Debtors, the Released Non-Debtor Parties, the Pre-Petition Asbestos Claimants' Committee, the Asbestos Claimants' Committee, the Claimants' Representative and their current and former Representatives from any and all Claims, obligations, rights, suits, damages, causes of action, remedies, and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity, or otherwise, that such Entity would have been legally entitled to assert (whether individually or collectively), based in whole or in part upon any act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date by the Debtors or the Reorganized Debtors, the Reorganization Cases, or the negotiation, formulation, and preparation of the Plan, the Plan Documents or any related agreements, instruments or other documents. For the avoidance of doubt, in no event will any such party be released in the case of the gross negligence or willful misconduct of such party. (v) In the event that the Class 2 Settlement is not approved by a Final Order of the Bankruptcy Court, agreement by the Qualified Pre-Petition Settlement Claimants and the Debtors to the Class 2 Settlement will 74 not be deemed an admission or used as evidence by any party, all Causes of Action pending against the Qualified Pre-Petition Settlement Claimants and all defenses thereto will be fully reserved and transferred to the Plan Trust; and the Bankruptcy Court will determine the validity and priority of each such Class 2 Secured Asbestos Claim after the Effective Date. (b) Proposed Settlement Between the Debtors and the Qualified Participating Claimants Section 2.2 of the Plan will implement a compromise and settlement with respect to the Asbestos Claims of the Qualified Participating Claimants. Pursuant to Bankruptcy Rule 9019 and section 1123(b)(3) of the Bankruptcy Code and consistent with section 1129 of the Bankruptcy Code, the Plan will constitute a motion for approval of, and the Confirmation Order may authorize and constitute Bankruptcy Court approval of, the Class 3 and 11 Settlement. On the Effective Date, pursuant to Bankruptcy Rule 9019 and section 1123(b)(3) of the Bankruptcy Code, in full and final satisfaction of the Asbestos Claims of the Qualified Participating Claimants, and for good and valuable consideration including the Qualified Participating Claimants' agreement to the treatment specified in the Plan for the Asbestos Claims of the Qualified Participating Claimants and the Claims and Interests asserted by other parties in interest, the Class 3 and 11 Settlement will be effectuated in accordance with the following terms if the Class 3 and 11 Settlement is approved by the Bankruptcy Court: (i) Each Asbestos Claim of a Qualified Participating Claimant will be deemed allowed by the Confirmation Order as undisputed, uncontingent and liquidated in the total and maximum amount of $250, which amount will be paid by the Plan Trust pari passu with the "Other Asbestos Disease (Level 1 - Cash Discount Payment)" Asbestos Claims in accordance with the TDP as soon after the Effective Date as practicable; provided, however, that each Qualified Participating Claimant may elect to forbear from exercising its right to such $250 amount and any and all rights under the Claimant Agreement, the Collateral Trust Agreement and the Security Agreement, in which case such forbearing Qualified Participating Claimant will receive the treatment afforded to Class 10 - - Not Previously Determined Unsecured Asbestos Personal Injury Claims. (ii) Each Qualified Participating Claimant will release his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Claimant Agreement and his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets. (iii) All Causes of Action pending against the Qualified Participating Claimants, including the Avoidance Actions, will be dismissed with prejudice, as against the Qualified Participating Claimants; except for Causes of Action against any Qualified Pre-Petition Settlement Claimant who asserts a right to hold, exercise or enforce any lien, security interest or payment priority under the Claimant Agreement or any right to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets if it is determined that such Causes of Action have not been resolved by the Plan, the Class 3 and 11 Settlement, the Confirmation Order or otherwise (which excepted Causes of Action will continue and will be transferred to the Plan Trust). 75 (iv) Other than rights to the treatment provided in Article V of the Plan or as otherwise provided in the Plan or the Plan Documents, on and after the Effective Date, each Qualified Participating Claimant will be deemed to have unconditionally released the Reorganized Debtors, the Released Non-Debtor Parties, the Pre-Petition Asbestos Claimants' Committee, the Asbestos Claimants' Committee, the Claimants' Representative and their current and former Representatives from any and all Claims, obligations, rights, suits, damages, causes of action, remedies, and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity, or otherwise, that such Entity would have been legally entitled to assert (whether individually or collectively), based in whole or in part upon any act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date by the Debtors or the Reorganized Debtors, the Reorganization Cases, or the negotiation, formulation, and preparation of the Plan, the Plan Documents or any related agreements, instruments or other documents. For the avoidance of doubt, in no event will any such party be released in the case of the gross negligence or willful misconduct of such party. (v) In the event that the Class 3 and 11 Settlement is not approved by a Final Order of the Bankruptcy Court, agreement by the Qualified Participating Claimants and the Debtors to the Class 3 and 11 Settlement will not be deemed an admission or used as evidence by any party, all Causes of Action pending against the Qualified Participating Claimants and all defenses thereto will be fully reserved and transferred to the Plan Trust; and the Bankruptcy Court will determine the validity and priority of each such Class 3 Secured Asbestos Claim and Class 11 Previously Determined Unsecured Asbestos Personal Injury Claim after the Effective Date. 6.3. Classification (a) Generally Article III of the Plan sets forth an explanation of Claims that are not classified under the Plan and a designation of Classes of Claims and Interests. (b) Unclassified Claims In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims, including Substantial Contribution Claims, and Priority Tax Claims are not classified and are excluded from the Classes established in Article III of the Plan. The treatment accorded Administrative Claims, Substantial Contribution Claims and Priority Tax Claims is set forth in Article IV of the Plan. (c) Classes For purposes of the Plan, the Claims against and Interests in the Debtors are grouped in the following Classes in accordance with section 1122(a) of the Bankruptcy Code: 76 Class 1 - Priority Claims Class 2 - Secured Asbestos Claims of Qualified Pre-Petition Settlement Claimants Class 3 - Secured Asbestos Claims of Qualified Participating Claimants Class 4 - Lender Secured Claims Class 5 - Other Secured Claims Class 6 - Senior Note Claims Class 7 - General Unsecured Claims Class 8 - Workers' Compensation Claims Class 9 - ABI Claims Class 10 - Not Previously Determined Unsecured Asbestos Personal Injury Claims Class 11 - Previously Determined Unsecured Asbestos Personal Injury Claims Class 12 - Asbestos Property Damage Claims Class 13 - Congoleum Interests Class 14 - Subsidiary Interests 6.4. Treatment of Administrative Claims and Priority Tax Claims (a) Administrative Claims On the Distribution Date, each holder of an Allowed Administrative Claim will receive, except as otherwise provided in the Plan and subject to the requirements of Section 14.11 of the Plan, either Cash equal to the unpaid portion of such Allowed Administrative Claim, or such different treatment as agreed by the applicable Debtor and such holder in writing; provided, however, that Allowed Administrative Claims representing (i) post-petition liabilities incurred in the ordinary course of business by the Debtors and (ii) post-petition contractual liabilities arising under loans or advances to the Debtors (whether or not incurred in the ordinary course of business), will be paid by the Reorganized Debtors in accordance with the terms and conditions of the particular transactions relating to such liabilities and any related agreements. (b) Priority Tax Claims On the Distribution Date, each holder of an Allowed Priority Tax Claim will receive (i) Cash equal to the unpaid portion of such Allowed Priority Tax Claim, (ii) such different treatment as agreed by the applicable Debtor and such holder in writing, or (iii) at the Reorganized Debtors' sole discretion, 77 deferred Cash payments over a period not exceeding six years after the assessment date of such Allowed Priority Tax Claim, valued as of the Effective Date in an amount equal to such Allowed Priority Tax Claim. 6.5. Treatment of Classified Claims and Interests Allowed Claims and Allowed Interests, as classified in Article III of the Plan, will be treated in the manner set forth in Article V of the Plan. The following constitutes a summary of such treatment: (a) Class 1 - Priority Claims (1) Impairment and Voting Class 1 is Unimpaired by the Plan. Each holder of an Allowed Priority Claim in Class 1 is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan under section 1126 of the Bankruptcy Code. (2) Treatment On the Distribution Date, each holder of an Allowed Priority Claim will receive either (i) the Allowed Amount of its Priority Claim in Cash, or (ii) such different treatment as may be agreed to by such holder and the Reorganized Debtors. The Reorganized Debtors will be responsible for payment of Allowed Priority Claims. (b) Class 2 - Secured Asbestos Claims of Qualified Pre-Petition Settlement Claimants (1) Impairment and Voting Class 2 is Impaired by the Plan. Class 2 consists of all Secured Asbestos Claims of Qualified Pre-Petition Settlement Claimants to the extent secured under the terms of the Collateral Trust Agreement. Each holder of a Class 2 Claim is entitled to vote to accept or reject the Plan under sections 524(g) and 1126 of the Bankruptcy Code. (2) Treatment As of the Effective Date, all liability for all Secured Asbestos Claims of Qualified Pre-Petition Settlement Claimants will be assumed, automatically and without further act or deed, by the Plan Trust and the Reorganized Debtors will have no liability therefor. Each such Qualified Pre-Petition Settlement Claimant will, in respect of its Secured Asbestos Claim (except to the extent that such Claim has been expunged), be paid by the Plan Trust, in full satisfaction, settlement, release, and discharge of and in exchange for such Claim, in Cash in accordance with the provisions of the Plan Documents. Effective as of the Effective Date and subject to entry of a Final Order of the Bankruptcy Court approving the Class 2 Settlement, each Qualified Pre-Petition Settlement Claimant will have irrevocably consented or be deemed to have irrevocably consented to (i) release his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under 78 the respective Pre-Petition Settlement Agreements and his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to Plan Trust Assets; and (ii) reduce the amount of its Secured Asbestos Claim to 50% of the amount agreed under the respective Pre-Petition Settlement Agreement, which reduced amount will be paid by the Plan Trust in accordance with the TDP as soon after the Effective Date as practicable. In exchange therefor, all Causes of Action pending against the Qualified Pre-Petition Settlement Claimants will be dismissed with prejudice, except for Causes of Action against any Qualified Pre-Petition Settlement Claimant who asserts a right to hold, exercise or enforce any lien, security interest or payment priority under any Pre-Petition Settlement Agreement or any right to hold or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets if it is determined that such Causes of Action have not been resolved by the Plan, the Class 2 Settlement, the Confirmation Order or otherwise (which excepted Causes of Action will continue and will be transferred to the Plan Trust). In the event that the Class 2 Settlement is not approved by a Final Order of the Bankruptcy Court, agreement by the Qualified Pre-Petition Settlement Claimants and the Debtors to the Class 2 Settlement will not be deemed an admission or used as evidence by any party, all Causes of Action pending against the Qualified Pre-Petition Settlement Claimants and all defenses thereto will be fully reserved and the Bankruptcy Court will determine and allow or disallow the amount and priority of each such Class 2 Secured Asbestos Claim after the Effective Date. (c) Class 3 - Secured Asbestos Claims of Qualified Participating Claimants (1) Impairment and Voting Class 3 is Impaired by the Plan. Class 3 consists of all Secured Asbestos Claims of Qualified Participating Claimants to the extent secured under the terms of the Collateral Trust Agreement. Each holder of a Class 3 Claim is entitled to vote to accept or reject the Plan under sections 524(g) and 1126 of the Bankruptcy Code. (2) Treatment As of the Effective Date, all liability for all Secured Asbestos Claims of Qualified Participating Claimants will be assumed, automatically and without further act or deed, by the Plan Trust and the Reorganized Debtors will have no liability therefor. Each such Qualified Participating Claimant will, in respect of its Secured Asbestos Claim (except to the extent that such Claim has been expunged), be paid by the Plan Trust, in full satisfaction, settlement, release, and discharge of and in exchange for such Claim, in Cash in accordance with the provisions of the Plan Documents. Effective as of the Effective Date and subject to entry of a Final Order of the Bankruptcy Court approving the Class 3 and 11 Settlement, each Qualified Participating Claimant will have irrevocably consented or be deemed to have irrevocably consented to (i) release his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Claimant Agreement and his, her or its rights, if any, to hold, exercise or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets; and (ii) reduce the amount of its entire Asbestos Claim to the total and maximum amount of $250, which amount will be paid by the Plan Trust pari passu with the 79 "Other Asbestos Disease (Level 1 - Cash Discount Payment)" Asbestos Claims in accordance with the TDP as soon after the Effective Date as practicable; provided, however, that each such Qualified Participating Claimant may elect to irrevocably consent to the Forbearance of his, her or its right to (x) such $250 amount and (y) any and all rights under the Claimant Agreement, the Collateral Trust Agreement and the Security Agreement, in which case such forbearing Qualified Participating Claimant will receive the treatment afforded to Class 10 - - Not Previously Determined Unsecured Asbestos Personal Injury Claims on account of its Class 3 and Class 11 Asbestos Personal Injury Claim. In exchange therefor, all Causes of Action pending against the Qualified Participating Claimants will be dismissed with prejudice, except for Causes of Action against any Qualified Participating Claimant who asserts a right to hold, exercise or enforce any lien, security interest or payment priority under the Claimant Agreement or any right to hold or enforce any lien, security interest or payment priority under the Collateral Trust Agreement and the Security Agreement in and to the Plan Trust Assets if it is determined that such Causes of Action have not been resolved by the Plan, the Class 3 and 11 Settlement, the Confirmation Order or otherwise (which excepted Causes of Action will continue and will be transferred to the Plan Trust). In the event that the Class 3 and 11 Settlement is not approved by a Final Order of the Bankruptcy Court, agreement by the Qualified Participating Claimants and the Debtors to the Class 3 and 11 Settlement will not be deemed an admission or used as evidence by any party, all Causes of Action pending against the Qualified Participating Claimants and all defenses thereto will be fully reserved and the Bankruptcy Court will determine and allow or disallow the amount and priority of each such Class 3 Secured Asbestos Claim after the Effective Date. (d) Class 4 - Lender Secured Claims (1) Impairment and Voting Class 4 is Unimpaired by the Plan. Lender Secured Claims constitute any Claim arising under or relating to the Existing Credit Agreement, Existing Subsidiary Guaranty or any related documents. Each holder of a Lender Secured Claim in Class 4 is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan under section 1126 of the Bankruptcy Code. (2) Treatment On the Effective Date, the Existing Credit Agreement, as ratified, amended and approved in accordance with the Financing Order will be amended and restated in accordance with the terms of the Amended Credit Agreement and the holder of the Allowed Lender Secured Claim will be entitled to all the rights and benefits of a Lender under the Amended Credit Agreement and related documents, which will be on terms and conditions similar to the Existing Credit Agreement (except that the Amended Credit Agreement may be modified to provide for a lien on or security interest in real estate and any other collateral securing the New Senior Notes) and mutually acceptable to the Debtors and Wachovia. Alternatively, if, as of the Confirmation Hearing, the Debtors and the holder of the Lender Secured Claim have not agreed upon the terms of the Amended Credit Agreement, the Lender Secured Claim will be paid in full indefeasibly on the Effective Date or as soon thereafter as practicable and Wachovia will be released from any and all liabilities and causes of action in accordance with the Financing Order. 80 (e) Class 5 - Other Secured Claims (1) Impairment and Voting Class 5 is Unimpaired by the Plan. Each sub-Class of Class 5 Other Secured Claims contains a single Other Secured Claim and is a separate Class for all purposes under the Bankruptcy Code and the Plan. If the Claim of a holder of an Other Secured Claim exceeds the value of the Collateral that secures it, such holder will have an Other Secured Claim equal to the Collateral's value and a General Unsecured Claim for the deficiency. Other Secured Claims include any pre-petition Secured Claim asserted against the Debtors, other than Lender Secured Claims and Secured Asbestos Claims. Each holder of an Other Secured Claim in Class 5 is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan under section 1126 of the Bankruptcy Code. (2) Treatment The legal, equitable and contractual rights of the holders of Allowed Other Secured Claims are Unimpaired by the Plan and all such Claims will be Reinstated on the Effective Date. (f) Class 6 - Senior Note Claims (1) Impairment and Voting Class 6 is Impaired by the Plan. Senior Note Claims constitute Claims based upon the Senior Notes. Each holder of a Senior Note Claim in Class 6 is entitled to vote to accept or reject the Plan under section 1126 of the Bankruptcy Code. (2) Treatment On the Effective Date, provided that the holders of the Senior Note Claims (as a Class) vote to accept the Plan by the requisite number and amount required by the Bankruptcy Code, the Senior Notes will be cancelled and Reorganized Congoleum will issue the New Senior Notes. In the event that the AIG Contingencies and Conditions are satisfied, the Additional Bondholder Recovery will be immediately paid to holders of the Senior Note Claims once the Plan Trust has received or obtained the lesser of (i) $77.1 million in aggregate Cash and (ii) the aggregate amount in Cash of the sum of (x) $5 million and (y) the Plan Trust's liability (including the amounts, if any, held in reserve by the Plan Trust pursuant to Section 3.2 of the Plan Trust Agreement) on account of the Asbestos Personal Injury Claims of Qualified Claimants, Allowed Asbestos Property Damage Claims, the Plan Trust Note, Plan Trust Expenses in the amount of $[_] and the initial contribution of $600,000 to the GHR/Kenesis Litigation Trust. The New Senior Notes will be secured by a lien on or security interest in all of the Reorganized Debtors' assets (subject to the limitations contained in the New Indenture, and excluding the GHR/Kenesis Actions and any Causes of Action against any Bankruptcy Professionals), which security will be subordinate in priority only to the security for the Amended Credit Agreement or any other working capital exit facility entered into by the Reorganized Debtors, provided that such Amended Credit Agreement or other working capital exit facility contains terms similar to the Existing Credit Agreement (except that the Amended 81 Credit Agreement or other working capital exit facility may be modified to provide for a lien on or security interest in real estate or any other collateral securing the New Senior Notes). The liens securing the New Senior Notes will not be pari passu with any other liens or security interests. The New Senior Notes will be guaranteed by each of the Reorganized Debtors. The New Senior Notes will be contractually senior in priority and right of payment to amounts due under the New Convertible Security and the Plan Trust Note; provided, however, that in the absence of a default under the New Indenture, payments due under the Plan Trust Note and the New Convertible Security will be made in the ordinary course in accordance with their respective contractual terms. In the event that the holders of the Senior Note Claims do not vote to accept the Plan and the treatment afforded hereinabove by the requisite number and amount required by the Bankruptcy Code, then the Senior Notes will be cancelled and the Senior Note Claims will receive their pro rata share of the Reserved Common Stock with the Plan Trust, as determined by a Final Order of the Bankruptcy Court; (the "Allocation Proceeding"). The initial hearing on any Allocation Proceeding will not occur until at least 45 days after the balloting report of the Voting Agent is filed with the Bankruptcy Court. In no event will any distribution to the holders of the Senior Note Claims provided for herein be on account of any accrued and unpaid interest on account, the holders of the Senior Note Claims have any right to any Asbestos Insurance Rights, Asbestos Insurance Action Recoveries, the GHR/Kenesis Actions or any Causes of Action against any Bankruptcy Professional. (g) Class 7 - General Unsecured Claims (1) Impairment and Voting Class 7 is Unimpaired by the Plan. General Unsecured Claims constitute Unsecured Claims against the Debtors other than Asbestos Claims, Senior Note Claims, ABI Claims and Workers Compensation Claims, including without limitation Claims in respect of rent, trade payables and similar such Claims. Each holder of an Allowed General Unsecured Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan under section 1126 of the Bankruptcy Code. (2) Treatment The legal, equitable and contractual rights of the holders of Allowed General Unsecured Claims are Unimpaired by the Plan and all such Claims will be Reinstated on the Effective Date. (h) Class 8 - Workers' Compensation Claims (1) Impairment and Voting Class 8 is Unimpaired by the Plan. Each holder of an Allowed Workers' Compensation Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan under section 1126 of the Bankruptcy Code. 82 (2) Treatment The holders of Allowed Workers' Compensation Claims will be paid in the ordinary course pursuant to such rights that exist under any state workers' compensation system or laws that apply to such Claims. (i) Class 9 - ABI Claims (1) Impairment and Voting Class 9 is Impaired by the Plan. The holder of the Allowed ABI Claims is entitled to vote to accept or reject the Plan under section 1126 of the Bankruptcy Code. (2) Treatment ABI, as the holder of the ABI Claims, will receive the following treatment: (a) all ABI Claims (other than ABI Asbestos Personal Injury Indemnity Claims, ABI Asbestos Property Damage Indemnity Claims and ABI Asbestos Claims) will be Reinstated and will be payable by, and enforceable obligations of, the Reorganized Debtors; and (b) all ABI Asbestos Personal Injury Indemnity Claims, ABI Asbestos Property Damage Indemnity Claims and ABI Asbestos Claims will be deemed Disallowed and expunged. (j) Class 10 - Not Previously Determined Unsecured Asbestos Personal Injury Claims (1) Impairment and Voting Class 10 is Impaired by the Plan. Class 10 consists of all Not Previously Determined Unsecured Asbestos Personal Injury Claims. Each holder of a Class 10 Claim is entitled to vote to accept or reject the Plan under sections 524(g) and 1126 of the Bankruptcy Code. (2) Treatment As of the Effective Date, all liability for all Not Previously Determined Unsecured Asbestos Personal Injury Claims as well as liability for all future Demands and Unknown Asbestos Claims will be assumed, automatically and without further act or deed, by the Plan Trust and the Reorganized Debtors will have no liability therefor. Each Not Previously Determined Unsecured Asbestos Personal Injury Claim, future Demand and Unknown Asbestos Claim will be determined, liquidated and treated pursuant to the Plan Trust Agreement and the TDP. The TDP will apply to all holders of Not Previously Determined Unsecured Asbestos Personal Injury Claims, Unknown Asbestos Claims and Demands, including any such holder who elects to resort to the legal system and obtains a judgment for money damages. 83 (k) Class 11 - Previously Determined Unsecured Asbestos Personal Injury Claims (1) Impairment and Voting Class 11 is Impaired by the Plan. Class 11 consists of all Previously Determined Unsecured Asbestos Personal Injury Claims. Each holder of a Class 11 Claim is entitled to vote to accept or reject the Plan under sections 524(g) and 1126 of the Bankruptcy Code. (2) Treatment As of the Effective Date, all liability for all Previously Determined Unsecured Asbestos Personal Injury Claims will be deemed satisfied in their entirety and will not receive any additional payment or consideration under the Plan other than as provided in Section 5.1(c) of the Plan and the Class 3 and 11 Settlement Agreement. (l) Class 12 - Asbestos Property Damage Claims (1) Impairment and Voting Class 12 is Impaired by the Plan. Asbestos Property Damage Claims constitute all Asbestos Property Damage Claims for which Proofs of Claim have been filed prior to the Asbestos Property Damage Claim Bar Date. Each holder of an Allowed Asbestos Property Damage Claim had the opportunity to vote to accept or reject the Plan under the Fourth Modified Plan and will not be resolicited with respect to the Tenth Modified Plan. (2) Treatment As of the Effective Date, all liability for all Allowed Asbestos Property Damage Claims will be assumed, automatically and without further act or deed, by the Plan Trust and the Reorganized Debtors will have no liability therefor. Each Allowed Asbestos Property Damage Claim will be paid solely from the Asbestos Property Damage Claim Sub-Account on account of the unpaid Allowed Amount of such Claim pursuant to the Plan Trust Agreement. After the assets in the Asbestos Property Damage Claim Sub-Account have been exhausted, the Plan Trust will have no further liability or obligation for or in respect of any Asbestos Property Damage Claims. All Asbestos Property Damage Claims as to which a Proof of Claim was not filed prior to the expiration of the Asbestos Property Damage Claim Bar Date will be deemed Disallowed. (m) Class 13 - Congoleum Interests (1) Impairment and Voting Class 13 is Impaired by the Plan. Each holder of the Congoleum Interests is entitled to vote to accept or reject the Plan under section 1126 of the Bankruptcy Code. (2) Treatment On the Effective Date, in the event that the holders of the Senior Note Claims (Class 6) vote to accept the Plan by the requisite number and amount required by the Bankruptcy Code, the holders of the Congoleum Interests will 84 retain such Interests; provided, however, on the Effective Date, the New Class A Common Stock and the New Convertible Security, which will be contributed to the Plan Trust, will be issued. In the event that the holders of the Senior Note Claims do not vote to accept the Plan by the requisite number and amount required by the Bankruptcy Code, the Congoleum Interests will be cancelled, the holders of the Congoleum Interests will retain nothing on account of such Interests and the Reserved Common Stock will be issued and held in escrow pending allocation of the Reserved Common Stock between the Plan Trust and the Senior Note Claims by a Final Order of the Bankruptcy Court. (n) Class 14 - Subsidiary Interests (1) Impairment and Voting Class 14 is Unimpaired by the Plan. Each holder of a Subsidiary Interest is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan under section 1126 of the Bankruptcy Code. (2) Treatment On the Effective Date, the holders of the Subsidiary Interests will retain such Subsidiary Interests. 6.6. Means for Execution of the Plan (a) Establishment of the Plan Trust On the Effective Date, the Plan Trust will be established in accordance with the Plan Documents. See Article 8 -- "Plan Trust and Asbestos Claims Resolution Matters" for a description of the Plan Trust. In addition, on the Effective Date, the Plan Trust established pursuant to the Plan Trust Agreement will become solely responsible for the payment of all Plan Trust Asbestos Claims. See Section 6.1 of the Plan for a further description of the Plan Trust. (b) Plan Trust Funding (1) The Collateral Trust On the Effective Date, pursuant to the terms of the Collateral Trust Agreement and the Plan, all of the Collateral Trust's right, title and interest in and to any assets or properties then held by the Collateral Trust will automatically be transferred and assigned to, and vest in, the Plan Trust, free and clear of all Claims, Liens and encumbrances of the Debtors or any creditor, shareholder, or other Entity, without any further action of any Entity. (2) The New Class A Common Stock On the Effective Date, Congoleum will issue 3,800,000 shares of Congoleum Class A Common Stock to the Plan Trust (in the event that the Senior Note Claims (as a Class) vote to accept the Plan) or the Reserved Common Stock (in the event that the Senior Note Claims (as a Class) do not vote to accept the Plan). 85 (3) The New Convertible Security On the Effective Date, Congoleum will issue and contribute a convertible promissory note to the Plan Trust (in the event that the Senior Note Claims (as a Class) vote to accept the Plan) or the Reserved Common Stock (in the event that the Senior Note Claims (as a Class) vote to reject the Plan) in satisfaction of section 524(g) of the Bankruptcy Code. The New Convertible Security will have the following terms: (i) an initial principal amount of $2,738,234.75, such principal amount being subject to increase on the Reset Date 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 (if the Reset Date occurs on the First Indicated Date) or two (if the Reset Date occurs on the Second Indicated Date) year anniversary of the Effective Date, exceeds such initial principal amount; (ii) an initial interest rate equal to 9% of the principal amount per annum, payable semi-annually in arrears, with such interest rate to reset at the rate of 5% of the principal amount per annum on the tenth anniversary of the Effective Date and payable at such reset interest rate per annum until maturity; (iii) redeemable for the principal amount at the option of the Plan Trust or Reorganized Congoleum on or anytime after the tenth anniversary of the Effective Date; (iv) a maturity date on the fifteenth anniversary of the Effective Date if not redeemed or otherwise paid earlier; (v) convertible into the number of shares of Class A Common Stock (on a fully diluted basis with all Class B Common Stock converted to Class A Common Stock) which, when combined with the New Class A Common Stock, will result in the Plan Trust owning 51% of the voting common shares and 51% of the total economic equity value of Reorganized Congoleum on a fully diluted basis, such conversion to take place at the option of the Plan Trust upon a default of the obligation to pay interest and a failure to cure such default within any cure period; (vi) secured only by a first priority lien and security interest, pari passu only with the security for the Plan Trust Note, on distributions from the GHR/Kenesis Litigation Trust (in accordance with the terms of the GHR/Kenesis Litigation Trust); (vii) no voting rights except upon conversion; and (viii) contractually subordinated in priority and payment to the New Senior Notes; provided, however, that in the absence of a default under the New Indenture, payments due under the Plan Trust Note will be made in the ordinary course in accordance with its terms. (4) The ABI Contribution On the Effective Date, ABI will make the ABI Contribution to the Plan Trust. (5) The Liberty Payment Upon the Confirmation Order becoming a Final Order, Liberty will contribute $950,000 to the Plan Trust. (6) The AIG Payment Conditioned upon the order approving the AIG Settlement becoming a Final Order (an appeal of the AIG Settlement is pending in District Court), the occurrence of the Effective Date, the Confirmation Order becoming a Final Order 86 and AIG having been designated as Settling Asbestos Insurance Companies, AIG will contribute approximately $103 million to the Plan Trust in 40 quarterly installments over a ten year period. (7) The Lloyd's Underwriters Payment Conditioned upon the occurrence of the Effective Date, the Confirmation Order becoming a Final Order and Lloyd's Underwriters and Equitas having been designated as Settling Asbestos Insurance Companies, Lloyd's Underwriters will contribute approximately $20 million to the Plan Trust. (8) The Federal Payment Conditioned upon the order approving the Federal Settlement becoming a Final Order (an appeal of the Federal Settlement is pending in District Court), the occurrence of the Effective Date, the Confirmation Order becoming a Final Order and Federal being designated as a Settling Asbestos Insurance Company, Federal will contribute $4 million, or an adjusted amount, as described in Section 5.11(e) hereinabove, to the Plan Trust. (9) The Mt. McKinley and Everest Payment Conditioned upon the order approving the Mt. McKinley and Everest Settlement becoming a Final Order (an appeal of the Mt. McKinley and Everest Settlement is pending in District Court), the occurrence of the Effective Date, the Confirmation Order becoming a Final Order and Mt. McKinley and Everest having been designated as Settling Asbestos Insurance Companies, Mt. McKinley and Everest will contribute $21.5 million to the Plan Trust. (10) The Harper Payment Conditioned upon the occurrence of the Effective Date, the Confirmation Order becoming a Final Order and Harper having obtained the benefit of an injunction pursuant to section 524(g) of the Bankruptcy Code, Harper will contribute $1,3750,000 to the Plan Trust. (11) The St. Paul Travelers Payment Conditioned upon approval of the St. Paul Travelers Settlement and Buyback Agreement by the Bankruptcy Court within 13 months of the occurrence of certain events, including order approving the St. Paul Travelers Settlement becoming a Final Order, the occurrence of the Effective Date, the Confirmation Order becoming a Final Order and St. Paul Travelers having obtained the benefit of injunctions pursuant to sections 524(g) and 105(a) of the Bankruptcy Code, St. Paul Travelers will contribute $25,000,000 to the Plan Trust. (12) The Fireman's Fund Payment Conditioned upon approval of the Fireman's Fund Settlement by the Bankruptcy Court and the order approving the Fireman's Fund Settlement becoming a Final Order, the occurrence of the Effective Date, the Confirmation Order becoming a Final Order and Fireman's Fund having obtained the benefit of an injunction pursuant to section 524(g) of the Bankruptcy Code, Fireman's Fund will contribute $1,000,000 to the Plan Trust. 87 (13) The Century Payment Conditioned upon approval of the Century Settlement and Buyback Agreement by the Bankruptcy Court, the St. Paul Travelers Settlement becoming a Final Order, the occurrence of the Effective Date, the Confirmation Order becoming a Final Order and the Century Entities having obtained the benefit of injunctions pursuant to sections 524(g) and 105(a) of the Bankruptcy Code, the Century Entities will contribute $16,900,000 to the Plan Trust. (14) Proceeds of GHR/Kenesis Litigation Trust On the Effective Date, the GHR/Kenesis Litigation Trust will be established in accordance with the GHR/Kenesis Litigation Trust Agreement for the benefit of Reorganized Congoleum. Effective as of the Effective Date, the Reorganized Debtors will assign to the GHR/Kenesis Litigation Trust without further act or deed (i) the GHR/Kenesis Actions and (ii) proceeds realized from the prosecution of the GHR/Kenesis Actions in accordance with section 1123(b)(3)(B) of the Bankruptcy Code. Pursuant to Section 6.1(o) of the Plan, the Reorganized Debtors grant, assign, transfer, convey and deliver to the GHR/Kenesis Litigation Trustee, on behalf of and for the benefit of the Reorganized Debtors, control of all of the Debtors' right, title and interest in the GHR/Kenesis Actions and the proceeds of such Actions. The GHR/Kenesis Litigation Trust will be funded on the Effective Date with $600,000 from the proceeds of that certain Asbestos Insurance Settlement Agreement with Liberty Mutual Insurance Company to provide for payment of the fees and expenses of the GHR/Kenesis Litigation Trustee. As soon as practicable after the Effective Date, the Bondholders' Committee will provide to the GHR/Kenesis Litigation Trustee all discovery obtained by the Bondholders' Committee in connection with the GHR/Kenesis Actions and any relevant work product related thereto. The reasonable fees and expenses of the Bondholders' Committee incurred in connection with producing such information to the GHR/Kenesis Litigation Trustee will be paid by the GHR/Kenesis Litigation Trust within ten (10) days of the receipt of an invoice for such reasonable fees and expenses. The GHR/Kenesis Litigation Trustee will be nominated by the Debtors, with the consent of the Asbestos Claimants' Committee and the Futures Representative, no later than fifteen (15) days prior to the commencement of the Confirmation Hearing and the appointment of the GHR/Kenesis Litigation Trustee will be subject to approval by the Bankruptcy Court. The purpose of the GHR/Kenesis Litigation Trust will be to, among other things (i) pursue the collection of amounts owed to the Debtors' Estates on account of the GHR/Kenesis Actions for the benefit of Reorganized Congoleum; (ii) investigate, pursue, prosecute, settle, manage and resolve, as appropriate, the GHR/Kenesis Actions for the benefit of Reorganized Congoleum; and (iii) remit to the Plan Trust, on behalf of Reorganized Congoleum all proceeds of the GHR/Kenesis Actions (after payment of fees and reimbursement for expenses of the GHR/Kenesis Litigation Trust) as security for Reorganized Congoleum's obligations to the Plan Trust on account of the New Convertible Security and the Plan Trust Note and will be used by Reorganized Congoleum as follows: (x) first to pay principal and accrued interest under the Plan Trust Note until such time as the Plan Trust Note has been paid in full; (y) second, to pay principal and accrued interest under the New Convertible Security until such time as the new Convertible Security has been paid in full or is no longer outstanding; provided, however, that the New Convertible Security will not be satisfied in full or retired before the Reset Date and any proceeds of the GHR/Kenesis Actions that are received by the Plan Trust on account of the New Convertible Security prior to the Reset Date will be held by the Plan Trust in an interest bearing account and applied to amounts outstanding under the New Convertible Security immediately after the Reset Date; and (z) thereafter, the GHR/Litigation Trust will distribute any remaining or further proceeds to Reorganized Congoleum. 88 (c) Plan Distributions The Disbursing Agent will make all distributions required under the Plan (other than distributions to holders of Plan Trust Asbestos Claims and Senior Note Claims). Distributions will be made on the Distribution Date (unless otherwise provided by the Plan or ordered by the Bankruptcy Court) with respect to all Claims except for Plan Trust Asbestos Claims. Distributions to be made on the Distribution Date will be deemed actually made on the Distribution Date if made either (a) on the Distribution Date or (b) as soon as practicable thereafter. With respect to Plan Trust Asbestos Claims, distributions to holders of Plan Trust Asbestos Claims will be made in accordance with the Plan Trust Agreement and/or the TDP, as applicable. As provided in the TDP, notwithstanding any other provision contained in the TDP, the holder of the Claim for the Claims Handling Fee will be paid as provided in the Plan Trust Agreement; and distributions to Plan Trust Asbestos Claims will not be prior to payment of or reserve for Plan Trust Expenses in accordance with the terms of the Plan Trust Agreement. With respect to Senior Note Claims, distributions will be made by the Indenture Trustee, whose reasonable fees and expenses in connection with such distributions will be paid by Reorganized Congoleum. (d) Procedures for the Treatment of Disputed Claims (1) Disallowance of Improperly Filed Claims Subject to section 502(j) of the Bankruptcy Code and Bankruptcy Rules 3008 and 9006, any Administrative Claim, Asbestos Property Damage Claim or Claim (other than Asbestos Personal Injury Claims and ABI Claims) for which the filing of a Proof of Claim, application or motion with the Bankruptcy Court is required under the terms of the Bankruptcy Code, the Bankruptcy Rules, any order of the Bankruptcy Court (including one providing a Bar Date) or the Plan will be disallowed if and to the extent that such Proof of Claim (or other filing) is not timely and properly made. (2) Prosecution of Objections to Claims Unless otherwise ordered by the Bankruptcy Court after notice and a hearing, after the Effective Date the Reorganized Debtors will have the exclusive right to make and file objections to Proofs of Claims, other than Proofs of Claims in respect of Asbestos Personal Injury Claims, Unknown Asbestos Claims, Professional Fee Claims and ABI Asbestos Claims, at any time on or before ninety days after the later of (i) the Effective Date or (ii) the date on which such Claim was filed with the Bankruptcy Court unless no Proof of Claim is required to be filed pursuant to Bankruptcy Rule 3002, the Plan or any order of the Bankruptcy Court; provided, however, that (x) this deadline may be extended by the Bankruptcy Court on motion by the Debtors or the Reorganized Debtors, as applicable, and (y) neither the Debtors, the Reorganized Debtors nor any other Person may file an objection to any (1) Claim that was Allowed by a Final Order entered during the Reorganization Cases, or (2) Claim Allowed by the Plan. In 89 addition, unless otherwise ordered by the Bankruptcy Court after notice and a hearing, after the Effective Date the Reorganized Debtors, subject to Sections 14.5 and 14.11 of the Plan, will have the exclusive right to make and file objections to Administrative Claims and to amend the Schedules or to object to any Claim specified on the Schedules, at any time on or before sixty (60) days after the later of (i) the Effective Date or (ii) the date on which such Claim was filed with the Bankruptcy Court unless no Proof of Claim is required to be filed pursuant to Bankruptcy Rule 3002, the Plan or any order of the Bankruptcy Court; provided, however, that (x) this deadline may be extended by the Bankruptcy Court on motion by the Debtors or the Reorganized Debtors, as applicable, (y) neither the Debtors, the Reorganized Debtors nor any other Person may file an objection to any (1) Claim that was Allowed by a Final Order entered during the Reorganization Cases, or (2) Claim Allowed by the Plan, and (z) with respect to any Administrative Claim referred to in sub-clause (a)(4) of the definition of Administrative Expense, no objection may be filed with respect to any such Administrative Expense other than with respect to the reasonableness of such Administrative Expense or whether such Administrative Expense was incurred in accordance with Section 6.6 of the Indenture. Without prejudice to the right of any Asbestos Insurance Company to assert any Asbestos Insurer Coverage Defenses, after the Effective Date, only the Plan Trustees will have the authority to contest Asbestos Personal Injury Claims, Unknown Asbestos Claims and Asbestos Property Damage Claims and litigate to judgment, settle or withdraw such objections and each Asbestos Personal Injury Claim, Unknown Asbestos Claim and Asbestos Property Damage Claim, whether or not a Proof of Claim was filed with the Bankruptcy Court, will be satisfied exclusively in accordance with the Plan Trust Documents. (3) No Distributions Pending Allowance Notwithstanding any other provision hereof, if a Claim or any portion of a Claim is Disputed, no payment or distribution will be made on account of the Disputed portion of such Claims (or the entire Claim, if the entire Claim is Disputed), unless and until such Disputed Claim becomes an Allowed Claim. (e) Escrow of Additional Bondholder Recovery In order to satisfy the Additional Bondholder Recovery, the Reorganized Debtors will receive or retain in escrow $5 million of Asbestos Insurance Action Recoveries on and following the Effective Date until the following conditions will have been satisfied: (i) the AIG Contingencies and Conditions will have been satisfied; and (ii) the Plan Trust has received or obtained the lesser of (x) $77.1 million in aggregate Cash and (y) the aggregate amount in Cash of the sum of (a) $5 million and the Plan Trust's liability (including the amounts, if any, held in reserve by the Plan Trust pursuant to Section 3.2 of the Plan Trust Agreement) on account of the Asbestos Personal Injury Claims of Qualified Claimants, Allowed Asbestos Property Damage Claims, the Plan Trust Note, Plan Trust Expenses in the amount of $[__] and the initial contribution of $600,000 to the GHR/Kenesis Litigation Trust. Upon satisfaction of the foregoing conditions, the Reorganized Debtors will pay the $5 million of escrowed Cash to the Indenture Trustee for distribution to holders of Senior Note Claims. Should any of the foregoing conditions fail, then the Reorganized Debtors will pay the $5 million of escrowed Cash to the Plan Trust. 90 6.7. Executory Contracts and Unexpired Leases (a) Assumption or Rejection of Executory Contracts and Unexpired Leases Except for any unexpired lease or executory contract that the Debtors reject or designate as being subject to rejection on or before the Effective Date, and except for the Joint Venture Agreement, as of the Effective Date, all executory contracts and unexpired leases not previously assumed by the Debtors pursuant to section 365 of the Bankruptcy Code will be deemed to have been assumed by the Debtors, subject to Section 6.2 of the Plan, and the Plan will constitute a motion to assume such executory contracts and unexpired leases. Subject to the occurrence of the Effective Date, entry of the Confirmation Order by the Bankruptcy Court will constitute approval of such assumptions pursuant to section 365(a) of the Bankruptcy Code and a finding by the Bankruptcy Court that each such assumption is in the best interests of the Debtors, the Estates and all parties in interest in the Reorganization Cases. On the Effective Date, the Joint Venture Agreement and the Intercompany Agreements will be assumed by Reorganized Congoleum and the obligations of Reorganized Congoleum to ABI thereunder will be subject to the provisions set forth in the Plan. (b) Damages Upon Rejection The Bankruptcy Court will determine the dollar amount, if any, of the Claim of any Entity seeking damages by reason of the rejection of any executory contract or unexpired lease; provided, however, that such Entity must file a Proof of Claim with the Bankruptcy Court on or before thirty (30) calendar days following the later of the Confirmation Date or the date of rejection of the executory contract or unexpired lease. To the extent that any such Claim is Allowed by the Bankruptcy Court by Final Order, such Claim will become, and will be treated for all purposes under the Plan as, a Class 7 General Unsecured Claim, and the holder thereof will receive distributions as a holder of an Allowed Claim in such Class pursuant to the Plan. The Debtors will notify those Entities that may assert a Claim for damages from the rejection of an executory contract or unexpired lease of this bar date for filing a Proof of Claim in connection therewith. (c) Cure of Defaults Any defaults of the Debtors with respect to assumed executory contracts or leases existing as of the Effective Date will be cured in the ordinary course of the Reorganized Debtors' business promptly after any such default becomes known to the Debtors, unless otherwise determined by the Bankruptcy Court pursuant to a Final Order, or agreed to by the parties to such contract or lease on or before the Effective Date. The Bankruptcy Court will resolve any disputes over cure amounts according to applicable law, and the assumed executory contracts or leases will be binding upon and enforceable upon the parties thereto, subject to any rights and defenses existing thereunder. Subject to the occurrence of the Effective Date, upon payment of such cure amounts, all of the Debtors' defaults existing as of the Confirmation Date with respect to any executory contract or unexpired lease to be assumed will be deemed cured. 91 6.8. Compensation and Benefits Programs Unless otherwise agreed to by the affected parties or modified by order of the Bankruptcy Court, all of the Debtors' obligations under employment and severance policies, and all compensation and benefit plans, policies, and programs will be treated as though they are executory contracts that are deemed assumed under the Plan. As of the Effective Date, the Pension Plans will be deemed to have been assumed by Reorganized Congoleum. Reorganized Congoleum will continue the Pension Plans, satisfy the minimum funding standards pursuant to 26 U.S.C. ss. 412 and 29 U.S.C. ss. 1082, and administer the Pension Plans in accordance with their terms and the provisions of ERISA. Furthermore, nothing in the Plan will be construed as discharging, releasing or relieving the Debtors or any Reorganized Debtor, or any party, in any capacity, from any liability imposed under any law or regulatory provision with respect to the Pension Plans or the Pension Benefit Guaranty Corporation ("PBGC"). The PBGC and the Pension Plans will not be enjoined or precluded from enforcing such liability as a result of any provision of the Plan or the Confirmation Order. Notwithstanding anything in this Section, the Plan Trust will not assume any of the liabilities, obligations, or responsibilities of the Debtors or the Reorganized Debtors with respect to the Pension Plans or the PBGC. 6.9. Injunctions, Releases and Discharge (a) Term of Certain Injunctions and Automatic Stay (A) All of the injunctions and/or automatic stays provided for in or in connection with the Reorganization Cases, whether pursuant to section 105, section 362, section 524(g), or any other provision of the Bankruptcy Code or other applicable law, in existence immediately prior to Confirmation will remain in full force and effect until the Injunctions become effective, and thereafter if so provided by the Plan, the Confirmation Order, or by their own terms. In addition, on and after Confirmation, the Debtors may seek such further orders as they may deem necessary to preserve the status quo during the time between Confirmation and the Effective Date. (B) Each of the Injunctions will become effective on the Effective Date and will continue in effect at all times thereafter. Notwithstanding anything to the contrary contained in the Plan, all actions in the nature of those to be enjoined by the Injunctions will be enjoined during the period between the Confirmation Date and the Effective Date. (b) Setoffs Subject to the limitations provided in section 553 of the Bankruptcy Code, the Debtors or the Plan Trust, as applicable, may, but will not be required to, setoff against any Claim and the payments or other distributions to be made pursuant to the Plan in respect of such Claim, claims of any nature whatsoever the Debtors may have against the holder of such Claim, but neither the failure to do so nor the allowance of any Claim under the Plan will constitute a waiver or release by the Debtors of any such claim that the Debtors may have against such holder; provided that Reorganized Congoleum may not offset any obligations under the New Convertible Security, the Plan Trust Note or the New Class A Common Stock (including any shares of New Class A Common Stock required to be issued by Reorganized Congoleum in accordance with Exhibit E to the Plan) against any claim that Reorganized Congoleum may have against the Plan Trust. 92 (c) Discharge (i) Except as specifically provided in the Plan, the Plan Documents or in the Confirmation Order, as of the Effective Date, Confirmation will discharge the Debtors and the Reorganized Debtors pursuant to section 1141(d)(1)(A) of the Bankruptcy Code from any and all Claims of any nature whatsoever and Demands including, without limitation, any Claims, demands and liabilities that arose before Confirmation, and all debts of the kind specified in section 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not (i) a Proof of Claim based on such Claim was filed or deemed filed under section 501 of the Bankruptcy Code, or such Claim was listed on the Schedules of the Debtors, (ii) such Claim is or was Allowed under section 502 of the Bankruptcy Code, or (iii) the holder of such Claim has voted on or accepted the Plan. Except as specifically provided in the Plan or Plan Documents, the rights that are provided in the Plan as of the Effective Date will be in exchange for and in complete satisfaction, settlement and discharge of all Claims (including without limitation Asbestos Claims) or Demands against, Liens on, and interests in the Debtors or the Reorganized Debtors or any of their assets or properties. Notwithstanding anything herein to the contrary, nothing in Section 12.1 of the Plan will affect the right of any Asbestos Insurance Company to assert any Asbestos Insurer Coverage Defenses. (ii) Notwithstanding any other provision of the Plan to the contrary, Confirmation will not discharge any pre-Petition Date or post-Petition Date, pre-Confirmation Date liability that may be due from any of the Debtors to the Internal Revenue Service as currently set forth in that certain Proof of Claim filed by the Internal Revenue Service in the alleged amounts of $6,608,626.01 and $8,760,686.95 and that certain Administrative Expense Claim in the alleged amount of $4,002,431.97. Should any pre-Petition Date or post-Petition Date, pre-Confirmation Date tax liabilities be determined by the Internal Revenue Service to be due from any of the Debtors for any of the tax periods reflected by such Proof of Claim or Administrative Expense Claim, such liabilities will be determined administratively or in a judicial forum in the manner in which such liabilities would have been resolved had the Reorganization Cases not been commenced. Any resulting liabilities determined pursuant to a Final Order or other final determination will be paid as if the Reorganization Cases had not been commenced. (d) Release of Representatives of the Debtors To the extent permitted by law applicable to cases under the Bankruptcy Code in the judicial district in which the Bankruptcy Court is located, except as otherwise specifically provided in the Plan and the Plan Documents, for good and valuable consideration, the receipt and sufficiency of which is acknowledged in the Plan, all current and former Representatives of the Debtors, on and after the Effective Date, are released from any and all Claims, obligations, rights, suits, damages, causes of action, remedies and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity or otherwise, that any Entity would have been legally entitled to assert in its own right (whether individually or collectively) or on behalf of the holder of any Claim or Interest or other Entity, based in whole or in part, upon any act or omission, transaction, 93 agreement, event, or other occurrence taking place on or before the Effective Date, for claims or liabilities resulting from their services as officers or directors of the Debtors or to the extent such claims or liabilities relate to the business, operations or management of the Debtors prior to the Effective Date or to their conduct as professionals or advisors to any of the Debtors. For the avoidance of doubt, in no event will any such Representative be released in the case of the gross negligence or willful misconduct of such Representative. (e) Exculpation To the extent permitted by law applicable to cases under the Bankruptcy Code in the judicial district in which the Bankruptcy Court is located, as of the Effective Date, (i) each of the Reorganized Debtors, the Debtors, the Futures Representative, the Plan Trustees, the Pre-Petition Asbestos Claimants' Committee, the Asbestos Claimants' Committee, the Bondholders' Committee, ABI or any of their respective Representatives (x) will not have or incur any liability to any Entity for any act or omission in connection with or arising out of the negotiation of the Plan or any Plan Document, negotiation of the settlement provided in the Collateral Trust, negotiation of the settlement provided in the Claimant Agreement, the pursuit of confirmation of the Plan, the consummation of the Plan, the Collateral Trust Agreement, the Claimant Agreement, the Security Agreement, the administration of the Plan or the property to be distributed under the Plan or the Class 2 and Class 3 and 11 Settlements; provided, however, that the exculpation provision will not apply to Asbestos Insurer Coverage Defenses; and (y) in all respects will be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan and the other Plan Documents, provided, however, that in no event will the Pre-Petition Asbestos Claimants' Committee be exculpated from liability for any relief granted or any costs or expenses incurred in connection with the Avoidance Actions and in no event will any party be exculpated from liability for any claim asserted in the Avoidance Actions; and (ii) the Claimants' Representative will not have or incur any liability to any Entity in connection with or arising out of the receipt of a two million dollars ($2,000,000) advance from the Debtors prior to the Petition Date on account of the Claimants' Representatives' fees and expenses. For the avoidance of doubt, in no event will any such party be exculpated from liability under this Section in the case of the gross negligence or willful misconduct of such party. (f) Releases by Holders of Claims To the extent permitted by law applicable to cases under the Bankruptcy Code in the judicial district in which the Bankruptcy Court is located, other than rights to the treatment provided in Article V of the Plan or as otherwise provided in the Plan or the Plan Documents, on and after the Effective Date, each holder of a Claim who has accepted the Plan will be deemed to have unconditionally released the Released Non-Debtor Parties, the Pre-Petition Asbestos Claimants' Committee, the Asbestos Claimants' Committee, the Bondholders' Committee and their current and former Representatives from any and all Claims, obligations, rights, suits, damages, causes of action, remedies, and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity, or otherwise, that such Entity would have been legally entitled to assert (whether individually or collectively), based in whole or in part upon any act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date by the Debtors or the Reorganized Debtors, the Reorganization Cases, or the 94 negotiation, formulation, and preparation of the Plan, the Plan Documents or any related agreements, instruments or other documents, provided, however, that in no event will the Pre-Petition Asbestos Claimants' Committee be released from liability for any relief granted or any costs or expenses incurred in connection with the Avoidance Actions and in no event will any party be released from liability for any claim asserted in the Avoidance Actions. In addition, pursuant to Section 12.4 of the Plan and the Confirmation Order, which may include release(s) for the benefit of any Settling Asbestos Insurance Company consistent with the terms of Section 12.4 of the Plan and the terms of the relevant Asbestos Insurance Settlement Agreement, any holder of a Plan Trust Asbestos Claim that receives a payment from the Plan Trust will be deemed to have unconditionally released the Plan Trust and each Settling Insurance Company from any and all Claims, obligations, rights, suits, damages, causes of action, remedies, and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity, or otherwise, arising from, relating to, or involving the manufacture, sale, distribution, installation, formulation, marketing, transport, handling or any other activity involving any asbestos containing products of Congoleum and any of Congoleum entities identified in the Confirmation Order, which may incorporate the terms of one or more Asbestos Insurance Settlement Agreement, or their premises to the extent such Claim arises from, relates to or involves exposure to asbestos, including without limitation, any operation, claims, contribution claims, direct action claims, and insurance coverage claims. For the avoidance of doubt, in no event will any such party be released under this Section in the case of the gross negligence or willful misconduct of such party. (g) Discharge Injunction Except as specifically provided in the Plan Documents to the contrary, the satisfaction, release, and discharge set forth in Section 12.1 of the Plan will also operate as an injunction, pursuant to sections 105, 524(g) and 1141 of the Bankruptcy Code, prohibiting and enjoining the commencement or continuation of any action, the employment of process or any act to collect, recover from, or offset (i) any Claim or Demand against or Interest in the Debtors, the Reorganized Debtors, the Collateral Trust, or the Plan Trust by any Entity and (ii) any cause of action, whether known or unknown, against the Released Parties based on such Claim or Interest described in subpart (i) of this Section (g). (h) 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 will 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 will 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 will apply to all present and future holders of Plan Trust Asbestos Claims and Demands, and all such holders will be permanently and 95 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: (i) 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; (ii) 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; (iii) 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; (iv) 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 (v) 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 will 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, will 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 will 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; provided, however, none of the Debtors, the Reorganized Debtors, the Plan Trust or any of their respective successors or assigns may assert against ABI or any ABI Entity any claim, right or cause of action arising out of or related to any Asbestos Claim. Notwithstanding any other provision in the Plan to the contrary, nothing in the Plan will 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. 96 (i) Reservation of Rights Notwithstanding any other provision of the Plan to the contrary, the satisfaction, release and discharge, and the Injunctions set forth in Article XII of the Plan, will not serve to satisfy, discharge, release, or enjoin (i) claims by the Plan Trust, the Reorganized Debtors, ABI, and their Affiliates, or any other Entity, as the case may be, against (A) the Plan Trust for payment of Plan Trust Asbestos Claims in accordance with the Plan, the Plan Trust Agreement and the TDP, as applicable, (B) the Plan Trust for the payment of Plan Trust Expenses, or (C) the Reorganized Debtors, the Plan Trust, or any other Entity, to enforce the provisions of the Plan or another Plan Document, or (ii) the rights of any Asbestos Insurance Company to assert any claim, debt, obligation, cause of action or liability for payment against any other Asbestos Insurance Company that is not a Settling Asbestos Insurance Company. (j) Rights Against Non-Debtors under Securities Laws Notwithstanding any language to the contrary contained in the Disclosure Statement, the Plan, and/or the Confirmation Order, no provision will release any non-Debtor, including any current and/or former officer and/or director of the Debtors and/or any non-Debtor included in the Released Non-Debtor Parties, from liability to the United States Securities and Exchange Commission, in connection with any legal action or claim brought by such governmental unit against such Person(s). (k) Rights Against Debtors under Environmental Laws Environmental rights and Claims of Governmental Units under applicable Environmental Laws will survive the Reorganization Cases, will not be discharged, impaired or adversely affected by the Plan and the Reorganization Cases and will be determined in the manner and by the administrative or judicial tribunals in which such rights or Claims would have been resolved or adjudicated if the Reorganization Cases had not been commenced. Governmental Units need not file any Proofs of Claim under Environmental Laws in the Reorganization Cases in order to preserve Claims under Environmental Laws. Nothing in the Confirmation Order or Plan will be construed as releasing or relieving any Entity of any liability under any Environmental Law. (l) Disallowed Claims and Disallowed Interests On and after the Effective Date, the Debtors will be fully and finally discharged from any liability or obligation on a Disallowed Claim or a Disallowed Interest, and any order creating a Disallowed Claim or a Disallowed Interest that is not a Final Order as of the Effective Date solely because of an Entity's right to move for reconsideration of such order pursuant to section 502 of the Bankruptcy Code or Bankruptcy Rule 3008 will nevertheless become and be deemed to be a Final Order on the Effective Date. The Confirmation Order, except as otherwise provided in the Plan or ordered by the Bankruptcy Court, will constitute an order: (i) disallowing all Claims (other than Plan Trust Asbestos Claims that have not been previously expunged by Final Order of the Bankruptcy Court or withdrawn) and Interests to the extent such Claims and Interests are not allowable under any provision of section 502 of the Bankruptcy Code, including, but not limited to, time-barred Claims, and Claims for unmatured interest, and (ii) disallowing or subordinating, as the case may be, any Claims, or portions of Claims, for penalties or Non-Compensatory Damages. 97 (m) Anti-Suit Injunction With respect to any Settling Asbestos Insurance Company, Section 12.11 of the Plan and the Confirmation Order, which may include anti-suit injunction(s) for the benefit of any Settling Asbestos Insurance Company consistent with the terms of Section 12.11 of the Plan and the terms of the relevant Asbestos Insurance Settlement Agreement, will 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 any Settling Asbestos Insurance Company arising out of, relating to, or in connection with an Asbestos Insurance Policy or any other insurance policy or rights under such other insurance policy issued to or insuring the relationship of the relevant Settling Asbestos Insurance Companies with, the relevant Congoleum entities that are insureds under such policies, but such injunction pursuant to section 105(a) of the Bankruptcy Code will not affect or modify the rights of Persons insured under policies of insurance except to the extent released in an Asbestos Insurance Settlement Agreement. (n) Insurance Neutrality (i) Nothing in the Plan, the Plan Documents, the Confirmation Order, or any finding of fact and/or conclusion of law with respect to the Confirmation of the Plan or any order or opinion entered on appeal of the Confirmation Order, will limit the right of any Asbestos Insurance Company to assert any Asbestos Insurer Coverage Defense. (ii) The Plan, the Plan Documents and the Confirmation Order will be binding on the Debtors, the Reorganized Debtors, the Plan Trust and the beneficiaries of the Plan Trust. The obligations, if any, of the Plant Trust to pay holders of Asbestos Personal Injury Claims and Demands will be determined pursuant to the Plan and the Plan Documents. None of (a) the Bankruptcy Court's approval of the Plan or the Plan documents, (b) the Confirmation Order or any finding and conclusions entered with respect to Confirmation, nor (c) any estimation or valuation of Asbestos Personal Injury Claims, either individually or in the aggregate (including, without limitation, any agreement as to the valuation of Asbestos Personal Injury Claims) in the Bankruptcy Case will, with respect to any Asbestos Insurance Company (including on the basis of the decisions in UNR Industries, Inc. v. Continental Casualty Co., 942 F.2d 1101 (7th Cir. 1991) or Fuller-Austin Insulation Co. v. Fireman's Fund Inc., et al., Case No. BC 116 835, 2002 WL 31005090 (Cal. Superior Ct. August 6, 2002)), constitute a trial or hearing on the merits or an adjudication or judgment; or accelerate the obligations, if any, of any Asbestos Insurance Company under its Asbestos Insurance Policies; or be used as evidence in any forum to prove: (x) that any of the Debtors, the Plan Trust, or any Asbestos Insurance Company is liable for, or otherwise obligated to pay with respect to, any individual Asbestos Personal Injury Claim or Demand; 98 (y) that the procedures established by the Plan, including the Trust Distribution Procedures, for evaluating and paying Asbestos Personal Injury Claims and Demands are reasonable; (z) that the procedures established by the Plan, including the Trust Distribution Procedures, for evaluating and paying Asbestos Personal Injury Claims and Demands are consistent with any procedures that were used to evaluate or settle Asbestos Personal Injury Claims against the Debtors before the Petition Date; (aa) that the settlement of, or the value assigned to, any individual Asbestos Personal Injury Claim pursuant to the Asbestos Personal Injury Trust Distribution Procedures was reasonable and/or otherwise appropriate; (bb) that any of the Asbestos Insurance Companies participated in and/or consented to the negotiation of the Plan or any of the Plan Documents; (cc) that any of the Debtors or the Plan Trust has suffered an insured loss with respect to any Asbestos Personal Injury Claim or Demand; or (dd) as to (i) the liability of the Debtors or the Plan Trust for Asbestos Personal Injury Claims or Demands, whether such Claims or Demands are considered individually or on an aggregate basis; or (ii) the value of such Asbestos Personal Injury Claims or Demands, individually or in the aggregate. (iii) Nothing in the Plan or the Plan Documents will affect or limit, or be construed as affecting or limiting, the protection afforded to any Settling Asbestos Insurance Company by the Injunctions under the Plan. (iv) Nothing in Section 12.12 of the Plan is intended or will be construed to preclude otherwise applicable principles of res judicata or collateral estoppel from being applied against any Asbestos Insurance Company with respect to any issue that is actually litigated by such Asbestos Insurance Company as part of its objections, if any, to Confirmation of the Plan or as part of any contested matter or adversary proceeding filed by such Asbestos Insurance Company in conjunction with or related to Confirmation of the Plan. (v) Nothing in the Plan, the Plan Documents, the Confirmation Order, or any finding of fact and/or conclusion of law with respect to the Confirmation or consummation of the Plan will limit the right, if any, of (i) any Asbestos Insurance Company, in any Asbestos Insurance Action, to assert any Asbestos Insurance Coverage Defense, including by presenting evidence and/or argument with respect to any of the matters specified in clauses (x) through (dd) of Section (ii) above or (ii) any other party in any such Asbestos Insurance Action to assert any appropriate position. Except as provided in Section (iv) above, none of the matters specified in clauses (x) through (dd) of Section (ii) above will have any res judicata or collateral estoppel effect against any Asbestos Insurance Company. 99 (o) No Liability for Solicitation or Participation Pursuant to section 1125(e) of the Bankruptcy Code, the Confirmation Order will provide that all of the Persons who have solicited acceptances or rejections of the Plan (including the Debtors and all of their respective officers, directors, shareholders, attorneys, agents, advisers and employees, all of the other Released Parties and the Voting Agent) have acted in good faith and in compliance with the applicable provisions of the Bankruptcy Code, and are not liable on account of such solicitation or participation, for violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or the offer, issuance, sale or purchase of securities. 6.10. Matters Incident to Plan Confirmation (a) No Successor Liability Except as otherwise expressly provided in the Plan, the Debtors, the Reorganized Debtors, ABI, their Affiliates, the Asbestos Claimants' Committee, the Bondholders' Committee, the Pre-Petition Asbestos Claimants' Committee, the Plan Trust and the Futures Representative do not, pursuant to the Plan or otherwise, assume, agree to perform, pay, or indemnify creditors or otherwise have any responsibilities for any liabilities or obligations of the Debtors relating to or arising out of the operations of or assets of the Debtors, whether arising prior to, on, or after the Confirmation Date. Neither the Debtors, the Reorganized Debtors, ABI, their Affiliates, nor the Plan Trust is, or will be, a successor to the Debtors by reason of any theory of law or equity, and none will have any successor or transferee liability of any kind or character, except that the Reorganized Debtors and the Plan Trust will assume the obligations specified in the Plan and the Confirmation Order. (b) Revesting of Assets Except as otherwise expressly provided in the Plan, on the Effective Date, each Reorganized Debtor will be vested with all of the assets and property of its former Estate, free and clear of all Claims, Liens, charges and other interests of holders of Claims or Interests, and may operate its business free of any restrictions imposed by the Bankruptcy Code or by the Bankruptcy Court. (c) Vesting and Enforcement of Causes of Action Pursuant to section 1123(b)(3)(B) of the Bankruptcy Code, except as otherwise provided in the Plan, the Reorganized Debtors will be vested with and have the right to enforce against any Entity any and all of the Debtors' Causes of Action other than Causes of Action related to Plan Trust Asbestos Claims and Plan Trust Assets (including the right to pursue such claims, if any, in the name of any Debtor if necessary), with the proceeds of the recovery of any such actions to be property of the Reorganized Debtors; provided, however, that nothing herein will alter, amend, or modify the injunctions (including the Injunctions), releases, or discharges provided in the Plan. Pursuant to section 1123(b)(3)(B) of the Bankruptcy Code, except as otherwise provided in the Plan, the Plan Trust will be vested with and have the right to enforce against any Entity any and all of the Debtors' Causes of Action relating to any Plan Trust 100 Asbestos Claims or any Plan Trust Assets, including, without limitation, the right to void any Asbestos Claim of a Qualified Pre-Petition Settlement Claimant or of a Qualified Participating Claimant whether because of failure to comply with the requirements of any applicable settlement agreement (including the Claimant Agreement) or because such Claim was not submitted in good faith or otherwise and including the right to pursue such claims, if any, in the name of any Debtor, if necessary; and for this purpose the Plan Trust will be designated as a representative of the Estates, with the proceeds of the recovery of any such actions to be property of the Plan Trust; provided, however, that nothing herein will alter, amend, or modify the injunctions (including the Injunctions), releases, or discharges provided in the Plan. (d) Bankruptcy Causes of Action On the Effective Date, the Debtors will assign to the Plan Trust all Plan Trust Bankruptcy Causes of Action; provided, however, that any Plan Trust Bankruptcy Cause of Action, including counts VII and XVI of the Omnibus Avoidance Action, arising from the advance of two million dollars ($2,000,000) to the Claimants' Representative prior to the Petition Date on account of the Claimants' Representatives' fees and expenses, will not be assigned to the Plan Trust and will be unconditionally released by the Debtors and their Estates in accordance with Section 12.3 of the Plan.. All such Plan Trust Bankruptcy Causes of Action will constitute part of the Plan Trust Assets, and will be transferred to and vested in the Plan Trust as of the Effective Date, free and clear of all Claims, Liens and encumbrances of every nature. The Plan Trust will be deemed the appointed representative of the Debtors' estates to, and may, enforce, pursue, litigate, abandon, compromise and settle any such Plan Trust Bankruptcy Cause of Action, as it deems appropriate. All Bankruptcy Causes of Action will be preserved for enforcement solely by the Reorganized Debtors; provided, however, that the Reorganized Debtors will not retain any such Bankruptcy Causes of Action against any parties indemnified by the Plan Trust pursuant to Section 4.6 of the Plan Trust Agreement. (e) Preservation of Insurance Claims The discharge and release of the Debtors and the Released Non-Debtor Parties from all Claims as provided in the Plan and the injunctive protection provided to the Debtors, Reorganized Debtors, Released Non-Debtor Parties and Released Parties with respect to Demands, as provided in the Plan, will neither diminish nor impair the enforceability of any of the Asbestos Insurance Policies by any Entity except (i) to the extent that any such Asbestos Insurance Company is also a Settling Asbestos Insurance Company or (ii) that all Asbestos Insurer Coverage Defenses are preserved. 6.11. Retention of Jurisdiction (a) Jurisdiction Until the Reorganization Cases are closed, the Bankruptcy Court will retain the fullest and most extensive jurisdiction permissible, including that necessary to ensure that the purposes and intent of the Plan are carried out. Except as otherwise provided in the Plan, the Bankruptcy Court will retain jurisdiction to hear and determine all Claims against and Interests in the Debtors, and to adjudicate and enforce all other causes of action which may exist on behalf of the Debtors. Nothing contained in the Plan will prevent the Debtors, the Reorganized Debtors, the Collateral Trust or the Plan Trust from taking such action as may be necessary in the enforcement of any cause of action 101 which any Debtor has or may have and which may not have been enforced or prosecuted by such Debtor, which cause of action will survive Confirmation of the Plan and will not be affected thereby except as specifically provided in the Plan. Nothing contained in the Plan concerning the retention of jurisdiction by the Bankruptcy Court will be deemed to be a retention of exclusive jurisdiction with respect to any Asbestos Insurance Action; rather any court other than the Bankruptcy Court which has jurisdiction over an Asbestos Insurance Action will have the continuing right to exercise such jurisdiction. (b) General Retention Following the Confirmation of the Plan, the administration of the Reorganization Cases will continue at least until the completion of the transfers contemplated to be accomplished on the Effective Date. Moreover, the Plan Trust will be subject to the continuing jurisdiction of the Bankruptcy Court in accordance with the requirements of section 468B of the IRC and the regulations issued pursuant thereto. The Bankruptcy Court will also retain jurisdiction for the purpose of classification of any Claim and the re-examination of Claims that have been Allowed for purposes of voting, and the determination of such objections as may be filed with the Bankruptcy Court with respect to any Claim. The failure by the Debtors to object to, or examine, any Claim for the purposes of voting, will not be deemed a waiver of the right of the Debtors, the Reorganized Debtors, or the Plan Trust, as the case may be, to object to or re-examine such Claim in whole or in part. (c) Specific Purposes In addition to the foregoing, the Bankruptcy Court will retain exclusive jurisdiction for the following specific purposes after the Confirmation Date: o to modify the Plan after Confirmation, pursuant to the provisions of the Bankruptcy Code and the Bankruptcy Rules; o to correct any defect, cure any omission, reconcile any inconsistency, or make any other necessary changes or modifications in or to the Plan, the Plan Documents or the Confirmation Order as may be necessary to carry out the purposes and intent of the Plan, including the adjustment of the date(s) of performance under the Plan Documents in the event that the Effective Date does not occur as provided in the Plan so that the intended effect of the Plan may be substantially realized thereby; o to assure the performance by the Disbursing Agent, the Indenture Trustee and the Plan Trustees of their respective obligations to make distributions under the Plan; o to enforce and interpret the terms and conditions of the Plan Documents; o to enter such orders or judgments, including, but not limited to, injunctions (i) as are necessary to enforce the title, rights, and powers of the Debtors, the Reorganized Debtors, the Plan Trust, ABI, the Futures Representative and the Trust Advisory Committee, or (ii) as are necessary to enable holders of Claims to pursue their rights against any Entity that may be liable therefor pursuant to applicable law or otherwise, including, but not limited to, Bankruptcy Court orders; 102 o to hear and determine any motions or contested matters involving taxes, tax refunds, tax attributes, tax benefits, tax proceedings and similar or related matters with respect to the Debtors, the Reorganized Debtors, or the Plan Trust relating to tax periods or portions thereof ending on or before the Effective Date, arising on account of transactions contemplated by the Plan Documents, or relating to the period of administration of the Reorganization Cases; o to hear and determine all applications for compensation of professionals and reimbursement of expenses under sections 330, 331, or 503(b) of the Bankruptcy Code; o to hear and determine any causes of action arising during the period from the Petition Date through the Effective Date; o to hear and determine any claim, cause of action, dispute or other matter in any way related to the Plan Documents or the transactions contemplated thereby, against the Debtors, the Reorganized Debtors, ABI, the ABI Parties, the Trust Advisory Committee, the Plan Trust, the Collateral Trust, the Plan Trustees, the Collateral Trustee or the Futures Representative and each of their respective Representatives; o to hear and determine any and all motions pending as of Confirmation for the rejection, assumption, or assignment of executory contracts or unexpired leases and the allowance of any Claim resulting therefrom; o to hear and determine such other matters and for such other purposes as may be provided in the Confirmation Order; o to consider and act on the compromise and settlement of any Claim against or Interest in the Debtors or their Estates; o to hear and determine all questions and disputes regarding title to the assets of the Debtors, their Estates, the Reorganized Debtors or the Plan Trust; o to hear and determine any other matters related to the Plan, including the implementation and enforcement of all orders entered by the Bankruptcy Court in the Reorganization Cases; o to retain continuing jurisdiction with regard to the Plan Trust sufficient to satisfy the requirements of the Treasury Regulations promulgated under section 468B of the IRC (including Treas. Reg. Section 1.468B-1(c)(1)); o to hear and determine any and all applications brought by the Plan Trustees to amend, modify, alter, waive, or repeal any provision of the Plan Trust Agreement or the TDP; o to enter such orders as are necessary to implement and enforce the Injunctions and the other injunctions described in the Plan, including, without limitation, orders extending the protections afforded by section 524(g)(4) of the Bankruptcy Code to the Protected Parties, including without limitation, ABI, the ABI Parties and the Settling Asbestos Insurance Companies; and 103 o to hear and determine any motions or contested matters involving or related to the GHR/Kenesis Actions or the GHR/Kenesis Litigation Trust. Notwithstanding anything to the contrary in this Section, (i) the allowance of Plan Trust Asbestos Claims (other than Asbestos Property Damage Claims) and the forum in which such allowance will be determined, governed by, and in accordance with the Plan Trust Agreement and the Trust Distribution Procedures and (ii) the Bankruptcy Court will have concurrent rather than exclusive jurisdiction with respect to disputes relating to rights under insurance policies included in the Plan Trust Assets. 6.12. Miscellaneous Provisions (a) Substantial Contribution Claims Any Entity who requests compensation or expense reimbursement for making a substantial contribution in the Reorganization Cases pursuant to sections 503(b)(3), (4) and (5) of the Bankruptcy Code ("Substantial Contribution Claim") must file an application with the clerk of the Bankruptcy Court on or before a date that is sixty (60) days subsequent to the Confirmation Date and serve such application on counsel for the Debtors, counsel for the Bondholders' Committee, counsel for the Futures Representative and counsel for the Asbestos Claimants' Committee and on all other parties as otherwise required by the Bankruptcy Court and the Bankruptcy Code, or be forever barred from seeking such compensation or expense reimbursement. All Allowed Substantial Contribution Claims will be paid by the Reorganized Debtors within sixty (60) days of allowance by the Bankruptcy Court. (b) Exemption From Transfer Taxes The issuance, transfer, or exchange of any of the securities issued under, or the transfer of any other assets or property pursuant to or in connection with the Plan or the making or delivery of an instrument of transfer under or in connection with the Plan will not, pursuant to section 1146 of the Bankruptcy Code, be taxed under any law imposing a stamp tax, transfer tax or other similar tax. (c) Effectuating Documents and Further Transactions The Chief Executive Officer, President, Chief Financial Officer or any Vice President of any Debtor will be authorized to execute, deliver, file or record such contracts, instruments, releases, indentures, and other agreements or documents and take or direct such actions as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan. The Secretary or any Assistant Secretary of any Debtor will be authorized to certify or attest to any of the foregoing actions. (d) The Asbestos Claimants' Committee, the Futures Representative and the Bondholders' Committee The Asbestos Claimants' Committee will continue in existence until the Effective Date, with the Debtors to pay the reasonable fees and expenses of the Asbestos Claimants' Committee and the Futures Representative through that date as well, in accordance with any fee and expense procedures promulgated 104 during the Reorganization Cases. After the Effective Date, the Futures Representative will (i) continue in existence and the rights, duties and responsibilities of the Futures Representative will be as set forth in the Plan Trust Documents and (ii) have the right to prosecute and/or object to applications for Professional Fee Claims. The Representatives retained by the Futures Representative during the Reorganization Cases will, as of the Effective Date, be released and discharged of and from all further authority, duties, responsibilities, and obligations related to or arising from, the Reorganization Cases. On the Effective Date, the Bondholders' Committee will be dissolved except for the purposes of: (i) prosecuting any appeal or request for reconsideration or stay pending appeal of the Confirmation Order; (ii) pending adversary proceedings; and (iii) enforcing the Additional Bondholder Recovery, if applicable; and (iv) prosecuting and/or objecting to Professional Fee Claims, and the members, attorneys, accountants, and other professionals thereof will be released and discharged of and from all further authority, duties, responsibilities, liabilities, and obligations related to, or arising from, the Reorganization Cases. On the Effective Date, the Trust Advisory Committee will assume those powers, duties, and responsibilities as provided in the Plan Trust Agreement. (e) Modification of the Plan The Debtors, with the written consent of ABI, may propose amendments to or modifications of any of the Plan Documents under section 1127 of the Bankruptcy Code at any time prior to the Confirmation Date. After Confirmation, the Debtors, with the written consent of the Futures Representative, the Plan Trustees, the Bondholders' Committee and ABI, may remedy any defects or omissions or reconcile any inconsistencies in the Plan or the Confirmation Order or any other order entered for the purpose of implementing the Plan in such manner as may be necessary to carry out the purposes and intent of the Plan, provided, however, that none of the Debtors, ABI, the Futures Representative, the Plan Trustees, the Asbestos Claimants' Committee, the Bondholders' Committee and the Claimants' Representative will seek to terminate, reduce or limit the scope of the Asbestos Channeling Injunction or any other injunction contained in the Plan that inures to the benefit of any Settling Asbestos Insurance Company. Anything in the Plan or in any Plan Document to the contrary notwithstanding, following Confirmation, but prior to the Effective Date, the Plan Documents will not be modified, supplemented, changed or amended in any material respect except with the consent of ABI (to the extent that any such modification, supplement, change, or amendment impairs or affects the rights of ABI or the Affiliates under the Plan), the Futures Representative, the Bondholders' Committee (to the extent that any such modification, supplement, change or amendment impairs or affects the rights of holders of Senior Note Claims) and the Debtors. Unless otherwise provided in the Confirmation Order or other order of a court of competent jurisdiction in the event of a conflict between the terms or provisions of the Plan and the Plan Trust Documents, the terms of the Plan will control; provided, however, the New Indenture will control any conflict involving the New Senior Notes. (f) Revocation and Withdrawal of the Plan The Debtors reserve the right to revoke and withdraw the Plan before the entry of the Confirmation Order. If the Debtors revoke or withdraw the Plan, or if Confirmation does not occur, then, with respect to all parties in interest, the Plan will be deemed null and void and nothing contained therein will be deemed to constitute a waiver or release of any Claims by or against the Debtors or any other Entity or to prejudice in any manner the rights of the Debtors or such Entity in any further proceedings involving the Debtors. 105 (g) No Admission Nothing contained in the Plan or in this Disclosure Statement will be deemed as an admission by the Debtors, with respect to any matter set forth therein or herein, including, without limitation, liability on any Claim or the propriety of any Claims classification. (h) Governing Law Except to the extent that federal law (including, but not limited to, the Bankruptcy Code and the Bankruptcy Rules) is applicable or where the Plan provides otherwise, the rights and obligations arising under the Plan will be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof which would require the application of any other law. (i) Modification of Payment Terms The Reorganized Debtors reserve the right to modify the treatment of any Allowed Claim (other than a Plan Trust Asbestos Claim), as provided in section 1123(a)(4) of the Bankruptcy Code, at any time after the Effective Date upon the consent of the holder of such Allowed Claim, and solely with respect to any Allowed ABI Claim, with the additional consent of the Futures Representative and the Plan Trustees. (j) Duty to Cooperate Notwithstanding anything therein to the contrary, nothing in the Plan, the Plan Documents or the Confirmation Order will relieve (by way of injunction or otherwise) any of the Debtors or Reorganized Debtors or any other Entity which is or claims to be an insured or entitled to indemnity under an Asbestos Insurance Policy from any duty to cooperate that may be required by any such insurance policy under applicable law with respect to the defense and/or settlement of any Claim for which coverage is sought under such Asbestos Insurance Policy. To the extent that any entity incurs costs in satisfying such duty to cooperate with respect to Asbestos Personal Injury Claims, the Plan Trust will reimburse such entity for all such reasonable out-of-pocket expenses. (k) Allocation of Reserved Common Stock In the event that the holders of the Senior Note Claims (as a Class) do not vote to accept the Plan, as of the Effective Date, the Reserved Common Stock will be issued and held in escrow pending a Final Order of the Bankruptcy Court allocating the Reserved Common Stock between the Plan Trust and the Senior Note Claims. (l) Transfer Limitations under Section 382(1)(5) of the IRC If Reorganized Congoleum is eligible for and avails itself of the exception described in Section 382(1)(5) of the IRC, Reorganized Congoleum's equity interests, from and after the Effective Date, will be subject to such restrictions that, in the determination of Reorganized Congoleum, are necessary to ensure that Reorganized Congoleum will not experience another "ownership change" as defined in Section 382(g) of the IRC within the period described in Section 382(1)(5)(D) of the IRC. 106 ARTICLE 7 CONFIRMATION OF THE PLAN 7.1. Acceptance or Rejection of the Plan (a) Persons Entitled to Vote on the Plan Pursuant to section 1126 of the Bankruptcy Code, only Classes of Claims and Interests that are impaired under the terms and provisions of the Plan are entitled to vote to accept or reject the Plan. Generally speaking, under section 1124 of the Bankruptcy Code, a class of claims or interests is "impaired" under a plan of reorganization unless, with respect to each claim or interest in such class, the plan in question (1) leaves unaltered the legal, equitable and contractual rights to which such claim or interest entitles the holder of such claim or interest; or (2) notwithstanding any contractual provision or applicable law that entitles the holder of such claim or interest to demand or receive accelerated payment of such claim or interest after the occurrence of a default (A) cures any such default that occurred before or after the commencement of the case under the Bankruptcy Code, other than a default of the kind specified in section 365(b)(2) thereof; (B) reinstates the maturity of such claim or interest as such maturity existed before such default; (C) compensates the holder of such claim or interest for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such applicable law; and (D) does not otherwise alter the legal, equitable, or contractual rights to which such claim or interest entitles the holder of such claim or interest. Only those claimants whose claims are Allowed or have been temporarily allowed for voting purposes will be entitled to vote on the Plan. Under the Plan, Classes 1, 4, 5, 7, 8 and 14 are Unimpaired; therefore, the holders of Claims and Interests in such Classes are conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. The Company will not solicit acceptances of the Plan from holders of Claims and Interests in these Classes. Classes 2, 3, 6, 9, 10, 11, 12 and 13 are Impaired; therefore, the holders of Claims and Interests in Classes 2, 3, 6, 9, 10, 11, 12 and 13 are entitled to vote to accept or reject the Plan. Since the Plan's treatment of Asbestos Property Damage Claims is identical to the treatment set forth in the Fourth Modified Plan, holders of Asbestos Property Damage Claims are not being resolicited with respect to the Plan. Section 524(g) of the Bankruptcy Code permits supplementary injunctions to be issued which channel all Asbestos Claims to a trust if, among other things, 75% of those claimants voting in the Class or Classes of claimants whose Claims are to be addressed by the trust vote for the plan. Because the Claims in Classes 2, 3, 10 and 11 are to be channeled into the Plan Trust, the Company is soliciting acceptances of the Plan for purposes of section 524(g) from these Classes. 107 (b) [Voting Instructions - To be conformed to Voting Procedures] (1) Ballots Holders of Claims in Classes 6, 9 and 13 will be sent individual ballots only. With respect to the Asbestos Claimants in Classes 2, 3, 10 and 11, whose Claims are temporarily allowed for voting purposes, the Company will provide either individual ballots or master ballots; provided, however, master ballots will only be sent to counsel who (i) represent one or more Asbestos Claimants, (ii) have the requisite authority to vote on behalf of such Asbestos Claimants, (iii) have obtained an order from the Bankruptcy Court approving their 2019 statement by [__________, 2006], and (iv) have notified the Voting Agent of counsel's intent to use master ballots. If your counsel is not voting on your behalf, you must follow the procedures outlined below and on your individual ballot in order to properly complete your ballot. (i) Class 2, 3, 10 and 11 Ballots A separate form of ballot will be provided to Holders whose Claims are temporarily allowed for voting purposes in Class 2 (Secured Asbestos Claims of Qualified Pre-Petition Asbestos Claimants), Class 3 (Secured Asbestos Claims of Qualified Participating Claimants), Class 10 (Not Previously Determined Unsecured Asbestos Personal Injury Claims) and Class 11 (Previously Determined Unsecured Asbestos Personal Injury Claims), or their counsel, respectively. (A) Indicate on the ballot, by checking the appropriate box, whether you are voting to accept or reject the Plan. If your ballot does not indicate either an acceptance or a rejection of the Plan or if it indicates both an acceptance and a rejection, it will not be counted. (B) For the holders of claims in Classes 2, 3, 10 and 11, indicate on the ballot, by filling in the appropriate blank, the dollar amount of your claim. This dollar amount should be the amount you have agreed to in the Claimant Agreement or Pre-Petition Settlement Agreement, as applicable. (C) For the holders of Claims in Class 10, you must indicate your disease level by marking an "X" in the box that corresponds to your choice. The amount of your claim will be based on your disease level, and this amount will be for voting purposes only and will not be binding for any other purpose. (D) Sign and date your ballot, and return it to the Voting Agent so that it is actually received by the Voting Agent by 5:00 p.m., Prevailing Eastern Time, on [ ] , 2006, unless otherwise extended by the Bankruptcy Court. (E) By signing and dating your ballot, you will be certifying under penalty of perjury pursuant to 28 U.S.C. ss.1746 that: 108 (1) You have been provided with a copy of the Disclosure Statement, Plan and the accompanying exhibits; (2) All of the information you have provided on your ballot or master ballot is true and correct; and (3) You have the full power and authority under applicable non-bankruptcy or bankruptcy law to vote to accept or reject the Plan as an Asbestos Claimant or counsel. If you are a holder of a Class 10 Claim, you must additionally certify under penalty of perjury that: (4) You have been exposed to an asbestos-containing product manufactured or distributed by Congoleum Corporation or with respect to which Congoleum has legal liability and that you have the disease level indicated on the ballot. (ii) Class 6, 9 and 13 Ballots Holders of Class 6, 9 and 13 Claims, if any, will receive a ballot for their respective class. (A) Indicate on the ballot, by checking the appropriate box, whether you are voting to accept or reject the Plan. If your ballot does not indicate either an acceptance or a rejection of the Plan or if it indicates both an acceptance and a rejection, it will not be counted. (B) Indicate on the ballot, by filling in the appropriate blank, the amount of Claim or the number of shares you hold, as applicable. With respect to Class 6, 9 and 13 Claims, this amount should be the amount of your claim or the number of shares that you hold, as applicable. The information you enter relating to the amount and basis of your Claim or Interest will be used solely for the purposes of identifying your Claim or Interest and may be used for calculating votes to accept or reject the Plan. Such information does not establish the amount of your Claim or Interest. (C) Sign and date your ballot, and return it to the Voting Agent so that it is actually received by the Voting Agent prior to 5:00 p.m., Prevailing Eastern Time, on [ ], 2006, unless otherwise extended by the Bankruptcy Court. (D) By signing and dating your ballot, you will be certifying under penalty of perjury pursuant to 28 U.S.C. ss.1746 that: 109 (1) You have been provided with a copy of the Disclosure Statement, Plan and the accompanying exhibits; (2) All of the information you have provided on your ballot is true and correct; and (3) You have the full power and authority under applicable non-bankruptcy or bankruptcy law to vote to accept or reject the Plan on behalf of the Claimant listed on your ballot. (E) If you vote to accept the Plan, you consent to the release and exculpation provisions set forth in Sections 12.2, 12.3 and 12.4 of the Plan. (2) Returning Ballots UNLESS YOU HAVE MADE ARRANGEMENTS WITH YOUR COUNSEL TO AUTHORIZE SUCH COUNSEL TO VOTE DIRECTLY ON YOUR BEHALF, PLEASE USE THE BALLOT SENT TO YOU WITH THIS DISCLOSURE STATEMENT IN VOTING FOR OR AGAINST THE PLAN. YOU SHOULD COMPLETE AND SIGN THE BALLOT AND RETURN IT TO THE VOTING AGENT, AT THE APPROPRIATE ADDRESS SET FORTH IN THE VOTING INSTRUCTIONS WHICH ACCOMPANY THE ENCLOSED BALLOT, ON OR BEFORE 5:00 P.M., PREVAILING EASTERN TIME, ON [ ], 2006, UNLESS OTHERWISE EXTENDED BY THE BANKRUPTCY COURT. ALL BALLOTS WILL BE TABULATED BY THE VOTING AGENT. IN ORDER TO BE COUNTED, BALLOTS MUST BE ACTUALLY RECEIVED BY THE VOTING AGENT ON OR BEFORE 5:00 P.M., PREVAILING EASTERN TIME, ON [ ], 2006, UNLESS OTHERWISE ORDERED BY THE BANKRUPTCY COURT, AT THE APPROPRIATE ADDRESS SET FORTH IN THE VOTING INSTRUCTIONS WHICH ACCOMPANY THE ENCLOSED BALLOT. (3) Incomplete or Irregular Ballots Ballots or master ballots that are not signed in accordance with the voting instructions will not be counted. Ballots or master ballots that are signed, but not expressly voted either for acceptance or rejection of the Plan, will not be counted. Ballots or master ballots that do not supply the information requested on the ballot or master ballot, as applicable, will not be counted. Ballots or master ballots that are not actually received by the Voting Agent by the Voting Deadline on [ ], 2006 at 5:00 p.m., Prevailing Eastern Time, will not be counted. 110 Ballots or master ballots that are illegible or contain insufficient information (such as incomplete or missing social security numbers for Asbestos Claimants) to permit the identification of the Claimant will not be counted. Ballots or master ballots transmitted to the Voting Agent by facsimile or other electronic means will not be counted. Ballots or master ballots that are incomplete, including without limitation with respect to an Asbestos Claimant for whom counsel fails to make the required certifications, will not be counted. (4) Extension of the Solicitation Period The solicitation period for ballots with respect to the Plan will expire at 5:00 p.m., Prevailing Eastern Time, on [ ], 2006 unless otherwise ordered by the Bankruptcy Court. Except to the extent allowed by the Bankruptcy Court, ballots that are received after the Voting Deadline may not be accepted or used by the Company in connection with its request for Confirmation of the Plan or any modification thereof. (5) Ballot Retention The original ballots or master ballots will be maintained by the Voting Agent for a period of one year following the Effective Date, unless otherwise instructed by the Reorganized Debtors, in writing, or otherwise ordered by the Bankruptcy Court. (c) Class Acceptance Requirement Chapter 11 of the Bankruptcy Code does not require that each holder of a Claim vote in favor of the Plan for it to be confirmed by the Bankruptcy Court. Instead, the Bankruptcy Code defines acceptance of the Plan by a Class of Claims as acceptance by holders of at least two-thirds in dollar amount and more than one-half in number of the claims of that Class that have voted on the Plan, excluding any holders of Claims designated pursuant to section 1126(e) of the Bankruptcy Code. Acceptance by a Class of Interests is defined as acceptance by holders of at least two-thirds in amount of the Allowed Interests of that Class held by holders of such Interests that have voted on the Plan, excluding any holders of Interests designated pursuant to section 1126(e) of the Bankruptcy Code. Section 1126(e) provides that a vote may be disregarded if the Bankruptcy Court determines, after notice and a hearing, that an Entity's acceptance or rejection of the plan was not in good faith, or was not solicited or procured in good faith, or in accordance with the provisions of the Bankruptcy Code. (d) Acceptance Pursuant to Section 524(g) of the Bankruptcy Code In accordance with section 524(g)(2)(B)(ii)(IV)(bb) of the Bankruptcy Code, a supplementary injunction may be issued if, among other things, 75% of those voting in the Class or Classes of claimants addressed by the Plan Trust vote in favor of the Plan. 111 7.2. Confirmation Hearing Section 1128(a) of the Bankruptcy Code requires the court, after notice, to hold a hearing on confirmation of a plan. Notice of the Confirmation Hearing will be provided to all creditors and equity holders or their representatives. The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice except for an announcement of the adjourned date made at the Confirmation Hearing or any subsequent adjourned Confirmation Hearing. Section 1128(b) of the Bankruptcy Code provides that any party in interest may object to confirmation of a plan. Any objection to confirmation of the Plan must be in writing, must conform to the Bankruptcy Rules, must set forth the name of the objecting party, the nature and amount of Claims or Interests held or asserted by the objectant against the Debtor or property, the basis for the objection and the specific grounds therefor, and must be filed with the Bankruptcy Court by the date and time set forth in the notice of the Confirmation Hearing, and served upon the parties and their counsel, so as to be received no later than the date and time for service of the objections, all as designated in the notice of the Confirmation Hearing. 7.3. Requirements for Confirmation (a) Consensual Confirmation Under Section 1129(a) of the Bankruptcy Code At the Confirmation Hearing, the Bankruptcy Court will determine whether the requirements of section 1129(a) of the Bankruptcy Code have been satisfied, in which event the Bankruptcy Court will enter the Confirmation Order. Such requirements include, among others: (i) That the Plan complies with applicable provisions of the Bankruptcy Code. (ii) That the Debtors have complied with the applicable provisions of the Bankruptcy Code. (iii) That the Plan has been proposed in good faith and not by any means forbidden by law. (iv) That any payment made or promised by the Debtors to any Entity for services, costs or expenses in or in connection with the Reorganization Cases or the Plan has been approved by or is subject to approval by the Bankruptcy Court as reasonable. (v) That the Debtors have disclosed the identity and affiliations of any individual proposed to serve as a director or an officer of the Reorganized Debtors after confirmation of the Plan and that the appointment to, or continuance in, such office by such individual is consistent with the interests of holders of Claims and Interests and with public policy. (vi) That the Plan is in the best interests of the holders of Claims and Interests; that is, each holder of an Allowed Claim or Allowed Interest either has accepted the Plan or will receive or retain on account of its Claim or Equity Interest property with a value, as of the Effective Date, that is not less than the amount that the holder would receive or retain if the Debtors were liquidated under Chapter 7 of the Bankruptcy Code on the Effective Date. 112 (vii) Each Class of Claims or Interests has either accepted the Plan or is not impaired under the Plan; provided, however, that if such requirement is not met, the Plan may be confirmed pursuant to section 1129(b) of the Bankruptcy Code. (viii) Except to the extent that the holder of a particular Claim has agreed to a different treatment of such Claim, the Plan provides that Allowed Administrative Expense Claims and Allowed Priority Claims will be paid in full on the Effective Date and that Allowed Priority Tax Claims will be either paid in full on the Effective Date or will receive on account of such Claims deferred cash payments, over a period not exceeding six years after the date of assessment of such Claims, of a value, as of the Effective Date, equal to the Allowed Amount of such Claims. (ix) At least one impaired Class of Claims has accepted the Plan, without regard to the votes of any insiders. (x) That the Plan is feasible; that is, confirmation is not likely to be followed by the need for liquidation or further reorganization of the Reorganized Debtors. (xi) All fees comparable to the fees payable under section 1930 of title 28 of the U.S. Code, if and to the extent due, have been paid on or prior to the Effective Date. (xii) The Plan provides for the continuation after the Effective Date of payment of all retiree benefits, as that term is defined in section 1114 of the Bankruptcy Code, without modification by the Plan, thereby complying with section 1114 of the Bankruptcy Code. The Plan is the product of extensive arms-length negotiations and has been proposed in good faith. The Company believes that the Plan satisfies all applicable requirements of section 1129(a) of the Bankruptcy Code. A discussion of the reasons the Company believes the Plan satisfies certain of such requirements is set forth below and the satisfaction of the remaining requirements of section 1129(a) of the Bankruptcy Code is, in the Company's belief, self-explanatory: (1) Best Interests Test Under the best interests test, the Plan may be confirmed if, with respect to each Impaired Class of Claims or Interests, each holder of an Allowed Claim or Allowed Interest in such Class either (A) has accepted the Plan or (B) will receive or retain under the Plan, on account of its Claim or Interest, property of a value, as of the Effective Date, that is not less than the amount such holder would receive or retain if the Company were to be liquidated under Chapter 7 of the Bankruptcy Code. To determine what the holders in each Class of Claims or Interests would receive if the Company were to be liquidated, the Bankruptcy Court must estimate the dollar amount that would be generated from the liquidation of the Company's assets and properties in the context of a Chapter 7 liquidation case. The cash amount that would be available for satisfaction of the Allowed Claims 113 and Allowed Interests of the Company would consist of the proceeds resulting from the disposition of the assets of the Company, augmented by the cash held by the Company at the time of the commencement of a Chapter 7 case. Such cash amount would be reduced by the costs and expenses of the liquidation and by any additional Administrative Claims and Priority Claims that would result from the termination of the Company's business and the use of a Chapter 7 proceeding for the purposes of liquidation. See Exhibit B (Liquidation Analysis).2 The Company believes that the timing of distributions under a Chapter 7 case would be delayed and the amount of distributions that would be made in a Chapter 7 case would be materially less than the distributions contemplated by the Plan. In addition, the ability of the trustee in a Chapter 7 case to negotiate settlements with insurance companies without the benefit of the section 524(g) injunctions is likely to be impaired, with the result that fewer settlements are likely to be achieved, and the terms of any such settlements are likely to be less favorable to Claimants than settlements achievable in the Reorganization Cases. Furthermore, unlike the Plan Trust in the Reorganization Cases, a Chapter 7 trustee would not receive the benefits of the New Class A Common Stock, the New Convertible Security, the Plan Trust Note and the ABI Contribution. The Company therefore believes that the Plan is in the best interests of all holders of Claims and Interests. (2) Feasibility of the Plan In order for the Plan to be confirmed, the Bankruptcy Court also must determine that the Plan is feasible -- that is, that the need for further reorganization or a subsequent liquidation of the Company is not likely to result following confirmation of the Plan. In determining whether a plan of reorganization is feasible, a court will consider (A) the adequacy of the proposed capital structure of the reorganized entity, (B) its earning power, (C) the overall economic conditions in which it will operate, (D) the capability of its management, (E) the continuity of its management and (F) any other factors the court deems relevant to the successful operation of the reorganized entity to perform the provisions of the plan of reorganization. The Reorganized Debtors will be discharged from Asbestos Claims and otherwise in general will be free of prepetition debt, other than indebtedness in respect of or under (1) the Lender Secured Claims, (2) Other Secured Claims and (3) Senior Note Claims, as well as ongoing business expenses and reorganization costs. Congoleum anticipates that the cash flow generated by its business and assets will be sufficient to pay its ongoing obligations under the New Convertible Security, its other long-term debt and its business expenses. The Company, therefore, believes that the Plan is feasible. (3) Acceptance by an Impaired Class Because the Plan impairs several Classes of Claims (Classes 2, 3, 6, 9, 10, 11, 12 and 13), section 1129(a)(10) of the Bankruptcy Code requires that for the Plan to be confirmed, at least one Impaired Class of Claims must accept the Plan by the requisite vote. As more fully described in Section 7.1(c) - - ---------- (2) The attached Liquidation Analysis is without giving effect to rights under insurance policies. 114 "Acceptance or Rejection of the Plan -- Class Acceptance Requirement," an Impaired Class of Claims will have accepted the Plan if and only if at least two-thirds in dollar amount and more than one-half in number of the Allowed Claims in such Class that vote have voted to accept the Plan. (4) Unfair Discrimination and Fair and Equitable Tests To obtain confirmation of the Plan, it must be demonstrated that the Plan "does not discriminate unfairly" and is "fair and equitable" with respect to each impaired, non-accepting Class. The Bankruptcy Code provides the following non-exclusive definition of the phrase "fair and equitable," as it applies to secured creditors, unsecured creditors, and equity holders: (i) Secured Creditors With respect to any holder of a secured claim that rejects a plan, the Bankruptcy Code requires that either (i) each impaired secured creditor retains its liens securing its secured claim and receives on account of its secured claim deferred cash payments having a present value equal to the amount of its allowed secured claim, (ii) each impaired secured creditor realizes the "indubitable equivalent" of its allowed secured claims, or (iii) the property securing the claim is sold free and clear of liens with such liens to attach to the proceeds of the sale and the treatment of such liens on proceeds is provided in clause (i) or (ii) of this subparagraph. This test is applicable if Class 2 (Secured Asbestos Claims of Qualified Pre-Petition Claimants) or Class 3 (Secured Asbestos Claims of Qualified Participating Claimants) reject the Plan. (ii) Unsecured Creditors With respect to any class of unsecured claims that rejects a plan, the Bankruptcy Code requires that either (i) each impaired unsecured creditor receives or retains under the plan property of a value equal to the amount of its allowed claim, or (ii) the holders of claims and interests that are junior to the claims of the rejecting class of unsecured creditors will not receive or retain any property under the plan. This test will be applicable if any of Class 6 (Senior Note Claims), Class 9 (ABI Claims), Class 10 (Not Previously Determined Unsecured Asbestos Personal Injury Claims), Class 11 (Previously Determined Unsecured Asbestos Personal Injury Claims), or Class 12 (Asbestos Property Damage Claims) rejects the Plan. (iii) Equity Holders With respect to any class of equity interests that rejects a plan, the Bankruptcy Code requires that either (i) each holder of an equity interest will receive or retain under the plan property of a value equal to the greatest of the fixed liquidation preference to which such holder is entitled, the fixed redemption price to which such holder is entitled, or the value of the interest, or (ii) the holder of an interest that is junior to the non-accepting class will not receive or retain any property under the plan. This test will be applicable if Class 13 (Congoleum Interests) rejects the Plan. 115 (b) Conditions to Confirmation Confirmation of the Plan will not occur unless each of the following conditions has been satisfied or waived in accordance with Section 11.3 of the Plan. These conditions to Confirmation, which are designed, among other things, to ensure that the Injunctions, releases, and discharges set forth in Article XII of the Plan will be effective, binding and enforceable, are as follows: (i) The Bankruptcy Court will have made specific findings and determinations, among others, in substantially the following form: (A) The Discharge Injunction and the Asbestos Channeling Injunction are to be implemented in connection with the Plan and the Plan Trust; (B) As of the Petition Date, Congoleum has been named as a defendant in personal injury, wrongful death or property damage actions seeking recovery for damages allegedly caused by the presence of, or exposure to, asbestos or asbestos-containing products; (C) The Plan Trust, upon the Effective Date, will assume the liabilities of the Debtors with respect to Plan Trust Asbestos Claims and Demands; (D) The Plan Trust is to be funded in part by securities of Reorganized Congoleum in the form of the New Class A Common Stock and the New Convertible Security and constitutes an obligation of Reorganized Congoleum to make future payments to the Plan Trust; (E) In the event that the holders of the Senior Note Claims (Class 6) vote (as a Class) to accept the Plan, the Plan Trust, on the Effective Date, will hold the New Class A Common Stock and the New Convertible Security and if certain contingencies occur, the Plan Trust will be entitled to redeem or convert the New Convertible Security, and, in accordance with the terms of the New Convertible Security, own a majority of the voting shares of the common stock of Reorganized Congoleum; (F) In the event that the holders of the Senior Note Claims (Class 6) do not vote to accept the Plan, then the Plan Trust will receive its allocable share of the Reserved Common Stock as determined by a Final Order of the Bankruptcy Court. (G) The Plan Trust is to use its assets and income to pay Plan Trust Asbestos Claims and Plan Trust Expenses; (H) Congoleum is likely to be subject to substantial future Demands for payment arising out of the same or similar conduct or events that gave rise to the Plan Trust Asbestos Claims, which are addressed by the Asbestos Channeling Injunction; (I) The actual amounts, numbers and timing of future Demands cannot be determined; 116 (J) Pursuit of Demands outside the procedures prescribed by the Plan and the TDP is likely to threaten the Plan's purpose to deal equitably with Plan Trust Asbestos Claims and future Demands; (K) The Plan establishes separate Classes of Asbestos Personal Injury Claims that are to be addressed by the Plan Trust and at least seventy-five percent (75%) of the Asbestos Claimants voting in such Classes have accepted the Plan; (L) Pursuant to court orders or otherwise, the Plan Trust will operate through mechanisms such as structured, periodic or supplemental payments, Pro Rata distributions, matrices or periodic review of estimates of the numbers and values of Asbestos Personal Injury Claims or other comparable mechanisms, that provide reasonable assurance that the Plan Trust will value, and be in a financial position to pay, Asbestos Personal Injury Claims and Demands therefor in substantially the same manner; (M) The Futures Representative was appointed by the Bankruptcy Court as part of the proceedings leading to the issuance of the Discharge Injunction and the Asbestos Channeling Injunction for the purpose of, among other things, protecting the rights of persons that might subsequently assert Demands of the kind that are addressed in the Discharge Injunction and the Asbestos Channeling Injunction and transferred to the Plan Trust; (N) In light of the benefits provided, or to be provided, to the Plan Trust on behalf of each Protected Party, the Asbestos Channeling Injunction is fair and equitable with respect to the persons that might subsequently assert Demands against any Protected Party; (O) The Plan otherwise complies with section 524(g) of the Bankruptcy Code; (P) Congoleum's contributions to the Plan Trust and ABI's contribution of the ABI Contribution to the Plan Trust provided for in the Plan, together with the Asbestos Insurance Assignment, constitute substantial assets of the Plan Trust and the reorganization; (Q) The duties and obligations of the insurers that issued policies and their successors and assigns, or, with respect to any insolvent insurers, their liquidators and/or the state insurance guaranty funds that bear responsibility with respect to such rights under such policies which constitute the Asbestos Insurance Rights and Asbestos Property Damage Insurance Rights are not eliminated or diminished by the transfer pursuant to the Plan of the Debtors' rights in the Asbestos Insurance Rights and Asbestos Property Damage Insurance Rights pursuant to the Insurance Assignment Agreement; (R) The Settling Asbestos Insurance Companies are entitled to the benefits of the Asbestos Channeling Injunction with respect to Plan Trust Asbestos Claims; (S) After Confirmation, each Asbestos Insurance Settlement Agreement of a Settling Asbestos Insurance Company and each Final Order of the Bankruptcy Court approving such Settlement Agreements will be binding upon and inure to the benefit of the Plan Trust and the Plan Trustees, and each of the foregoing will become fully bound by all of the terms and conditions of each such Asbestos Insurance Settlement Agreement without need for further act or documentation of any kind; 117 (T) After Confirmation, none of the Debtors, ABI, the Futures Representative, the Plan Trustees, the Asbestos Claimants' Committee, and the Claimants' Representative will seek to terminate, reduce or limit the scope of the Asbestos Channeling Injunction or any other injunction contained in the Plan that inures to the benefit of any Settling Asbestos Insurance Company or ABI; and (U) At least 95% in amount of the allowed and valid votes with respect to the Plan for each of Classes 2 and 3 will have accepted the Plan subject to waiver of this condition by the Claimants' Representative, the Asbestos Claimants' Committee and the Futures Representative, each in its sole discretion. (ii) The Bankruptcy Court will have made such findings and determinations regarding the Plan as will enable the entry of the Confirmation Order and any other order entered in conjunction therewith, each of which will be in form and substance acceptable to the Debtors and ABI and, insofar as such findings and determinations affect the Financing Order or the rights of Wachovia thereunder, Wachovia. (c) Conditions for Effective Date Notwithstanding any other provision of the Plan or the Confirmation Order, the Effective Date of the Plan will not occur unless and until each of the following conditions has been satisfied or, if applicable, waived: (1) Confirmation Order The Confirmation Order will have been entered by the Bankruptcy Court and affirmed by the District Court or entered by the District Court, and the Confirmation Order and any order of the District Court will be in form and substance acceptable to the Debtors, the Asbestos Claimants' Committee, the Futures Representative, the Bondholders' Committee and ABI and the Confirmation Order (and the affirming order of the District Court) will have become a Final Order; provided, however, that the Effective Date may occur at a point in time when the Confirmation Order is not a Final Order at the option of the Debtors, with the written consent of ABI, unless the effectiveness of the Confirmation Order has been stayed, reversed or vacated. The Effective Date may occur, again at the option of the Debtors, with the written consent of ABI, on the first Business Day immediately following the expiration or other termination of any stay of effectiveness of the Confirmation Order. (2) Injunctions The Discharge Injunction, the Asbestos Channeling Injunction and the Anti-Suit Injunction will be in full force and effect. 118 (3) Amended Credit Agreement The Amended Credit Agreement or such other working capital exit facility entered into by the Reorganized Debtors which Amended Credit Agreement or other working capital exit facility will contain terms similar to the Existing Credit Agreement (except that the Amended Credit Agreement or other working capital exit facility may be modified to provide for a lien or a security interest in real estate and any other collateral securing the New Senior Notes), and all documents to be executed in connection with the Amended Credit Agreement or such other exit facility, in form and substance reasonably satisfactory to the Debtors, will not restrict Reorganized Congoleum's obligations to make scheduled interest payments on the New Senior Notes, the Plan Trust Note and the New Convertible Security except as provided in the New Convertible Security, and will have been executed and delivered and all conditions precedent to effectiveness thereof will have been satisfied or waived by the parties thereto. (4) Plan Documents The Plan Documents necessary or appropriate to implement the Plan (which will include without limitation, the New Convertible Security, the Plan Trust Note, the New Senior Notes, the Amended Credit Agreement or any other working capital exit facility, the Plan Trust Documents and the Insurance Assignment Agreement) will have been executed, delivered and, where applicable, filed with the appropriate governmental authorities; all conditions precedent to the effectiveness of each of such Plan Documents will have been satisfied or waived by the respective parties thereto; and the Plan Documents will be in full force and effect. (5) New Senior Notes The New Indenture will have been executed and authorized and the New Senior Notes will have been delivered in accordance with the New Indenture and will constitute valid senior secured indebtedness of the Reorganized Debtors. (6) Other Assurances The Debtors will have obtained either (i) a private letter ruling from the Internal Revenue Service establishing that the Plan Trust is a "qualified settlement fund" pursuant to Section 468(B) of the IRC and the regulations issued pursuant thereto, or (ii) other decisions, opinions or assurances regarding certain tax consequences of the Plan, satisfactory to the Debtors, the Reorganized Debtors, the Futures Representative and the Asbestos Claimants' Committee. (7) Other Approvals, Documents and Actions All authorizations, consents and regulatory approvals required, if any, in connection with the consummation of the Plan will have been obtained, and all actions, documents, and agreements necessary to implement the Plan will have been effected or executed. 119 (8) Judicial Fees All fees payable pursuant to 28 U.S.C. ss. 1930 if and to the extent assessed against the Bankruptcy Estates of the Debtors will have been paid in full. (9) Insurance Settlement Protocol The Debtors will have obtained the consent of the Asbestos Claimants' Committee and the Futures Representative prior to reaching a compromise or settlement of any Asbestos Insurance Policy on or after August 4, 2006. (d) Nonconsensual Confirmation Under Section 1129(b) of the Bankruptcy Code Although section 1129(a)(8) of the Bankruptcy Code requires that a plan be accepted by each class that is impaired by such plan, section 1129(b) of the Bankruptcy Code provides that the Bankruptcy Court may still confirm the Plan at the request of the Debtors if all requirements of section 1129(a) other than section 1129(a)(8) are met and if, with respect to each Class of Claims or Interests that is impaired under the Plan and has not voted to accept the Plan, the Plan "does not discriminate unfairly" and is "fair and equitable." A plan confirmed on the basis of this provision is commonly referred to as a "cramdown" plan. A cramdown plan is only available pursuant to section 1129(a)(10) of the Bankruptcy Code if at least one impaired class of claims accepts the plan. In the event there is no impaired accepting Class, the Debtors could not seek cramdown confirmation of the Plan because the Plan would not comply with the requirements of section 1129(a)(10) of the Bankruptcy Code. For a more detailed description of Bankruptcy Code Section 1129(b)'s "unfair discrimination" and "fair and equitable" tests, see Section 7.3 - "Requirements for Confirmation" above. (e) Injunction Under Section 524(g) of the Bankruptcy Code Section 524(g) of the Bankruptcy Code authorizes the Bankruptcy Court to enjoin Entities from taking action to collect, recover or receive payment or recovery with respect to any Claim or Demand that is to be paid in whole or in part by a trust created by a plan of reorganization that satisfies the requirements of the Bankruptcy Code. The injunction may also bar any action based on such Claims or Demands against Congoleum that are directed at third parties. To obtain the injunction, a trust must be established that (1) assumes Congoleum's Plan Trust Asbestos Claims; (2) is funded in whole or in part by securities of Congoleum and with an obligation by Congoleum to make future payments; (3) owns or is entitled to own if specified contingencies occur, a majority of the voting shares of Congoleum; and (4) uses its assets or income to satisfy claims and demands. As a requirement before issuing an injunction under section 524(g) of the Bankruptcy Code, the Bankruptcy Court must determine that (1) Congoleum is likely to be subject to substantial Demands for payment arising out of the same or similar conduct or events that give rise to the Claims that are addressed by the injunction; (2) the actual amounts, numbers and timing of such Demands cannot be determined; (3) pursuit of such Demands outside the procedures prescribed by the Plan is likely to threaten the Plan's purpose to deal 120 equitably with Claims and Demands; and (4) the Plan Trust will operate through mechanisms such as structured, periodic, or supplemental payments, pro rata distributions, matrices, or periodic review of estimates of the numbers and values of Claims and Demands, or other comparable mechanisms that provide reasonable assurance that the Plan Trust will value, and be in a financial position to pay, Claims and Demands that involve similar Claims in substantially the same manner. The Bankruptcy Court must also ensure that the terms of any proposed section 524(g) injunction are set forth in the plan and disclosure statement and that a separate Class or Classes of claimants whose Claims are to be addressed by the trust be established and vote, by at least seventy-five percent (75%) of those voting in such Class or Classes, in favor of the Plan. Moreover, the injunction will be valid and enforceable as to future claimants only if a legal representative is appointed to protect their rights in the proceedings and if the court determines that applying the injunction to future claimants in favor of the beneficiaries of the injunction is fair and equitable with respect to the Persons that might subsequently assert such Demands, in light of the benefits provided, or to be provided, to the Plan Trust on behalf of Congoleum or a beneficiary of the third party injunction. The order confirming the Plan must be issued or affirmed by the District Court that has jurisdiction over the Reorganization Cases. The Company believes that it will be able to satisfy the requirements of section 524(g) of the Bankruptcy Code, to the extent that the requisite number of Asbestos Claimants in Classes 2, 3, 10, 11 and 12 vote in favor of the Plan. Under the jurisdictional scheme applicable to bankruptcy courts, jurisdiction over bankruptcy cases and proceedings arising under the Bankruptcy Code or arising in or related to bankruptcy cases is vested in the district courts. However, the district courts may refer them to the bankruptcy judges of the district. In most districts, the district court has entered a standing order referring all such matters to the bankruptcy judges. The Company filed the Reorganization Cases with the Bankruptcy Court of the District of New Jersey. Because section 524(g) requires, however, that any confirmation order containing a supplemental injunction must be issued or affirmed by the District Court, the reference may be withdrawn and the Reorganization Cases might proceed before a district judge. In this instance, the Debtors' Chapter 11 cases have been assigned to the Hon. Katherine Ferguson, a United States Bankruptcy Judge, and it is anticipated that the Bankruptcy Judge will conduct the Confirmation Hearing and enter the Confirmation Order. In that instance, the section 524(g) injunctions will not be enforceable until the Confirmation Order is affirmed by a district judge. 7.4. Effect of Confirmation Upon the Bankruptcy Court's entry of the Confirmation Order (and, if the District Court is not the issuing court of the Confirmation Order, the Confirmation Order being affirmed thereof by the District Court as required by section 524(g) of the Bankruptcy Code), and subject to the occurrence of the Effective Date, the Plan will be binding upon the Company, all holders of Claims and Interests and all other parties in interest, regardless of whether they have accepted the Plan. 121 ARTICLE 8 PLAN TRUST AND ASBESTOS CLAIMS RESOLUTION MATTERS THE FOLLOWING IS A SUMMARY OF CERTAIN SIGNIFICANT FEATURES OF THE PLAN TRUST. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE PLAN TRUST DOCUMENTS AND THE PLAN. 8.1. Establishment and Purpose of the Plan Trust On the Effective Date, the Plan Trust will be established in accordance with the Plan Documents. The Plan Trust is intended to be a "qualified settlement fund" within the meaning of section 468B of the IRC and Treasury Regulations promulgated thereunder. All Plan Trust Asbestos Claims will be determined, liquidated and treated in accordance with the Plan Trust Agreement and the TDP. The purpose of the Plan Trust will be to, among other things, (a) pay all Plan Trust Asbestos Claims in accordance with the Plan, the TDP, the Plan Trust Agreement and the Confirmation Order; (b) preserve, hold, manage, and maximize the Plan Trust Assets for use in paying and satisfying Plan Trust Asbestos Claims; (c) prosecute, settle, and manage the disposition of the Asbestos In-Place Insurance Coverage; and (d) prosecute, settle, and manage Asbestos Insurance Actions and Direct Actions. All Plan Trust Asbestos Claims, including the future Asbestos Claims and Demands of Plan Trust Asbestos Claimants that are presently unknown, will be determined and liquidated, if Allowed, pursuant to the Plan, the Plan Trust Agreement and the TDP. On the Effective Date, all liabilities, obligations and responsibilities relating to all Plan Trust Asbestos Claims and Asbestos Expenses will be transferred to the Plan Trust and the Plan Trustees, on behalf of the Plan Trust, will expressly assume all liability for all Plan Trust Asbestos Claims, Demands and Asbestos Expenses. As provided in the TDP, notwithstanding any other provision contained in the TDP, the holder of the Claim for the Claims Handling Fee will be paid as provided in the Plan Trust Agreement; and distributions to Plan Trust Asbestos Claims will not be prior to payment of or reserve for Plan Trust Expenses in accordance with the terms of the Plan Trust Agreement. During the bankruptcy proceedings, the Debtors have objected to the Asbestos Personal Injury Claims of certain Participating Claimants, and the Bankruptcy Court entered an order providing for the expungement and withdrawal of certain claims as described in Section 5.7 hereof. In addition, the Debtors have commenced the Avoidance Actions described in Section 5.10 - "Asbestos Personal Injury Claims -- Related Avoidance Actions" above. Section 13.4 of the Plan specifically provides that the Plan Trust will be vested with the right, among others, to void any Asbestos Claim of a Qualified Pre-Petition Settlement Claimant or of a Qualified Participating Claimant because of the failure to comply with the Claimant Agreement or other applicable settlement agreement or because such claims were not in good faith or otherwise. Section 2.1(c)(xviii) of the Plan Trust Agreement further provides that the Plan Trustees will have the power to object to and compromise Plan Trust Asbestos Claims and other Claims as provided in the Plan. However, as a result of negotiations between the Debtors and the Asbestos Claimants' Committee, the Futures Representative and the Claimants' Representative, the Claimant Agreement as well as the other 122 Asbestos Settlement Documents and Pre-Petition Settlement Agreements are being compromised and settled pursuant to the Plan, which incorporates the Class 2 Settlement and the Class 3 and 11 Settlement. See Section 6.2 -- "Class 2 Settlement and Class 3 and 11 Settlement" for a description of the Class 2 and Class 3 and 11 Settlement. 8.2. Funding and Receipt of Plan Trust Assets On the Effective Date, Reorganized Congoleum will issue the New Class A Common Stock (including any shares of New Class A Common Stock required to be issued by Reorganized Congoleum in accordance with Exhibit E to the Plan), the Plan Trust Note and the New Convertible Security (in the event that the Senior Note Claims (as a Class) vote to accept the Plan) or the Reserved Common Stock (in the event that the Senior Note Claims (as a Class) do not vote to accept the Plan) to be issued to the Plan Trust in accordance with the Plan. Reorganized Congoleum will issue any additional shares of New Class A Common Stock required to be issued in accordance with Exhibit E to the Plan (but only, in the event that the Senior Note Claims (as a Class) vote to accept the Plan) and will otherwise comply with Exhibit E to the Plan for so long as Exhibit E is applicable. Reorganized Congoleum's obligations to the Plan Trust on account of the Plan Trust Note and the New Convertible Security will be secured only by a pledge of Reorganized Congoleum's interest in all proceeds of the GHR/Kenesis Actions (after payment of fees and reimbursement of expenses of the GHR/Kenesis Litigation Trust) and all such proceeds will be used by Reorganized Congoleum as follows: (i) first, to pay principal and accrued interest under the Plan Trust Note until such time as the Plan Trust Note has been paid in full; (ii) second, to pay principal and accrued interest under the New Convertible Security until such time as the New Convertible Security has been paid in full or is no longer outstanding; provided, however, that the New Convertible Security will not be satisfied in full or retired before the Reset Date and any proceeds of the GHR/Kenesis Actions that are received by the Plan Trust prior to the Reset Date will be held by the Plan Trust in an interest-bearing account and applied to amounts outstanding under the New Convertible Security immediately after the Reset Date; and (iii) thereafter, the GHR/Kenesis Litigation Trust will distribute any remaining or further proceeds to Reorganized Congoleum. All Plan Trust Assets will be transferred to, vested in, and assumed by, the Plan Trust free and clear of all Claims, Liens and encumbrances; provided, however, that to the extent that certain Plan Trust Assets, because of their nature or because they will accrue subsequent to the Effective Date, cannot be transferred to, vested in, and assumed by the Plan Trust on the Effective Date, such Plan Trust Assets will be transferred to, vested in, and assumed by the Plan Trust free and clear of Claims, Liens and encumbrances, as soon as practicable after the Effective Date. On the Effective Date, ABI will deliver the ABI Contribution to the Plan Trust by wire transfer of immediately available funds. On the Effective Date, the Debtors will also deliver the Insurance Assignment Agreement attached to the Plan as Exhibit "C" thereto, and such agreement will be valid, binding and enforceable. The Insurance Assignment Agreement will transfer claims and rights set forth therein as Debtors may have, subject to any and all Asbestos Insurer Coverage Defenses. On the Effective Date, pursuant to the terms of the Collateral Trust Agreement, all of the Collateral Trust's right, title and interest in and to any assets or properties then held by the Collateral Trust will automatically be transferred and assigned to, and vest in, the Plan Trust free and clear of all Claims, Liens and encumbrances, and all rights with respect to such assets and properties will be enforceable by the Plan Trust. 123 The Debtors have settled with Liberty, Marsh and Aon AIG, Lloyd's Underwriters, Federal, Mt. McKinley and Everest, Harper, St. Paul Travelers and Fireman's Fund. See Section 5.11 - "Settlements with Insurers and Brokers" above for a description of the Liberty, Marsh and Aon, AIG, Lloyd's Underwriters and Equitas, Federal, Mt. McKinley and Everest, Harper, St. Paul Travelers, Century and Fireman's Fund Settlements. Congoleum is in discussions with a number of its other insurers regarding cash buy-back, coverage-in-place or other settlements of its existing insurance policies. Given the sensitivity of the settlement process and the status and nature of such discussions, Congoleum is not yet in a position to describe any further settlements that it might present to the Bankruptcy Court for approval. It is possible that the Coverage Litigation will be resolved in whole or in part against Congoleum. Several insurers have threatened an appeal if the Coverage Litigation is resolved in favor of Congoleum. It is impossible to predict the outcome of the Coverage Litigation or when any resolution will be final. Such a resolution could have a substantial adverse impact on Congoleum and/or asbestos claimants and could reduce the amount of funds available in the Plan Trust. 8.3. Discharge of Liabilities to Holders of Asbestos Claims Except as provided in the Plan and the Confirmation Order, the transfer to, vesting in and assumption by the Plan Trust of the Plan Trust Assets as contemplated by the Plan, among other things, will discharge the Debtors and the Reorganized Debtors from and in respect of all Plan Trust Asbestos Claims. 8.4. Excess Plan Trust Assets To the extent there are any Plan Trust Assets remaining after the payment in full of all Plan Trust Asbestos Claims and all Plan Trust Expenses (or provision has been made therefor) in accordance with the Plan Trust Agreement and the TDP, such excess Plan Trust Assets will be transferred to a tax-exempt organization qualified under section 501(c)(3) of the IRC, which is to be determined by the Plan Trustees; provided, however, that such charitable purpose, if practicable, will be related to the treatment of or research regarding asbestos-related disorders. 8.5. Plan Trust Expenses The Plan Trust will pay all Plan Trust Expenses from the Plan Trust Assets. Neither the Debtors, the Reorganized Debtors, ABI nor their Affiliates will have any obligation to pay any Plan Trust Expenses. Notwithstanding any provision in the Plan to the contrary, on the Effective Date, (i) the Collateral Trustee will provide the Plan Trust with a certification setting forth the amount of Asbestos Expenses incurred by or on behalf of, or imposed on, the Collateral Trust, or otherwise payable by the Collateral Trust, in each case prior to the Effective Date and all appropriate invoices and other backup regarding such Asbestos Expenses, including without limitation, amounts which may be due to the Claims Reviewer (or to Congoleum to reimburse it for amounts it paid to the Claims Reviewer) for services performed prior to the Effective 124 Date and (ii) the Plan Trust will only assume Asbestos Expenses from periods prior to the Effective Date if and to the extent set forth on such certification. The Plan Trustees, each member of the TAC, the Futures Representative and the Representatives of each of the foregoing will have a lien upon the Plan Trust Assets which will be prior to any lien thereon, and the Plan Trust will grant a security interest in the Plan Trust Assets, all proceeds thereof and all accounts into which such proceeds or the Plan Trust Assets are deposited or maintained to secure payment of amounts payable to them as compensation or indemnification. 8.6. Appointment of the Initial Plan Trustees Prior to the Confirmation Hearing, the Debtors, with the approval of the Futures Representative and the Asbestos Claimants' Committee, will nominate the three initial Plan Trustees. Effective as of the Effective Date, the Bankruptcy Court will appoint the initial Plan Trustees to serve as Plan Trustees in accordance with the Plan Trust Agreement. For purposes of performing his or her duties and fulfilling his or her obligations under the Plan Trust Agreement, the TDP and the Plan, the Plan Trustees will each be deemed to be a party in interest within the meaning of section 1109(b) of the Bankruptcy Code. The Plan Trustees will be the "administrator" of the Plan Trust as that term is used in Treasury Regulation Section 1.468B-2(k)(3). 8.7. The Futures Representative On and after the Effective Date, the Futures Representative will continue to serve as the Futures Representative pursuant to the terms of the Plan Trust Agreement and will have the functions and rights provided in the Plan Trust Documents. 8.8. Appointment of Members of the Trust Advisory Committee The Asbestos Claimants' Committee will designate the initial members of the TAC. Effective as of the Effective Date, the Bankruptcy Court will appoint the initial members of the TAC (and thereupon the TAC will be formed) to serve as members of the TAC in accordance with the Plan Trust Agreement. 8.9. Assumption of Liabilities On the Effective Date, all liabilities, obligations and responsibilities relating to all Plan Trust Asbestos Claims and Asbestos Expenses will be transferred to the Plan Trust and the Plan Trustees, on behalf of the Plan Trust, will expressly assume all liability for all Plan Trust Asbestos Claims, Demands and Asbestos Expenses, subject to the provisions of the Plan Trust Agreement. With the exception of the liabilities identified in Section 6.1(f) of the Plan, in no event will the Plan Trust assume any of the liabilities, obligations or responsibilities of the Debtors or the Reorganized Debtors. 8.10. Indemnification by the Plan Trust As and to the extent provided in the Plan Trust Agreement, the Plan Trust (and to the extent specified in Section 4.6(c) of the Plan Trust Agreement, the Reorganized Debtors) will indemnify and hold harmless each of the 125 Plan Trustees, the Plan Trust officers and employees, the Futures Representative, the Pre-Petition Asbestos Claimants' Committee, the Asbestos Claimants' Committee, the Claimants' Representative, the Collateral Trustee, each member of the TAC, the Debtors, the Reorganized Debtors and their respective past, present and future Representatives, provided, however, that in no event will the Pre-Petition Asbestos Claimants' Committee, the Claimants' Representative or the Collateral Trustee be indemnified or held harmless for any relief granted or any costs or expenses incurred in connection with the Avoidance Actions. 8.11. Establishment of the TDP Following the Effective Date, the Plan Trustees will promptly implement the TDP. The TDP sets forth the procedures for resolving Plan Trust Asbestos Claims. The TDP also provides mechanisms such as structured, periodic or supplemental payments, pro rata distributions, or periodic review of estimates of the numbers and values of present Unsecured Asbestos Personal Injury Claims and future Demands, or other comparable mechanisms, that provide reasonable assurance that the Plan Trust will value and be in a financial position to pay similar Unsecured Asbestos Personal Injury Claims in substantially the same manner. The TDP may be modified prior to the Effective Date and after the Effective Date from time to time in accordance with the terms of the TDP and the Trust Agreement. 8.12. Establishment and Purpose of the GHR/Kenesis Litigation Trust On the Effective Date, the GHR/Kenesis Litigation Trust will be established in accordance with the GHR/Kenesis Litigation Trust Agreement for the benefit of Reorganized Congoleum. Effective as of the Effective Date, the Reorganized Debtors will assign to the GHR/Kenesis Litigation Trust without further act or deed (i) the GHR/Kenesis Actions and (ii) proceeds realized from the prosecution of the GHR/Kenesis Actions in accordance with section 1123(b)(3)(B) of the Bankruptcy Code. Pursuant to this Section 6.1(o), the Reorganized Debtors grant, assign, transfer, convey and deliver to the GHR/Kenesis Litigation Trustee, on behalf of and for the benefit of the Reorganized Debtors, control of all of the Debtors' right, title and interest in the GHR/Kenesis Actions and the proceeds of such Actions. The GHR/Kenesis Litigation Trust will be funded on the Effective Date with $600,000 from the proceeds of that certain Asbestos Insurance Settlement Agreement with Liberty Mutual Insurance Company to provide for payment of the fees and expenses of the GHR/Kenesis Litigation Trustee. As soon as practicable after the Effective Date, the Bondholders' Committee will provide to the GHR/Kenesis Litigation Trustee all discovery obtained by the Bondholders' Committee in connection with the GHR/Kenesis Actions and any relevant work product related thereto. The reasonable fees and expenses of the Bondholders' Committee incurred in connection with producing such information to the GHR/Kenesis Litigation Trustee will be paid by the GHR/Kenesis Litigation Trust within ten (10) days of the receipt of an invoice for such reasonable fees and expenses. The GHR/Kenesis Litigation Trustee will be nominated by the Debtors, with the consent of the Asbestos Claimants' Committee and the Futures Representative, no later than fifteen (15) days prior to the commencement of the Confirmation Hearing and the appointment of the GHR/Kenesis Litigation Trustee will be subject to approval by the Bankruptcy Court. The purpose of the GHR/Kenesis Litigation Trust will be to, among other things (i) pursue the collection of amounts owed to the Debtors' Estates on account of the GHR/Kenesis Actions for the benefit of Reorganized Congoleum; (ii) investigate, pursue, prosecute, settle, manage and resolve, as appropriate, the GHR/Kenesis Actions for the benefit of Reorganized Congoleum; 126 and (iii) remit to the Plan Trust, on behalf of Reorganized Congoleum all proceeds of the GHR/Kenesis Actions (after payment of fees and reimbursement for expenses of the GHR/Kenesis Litigation Trust) as security for Reorganized Congoleum's obligations to the Plan Trust on account of the New Convertible Security and the Plan Trust Note and will be used by Reorganized Congoleum as follows: (x) first, to pay principal and accrued interest under the Plan Trust Note until such time as the Plan Trust Note has been paid in full; (y) second, to pay principal and accrued interest under the New Convertible Security until such time as the New Convertible Security has been paid in full or is no longer outstanding; provided, however, that the New Convertible Security will not be satisfied in full or retired before the Reset Date and any proceeds of the GHR/Kenesis Actions that are received by the Plan Trust on account of the New Convertible Security prior to the Reset Date will be held by the Plan Trust in an interest bearing account and applied to amounts outstanding under the New Convertible Security immediately after the Reset Date; and (z) thereafter, the GHR/Litigation Trust will distribute any remaining or further proceeds to Reorganized Congoleum. 8.13. The Plan Trust Note On the Effective Date, the Plan Trust will provide a loan to Reorganized Congoleum in the principal amount of the Plan Trust Note, with the proceeds to be used only for Reorganized Congoleum's working capital and general corporate purposes, and Reorganized Congoleum will issue the Plan Trust Note to the Plan Trust. The Plan Trust Note will be in all respects pari passu in priority and right of payment with the New Convertible Security; provided, however, that pursuant to the GHR/Kenesis Litigation Trust any proceeds of the GHR/Kenesis Actions will be pledged to the Plan Trust by Reorganized Congoleum to secure Reorganized Congoleum's obligations to the Plan Trust on account of the New Convertible Security and Plan Trust Note and will be used to reduce Reorganized Congoleum's obligations to the Plan Trust by (i) first, to pay principal and accrued interest under the Plan Trust Note until such time as the Plan Trust Note has been paid in full; (ii) second, to pay principal and accrued interest under the New Convertible Security until such time as the New Convertible Security has been paid in full or is no longer outstanding; provided, however, that the New Convertible Security will not be satisfied in full or retired before the Reset Date and any proceeds of the GHR/Kenesis Actions that are received by the Plan Trust on account of the New Convertible Security prior to the Reset Date will be held by the Plan Trust in an interest bearing account and applied to amounts outstanding under the New Convertible Security immediately after the Reset Date; and (iii) thereafter, the GHR/Litigation Trust will distribute any remaining or further proceeds to Reorganized Congoleum. The Plan Trust will not have liens on or security interests in any assets of the Reorganized Debtors other than the GHR/Kenesis Actions. The Plan Trust Note will be contractually subordinate in priority and right of payment to the New Senior Notes; provided, however, that in the absence of a default under the New Indenture, payments due under the Plan Trust Note will be made in the ordinary course in accordance with its terms. ARTICLE 9 ESTIMATED CLAIMS BY CLASS The Company and its professionals have attempted to determine the number and amount of Asbestos Claims likely to be asserted in the case. There are such inherent difficulties in doing so that no representation can be made as to the precise accuracy of such information. Claims against the Company are as follows: 127 9.1. Claims other than Asbestos Claims (a) Administrative Expense Claims The Company estimates that the costs and expenses of the Reorganization Cases will likely total approximately $[XX] million (before any reimbursement of Coverage Costs), including the costs of professionals retained during the Reorganization Cases. (b) Priority Tax Claims The Company believes it is likely that there will be few, if any, Priority Tax Claims. (c) Priority Claims (Class 1) The Company obtained approval of the Bankruptcy Court to pay Priority Claims in the ordinary course of business, including wages due to employees and contributions on its employees' behalf to employee benefit plans. The Company believes that there will be few, if any, Priority Claims remaining unpaid at the Effective Date. (d) Lender Secured Claims (Class 4) The Company estimates that the Lender Secured Claims (Class 4) total approximately $11.8 million. (e) Senior Note Claims (Class 6) The Company expects that the Senior Note Claims (Class 6) total approximately $100 million, plus accrued interest through the Effective Date. (f) General Unsecured Claims (Class 7) The Company obtained authority from the Bankruptcy Court at the beginning of the Reorganization Cases to pay such claims in the ordinary course of business, when such Claims become due. The Company believes that there will be few, if any, General Unsecured Claims remaining unpaid at the Effective Date. (g) Workers' Compensation Claims (Class 8) As of December 31, 2003, the current incurred liability was estimated to be approximately $3.2 million. (h) ABI Claims (Class 9) The Company estimates such Claims total approximately $1.8 million. 128 9.2. Asbestos Claims (a) Secured Asbestos Claims of Qualified Pre-Petition Settlement Claimants (Class 2) The Company estimates that the maximum amount of the aggregate Claims of Qualified Pre-Petition Settlement Claimants total approximately $26 million. The Class 2 Settlement, however, will reduce this amount to approximately $13 million. (b) Secured Asbestos Claims of Qualified Participating Claimants (Class 3) The Company estimates that the maximum amount of the aggregate Claims of Qualified Participating Claimants total approximately $375 million. The Class 3 and 11 Settlement, however, will reduce this amount to approximately $20 million if all of the Qualified Participating Claimants accept the $250 maximum payment provided for under the terms of the Class 3 and 11 Settlement. (c) Unsecured Asbestos Personal Injury Claims (Classes 10 and 11) In light of the information presently available to the Company, and the uncertainties and difficulties inherent in determining the number and amount of Asbestos Claims, the Company believes that the classification and treatment provided by the Plan complies with applicable law and is fair and equitable. (d) Asbestos Property Damage Claims (Class 12) The aggregate amount of Allowed Asbestos Property Damage Claims is approximately $133,000 and does not exceed the amount of proceeds from insurance coverage available for such Claims. ARTICLE 10 RISKS OF THE PLAN 10.1. General The following is intended as a summary of certain risks associated with the Plan, but is not exhaustive and must be supplemented by the analysis and evaluation of the Plan and this Disclosure Statement as a whole by each holder of a Claim with such holder's own counsel and other advisors. 10.2. Confirmation Risks For the Plan to be confirmed, each Impaired Class is given the opportunity to vote to accept or reject the Plan. With regard to the Impaired Classes which vote on the Plan, the Plan will be deemed accepted by a Class of Impaired Claims if the Plan is accepted by holders of Claims of such Class who hold at least two-thirds in dollar amount and more than one-half in number of the total Allowed Claims of such Class actually voting on the Plan. Only those members of a Class who vote to accept or reject the Plan will be counted for voting purposes. The Plan must also comply with the requirements of section 524(g) of the Bankruptcy Code. Thus, if votes of holders of Claims in Classes 2, 129 3, 6, 10, 11 and 12 are received in number and amount sufficient to enable the Bankruptcy Court to confirm the Plan and issue a supplemental injunction under section 524(g) of the Bankruptcy Code, the Company intends to seek, as promptly as practicable, confirmation of the Plan. Any objection to the Plan by a party in interest could either prevent, or delay for a significant period of time, confirmation of the Plan. Moreover, although the Company believes that the Plan will satisfy all requirements necessary for confirmation by the Bankruptcy Court, there can be no assurance that the Bankruptcy Court will reach the same conclusion. 10.3. Insurance Coverage for Plan Trust Asbestos Claims As described in Section 2.2 above, Congoleum has been in discussions with its insurers about insurance coverage for Asbestos Claims for some time. Furthermore, as specifically discussed in Section 2.2(c) above, there is insurance coverage litigation currently pending between Congoleum and its excess insurers, and the guaranty funds and associations for the State of New Jersey. In the Coverage Litigation, Congoleum's insurers have asserted that Congoleum did not have the right to enter into the Claimant Agreement or other pre-petition settlements over their objections and/or without their consent, that Congoleum breached the terms of its insurance policies when it entered into the Claimant Agreement and other pre-petition settlements and that, for these reasons as well as others, the insurers do not owe coverage for the claims settled under the Claimant Agreement or other pre-petition settlements. According to Congoleum's insurers, Congoleum has violated numerous provisions in its insurance policies by agreeing to the Claimant Agreement and other pre-petition settlements, including consent-to-settlement clauses, cooperation clauses, consent-to-assignment clauses, and other clauses. In addition, the insurers have asserted that the Claimant Agreement and other pre-petition settlements are unfair and unreasonable and were not negotiated in good faith and are the result of improper "collusion" among counsel representing Asbestos Claimants and Congoleum and that, for these reasons as well as others, the insurers do not owe coverage for the claims settled under the Claimant Agreement. Most of Congoleum's insurers assert that they have no coverage obligations for claims resolved pursuant to the Claimant Agreement and other pre-petition settlements. Most of Congoleum's insurers also have asserted coverage defenses unrelated to the terms of particular settlement agreements entered into by Congoleum. Some of Congoleum's insurers also assert that, as a result of Congoleum's alleged breaches of its insurance policies, the policies are now void, relieving the insurers of all coverage obligations for all time under the policies. The recoveries of Asbestos Claimants under the Plan could be affected by an adverse ruling in the Coverage Litigation. Some insurers contend that, if there is a ruling adverse to Congoleum in the Coverage Litigation, then the insurers will not owe coverage for claims resolved under the Claimant Agreement and/or under other pre-petition settlements. Insurers further contend that such result would also deprive individual claimants who were parties to the Claimant Agreement and other pre-petition settlements of the right to seek 130 payment from the insurers under their insurance policies or from negotiating settlements with some or all of the insurers. Insurers also contend that such result would preclude Congoleum and claimants from agreeing to forbear under or amending the Claimant Agreement and other pre-petition settlements and would preclude claimants from seeking recovery under other claims payment standards, including bankruptcy TDPs, or under any amended agreements. Insurers contend that even if there is no insurance for the Claimant Agreement and/or other pre-petition settlements, the releases signed by the claimants are valid and binding and preclude recovery of insurance for these claimants under any claims resolution process. Congoleum intends to contest any attempt by the insurers to enlarge or expand upon a Phase I ruling that is adverse to Congoleum. However, there can be no assurances of the outcome of these matters. Congoleum's insurers have also asserted that Congoleum does not have the right to negotiate or agree to claims resolution criteria and bankruptcy TDPs as part of its plan of reorganization over their objections and/or without their consent and/or without their participation and that Congoleum has breached and continues to breach the terms of its insurance policies when it negotiates claims resolution criteria as part of its plan of reorganization and bankruptcy TDPs without their participation or consent. According to Congoleum's insurers, Congoleum has violated numerous provisions in its insurance policies by negotiating claims resolution criteria as part of its plan of reorganization and bankruptcy TDPs without insurers' participation or consent, including consent-to-settlement clauses, cooperation clauses, consent-to-assignment clauses, and other clauses. In addition, the insurers have asserted that the claims resolution criteria in the plan of reorganization and bankruptcy TDPs are unfair and unreasonable and were not and are not being negotiated in good faith and are the result of improper "collusion" among counsel representing Asbestos Claimants and Congoleum and that, for these reasons as well as others, the insurers do not and will not owe coverage for any claims resolved and/or paid under the bankruptcy TDPs. Various insurers have written letters objecting to the Plan and TDPs and stating various reasons for contending that Congoleum was and is in breach of insurance policies and various reasons for contending that the insurers will not owe coverage for claims resolved or paid under terms of the Plan. Because of the risks involved with respect to the effects of various potential rulings by the Bankruptcy Court or an appeal thereof, as well as the uncertainty in the resolution of any present or future Asbestos Insurance Action, including the Coverage Litigation, the ultimate value of the insurance proceeds that will be available to the Plan Trust is uncertain. The Company has addressed the potential impact of this uncertainty on the Plan Trust by authorizing the Plan Trustees, with the consent of the TAC and the Futures Representative, to amend the TDP and/or the Plan Trust Agreement under certain circumstances. Moreover, the possibility that one or more of the Insurance Companies may become insolvent in the future may impact the value of Congoleum's insurance coverage, and thus the value of the Plan Trust Assets. 10.4. Distributions under the TDP Payments that will be made on Plan Trust Asbestos Claims will be determined under the TDP, the Plan and the Plan Trust Agreement and will be based on one hand, upon estimates of the number, types and amount of present and expected future Plan Trust Asbestos Claims and, on the other hand, on the value of the Plan Trust Assets, the liquidity of the Plan Trust Assets, the Plan Trust's expected future expenses and income, as well as other material matters that are reasonable and likely to affect the sufficiency of funds to pay all holders of Plan Trust Asbestos Claims. There can be no certainty as to the precise amounts that will be distributed by the Plan Trust in any particular time period or when Plan Trust Asbestos Claims will be paid by the Plan Trust. 131 10.5. Risk of Post-Confirmation Default Although no guarantees can be given, the Company believes that the cash flow generated by its business and assets will be sufficient to meet Reorganized Congoleum's ongoing business obligations and operating requirements and that such cash flow will be sufficient to make the payments required under the Plan. The Company further believes that Congoleum's net cash flow will be sufficient to make interest payments on the New Convertible Security to the Plan Trust. At the Confirmation Hearing, the Bankruptcy Court will be required to make a judicial determination that the Plan is feasible in order to confirm the Plan. ARTICLE 11 ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN If the Plan is not confirmed and consummated, the alternatives to the Plan include (a) liquidation of the Company under Chapter 7 of the Bankruptcy Code; and (b) an alternative plan of reorganization. 11.1. Liquidation under Chapter 7 If no plan can be confirmed, the Reorganization Cases may be converted to proceedings under Chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be appointed to liquidate the assets of the Company for distribution in accordance with the priorities established by the Bankruptcy Code. A discussion of the effects that a Chapter 7 liquidation would have on the recovery of holders of Claims and Interests and the Company's liquidation analysis are set forth in Section 7.3(a)(1) -- "Best Interests Test" above. The Company believes that the timing of the distributions under a Chapter 7 case would be delayed and the amount of distributions that would be made in a Chapter 7 case would be materially less than the distributions contemplated by the Plan, because, among other things, (a) the ability of the trustee in a Chapter 7 case to negotiate settlements with Asbestos Insurance Companies without the benefit of the section 524(g) injunctions is likely to be impaired, and (b) a Chapter 7 trustee would not receive the benefits of the New Class A Common Stock, the New Convertible Security or the ABI Contribution. Attached hereto as Exhibit B is a Liquidation Analysis for the Company, which assumes that a bankruptcy case under Chapter 7 is commenced immediately and that the Company's assets are liquidated by a Chapter 7 trustee in an orderly liquidation. The Liquidation Analysis is based upon a number of estimates and assumptions which, while considered reasonable, are inherently beyond the control of the Company or any Chapter 7 trustee. Accordingly, there can be no assurances that the values reflected in the Liquidation Analysis would be realized if the Company were to undergo such a Chapter 7 liquidation; actual results could vary materially from those shown in that exhibit. In addition, any liquidation would necessarily take place in the future under circumstances which presently cannot be predicted. Accordingly, if the Estates were liquidated, the actual liquidation proceeds could be materially lower or higher than the amounts set forth in Exhibit B, and no representation or warranty can be made with respect to the actual proceeds that could be received in a Chapter 7 liquidation. 132 11.2. Alternative Plan of Reorganization If the Plan is not confirmed, the Company or any other party in interest could attempt to confirm a different plan of reorganization. In fact, as described in Section 5.16 - "Expiration of Debtors' Exclusivity to File a Plan and Solicit Acceptances Thereof," CNA and the Bondholders' Committee have filed a proposed plan of reorganization. However, the Plan is the product of extensive negotiations among Congoleum, the Asbestos Claimants' Committee, the Futures Representative, the Claimants' Representative, the Bondholders' Committee and ABI, and is a delicate balance of the competing and conflicting interests held by those parties. Any attempt to confirm an alternative plan containing different terms for any of these parties would threaten to disrupt the balance established by the Plan. This, in turn, could lead to years of costly litigation for all parties. THE COMPANY BELIEVES THAT THE CONFIRMATION AND IMPLEMENTATION OF THE PLAN IS PREFERABLE TO ANY OF THE ALTERNATIVES BECAUSE IT SHOULD PROVIDE GREATER RECOVERIES THAN THOSE AVAILABLE IN LIQUIDATION OR UNDER ANY ALTERNATIVE PLAN. ARTICLE 12 CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN TO ENSURE COMPLIANCE WITH U.S. TREASURY DEPARTMENT CIRCULAR 230, HOLDERS OF CLAIMS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF UNITED STATES FEDERAL TAX ISSUES IN THIS DISCLOSURE STATEMENT (INCLUDING ATTACHMENTS) IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY HOLDERS OF CLAIMS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON HOLDERS OF CLAIMS UNDER THE IRC; (B) SUCH DISCUSSION IS INCLUDED HEREIN IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF U.S. TREASURY DEPARTMENT CIRCULAR 230) OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) HOLDERS OF CLAIMS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISER. A summary description of certain United States federal income tax consequences of the Plan is provided below. This summary is for informational purposes only and should not be relied upon for purposes of determining the specific tax consequences of the Plan to a particular holder of a Claim. Only the principal United States federal income tax consequences of the Plan to Congoleum, the Plan Trust and certain impaired holders of Claims are described below. No opinion of counsel has been sought or obtained with respect to any tax consequences of the Plan. No rulings or determinations of the Internal Revenue Service or any other taxing authority have been sought or obtained with respect to any tax consequences of the Plan, and the discussion below is not binding upon the Internal Revenue Service or any other taxing authority. No assurance can be given that the Internal Revenue Service or any other taxing authority would not assert, or that a court would not sustain, a different position from any discussed herein. 133 This summary is based upon existing United States federal income tax law, which is subject to change, possibly with retroactive effect. This summary does not address all aspects of United States federal income taxation that may be important to a particular holder of a Claim in light of such holder's individual investment circumstances or to certain types of holders of Claims subject to special tax rules (e.g., financial institutions, insurance companies, broker-dealers, tax-exempt organizations, and foreign persons), all of whom may be subject to tax rules that differ significantly from those summarized below. This summary does not discuss any foreign, state, or local tax considerations. In addition, this summary does not address the possible application of IRC provisions and United States Treasury regulations concerning reportable transactions, which include transactions with respect to which, under certain circumstances, taxpayers claim losses. This summary is not intended to constitute a complete analysis of all tax considerations relevant to a particular holder of a Claim. Each holder of a Claim should seek advice from its own independent tax advisors concerning the United States federal, state, local, foreign income and other tax consequences of the Plan to them in light of their particular circumstances. 12.1. Tax Consequences to Reorganized Congoleum (a) Discharge of Indebtedness In general, a taxpayer must include in gross income the amount of any indebtedness that is cancelled ("COD Income") during the taxable year. However, Section 108(a)(1)(A) of the IRC provides an exception to this rule where a taxpayer is subject to the jurisdiction of a bankruptcy court and the cancellation of indebtedness is granted by, or effected pursuant to, a plan approved by such court, as would be the case upon the confirmation of the Plan. In this event, rather than being included in gross income, the COD Income is applied to reduce the following tax attributes of the taxpayer in the following order: net operating losses, business and minimum tax credit carry forwards, capital loss carry forwards, the basis of the taxpayer's assets, and foreign tax credit carry forwards (collectively, the "Tax Attributes"). Under Section 108(b)(5) of the IRC, a taxpayer may elect to first apply the reduction to the basis of the taxpayer's depreciable assets, with any remaining balance applied to the other Tax Attributes in the order stated above. Additionally, Section 108(e)(2) of the IRC provides that no COD Income is realized to the extent that the taxpayer's satisfaction of the cancelled debt would have given rise to a tax deduction for United States federal income tax purposes. The effect of Section 108(e)(2) of the IRC, where applicable, is to allow the taxpayer's debt to be cancelled without the recognition of income by the taxpayer and without reduction of its Tax Attributes. Pursuant to the Plan, although an amount of Asbestos Claims will be paid, holders of Asbestos Claims may receive less than 100% of the face value of their Claims and thus an amount of Asbestos Claims also may be cancelled. However, such cancellation of Asbestos Claims generally will not result in COD Income to Reorganized Congoleum because payment of the Asbestos Claims would have given rise to tax deductions for Reorganized Congoleum. The Plan provides for an exchange for United States federal income tax purposes of Senior Notes held by holders of Senior Note Claims for (i) in the event that the holders of the Senior Note Claims (as a Class) vote to accept the Plan by the requisite number and amount (the "Senior Note Claim 134 Acceptance"), New Senior Notes and the Additional Bondholder Recovery if any or (ii) in the event of that the holders of the Senior Note Claims do not vote to accept the Plan by the requisite number and amount ("the Senior Note Claim Non-Acceptance"), an allocated share of the Reserved Common Stock. The forgiveness of accrued and unpaid interest on the Senior Notes will result in COD Income to Reorganized Congoleum to the extent that such accrued and unpaid interest has been previously deducted for United States federal income tax purposes. The Plan provides that the holders of Senior Note Claims will receive no amount in respect of accrued and unpaid interest on the Senior Notes. The following summary assumes that the Internal Revenue Service will respect that allocation, but there can be no assurance that the Internal Revenue Service will not successfully challenge that position. In the event of the Senior Note Claim Acceptance, the exchange of Senior Notes for New Senior Notes will result in COD Income if, among other things, the "issue price" of the New Senior Notes is less than the adjusted issue price of the Senior Notes. The issue price of the New Senior Notes will be their fair market value at the time of the exchange if a substantial amount of Senior Notes or the New Senior Notes are "traded on an established market" within the meaning of applicable Treasury regulations. If neither are so traded, the issue price of the New Senior Notes will be their principal amount (so long as the interest rate on the New Senior Notes at the time of the exchange exceeds a certain threshold). Reorganized Congoleum anticipates that the issue price of the New Senior Notes will be their principal amount and, therefore, Reorganized Congoleum will not recognize COD Income as a result of a difference between the issue price of the New Senior Notes and the adjusted issue price of the Senior Notes. There can be no assurance that the Internal Revenue Service will not challenge that position and assert that the issue price of the New Senior Notes is less than their principal amount. If the Internal Revenue Service's challenge is successful, Reorganized Congoleum may recognize COD Income from the exchange to the extent the issue price of the New Senior Notes is less than the adjusted issue price of the Senior Notes. In addition, although the United States federal income tax treatment of the payment of any Additional Bondholder Recovery is not entirely clear, Reorganized Congoleum anticipates that any such payment should not give rise to additional COD Income. In the event of the Senior Note Claim Non-Acceptance, the exchange of Senior Notes for a pro rata share of the Reserved Common Stock will result in COD Income to the extent that the fair market value on the Effective Date of the pro rata share of the Reserved Common Stock issued to the holders of Senior Note Claims is less than the adjusted issue price of the Senior Notes. That fair market value cannot be known until after the Effective Date, so Reorganized Congoleum cannot predict the amount of COD Income that would result from such an exchange. In addition, although the terms of the Amended Credit Agreement have not yet been determined, it is anticipated that an amendment of the Existing Credit Agreement will not result in COD Income to Reorganized Congoleum. Although adoption of the Amended Credit Agreement may be viewed, for United States federal income tax purposes, as an exchange of one debt instrument for another, such deemed exchange will result in COD Income only if, among other things, the principal amount of the debt under the Amended Credit Agreement is less than the principal amount of the debt under the Existing Credit Agreement or if the interest rate on the debt under the Amended Credit Agreement is less than a certain threshold, neither of which is expected to occur. 135 Although it is anticipated that Reorganized Congoleum will recognize COD Income as a result of the Plan, it has not yet been determined whether Reorganized Congoleum would make the election under Section 108(b)(5) of the IRC to apply any required Tax Attribute reduction first to depreciable property, with any excess next applied to reduce other Tax Attributes. In this regard, as of December 31, 2005, Congoleum had net operating losses ("NOLs") of approximately $12.7 million. (b) Net Operating Losses As a result of potential existing NOLs and additional deductions that will be generated by the resolution of certain asbestos-related claims, Reorganized Congoleum expects to have an NOL after emerging from bankruptcy. The amount of the NOL may be reduced by any COD Income realized upon emerging from bankruptcy. The extent to which Reorganized Congoleum will be able to utilize its NOLs after emerging from bankruptcy will depend on Section 382 of the IRC, which generally imposes an annual limitation (the "Section 382 Limitation") on a corporation's use of its NOLs (and may limit a corporation's use of certain built-in losses recognized within a five-year period following an ownership change) if a corporation undergoes an "ownership change." The annual Section 382 Limitation on the use of pre-change losses (the NOLs and built-in losses recognized within the five year post-ownership change period) in any "post-change year" is generally equal to the product of the fair market value of the loss corporation's outstanding stock immediately before the ownership change multiplied by the long-term tax-exempt rate in effect for the month in which the ownership change occurs. The long-term tax-exempt rate is published monthly by the Internal Revenue Service and is intended to reflect current interest rates on long-term tax-exempt debt obligations. It is presently approximately 4.4%. Section 383 of the IRC applies a similar limitation to capital loss carryforwards and tax credits. As discussed below, however, a special exception from these rules may apply in the case of a corporation that experiences an ownership change as the result of a bankruptcy proceeding. In general, an "ownership change" occurs when the percentage of the corporation's stock owned by certain "5 percent shareholders" increases by more than 50 percentage points in the aggregate over the lowest percentage owned by them at any time during the applicable "testing period" (generally, the shorter of (a) the 36-month period preceding the testing date or (b) the period of time since the most recent ownership change of the corporation). In the event of the Senior Note Claim Acceptance, Reorganized Congoleum will issue Class A Common Stock and the New Convertible Security to the Plan Trust. It is not certain whether the issuance of such Class A Common Stock and the New Convertible Security, when combined with other transfers of shares of Congoleum stock, will result in an ownership change under Section 382 of the IRC. Consequently, it is not known whether, in the event of the Senior Note Claim Acceptance, Reorganized Congoleum's ability to utilize its NOL following emergence from bankruptcy will be affected by such an ownership change. 136 In the event of the Senior Note Claim Non-Acceptance, cancellation of the Congoleum Interests, issuance of the Reserved Common Stock to the holders of the Senior Note Claims and the Plan Trust and issuance of the New Convertible Security to the Plan Trust is expected to result in an ownership change under Section 382 of the IRC. Consequently, in the event of the Senior Note Claim Non-Acceptance, Reorganized Congoleum's ability to utilize its NOL following emergence from bankruptcy will be affected by such an ownership change. Even if such an ownership change were to occur, Section 382(1)(5) of the IRC provides a special rule applicable in the case of a bankruptcy reorganization (the "Section 382(1)(5) Exception"). If a corporation qualifies for the Section 382(1)(5) Exception, the annual Section 382 Limitation will not apply to the corporation's NOLs. The Section 382(1)(5) Exception does, however, require that the corporation's NOL carryovers be computed without taking into account the aggregate amount of all interest deductions in respect of debt exchanged for the corporation's stock during the three prior taxable years and the portion of the current taxable year ending on the date of the ownership change. A corporation that is reorganized in bankruptcy will qualify for the Section 382(1)(5) Exception if the corporation's pre-bankruptcy shareholders and holders of certain debt ("Qualifying Debt") own at least 50% of the stock of the corporation after the reorganization, and the corporation does not "elect out" of the Section 382(1)(5) Exception. Qualifying Debt is a claim which (i) was held by the same creditor for at least 18 months prior to the bankruptcy filing or (ii) arose in the ordinary course of a corporation's trade or business and has been owned, at all times, by the same creditor. Indebtedness will be treated as arising in the ordinary course of a corporation's trade or business if such indebtedness is incurred by the corporation in connection with the normal, usual or customary conduct of the corporation's business. While not free from doubt, Congoleum expects that certain Senior Note Claims and certain asbestos-related claims may qualify as Qualifying Debt within the meaning of the Section 382(1)(5) Exception. If an ownership change occurs and Reorganized Congoleum does not qualify for the Section 382(1)(5) Exception (or if it elects out of application of the Section 382(1)(5) Exception), Reorganized Congoleum would be subject to an annual Section 382 Limitation. Under Section 382(1)(6) of the IRC, if a corporation is otherwise not eligible for the Section 382(1)(5) Exception (or if it elects out of application of the Section 382(1)(5) Limitation), then the annual Section 382 Limitation is calculated by taking into account the increase in equity value resulting from the issuance of equity upon emergence in exchange for debt claims. Assuming that Reorganized Congoleum qualifies for the Section 382(1)(5) Exception, Section 382(l)(5) of the IRC provides that if a company that utilizes the Section 382(1)(5) Exception undergoes another ownership change within two years, that company's NOL is reduced to zero. For that reason, if Reorganized Congoleum is eligible for and avails itself of the Section 382(1)(5) Exception, Reorganized Congoleum's equity, upon emergence, will be subject to certain restrictions in order to ensure that another ownership change will not occur within two years after emergence. These transfer restrictions, should they apply, will generally not impose any limitations on a holder of a claim or other person or entity that holds less than approximately 5% of the equity of Reorganized Congoleum after emergence to either buy or sell stock on the open market, so long as such purchase or sale does not cause the holder of a claim or other person or entity to then hold more than approximately 5% of the equity of Reorganized Congoleum. 137 (c) Transfers to the Plan Trust The Treasury regulations promulgated under Section 468B of the IRC provide that a fund, account, or trust will constitute a qualified settlement fund ("QSF") if it satisfies three conditions. First, the fund, account, or trust must be established pursuant to an order of or be approved by a government authority, including a court, and must be subject to the continuing jurisdiction of that government authority. Second, the fund, account, or trust must be established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event or related series of events that has occurred and that has given rise to at least one claim asserting liability arising from, among other things, a tort. Third, the fund, account, or trust must be a trust under applicable state law or have its assets physically segregated from the other assets of the transferor and persons related to the transferor. A payment to a QSF generally is deductible when made, assuming that such payment otherwise constitutes an ordinary and necessary business expense. A transferor is generally entitled to a deduction in an amount equal to the fair market value of its equity transferred to a QSF. However, to the extent that debt issued by the transferor is transferred to a QSF, the transferor is generally entitled to a deduction only as the transferor makes principal payments. The issuance of a transferor's debt or equity generally does not result in gain or loss to the transferor. Additionally, no deduction is allowed with respect to the transfer of insurance proceeds to a QSF to the extent the transferred amounts are excludable from gross income of the transferor. If the settlement of an insurance claim occurs after the transfer of such claim to the QSF and a deduction has been taken with respect to such transfer, then the transferor must include in income the amounts received from the settlement of the insurance claim to the extent of the deduction. Assuming confirmation of the Plan, the Plan Trust will be established to satisfy Plan Trust Asbestos Claims alleged to arise out of a tort or torts, will be a trust under state law, and will be approved by the Bankruptcy Court or District Court and subject to its continuing jurisdiction. Accordingly, based on those assumptions and on the completion of certain filings, the Plan Trust should constitute a QSF after confirmation of the Plan. Certain insurance proceeds and certain rights under insurance coverage will be transferred to the Plan Trust. Although amounts transferred to a QSF generally are deductible, no deduction will be allowed to Reorganized Congoleum with respect to the transfer of insurance proceeds to the extent the transferred amounts are excludable from gross income of Reorganized Congoleum. If the settlement of an insurance claim occurs after the transfer of such claim to the QSF and Reorganized Congoleum has taken a deduction with respect to such transfer, then Reorganized Congoleum will be required to include in income the amounts received from the settlement of the insurance claim to the extent of the deduction. In addition, Reorganized Congoleum will transfer to the Plan Trust either the New Class A Common Stock and the New Convertible Security or a pro rata share of the Reserved Common Stock. Reorganized Congoleum will generally be entitled to tax deductions as it makes principal payments on the New Convertible Security. If necessary to support a deduction for the fair market value of the New Class A Common Stock or a pro rata share of the Reserved Common Stock transferred to the Plan Trust, Reorganized Congoleum plans to obtain a qualified appraisal of such securities within the meaning of Treasury Regulation Section 1.468B-3(b). 138 (d) The GHR/Kenesis Litigation Trust It is anticipated that the GHR/Kenesis Litigation Trust will be treated as a "grantor trust" for United States federal income tax purposes. Thus, Reorganized Congoleum will be treated, for United States income tax purposes, as the holder of the GHR/Kenesis Actions and will recognize all income, gain, expenses and losses relating thereto. Distribution of the proceeds of the funds held by the GHR/Kenesis Litigation Trust on behalf of Reorganized Congoleum will be deemed to be made by Reorganized Congoleum for United States federal income tax purposes. 12.2. Tax Consequences to the Plan Trust Assuming that, as expected, the Plan Trust qualifies as a QSF, the Plan Trust will be required to pay federal income tax on its modified gross income, as defined in the Treasury regulations promulgated under Section 468B of the IRC, at the highest rate applicable to estates and trusts. The Plan Trust generally will not be required to include in income amounts transferred to it pursuant to the Plan. Any sale, exchange or distribution of Plan Trust property generally will result in gain or loss equal to the difference between the consideration received (or the fair market value of the property) on the date of such sale, exchange or distribution and the adjusted tax basis of such property. For this purpose, the tax basis of property received by the Plan Trust will be its fair market value at the time of receipt. The Plan Trust will not be entitled to deduct amounts that it pays with respect to Plan Trust Asbestos Claims, but will be entitled to deduct amounts paid for administrative costs and other incidental costs of the Plan Trust. Dividends on the Class A Common Stock or the Plan Trust's pro rata share of Reserved Common Stock and interest or original issue discount on the New Convertible Security, as the case may be, will be includible in gross income by the Plan Trust. If issued, the New Convertible Security is likely to constitute a "contingent payment debt instrument" for United States federal income tax purposes, which generally result in the yield on the note (including any conversion) being treated as original issue discount under special United States federal income tax rules. 12.3. Tax Consequences to Certain Impaired Holders of Claims The United States federal income tax consequences to a holder of a Claim that is impaired and the character and amount of income, gain or loss recognized as a consequence of the Plan and the distributions provided for thereby will be determined by reference to the Claim in respect of which the distribution is made and as if the distribution were made directly by Reorganized Congoleum and accordingly will depend upon, among other things: (1) the nature of the Claim, (2) the manner in which a holder acquired the Claim, (3) the length of time the Claim has been held, (4) whether the Claim was acquired at a discount, (5) whether the holder has taken a bad debt deduction with respect to the Claim (or any portion thereof) in the current or prior years, (6) whether the holder has previously included in income accrued but unpaid interest with respect to the Claim, (7) the method of tax accounting of the holder, and (8) whether the Claim constitutes a security for United States federal income tax purposes. Accordingly, each holder of a Claim is urged to consult its tax advisor regarding the tax consequences of the Plan to it. 139 (a) Holders of Asbestos Claims Under Section 104 of the IRC, to the extent that a payment from the Plan Trust to a holder of an Asbestos Personal Injury Claim constitutes damages on account of personal physical injuries or physical sickness of such holder, such payment will not constitute gross income to such holder, except to the extent that the payment is attributable to medical expense deductions taken under Section 213 of the IRC for a prior taxable year. A payment from the Plan Trust to a holder of an Asbestos Personal Injury Claim other than on account of personal physical injuries or physical sickness generally will be includible in gross income of such holder. A payment to a holder of an Allowed Asbestos Property Damage Claim generally will result in a non-taxable return of capital, and a corresponding decrease in the holder's tax basis in the damaged property, and will generate income or gain, if any, to the holder in an amount equal to the excess of the payment received and such holder's tax basis in the damaged property. (b) Holders of Senior Note Claims The Plan provides for an exchange for United States federal income tax purposes of Senior Notes held by holders of Senior Note Claims for (i) in the event of the Senior Note Claim Acceptance, New Senior Notes and the Additional Bondholder Recovery, if any or (ii) in the event of the Senior Note Claim Non-Acceptance, a pro rata share of the Reserved Common Stock. To the extent that any amount received by a holder of a Senior Note Claim under the Plan is attributable to accrued interest that was not previously included in the holder's gross income, such amount should be taxable to the holder as interest income. Conversely, a holder of a Senior Note Claim may be able to recognize a deductible loss (or possibly a write-off against a reserve for worthless debts) to the extent that any accrued interest on the Senior Notes was previously included in the holder's gross income but was not paid in full under the Plan. The Plan provides that the holders of Senior Note Claims will receive no amount in respect of accrued and unpaid interest on the Senior Notes. The following summary assumes that the Internal Revenue Service will respect that allocation, but there can be no assurance that the Internal Revenue Service will not successfully challenge that position. The following summary does not address the United States federal income tax treatment of the payment of any Additional Bondholder Recovery, and Holders of Senior Note Claims should consult their tax advisors regarding the United States federal income tax treatment of any such payment. The United States federal income tax consequences of the exchange of Senior Notes for New Senior Notes in the event of the Senior Note Claim Acceptance will depend on whether or not the Senior Notes and the New Senior Notes are treated as "securities" for United States federal income tax purposes. The term "security" is not defined in the IRC or applicable Treasury regulations and has not been clearly defined in court decisions. Although several factors are relevant in determining whether a debt instrument is a security, one important factor is the debt instrument's original term to maturity. As a general rule, a debt instrument with an original term to maturity of ten years 140 or more is likely to be considered a security, while a debt instrument with an original term to maturity of five years or less may not be considered a security (although a recent Internal Revenue Service ruling suggests that, in certain circumstances, a debt instrument with a term of five years or less may be considered a security). Reorganized Congoleum intends to the position, and the following summary assumes, that the Senior Notes are securities for United States federal income tax purposes, but there can be no assurance that the Internal Revenue Service will not successfully challenge that position. The term of the New Senior Notes will be less than five years. Holders of Senior Notes should consult their own tax advisors regarding whether or not the Senior Notes and the New Senior Notes will be treated as securities for United States federal income tax purposes. If the New Senior Notes are treated as securities, a holder of a Senior Note Claim should not recognize gain or loss upon the exchange. The holder will have an initial tax basis in the New Senior Notes equal to the holder's aggregate adjusted tax basis in the Senior Notes immediately before the exchange, and the holder's holding period for the New Senior Notes will include the holder's holding period for the Senior Notes. If the New Senior Notes are not treated as securities, a holder of a Senior Note Claim will recognize gain or loss in an amount equal to the difference between the amount realized on the deemed exchange and the holder's adjusted tax basis in the Senior Notes. The amount realized will equal the issue price of the New Senior Notes, as described above. Except to the extent of any accrued market discount not previously included in income, as described below, such gain or loss will be long-term capital gain or loss if the Senior Notes have been held as capital assets for more than one year. Net long-term capital gains of individuals are eligible for preferential rates of United States federal income taxation. The deductibility of capital losses is subject to limitations. The holder will have an initial tax basis in the New Senior Notes equal to their issue price, as described above, and the holder's holding period for the New Senior Notes will generally begin on the day following the date of the exchange. A holder of a Senior Note Claim should not recognize gain or loss upon the exchange of Senior Notes for a pro rata share of the Reserved Common Stock in the event of the Senior Note Claim Non-Acceptance. The holder will have an initial tax basis in its pro rata share of the Reserved Common Stock equal to the holder's aggregate adjusted tax basis in the Senior Notes immediately before the exchange, and the holder's holding period for its pro rata share of the Reserved Common Stock will include the holder's holding period for the Senior Notes. If a holder purchased a Senior Note at a price less than its principal amount, the difference generally would constitute "market discount" for United States federal income tax purposes. If a holder holds a Senior Note with market discount, any gain recognized on the exchange of the Senior Note for a New Senior Note pursuant to the Plan will be treated as ordinary income to the extent of any accrued market discount not previously included in income. In addition, if the New Senior Notes are treated as securities for United States federal income tax purposes or if a holder of a Senior Note Claim receives its pro rata share of the Reserved Common Stock, and a Senior Note has unrecognized market discount in the hands of a holder, the New Senior Note or pro rata share of the Reserved Common Stock received in exchange for the Senior Note may be treated as having market discount (which may result in the recognition of ordinary income upon a disposition of the New Senior Note or pro rata share of the Reserved Common Stock). The market discount rules are complex. Holders of Senior Notes with market discount should consult their own tax advisors regarding the application of the market discount rules to them in light of their particular circumstances. 141 (c) Holder of Lender Secured Claim As discussed above, an amendment of the Existing Credit Agreement may result in a deemed exchange, for United States federal income tax purposes, of the Existing Credit Agreement for the Amended Credit Agreement. Notwithstanding this, it is not expected that the holder of the Lender Secured Claim will realize income, gain or loss for United States federal income tax purposes as a result of this deemed exchange, assuming that the principal amount of the debt under the Amended Credit Agreement is the same as the principal amount of the debt under the Existing Credit Agreement and the interest rate on the Amended Credit Agreement exceeds a minimum threshold. (d) Holder of Congoleum Interests Holders of the Congoleum Interests should not have a taxable event for United States federal income tax purposes in the event of the Senior Note Claim Acceptance. All of the Congoleum Interests will be cancelled in the event of the Senior Note Claim Non-Acceptance, and the holders of Congoleum Interests may be entitled to a worthless security deduction under Section 165(g) of the IRC no later than the Effective Date. (e) Information Reporting and Backup Withholding Payments of Allowed Claims under the Plan (including payments and distributions to the Plan Trust) may be subject to applicable information reporting and backup withholding (at the applicable rate). Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a holder's United States federal income tax liability, and a holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing an appropriate claim for refund with the Internal Revenue Service (generally, a United States federal income tax return). ARTICLE 13 FINANCIAL INFORMATION 13.1. General An analysis of the Company's financial condition appears in the Financial Statements attached hereto as Exhibit "C" and Exhibit "D". This information is provided to permit Claimants to better understand the Company's financial condition. The Company is required to file monthly operating reports with the Bankruptcy Court. Such financial information is on file with the Bankruptcy Court and publicly available for review. In addition, Congoleum continues to make the filings required by the Securities Exchange Act of 1934, as amended. 142 ARTICLE 14 SOURCES OF INFORMATION PROVIDED AND THE ACCOUNTING METHOD USED 14.1. Sources of Information The information set forth in this Disclosure Statement was provided by and/or prepared in consultation with the Company. 14.2. Accounting Method The Company maintains its books and records on an accrual basis, in accordance with generally accepted accounting principles. The financial statements of the Company have been audited by the accounting firm of Ernst & Young LLP through December 31, 2005. RECOMMENDATION AND CONCLUSION The Plan Proponents recommend that all holders of Claims in Classes 2, 3, 6, 9, 10, and 11 and holders of Interests in Class 13 vote to accept the Plan, and urges each of them to evidence such acceptance and approval, by instructing the holder of any proxy for them to vote to accept the Plan on their behalf, or by returning their ballots so that they will be received on or before the Voting Deadline. In the view of the Plan Proponents, the Plan provides the best available alternative for maximizing the distributions that holders of Asbestos Claims will receive from the Estates. (THE REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK) 143 The undersigned has executed this Disclosure Statement as of the 15th day of September 2006. Respectfully submitted, CONGOLEUM CORPORATION By: /s Howard N. Feist III -------------------------------------- Name: Howard N. Feist III Title: Chief Financial Officer and Secretary CONGOLEUM FISCAL, INC. By: /s Howard N. Feist III ------------------------------------- Name: Howard N. Feist III Title: Vice-President, Treasurer and Secretary CONGOLEUM SALES, INC. By: /s Howard N. Feist III -------------------------------------- Name: Howard N. Feist III Title: Vice-President, Treasurer and Secretary PILLSBURY WINTHROP SHAW PITTMAN LLP 1540 Broadway New York, NY 10036-4039 Richard L. Epling Robin L. Spear Kerry A. Brennan And OKIN, HOLLANDER & DELUCA, LLP Parker Plaza 400 Kelby Street Fort Lee, New Jersey 07024 Paul S. Hollander James J. DeLuca ATTORNEYS FOR CONGOLEUM CORPORATION, CONGOLEUM FISCAL, INC. and CONGOLEUM SALES, INC. EXHIBIT B TO THE DISCLOSURE STATEMENT Exhibit B to Disclosure Statement "Liquidation Analysis" EXHIBIT B TO THE DISCLOSURE STATEMENT Congoleum Corporation Liquidation Valuation as of June 30, 2006
Cash as of June 30, 2006 (1) - ------------------------------------------------------------------------------------------------ Realization Rate Liquidation Value Book ----------------------- ---------------------------- Value Low High Low High ---------- ---------- ----------- ----------- -------------- Cash and Cash Equivalents $17,863,408 100.0% 100.0% $17,863,408 $17,863,408 Accounts Receivable as of June 30, 2006 (2) - ------------------------------------------------------------------------------------------------ Realization Rate Liquidation Value Book ----------------------- ---------------------------- Value Low High Low High ---------- ---------- ----------- ----------- -------------- Current $24,968,462 25.0% 35.0% $6,242,116 $8,738,962 1-30 Days 381,654 20.0% 30.0% 76,331 114,496 31-60 Days 22,542 15.0% 25.0% 3,381 5,636 61-90 Days 54,596 10.0% 20.0% 5,460 10,919 91 and Over 31,040 0.0% 5.0% 0 1,552 ------------ ----------- ----------- Total $25,458,295 $6,327,287 $8,871,565 Inventory as of June 30, 2006 (3) - ------------------------------------------------------------------------------------------------ Realization Rate Liquidation Value Book ----------------------- ---------------------------- Value Low High Low High ---------- ---------- ----------- ----------- -------------- Raw Material $ 5,526,481 30.0% 40.0% $ 1,657,944 $ 2,210,592 Work-In-Process 2,537,896 30.0% 40.0% 761,369 1,015,158 Finished Goods 35,358,487 45.0% 65.0% 15,911,319 22,983,017 ------------ ----------- ------------ Total Inventory $43,422,863 $18,330,632 $26,208,767 Fixed Assets as of June 30, 2006 (4) - ------------------------------------------------------------------------------------------------ Liquidation Value Book ----------------------------- Value Low High ------------ ------------ --------------- Total Fixed Assets $69,051,092 $18,425,000 $45,575,000 Other Assets as of June 30, 2006 - ------------------------------------------------------------------------------------------------ Realization Rate Liquidation Value Book ----------------------- ---------------------------- Value Low High Low High ---------- ---------- ----------- ----------- -------------- Other Current Assets (5) $40,021,031 3.0% 5.0% $1,200,631 $2,001,052 Other Noncurrent Assets (6) 9,954,582 0.0% 0.0% 0 0 ------------ ----------- ----------- Total Other Assets $49,975,613 $1,200,631 $2,001,052 - ------------------------------------------------------------------------------------------------ Total Gross Liquidation Value (7) $62,146,958 - $100,519,791 - ------------------------------------------------------------------------------------------------ Fees and Expenses $6,000,000 $10,000,000 - ------------------------------------------------------------------------------------------------ Total Net Liquidation Value $56,146,958 - $90,519,791 - ------------------------------------------------------------------------------------------------
EXHIBIT B TO THE DISCLOSURE STATEMENT Congoleum Corporation Liquidation Valuation as of June 30, 2006 Notes (1) Excludes $9.5 million of cash received from an insurance company that is payable to the Plan Trust or, under a liquidation scenario whereby the Plan of Reorganization is not confirmed, to asbestos claimants. (2) The Company's accounts receivable history is characterized by typically prompt payment by customers and negligible write-offs. However, the realization of receivables under a liquidation scenario would be adversely affected by the selling reserve balance, which was $16.6 million as of June 30, or 65.1% of the gross accounts receivable balance. The selling reserve consists of pricing discount credits, warranty claims and incentive rebates that are owed to customers. Under a liquidation scenario, it is likely that customers would offset these selling reserve balances against the accounts receivable balance, thereby substantially diminishing the collection of outstanding receivables. (3) The Company's raw material is characterized by certain commodity products, such as resins, as well as certain items that are specific to the Company's production process, such as urethanes. The Company's work-in-process consists mostly of product that is finished but not yet inspected, and, to a lesser extent, product that is on the production line. (4) As per an appraisal performed by Daley-Hodkin, LLC dated August 17, 2004. The machinery and equipment auction sale value (removal) was $7.25 million and the machinery and equipment forced liquidation value (in-place) was $34.4 million. The real estate as-is liquidation value was $11.175 million. (5) Other current assets primarily consist of deferred taxes, deposits, prepaid insurance, prepaid marketing expenses and an asbestos insurance receivable from the Plan Trust. (6) Other noncurrent assets primarily consist of deferred financing costs and a casualty insurance receivable that has a corresponding liability, rendering its liquidation as negligible. (7) Due to the uncertainty regarding the timing and amount of the GHR fee disgorgement, this asset is not incorporated in the liquidation valuation. Any net cash recovery would augment the total net liquidation value of the Company. EXHIBIT B TO THE DISCLOSURE STATEMENT Congoleum Corporation Liquidation Valuation as of June 30, 2006 Disclosure The preceding pages contain material provided in the context of a liquidation valuation of Congoleum Corporation ("Congoleum" or the "Company"). Certain information contained in this report were obtained from the Company's management; however, SSG Capital Advisors, L.P. (the "Advisor") assumes no liability for such data. Information supplied by the Company's management has been accepted without further verification as correctly reflecting the Company's past results and current condition in accordance with general accepted accounting principles, unless otherwise noted. We have not attempted to independently verify any such information. Possession of this report, or a copy thereof, does not carry with it the right of publication of all or part or it, nor may it be used for any purpose by anyone but the client without the previous written consent of the Advisor and, in any event, only with proper attribution. EXHIBIT C TO THE DISCLOSURE STATEMENT "Audited Financial Statements of Congoleum Corporation for the Year Ended December 31, 2005" C-1 EXHIBIT C TO THE DISCLOSURE STATEMENT Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders Congoleum Corporation We have audited the accompanying consolidated balance sheets of Congoleum Corporation (the Company) as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Congoleum Corporation at December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. The accompanying financial statements have been prepared assuming that Congoleum Corporation will continue as a going concern. As more fully described in Note 1, "Basis of Presentation," to the consolidated financial statements, the Company has been and continues to be named in a significant number of lawsuits stemming primarily from the Company's manufacture of asbestos-containing products. The Company has recorded significant charges to earnings to reflect its estimate of costs associated with this litigation. On December 31, 2003, Congoleum filed a voluntary petition with the United States Bankruptcy Court for the District of New Jersey (Case No. 03-51524) seeking relief under Chapter 11 of the United States Bankruptcy Code, as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1, "Basis of Presentation," to the consolidated financial statements. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. /s/ Ernst & Young LLP Boston, Massachusetts February 24, 2006, except Note 17, as to which the date is March 17, 2006 C-2 EXHIBIT C TO THE DISCLOSURE STATEMENT Consolidated Balance Sheets (dollars in thousands, except per share amounts)
December 31, December 31, 2005 2004 - ------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents ..................................................... $ 24,511 $ 29,710 Restricted cash ............................................................... 11,644 15,682 Accounts receivable, less allowances of $1,142 and $1,174 as of December 31, 2005 and 2004, respectively ......... 17,092 17,621 Inventories ................................................................... 34,607 39,623 Prepaid expenses and other current assets ..................................... 20,139 5,124 Deferred income taxes ......................................................... 16,735 10,678 - ----------------------------------------------------------------------------------------------------------- Total current assets ...................................................... 124,728 118,438 Property, plant, and equipment, net ............................................. 73,207 79,550 Other assets, net ............................................................... 9,412 14,894 - ----------------------------------------------------------------------------------------------------------- Total assets .............................................................. $ 207,347 $ 212,882 - ----------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable .............................................................. $ 11,769 $ 10,296 Accrued liabilities ........................................................... 23,072 26,395 Asbestos-related liabilities .................................................. 28,369 21,079 Revolving credit loan ......................................................... 9,404 9,500 Accrued taxes ................................................................. 107 1,670 Liabilities subject to compromise - current ..................................... 23,990 14,225 - ----------------------------------------------------------------------------------------------------------- Total current liabilities .................................................. 96,711 83,165 Asbestos-related liabilities .................................................... -- 2,738 Deferred income taxes ........................................................... 16,735 10,678 Liabilities subject to compromise - long term ................................... 138,861 137,290 - ----------------------------------------------------------------------------------------------------------- Total liabilities ........................................................... 252,307 233,871 - ----------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY (DEFICIT) Class A common stock, par value $0.01; 20,000,000 shares authorized; 4,736,950 shares issued and 3,662,790 shares outstanding as of December 31, 2005 and 4,736,950 shares issued and 3,651,590 shares outstanding at December 31, 2004 ............................................ 47 47 Class B common stock, par value $0.01; 4,608,945 shares authorized, issued and outstanding at December 31, 2005 and 2004, respectively .......... 46 46 Additional paid-in capital ...................................................... 49,126 49,106 Retained deficit ................................................................ (65,405) (43,830) Accumulated other comprehensive loss ............................................ (20,961) (18,545) -------- -------- (37,147) (13,176) Less Class A common stock held in treasury, at cost; 1,074,560 shares at December 31, 2005 and 1,085,760 shares at December 31, 2004 .................. 7,813 7,813 - ----------------------------------------------------------------------------------------------------------- Total stockholders' equity (deficit) ....................................... (44,960) (20,989) - ----------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity (deficit) ....................... $ 207,347 $ 212,882 - -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. C-3 EXHIBIT C TO THE DISCLOSURE STATEMENT Consolidated Statements of Operations (in thousands, except per share amounts)
For the years ended December 31, 2005 2004 2003 ---- ---- ---- - ------------------------------------------------------------------------------------------------------- Net sales ...................................................... $ 237,626 $ 229,493 $ 220,706 Cost of sales .................................................. 183,734 167,844 166,864 Selling, general and administrative expenses ................... 43,503 47,925 53,206 Asbestos-related reorganization charges ........................ 25,326 5,000 3,705 - ------------------------------------------------------------------------------------------------------- Income (loss) from operations ......................... (14,937) 8,724 (3,069) Other income (expense): Interest income ........................................... 438 114 63 Interest expense .......................................... (10,411) (9,446) (8,906) Other income .............................................. 1,064 1,285 1,343 Other expense ............................................. (304) (274) (67) - ------------------------------------------------------------------------------------------------------- Income (loss) before income taxes ..................... (24,150) 403 (10,636) Benefit for income taxes .............................. (2,575) (2,545) (3,874) - ------------------------------------------------------------------------------------------------------- Net income (loss) ..................................... $ (21,575) $ 2,948 $ (6,762) - ------------------------------------------------------------------------------------------------------- Net income (loss) per common share Basic ........................................... $ (2.61) $ 0.36 $ (0.82) Diluted ......................................... (2.61) 0.35 (0.82) - ------------------------------------------------------------------------------------------------------- Weighted average number of common shares outstanding Basic ........................................... 8,262 8,260 8,260 Diluted ......................................... 8,262 8,498 8,260
The accompanying notes are an integral part of the financial statements. C-4 EXHIBIT C TO THE DISCLOSURE STATEMENT Consolidated Statements of Changes in Stockholders' Equity (Deficit) (dollars in thousands)
Accumulated Total Common Stock Additional Other Stockholders' Class Class Paid-in Retained Comprehensive Treasury Equity Comprehensive A B Capital Deficit Loss Stock (Deficit) Income (Loss) - ------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2002 .. $47 $46 $49,105 $(40,016) $(17,447) $(7,813) $(16,078) Minimum pension liability adjustment ................ -- -- -- -- (2,937) -- (2,937) $ (2,937) Net loss .................... -- -- -- (6,762) -- -- (6,762) (6,762) ------- Net comprehensive loss ...... $ (9,699) ======== - ------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2003 .. 47 46 49,105 (46,778) (20,384) (7,813) (25,777) Exercise of option .......... -- -- 1 -- -- -- 1 Minimum pension liability adjustment ................ -- -- -- -- 1,839 -- 1,839 $ 1,839 Net income .................. -- -- -- 2,948 -- -- 2,948 2,948 -------- Net comprehensive income .... $ 4,787 ======== - ------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2004 .. 47 46 49,106 (43,830) (18,545) (7,813) (20,989) Exercise of option .......... -- -- 20 -- -- -- 20 Minimum pension liability adjustment ................ -- -- -- -- (2,416) -- (2,416) $ (2,416) Net loss .................... -- -- -- (21,575) -- -- (21,575) (21,575) -------- Net comprehensive loss ...... $(23,991) ======== - ------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2005 .. $47 $46 $49,126 $(65,405) $(20,961) $(7,813) $(44,960)
The accompanying notes are an integral part of the financial statements. C-5 EXHIBIT C TO THE DISCLOSURE STATEMENT Consolidated Statements of Cash Flows (dollars in thousands)
For the years ended December 31, - --------------------------------------------------------------------------------------------------------- 2005 2004 2003 - --------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) .............................................. $(21,575) $ 2,948 $ (6,762) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation .......................................... 10,617 10,883 11,149 Amortization .......................................... 385 545 612 Asbestos-related charge ............................... 25,326 5,000 3,705 Deferred income taxes ................................. -- -- (882) Changes in certain assets and liabilities: Accounts and notes receivable ...................... 529 (4,061) 3,473 Inventories ........................................ 5,016 5,372 5,730 Prepaid expenses and other current assets .......... (3,160) 2,340 1,920 Accounts payable ................................... 1,473 5,752 (10,103) Accrued liabilities ................................ 6,393 16,142 (8,366) Asbestos-related liabilities ....................... (27,220) (10,754) (21,233) Asbestos-related expense reimbursements from insurance settlement ............................. 6,091 -- 2,466 Other liabilities .................................. (2,315) (3,102) (1,664) - --------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities ............................... 1,560 31,065 (19,955) - --------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures, net ............................... (4,274) (3,428) (4,628) Proceeds from sale of retired assets .................... -- 30 -- - --------------------------------------------------------------------------------------------------------- Net cash used in investing activities ................. (4,274) (3,398) (4,628) - --------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net short-term borrowings ............................... (97) (732) 10,232 Net change in restricted cash ........................... (2,408) 605 (1,757) Proceeds from exercise of options ....................... 20 1 -- - --------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities ... (2,485) (126) 8,475 - --------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents ................ (5,199) 27,541 (16,108) Cash and cash equivalents: Beginning of year ....................................... 29,710 2,169 18,277 - --------------------------------------------------------------------------------------------------------- End of year ............................................. $ 24,511 $ 29,710 $ 2,169 - ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. C-6 EXHIBIT C TO THE DISCLOSURE STATEMENT Notes to Consolidated Financial Statements 1. Basis of Presentation: The Consolidated Financial Statements of Congoleum Corporation (the "Company" or "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 the Company be unable to continue as a going concern. As described more fully below, there is substantial doubt about the Company'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 United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court") (Case No. 03-51524) 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, the Company 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 (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 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, the Company 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 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 of these plans for April 27, 2006. C-7 EXHIBIT C TO THE DISCLOSURE STATEMENT There can be no assurance that the Company will obtain approval to solicit acceptances for the Eighth Plan, that the Company will receive the acceptances necessary for confirmation of the Eighth Plan, that the Eighth Plan will not be modified further, that the Eighth 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 the Eighth Plan will be confirmed, or that the Eighth 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. The Eighth Plan would resolve all pending and future asbestos claims against the Company. The Eighth Plan provides, among other things, for an assignment of certain rights in, and proceeds of, Congoleum's applicable insurance to the Plan Trust that would fund the settlement of all pending and future asbestos claims and protect the Company from future asbestos-related litigation by channeling all asbestos claims to the Plan Trust under Section 524(g) of the Bankruptcy Code. The Eighth Plan would require Congoleum to contribute approximately $7.7 million in cash, 3.8 million newly issued shares of Class A Common stock, and a New Convertible Security to the Plan Trust. In February 2006, the Bankruptcy Court ordered a law firm formerly representing Congoleum to disgorge all fees and certain expenses it was paid by Congoleum. The law firm is expected to appeal from this ruling once an order embodying the ruling has been entered by the Bankruptcy Court. It is expected that the amount of the disgorgement will range from approximately $8.2 million to $9.8 million. Pursuant to the terms of the Eighth Plan, holders of the Company's 8-5/8% Senior Notes due 2008 (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"). Any net recoveries in excess of the Maximum Additional Bondholder Recovery would be paid to the Plan Trust. The terms of the Eighth Plan also would extend the maturity of the Senior Notes for three years from August 2008 to August 2011. The Bankruptcy Court has authorized the Company to pay its trade creditors in the ordinary course of business. The Company expects that it will take until some time in the fourth quarter of 2006 at the earliest to obtain confirmation of the Eighth Plan. C-8 EXHIBIT C TO THE DISCLOSURE STATEMENT Based on the Eighth Plan, the Company 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. The Company recorded charges aggregating approximately $26 million in prior years and a further approximately $25.3 million in 2005, to provide for the estimated minimum costs of completing its reorganization. Actual amounts that will be contributed to the Plan Trust and costs for pursuing and implementing the Eighth Plan or 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 the Company has estimated. The Company may record significant additional charges should the minimum estimated cost increase. For more information regarding the Company's asbestos liability and plan for resolving that liability, please refer to Note 17 of the Notes to Consolidated Financial Statements. AICPA 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. The Company implemented this guidance in consolidated financial statements for periods after December 31, 2003. Pursuant to SOP 90-7, companies 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. Substantially all of the Company's liabilities at December 31, 2003 have been reclassified as liabilities subject to compromise. Obligations arising post-petition, and pre-petition obligations that are secured, are not classified as liabilities subject to compromise. Additional pre-petition claims (liabilities subject to compromise) may arise due to the rejection of executory contracts or unexpired leases, or as a result of the allowance of contingent or disputed claims. 2. Summary of Significant Accounting Policies: Nature of Business - Congoleum manufactures resilient sheet and tile flooring products. These products, together with a limited quantity of related products purchased for resale, are sold primarily to wholesale distributors and major retailers in the United States and Canada. Based upon the nature of the Company's operations, facilities and management structure, the Company considers its business to constitute a single segment for financial reporting purposes. Basis of Consolidation - The accompanying consolidated financial statements reflect the operations, financial position and cash flows of the Company and include the accounts of the Company and its subsidiaries after elimination of all significant intercompany transactions in consolidation. C-9 EXHIBIT C TO THE DISCLOSURE STATEMENT Use of Estimates and Critical Accounting Policies - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are defined as those that entail significant judgments and estimates, and could potentially result in materially different results under different assumptions and conditions. The Company believes that the most critical accounting policies upon which its financial condition depends, and which involve the most complex or subjective decisions or assessments, concern asbestos liabilities, environmental contingencies, valuation of deferred tax assets, and pension plan and post-retirement benefits. Although the Company believes it employs reasonable and appropriate estimates and assumptions in the preparation of its financial statements and in the application of accounting policies, if business conditions are different than the Company has assumed they will be, or if the Company used different estimates and assumptions, it is possible that materially different amounts could be reported in the Company's financial statements. Revenue Recognition - Revenue is recognized when products are shipped and title has passed to the customer. Net sales are comprised of the total sales billed during the period less the sales value of estimated returns and sales incentives, which consist primarily of trade discounts and customers' allowances. The Company defers recognition of revenue for its estimate of potential sales returns under right-of-return agreements with its customers until the right-of-return period lapses. Selling, General and Administrative Expenses - Selling, general and administrative expenses are charged to income as incurred. Expenses promoting and selling products are classified as selling expenses and include such items as advertising, sales commissions and travel. Advertising expense amounted to $1.6 million, $1.8 million and $3.3 million for 2005, 2004 and 2003, respectively. General and administrative expenses include such items as officers' salaries, office supplies, insurance and office rental. In addition, general and administrative expenses include other operating items such as provision for doubtful accounts, professional (accounting and legal) fees, purchasing and environmental remediation costs. Cash and Cash Equivalents - All highly liquid debt instruments with a maturity of three months or less at the time of purchase are considered to be cash equivalents. Restricted Cash - Under the terms of its revolving credit agreement, payments on the Company's accounts receivable are deposited in an account assigned by the Company to its lender and the funds in that account are used by the lender to pay down any loan balance. Restricted cash represents funds deposited in this account but not immediately applied to the loan balance. At December 31, 2005 and 2004, cash of approximately $2.7 and $1.2 million was restricted under this financing agreement. Additionally, $8.9 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 December 31, 2005. C-10 EXHIBIT C TO THE DISCLOSURE STATEMENT Short-Term Investments - The Company invests in highly liquid debt instruments with strong credit ratings. Commercial paper investments with a maturity greater than three months, but less than one year at the time of purchase, are considered to be short-term investments. The Company maintains cash and cash equivalents and short-term investments with certain financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Company's investment strategy. Inventories - Inventories are stated at the lower of LIFO cost or market. The LIFO (last-in, first-out) method of determining cost is used for substantially all inventories. The Company records as a charge to cost of goods sold any amount required to reduce the carrying value of inventories to the net realizable sales value. Property, Plant, and Equipment - Property, plant, and equipment are recorded at cost and are depreciated over their estimated useful lives (30 years for buildings, 15 years for building improvements, production equipment and heavy-duty vehicles, 3 to 10 years for light-duty vehicles and office furnishings and equipment) on the straight-line method for financial reporting and accelerated methods for income tax purposes. Costs of major additions and betterments are capitalized; maintenance and repairs which do not improve or extend the life of the respective assets are charged to operations as incurred. When an asset is sold, retired or otherwise disposed of, the cost of the asset and the related accumulated depreciation are removed from the respective accounts and any resulting gain or loss is reflected in operations. Debt Issue Costs - Costs incurred in connection with the issuance of debt have been capitalized and are being amortized over the life of the related debt. Such costs at December 31, 2005 and 2004 amounted to $0.8 million and $1.2 million, respectively, net of accumulated amortization of $2.5 million and $2.6 million, respectively, and are included in other non-current assets. Environmental Remediation - The Company is subject to federal, state and local environmental laws and regulations. The Company records a liability for environmental remediation claims when a cleanup program or claim payment becomes probable and the costs can be reasonably estimated. The recorded liabilities are not discounted for delays in future payments (see Note 16). Asbestos Liabilities and Plan of Reorganization - The Company is a defendant in a large number of asbestos-related lawsuits and has filed a proposed plan of reorganization under Chapter 11 of the United States Bankruptcy Code to resolve this liability (see Note 17). Accounting for asbestos-related and reorganization costs includes significant assumptions and estimates, and actual results could differ materially from those estimates. Income Taxes - The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. SFAS No. 109 requires current recognition of net deferred tax assets to the extent that it is more likely than not that such net assets will be realized. To the extent that the Company believes that its net deferred tax assets will not be realized, a valuation allowance must be recorded against those assets. C-11 EXHIBIT C TO THE DISCLOSURE STATEMENT Allowance for Doubtful Accounts and Cash Discounts - The Company provides an allowance for doubtful accounts and cash discounts based on estimates of historical collection experience and a review of the current status of trade accounts receivable, revising its estimates when circumstances dictate. Product Warranties - The Company provides product warranties for specific product lines and accrues for estimated future warranty cost in the period in which the revenue is recognized. The following table sets forth activity in the Company's warranty reserves (in millions): December 31, 2005 2004 2003 ---- ---- ---- Beginning balance $2.7 $3.1 $2.7 Accruals 3.7 5.0 6.8 Charges (4.3) (5.4) (6.4) ----- ----- ----- Ending balance $2.1 $2.7 $3.1 ==== ==== ==== Shipping and Handling Costs - Shipping costs for the years ended December 31, 2005, 2004 and 2003 were $0.9 million, $1.9 million, and $1.6 million, respectively, and are included in selling, general and administrative expenses. Earnings Per Share - SFAS No. 128, "Earnings Per Share", requires the computation of basic and diluted earnings per share. The calculation of basic earnings per share is based on the average number of common shares outstanding during the period. Diluted earnings per share reflect the effect of all potentially diluted securities which consist of outstanding common stock options. Long-lived Assets - The Company periodically considers whether there has been a permanent impairment in the value of its long-lived assets, primarily property and equipment, in accordance with Financial Accounting Standards Board ("FASB") Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The Company evaluates various factors, including current and projected future operating results and the undiscounted cash flows for the under-performing long-lived assets. The Company then compares the carrying amount of the asset to the estimated future undiscounted cash flows expected to result from the use of the asset. To the extent that the estimated future undiscounted cash flows are less than the carrying amount of the asset, the asset is written down to its estimated fair market value and an impairment loss is recognized. The value of impaired long-lived assets is adjusted periodically based on changes in these factors. At December 31, 2005, the Company determined, based on its evaluation, that the carrying value of its long-lived assets was appropriate. No adjustments to the carrying costs were made. C-12 EXHIBIT C TO THE DISCLOSURE STATEMENT Accounting for Stock-based Compensation - The Company discloses stock-based compensation information in accordance with FASB Statement No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123" and FASB issued Statement No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS 148 provides additional transition guidance for companies that elect to voluntarily adopt the provisions of SFAS 123. SFAS 148 does not change the provisions of SFAS 123 that permit entities to continue to apply the intrinsic value method of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." The Company has elected to continue to account for its stock-based plans under APB 25, as well as to provide disclosure of stock-based compensation as outlined in SFAS 123 as amended by SFAS 148. A reconciliation of consolidated net income (loss), as reported, to pro forma consolidated net income (loss) including compensation expense for the Company's stock-based plans as calculated based on the fair value at the grant dates for awards made under these plans in accordance with the provisions of SFAS 123, as amended by SFAS 148, as well as a comparison of as reported and pro forma basic and diluted earnings per share, follows: For Year Ended December 31, --------------------------- (in thousands, except per share data) 2005 2004 2003 ---- ---- ---- Net income (loss): As reported $(21,575) $ 2,948 $(6,762) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects, pro forma 232 203 208 -------- ------- ------- As adjusted $(21,807) $ 2,745 $(6,970) ======== ======= ======= Net income (loss) per share: As reported-basic $ (2.61) $ 0.36 $ (0.82) Pro forma compensation expense (0.03) (0.02) (0.03) -------- ------- ------- As adjusted-basic $ (2.64) $ 0.34 $ (0.85) ======== ======= ======= Net income (loss) per share: As reported-diluted $ (2.61) $ 0.35 $ (0.82) Pro forma compensation expense (0.03) (0.02) (0.03) -------- ------- ------- As adjusted-diluted $ (2.64) $ 0.33 $ (0.85) ======== ======= ======= C-13 EXHIBIT C TO THE DISCLOSURE STATEMENT The fair value for these options granted was estimated at the date of grant using a Black-Scholes option pricing model. A summary of the assumptions used for stock option grants are as follows: For Year Ended December 31, ------------------------------------- 2005 2004 2003 ---- ---- ---- ------------------------------------- 1995 Stock Option Plan: Dividend yield 0.0% 0.0% 0.0% Expected volatility 92.0% 92.0% 92.0% Option forfeiture rate 10.0% 10.0% 10.0% Risk free interest rate 4.86% 5.02% 3.37% Expected lives 7.0 years 7.0 years 7.0 years For Year Ended December 31, ------------------------------------- 2005 2004 2003 ---- ---- ---- ------------------------------------- 1999 Stock Option Plan: Dividend yield 0.0% 0.0% 0.0% Expected volatility 92.0% 92.0% 92.0% Option forfeiture rate 10.0% 10.0% 10.0% Risk free interest rate 5.88% 2.38% 2.28% Expected lives 3.0 years 3.0 years 3.0 years A summary of the weighted average fair value of option grants are as follows: For Year Ended December 31, ---------------------------- 2005 2004 2003 ---- ---- ---- ---------------------------- Fair value of option grants under the 1995 Plan $5.74 $1.94 $0.36 Fair value of option grants under the 1999 Plan $4.14 $2.60 $0.75 New Accounting Standards In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123R supersedes Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and amends FASB Statement No. 95, "Statement of Cash Flows". The approach to quantifying stock-based compensation expense in SFAS 123R is similar to SFAS 123. However, the revised statement requires all shared-based payments to employees, including grants of employee stock options, to be recognized as an expense in the Consolidated Statements of Operations based on their fair values as they are earned by the employees under the vesting terms. Pro forma disclosure of stock option expense, as is the Company's practice under SFAS 123, will not be permitted after 2005. The Company plans to follow the "modified prospective" method of adoptions of SFAS 123R whereby earnings for prior periods will not be restated as though stock based compensation had been expensed, rather than the "modified retrospective" method which would entail restatement of previously published earnings. The Company will adopt SFAS 123R as required on January 1, 2006. C-14 EXHIBIT C TO THE DISCLOSURE STATEMENT As permitted by SFAS 123, the Company currently accounts for share-based compensation to employees under the APB 25 intrinsic value method and generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of the SFAS 123R fair value method will impact the Company's results of operations, although it will have no impact on overall financial position. The impact of adoption of SFAS 123R will depend on levels of share-based compensation, particularly stock options, granted in the future and the fair value assigned thereto. The future impact of SFAS 123R is likely to approximate the pro forma compensation expense reported under SFAS 123 as described in the disclosure in the pro forma net earnings and earnings per share above. In November 2004, the FASB issued SAS No. 151 "Inventory Costs, an amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and spoilage. In addition, SFAS 151 requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS 151 will not have a material impact on the Company's results of operations and financial position. Reclassifications - Certain amounts appearing in the prior years' financial statements have been reclassified to conform to the current year's presentation. 3. Inventories: A summary of the major components of inventories is as follows (in thousands): December 31, December 31, 2005 2004 - -------------------------------------------------------------------------------- Finished goods $25,548 $32,811 Work-in-process 1,497 1,415 Raw materials and supplies 7,562 5,397 - -------------------------------------------------------------------------------- Total inventories $34,607 $39,623 - -------------------------------------------------------------------------------- If the FIFO (first in, first out) inventory method, which approximates replacement cost, had been used to value these inventories, they would have been $1,672 higher at December 31, 2005 and $591 lower at December 31, 2004. During 2005 and 2004 certain inventory quantities were reduced, which resulted in liquidations of LIFO inventory layers. The effect of the liquidations was to increase cost of sales by $445 in 2005 and decrease cost of sales by $108 in 2004. C-15 EXHIBIT C TO THE DISCLOSURE STATEMENT 4. Property, Plant, and Equipment: A summary of the major components of property, plant, and equipment is as follows (in thousands): December 31, December 31, 2005 2004 - -------------------------------------------------------------------------------- Land $ 2,931 $ 2,930 Buildings and improvements 46,522 46,257 Machinery and equipment 183,595 182,162 Construction-in-progress 4,072 1,430 - -------------------------------------------------------------------------------- 237,120 232,779 Less accumulated depreciation 163,913 153,229 - -------------------------------------------------------------------------------- Total property, plant, and equipment, net $ 73,207 $ 79,550 - -------------------------------------------------------------------------------- Interest is capitalized in connection with the construction of major facilities and equipment. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. Capitalized interest costs were $0.1 million in 2005, $0.2 million in 2004 and $0.3 million in 2003. The amount of approved but unexpended capital appropriations at December 31, 2005 was $1.1 million, substantially all of which is planned to be expended during 2006. 5. Liabilities Subject to Compromise: As a result of the Company's Chapter 11 filing (see Notes 1 and 17), pursuant to SOP 90-7, the Company 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 the Company's pre-petition debt is recorded at face value and is classified within liabilities subject to compromise. In addition, the Company's accrued interest expense on its Senior Notes is also recorded in liabilities subject to compromise. C-16 EXHIBIT C TO THE DISCLOSURE STATEMENT Liabilities subject to compromise are as follows (in thousands): December 31, December 31, 2005 2004 - -------------------------------------------------------------------------------- Current - ------- Pre-petition other payables and accrued interest $ 23,990 $ 14,225 Non-current - ----------- Debt (at face value) 100,000 100,000 Pension liability 16,871 16,936 Other post-retirement benefit obligation 8,407 8,303 Pre-petition other liabilities 13,583 12,051 - -------------------------------------------------------------------------------- Total liabilities subject to compromise $162,851 $151,515 - -------------------------------------------------------------------------------- Additional pre-petition claims (liabilities subject to compromise) may arise due to the rejection of executory contracts or unexpired leases, or as a result of the allowance of contingent or disputed claims. 6. Accrued Liabilities: A summary of the significant components of accrued liabilities consists of the following (in thousands): December 31, December 31, 2005 2004 - -------------------------------------------------------------------------------- Accrued warranty, marketing and sales promotion $19,129 $18,487 Employee compensation and related benefits 3,674 4,735 Other 269 3,173 - -------------------------------------------------------------------------------- Total accrued liabilities $23,072 $26,395 - -------------------------------------------------------------------------------- As a result of the Company's Chapter 11 bankruptcy filing and in accordance with SOP 90-7, certain liabilities are included in liabilities subject to compromise on the balance sheet as of December 31, 2005 (see Note 5). C-17 EXHIBIT C TO THE DISCLOSURE STATEMENT 7. Debt: 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 (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 .75% above the prime rate. This financing agreement contains certain covenants, which include the maintenance of a minimum EBITDA. It also includes restrictions on the incurrence of additional debt and limitations on capital expenditures. The covenants and conditions under this financing agreement must be met in order for the Company to borrow from the facility. The Company was in compliance with these covenants at December 31, 2005. Borrowings under this facility are collateralized by inventory and receivables. At December 31, 2005, based on the level of receivables and inventory, $16.8 million was available under the facility, of which $4.4 million was utilized for outstanding letters of credit and $9.4 million was utilized by the revolving loan. The Company anticipates that its debtor-in-possession financing facility will be replaced with a revolving credit facility on substantially similar terms upon confirmation of its plan of reorganization. While the Company 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 the Company 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 the Company's plan of reorganization is not confirmed before that time. On August 3, 1998, the Company issued $100 million of the Senior Notes priced at 99.505% to yield 8.70%. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after August 1, 2003 at predetermined redemption prices (ranging from 104% to 100%), plus accrued and unpaid interest to the date of redemption. The indenture governing the Senior Notes includes certain restrictions on additional indebtedness and uses of cash, including dividend payments. The commencement of the Chapter 11 proceedings constituted an event of default under the indenture governing the Senior Notes. During 2003, the Company and the trustee under the indenture governing the Senior Notes amended the indenture, and sufficient note holders consented, to explicitly permit the Company to take steps in connection with preparing and filing its prepackaged plan of reorganization under Chapter 11 of the Bankruptcy Code. In addition, due to the Chapter 11 proceedings, the Company was precluded from making the interest payments due February 1, 2004, August 1, 2004, February 1, 2005, August 1, 2005 and February 1, 2006, on the Senior Notes. The amount of accrued interest that was not paid on the Senior Notes as of December 31, 2005 is approximately $17.3 million. As of December 31, 2005, the principal amount of the Senior Notes, net of unamortized original issue discount, was $99.9 million. These amounts, plus $1.7 million of accrued interest on the interest due but not paid from February 1, 2004, August 1, 2004, February 1, 2005 and August 1, 2005, are included in "Liabilities Subject to Compromise." C-18 EXHIBIT C TO THE DISCLOSURE STATEMENT 8. Other Liabilities: As a result of the Company's Chapter 11 bankruptcy filing and in accordance with SOP 90-7, certain liabilities are included in liabilities subject to compromise on the balance sheet as of December 31, 2005 (see Note 5). 9. Research and Development Costs: Total research and development costs charged to operations amounted to $4.3 million, $4.3 million and $3.1 million for the years ended December 31, 2005, 2004, and 2003, respectively. 10. Operating Lease Commitments and Rent Expense: The Company leases certain office facilities and equipment under leases with varying terms. Certain leases contain rent escalation clauses. These rent expenses are recognized on a straight-line basis over the respective term of the lease. Future minimum lease payments of non-cancelable operating leases having initial or remaining lease terms in excess of one year as of December 31, 2005 are as follows (in thousands): Years Ending: - -------------------------------------------------------------------------------- 2006 $ 2,637 2007 2,625 2008 2,428 2009 2,229 2010 1,839 Thereafter -- - -------------------------------------------------------------------------------- Total minimum lease payments $11,758 - -------------------------------------------------------------------------------- Rent expense was $3.8 million, $4.0 million and $3.7 million for the years ended December 31, 2005, 2004 and 2003, respectively. 11. Pensions and Other Postretirement Plans: The Company sponsors several non-contributory defined benefit pension plans covering most of the Company's employees. Benefits under the plans are based on years of service and employee compensation. Amounts funded annually by the Company are actuarially determined using the projected unit credit and unit credit methods and are equal to or exceed the minimum required by government regulations. The Company also maintains health and life insurance programs for retirees (reflected in the table below in "Other Benefits"). C-19 EXHIBIT C TO THE DISCLOSURE STATEMENT The following summarizes the change in the benefit obligation, the change in plan assets, the funded status, and reconciliation to the amounts recognized in the balance sheets for the pension benefits and other benefit plans. The measurement date for all items set forth below is the last day of the fiscal year presented.
Obligations and Funded Status: At December 31, Pension Benefits Other Benefits ---------------- -------------- (in thousands) 2005 2004 2005 2004 - --------------------------------------------------------------------------------------------- Change in Benefit Obligation: Benefit obligation at beginning of year $ 71,598 $ 73,243 $ 8,542 $ 9,177 Service cost 1,280 1,293 183 170 Interest cost 4,373 4,263 520 484 Actuarial (gain) loss 2,609 (2,736) 212 (760) Medicare Rx Subsidy -- -- -- (74) Benefits paid (4,615) (4,465) (469) (455) ------------------------------------------ Benefit obligation at end of year $ 75,245 $ 71,598 $ 8,988 $ 8,542 ------------------------------------------ Change in Plan Assets: Fair value of plan assets at beginning of year $ 52,708 $ 47,404 -- -- Actual return on plan assets 2,791 4,015 -- -- Employer contribution 5,086 5,754 -- -- Benefits paid (4,615) (4,465) -- -- ------------------------------------------ Fair value of plan assets at end of year $ 55,970 $ 52,708 -- -- ------------------------------------------ Funded (unfunded) status $(19,275) $(18,891) $(8,988) $(8,542) Unrecognized transition amount -- (54) -- -- Unrecognized net actuarial loss 23,413 21,209 118 (35) Unrecognized prior service cost (140) (427) 47 (141) ------------------------------------------ Net amount recognized $ 3,998 $ 1,837 $(8,823) $(8,718) ==========================================
Amounts recognized in the balance sheets consist of:
Pension Benefits Other Benefits ---------------- -------------- (in thousands) 2005 2004 2005 2004 - --------------------------------------------------------------------------------------------- Accrued benefit cost $(17,097) $(16,936) $(8,823) $(8,718) Intangible asset 134 228 -- -- Deferred tax asset -- -- -- -- Accumulated other comprehensive income 20,961 18,545 -- -- ------------------------------------------ Net amount recognized $ 3,998 $ 1,837 $(8,823) $(8,718) ==========================================
The accumulated benefit obligation for all defined benefit pension plans was $72,841 and $69,416 at December 31, 2005 and 2004, respectively. C-20 EXHIBIT C TO THE DISCLOSURE STATEMENT Information for pension plans with an accumulated benefit obligation in excess of plan assets: December 31, (in thousands) 2005 2004 - -------------------------------------------------------------------------------- Projected benefit obligation $75,245 $71,598 Accumulated benefit obligation $72,841 $69,416 Fair value of plan assets $55,970 $52,708 Components of Net Periodic Benefit Cost:
Pension Benefits Other Benefits ----------------------------- ----------------------- (in thousands) 2005 2004 2003 2005 2004 2003 - ------------------------------------------------------------------------------------------------ Service cost $ 1,280 $ 1,293 $ 1,174 $ 183 $ 170 $ 189 Interest cost 4,373 4,263 4,223 520 484 546 Expected return on plan assets (3,713) (3,380) (2,769) -- -- -- Recognized net actuarial loss (gain) 1,328 1,447 1,595 59 49 34 Amortization of transition obligation (54) (72) (72) -- -- -- Amortization of prior service cost (288) (285) (283) (188) (462) (462) -------------------------------------------------------- Net periodic benefit cost $ 2,926 $ 3,266 $ 3,868 $ 574 $ 241 $ 307 ========================================================
Additional Information:
Pension Benefits Other Benefits ---------------- -------------- (in thousands) 2005 2004 2005 2004 - ------------------------------------------------------------------------------------------ Increase in minimum liability included in other comprehensive income, net of tax benefit $2,416 $(1,839) N/A N/A
The weighted-average assumptions used to determine benefit obligation as of year-end were as follows: Pension Benefits Other Benefits ---------------- -------------- 2005 2004 2005 2004 - -------------------------------------------------------------------------------- Discount rate 6.00% 6.25% 6.00% 6.25% Rate of compensation increase 5.00% 5.50% -- -- The weighted-average assumptions used to determine net periodic benefit cost were as follows:
Pension Benefits Other Benefits ---------------------------- ---------------------------- 2005 2004 2003 2005 2004 2003 - ----------------------------------------------------------------------------------------------------------------- Discount rate 6.25% 6.25% 6.25% 6.25% 6.25% 6.75% Expected long-term return on plan Assets 7.00% 7.00% 7.00% -- -- -- Rate of compensation increase 5.00% 5.50% 5.00% -- -- --
C-21 EXHIBIT C TO THE DISCLOSURE STATEMENT In developing the overall expected long-term return on plan assets assumption, a building block approach was used in which rates of return in excess of inflation were considered separately for equity securities, debt securities, and other assets. The excess returns were weighted by the representative target allocation and added along with an appropriate rate of inflation to develop the overall expected long-term return on plan assets assumption. The Company believes this determination is consistent with SFAS 87. Assumed healthcare cost trend rates as of year-end were as follows: December 31, ------------------- 2005 2004 ------------------- Healthcare cost trend rate assumed for next year 10.0% 9.0% Ultimate healthcare cost trend rate 5.0% 5.0% Year that the assumed rate reaches ultimate rate 2011 2010 Assumed healthcare cost trend rates have a significant effect on the amounts reported for healthcare benefits. A one-percentage point change in assumed healthcare cost trend rates would have the following effects:
1 Percentage 1 Percentage (in thousands) Point Increase Point Decrease -------------- -------------- -------------- Effect on total of service and interest cost components $ 61 $ 55 Effect on post-retirement benefit obligation $647 $591
Plan Assets: For the pension plans, the weighted-average asset allocation at December 31, 2005 and 2004, by asset category, are as follows: Plan Assets at December 31, ---------------------- Asset Category: 2005 2004 ---------------------- Equity securities 60% 60% Debt securities 39% 39% Other 1% 1% ---------------------- Total 100% 100% ====================== The Company has developed an investment strategy for the pension plans. The investment strategy is to emphasize total return; that is, the aggregate return from capital appreciation and dividend and interest income. The primary objective of the investment management for the plans' assets is the emphasis on consistent growth; specifically, growth in a manner that protects the plans' assets from excessive volatility in market value from year to year. The investment policy takes into consideration the benefit obligations, including timing of distributions. The primary objective for the plans is to provide long-term capital appreciation through investment in equity and debt securities. The Company's target asset allocation is consistent with the weighted - average allocation at December 31, 2005. C-22 EXHIBIT C TO THE DISCLOSURE STATEMENT The Company selects professional money managers whose investment policies are consistent with the Company's investment strategy and monitors their performance against appropriate benchmarks. Contributions: The Company expects to contribute $ 4.9 million to its pension plan and $ 0.5 million to its other postretirement plan in 2006. Estimated Future Benefit Payments: The following benefit payments, which reflect future service as appropriate, are expected to be paid. The benefit payments are based on the same assumptions used to measure the Company's benefit obligation at the end of 2005. Other Benefits Projected Pension Net Benefit (in thousands) Benefits Payments -------------- -------- -------- 2006 $ 4,848 $ 481 2007 4,923 539 2008 4,993 594 2009 5,132 605 2010 5,285 661 2011-2015 28,410 4,010 Defined Contribution Plan: The Company also has two 401(k) defined contribution retirement plans that cover substantially all employees. Eligible employees may contribute up to 20% of compensation, with partially matching Company contributions. The charge to income relating to the Company match was $0.3 million, $0.7 million and $0.4 million for the years ended December 31, 2005, 2004 and 2003, respectively. C-23 EXHIBIT C TO THE DISCLOSURE STATEMENT 12. Income Taxes: Income taxes are comprised of the following (in thousands): For the years ended December 31, ------------------------------------ 2005 2004 2003 - -------------------------------------------------------------------------------- Current: Federal $(2,680) $ 39 $(3,201) State 105 183 72 Deferred: Federal 417 (3,843) (745) State (526) (1,180) (437) Valuation allowance 109 2,256 437 - -------------------------------------------------------------------------------- Benefit for income taxes $(2,575) $(2,545) $(3,874) - -------------------------------------------------------------------------------- The following is a reconciliation of the statutory federal income tax rate to the Company's effective tax rate expressed as a percentage of income before income taxes: For the years ended December 31, ---------------------------------- 2005 2004 2003 - ------------------------------------------------------------------------------ Statutory federal income tax rate 34.0% 34.0% 34.0% State income taxes, net of federal benefit (0.2) 30.0 (0.4) Change in valuation allowance -- 267.5 -- Reorganization costs (14.3) -- -- Benefit of net operating loss (9.7) (991.2) 3.6 Non-deductible, meal and entertainment expense -- 26.1 (1.2) Other 0.9 1.4 0.4 - ------------------------------------------------------------------------------ Effective tax rate 10.7% (632.2)% 36.4% - ------------------------------------------------------------------------------ C-24 EXHIBIT C TO THE DISCLOSURE STATEMENT Deferred taxes are recorded using enacted tax rates based upon differences between financial statement and tax bases of assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The components of the deferred tax asset and liability relate to the following temporary differences (in thousands): December 31, December 31, 2005 2004 ------------------------------ Deferred tax assets: Accounts receivable $ 121 $ 140 Environmental remediation and product-related reserves 12,716 13,943 Postretirement benefit obligations 3,592 3,693 Tax credit and other carryovers 9,129 7,221 Other accruals 1,251 721 - -------------------------------------------------------------------------------- Deferred tax asset 26,809 25,718 Valuation allowance (4,688) (4,577) - -------------------------------------------------------------------------------- Net deferred tax asset 22,121 21,141 - -------------------------------------------------------------------------------- Deferred tax liability: Depreciation and amortization (9,971) (11,876) Inventory (1,626) (2,521) Other (10,524) (6,744) - -------------------------------------------------------------------------------- Total deferred tax liability (22,121) $(21,141) - -------------------------------------------------------------------------------- Net deferred tax asset $ -- $ -- - -------------------------------------------------------------------------------- At December 31, 2005 and 2004, the Company had available federal net operating loss carry forwards of approximately $12.7 million and $6.6 million, respectively, to offset future taxable income. The federal loss carry forwards will begin to expire in 2025. 13. Supplemental Cash Flow Information: Cash payments for interest were $0.6 million, $0.6 million and $9.2 million for the years ended December 31, 2005, 2004 and 2003, respectively. Net cash refunds for income taxes were $0.0 million, $1.6 million and $3.0 million for the years ended December 31, 2005, 2004 and 2003, respectively. C-25 EXHIBIT C TO THE DISCLOSURE STATEMENT 14. Related Party Transactions: The Company and its controlling shareholder, American Biltrite Inc. ("ABI"), provide certain goods and services to each other pursuant to negotiated agreements. The Company had the following transactions with ABI (in thousands): For the years ended December 31, --------------------------------- 2005 2004 2003 - -------------------------------------------------------------------------------- Sales made to ABI $ 13 $ 54 $ 57 Sales commissions earned by ABI 246 215 68 Raw material transfers to ABI 866 1,521 1,996 Computer service income earned from ABI 52 54 75 Material purchases from ABI 5,628 6,718 7,342 Indemnification payments made to ABI -- -- 2,163 Management fees paid to ABI 651 1,527 608 - -------------------------------------------------------------------------------- There was nothing due from ABI on December 31, 2005, as compared to $114 thousand on December 31, 2004. Amounts as of December 31, 2005 and 2004 due to ABI totaled $0.6 million and $1.2 million, respectively, and are included in accounts payable and accrued expenses. 15. Major Customers: Substantially all the Company's sales are to select flooring distributors and retailers located in the United States and Canada. Economic and market conditions, as well as the individual financial condition of each customer, are considered when establishing allowances for losses from doubtful accounts. Two customers, LaSalle-Bristol Corporation and Mohawk Industries, Inc., accounted for 28% and 39%, respectively, of the Company's net sales for the year ended December 31, 2005, 26% and 44%, respectively, for the year ended December 31, 2004, and 24% and 41%, respectively, for the year ended December 31, 2003. Mohawk Industries accounted for 31% and 44% of accounts receivable at December 31, 2005 and 2004, respectively, while LaSalle - Bristol Corporation accounted for 24% and 11%, respectively, of accounts receivable at December 31, 2005 and 2004. C-26 EXHIBIT C TO THE DISCLOSURE STATEMENT 16. Environmental and Other Liabilities The Company records a liability for environmental remediation claims when a cleanup program or claim payment becomes probable and the costs can be reasonably estimated. As assessments and cleanup programs progress, these liabilities are adjusted based upon the progress in determining the timing and extent of remedial actions and the related costs and damages. The recorded liabilities, totaling $4.3 million at December 31, 2005 and $4.6 million at December 31, 2004, are not reduced by the amount of insurance recoveries. Such estimated insurance recoveries approximated $1.9 million at December 31, 2005 and $2.1 million at December 31, 2004, and are reflected in other non-current assets. 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. The Company is named, together with a large number (in most cases, hundreds) of other companies, as a potentially responsible party ("PRP") in pending proceedings under the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), and similar state laws. In addition, in four other instances, although not named as a PRP, the Company has received a request for information. The pending proceedings 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. The Company's ultimate liability and funding obligations in connection with those sites depends on many factors, including the volume of material contributed to the site, the number of other PRPs and their financial viability, the remediation methods and technology to be used and the extent to which costs may be recoverable from insurance. However, under CERCLA and certain other laws, the Company, as a PRP, can be held jointly and severally liable for all environmental costs associated with a site. The most significant exposure for which the Company 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 Environmental Protection Agency ("EPA") recently 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 estimates that future costs of the remedy recently selected by EPA based on engineering estimates would be approximately $11 million. Congoleum's proportionate share, based on waste disposed at the site, is estimated to be approximately 5.7%, or $0.7 million. The majority of Congoleum's share of costs is presently being 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 the Company. C-27 EXHIBIT C TO THE DISCLOSURE STATEMENT The Company also accrues remediation costs for certain of the Company's owned facilities on an undiscounted basis. The Company 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 cleanup 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, $0.3 million is included in current liabilities subject to compromise and $1.3 million is included in non-current liabilities subject to compromise. The Company anticipates that these matters will be resolved over a period of years and that after application of expected insurance recoveries, funding the costs will not have a material adverse impact on the Company'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 financial position of the Company. 17. Asbestos Liabilities: Claims Settlement and Chapter 11 Reorganization In early 2003, the Company 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, the Company entered into a settlement agreement with various asbestos personal injury claimants (the "Claimant Agreement"). As contemplated by the Claimant Agreement, the Company 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 the Company's rights under its applicable insurance coverage and payments from the Company'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 the Company and participating claimants who qualified for payment under unfunded settlement agreements entered into by the Company with plaintiffs that had asbestos claims pending against the Company and which claims were scheduled for trial after the effective date of the Claimant Agreement but prior to the commencement of the Company's anticipated Chapter 11 reorganization case ("Trial-Listed Settlement Agreements"). C-28 EXHIBIT C TO THE DISCLOSURE STATEMENT 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, the Company commenced the Avoidance Actions seeking to void the security interest granted to the Collateral Trust and such settlements. 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 to 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. In October 2003, the Company began soliciting acceptances for its proposed pre-packaged plan of reorganization and the Company received the votes necessary for acceptance of the plan in late December 2003. On December 31, 2003, Congoleum filed a voluntary petition with the United States Bankruptcy Court for the District of New Jersey (Case No. 03-51524) seeking relief under Chapter 11 of the Bankruptcy Code. In January 2004, the Company 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 (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. C-29 EXHIBIT C TO THE DISCLOSURE STATEMENT 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, the Company 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 of these plans for April 27, 2006. There can be no assurance that the Company will obtain approval to solicit acceptances for the Eighth Plan, that the Company will receive the acceptances necessary for confirmation of the Eighth Plan, that the Eighth Plan will not be modified further, that the Eighth 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 the Eighth Plan will be confirmed, or that the Eighth 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. C-30 EXHIBIT C TO THE DISCLOSURE STATEMENT During 2005, the Company 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, the Company 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, the Company entered into a settlement agreement with Federal Insurance Company pursuant to which Federal will pay $4 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. 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 goes effective and the Bankruptcy Court 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. It also is possible that a settling insurer may argue that the Eighth Plan is not substantially similar to the Sixth Plan and therefore is relieved of its settlement obligation. 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. A motion for Bankruptcy Court approval of this settlement is pending. The Company 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. C-31 EXHIBIT C TO THE DISCLOSURE STATEMENT 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 the Company 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 the Company's bankruptcy proceeding advised the Company 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. The Company 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. 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. 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 the Company, 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. C-32 EXHIBIT C TO THE DISCLOSURE STATEMENT 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 $19.5 million at a minimum, not including any Market Reset Obligation arising from revaluation of the New Convertible Security, and could be materially higher. Based on the Eighth Plan, the Company 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. The Company recorded charges aggregating approximately $26 million in prior years and a further approximately $25.3 million in 2005, to provide for the estimated minimum costs of completing its reorganization as based on the Eighth Plan. The Company 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 the Company has estimated. The Company may record significant additional charges should the minimum estimated cost increase. Pending Asbestos Claims In 2003, the Company was one of many defendants in approximately 22 thousand pending lawsuits (including workers' compensation cases) involving approximately 106 thousand individuals, alleging personal injury or death from exposure to asbestos or asbestos-containing products. Claims involving approximately 80 thousand individuals have been settled pursuant to the Claimant Agreement and litigation related to unsettled or new claims is presently stayed by the Bankruptcy Code. The Company expects unsettled and future claims to be handled in accordance with the terms of a plan of reorganization and the Plan Trust. In December 2005, the Company commenced the Avoidance Actions seeking to void the security interest granted to the Collateral Trust and such settlements. Nearly all asbestos-related claims that have been brought against the Company to date allege that various diseases were caused by exposure to asbestos-containing products, including resilient sheet vinyl and tile manufactured by the Company (or, in the workers' compensation cases, exposure to asbestos in the course of employment with the Company). The Company discontinued the manufacture of asbestos-containing sheet products in 1983 and asbestos-containing tile products in 1974. In general, governmental authorities have determined that asbestos-containing sheet and tile products are non-friable (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 non-friable. The Company has issued warnings not to remove asbestos-containing flooring by sanding or other methods that may cause the product to become friable. C-33 EXHIBIT C TO THE DISCLOSURE STATEMENT Status of Insurance Coverage During the period that Congoleum produced asbestos-containing products, the Company purchased primary and excess insurance policies providing in excess of $1 billion of coverage for general and product liability claims. Through August 2002, substantially all asbestos-related claims and defense costs were paid through primary insurance coverage. In August 2002, the Company received notice that its primary insurance limits had been paid in full. The payment of limits in full by one of the primary insurance companies was based on its contention that limits in successive policies were not cumulative for asbestos claims and that Congoleum was limited to only one policy limit for multiple years of coverage. Certain excess insurance carriers claimed that the non-cumulation provisions of the primary policies were not binding on them and that there remained an additional $13 million in primary insurance limits plus related defense costs before their policies were implicated. There is insurance coverage litigation currently pending between Congoleum and its excess insurance carriers, and the guaranty funds and associations for the State of New Jersey. The litigation was initiated in September 2001, by one of Congoleum's excess insurers (the "Coverage Action"). In April 2003, the New Jersey Supreme Court ruled in another case involving the same non-cumulation provisions as in the Congoleum primary policies (the "Spaulding Case") that the non-cumulation provisions are invalid under New Jersey law and that the primary policies provide coverage for the full amount of their annual limits for all successive policies. Congoleum has reached a settlement agreement ("Insurance Settlement") with the insurance carrier whose policies contained the non-cumulation provisions, pursuant to which the insurance carrier will pay Congoleum $15.4 million in full satisfaction of the applicable policy limits, of which $14.5 million has been paid to date. Pursuant to the terms of the Security Agreement, the Company is obligated to pay any insurance proceeds it receives under the Insurance Settlement, net of any fees and expenses it may be entitled to deduct, to the Collateral Trust. Payment of such fees and expenses are subject to Bankruptcy Court order or approval. The Company does not expect the Insurance Settlement to have a material effect on its financial condition or results of operations. As of December 31, 2002, the Company had entered into additional settlement agreements with asbestos claimants exceeding the amount of previously disputed coverage. The excess carriers have objected to the reasonableness of several of these settlements, and Congoleum believes that they will continue to dispute the reasonableness of the settlements and contend that their policies still are not implicated and will dispute their coverage for that and other various reasons in ongoing coverage litigation. The excess insurance carriers have also raised various objections to the Company's previously proposed plans of reorganization and may raise objections to any new amended plan that is proposed. The excess insurance carriers have objected to the global settlement of the asbestos claims currently pending against Congoleum as contemplated by the Claimant Agreement on the grounds that, among other things, the negotiations leading to the settlement and the Claimant Agreement violate provisions in their insurance policies, including but not limited to the carriers' right to associate in the defense of the asbestos cases, the duty of Congoleum to cooperate with the carriers and the right of the carriers to consent to any settlement. The excess insurance carriers also contend the Claimant Agreement is not fair, reasonable or in good faith. Additionally, certain insurers have argued that Congoleum's entering into the Claimant Agreement voids the insurance for the underlying claims in their entirety. Certain insurers also have claimed that the Claimant Agreement voids their entire policy obligations. Congoleum has disputed the allegations and contentions of the excess insurance carriers. In November 2003, the Court denied a motion for summary judgment by the excess C-34 EXHIBIT C TO THE DISCLOSURE STATEMENT insurance carriers that the Claimant Agreement was not fair, reasonable or in good faith, ruling that material facts concerning these issues were in dispute. In April 2004, the Court denied motions for summary judgment by the excess carriers that the Claimant Agreement was not binding on them because Congoleum had breached the consent and cooperation clauses of their insurance policies by, among other things, entering into the Claimant Agreement without their consent. Congoleum has argued, among other things, that it was entitled to enter into the Claimant Agreement and/or the Claimant Agreement was binding on the excess insurance carriers because they were in breach of their policies and/or had denied coverage and/or had created a conflict with Congoleum by reserving rights to deny coverage and/or the Claimant Agreement was fair, reasonable and in good faith and/or there was and is no prejudice to the excess insurance carriers from the Claimant Agreement and/or the excess insurance carriers had breached their duties of good faith and fair dealing. In August 2004, the Court entered a case management order that divided the trial into three phases. A new judge was assigned to the case effective February 23, 2005 and the schedule was modified as a result. In February 2005, the Court ruled on a series of summary judgment motions filed by various insurers. The Court denied a motion for summary judgment filed by certain insurers, holding that there were disputed issues of fact regarding whether the Claimant Agreement and other settlement agreements between Congoleum and the claimants had released Congoleum and the insurers from any liability for the asbestos bodily injury claims of the claimants who signed the Claimant Agreement and the other settlement agreements. The Court also denied another motion for summary judgment filed by various insurers who argued that they did not have to cover the liability arising from the Claimant Agreement because they had not consented to it. The Court granted summary judgment regarding Congoleum's bad faith claims against excess insurers (other than first-layer excess insurers), holding that the refusal of these excess insurers to cover the Claimant Agreement was at least fairly debatable and therefore not in bad faith. The first phase of the trial began on August 2, 2005 and will address all issues and claims relating to whether the insurers are obligated to provide coverage under the policies at issue in this litigation for the global Claimant Agreement entered into by Congoleum, including but not limited to all issues and claims relating to both Congoleum's decision and conduct in entering into the Claimant Agreement and filing a pre-packaged bankruptcy and the insurance company defendants' decisions and conduct in opposing the Claimant Agreement and Congoleum's pre-packaged bankruptcy, the reasonableness and good faith of the Claimant Agreement, whether the Claimant Agreement breached any insurance policies and, if so, whether the insurance companies suffered any prejudice, and whether the insurance companies' opposition to the Claimant Agreement and C-35 EXHIBIT C TO THE DISCLOSURE STATEMENT bankruptcy and various other conduct by the insurers has breached their duties of good faith and fair dealing such that they are precluded from asserting that Congoleum's decision to enter into the Claimant Agreement constitutes any breach(es) on the part of Congoleum. The Company believes, however, that even if the insurers were to succeed in the first phase of the Coverage Action, such result would not deprive individual claimants of the right to seek payment from the insurers who issued the affected insurance policies. Additionally, Congoleum could negotiate settlements with some or all of the signatories to the Claimant Agreement and seek payment from its insurers for such settlements. Such result would not preclude the Company from attempting to amend the Claimant Agreement and thereafter seek recovery under the Claimant Agreement as amended; moreover, the Company does not believe that it would be deprived of coverage-in-place insurance for future obligations of or demands upon the insurers under the applicable insurance policies. However, there can be no assurances of the outcome of these matters or their potential effect on the Company's ability to obtain approval of its plan of reorganization. The second phase of the trial will address all coverage issues, including but not limited to trigger and allocation. The final phase of the trial will address bad faith punitive damages, if appropriate. In March 2005, the Company filed a motion in the Bankruptcy Court asking the Bankruptcy Court to vacate its prior order lifting the automatic stay in bankruptcy to permit the Coverage Action to proceed. The Company requested that the Coverage Action proceedings be stayed until the Company has completed its plan confirmation process in the Bankruptcy Court. A hearing on the Company's motion was held in April 2005 and the motion was denied. In October 2005, a federal appeals court ruled that the law firm of Gilbert Heintz & Randolph, which had been acting as the Company's insurance co-counsel in the Coverage Action, had other representations which were in conflict with its representation of Congoleum. As a result of this ruling, Gilbert Heintz & Randolph has filed a motion to withdraw as coverage counsel and, with Bankruptcy Court approval, Congoleum retained the firm of Covington & Burling to represent it as co-counsel with Dughi & Hewit in the insurance coverage litigation and insurance settlement matters previously handled by Gilbert Heintz & Randolph. In or about mid-November 2005, and in early December 2005, certain insurers filed motions for summary judgment on the ground, inter alia, that the decision of the United States Court of Appeals for the Third Circuit reversing the Bankruptcy Court's order approving the retention of the Gilbert Heinz & Randolph firm in In re Congoleum, 426 F.3d 675 (3d Cir. 2005), and/or Congoleum's filing of the Avoidance Actions in the Bankruptcy Court, entitled them to judgment as a matter of law on the Phase I issues. Congoleum opposed the motions. The motions were argued on January 10, 2006, and on March 16, 2006 the Court denied the motion for summary judgment. In the meantime, the trial has proceeded with additional witnesses appearing on behalf of Congoleum. It is anticipated that Congoleum will complete the presentation of its case in March 2006. At that point, some or all of the insurers have indicated that they will move for a directed verdict in their favor. C-36 EXHIBIT C TO THE DISCLOSURE STATEMENT Some insurers contend that, if there is a ruling adverse to Congoleum in the Coverage Litigation, then the insurers will not owe coverage for claims resolved under the Claimant Agreement and/or under other pre-petition settlements. Insurers further contend that such result would also deprive individual claimants who were parties to the Claimant Agreement and other pre-petition settlements of the right to seek payment from the insurers under their insurance policies or from negotiating settlements with some or all of the insurers. Insurers also contend that such result would preclude Congoleum and claimants from agreeing to forbear under or amending the Claimant Agreement and other pre-petition settlements and would preclude claimants from seeking recovery under other claims payment standards, including bankruptcy Trust Distribution Plans (TDPs), or under any amended agreements. Congoleum intends to contest any attempt by the insurers to enlarge or expand upon a Phase 1 ruling that is adverse to Congoleum. However, there can be no assurances of the outcome of these matters. The Phase 2 trial will address all remaining coverage issues, including but not limited to trigger and allocation. Discovery is permitted on all issues, except for punitive damages. Pre-trial motions and trial dates for the Phase 2 and Phase 3 trials and discovery for the Phase 3 trial will be addressed by the court after the Phase 1 trial decision. Given the actions of its excess insurance carriers, the Company believes it likely that it would currently have to fund any asbestos-related expenses for defense expense and indemnity itself. However, litigation by asbestos claimants against the Company is stayed pursuant to the Company's bankruptcy proceedings, and the Company does not anticipate its future expenditures for defense and indemnity of asbestos-related claims, other than expenditures pursuant to a plan of reorganization, will be significant. The Company believes that the Eighth Plan renders moot the issue of whether the Claimant Agreement is insured, and therefore Congoleum has sought a stay of the Coverage Action in order to facilitate a vote on the Eighth Plan and to permit plaintiff groups with pre-petition settlements an opportunity to forbear. Payments Related to Asbestos Claims The following table sets forth amounts paid to defend and settle claims: Year Ended Year Ended (in millions) December 31, December 31, 2005 2004 ---- ---- Indemnity costs paid by the Company's insurance carriers $ -- $ -- Indemnity costs paid by the Company $ -- $ -- Defense costs paid by the Company $ -- $ 0.4 The amounts shown in the above table do not include non-cash settlements using assignments of insurance proceeds, which amounted to $477 million in 2003. There were no non-cash settlements with assignment of insurance proceeds in the years ended December 31, 2005 and 2004. C-37 EXHIBIT C TO THE DISCLOSURE STATEMENT At December 31, 2005, there were no additional settlements outstanding that the Company had agreed to fund other than settlements pursuant to the Claimant Agreement. The Company is seeking recovery from its insurance carriers of the amounts it has paid for defense and indemnity, and intends to seek recovery for any future payments of defense and indemnity. In light of the assignment of the rights to its applicable insurance proceeds to the Collateral Trust and the planned reorganization, the Company does not anticipate recovering these costs. Accounting for Asbestos-Related Claims Under the terms of the Claimant Agreement, the Company's claims processing agent processed 79,630 claims meeting the requirements of the Claimant Agreement with a settlement value in excess of $466 million. In addition, Pre-Existing Settlement Agreements and Trial-Listed Settlement Agreements with claims secured by the Collateral Trust total approximately $25 million. As a result of tabulating ballots on its Fourth Plan, the Company 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. The Company's gross liability in excess of approximately $491 million for these settlements and contingent liability for the additional approximately $512 million in unsettled claims is substantially in excess of the total assets of the Company. The Company believes that it does not have the necessary financial resources to litigate and/or fund judgments and/or settlements of the asbestos claims in the ordinary course of business. Therefore, the Company believes the most meaningful measure of its probable loss due to asbestos litigation is the amount it will have to contribute to the Plan Trust plus the costs to effect its reorganization under Chapter 11. At December 31, 2005, the Company estimates it will spend a further $19.5 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 $8.9 million insurance settlement being held as restricted cash). It also expects to spend a further $11.5 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. The Company currently holds $3.7 million in restricted cash that may be available to offset future costs incurred pursuing insurance coverage, subject to approval by the Bankruptcy Court. Pursuant to the terms of the Eighth Plan, holders of the Company's 8 5/8% 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"). In February 2006, the Bankruptcy Court ordered a law firm formerly representing Congoleum to disgorge all fees and certain expenses it was paid by Congoleum. The law firm is expected to appeal from this ruling once an order embodying the rule has been entered by the Bankruptcy Court. It is expected that the amount of the disgorgement will range from approximately $8.2 million to $9.8 million. C-38 EXHIBIT C TO THE DISCLOSURE STATEMENT The Company recorded charges aggregating approximately $26 million in prior years and a further approximately $25.3 million in 2005, to provide for the estimated minimum costs of completing its reorganization. Additional charges may be required in the future should the minimum estimated cost increase. The maximum amount of the range of possible asbestos-related losses is limited to the going concern or liquidation value of the Company, an amount which the Company believes is substantially less than the minimum gross liability for the known claims against it. The Company has not attempted to make an estimate of its probable insurance recoveries for financial statement purposes given the accounting for its estimate of future asbestos-related costs. Substantially all future insurance recoveries have been assigned to the Collateral Trust or Plan Trust. Amounts Recorded in Financial Statements The table below provides an analysis of changes in the Company's asbestos reserves and related receivables from December 31, 2004 to December 31, 2005:
Spending Recoveries Balance at Additions Against From Balance at (in thousands) 12/31/04 Reclassifications (Deletions) Reserve Insurance 12/31/05 -------------------------------------------------------------------------------------------- Reserves Current $ 6,550 $ 2,738 $22,964 $(12,783) -- $ 19,469 Long-Term 2,738 (2,738) -- -- -- -- Receivables Current (1,509) (7,300) 2,362 (14,437) $6,091 (14,793) Long-Term (7,300) 7,300 -- -- -- -- -------------------------------------------------------------------------------------------- Net Asbestos Liability $ 479 $ -- $25,326 $(27,220) $6,091 $ 4,676 ======== ======= ======= ======== ====== ======== Restricted Cash Insurance Proceeds $ 14,530 $ -- $ 462 $ (6,091) $ -- $ 8,901 ======== ======= ======= ======== ====== ========
C-39 EXHIBIT C TO THE DISCLOSURE STATEMENT The table below provides an analysis of changes in the Company's asbestos reserves and insurance receivables from December 31, 2003 to December 31, 2004:
Spending Recoveries Balance at Additions Against From Balance at (in thousands) 12/31/03 Reclassifications (Deletions) Reserve Insurance 12/31/04 -------------------------------------------------------------------------------------------- Reserves Current $ 9,820 $(2,738) $ 10,222 $(10,754) $ -- $ 6,550 Long-Term -- 2,738 -- -- -- 2,738 Receivables Current (3,587) 7,300 (5,222) -- -- (1,509) Long-Term -- (7,300) -- -- -- (7,300) -------------------------------------------------------------------------------------------- Net Asbestos Liability $ 6,233 $ -- $ 5,000 $(10,754) $ -- $ 479 Restricted Cash Insurance Proceeds $ -- $ -- $ 14,530 $ -- $ -- $ 14,530 ======= ======= ======== ======== ==== ========
18. Stock Option Plans: Under the Company's 1995 Stock Option Plan, as amended (the "1995 Plan"), options to purchase up to 800,000 shares of the Company's Class A common stock may be issued to officers and key employees. Such options may be either incentive stock options or nonqualified stock options, and the options' exercise price must be at least equal to the fair value of the Company's Class A common stock on the date of grant. All options granted under the 1995 Plan have ten-year terms and vest over five years at the rate of 20% per year beginning on the first anniversary of the date of grant. On July 1, 1999, the Company established its 1999 Stock Option Plan for Non-Employee Directors, as amended (the "1999 Plan"), under which non-employee directors may be granted options to purchase up to 50,000 shares of the Company's Class A common stock. Options granted under the 1999 Plan have ten-year terms and vest six months from the grant date. In December 2001, the Company offered its eligible option holders an exchange of all options then outstanding and granted to them under the 1995 Plan or the 1999 Plan for new stock options to be granted under those plans not earlier than six months and one day after the date the Company canceled any options tendered to and accepted by it pursuant to the offer to exchange. On January 4, 2002, the Company accepted and canceled 667,500 options that had been previously granted under the 1995 Plan and 9,500 options that had been previously granted under the 1999 Plan that were tendered to and accepted by the Company pursuant to the offer to exchange. On July 11, 2002, the Company issued 665,500 options under the 1995 Plan and 9,500 options under the 1999 Plan at an exercise price of $2.05 per share pursuant to the exchange. The new options granted under the 1995 Plan will generally vest annually in equal installments over a five-year period beginning on the first anniversary of the date of grant, and the new options granted under the 1999 Plan will generally vest fully six months from the date of grant. C-40 EXHIBIT C TO THE DISCLOSURE STATEMENT On May 10, 2004, the Company issued 38,500 options under the 1995 Plan at an exercise price of $1.94 per share. The new options granted under the 1995 Plan will generally vest annually in equal installments over a five-year period beginning on the first anniversary of the date of the grant. On March 10, 2005, the Company issued 5,000 options under the 1995 Plan at an exercise price of $5.74 per share. The new options granted under the 1995 Plan will generally vest annually in equal installments over a five-year period beginning on the first anniversary of the date of the grant. On July 1, 2004, the Company issued 2,500 options under the 1999 Plan at an exercise price of $2.60 per share. The new options granted under the 1999 Plan will generally vest fully six months from the date of grant. On July 1, 2005, the Company issued 2,500 options under the 1999 Plan at an exercise price of $3.91 per share. The new options granted under the 1999 Plan will generally vest fully six months from the date of grant. On December 16, 2005, the Company issued 2,000 options under the 1999 Plan at an exercise price of $4.42 per share. The new options granted under the 1999 Plan will generally vest fully six months from the date of grant. A summary of the Company's 1995 Plan activity, and related information, is as follows: December 31, 2005: - -------------------------------------------------------------------------------- Weighted average Shares exercise price - -------------------------------------------------------------------------------- Options outstanding beginning of year 686,500 $1.99 Options granted 5,000 5.74 Options exercised (11,200) 1.81 Options forfeited (8,300) 1.14 -------- ----- Options outstanding end of year 672,000 $2.03 - -------------------------------------------------------------------------------- Exercisable at end of year 383,600 $2.03 Weighted average remaining contractual life 6.65 years Stock options available for future issuance 114,400 ================================================================================ C-41 EXHIBIT C TO THE DISCLOSURE STATEMENT ================================================================================ December 31, 2004: - -------------------------------------------------------------------------------- Weighted average Shares exercise price - -------------------------------------------------------------------------------- Options outstanding beginning of year 652,500 $ 1.99 Options granted 38,500 1.94 Options exercised (400) 2.05 Options forfeited (4,100) 2.05 -------- -------- Options outstanding end of year 686,500 $ 1.99 - -------------------------------------------------------------------------------- Exercisable at end of year 255,600 $ 2.04 Weighted average remaining contractual life 7.63 years Stock options available for future issuance 111,100 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- December 31, 2003: - -------------------------------------------------------------------------------- Weighted average Shares exercise price - -------------------------------------------------------------------------------- Options outstanding beginning of year 678,500 $ 2.09 Options granted 28,000 0.36 Options canceled -- -- Options forfeited (54,000) 2.05 -------- -------- Options outstanding end of year 652,500 $ 1.99 - -------------------------------------------------------------------------------- Exercisable at end of year 127,300 $ 2.09 Weighted average remaining contractual life 8.53 years Stock options available For future issuance 145,500 - -------------------------------------------------------------------------------- The weighted average grant date fair value of options granted under the 1995 Plan in 2005, 2004, and 2003 was $5.74, $1.94 and $0.36, respectively. C-42 EXHIBIT C TO THE DISCLOSURE STATEMENT The exercise price of options granted under the 1999 Plan and outstanding at December 31, 2005 range from $0.75 to $4.42 per share. A summary of the 1999 Plan activity, and related information, is as follows: - -------------------------------------------------------------------------------- December 31, 2005: - -------------------------------------------------------------------------------- Weighted average Shares Exercise price - -------------------------------------------------------------------------------- Options outstanding beginning of year 17,000 $1.94 Options granted 4,500 4.14 Options exercised -- -- Options forfeited -- -- ------- ----- Options outstanding end of year 21,500 $2.40 - -------------------------------------------------------------------------------- Exercisable at end of year 17,000 $1.94 Weighted average remaining contractual life 6.68 years Stock options available for future issuance 28,500 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- December 31, 2004: Weighted average Shares Exercise price - -------------------------------------------------------------------------------- Options outstanding beginning of year 15,500 $2.17 Options granted 2,500 2.60 Options exercised -- -- Options forfeited (1,000) 7.19 ------- ----- Options outstanding end of year 17,000 $1.94 - -------------------------------------------------------------------------------- Exercisable at end of year 14,500 $1.83 Weighted average remaining contractual life 7.96 years Stock options available for future issuance 33,000 - -------------------------------------------------------------------------------- C-43 EXHIBIT C TO THE DISCLOSURE STATEMENT ================================================================================ December 31, 2003: Weighted average Shares Exercise price - -------------------------------------------------------------------------------- Options outstanding beginning of year 13,000 $2.44 Options granted 2,500 0.75 Options canceled -- -- Options forfeited -- -- ------ ----- Options outstanding end of year 15,500 $2.17 - -------------------------------------------------------------------------------- Exercisable at end of year 13,000 $2.44$2.54 Weighted average remaining contractual life 8.49 years Stock options available for future issuance 34,500 The weighted average grant date fair value of options granted under the 1999 Plan in 2005, 2004, and 2003 was $4.14, $2.60 and $0.75, respectively. 19. Stockholders' Equity: Holders of shares of the Company's Class B common stock are entitled to two votes per share on all matters submitted to a vote of stockholders other than certain extraordinary matters. The holders of shares of the Company's Class A common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. In November 1998, the Board of Directors authorized the Company to repurchase an additional $5.0 million of the Company's common stock (Class A and Class B shares) through the open market or through privately negotiated transactions, bringing the total authorized common share repurchases to $15.0 million. Under the total plan, Congoleum has repurchased shares of its common stock at an aggregate cost of $14.0 million through December 31, 2005. No shares were repurchased during 2005 or 2004. Shares of Class B stock repurchased (totaling 741,055 shares) have been retired. As of December 31, 2005, American Biltrite Inc. owned 151,100 Class A shares and 4,395,605 Class B shares that represented an aggregate 69.4% of the voting interest of the Company. C-44 EXHIBIT C TO THE DISCLOSURE STATEMENT 20. Fair Value of Financial Instruments: The Company's cash and cash equivalents, short-term investments, accounts receivable, accounts payable and long-term debt are financial instruments. With the exception of the Company's long-term debt, the carrying value of these financial instruments approximates their fair value at December 31, 2005 and 2004. The Company's long-term debt had a book value of $99.9 million and, based on bid prices published by the high yield research group of a major investment bank, a fair market value of $63.5 million at December 31, 2005. The Company's long-term debt had a book value of $99.8 million and a fair market value of $64.0 million at December 31, 2004. The fair value of the Company's long-term debt is determined based on bid prices published by the high yield research group of a major investment bank. The fair value of the Company's other financial instruments is determined based on discounted cash flows. Due to the short period over which the cash flows are expected to be realized, the carrying value of the financial instruments approximates the net present value of cash flows and changes in interest rate assumptions would not have a material effect on the calculation. 21. Quarterly Financial Data (Unaudited): The following table summarizes unaudited quarterly financial information (in thousands):
Year ended December 31, 2005 ---------------------------------------------------- First Second Third Fourth Quarter Quarter(1) Quarter Quarter(2) - -------------------------------------------------------------------------------------------------------- Net sales $ 57,630 $ 58,108 $60,507 $ 61,381 Gross profit 13,661 13,770 13,237 13,224 Net income (loss) (352) (14,598)(1) 325 (6,950)(2) Net income (loss) per common share: Basic $ (0.04) $ (1.77) $ 0.04 $ (0.84) Diluted (0.04) (1.77) 0.04 (0.84) ========================================================================================================
C-45 EXHIBIT C TO THE DISCLOSURE STATEMENT
Year ended December 31, 2004 ---------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter(3) - -------------------------------------------------------------------------------------------------------- Net sales $ 52,000 $62,951 $58,871 $55,671 Gross profit 13,551 16,886 17,059 14,153 Net income (loss) (435) 1,360 1,153 870(3) Net income (loss) per common share: Basic $ (0.05) $ 0.16 $ 0.14 $ 0.11 Diluted (0.05) 0.16 0.13 0.10 ========================================================================================================
(1) The second quarter of 2005 includes $15.5 million or $1.87 per share for the effect of the asbestos-related charges described in Notes 1 and 17. (2) The fourth quarter of 2005 includes $9.9 million or $1.19 per share for the effect of the asbestos-related charges described in Notes 1 and 17. (3) The fourth quarter of 2004 includes $5.0 million or $0.61 per share for the effect of the asbestos-related charges described in Notes 1 and 17. C-46 EXHIBIT D TO THE DISCLOSURE STATEMENT Unaudited Financial Statements of Congoleum Corporation for the Quarter Ended June 30, 2006 D-1 EXHIBIT D TO THE DISCLOSURE STATEMENT CONGOLEUM CORPORATION CONSOLIDATED BALANCE SHEEETS (In thousands, except per share amounts)
June 30, 2006 December 31, (Unaudited) 2005 ------------------------- ASSETS Current assets: Cash and cash equivalents ............................................................ $ 15,444 $ 24,511 Restricted cash ...................................................................... 11,967 11,644 Accounts receivable, less allowances of $1,388 and $1,142 as of June 30, 2006 and December 31, 2005, respectively ................................................ 24,235 17,092 Inventories .......................................................................... 39,481 34,607 Prepaid expenses and other current assets ............................................ 23,286 20,139 Deferred income taxes ................................................................ 16,735 16,735 --------- --------- Total current assets ............................................................. 131,148 124,728 Property, plant and equipment, net ................................................... 69,051 73,207 Other assets, net .................................................................... 9,954 9,412 --------- --------- Total assets .................................................................... $ 210,153 $ 207,347 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable ..................................................................... $ 10,748 $ 11,769 Accrued liabilities .................................................................. 22,507 23,072 Asbestos-related liabilities ......................................................... 23,439 28,369 Revolving credit loan ................................................................ 13,288 9,404 Accrued taxes ........................................................................ 233 107 Liabilities subject to compromise - current ............................................ 29,281 23,990 --------- --------- Total current liabilities ....................................................... 99,496 96,711 Deferred income taxes .................................................................. 16,735 16,735 Liabilities subject to compromise - long term .......................................... 137,935 138,861 --------- --------- Total liabilities ............................................................... 254,166 252,307 --------- --------- STOCKHOLDERS' EQUITY (DEFICIT) Class A common stock, par value $0.01; 20,000,000 shares authorized; 4,736,950 shares issued and 3,663,390 shares outstanding as of June 30, 2006 and 4,736,950 shares issued and 3,662,790 shares outstanding as of December 31, 2005, respectively........................................................................ 47 47 Class B common stock, par value $0.01; 4,608,945 shares authorized, issued and outstanding at June 30, 2006 and December 31, 2005, respectively ................... 46 46 Additional paid-in capital ............................................................. 49,236 49,126 Retained deficit ....................................................................... (64,568) (65,405) Accumulated other comprehensive loss ................................................... (20,961) (20,961) --------- --------- (36,200) (37,147) Less Class A common stock held in treasury, at cost; 1,073,960 shares at June 30, 2006 and 1,074,560 shares at December 31, 2005 respectively .............. 7,813 7,813 --------- --------- Total stockholders' equity (deficit) .............................................. (44,013) (44,960) --------- --------- Total liabilities and stockholders' equity (deficit) .............................. $ 210,153 $ 207,347 ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. D-2 EXHIBIT D TO THE DISCLOSURE STATEMENT CONGOLEUM CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------- ----------------------- 2006 2005 2006 2005 (In thousands, except per share amounts) Net sales ......................................... $ 58,743 $ 58,108 $ 115,980 $ 115,738 Cost of sales ..................................... 45,139 44,338 89,099 88,307 Selling, general and administrative expenses ...... 10,261 10,673 20,657 22,406 Asbestos-related reorganization charges ........... -- 15,454 -- 15,454 -------- -------- --------- --------- Income (loss) from operations ..................... 3,343 (12,357) 6,224 (10,429) Other income (expense): Interest income ............................... 126 84 283 182 Interest expense .............................. (2,867) (2,618) (5,601) (5,118) Other income .................................. 89 293 47 415 -------- -------- --------- --------- Income (loss) before taxes ........................ 691 (14,598) 953 (14,950) Provision for income taxes ........................ 65 -- 116 -- -------- -------- --------- --------- Net income (loss) ................................. $ 626 $(14,598) $ 837 $ (14,950) ======== ======== ========= ========= Net income (loss) per common share, basic .... $ 0.08 $ (1.77) $ 0.10 $ (1.81) ======== ======== ========= ========= Net income (loss) per common share, diluted .. $ 0.08 $ (1.77) $ 0.10 $ (1.81) ======== ======== ========= ========= Weighted average number of common shares outstanding, basic ......................... 8,272 8,260 8,272 8,260 ======== ======== ========= ========= Weighted average number of common shares outstanding, diluted ....................... 8,333 8,260 8,328 8,260 ======== ======== ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. D-3 EXHIBIT D TO THE DISCLOSURE STATEMENT CONGOLEUM CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ----------------------- 2006 2005 (In thousands) Cash flows from operating activities: Net income (loss) ...................................................... $ 837 $(14,950) Adjustments to reconcile net (loss) to net cash used in Operating activities: Depreciation ..................................................... 5,152 5,434 Amortization ..................................................... 193 192 Asbestos-related charge .......................................... -- 15,455 Stock-based compensation expense ................................. 110 -- Changes in certain assets and liabilities: Accounts and notes receivable .............................. (7,143) (3,202) Inventories ................................................ (4,874) (5,244) Prepaid expenses and other assets .......................... 1,888 1,400 Accounts payable ........................................... (1,021) 3,809 Accrued liabilities ........................................ 5,347 (1,024) Asbestos-related liabilities ............................... (11,321) (12,927) Asbestos-related expense reimbursements from insurance settlement ................................. -- 6,091 Other liabilities .......................................... (800) (518) --------- --------- Net cash used in operating activities ................ (11,632) (5,484) Cash flows from investing activities: Capital expenditures ............................................. (996) (2,155) --------- --------- Net cash used in investing activities ................ (996) (2,155) Cash flows from financing activities: Net short-term borrowings ........................................ 3,884 637 Net change in restricted cash .................................... (323) (1,311) --------- --------- Net cash provided by (used in) financing activities .. 3,561 (674) --------- --------- Net decrease in cash and cash equivalents ................................... (9,067) (8,313) Cash and cash equivalents: Beginning of period .............................................. 24,511 29,710 --------- --------- End of period .................................................... $ 15,444 $ 21,397 ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. D-4 EXHIBIT D TO THE DISCLOSURE STATEMENT CONGOLEUM CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2006 (Unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with 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 and recurring adjustments) considered necessary for a fair presentation of Congoleum Corporation's (the "Company" or "Congoleum") condensed consolidated financial position, results of operations and cash flows have been included. Operating results for the six month period ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. For further information, refer to the consolidated financial statements and related footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2005. Based upon the nature of the Company's operations, facilities and management structure, the Company considers its business to constitute a single segment for financial reporting purposes. Certain amounts appearing in the prior period's condensed consolidated financial statements have been reclassified to conform to the current period's presentation. 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 the Company be unable to continue as a going concern. As described more fully below and in Note 6, there is substantial doubt about the Company'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 United States Bankruptcy Code (the "Bankruptcy Code"). 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 as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago. On December 31, 2003, Congoleum filed a voluntary petition with the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court") (Case No. 03-51524) seeking relief under Chapter 11 of the Bankruptcy Code. In January 2004, the Company 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 "ACC"), the Future Claimants' Representative (the "FCR") 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 ACC and the FCR to make certain D-5 EXHIBIT D TO THE DISCLOSURE STATEMENT 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 March 2006, Congoleum filed a new amended plan of reorganization (the "Eighth Plan"). In addition, an insurance company has filed a plan of reorganization (the "CNA Plan") and the Official Committee of Bondholders (the "Bondholders' Committee") (representing holders of the Company's 8 5/8% Senior Notes due August 1, 2008 (the "Senior Notes")) has also filed a plan of reorganization (the "Bondholder Plan"). In May 2006, the presiding judge of the Bankruptcy Court ordered all parties in interest in Congoleum's reorganization proceedings to participate in global mediation discussions. Several mediation sessions took place during June and July 2006. During the mediation negotiations, Congoleum reached an agreement in principle, subject to mutually agreeable definitive documentation, with the ACC, the FCR and the Company's controlling shareholder, American Biltrite, Inc. ("ABI"), on certain terms of a new amended plan (the "Ninth Plan"), which Congoleum filed and proposed jointly with the ACC on August 11, 2006. The proponents of the CNA Plan and the Bondholder Plan have indicated they will jointly file a new plan by August 18, 2006. The Bankruptcy Court has scheduled a hearing to consider the adequacy of the disclosure statements with respect to these plans for September 21, 2006. There can be no assurance that the Company will not amend the Ninth Plan, that the Company will obtain approval to solicit acceptances of its plan of reorganization, that the Company 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, that its plan, if confirmed, will become effective, or that there will be sufficient funds to pay for continued protracted litigation over its plan of reorganization. It is unclear whether the Bankruptcy Court will approve any new plan filed by CNA and the Bondholders' Committee or whether any such plan, 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 Ninth Plan. Certain other parties, including the Bondholders' Committee, have also filed various objections to Congoleum's previously proposed plans of reorganization and may file objections to the Ninth Plan. While Congoleum is seeking to obtain the required acceptances D-6 EXHIBIT D TO THE DISCLOSURE STATEMENT of the Ninth Plan from all necessary classes of creditors, the Ninth Plan provides an alternative treatment for holders of the Senior Notes and stockholders, in the event sufficient note holders do not consent to the plan, which will materially affect the recoveries of these classes. In the event that the holders of the Senior Notes do not vote to accept the Ninth Plan by the requisite number and amount required by the Bankruptcy Code, then Plan confirmation shall be sought in accordance with the cram down provisions of the Bankruptcy Code (the "Cramdown Treatment"). Pursuant to the Cramdown Treatment, the Senior Notes and existing Class A and Class B Common Stock would be cancelled and the Senior Note holders would receive their pro rata share, with the Plan Trust, of newly issued Common Stock of Congoleum, in an amount determined by a Final Order of the Bankruptcy Court; provided, however, that in no event may the amount of such newly issued Common Stock to be allocated to the holders of the Senior Notes exceed 49% of the voting common shares and total economic equity value of Congoleum on a fully diluted basis. The Company expects that the terms of the Ninth Plan may be amended or modified as a result of further negotiations with various parties. The Company expects that the terms of any new plan filed by CNA and the Bondholders' Committee will be materially different from the terms of the Ninth Plan, and any such plan 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 Ninth Plan. The Company expects that it will take until some time in the first quarter of 2007 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, which motion was denied in June 2006 and the Avoidance Actions remain pending. Under the terms of the Ninth 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 Ninth 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 paid in accordance with the terms of the Ninth Plan. Settlement values under the Ninth Plan differ from values under previous plans and the Claimant Agreement. As a result of such differences and the potential results of the Avoidance Actions, the liability associated with the asbestos personal injury claims against Congoleum may be materially different than the present estimates of such items. As a result of tabulating ballots on the Fourth Plan, the Company 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. D-7 EXHIBIT D TO THE DISCLOSURE STATEMENT Based on the Eighth Plan, the Company 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. The Company 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 Ninth Plan. Actual amounts that will be contributed to the Plan Trust and costs for pursuing and implementing the Ninth Plan or any other plan of reorganization could be materially higher than currently recorded. The Company may record significant additional charges should the minimum estimated cost increase. Delays in proposing, filing or obtaining approval of the Ninth Plan or any new amended plan of reorganization, or any new plan to be filed by CNA and the Bondholders' Committee, or the proposal of additional plans by other parties could result in a proceeding that takes longer and is more costly than the Company has estimated. For more information regarding the Company's asbestos liability and plan for resolving that liability, please refer to Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements. AICPA 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. The Company implemented this guidance in consolidated financial statements for periods after December 31, 2003. Pursuant to SOP 90-7, companies 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. Substantially all of the Company's liabilities at December 31, 2003 have been reclassified as liabilities subject to compromise. Obligations arising post-petition, and pre-petition obligations that are secured, are not classified as liabilities subject to compromise. Additional pre-petition claims (liabilities subject to compromise) may arise due to the rejection of executory contracts or unexpired leases, or as a result of the allowance of contingent or disputed claims. 2. Recent Accounting Principles: Share Based Payment On December 16, 2004, the Financial Accounting Standards Board ("FASB") issued Statement No. 123 (revised 2004), Share-Based Payment ("SFAS 123R"), a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123R supersedes Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. However, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values at the date of grant. Pro forma disclosure is no longer permitted. D-8 EXHIBIT D TO THE DISCLOSURE STATEMENT Effective January 1, 2006, the Company adopted SFAS 123R using the modified prospective method as permitted under SFAS 123R. Under this transition method, compensation cost recognized in the first six months of fiscal 2006 includes: (a) compensation cost for all share-based payments granted prior to but not yet vested as of December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with the modified prospective method of adoption, the Company's results of operations and financial position for prior periods have not been restated. Prior to the adoption of SFAS 123R, the Company accounted for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" (the intrinsic value method) and, accordingly, recognized no compensation expense for stock option grants if the intrinsic value of a grant was zero or less. As a result of adopting SFAS 123R effective January 1, 2006, our income before taxes, net income and basic and diluted earnings per share for the six months ended June 30, 2006 were $110 thousand, $96 thousand, $0.01 per share and $0.01 per share lower, respectively, than if we had continued to account for stock-based compensation under APB Opinion No. 25 for our stock option grants. The following table details the effect on net income and earnings per share had stock-based compensation expense been recorded for the first six months of fiscal year 2005 based on the fair-value method under SFAS 123. For the Six Months Ended June 30, 2005 ----------- Net income (loss): As reported ................................................ $ (14,950) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects .............................................. 114 Pro forma .................................................. $ (15,064) ========== Net income (loss) per share: As reported basic and diluted .............................. $ (1.81) Pro forma compensation expense ............................. (0.01) ---------- Pro forma basic and diluted ...................................... $ (1.82) ========== 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 D-9 EXHIBIT D TO THE DISCLOSURE STATEMENT 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. During the six months ended June 2006 and 2005, the Company did not grant any stock-based awards. Stock compensation expense recognized in the six months of 2006 represents the vesting of options previously granted. The fair values of these options were estimated on the dates of grant using the Black-Scholes model and assumptions determined on the grant dates. At June 30, 2006, there was $0.2 million of unrecognized compensation expense related to share-based payments, which is expected to be recognized over a weighted-average period of 1.3 years. The Company currently grants stock options under the Company's 1995 Stock Option Plan (the "1995 Plan") and its 1999 Stock Option Plan for Non-Employee Directors (the "1999 Plan"). Under the 1995 Plan, options to purchase up to 800,000 shares of the Company's Class A common stock may be issued to officers and key employees. Such options may be either incentive stock options or nonqualified stock options, and the options' exercise price must be at least equal to the fair value of the Company's Class A common stock on the date of grant. All options granted under the 1995 Plan have ten-year terms and vest over five years at the rate of 20% per year beginning on the first anniversary of the date of grant Under the 1999 Plan, non-employee directors may be granted options to purchase up to 50,000 shares of the Company's Class A common stock. Options granted under the 1999 Plan have ten-year terms and vest six months from the grant date. The following table presents stock option activity for the six months ended June 30, 2006: Weighted- Weighted- Average Average Remaining Stock Exercise Contractual Options Price Term -------------- ------------- ------------ 1995 Plan: Outstanding at December 31, 2005 672,000 $2.03 6.65 years Forfeited/Cancelled (9,900) $1.98 6.60 years Exercised 600 $0.36 ------------- Outstanding at June 30, 2006 661,500 $2.03 6.15 years ============= Exercisable at June 30, 2006 398,400 $2.02 6.15 years D-10 EXHIBIT D TO THE DISCLOSURE STATEMENT Weighted- Weighted- Average Average Remaining Stock Exercise Contractual Options Price Term ------------- -------------- ------------- 1999 Plan: Outstanding at December 31, 2005 21,500 $2.40 7.54 years Forfeited/Cancelled -- Exercised -- ------------- Outstanding at June 30, 2006 21,500 $2.40 7.04 years ============= Exercisable at June 30, 2006 21,500 $2.40 7.04 years Shares available for future share-based grants to employees and directors under existing plans were 152,800 at June 30, 2006. At June 30, 2006, the aggregate intrinsic value of options on outstanding shares was $46,854, and the aggregate intrinsic value of options exercisable was $29,183. The total intrinsic value of options vested during the six months ended June 30, 2006 was $(3,235). The following table summarizes our non-vested stock option activity for the six months ended June 30, 2006: Weighted-Average Number of Grant-Date Shares Fair Value -------------- ------------------ 1995 Plan: Non-vested stock options at January 1, 2006 288,400 $1.63 Granted -- Forfeited (3,400) $1.85 Vested (21,900) $1.84 -------------- Non-vested stock options at June 30, 2006 263,100 $2.04 ============== Weighted-Average Number of Grant-Date Shares Fair Value -------------- ------------------ 1999 Plan: Non-vested stock options at January 1, 2006 4,500 $4.14 Granted -- Forfeited -- Vested (4,500) $4.14 -------------- Non-vested stock options at June 30, 2006 -- -- ============== D-11 EXHIBIT D TO THE DISCLOSURE STATEMENT 3. Inventories A summary of the major components of inventories is as follows (in thousands): June 30, December 31, 2006 2005 --------------------------------------------- Finished goods $31,417 $25,548 Work-in-process 2,538 1,497 Raw materials and supplies 5,526 7,562 ----- ----- Total inventories $39,481 $34,607 ======= ======= 4. Income (Loss) Per Share Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the period, unless their effect is anti-dilutive. 5. Environmental and Other Liabilities The Company records a liability for environmental remediation claims when a cleanup program or claim payment becomes probable and the costs can be reasonably estimated. As assessments and cleanup programs progress, these liabilities are adjusted based upon the progress in determining the timing and extent of remedial actions and the related costs and damages. The recorded liabilities, totaling $4.5 million at June 30, 2006 and $4.3 million at December 31, 2005, respectively, are not reduced by the amount of insurance recoveries. Such estimated insurance recoveries approximated $2.1 million at June 30, 2006 and $1.9 million at December 31, 2005, respectively, and are reflected in other non-current assets. 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. The Company is named, together with a large number (in most cases, hundreds) of other companies, as a potentially responsible party ("PRP") in pending proceedings under the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), and similar state laws. In addition, in four other instances, although not named as a PRP, the Company has received a request for information. The pending proceedings 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. The Company's ultimate liability and funding obligations in connection with those sites depends on many factors, including the volume of material contributed to the site, the number of other PRPs and their financial viability, the remediation methods and technology to be used and the extent to which costs may be recoverable from insurance. However, under CERCLA and certain other laws, the Company, as a PRP, can be held jointly and severally liable for all environmental costs associated with a site. D-12 EXHIBIT D TO THE DISCLOSURE STATEMENT The most significant exposure for which the Company has been named a PRP relates to a recycling facility site in Elkton, Maryland (the "Galaxy/Spectron Superfund Site"). 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 Environmental Protection Agency ("EPA") has selected a remedy for the soil and shallow groundwater ("Operable Unit 1" or OU-1); however, the remedial investigation/feasibility study related to the deep groundwater (OU-2) has not been completed. The PRP group, of which the Company is a part, has entered into a Consent Decree to perform the remedy for OU-1 and resolve natural resource damage claims. The Consent Decree also requires the PRPs to perform the OU-2 remedy, assuming that the estimated cost of the remedy is not more than $10 million. If the estimated cost of the OU-2 remedy is more than $10 million, the PRPs may decline to perform it or they may elect to perform anyway. Cost estimates for the OU-1 and OU-2 work combined (including natural resource damages) range between $22 million and $34 million, with the Company's share ranging between approximately $1.0 million and $1.6 million. This assumes that all parties participate and that none cash-out and pay a premium; those two factors may account for some fluctuation in the Company's share. Fifty percent (50%) of Congoleum's share of the costs is presently being paid by one of its insurance carriers, Liberty Mutual Insurance Company, whose remaining policy limits for this claim will cover approximately $0.3 million in additional costs. Congoleum expects to fund the balance to the extent further insurance coverage is not available. The Company filed a motion before the Bankruptcy Court seeking authorization and approval of the Consent Decree and related settlement agreements for the Galaxy/Spectron Superfund Site, as well authorization for Liberty Mutual Insurance Company and the Company to make certain payments that have been invoiced to the Company with respect to the Consent Decree and related settlement agreements. A hearing on the motion is scheduled for August 21, 2006. The Company also accrues remediation costs for certain of the Company's owned facilities on an undiscounted basis. The Company 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 cleanup 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, $0.3 million is included in current liabilities subject to compromise and $1.3 million is included in non-current liabilities subject to compromise. The Company anticipates that these matters will be resolved over a period of years and that after application of expected insurance recoveries, funding the costs will not have a material adverse impact on the Company'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 financial position of the Company. D-13 EXHIBIT D TO THE DISCLOSURE STATEMENT 6. Asbestos Liabilities Claims Settlement and Chapter 11 Reorganization In early 2003, the Company 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, the Company entered into the Claimant Agreement, a settlement agreement with various asbestos personal injury claimants. As contemplated by the Claimant Agreement, the Company 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 the Company's rights under its applicable insurance coverage and payments from the Company'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 the Company and participating claimants who qualified for payment under unfunded settlement agreements entered into by the Company with plaintiffs that had asbestos claims pending against the Company and which claims were scheduled for trial after the effective date of the Claimant Agreement but prior to the commencement of the Company'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, the Company 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, which motion was denied in June 2006. Settlement values under the Ninth Plan differ from values under previous plans and the Claimant Agreement. As a result of such differences and the potential results of the Avoidance Actions, the liability associated with the asbestos personal injury claims against Congoleum may be materially different than the present estimates of such items. In October 2003, the Company began soliciting acceptances for its proposed pre-packaged plan of reorganization and the Company 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, the Company filed its proposed plan of reorganization and disclosure statement with the Bankruptcy Court. D-14 EXHIBIT D TO THE DISCLOSURE STATEMENT In November 2004, Congoleum filed the Fourth Plan with the Bankruptcy Court reflecting the result of further negotiations with representatives of the ACC, the FCR 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 ACC and the FCR 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 March 2006, Congoleum filed the Eighth Plan. In addition, an insurance company has filed the CNA Plan and the Bondholders' Committee has filed the Bondholder Plan. In May 2006, the presiding judge of the Bankruptcy Court ordered all parties in interest in Congoleum's reorganization proceedings to participate in global mediation discussions. Several mediation sessions took place during June and July 2006. During the mediation negotiations, Congoleum reached an agreement in principle, subject to mutually agreeable definitive documentation, with the ACC, the FCR and ABI on certain terms of the Ninth Plan, which Congoleum filed and proposed jointly with the ACC on August 11, 2006. The proponents of the CNA Plan and the Bondholder Plan have indicated they will jointly file a new plan by August 18, 2006. The Bankruptcy Court has scheduled a hearing to consider the adequacy of the disclosure statements with respect to these plans for September 21, 2006. Under the terms of the Ninth 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 Ninth 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 Ninth Plan. There can be no assurance that the Company will not amend the Ninth Plan, that the Company will obtain approval to solicit acceptances of its plan of reorganization, that the Company 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, that its plan, if confirmed, will D-15 EXHIBIT D TO THE DISCLOSURE STATEMENT become effective, or that there will be sufficient funds to pay for continued protracted litigation over its plan of reorganization. It is unclear whether the Bankruptcy Court will approve any new plan filed by CNA and the Bondholders' Committee or whether any such plan, 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 Ninth Plan. Certain other parties, including the Bondholders' Committee, have also filed various objections to Congoleum's previously proposed plans of reorganization and may file objections to the Ninth Plan. While Congoleum is seeking to obtain the required acceptances of the Ninth Plan from all necessary classes of creditors, the Ninth Plan provides an alternative treatment for holders of the Senior Notes and stockholders, in the event sufficient note holders do not consent to the plan, which will materially affect the recoveries of these classes. In the event that the holders of the Senior Notes do not vote to accept the Ninth Plan by the requisite number and amount required by the Bankruptcy Code, then Plan confirmation shall be sought in accordance with the Cramdown Treatment. Pursuant to the Cramdown Treatment, the Senior Notes and existing Class A and Class B Common Stock would be cancelled and the Senior Note holders would receive their pro rata share, with the Plan Trust, of newly issued Common Stock of Congoleum, in an amount determined by a Final Order of the Bankruptcy Court; provided, however, that in no event may the amount of such newly issued Common Stock to be allocated to the holders of the Senior Notes exceed 49% of the voting common shares and total economic equity value of Congoleum on a fully diluted basis. During 2005 and 2006 the Company 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, the Company 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, the Company 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 FCR 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 D-16 EXHIBIT D TO THE DISCLOSURE STATEMENT 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. An insurer and the FCR 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 in 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 Ninth 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. The Company expects that it will take until some time in the first quarter of 2007 at the earliest to obtain confirmation of the Ninth Plan. Under previous plans, Congoleum's assignment of insurance recoveries to the Plan Trust was net of costs incurred by Congoleum in connection with insurance coverage litigation, and Congoleum was entitled to withhold from recoveries, or seek reimbursement from the Plan Trust, for coverage litigation costs incurred after January 1, 2003 and for $1.3 million in claims processing fees paid in connection with claims settled under the Claimant Agreement. A receivable was recorded for these costs as they were paid. Under the Ninth Plan, Congoleum would be entitled to reimbursement of only approximately $3.7 million in cash for such coverage litigation costs and to reimbursement of the $1.3 million in claims processing costs and would not collect the balance of these receivables ($16.8 million at June 30, 2006). The write-off and any applicable forgiveness of indebtedness income pursuant to the Ninth Plan are expected to be recorded at a future date, the net effect of which cannot be determined. The Ninth 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 the Company 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 the Company's bankruptcy proceeding advised the Company 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. The Company objected to certain claims on various grounds, and the Bankruptcy Court ultimately allowed 19 claims valued at $133 thousand. The Ninth Plan will provide for payment of those claims in full from certain insurance proceeds. D-17 EXHIBIT D TO THE DISCLOSURE STATEMENT Under the terms of the Ninth Plan, on the effective date of the Ninth Plan (the "Effective Date"), the Plan Trust will provide a loan to Congoleum, which loan is intended, when combined with cash on hand and available drawings under the revolving credit facility, to provide Congoleum with $18 million of total liquidity, on a pro forma basis as of December 31, 2006 (the "Plan Trust Note"). If the Effective Date occurs after December 31, 2006, the total liquidity required by Congoleum, and thus the amount of the Plan Trust Note, will be as mutually agreed among the ACC, the FCR and Congoleum. The proceeds of the Plan Trust Note will only be used for working capital and general corporate purposes. The Plan Trust Note will be due and payable on December 31, 2011, shall bear interest at 10% per annum payable semi-annually until the maturity date, and will contain appropriate covenants, warranties, and representations as agreed among Congoleum, the ACC, the FCR and the Claimants' Representative. The principal amount of the Plan Trust Note, which is subject to review and approval by the FCR and the ACC, may not exceed $14 million unless both the FCR and ACC agree. There can be no assurance either or both would agree to any such request from Congoleum, or that Congoleum would obtain any other consents that might be necessary to increase the amount of the Plan Trust Note. On the Effective Date, if the holders of the Senior Note Claims (as a class) vote to accept the Ninth Plan, Congoleum will issue and contribute a convertible promissory note (the "New Convertible Security") to the Plan Trust in satisfaction of section 524(g) of the Bankruptcy Code. The New Convertible Security will have the following terms: (i) an initial aggregate principal amount of $2,738,234.75, such principal amount being subject to increase in the amount, if any, by which 36% of Congoleum's market capitalization based on average trading prices for 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, exceeds such initial principal amount; (ii) an initial interest rate equal to 9% of the principal amount per annum, payable semi-annually in arrears, with such interest rate to reset at the rate of 5% of the principal amount per annum on the tenth anniversary of the Effective Date and payable at such reset interest rate per annum until maturity; (iii) redeemable for the principal amount at the option of the Plan Trust or Congoleum on or anytime after the tenth anniversary of the Effective Date; (iv) a maturity date on the fifteenth anniversary of the Effective Date if not redeemed or otherwise paid earlier; (v) convertible into 5,700,000 shares of Class A Common Stock (on a fully diluted basis with all Class B Common Stock converted to Class A Common Stock) upon a specified default of the obligation to pay interest and a failure to cure such default within any cure period, which, when combined with the New Class A Common Stock, will result in the Plan Trust owning 51% of the voting common shares and 51% of the total economic equity value of Congoleum on a fully diluted basis; and (vi) no voting rights except upon conversion. The principal adjustment feature could result in the principal amount of the New Convertible Security increasing materially. Under the terms of the Ninth Plan, if holders of the Senior Notes vote to accept the Plan by the requisite number and amount required by the Bankruptcy Code, the Senior Notes would be cancelled and Congoleum would issue new notes (the "New Senior Notes") in the aggregate principal amount of $100 million which shall be payable semi-annually at the rate of 10% per annum until a maturity date of August 1, 2011; provided, however, that Reorganized Congoleum shall receive a credit against all interest payable under the New Senior Notes for all fees and expenses of the Bondholders' Committee incurred and paid after the date that the Plan is filed with the Bankruptcy Court. The New Senior Notes will be subordinate in priority and payment to the New Convertible Security and the Plan Trust Note. D-18 EXHIBIT D TO THE DISCLOSURE STATEMENT While Congoleum is seeking to obtain the required acceptances of the Ninth Plan from all necessary classes of creditors, the Ninth Plan provides an alternative treatment for holders of the Senior Notes and stockholders in the event sufficient note holders do not consent to the Ninth Plan. This alternative treatment will materially affect the recoveries of these classes. In the event that the holders of the Senior Notes do not vote to accept the Ninth Plan by the requisite number and amount required by the Bankruptcy Code, then Plan confirmation will be sought in accordance with the Cramdown Treatment. Pursuant to the Cramdown Treatment, the Senior Notes and existing Class A and Class B Common Stock would be cancelled and the Senior Note holders would receive their pro rata share of newly issued Common Stock with the Plan Trust, as determined by a Final Order of the Bankruptcy Court; provided, however, that in no event may the amount of such newly issued Common Stock to be allocated to the holders of the Senior Notes exceed 49% of the voting common shares and total economic equity value of Congoleum on a fully diluted basis. As part of the Ninth Plan, Congoleum agreed to indemnify representatives of holders of pre-petition secured asbestos claims (the "Claimants' Representative") and the trustee of the Collateral Trust in connection with arranging and supporting the Ninth Plan and for effecting the forbearance of claimants from exercising any lien rights under the Claimant Agreement and related documents, for claims and costs, including attorneys' fees, up to a maximum of $3 million. Under the Ninth 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 and to forego certain indemnification rights it has from Congoleum for asbestos claims. Under the Ninth 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 the Company, which claims are expected to be channeled to the Plan Trust. However, the Ninth 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 $13.9 million at a minimum, not including any Market Reset Obligation arising from revaluation of the New Convertible Security or the principal amount of the Plan Trust Note, and could be materially higher. Based on the Eighth Plan, the Company 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. The Company 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 Ninth Plan. The Company is not yet able to determine the additional costs that may be required to effect the Ninth 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 Ninth Plan or any new amended plan of reorganization, or the any new plan to be filed by CNA and the Bondholders' Committee 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 the Company has estimated. The Company may record significant additional charges should the minimum estimated cost increase. D-19 EXHIBIT D TO THE DISCLOSURE STATEMENT Pending Asbestos Claims In 2003, the Company was one of many defendants in approximately 22 thousand pending lawsuits (including workers' compensation cases) involving approximately 106 thousand individuals, alleging personal injury or death from exposure to asbestos or asbestos-containing products. Claims involving approximately 80 thousand individuals have been settled pursuant to the Claimant Agreement and litigation related to unsettled or new claims is presently stayed by the Bankruptcy Code. The Company expects unsettled and future claims to be handled in accordance with the terms of a plan of reorganization and the Plan Trust. In December 2005, the Company commenced the Avoidance Actions seeking to void the security interest granted to the Collateral Trust and such settlements. Nearly all asbestos-related claims that have been brought against the Company to date allege that various diseases were caused by exposure to asbestos-containing products, including resilient sheet vinyl and tile manufactured by the Company (or, in the workers' compensation cases, exposure to asbestos in the course of employment with the Company). The Company discontinued the manufacture of asbestos-containing sheet products in 1983 and asbestos-containing tile products in 1974. In general, governmental authorities have determined that asbestos-containing sheet and tile products are non-friable (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 non-friable. The Company has issued warnings not to remove asbestos-containing flooring by sanding or other methods that may cause the product to become friable. Status of Insurance Coverage During the period that Congoleum produced asbestos-containing products, the Company purchased primary and excess insurance policies providing in excess of $1 billion of coverage for general and product liability claims. Through August 2002, substantially all asbestos-related claims and defense costs were paid through primary insurance coverage. In August 2002, the Company received notice that its primary insurance limits had been paid in full. The payment of limits in full by one of the primary insurance companies was based on its contention that limits in successive policies were not cumulative for asbestos claims and that Congoleum was limited to only one policy limit for multiple years of coverage. Certain excess insurance carriers claimed that the non-cumulation provisions of the primary policies were not binding on them and that there remained an additional $13 million in primary insurance limits plus related defense costs before their policies were implicated. There is insurance coverage litigation currently pending between Congoleum and its excess insurance carriers, and the guaranty funds and associations for the State of New Jersey. The litigation was initiated in September 2001, by one of Congoleum's excess insurers (the "Coverage Action"). In April 2003, the New Jersey Supreme Court ruled in another case involving the same non-cumulation provisions as in the Congoleum primary policies (the "Spaulding Case") that the non-cumulation provisions are invalid under New Jersey law and that the primary policies provide coverage for the full amount of their annual limits for all successive policies. Congoleum has reached a settlement agreement (the "Insurance D-20 EXHIBIT D TO THE DISCLOSURE STATEMENT Settlement") with the insurance carrier whose policies contained the non-cumulation provisions, pursuant to which the insurance carrier will pay Congoleum $15.4 million in full satisfaction of the applicable policy limits, of which $14.5 million has been paid to date. Pursuant to the terms of the Security Agreement, the Company is obligated to pay any insurance proceeds it receives under the Insurance Settlement, net of any fees and expenses it may be entitled to deduct, to the Collateral Trust. Payment of such fees and expenses are subject to Bankruptcy Court order or approval. The Company does not expect the Insurance Settlement to have a material effect on its financial condition or results of operations. As of December 31, 2002, the Company had entered into additional settlement agreements with asbestos claimants exceeding the amount of previously disputed coverage. The excess carriers have objected to the reasonableness of several of these settlements, and Congoleum believes that they will continue to dispute the reasonableness of the settlements and contend that their policies still are not implicated and will dispute their coverage for that and other various reasons in ongoing coverage litigation. The excess insurance carriers have also raised various objections to the Company's previously proposed plans of reorganization and may raise objections to any new amended plan that is proposed. The excess insurance carriers have objected to the global settlement of the asbestos claims currently pending against Congoleum as contemplated by the Claimant Agreement on the grounds that, among other things, the negotiations leading to the settlement and the Claimant Agreement violate provisions in their insurance policies, including but not limited to the carriers' right to associate in the defense of the asbestos cases, the duty of Congoleum to cooperate with the carriers and the right of the carriers to consent to any settlement. The excess insurance carriers also contend the Claimant Agreement is not fair, reasonable or in good faith. Additionally, certain insurers have argued that Congoleum's entering into the Claimant Agreement voids the insurance for the underlying claims in their entirety. Certain insurers also have claimed that the Claimant Agreement voids their entire policy obligations. Congoleum has disputed the allegations and contentions of the excess insurance carriers. In November 2003, the Court denied a motion for summary judgment by the excess insurance carriers that the Claimant Agreement was not fair, reasonable or in good faith, ruling that material facts concerning these issues were in dispute. In April 2004, the Court denied motions for summary judgment by the excess carriers that the Claimant Agreement was not binding on them because Congoleum had breached the consent and cooperation clauses of their insurance policies by, among other things, entering into the Claimant Agreement without their consent. Congoleum has argued, among other things, that it was entitled to enter into the Claimant Agreement and/or the Claimant Agreement was binding on the excess insurance carriers because they were in breach of their policies and/or had denied coverage and/or had created a conflict with Congoleum by reserving rights to deny coverage and/or the Claimant Agreement was fair, reasonable and in good faith and/or there was and is no prejudice to the excess insurance carriers from the Claimant Agreement and/or the excess insurance carriers had breached their duties of good faith and fair dealing. In August 2004, the Court entered a case management order that divided the trial into three phases. A new judge was assigned to the case in February 2005 and the schedule was modified as a result. In February 2005, the Court ruled on a series of summary judgment motions filed by various insurers. The Court denied a motion for summary judgment filed by certain insurers, holding that there were disputed issues of fact regarding whether the Claimant Agreement and other settlement agreements between Congoleum and the claimants had released Congoleum and the insurers from any liability for the asbestos bodily injury claims of the claimants who signed the Claimant Agreement and the other settlement agreements. D-21 EXHIBIT D TO THE DISCLOSURE STATEMENT The Court also denied another motion for summary judgment filed by various insurers who argued that they did not have to cover the liability arising from the Claimant Agreement because they had not consented to it. The Court granted summary judgment regarding Congoleum's bad faith claims against excess insurers (other than first-layer excess insurers), holding that the refusal of these excess insurers to cover the Claimant Agreement was at least fairly debatable and therefore not in bad faith. The first phase of the trial began in August 2005 and is addressing all issues and claims relating to whether the insurers are obligated to provide coverage under the policies at issue in this litigation for the global Claimant Agreement entered into by Congoleum, including but not limited to all issues and claims relating to both Congoleum's decision and conduct in entering into the Claimant Agreement and filing a pre-packaged bankruptcy and the insurance company defendants' decisions and conduct in opposing the Claimant Agreement and Congoleum's pre-packaged bankruptcy, the reasonableness and good faith of the Claimant Agreement, whether the Claimant Agreement breached any insurance policies and, if so, whether the insurance companies suffered any prejudice, and whether the insurance companies' opposition to the Claimant Agreement and bankruptcy and various other conduct by the insurers has breached their duties of good faith and fair dealing such that they are precluded from asserting that Congoleum's decision to enter into the Claimant Agreement constitutes any breach(es) on the part of Congoleum. The Company believes, however, that even if the insurers were to succeed in the first phase of the Coverage Action, such result would not deprive individual claimants of the right to seek payment from the insurers who issued the affected insurance policies. Additionally, Congoleum could negotiate settlements with some or all of the signatories to the Claimant Agreement and seek payment from its insurers for such settlements. Such result would not preclude the Company from attempting to amend the Claimant Agreement and thereafter seek recovery under the Claimant Agreement as amended; moreover, the Company does not believe that it would be deprived of coverage-in-place insurance for future obligations of or demands upon the insurers under the applicable insurance policies. However, there can be no assurances of the outcome of these matters or their potential effect on the Company's ability to obtain approval of its plan of reorganization. The second phase of the trial will address all coverage issues, including but not limited to trigger and allocation. The final phase of the trial will address bad faith punitive damages, if appropriate. In March 2005, the Company filed a motion in the Bankruptcy Court asking the Bankruptcy Court to vacate its prior order lifting the automatic stay in bankruptcy to permit the Coverage Action to proceed. The Company requested that the Coverage Action proceedings be stayed until the Company has completed its plan confirmation process in the Bankruptcy Court. A hearing on the Company's motion was held in April 2005 and the motion was denied. D-22 EXHIBIT D TO THE DISCLOSURE STATEMENT In October 2005, a federal appeals court ruled that the law firm of Gilbert Heintz & Randolph ("GHR"), which had been acting as the Company's insurance co-counsel in the Coverage Action, had other representations which were in conflict with its representation of Congoleum. As a result of this ruling, with Bankruptcy Court approval, Congoleum retained the firm of Covington & Burling to represent it as co-counsel with Dughi & Hewit in the insurance coverage litigation and insurance settlement matters previously handled by GHR. In or about mid-November 2005, and in early December 2005, certain insurers filed motions for summary judgment on the grounds, inter alia, that the decision of the United States Court of Appeals for the Third Circuit reversing the Bankruptcy Court's order approving the retention of the Gilbert Heinz & Randolph firm in In re Congoleum, 426 F.3d 675 (3d Cir. 2005), and/or Congoleum's filing of the Avoidance Actions in the Bankruptcy Court, entitled them to judgment as a matter of law on the Phase I issues. Congoleum opposed the motions. The motions were argued in January 2006, and in March 2006 the Court denied the motions for summary judgment. Congoleum completed the presentation of its case in April 2006. Certain insurers moved for a directed verdict in their favor during the first week of May 2006. Hearings of arguments on the directed verdict motion took place in June 2006. In July 2006 the Court denied the motion for a directed verdict. The trial is scheduled to resume in September 2006. Some insurers contend that, if there is a ruling adverse to Congoleum in the Coverage Litigation, then the insurers will not owe coverage for claims resolved under the Claimant Agreement and/or under other pre-petition settlements. Insurers further contend that such result would also deprive individual claimants who were parties to the Claimant Agreement and other pre-petition settlements of the right to seek payment from the insurers under their insurance policies or from negotiating settlements with some or all of the insurers. Insurers also contend that such result would preclude Congoleum and claimants from agreeing to forbear under or amending the Claimant Agreement and other pre-petition settlements and would preclude claimants from seeking recovery under other claims payment standards, including bankruptcy Trust Distribution Procedures (TDPs), or under any amended agreements. Congoleum intends to contest any attempt by the insurers to enlarge or expand upon a Phase 1 ruling that is adverse to Congoleum. However, there can be no assurances of the outcome of these matters. The Phase 2 trial will address all remaining coverage issues, including but not limited to trigger and allocation. Discovery is permitted on all issues, except for punitive damages. Pre-trial motions and trial dates for the Phase 2 and Phase 3 trials and discovery for the Phase 3 trial will be addressed by the Court after the Phase 1 trial decision. Given the actions of its excess insurance carriers, the Company believes it likely that it would currently have to fund any asbestos-related expenses for defense expense and indemnity itself. However, litigation by asbestos claimants against the Company is stayed pursuant to the Company's bankruptcy proceedings, and based on the anticipated channeling injunction in the Ninth Plan, the Company does not anticipate its future expenditures for defense and indemnity of asbestos-related claims, other than expenditures pursuant to a plan of reorganization, will be significant. D-23 EXHIBIT D TO THE DISCLOSURE STATEMENT Accounting for Asbestos-Related Claims Under the terms of the Claimant Agreement, the Company's claims processing agent processed 79,630 claims meeting the requirements of the Claimant Agreement with a settlement value in excess of $466 million. In addition, Pre-Existing Settlement Agreements and Trial-Listed Settlement Agreements with claims secured by the Collateral Trust total approximately $25 million. As a result of tabulating ballots on its Fourth Plan, the Company 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. The Company's gross liability of in excess of $491 million for these settlements and contingent liability for the additional approximately $512 million in unsettled claims is substantially in excess of the total assets of the Company. The Company believes that it does not have the necessary financial resources to litigate and/or fund judgments and/or settlements of the asbestos claims in the ordinary course of business. Therefore, the Company believes the most meaningful measure of its probable loss due to asbestos litigation is the amount it will have to contribute to the Plan Trust plus the costs to effect its reorganization under Chapter 11. At June 30, 2006, the Company estimates it will spend a further $13.9 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 $9.5 million insurance settlement being held as restricted cash). It also expects to spend a further $7.9 million at a minimum in connection with insurance coverage litigation costs. Required expenditures could be materially higher than these estimates. The Company currently holds $3.7 million in restricted cash that may be available to offset costs incurred pursuing insurance coverage, subject to approval by the Bankruptcy Court. In February 2006, the Bankruptcy Court ordered GHR to disgorge all fees and certain expenses it was paid by Congoleum. GHR has appealed this ruling. The amount of the disgorgement is approximately $9.6 million. Pursuant to the terms of the Ninth Plan, the net proceeds of the GHR disgorgement would be used to reduce the obligations of Congoleum to the Plan Trust by first being applied to reduce or satisfy principal and accrued interest under the Plan Trust Note and thereafter to reduce or satisfy principal and accrued interest under the New Convertible Security. The Company 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. Additional charges may be required in the future should the minimum estimated cost increase. The maximum amount of the range of possible asbestos-related losses is limited to the going concern or liquidation value of the Company, an amount which the Company believes is substantially less than the minimum gross liability for the known claims against it. The Company has not attempted to make an estimate of its probable insurance recoveries for financial statement purposes given the accounting for its estimate of future asbestos-related costs. Substantially all future insurance recoveries will be assigned to the Collateral Trust or Plan Trust. D-24 EXHIBIT D TO THE DISCLOSURE STATEMENT Amounts Recorded in Financial Statements The table below provides an analysis of changes in the Company's asbestos reserves and related receivables from December 31, 2005 to June 30, 2006:
Reimbursement from Balance at Reserve Insurance Balance at (in thousands) 12/31/05 Spending Addition Settlement 6/30/06 ------------------------------------------------------------- Reserves Current $ 19,469 $ (5,576) $ -- $ -- $ 13,893 Long-Term -- -- -- -- Receivables Current (14,793) (5,745) -- -- (20,538) Long-Term -- -- -- -- -- -------- -------- -------- ----- -------- Net Asbestos Liability $ 4,676 $(11,321) $ -- $ -- $ (6,645) ======== ======== ======== ===== ======== Restricted Cash Insurance Proceeds $ 8,901 $ -- $ 646 $ -- $ 9,547 Reimbursement from Balance at Reserve Insurance Balance at (in thousands) 12/31/04 Spending Addition Settlement 6/30/05 ------------------------------------------------------------- Reserves Current $ 6,550 $ (5,832) $ 13,092 $ -- $ 13,810 Long-Term 2,738 -- -- 2,738 Receivables Current (1,509) (7,095) 2,362 6,091 (151) Long-Term (7,300) -- -- -- (7,300) -------- -------- -------- -------- -------- Net Asbestos Liability $ 479 $(12,927) $ 15,454 $ 6,091 $ 9,097 ======== ======== ======== ======== ======== Restricted Cash Insurance Proceeds $ 14,530 $ (6,091) $ 182 $ -- $ 8,621
7. Product Warranties The Company provides product warranties for specific product lines and accrues for estimated future warranty cost in the period in which the revenue is recognized. The following table sets forth activity in the Company's warranty reserves (in millions): D-25 EXHIBIT D TO THE DISCLOSURE STATEMENT Six Months Ended Six Months Ended June 30, June 30, 2006 2005 ---- ---- Beginning balance $ 2.1 $ 2.8 Accruals 2.1 1.7 Charges (2.1) (2.0) -------- -------- Ending balance $ 2.1 $ 2.5 ======== ======== 8. Liabilities Subject to Compromise As a result of the Company's Chapter 11 filing (see Notes 1 and 6), pursuant to SOP 90-7, the Company 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 the Company's pre-petition debt is recorded at face value and is classified within liabilities subject to compromise. In addition, the Company's accrued interest expense on its Senior Notes is also recorded in liabilities subject to compromise. Liabilities subject to compromise at June 30, 2006 and December 31, 2005 are as follows: (In thousands) June 30, December 31, 2006 2005 ---- ---- Current Pre-petition other payables and accrued interest $ 29,281 $ 23,990 Non-current Debt (at face value) 100,000 100,000 Pension liability 15,914 16,871 Other post-retirement benefit obligation 8,419 8,407 Pre-petition other liabilities 13,602 13,583 ------ ------ Non-current 137,935 138,861 -------- -------- Total liabilities subject to compromise $167,216 $162,851 ======== ======== Additional pre-petition claims (liabilities subject to compromise) may arise due to the rejection of executory contracts or unexpired leases, or as a result of the allowance of contingent or disputed claims. D-26 EXHIBIT D TO THE DISCLOSURE STATEMENT 9. Accrued Liabilities A summary of the significant components of accrued liabilities consists of the following: (In thousands) June 30, December 31, 2006 2005 ---- ---- Accrued warranty, marketing and sales promotion $16,577 $19,129 Employee compensation and related benefits 3,330 3,674 Other 2,600 269 ---------- --------- Total accrued liabilities $22,507 $23,072 ========== ========= As a result of the Company's Chapter 11 bankruptcy filing and in accordance with SOP 90-7, certain liabilities are included in liabilities subject to compromise on the balance sheet as of June 30, 2006 and December 31, 2006 (see Note 8). 10. Pensions and Other Postretirement Plans The Company sponsors several non-contributory defined benefit pension plans covering most of the Company's employees. Benefits under the plans are based on years of service and employee compensation. Amounts funded annually by the Company are actuarially determined using the projected unit credit and unit credit methods and are equal to or exceed the minimum required by government regulations. The Company also maintains health and life insurance programs for retirees (reflected in the table below in "Other Benefits"). The following summarizes the components of the net periodic benefit cost for the Pension and Other Benefit Plans for the three months ended June 30, 2006 and 2005:
(In thousands) Three Months Ended Three Months Ended June 30, 2006 June 30, 2005 ------------- ------------- Other Other Pension Benefits Pension Benefits ------- -------- ------- -------- Components of Net Periodic Benefit Cost: Service cost $ 361 $ 48 $ 355 $ 46 Interest cost 1,113 132 1,094 130 Expected return on plan assets (997) -- (881) -- Recognized net actuarial loss 365 16 385 15 Amortization of transition obligation -- -- (18) -- Amortization of prior service cost (54) 9 (72) (47) ------ ------ ------ ----- Net periodic benefit cost $ 788 $ 205 $ 863 $ 144 ====== ====== ====== =====
D-27 EXHIBIT D TO THE DISCLOSURE STATEMENT The weighted average assumptions used to determine net periodic benefit cost were as follows:
June 30, 2006 June 30, 2005 ------------- ------------- Other Other Pension Benefits Pension Benefits ------- -------- ------- -------- Discount rate 6.00% 6.00% 6.25% 6.25% Expected long-term return on plan assets 7.00% -- 7.00% -- Rate of compensation increase 4.00% -- 4.00% -- Income from operations 5.50% 5.50%
The following summarizes the components of the net periodic benefit cost for the Pension and Other Benefit Plans for the six months ended June 30, 2006 and 2005:
(In thousands) Six Months Ended Six Months Ended June 30, 2006 June 30, 2005 ------------- ------------- Other Other Pension Benefits Pension Benefits ------- -------- ------- -------- Components of Net Periodic Benefit Cost: Service cost $ 721 $ 96 $ 710 $ 92 Interest cost 2,226 264 2,188 260 Expected return on plan assets (1,994) -- (1,762) -- Recognized net actuarial loss 731 32 769 30 Amortization of transition obligation -- -- (36) -- Amortization of prior service cost (108) 18 (144) (94) ------- ------- ------- ------- Net periodic benefit cost $ 1,576 $ 410 $ 1,725 $ 288 ======= ======= ======= =======
The weighted average assumptions used to determine net periodic benefit cost were as follows:
June 30, 2006 June 30, 2005 ------------- ------------- Other Other Pension Benefits Pension Benefits ------- -------- ------- -------- Discount rate 6.00% 6.00% 6.25% 6.25% Expected long-term return on plan assets 7.00% -- 7.00% -- Rate of compensation increase 4.00% -- 4.00% -- Income from operations 5.50% 5.50%
D-28 EXHIBIT E TO DISCLOSURE STATEMENT SETTLEMENT AGREEMENT BETWEEN CONGOLEUM CORPORATION AND VARIOUS ASBESTOS CLAIMANTS This settlement agreement (the "Claimant Agreement") is entered into by, between and among Congoleum Corporation, its predecessors, successors, distributors and assigns (collectively, "Congoleum"), and the Participating Asbestos Claimants (as defined below), by and through representative plaintiffs' counsel, Perry Weitz, Esq. and Joseph F. Rice, Esq. ("Claimants' Counsel"). RECITALS WHEREAS, numerous individuals have asserted asbestos-related bodily injury claims against Congoleum (each an "Asbestos Claimant" and collectively, the "Asbestos Claimants"), each alleging exposure to an asbestos-containing product manufactured, sold, or distributed by Congoleum or for which Congoleum otherwise may have legal liability (the "Asbestos Claims"), and it is anticipated that additional asbestos-related bodily injury claims will continue to be asserted against Congoleum; and WHEREAS, Congoleum is unable to meet its liability with respect to the Asbestos Claims absent prompt payment from its insurers of their obligations under the Policies, (as defined in the Collateral Trust Agreement referenced to below); and WHEREAS, Congoleum believes that substantial insurance coverage is available under the Policies for asbestos-related bodily injury claims and Congoleum intends vigorously to pursue such insurance coverage; and WHEREAS, Congoleum, contemporaneously herewith, is executing an agreement, titled Collateral Trust Agreement, establishing a trust (the "Collateral Trust") for, among other lawful purposes not inconsistent with this Claimant Agreement, distributing certain proceeds of the Policies in accordance with the Collateral Trust Agreement and this Claimant Agreement; and EXHIBIT E TO DISCLOSURE STATEMENT WHEREAS, Congoleum, contemporaneously herewith, is executing an agreement titled Security Agreement ("Security Agreement"), granting to the Collateral Trust a present and continuing security interest in Congoleum's rights to receive payment under and in certain insurance proceeds relating to the Policies; and WHEREAS, Congoleum entered into settlement agreements prior to this Claimant Agreement to resolve certain Asbestos Claims, under which some or all of the consideration has yet to be paid (the "Pre-Existing Settlement Agreements"); and WHEREAS, Congoleum may enter into additional settlement agreements to resolve certain Asbestos Claims that are scheduled for trial prior to the commencement of an anticipated chapter 11 reorganization case for Congoleum in an aggregate amount not to exceed $15,000,000.00 (the "Trial-Listed Settlement Agreements"); and WHEREAS, Congoleum and Claimants' Counsel, on behalf of Participating Asbestos Claimants (as defined below), wish to resolve and settle, in the amounts set forth in the compensable disease matrix attached hereto as Appendix A ("Compensable Disease Matrix"), all of the Asbestos Claims asserted by Asbestos Claimants who qualify as Participating Asbestos Claimants (as defined below) and to secure, in part, payment of the amounts for which such Asbestos Claims are settled by the grant of a security interest in the Collateral (as defined in the Security Agreement); and WHEREAS, Congoleum wishes to settle the Asbestos Claims asserted by Asbestos Claimants in order to attain certainty as to its asbestos-related liability to Participating Asbestos Claimants so that it may concentrate its attention on the operation of its business; and WHEREAS, Congoleum anticipates that it will commence a reorganization case under chapter 11 of the U.S. Bankruptcy Code; and 2 EXHIBIT E TO DISCLOSURE STATEMENT WHEREAS, Congoleum intends to incorporate the terms of this Claimant Agreement in a "pre-packaged" plan of reorganization that Congoleum shall seek to confirm in its anticipated chapter 11 case (assuming the requisite acceptances are obtained). NOW, THEREFORE, in consideration of the mutual covenants below contained and intending to be legally bound hereby, Congoleum and each of the Asbestos Claimants agree as follows: AGREEMENT I. ASBESTOS CLAIM SETTLEMENT AND QUALIFICATION A. Upon the terms and conditions herein, Congoleum and each Asbestos Claimant who submits the information and documentation satisfactory to the Claims Reviewer (as defined below) as required under Section I.B (such Asbestos Claimant, together with any successor or assign, a "Participating Asbestos Claimant"), hereby compromise and settle the Asbestos Claim of such Participating Asbestos Claimant. The amount for which an Asbestos Claim is liquidated, compromised and settled (the "Participating Asbestos Claimant's Settlement Amount") shall be the respective amount set forth in the Compensable Disease Matrix applicable to the particular Participating Asbestos Claimant's disease category. B. To qualify as a Participating Asbestos Claimant, each Asbestos Claimant, or his counsel, must 1. On or before May 15, 2003, submit in an electronic form reasonably satisfactory to the Claims Reviewer the following documents and information in form and substance satisfactory to the Claims Reviewer: (1) the Asbestos Claimant's name and social security number; (2) the Asbestos Claimant's alleged disease or injury; (3) a statement that his or her Asbestos Claim was filed in a court of competent jurisdiction on or before the Effective Date (as defined below); and (4) a statement that the Asbestos Claimant is interested in participating in this Claimant Agreement; and 3 EXHIBIT E TO DISCLOSURE STATEMENT 2. On or before July 1, 2003, submit in writing the following documents and information in form and substance satisfactory to the Claims Reviewer: (1) evidence of bodily injury, sickness or disease consistent with the terms and meaning of the Compensable Disease Matrix however, if such Asbestos Claimant was qualified as a Participating Category D Claimant under the Settlement Agreement Between ACandS, Inc. and Various Asbestos Claimants, dated April 17, 2002 (the "ACandS Claimant Agreement"), a notice indicating that the claimant will rely upon the evidence submitted to the Claims Reviewer in connection with the ACandS Claimant Agreement will satisfy this requirement; (2) a verified statement that the Asbestos Claimant was exposed to an asbestos-containing product manufactured, sold, or distributed by Congoleum or for which Congoleum has legal liability; (3) a claim form that will indicate the Asbestos Claimant's name, address, social security number, exposure date and diagnosis date; (4) proof that the Asbestos Claimant had filed a claim in a court of competent jurisdiction against Congoleum on or before the Effective Date (as defined below); and (5) a release in the form of Appendix B hereto or another form acceptable to Congoleum (collectively "Claim Documentation"). Asbestos Claimants should note that if they were qualified under the ACandS Claimant Agreement as a Non-Malignant Participating Category D Claimant, reliance on the submission in connection with the ACandS Claimant Agreement will mean qualification here as a Level 1 Non-Malignant disease category pursuant to the attached Compensable Disease Matrix. 4 EXHIBIT E TO DISCLOSURE STATEMENT 3. If the Asbestos Claimant's claim was first filed after January 13, 2003, the Asbestos Claimant shall submit a sworn affidavit or other evidence satisfactory to the Claims Reviewer in order to satisfy the requirements of I.B.2.(2). C. A claims reviewer (the "Claims Reviewer") shall review the Claim Documentation provided by an Asbestos Claimant and shall notify the Collateral Trustee (as defined below) in writing that a particular Asbestos Claimant has satisfied the Claim Documentation requirements. The Claims Reviewer shall provide Congoleum and Claimants' Counsel with a copy of any such notices provided to the Collateral Trustee. The initial Claims Reviewer shall be the Kenesis Group. Should the Claims Reviewer identify deficiencies in the Claim Documentation submitted by an Asbestos Claimant, the Claims Reviewer shall notify Claimants' Counsel of such deficiencies. Any Asbestos Claimant who is subject to a notice of Claim Documentation deficiency shall have a period of sixty (60) days from the date of mailing of notice of deficiency to remedy such deficiencies. The Claims Reviewer and the Asbestos Claimant shall confer in good faith for fifteen (15) days in order to resolve such deficiencies. If the deficiencies identified by the Claims Reviewer are not remedied within the fifteen (15) day meet and confer period, such Asbestos Claimant will not become a Participating Asbestos Claimant and such Asbestos Claimant will be allowed to withdraw its claim. D. Any Asbestos Claimant may appeal a disallowance pursuant to Section I.C. by having the court in which the claim is pending determine on summary judgment basis whether the documentation satisfies the standards of allowance, and no appeal of the court's determination shall be allowed. Congoleum, Claimants' Counsel or the Plan Trustee may oppose the Asbestos Claimant's appeal. 5 EXHIBIT E TO DISCLOSURE STATEMENT E. As to any Asbestos Claimant who submits Claim Documentation on or before May 20, 2003, the Claims Reviewer will mail any notice of deficiencies in Claim Documentation within forty (40) days after receipt of the Claims Documentation. As to any Asbestos Claimant who submits Claim Documentation after May 20, 2003, the Claims Reviewer will mail any notice of deficiencies in Claim Documentation within sixty (60) days after receipt of the Claims Documentation. If the Claims Reviewer does not mail notices of deficiencies within the time period set forth above to a particular Asbestos Claimant, that Asbestos Claimant's Claim Documentation shall be deemed satisfactory. F. Should the Claims Reviewer be unable or unwilling at any time to serve in the above-described capacity, Claimants' Counsel and Congoleum shall agree on an acceptable replacement. The Claims Reviewer shall provide periodic reports to Congoleum and Claimants' Counsel as they may reasonably request, at the expense of Congoleum. G. An Asbestos Claimant shall not qualify as a Participating Asbestos Claimant hereunder if the Asbestos Claimant's cause of action has been dismissed with prejudice by a court of competent jurisdiction on or before the Effective Date. H. Upon the Effective Date, a Participating Asbestos Claimant shall be deemed to have fully and finally liquidated, compromised and settled any and all of his or her Asbestos Claims in accordance with the terms of this Claimant Agreement. II. SECURED RIGHTS OF PARTICIPATING ASBESTOS CLAIMANTS A. On the Effective Date of this Claimant Agreement, Congoleum shall grant to the collateral trustee of the Collateral Trust (the "Collateral Trustee") for the benefit of each Participating Asbestos Claimant, a security interest (the "Security Interest") in the Collateral (as defined in the Security Agreement), as provided in and subject to the terms and conditions of the Security Agreement. 6 EXHIBIT E TO DISCLOSURE STATEMENT B. The Security Interest shall secure an amount equal to seventy-five percent (75%) of the aggregate of all Participating Asbestos Claimants' Settlement Amounts (the "Secured Amount") as provided in the Collateral Trust Agreement and the Security Agreement. Congoleum's obligation to pay each Participating Asbestos Claimant its pro rata share of the Secured Amount shall be referred to herein as the "Secured Asbestos Claims." C. Until all of the Secured Asbestos Claims for all Participating Asbestos Claimants are paid in full, Congoleum shall evaluate, bring, prosecute, litigate, defend and settle any claim against its insurers to obtain Insurance Proceeds. Congoleum shall consult with Claimants' Counsel in order to retain a mutually acceptable counsel to prosecute any claim against its insurers to obtain Insurance Proceeds. Congoleum agrees to obtain the consent of Claimants' Counsel prior to entering into settlement of any claim against its insurers to obtain Insurance Proceeds, which consent shall not be unreasonably withheld, conditioned or delayed. III. TRUST ACCOUNT FOR INSURANCE PROCEEDS A. Payment of Secured Asbestos Claims shall be made from the Collateral Trust in accordance with the provisions of Section IV below and in accordance with the Collateral Trust Agreement. B. Congoleum may qualify the Collateral Trust as a Qualified Settlement Fund, pursuant to Section 468B of the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder ("QSF"). C. It is the expectation of Congoleum and Participating Asbestos Claimants that the Secured Asbestos Claims shall be paid entirely out of the Insurance Proceeds (as defined in the Security Agreement). Until such time as the Secured Asbestos Claims have been paid in full, Congoleum shall direct that payment of all Insurance Proceeds be made to the Collateral Trust and, in the event Congoleum receives any Insurance Proceeds, Congoleum, no later than five (5) business days after its receipt of any Insurance Proceeds, shall remit such Insurance Proceeds to the Collateral Trust. 7 EXHIBIT E TO DISCLOSURE STATEMENT IV. PAYMENT OF SECURED ASBESTOS CLAIMS A. The Collateral Trustee shall make payments to each Participating Asbestos Claimant up to the amount of such Participating Asbestos Claimant's Secured Asbestos Claim, by payment to the respective Claimants' Counsel for such Participating Asbestos Claimant, in accordance with the terms of the Collateral Trust Agreement. B. The portion of Congoleum's obligation to a Participating Asbestos Claimant to pay in excess of such Participating Asbestos Claimant's Secured Asbestos Claim shall constitute an unsecured claim (an "Unsecured Asbestos Claim"). Such an Unsecured Asbestos Claim shall be treated in accordance with the terms of a confirmed plan of reorganization in the event Congoleum files a chapter 11 case. If unpaid and if Congoleum does not commence a chapter 11 case within 24 months of the Effective Date, the Unsecured Asbestos Claim shall become immediately due and payable. V. LITIGATION MORATORIUM Congoleum and each Asbestos Claimant that has submitted the documents and information pursuant to Section I.B.1 agree to a 150-day litigation moratorium, commencing from the Effective Date, during which such Asbestos Claimant shall not pursue any lawsuit or other legal process with respect to any claim against Congoleum or any parent, subsidiary, distributor, or affiliate of Congoleum other than the claims process set forth in Section I above. Congoleum and each such Asbestos Claimant agree to toll all time-related affirmative defenses (including statute of limitation defenses) applicable to the respective Asbestos Claims during the period of the 150-day litigation moratorium. 8 EXHIBIT E TO DISCLOSURE STATEMENT VI. PAYMENT TO CLAIMANTS COUNSEL Promptly on or as soon as practicable after the Effective Date of this Claimant Agreement, Congoleum will pay $1,000,000 to each Claimants' Counsel ("Expense Payments"). Expense Payments will be used by Claimants' Counsel to pay all out-of-pocket expenses, reasonable professionals' fees and expenses, and other costs that Claimants' Counsel may have incurred or may incur (i) in connection with the negotiation and implementation of this Claimant Agreement and the related Collateral Trust Agreement and Security Agreement, (ii) in connection with the negotiation of a possible "pre-packaged" chapter 11 plan of reorganization for Congoleum, and/or (iii) in connection with due diligence investigations related to a possible chapter 11 plan of reorganization. VII. CONSTRUCTION, ENTIRE AGREEMENT, DURATION A. This Claimant Agreement was negotiated between the parties hereto at arm's length, with each party receiving advice from independent legal counsel. It is the intent of the parties that no part of this Claimant Agreement be construed against any other party because of the identity of the drafter. B. This Claimant Agreement constitutes a single integrated written contract expressing the entire agreement among the parties hereto. This Claimant Agreement supersedes any prior understandings and agreements between or among the parties with respect to the subject matter of the Claimant Agreement. There are no representations, agreements, arrangements or understandings between or among the parties, oral or written, relating to the subject matter of this Claimant Agreement that are not fully expressed herein. Any statements, promises or inducements, whether made by any party or any agents of any party, that are not contained in this written Claimant Agreement shall not be valid or binding. The failure or invalidation of any provision of this Claimant Agreement shall not in any way affect the validity, or performance of any party pursuant to, any other provision of this Claimant Agreement. 9 EXHIBIT E TO DISCLOSURE STATEMENT C. The effective date of this Claimant Agreement shall be the date on which the Claimant Agreement has been signed and delivered by Congoleum and Claimants' Counsel ("Effective Date"). This Claimant Agreement shall have perpetual existence and may not be enlarged, modified or altered except by a written agreement signed by Congoleum and Claimants' Counsel. D. The signatory who has executed this Claimant Agreement on behalf of Congoleum expressly represents and warrants that he or she is fully authorized to sign on behalf of Congoleum for the purpose of duly binding Congoleum to this Claimant Agreement. The Claimant Agreement shall be binding upon the parties and their respective successors and assigns. VIII. BANKRUPTCY OBLIGATIONS Congoleum shall incorporate substantially all of the material terms of this Claimant Agreement in any plan of reorganization that it may file or support in any chapter 11 case that Congoleum may commence as a debtor IX. AGREEMENT TO MEET AND CONFER To the extent any dispute arises over the application, interpretation or performance of this Claimant Agreement, Congoleum and Claimants' Counsel, on behalf of Participating Asbestos Claimants, agree to meet and confer for the purpose of attempting to resolve amicably any such dispute. To the extent any dispute cannot be resolved amicably by negotiation, Congoleum and Claimants' Counsel, on behalf of the Participating Asbestos Claimants, agree that they shall attempt to agree on an alternative dispute resolution mechanism before initiating any lawsuit; provided, however, that nothing contained herein shall obligate either Congoleum or Claimants' Counsel to agree to any alternative dispute resolution mechanism. 10 EXHIBIT E TO DISCLOSURE STATEMENT X. NOTICES All notices hereunder shall be in writing and shall be deemed to have been sufficiently given or served for all purposes (if mailed) three (3) calendar days after being deposited, postage prepaid, in the United States Mail, registered or certified mail, or (if delivered by express courier) one (1) business day after being delivered to such courier, or (if delivered in person or via facsimile with faxed confirmation) the same day as delivery if delivered on a business day before 4:30 p.m. EST or EDT (as applicable) or if not so delivered, on the next succeeding business day, except with respect to notices issued to the Collateral Trustee, such notices shall be deemed received on the date actually received by the Collateral Trustee. Notice to the Claimants' Counsel shall be deemed notice to each Asbestos Claimant. Notices shall be addressed as follows: Congoleum: Roger Marcus Congoleum Corporation 3500 Quakerbridge Road P.O. Box 3127 Mercerville, NJ 08619 (609) 584-3000 - Telephone No. (609) 584-3685 - Facsimile No. With copies to: Bette Orr, Esq. Gilbert, Heintz & Randolph LLP 1100 New York Avenue 7th Floor Washington, DC 20005 (202) 772-2200 - Telephone No. (202) 772-3333 - Facsimile No. 11 EXHIBIT E TO DISCLOSURE STATEMENT Norman L. Pernick, Esq. Saul Ewing LLP 222 Delaware Avenue Suite 1200 Wilmington, DE 19899 (302) 421-6800 - Telephone No. (302) 421-6813 - Facsimile No. Mark Chehi, Esq. Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square P.O. Box 636 Wilmington, DE 19899 (302) 651-3000 - Telephone No. (302) 651-3001 - Facsimile No. Collateral Trustee: Arthur Pergament Pergament Advisors 950 Third Avenue, 3rd Floor New York, NY 10022 (212) 754-7913 (212) 994-6229 Claimants' Counsel: Perry Weitz, Esq. Weitz & Luxenberg 180 Maiden Lane New York, NY 10038 (212) 558-5500 - Telephone No. (212) 344-5461 - Facsimile No. Joseph F. Rice, Esq. 28 Bridgeside Boulevard P.O. Box 1792 Mt. Pleasant, SC 29464 (843) 216-9000 - Telephone No. (843) 216-9290 - Facsimile No. 12 EXHIBIT E TO DISCLOSURE STATEMENT XI. GOVERNING LAW All disputes concerning the validity, interpretation and application of the Claimant Agreement or the Appendices hereto, or any provision thereof, and disputes concerning issues within the scope of the Claimant Agreement shall be determined in accordance with the law of the State of Delaware, excluding any conflict of law provisions. XII. MISCELLANEOUS A. Each party shall take such steps and shall execute such documents as reasonably may be necessary or proper to effectuate the purpose and intent of this Claimant Agreement. B. This Claimant Agreement shall be executed in duplicate originals and signed by or on behalf of the parties hereto. C. This Claimant Agreement may be executed in any number of counterparts. Each of such counterparts for all purposes shall be deemed to be an original, and all such counterparts together shall constitute but one and the same Claimant Agreement. IN WITNESS WHEREOF, the parties have caused this Claimant Agreement to be duly executed this 10th day of April 2003. CONGOLEUM CORPORATION By /s/ Howard N. Feist III --------------------------- Title Chief Financial Officer ------------------------ PARTICIPATING ASBESTOS CLAIMANTS By Claimants' Counsel /s/ Perry Weitz --------------------------- Perry Weitz, Esq. /s/ Joseph F. Rice --------------------------- Joseph F. Rice, Esq. 13 EXHIBIT E TO DISCLOSURE STATEMENT APPENDIX A Compensable Disease Matrix ------------------------------------------------------------------------ Disease Category Settlement Amount* ---------------- ------------------ ------------------------------------------------------------------------ Mesothelioma $100,000 ------------------------------------------------------------------------ Lung Cancer $30,000 ------------------------------------------------------------------------ Other Cancer $10,000 ------------------------------------------------------------------------ Level II Non-Malignant $3,000 ------------------------------------------------------------------------ Level I Non-Malignant $1,000 ------------------------------------------------------------------------ * Settlement Amounts do not include Extraordinary Claim Settlement Amounts, if any (as defined below) Medical Criteria To satisfy the requirements of Section I.B.2(1) of the Settlement Agreement Between Congoleum Corporation and Various Asbestos Claimants (the "Claimant Agreement"), a Participating Asbestos Claimant (as defined in the Claimant Agreement) must submit the evidence listed below for his or her applicable disease category. XIII. GENERAL PROVISIONS For purposes of this Appendix, the following terms shall have the meanings set forth below. Terms used in singular shall be deemed to include the plural, and vice versa. A. "Basilar Crackles," sometimes called "rales," shall mean those sounds described in American Thoracic Society, "The Diagnosis of Nonmalignant Diseases Related to Asbestos," 134 American Review of Respiratory Disease 363(1986), and shall be observed in accordance with the criteria set forth therein. B. "Board-certified Internist" shall mean a physician licensed to practice medicine in the District of Columbia or in one or more U.S. states or territories and certified by the American Board of Internal Medicine in internal medicine at the time of that physician's relevant medical report or document. C. "Board-certified Pathologist" shall mean a physician licensed to practice medicine in the District of Columbia or in one or more U.S. states or territories and certified in anatomic pathology, or combined anatomic and clinical pathology, from the American Board of Pathology, and whose professional practice includes the field of pathology and involves regular evaluation of pathological materials obtained from surgical and post-mortem specimens. EXHIBIT E TO DISCLOSURE STATEMENT D. "Board-certified Pulmonary Specialist" shall mean a physician licensed to practice medicine in the District of Columbia or in one or more U.S. states or territories and certified by the American Board of Internal Medicine in the sub-specialty of pulmonary disease at the time of the relevant medical report. E. "Certified B-reader" shall mean an individual who has successfully completed the x-ray interpretation course sponsored by the National Institute of Occupational Safety and Health (NIOSH) and passed the NIOSH examination for certification as a B-reader and whose NIOSH certification is up to date at the time of his or her interpretation of the x-rays. Certified B-reader shall also include an individual who was at one time a certified B-reader and who has not subsequently failed the exam for certification or recertification as a B-reader. F. "Chest x-rays" shall mean chest radiographs taken in at least one view (Posterior-Anterior and Lateral) and graded quality 1 or 2 for reading according to the criteria established by the ILO. Notwithstanding the foregoing, in cases in which no quality 1 or 2 radiographs are available, radiographs of poorer quality shall not be automatically rejected but shall be evaluated for acceptability on a case-by-case basis. G. "ILO Grade" shall mean the radiology ratings for the presence of pleural or parenchymal lung changes by chest x-rays as established from time to time by the International Labour Office (ILO) and as set forth in "Guidelines for the Use of ILO International Classification of Radiographs of Pneumoconioses" (1980). H. "Occupational Physician" shall mean a physician specializing in the diagnosis and treatment of lung disease who is currently licensed to practice medicine in any state of the United States, the District of Columbia or any U.S. territory. I. "Predicted Values" for spirometry and lung volumes shall be those published by Morris, Clinical Pulmonary Function Testing, 2d Edition, Intermountain Thoracic Society (1984), or by Crapo, et al., "Reference Spirometric Values Using Techniques and Equipment That Meet ATS Recommendations," 123 American Review of Respiratory Diseases 659-64 (1981), or others that are substantially equivalent. "Predicted Values" for diffusing capacity shall be those published by Miller, et al., 127 American Review of Respiratory Disease 270-77 (1983), or others that are substantially equivalent. J. "Pulmonary Function Testing" shall mean spirometry [forced vital capacity ("FVC"), the ratio of forced expiratory volume exhaled in one second over forced vital capacity ("FEV-1/FVC"), and vital capacity ("VC")], lung volume [total lung capacity ("TLC")], and diffusing capacity ("DLCO") testing that is in material compliance with the quality criteria established by the American Thoracic Society ("ATS") and is performed on equipment which is in material compliance with ATS standards for technical quality and calibration, all as set forth in 20 C.F.R. 718.103 and Appendix B thereto or in 2 EXHIBIT E TO DISCLOSURE STATEMENT the ATS guidelines in 144 American Review of Respiratory Disease 1202-18 (1991), and 152 American Review of Respiratory and Critical Care Medicine 1107-36 (1995), or other standards for technical quality and calibration that are substantially equivalent to the ATS standards. The Claims Reviewer may examine all back-up data (including, without limitation, flow volume loops and spirographs) pertaining to Pulmonary Function Testing of a Participating Asbestos Claimant to ensure that these quality criteria and standards have been satisfied in all material respects. K. "Qualified Physician" shall mean any physician as defined in Section I.B to D, and H and for purposes of x-ray interpretation any individual as defined in Section I.E. XIV. MESOTHELIOMA In order for a Participating Asbestos Claimant to satisfy the requirements of Section I.B.2(1) of the Claimant Agreement for the Mesothelioma disease category, the Participating Asbestos Claimant must submit a report by a Board-certified Pathologist, or another competent physician acceptable to the Claims Reviewer, supporting the Participating Asbestos Claimant's diagnosis of a malignant mesothelioma. XV. LUNG CANCER In order for a Participating Asbestos Claimant to satisfy the requirements of Section I.B.2(1) of the Claimant Agreement for the Lung Cancer disease category, the Participating Asbestos Claimant must submit: A. A report by a Qualified Physician establishing that the Participating Asbestos Claimant has a primary carcinoma of the lung; and B. Either one of the following: 1. A statement from a Qualified Physician that the carcinoma in question is causally related to Participating Asbestos Claimant's asbestos exposure; or 2. A report by a Certified B-reader showing that the Participating Asbestos Claimant has a Chest X-ray reading of 1/0 or higher on the ILO scale and/or bilateral pleural plaques, bilateral pleural thickening, or bilateral pleural calcification. XVI. OTHER CANCER In order for a Participating Asbestos Claimant to satisfy the requirements of Section I.B.2(1) of the Claimant Agreement for the Other Cancer disease category, the Participating Asbestos Claimant must submit: 3 EXHIBIT E TO DISCLOSURE STATEMENT A. A report by a Board-certified Pathologist establishing the Participating Asbestos Claimant with a primary colorectal, esophageal, laryngeal, pharyngeal or gastric carcinoma; and B. Either one of the following: 1. A statement by a Qualified Physician that the carcinoma in question is causally related to Participating Asbestos Claimant's asbestos exposure; or 2. A report by a Certified B-reader showing that the Participating Asbestos Claimant has a Chest X-ray reading of 1/0 or higher on the ILO scale and/or bilateral pleural plaques, bilateral pleural thickening, or bilateral pleural calcification. No other asbestos-related cancer shall be compensable as an Other Cancer under this Claimant Agreement. XVII. LEVEL II NON-MALIGNANT In order for a Participating Asbestos Claimant to satisfy the requirements of Section I.B.2(1) of the Claimant Agreement for the Level II Non-Malignant disease category, the Participating Asbestos Claimant must submit: A. Clinical Evidence of Asbestosis: A diagnosis of pulmonary asbestosis by a Qualified Physician based upon either or the following two sets of minimum objective criteria: 1. Chest x-rays which, in the opinion of a Certified B-reader, show small irregular opacities of ILO Grade 1/0; and Pulmonary Function Testing and physical examination that show either: a. FVC < 80% of Predicted Value with FEV-1/FVC >/= 65% (actual value) if the individual tested is at least 75 years old at the date of testing, >/= 70% (actual value) if the individual tested is at least 65 years old but less than 75 years old at the date of testing, and >/= 75% (actual value) if the individual tested is less than 65 years old at the date of testing; or b. TLC < 80% of Predicted Value; or c. Bilateral Basilar Crackles, and also the absence of any more probable explanation for the crackles other than the presence of asbestos-related lung disease; or 2. Chest x-rays which, in the opinion of a Certified B-reader show small irregular opacities of ILO grade 1/1 or greater; and Pulmonary Function Testing that shows either: 4 EXHIBIT E TO DISCLOSURE STATEMENT a. FVC < 80% of Predicted Value with FEV-1/FVC >/= 65% (actual value) if the individual tested is at least 70 years old at the date of testing, >/= 70% (actual value) if the individual tested is at least 60 years old but less than 70 years old at the date of testing, and >/= 75% (actual value) if the individual tested is less than 60 years old at the date of testing; or b. TLC < 80% of Predicted Value. B. Pathological Evidence of Asbestosis: A statement by a Board-certified Pathologist that more than one representative section of lung tissue otherwise uninvolved with any other process (e.g., cancer or emphysema) demonstrates a pattern of peribronchiolar or parenchymal scarring in the presence of characteristic asbestos bodies, and also that there is no other more probable explanation for the presence of the fibrosis. C. Bilateral Pleural Thickening: Chest x-rays demonstrating bilateral pleural thickening of ILO Grade B2 or greater that (1) has not been followed by a malignancy; and (2) is not explained by any other condition in the subject's history; and Pulmonary Function Testing that, in the opinion of a Board-certified Internist, Pulmonary Specialist, or Occupational Physician shows: 1. TLC < 80% of Predicted Value; or 2. FVC < 80% of Predicted Value; and in either case 3. A statement by the Board-certified Internist, Pulmonary Specialist, or Occupational Physician that the asbestos-related changes are substantial contributing factors in causing the pulmonary function changes. XVIII. LEVEL I NON-MALIGNANT In order for a Participating Asbestos Claimant to satisfy the requirements of Section I.B.2(1) of the Claimant Agreement for the Level I Non-Malignant disease category, the Participating Asbestos Claimant must submit either: A. A report by a Qualified Physician stating that the Participating Asbestos Claimant has or had a Chest X-ray reading of 1/0 or higher on the ILO scale, or a CT scan read by a Qualified Physician showing bilateral pleural plaques, bilateral pleural thickening, or bilateral pleural calcification or if an ILO reading is not available, a Chest X-Ray reading or CT scan read by a Qualified Physician showing bilateral interstitial fibrosis, bilateral interstitial markings, bilateral pleural plaques, bilateral pleural thickening, or bilateral pleural calcification consistent with, or compatible with, a diagnosis of asbestos-related disease, or such other competent evidence acceptable to the Claims Reviewer with medical evidence such as a diagnosis of an asbestos-related condition by a Qualified Physician, showing that the Participating Asbestos Claimant's non-malignant condition is causally related to asbestos exposure; or 5 EXHIBIT E TO DISCLOSURE STATEMENT B. A statement by a Board-certified Pathologist that: 1. More than one representative section of lung tissue otherwise uninvolved with any other process (e.g. cancer, emphysema) demonstrates a pattern of per bronchiolar or parenchymal scarring in the presence of characteristic asbestos bodies; and 2. There is no other more likely explanation for the presence of the fibrosis. Extraordinary Claims The Claims Reviewer may award a settlement amount to a Participating Asbestos Claimant up to five (5) times the Settlement Amount for the Disease Category in question ("Extraordinary Claim Settlement Amount"). The procedures relating to any such award are as follows: At the same time that an Asbestos Claimant submits the documentation required under Section I.B.2 of the Claimant Agreement, an Asbestos Claimant may request in writing to the Claims Reviewer that his or her Asbestos Claim be considered for an Extraordinary Claim Settlement Amount. A Participating Asbestos Claimant may be entitled to an Extraordinary Claim Settlement Amount only if he or she: Satisfies the requirements to the Medical Criteria above for the Disease Category in question; and Demonstrates that his or her exposure to asbestos was greater than 40% the result of exposure to an asbestos-containing product manufactured, sold, or distributed by Congoleum or for which Congoleum otherwise may have legal liability; and Demonstrates that there is little likelihood of a successful recovery elsewhere. C. The Claims Reviewer shall consider simultaneously all requests for an Extraordinary Claim Settlement Amount no later than ninety (90) days from the deadline to submit Claim Documentation under Section I.B.2 of the Claimant Agreement. The Claims Reviewer shall notify the Participating Asbestos Claimants in writing as to whether the Participating Asbestos Claimants is entitled to the requested Extraordinary Claims Settlement Amount and the amount of the Extraordinary Claims Settlement Amount, if any. 6 EXHIBIT E TO DISCLOSURE STATEMENT D. Appeal Procedures 1. A Participating Asbestos Claimant may appeal a Claims Reviewer's determination by requesting arbitration in writing to the Claims Reviewer within ten (10) days of receipt of the Claims Reviewer's determination. 2. The neutral arbitrator shall be Michael Rozen from The Feinberg Group, LLP (the "Arbitrator"). Should Mr. Rozen be unable or unwilling at any time to serve as the Arbitrator, Claimants' Counsel and Congoleum shall agree on an acceptable replacement. 3. The Arbitrator shall consider the positions of the parties as set forth in written submissions to be filed with the Arbitrator within sixty (60) days after the written request for arbitration. 4. The Arbitrator shall make a final decision within sixty (60) days of the date set for submission. The Arbitrator is not empowered to award damages in excess of the maximum amount of the Extraordinary Claims Settlement Amount for the Disease Category in question and the Participating Asbestos Claimant expressly waives and foregoes any right to punitive, exemplary or similar damages. The decision of the Arbitrator shall be final and binding. 5. The Participating Asbestos Claimant shall bear its own costs. The reasonable fees and costs of the Arbitrator and the reasonable costs incurred by the Claims Reviewer shall be paid by the Collateral Trust, Plan Trust or any successor trust (as defined in Collateral Trust Agreement). 7 EXHIBIT E TO DISCLOSURE STATEMENT APPENDIX B RELEASE AND INDEMNITY STATE OF _____________________ COUNTY OF ____________________ KNOW ALL MEN BY THESE PRESENTS THAT the Undersigned, [Executor], individually and as [Capacity] of the Estate of _______________, deceased (Social Security No. __________) ("Decedent"), on behalf of himself or herself and the heirs, administrators, executors, personal representatives, and assigns of Decedent, hereinafter collectively referred to as "Releasors," for consideration of the sum of One Dollar and other good and valuable consideration, do hereby forever release and discharge Congoleum Corporation, all of its present and former shareholders, directors, officers, employees, agents and servants, and all of its present and former divisions and subsidiary corporations, and any and all predecessors, successors, distributors, and assigns, and their insurance carriers to the extent of coverage provided to any of the foregoing, hereinafter collectively referred to as "Releasees," from any and all claims, causes or rights of action, demands and damages of every kind and nature whatsoever, including but not limited to, any and all present claims relating to asbestos-related diseases, injuries, cancers, and/or malignancies, including, but not limited to, loss of consortium, companionship, service, support, pain and suffering, medical expenses, injury and damage of any kind, including the wrongful death of Decedent, which any of the Releasors now has that is in any way related to the possible exposure of Decedent to asbestos or asbestos-containing products manufactured, sold, supplied, distributed, installed, handled, or removed by any of the Releasees, which may have caused injuries or damages to any of the Releasors or for which Releasees may bear legal responsibility. The undersigned reserve all rights to proceed at law and/or in equity against any person, corporation and/or association other than Releasees for harmful exposure to asbestos or asbestos- containing products. The Releasors agree that this is a compromise of doubtful and disputed claims and that the payment of the consideration for this Release is not to be considered as an admission of liability on the part of any person or entity released hereby. It is further understood that this Release is not intended to relinquish any claim the Releasees may have against any party or any claim the Releasors have against any party that is not a Releasee. The parties further agree that this Agreement shall not be admissible in any suit or proceeding whatsoever as evidence or admission of any liability. In order to induce the payment of the aforesaid consideration, the Releasors, jointly and severally, do covenant and agree to defend, hold harmless and indemnify all Releasees from any and all claims, actions, and suits of every nature whatsoever, including without limitation any and all claims (i) of any Worker's Compensation carrier, any employer who is self-insured for Worker's Compensation purposes, any governmental Worker's Compensation funds, and/or arising under any state Worker's Compensation law, (ii) arising under the Federal Longshoremen's and Harbor Workers' Act, (iii) of any health care provider (including all medical, hospital, ambulance and/or drug bills or related expenses), and (iv) of any insurance carrier or other party who has, or claims to have, a lien against the aforesaid consideration, and all such claims as may now be pending or which may heretofore have been made, against any or all EXHIBIT E TO DISCLOSURE STATEMENT APPENDIX B of the Releasees, which may be brought and/or made on account of any claimed injuries and/or damages arising from or relating to the exposure of Decedent to asbestos or asbestos-containing products, and to indemnify them in legal tender and/or by offset, up to the full extent of the compensation paid or to be paid pursuant to the Claimant Agreement (defined below). The Release and Indemnity provisions contained herein are specifically intended to operate and be applicable even if it is alleged, charged or proven that all or some of the claims released or damages sought are caused in whole or in part by the sole, concurrent or contributory negligence or other conduct of any type by any of the Releasees. It is further agreed that this Release and that certain Settlement Agreement between Congoleum Corporation. and Various Asbestos Claimants (the "Claimant Agreement"), in which Releasors have joined, set forth the entire agreement between the parties and there is no other promise, agreement or inducement other than that as expressed herein and in the Settlement Agreement. The undersigned further states: 1. That he or she is of legal age, with no mental disability of any kind, and is fully and completely competent to execute this Release and Indemnity on his or her own behalf and on behalf of the Estate of Decedent and the other Releasors. The undersigned certifies that he or she is the duly appointed [Capacity] of the Estate of Decedent, having been appointed to that position by order of a court of competent jurisdiction; 2. That the above Release and Indemnity has been explained to the undersigned and he or she knows the contents as well as the effect thereof; 3. That he or she understands that Congoleum has made a settlement offer to pay approximately _______ claims and the amount of compensation paid with respect to Decedent is based on the application of a matrix value to Decedent's medical diagnosis; and 4. That Decedent was exposed to an asbestos-containing product manufactured, sold, or distributed by Congoleum or for which Congoleum has legal liability. The undersigned further states that he or she executed this instrument after consultation with his or her attorney or the opportunity to consult with an attorney. The undersigned hereby declares under penalty of perjury, pursuant to 28 U.S.C ss. 1746, that the foregoing is true and correct, ____________________________________ [Executor's Name] Date: ______________________________ 2 EXHIBIT E TO DISCLOSURE STATEMENT APPENDIX B RELEASE AND INDEMNITY STATE OF ____________ COUNTY OF ___________ KNOW ALL MEN BY THESE PRESENTS THAT WE, [Name], (Social Security No. __________) ("Claimant"), individually, and, if he/she is married, his/her spouse, [Spouse] ("Spouse"), Social Security No. _____________, as husband and wife, on behalf of themselves, their heirs, administrators, executors, personal representatives, and assigns, hereinafter collectively referred to as "Releasors," for consideration of the sum of One Dollar and other good and valuable consideration, do hereby forever release and discharge Congoleum Corporation, all of its present and former shareholders, directors, officers, employees, agents and servants, and all of its present and former divisions and subsidiary corporations, and any and all predecessors, successors, distributors and assigns, and their insurance carriers to the extent of coverage provided to any of the foregoing, hereinafter collectively referred to as "Releasees," from any and all claims, causes or rights of action, demands and damages of every kind and nature whatsoever, including but not limited to, any and all present claims relating to asbestos-related diseases, injuries, cancers, and/or malignancies, including, but not limited to, loss of consortium, companionship, service, support, pain and suffering, medical expenses, injury and damage of any kind, including the wrongful death of Claimant, which any of the Releasors now has that is in any way related to the possible exposure of Claimant to asbestos or asbestos-containing products manufactured, sold, supplied, distributed, installed, handled, or removed by any of the Releasees, which may have caused injuries or damages to any of the Releasors or for which Releasees may bear legal responsibility. The undersigned reserve all rights to proceed at law and/or in equity against any person, corporation and/or association other than Releasees for harmful exposure to asbestos or asbestos- containing products. It is the intent of this Release not to release, and the Releasors specifically do not release, claims for lung cancer, mesothelioma, primary colon-rectal, laryngeal, esophageal or stomach cancer, or death resulting from lung cancer, mesothelioma, primary colon-rectal, laryngeal, esophageal or stomach cancer, not diagnosed as of the date hereof and allegedly resulting or alleged to result from Claimant's exposure to asbestos or asbestos-containing products. The parties to this Release further understand and agree that nothing in this Release is intended to settle, waive or relinquish any claim that Spouse individually may have today or in the future against Releasees or any other entity for an asbestos-related injury or disease that results from his/her personal exposure to asbestos-fibers and/or products manufactured, sold or distributed by Releasees or any other manufacturer, supplier or distributor of asbestos-containing products. The Releasors further agree that this is a compromise of doubtful and disputed claims and that the payment of the consideration for this Release is not to be considered as an admission of liability on the part of any person or entity released hereby. It is further understood that this Release is not intended to relinquish any claim the Releasees may have against any party or any claim the Releasors have against any party that is not a Releasee. The parties further agree that this Agreement shall not be admissible in any suit or proceeding whatsoever as evidence or admission of any liability. In order to induce the payment of the aforesaid consideration, the Releasors, jointly and severally, do covenant and agree to defend, hold harmless and indemnify all Releasees from any and all claims, actions, and suits of every nature whatsoever, including without limitation any and all claims (i) of any EXHIBIT E TO DISCLOSURE STATEMENT APPENDIX B Worker's Compensation carrier, any employer who is self-insured for Worker's Compensation purposes, any governmental Worker's Compensation funds, and/or arising under any state Worker's Compensation law, (ii) arising under the Federal Longshoremen's and Harbor Workers' Act, (iii) of any health care provider (including all medical, hospital, ambulance and/or drug bills or related expenses), and (iv) of any insurance carrier or other party who has, or claims to have, a lien against the aforesaid consideration, and all such claims as may now be pending or which may heretofore have been made against any or all of the Releasees, which may be brought and/or made on account of any claimed injuries and/or damages arising from or relating to the exposure of Claimant to asbestos or asbestos-containing products, and to indemnify them in legal tender and/or by offset, up to the full extent of the compensation paid or to be paid pursuant to the Settlement Agreement. The Release and Indemnity provisions contained herein are specifically intended to operate and be applicable even if it is alleged, charged or proven that all or some of the claims released or damages sought are caused in whole or in part by the sole, concurrent or contributory negligence or other conduct of any type by any of the Releasees. It is further agreed that this Release and that certain Settlement Agreement between Congoleum Corporation and Various Asbestos Claimants (the "Claimant Agreement"), in which Releasors have joined, set forth the entire agreement between the parties and there is no other promise, agreement or inducement other than that as expressed herein and in the Claimant Agreement. The undersigned further state: 1. That each of them is of legal age, with no mental disability of any kind, and is fully and completely competent to execute this Release and Indemnity on his or her own behalf; 2. That the above Release and Indemnity has been explained to them and they know the contents as well as the effect thereof; 3. That they understand that Congoleum Corporation made a settlement offer to pay approximately ______ claims and the amount of compensation paid to Claimant is based on the application of a matrix value to Claimant's medical diagnosis; and 4. That Claimant was exposed to an asbestos-containing product manufactured, sold, or distributed by Congoleum or for which Congoleum has legal liability. The undersigned further state that they executed this instrument after consultation with their attorney or the opportunity to consult with an attorney. Each of the undersigned hereby declares under penalty of perjury, pursuant to 28 U.S.C ss. 1746, that the foregoing is true and correct, __________________________________ [Name] Social Security No. ______________ Date: ____________________________ __________________________________ [Spouse] Social Security No. ______________ Date: ____________________________ 2 EXHIBIT E TO DISCLOSURE STATEMENT FIRST AMENDMENT TO SETTLEMENT AGREEMENT BETWEEN CONGOLEUM CORPORATION AND VARIOUS ASBESTOS CLAIMANTS This first amendment to the Settlement Agreement Between Congoleum Corporation And Various Asbestos Claimants ("Amendment to the Claimant Agreement") is entered into by, between and among Congoleum Corporation, its predecessors, successors, distributors and assigns (collectively, "Congoleum"), and the Participating Asbestos Claimants, by and through representative plaintiffs' counsel, Perry Weitz, Esq. and Joseph F. Rice, Esq. ("Claimants' Counsel"). RECITALS WHEREAS, Congoleum and Participating Asbestos Claimants entered into an agreement titled Settlement Agreement Between Congoleum Corporation And Various Asbestos Claimants (the "Claimant Agreement") dated April 10, 2003; and WHEREAS, Congoleum and Participating Asbestos Claimants wish to extend the time within which Asbestos Claimants may accept the terms of the Claimant Agreement and agree to be bound by the Claimant Agreement and to extend the time for such Asbestos Claimants to be eligible to provide Claim Documentation and to qualify as a Participating Asbestos Claimant; and WHEREAS, Congoleum, the Collateral Trustee and the Delaware Trustee entered into the Collateral Trust Agreement pursuant to which a statutory trust under the Delaware Statutory Trust Act was created on April 17, 2003 (the "Collateral Trust Agreement"); and WHEREAS, Congoleum, the Collateral Trustee, and the Delaware Trustee, with the consent of Claimants' Counsel, contemporaneously herewith are executing that certain first amendment to the Collateral Trust Agreement (the "Amendment to the Collateral Trust Agreement"); and WHEREAS, on or about April 11, 2003 and April 17, 2003, respectively, Congoleum executed agreements titled "Security Agreement" and "Second Security Agreement" (collectively, the "Security Agreements") granting to the Collateral Trust a present and continuing security interest in certain insurance proceeds; and WHEREAS, Congoleum and the Collateral Trustee have contemporaneously herewith terminated the Security Agreements and entered into a subsequent security agreement ("Superceding Security Agreement") to eliminate any confusion as to the effective date of the grant of the Security Interest; and EXHIBIT E TO DISCLOSURE STATEMENT WHEREAS, the Parties desire to enter into this Amendment to the Claimant Agreement to confirm their agreement with respect to (i) the amendment of certain deadlines related to qualification as Participating Claimants; (ii) the termination of the Security Agreements; (iii) the execution of the Superceding Security Agreement; and (iv) certain other matters relating to the foregoing, as hereafter provided; NOW, THEREFORE, intending to be legally bound hereby, Congoleum and each of the Participating Asbestos Claimants agree that the Claimant Agreement shall be amended as follows: AGREEMENT 1. Section I.B.1 and I.B.2 of the Claimant Agreement shall be replaced in its entirety with: B. To qualify as a Participating Asbestos Claimant, each Asbestos Claimant, or his counsel, must 2 EXHIBIT E TO DISCLOSURE STATEMENT 1. On or before July 1, 2003, submit in an electronic form reasonably satisfactory to the Claims Reviewer the following documents and information in form and substance satisfactory to the Claims Reviewer: (1) the Asbestos Claimant's name and social security number; (2) the Asbestos Claimant's alleged disease or injury; (3) for all cases filed after February 14, 2003, a statement by counsel of record that the claimant can comply with exposure requirements of the Agreement; (4) a statement that his or her Asbestos Claim was filed in a court of competent jurisdiction on or before July 1, 2003; and (5) a statement that the Asbestos Claimant is interested in participating in this Claimant Agreement; and 2. On or before August 15, 2003, submit in writing the following documents and information in form and substance satisfactory to the Claims Reviewer: (1) evidence of bodily injury, sickness or disease consistent with the terms and meaning of the Compensable Disease Matrix; however, if such Asbestos Claimant was qualified as a Participating Category D Claimant under the Settlement Agreement Between ACandS, Inc. and Various Asbestos Claimants, dated April 17, 2002 (the "ACandS Claimant Agreement"), a notice indicating that the claimant will rely upon the evidence submitted to the Claims Reviewer in connection with the ACandS Claimant Agreement will satisfy this requirement; (2) a statement swearing under penalty of perjury or witnessed by a notary, that the Asbestos Claimant was exposed to an asbestos-containing product manufactured, sold, or distributed by Congoleum or for which Congoleum has legal liability; (3) a claim form that will indicate the Asbestos Claimant's name, social security number, exposure date and diagnosis date; (4) proof that the Asbestos Claimant had filed a claim in a court of competent jurisdiction against Congoleum on or before July 1, 2003; and (5) a release in the form of Appendix B hereto or another form acceptable to Congoleum (collectively "Claim Documentation"). Asbestos Claimants should note that if they were qualified under the ACandS Claimant Agreement as a Non-Malignant Participating Category D Claimant, reliance on the submission in connection with the ACandS Claimant Agreement will mean qualification here as a Level 1 Non-Malignant disease category pursuant to the attached Compensable Disease Matrix. 3 EXHIBIT E TO DISCLOSURE STATEMENT 2. Section I.E of the Claimant Agreement shall be replaced in its entirety with: E. As to any Asbestos Claimant who submits Claim Documentation on or before July 7, 2003, the Claims Reviewer will mail any notice of deficiencies in Claim Documentation within thirty (30) days after receipt of the Claims Documentation. As to any Asbestos Claimant who submits Claim Documentation after July 7, 2003, the Claims Reviewer will mail any notice of deficiencies in Claim Documentation within sixty (60) days after receipt of the Claims Documentation. If the Claims Reviewer does not mail notices of deficiencies within the time period set forth above to a particular Asbestos Claimant, that Asbestos Claimant's Claim Documentation shall be deemed satisfactory. 3. Sections II.A and II.B of the Claimant Agreement shall be replaced in their entirety with: II. SECURED RIGHTS OF PARTICIPATING ASBESTOS CLAIMANTS A. The Security Interest contemplated by the Superceding Security Agreement shall secure an amount equal to seventy-five percent (75%) of the aggregate of all Participating Asbestos Claimants' Settlement Amounts (the "Secured Amount") as provided in the Collateral Trust Agreement and the Superceding Security Agreement. Congoleum's obligation to pay each Participating Asbestos Claimant its pro rata share of the Secured Amount shall be referred to herein as the "Secured Asbestos Claims." B. Until all of the Secured Asbestos Claims for all Participating Asbestos Claimants are paid in full, Congoleum shall evaluate, bring, prosecute, litigate, defend and settle any claim against its insurers to obtain Insurance Proceeds. Congoleum shall consult with Claimants' Counsel in order to retain a mutually acceptable counsel to prosecute any claim against its insurers to obtain Insurance Proceeds. Congoleum agrees to obtain the consent of Claimants' Counsel prior to entering into settlement of any claim against its insurers to obtain Insurance Proceeds, which consent shall not be unreasonably withheld, conditioned or delayed. 4 EXHIBIT E TO DISCLOSURE STATEMENT 4. Section II.C of the Claimant Agreement shall be deleted. 5. The paragraph below shall be added to the Claimant Agreement as Section III.D: D. The beneficial interests in the Collateral Trust are not transferable or assignable, except as may be provided under operation of law or after the death of a Participating Asbestos Claimant pursuant to a will or the law applicable to the decendent's estate. The beneficial interests in the Collateral Trust shall not be evidenced by a separate certificate. Nothing in this paragraph III.D shall in any way restrict the ability of the Collateral Trust to transfer the Trust Assets (as defined in the Collateral Trust Agreement) to any trust established pursuant to a plan of reorganization for Congoleum under chapter 11 of the United States Bankruptcy Code. 6. Other than expressly provided for herein, the terms of the Claimant Agreement shall remain in full force and effect. 7. The Claimant Agreement and this Amendment to the Claimant Agreement (collectively, the "Agreements") constitute a single integrated written contract expressing the entire agreement among the parties hereto with respect to the subject matter hereof. The Agreements supercede any prior understandings and agreements between or among the parties with respect to the subject matter of the Agreements. Any statements, promises or inducements, whether made by any party or any agents of any party, that are not contained in the Agreements shall not be valid or binding. The failure or invalidation of any provision of the Agreements shall not in any way affect the validity or performance of any party pursuant to any other provision of the Agreements. 5 EXHIBIT E TO DISCLOSURE STATEMENT 8. References in the Claimant Agreement, the Superceding Security Agreement, and the Collateral Trust Agreement to the "Claimant Agreement" shall be deemed references to the Agreements. 9. This Amendment to the Claimant Agreement may be executed in any number of counterparts. Each of such counterparts for all purposes shall be deemed to be an original, and all such counterparts together shall constitute but one and the same Amendment to the Claimant Agreement. IN WITNESS WHEREOF, the parties have caused this First Amendment to the Claimant Agreement to be duly executed this 6th day of June 2003. CONGOLEUM CORPORATION By /s/ Howard N. Feist III ------------------------------- Title Chief Financial Officer ----------------------------- PARTICIPATING ASBESTOS CLAIMANTS By Claimants' Counsel /s/ Perry Weitz --------------------------- Perry Weitz, Esq. /s/ Joseph F. Rice --------------------------- Joseph F. Rice, Esq. 6 -----END PRIVACY-ENHANCED MESSAGE-----