Exhibit 99.2


--------------------------------------------------------------------------------
ANY TERM USED IN CAPITALIZED FORM THAT IS NOT DEFINED HEREIN BUT THAT IS DEFINED
IN THE NINTH 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 OFFICIAL COMMITTEE OF ASBESTOS CLAIMANTS (COLLECTIVELY,
THE "PLAN PROPONENTS") DATED AS OF AUGUST 11, 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
                   NINTH 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 AUGUST 11, 2006

THIS DISCLOSURE STATEMENT SOLICITS ACCEPTANCES OF THE PLAN AND CONTAINS
INFORMATION RELEVANT TO A DECISION TO ACCEPT OR REJECT THE PLAN.


<PAGE>

--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------


<PAGE>

            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 Ninth 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 August 11, 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 ALSO 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 5,700,000 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 OR, IF THE HOLDERS OF
THE SENIOR NOTE CLAIMS VOTE TO REJECT 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 WITH A MINIMUM OF 51% OF
THE VOTING COMMON SHARES ALLOCATED TO 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 Futures Representative and the Claimants'
Representative. The Asbestos Claimants' 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 and holders of
Unknown Asbestos Claims and Demands and represents a fair recovery for holders
of Class 2, 3, 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 Congoeum
Interests; however, the Futures Representative has not yet approved the final
language of the Plan and the Plan Documents, including the TDP.


                                        i
<PAGE>

            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 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 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 Settlement;
the treatment of the Senior Note Claims, the ABI Claims and the Congoeum
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
<PAGE>

            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
<PAGE>

            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
<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

ARTICLE 1 INTRODUCTION.........................................................9

      1.1.  This Solicitation - Purpose of Disclosure Statement................9

      1.2.  Voting Procedures..................................................2

      1.3.  Voting Deadline....................................................3

      1.4.  Overview of the Reorganization.....................................3

      1.5.  Overview of the Plan...............................................4

      1.6.  Summary Description of Classes and Distributions..................10


ARTICLE 2 GENERAL INFORMATION.................................................17

      2.1.  Business of the Company Generally.................................17

      2.2.  Factors Leading to the Need for Bankruptcy Relief.................19


ARTICLE 3 THE PRE-PETITION PROCESS AND PAYMENT OF ASBESTOS CLAIMS.............28

      3.1.  The Company's Reasons for Negotiating a Prepackaged Plan..........28

      3.2.  The Initial Negotiation Process...................................28

      3.3.  Selection of the Futures Representative...........................32

      3.4.  Formation of the Pre-Petition Asbestos Claimants' Committee.......33

      3.5.  Due Diligence Review..............................................33

      3.6.  Pre-Petition Plan Negotiations....................................33

      3.7.  Pre-Petition Solicitation.........................................34


ARTICLE 4 THE COMPANY: CORPORATE STRUCTURE AND MANAGEMENT.....................35

      4.1.  Boards of Directors of the Company................................35

      4.2.  Management of the Company.........................................36

      4.3.  Directors and Officers of the Reorganized Debtors.................38

      4.4.  Employees and Union Contracts.....................................38

      4.5.  Debt and Equity Structure.........................................39

      4.6.  Other Matters.....................................................42


                                        v
<PAGE>

ARTICLE 5 EVENTS DURING THE REORGANIZATION CASES..............................43

      5.1.  Commencement of the Reorganization Cases..........................43

      5.2.  Administration of the Reorganization Cases........................44

      5.3.  Asbestos Claimants' and Bondholders' Committee....................46

      5.4.  Bankruptcy Court Appointment of Futures Representative............46

      5.5.  Retention of Professionals........................................47

      5.6.  Motion for Relief from Stay.......................................49

      5.7.  Developments with Regard to Certain Pre-Petition Claims...........49

      5.8.  Tolling Agreements With Respect to Asbestos Personal Injury
            Claims-Related Avoidance Actions..................................50

      5.9.  Tolling Agreements With Respect to Other Avoidance Actions........52

      5.10. Asbestos Personal Injury Claims - Related Avoidance Actions.......53

      5.11. Settlements with Insurers and Brokers.............................56

      5.12. Fourth Modified Plan and Subsequent Changes.......................60

      5.13. Mediation and the Consensual Ninth Modified Plan..................61

      5.14. Standing of Insurers to be Heard..................................67

      5.15. Discovery Conducted by the Parties................................68

      5.16. Expiration of Debtors' Exclusivity to File a Plan and Solicit
            Acceptances Thereof...............................................68

      5.17. Confirmation Hearing..............................................69


ARTICLE 6 SUMMARY OF THE PLAN.................................................69

      6.1.  General...........................................................69

      6.2.  The Class 2 Settlement and Class 3 and 11 Settlement..............69

      6.3.  Classification....................................................72

      6.4.  Treatment of Administrative Claims and Priority Tax Claims........73

      6.5.  Treatment of Classified Claims and Interests......................74

      6.6.  Means for Execution of the Plan...................................80

      6.7.  Executory Contracts and Unexpired Leases..........................85

      6.8.  Compensation and Benefits Programs................................86

      6.9.  Injunctions, Releases and Discharge...............................86

      6.10. Matters Incident to Plan Confirmation.............................94

      6.11. Retention of Jurisdiction.........................................95


                                       vi
<PAGE>

      6.12. Miscellaneous Provisions..........................................98


ARTICLE 7 CONFIRMATION OF THE PLAN...........................................101

      7.1.  Acceptance or Rejection of the Plan..............................101

      7.2.  Confirmation Hearing.............................................106

      7.3.  Requirements for Confirmation....................................106

      7.4.  Effect of Confirmation...........................................115


ARTICLE 8 PLAN TRUST AND ASBESTOS CLAIMS RESOLUTION MATTERS..................115

      8.1.  Establishment and Purpose of the Plan Trust......................115

      8.2.  Funding and Receipt of Plan Trust Assets.........................116

      8.3.  Discharge of Liabilities to Holders of Asbestos Claims...........117

      8.4.  Excess Plan Trust Assets.........................................117

      8.5.  Plan Trust Expenses..............................................118

      8.6.  Appointment of the Initial Plan Trustees.........................118

      8.7.  The Futures Representative.......................................118

      8.8.  Appointment of Members of the Trust Advisory Committee...........118

      8.9.  Assumption of Liabilities........................................118

      8.10. Indemnification of the Company and Reorganized Congoleum by
            the Plan Trust...................................................119

      8.11. Establishment of the TDP.........................................119


ARTICLE 9 ESTIMATED CLAIMS BY CLASS..........................................120

      9.1.  Claims other than Asbestos Claims................................120

      9.2.  Asbestos Claims..................................................121


ARTICLE 10 RISKS OF THE PLAN.................................................122

      10.1. General..........................................................122

      10.2. Confirmation Risks...............................................122

      10.3. Insurance Coverage for Plan Trust Asbestos Claims................122

      10.4. Distributions under the TDP......................................124

      10.5. Risk of Post-Confirmation Default................................124


                                       vii
<PAGE>

ARTICLE 11 ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN.........124

      11.1. Liquidation under Chapter 7......................................125

      11.2. Alternative Plan of Reorganization...............................125


ARTICLE 12 CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN...............126

      12.1. Tax Consequences to Congoleum....................................127

      12.2. Tax Consequences to the Plan Trust...............................132

      12.3. Tax Consequences to Certain Impaired Holders of Claims...........132


ARTICLE 13 FINANCIAL INFORMATION.............................................135

      13.1. General..........................................................135


ARTICLE 14 SOURCES OF INFORMATION PROVIDED AND THE ACCOUNTING METHOD USED....135

      14.1. Sources of Information...........................................135

      14.2. Accounting Method................................................135


                                      viii
<PAGE>

                                    EXHIBITS

Exhibit A   Ninth Modified Joint Plan of Reorganization Under Chapter 11 of the
            Bankruptcy Code of Congoleum Corporation, et al., dated as of August
            11, 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 March 31, 2006

Exhibit E   Claimant Agreement

                                   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
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


                                       ix
<PAGE>

Settlement and the Class 3 and 11 Settlement provide the best recoveries
possible for the all 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 Congoeum 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 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 September 21, 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.


                                        2
<PAGE>

            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.

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.


                                        3
<PAGE>

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.

            The Plan is a product of extensive efforts by Congoleum, ABI, the
Asbestos Claimants' 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;

      (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;


                                        4
<PAGE>

      (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;

      (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 toaccept 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;

      (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


                                        5
<PAGE>

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.

            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 toaccept the Plan);

            o     the New Convertible Security (if the holders of the Senior
                  Note Claims (as a Class) vote toaccept the Plan);

            o     the Plan Trust Common Stock (if the holders of the Senior Note
                  Claims (as a Class) vote toreject 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;


                                        6
<PAGE>

            o     distributions from the GHR/Kenesis Litigation Trust on behalf
                  of Recognized Congoleum, including the proceeds of GHR/Kenesis
                  Actions; and

            o     the rights granted to the Plan Trust pursuant to the Insurance
                  Assignment Agreement.

            Upon a specified 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 5,700,000
Shares of Class A Common Stock (or the equivalent thereof on a fully diluted
basis), 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 Settlement, 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 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 will be dismissed. In the event that the Qualified Claimant
Settlements are not approved by a Final Order of the Bankruptcy Court, agreement


                                        7
<PAGE>

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
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


                                        8
<PAGE>

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.

            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.

            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.


                                        9
<PAGE>

            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 Distribution or Treatment Under the
Description of Claims     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.

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
Claims                    of an Allowed 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.


                                       10
<PAGE>

Description of Claims or  Description of Distribution or Treatment Under the
Interests                 Plan
---------                 ----

Class 2 - Secured         As of the Effective Date, all liability for all
Asbestos Claims of        Asbestos Claims of Secured 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 Allowed Secured
                          Asbestos Claim, 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 Settlement Claimants will be
                          dismissed. 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


                                       11
<PAGE>

Description of Claims or  Description of Distribution or Treatment Under the
Interests                 Plan
---------                 ----

                          Reorganized Debtors will have no liability therefor.
                          Each such Qualified Participating Claimant will, in
                          respect of its Allowed Secured Asbestos Claim, 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 "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. 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


                                       12
<PAGE>

Description of Claims or  Description of Distribution or Treatment Under the
Interests                 Plan
---------                 ----

                          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
                          Agreement will be on terms and conditions 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.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.


                                       13
<PAGE>

Description of Claims or  Description of Distribution or Treatment Under the
Interests                 Plan
---------                 ----

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.

Class 6 - Senior Note     On the Effective Date, provided that the holders of
Claims                    the Senior Note Claims 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 to the holders of the Senior Note Claims;
                          provided, however, that Reorganized Congoleum will
                          receive a credit dollar for dollar against all
                          interest payable under the New Senior Notes for all
                          fees and expenses of the Bondholders' Committee
                          incurred and paid after August 11, 2006. The New
                          Senior Notes will be subordinate in priority and
                          payment to the Amended Credit Agreement, the New
                          Convertible Security and the Plan Trust Note. In the
                          event that the holders of the Senior Note Claims do
                          not vote to accept the Plan and the treatment afforded
                          in Section 5.1(f) of the Plan by the requisite number
                          and amount required by the Bankruptcy Code, then the
                          Plan will be confirmed in accordance with Section 10.6
                          of the Plan, 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; provided, however, that in no event
                          will the amount of Reserved 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 Reorganized Congoleum on a fully
                          diluted basis. 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. 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.

                                       14
<PAGE>

Description of Claims or  Description of Distribution or Treatment Under the
Interests                 Plan
---------                 ----

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 Previously As of the Effective Date, all liability for all Not
Determined Unsecured      Previously Determined Unsecured Asbestos Personal
Asbestos Personal         Injury Claims as well as liability for all future
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
                          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 will be deemed satisfied in their Claims
Injury 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


                                       15
<PAGE>

Description of Claims or  Description of Distribution or Treatment Under the
Interests                 Plan
---------                 ----

                          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 Eighth 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 amount and number 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 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; provided, however, that in no event will the
                          amount of Reserved 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
                          Reorganized Congoleum on a full diluted basis. 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.


                                       16
<PAGE>

                                   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
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.


                                       17
<PAGE>

            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.

            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.


                                       18
<PAGE>

            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.

            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


                                       19
<PAGE>

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.

            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


                                       20
<PAGE>

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.

            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.


                                       21
<PAGE>

            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
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


                                       22
<PAGE>

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
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.


                                       23
<PAGE>

            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.

            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.


                                       24
<PAGE>

            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
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


                                       25
<PAGE>

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.

      (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.


                                       26
<PAGE>

      (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
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.


                                       27
<PAGE>

                                   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.

            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.


                                       28
<PAGE>

            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
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.


                                       29
<PAGE>

            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
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.


                                       30
<PAGE>

            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.

      (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.


                                       31
<PAGE>

            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.

            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.


                                       32
<PAGE>

            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.

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


                                       33
<PAGE>

(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 and 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
Claims. The prepackaged plan has been withdrawn by the Debtors, and the Debtors
have substituted the proposed Ninth Modified Plan. As discussed below in Section
5.12 - "Fourth Modified Plan and Subsequent Changes", the Ninth Modified Plan is
a significant departure from the prepackaged plan. Most significantly, the Ninth
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.


                                       34
<PAGE>

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.

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.


                                       35
<PAGE>

                     Business Experience and
Name                 Other Directorships
----                 -------------------

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.

          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


                                       36
<PAGE>

          Name                   Position with Congoleum
          ----                   -----------------------

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.

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.


                                       37
<PAGE>

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.

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


                                       38
<PAGE>

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.

            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.


                                       39
<PAGE>

            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, including expressly
permitting Congoleum to issue the Promissory Note to the Plan Trust, as provided
under the Pre-Packaged Plan, to reflect certain possible contributions expected
to be made by ABI to the Plan Trust and expressly permitting Congoleum to issue
promissory notes to ABI as repayment for certain amounts which may be paid by
ABI to the Plan Trust. 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.


                                       40
<PAGE>

      (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.


                                       41
<PAGE>

            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


                                       42
<PAGE>

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.

            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.

                                   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.


                                       43
<PAGE>

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
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.


                                       44
<PAGE>

            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").

            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.


                                       45
<PAGE>

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.

            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.


                                       46
<PAGE>

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
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


                                       47
<PAGE>

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 11,
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,
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.


                                       48
<PAGE>

            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.

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


                                       49
<PAGE>

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.

            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


                                       50
<PAGE>

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
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


                                       51
<PAGE>

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
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.


                                       52
<PAGE>

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
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


                                       53
<PAGE>

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
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.


                                       54
<PAGE>

            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 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.

      (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.


                                       55
<PAGE>

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"). A hearing on
the Bondholders' Intervention Motion has been set for August 14, 2006 before the
Bankruptcy Court.

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
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


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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 has
appealed the approval order granted by the Bankruptcy Court to the District
Court where it is pending. 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.

      (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


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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 Federal 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
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


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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. An insurer and the Futures Representative have 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 a 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 in two
installments 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 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 Bankruptcy Court for more details regarding the terms of the St. Paul
Travelers Settlement and Buyback Agreement. The hearing to consider the St. Paul
Travelers Settlement and Buyback Agreement has been adjourned pending discovery
and any pending motion practice related to such discovery.


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<PAGE>

      (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. The hearing to consider
the Fireman's Fund Settlement and Buyback Agreement has been adjourned pending
discovery and any pending motion practice related to such discovery.

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 and 3, Class 9, Class 10, Class 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 (former
Classes 2 and 3) 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


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<PAGE>

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
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 Modified Plan

            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 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 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,


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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; except
                  that after the Effective Date, such Causes of Action will be
                  transferred to the Plan Trust to the extent that any Qualified
                  Pre-Petition Settlement Claimant 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; except that after the Effective Date, such
                  Causes of Action will be transferred to the Plan Trust to the
                  extent that any Qualified Participating Claimant 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.

-------------------------
(1)   The following summary of the modifications reflected in the Ninth 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.

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<PAGE>

            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 reduce
                  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.

            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) set forth the treatment afforded to the Class 3
                  and 11 Claims of the Qualified Pre-Petition Settlement
                  Claimants, which treatment is consistent with, and subject to
                  approval of, the Class 3 and 11 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 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.

            5.    Treatment of Class 10 - Not Previously Determined Unsecured
                  Asbestos Personal Injury Claims - Section 5.1(j) of the Plan.
                  Section 5.1(j) sets forth the treatment of Class 10 - Not


                                       63
<PAGE>

                  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 toaccept 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 $100 million
                  aggregate principal amount 10% Senior Notes due August 2011
                  subordinate to the Amended Credit Agreement, the Plan Trust
                  Note and the New Convertible Security to the holders of the
                  Senior Note Claims; provided, however, that Reorganized
                  Congoleum will receive a credit dollar for dollar against all
                  interest payable under the New Senior Notes for all fees and
                  expenses of the Bondholders' Committee incurred and paid after
                  August 11, 2006. 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, then the Plan will be
                  confirmed in accordance the "cram-down" power contained in
                  Section 1129(b) of the Bankruptcy Code, the Senior Notes will
                  be cancelled and the holders of the Senior Note Claims will
                  receive their pro rata share of the equity interests of
                  Reorganized Congoleum to be allocated by 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) vote toreject the Plan; provided,
                  however, that in no event will the holders of the Senior Note
                  Claims be allocated in excess of 49% of the voting common
                  shares and total economic equity value of Reorganized
                  Congoleum on a fully diluted basis.

            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 toaccept the Plan. If the holders of
                  the Senior Note Claims (as a Class) vote toaccept 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


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<PAGE>

                  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; provided, however, that in no event will less than 51%
                  of the voting common shares and total economic equity value of
                  Reorganized Congoleum be allocated to the Plan Trust.

            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, 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; investigate, pursue, prosecute, settle,
                  manage and resolve, as appropriate, the GHR/Kenesis Actions
                  for the benefit of Reorganized Congoleum and the Plan Trust;
                  and distribute the proceeds of the GHR/Kenesis Actions to the
                  Plan Trust (after payment and reimbursement for expenses to
                  the GHR/Kenesis Litigation Trustee) on behalf of Reorganized
                  Congoleum. The form of GHR/Kenesis Litigation Trust 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 Ninth 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.


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            12.   Plan Trust Note - Section 6.1(t) of the Plan. Section 6.1(t)
                  of the Plan provides that on the Effective Date, Reorganized
                  Congoleum will issue the Plan Trust Note to the Plan Trust,
                  which note will be in all respects pari passu in priority and
                  payment with the New Convertible Security. The Plan Trust Note
                  is a promissory note due December 31, 2011, bearing interest
                  at 10% per annum payable semi-annually with a principal amount
                  of $14 million or such other principal amount as is determined
                  to provide Reorganized Congoleum, when combined with cash on
                  hand and available drawings under the Amended Credit
                  Agreement, with $18 million in total liquidity with the
                  proceeds to be used by Reorganized Congoleum for working
                  capital and general corporate purposes.

            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.   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) vote toreject
                  the Plan.

            15.   Conditions to Confirmation - Sections 11.1(a)(vi) and (xxi) of
                  the Plan. Subsections 11.(a)(vi) and (xxi) have been added to
                  the Plan to incorporate additional conditions to Confirmation.
                  First, subsection 11.1(a)(vi) provides that, as a condition to
                  confirmation and in the event that the holders of the Senior
                  Note Claims (as a Class) vote toreject 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; provided, however, that in no event will the
                  Plan Trust receive less than 51% of such common stock. Second,
                  subsection 11.1(a)(xxi) 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.


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<PAGE>

            16.   Insurance Settlement Protocol - Section 11.2(g) of the Plan.
                  Subsection 11.2(g) 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.

            17.   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.

            18.   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 sale,
                  distribution or use of any Congoleum product.

            19.   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


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<PAGE>

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 the insurers may file amended or
supplemental objections in connection with the confirmation of the Ninth
Modified Plan and the Plan Proponents may assert that the 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 have 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").


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<PAGE>

            On March 10, 2006 the Bankruptcy Court entered an Amended Pre-Trial
Order, which required the Debtors to file the Eighth Modified Plan and a
disclosure statement concerning the Eighth Modified Plan by March 17, 2006. CNA
and the Bondholders' Committee are required to file disclosure statements
concerning the CNA Plan and the Bondholders' Plan by March 31, 2006. A hearing
to consider the adequacy of disclosure statements filed on or before March 31,
2006, as well as the Ninth Modified Plan, has been scheduled for September 7,
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
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:


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<PAGE>

                  (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, as against the Qualified Pre-Petition Settlement Claimants; provided,
however, that after the Effective Date, all such Causes of Action will continue
and will be transferred to the Plan Trust to the extent that any Qualified
Pre-Petition Settlement Claimant 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, any lien security interest or payment
priority under the Collateral Trust Agreement and the Security Agreement in and
to the Plan Trust Assets and it is determined that such Causes of Action have
not been resolved by the Plan, the Class 2 Settlement, the Confirmation Order or
otherwise.

                  (iv) 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 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.

                  (v) 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


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<PAGE>

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.

      (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, as
against the Qualified Participating Claimants; provided, however, that after the
Effective Date, all such Causes of Action will continue and will be transferred
to the Plan Trust to the extent that any Qualified Pre-Petition Settlement
Claimant asserts a right to hold, exercise or enforce any lien, security
interest or payment priority under the Claimant Agreement or any right to hold,
any lien security interest or payment priority under the Collateral Trust
Agreement and the Security Agreement in and to the Plan Trust Assets and 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.


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<PAGE>

                  (iv) 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.

                  (v) 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.

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:


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<PAGE>

            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,
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.


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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 Allowed Secured
Asbestos Claim, 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


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<PAGE>

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. 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 Allowed Secured Asbestos Claim, 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
"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


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therefor, all Causes of Action pending against the Qualified Participating
Claimants will be dismissed. 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 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.

      (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.


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<PAGE>

            (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 toaccept 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 to the holders of the
Senior Note Claims; provided, however, that Reorganized Congoleum will receive a
credit dollar for dollar against all interest payable under the New Senior Notes
for all fees and expenses of the Bondholders' Committee incurred and paid after
August 11, 2006. The New Senior Notes will be subordinate in priority and
payment to the Amended Credit Agreement, the New Convertible Security and the
Plan Trust Note.
            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 Plan will be
confirmed in accordance with Section 10.6 of the Plan, 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; provided, however, that in no event will the amount of
Reserved 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 Reorganized
Congoleum on a fully diluted basis.

            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.

      (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.


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<PAGE>

            (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.

            (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; will be channeled to and become the obligations of the Plan
Trust, and be payable in accordance with the terms of the Plan and the TDP; 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.


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<PAGE>

            (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.

      (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 Eighth 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.


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<PAGE>

      (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 amount and number
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 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; provided, however, that in no event will
the amount of Reserved 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
Reorganized Congoleum on a fully diluted basis.

      (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.


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<PAGE>

      (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 toaccept the Plan) or the Reserved Common Stock
(in the event that the Senior Note Claims (as a Class) vote toreject the Plan).

            (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 toaccept the Plan) or the Reserved Common Stock (in the
event that the Senior Note Claims (as a Class) vote toreject the Plan) 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 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, 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 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 Reorganized Congoleum on a fully diluted basis; and (vi) no voting
rights except upon conversion.

            (4)   The ABI Contribution

            On the Effective Date, ABI will make the ABI Contribution to the
Plan Trust.


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<PAGE>

            (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
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.


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<PAGE>

            (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.

            (13)  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 and the Plan Trust. The GHR/Kenesis
Litigation Trust will be funded on the Effective Date with $600,000 to provide
for payment of the fees and expenses of the GHR/Kenesis Litigation Trustee. 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 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 all proceeds of the GHR/Kenesis Actions to the Plan Trust on behalf
of Reorganized Congoleum (after payment of fees and reimbursement for expenses
to the GHR/Kenesis Litigation Trustee).

      (c)   Plan Distributions

            The Disbursing Agent will make all distributions required under the
Plan (other than distributions to holders of Plan Trust Asbestos 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.


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<PAGE>

      (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
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, 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.
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 ABI 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.


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<PAGE>

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.


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<PAGE>

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 have no liability to any Entity with respect
to the Pension Plans.

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 against any claim that
Reorganized Congoleum may have against the Plan Trust.


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<PAGE>

      (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,
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.


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<PAGE>

      (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 or the administration
of the Plan or the property to be distributed under the Plan and 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, provided, however,
that in no event will the Claimants' Representative be exculpated from liability
for any costs or expenses incurred in connection with the Avoidance Actions. 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
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.


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<PAGE>

            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
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:


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<PAGE>

                  (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.


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<PAGE>

      (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.


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<PAGE>

      (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;


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<PAGE>

            (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; or

            (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; (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 (i) through
(vii) of Section 12.12 of the Plan or (ii) any other party in any such Asbestos
Insurance Action to assert any appropriate position. Except as provided in
Section 12.12(d) of the Plan, none of the matters specified in clauses (i)
through (vii) of Section 12.12 of the Plan will have any res judicata or
collateral estoppel effect against any Asbestos Insurance Company.


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<PAGE>

      (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 Pre-Petition Asbestos Claimants' Committee 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
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


                                       94
<PAGE>

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
which any Debtor has or may have and which may not have been enforced or


                                       95
<PAGE>

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 and the Plan Trustee 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;


                                       96
<PAGE>

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 Trustee, 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 Trustee
      to amend, modify, alter, waive, or repeal any provision of the Plan Trust
      Agreement or the TDP; and

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.


                                       97
<PAGE>

            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 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
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 and the Futures Representative

            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
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


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<PAGE>

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, any other committee that may have been appointed
in the Reorganization Cases (other than the TAC, but including 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) prosecuting applications
for compensation for the professionals retained by such committee, 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 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, supplementation, change, or
amendment impairs or affects the rights of ABI or the Affiliates under the
Plan), the Futures Representative, 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.

      (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.


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<PAGE>

      (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 Trustee.

      (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)
vote toreject 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; provided, however, that in no event will less than 51% of the Reserved
Common Stock, calculated in terms of voting common shares and total economic
equity value of Reorganized Congoleum, be allocated to the Plan Trust as the
Plan Trust Common Stock.

      (l)   Transfer Limitations under Section 382(1)(5) of the IRC


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<PAGE>

            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.


                                   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.


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<PAGE>

      (b)   [Voting Instructions - To be conformed to Voting Procedures]

            (1)   Ballots

            Holders of Claims in Classes 2, 3, 6, 9 and 13 will be sent
individual ballots only. With respect to the Asbestos Claimants in Classes 15
and 16, 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:


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<PAGE>

                        (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 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:


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<PAGE>

                        (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.


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<PAGE>

            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.


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<PAGE>

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.


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<PAGE>

                  (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


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<PAGE>

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) -
"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.

----------------------
(2)   The attached Liquidation Analysis is without giving effect to rights under
      insurance policies.


                                      108
<PAGE>

            (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.


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<PAGE>

      (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 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) vote to reject 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; provided, however, that in no event will the Plan Trust
receive less than fifty-one percent (51%) of the Reserved Common Stock.

                  (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;


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<PAGE>

                  (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 contribution 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 Trustee, 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; and


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<PAGE>

                  (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.

                  (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 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.

            (3)   Amended Credit Agreement

            The Amended Credit Agreement and all documents to be executed in
connection with the Amended Credit Agreement, in form and substance reasonably
satisfactory to the Debtors, will not restrict Reorganized Congoleum's


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<PAGE>

obligations to make scheduled dividend or interest payments (as applicable) on
the New Convertible Security (if applicable) 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 (if
applicable), the Plan Trust Note, 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 the 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)   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.

            (6)   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.

            (7)   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.

            (8)   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,


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<PAGE>

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
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.


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<PAGE>

            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.

                                   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,


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<PAGE>

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
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 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 holders of the Senior Note Claims (as a Class) vote
to reject the Plan) to be issued to the Plan Trust in accordance with the Plan.
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 as
soon as practicable after the Effective Date. On the Effective Date, ABI will


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<PAGE>

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.

            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, Federal, Mt.
McKinley and Everest, Harper St. Paul Travelers 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 Trustee; provided, however, that such charitable
purpose, if practicable, will be related to the treatment of or research
regarding asbestos-related disorders.


                                      117
<PAGE>

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
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.


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<PAGE>

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
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 and the Plan Trust. The GHR/Kenesis
Litigation Trust will be funded on the Effective Date with $600,000 to provide
for payment of the fees and expenses of the GHR/Kenesis Litigation Trustee. 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 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 all proceeds of the GHR/Kenesis Actions to the Plan Trust on behalf
of Reorganized Congoleum (after payment of fees and reimbursement for expenses
to the GHR/Kenesis Litigation Trustee).


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<PAGE>

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 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 payment with the
New Convertible Security; provided, however, that pursuant to the GHR/Kenesis
Litigation Trust any proceeds of the GHR/Kenesis Actions pledged to the Plan
trust by Reorganized Congoleum to secure the Plan Trust Note by (i) first, being
applied to reduce or satisfy principal and accrued interest under the Plan Trust
Note; (ii) second, being applied to reduce or satisfy principal and accrued
interest under the New Convertible Security; provided, however, that the New
Convertible Security will not be satisfied 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 reduce or satisfy the New Convertible Security
immediately after the Reset Date; and (iii) thereafter, distributed to the Plan
Trust on behalf of Reorganized Congoleum.

                                   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:

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.


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      (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.

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.


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      (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,
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


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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
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


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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.

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 dividend or interest payments (as applicable) 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.


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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, the ABI Contribution or the Additional Plan Trust
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.

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 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.


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                                   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.

            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.


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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 toaccept
the Plan by the requisite number and amount (the "Senior Note Claim
Acceptance"), New Senior Notes 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 Plan provides that the holders of Senior Note Claims will
receive no amount in respect of accrued and unpaid interest on the Senior Notes,
and Reorganized Congoleum intends to take that position for United States
federal income tax purposes. 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 following summary assumes that no
amount will be allocated to accrued and unpaid interest on the Senior Notes, but
there can be no assurance that the Internal Revenue Service will not 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,


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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.

            The discussion of the issue price of the New Senior Notes assumes
they are not treated as "contingent payment debt instruments" within the meaning
of the IRC. The New Senior Notes could be contingent payment debt instrument
because the interest on the New Senior Notes may be subject to a more than
incidental contingency as a result of the Reorganized Congoleum's credit for
fees and expenses of the Official Committee of Bondholders that are incurred and
paid after the date the Plan is filed. In that event, special rules would apply
to determine the issue price of the New Senior Notes.

            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.

            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.


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<PAGE>

      (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 4.5%.
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.

            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.


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<PAGE>

            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.

      (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.


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<PAGE>

            A payment to a QSF generally is deductible when made, assuming that
such payment otherwise constitutes an ordinary and necessary business expense.
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).

      (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.


                                      131
<PAGE>

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.

      (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.


                                      132
<PAGE>

            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 or (ii) in the
event of the Senior Note Claim Non-Acceptance, a pro rata share of the Reserved
Common Stock.

            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,
and Reorganized Congoleum intends to take that position for United States
federal income tax purposes. The following summary assumes that no amount will
be allocated to accrued and unpaid interest on the Senior Notes, but the extent
to which such allocation would be respect by the Internal Revenue Service is
unclear and there can be no assurance that the Internal Revenue Service will not
challenge Reorganized Congoleum's position. 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.

            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 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 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). 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 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


                                      133
<PAGE>

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 begin on 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.

            As described above, the New Senior Notes could be contingent payment
debt instruments because the interest on the New Senior Notes may be subject to
a more than incidental contingency as a result of the Reorganized Congoleum's
credit for fees and expenses of the Official Committee of Bondholders that are
incurred and paid after the date the Plan is filed. In that event, special rules
would apply to determine the accrual of interest and OID on the New Senior Notes
and the characterization of income, gain and loss on the New 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.

      (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.


                                      134
<PAGE>

      (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.

                                   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.


                                      135
<PAGE>

                          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)


                                      136
<PAGE>

            The undersigned has executed this Disclosure Statement as of the
11th day of August 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.


                                      137
<PAGE>

                                           EXHIBIT B TO THE DISCLOSURE STATEMENT


                              Congoleum Corporation
                    Liquidation Valuation as of June 30, 2006

<TABLE>
<CAPTION>
Cash as of June 30, 2006 (1)
------------------------------------------------------------------------------------------------------------------------------------
                                                                         Realization Rate                    Liquidation Value
                                                    Book             -------------------------         -----------------------------
                                                   Value              Low                High              Low               High
                                                 -----------         -----              ------         -----------       -----------

<S>                                              <C>                 <C>                <C>            <C>               <C>
Cash and Cash Equivalents                        $17,863,408         100.0%             100.0%         $17,863,408       $17,863,408

<CAPTION>
Accounts Receivable as of June 30, 2006 (2)
------------------------------------------------------------------------------------------------------------------------------------
                                                                         Realization Rate                    Liquidation Value
                                                    Book             -------------------------         -----------------------------
                                                   Value              Low                High              Low               High
                                                 -----------         -----              ------         -----------       -----------

<S>                                              <C>                  <C>                <C>            <C>               <C>
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

<CAPTION>
Inventory as of June 30, 2006 (3)
------------------------------------------------------------------------------------------------------------------------------------
                                                                         Realization Rate                    Liquidation Value
                                                    Book             -------------------------         -----------------------------
                                                   Value              Low                High              Low               High
                                                 -----------         -----              ------         -----------       -----------

<S>                                              <C>                  <C>                <C>           <C>               <C>
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

<CAPTION>
Fixed Assets as of June 30, 2006 (4)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Liquidation Value
                                                    Book                                               -----------------------------
                                                   Value                                                   Low               High
                                                 -----------                                           -----------       -----------

<S>                                              <C>                                                   <C>               <C>
Total Fixed Assets                               $69,051,092                                           $18,425,000       $45,575,000

<CAPTION>
Other Assets as of June 30, 2006
------------------------------------------------------------------------------------------------------------------------------------
                                                                         Realization Rate                    Liquidation Value
                                                    Book             -------------------------         -----------------------------
                                                   Value              Low                High              Low               High
                                                 -----------         -----              ------         -----------       -----------

<S>                                              <C>                   <C>                <C>         <C>               <C>
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
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                           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.

<PAGE>

                                           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.


<PAGE>

                                           EXHIBIT C TO THE DISCLOSURE STATEMENT


             "Audited Financial Statements of Congoleum Corporation
                      for the Year Ended December 31, 2005"


                                      C-1
<PAGE>

                                           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
<PAGE>

                                           EXHIBIT C TO THE DISCLOSURE STATEMENT


Consolidated Balance Sheets
(dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                   December 31,  December 31,
                                                                                       2005          2004
-------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>          <C>
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
-----------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                      C-3
<PAGE>

                                           EXHIBIT C TO THE DISCLOSURE STATEMENT


Consolidated Statements of Operations
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                           For the years ended
                                                                               December 31,
                                                                      2005         2004         2003
                                                                      ----         ----         ----
-------------------------------------------------------------------------------------------------------

<S>                                                                <C>          <C>          <C>
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
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                      C-4
<PAGE>

                                           EXHIBIT C TO THE DISCLOSURE STATEMENT


Consolidated Statements of Changes in Stockholders' Equity (Deficit)
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                        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)
-------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>    <C>      <C>       <C>           <C>           <C>          <C>             <C>
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)
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                      C-5
<PAGE>

                                           EXHIBIT C TO THE DISCLOSURE STATEMENT


Consolidated Statements of Cash Flows
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                              For the years ended
                                                                                   December 31,
---------------------------------------------------------------------------------------------------------
                                                                          2005        2004        2003
---------------------------------------------------------------------------------------------------------
<S>                                                                     <C>         <C>         <C>
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
---------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                      C-6
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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.

<TABLE>
<CAPTION>
Obligations and Funded Status:                                     At December 31,

                                                      Pension Benefits        Other Benefits
                                                      ----------------        --------------
(in thousands)                                        2005        2004       2005       2004
---------------------------------------------------------------------------------------------

<S>                                                <C>         <C>         <C>        <C>
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)
                                                   ==========================================
</TABLE>

Amounts recognized in the balance sheets consist of:

<TABLE>
<CAPTION>
                                                      Pension Benefits        Other Benefits
                                                      ----------------        --------------
(in thousands)                                        2005        2004       2005       2004
---------------------------------------------------------------------------------------------
<S>                                                <C>         <C>         <C>        <C>
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)
                                                   ==========================================
</TABLE>

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
<PAGE>

                                           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:

<TABLE>
<CAPTION>
                                                Pension Benefits              Other Benefits
                                        -----------------------------    -----------------------
(in thousands)                            2005       2004       2003      2005     2004     2003
------------------------------------------------------------------------------------------------
<S>                                     <C>        <C>        <C>        <C>      <C>      <C>
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
                                        ========================================================
</TABLE>

Additional Information:

<TABLE>
<CAPTION>
                                                         Pension Benefits    Other Benefits
                                                         ----------------    --------------
(in thousands)                                            2005      2004      2005     2004
------------------------------------------------------------------------------------------
<S>                                                      <C>      <C>          <C>     <C>
Increase in minimum liability included in other
comprehensive income, net of tax benefit                 $2,416   $(1,839)     N/A     N/A
</TABLE>

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:

<TABLE>
<CAPTION>
                                                       Pension Benefits                   Other Benefits
                                                ----------------------------        ----------------------------
                                                2005        2004        2003        2005        2004        2003
-----------------------------------------------------------------------------------------------------------------
<S>                                             <C>         <C>         <C>         <C>         <C>         <C>
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%         --          --          --
</TABLE>


                                      C-21
<PAGE>

                                           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:

<TABLE>
<CAPTION>
                                                          1 Percentage     1 Percentage
 (in thousands)                                          Point Increase   Point Decrease
 --------------                                          --------------   --------------

<S>                                                           <C>              <C>
Effect on total of service and interest cost components       $ 61             $ 55
Effect on post-retirement benefit obligation                  $647             $591
</TABLE>

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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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:
<TABLE>
<CAPTION>

                                                                                      Spending        Recoveries
                                      Balance at                       Additions       Against           From       Balance at
(in thousands)                         12/31/04   Reclassifications   (Deletions)      Reserve        Insurance      12/31/05
                                  --------------------------------------------------------------------------------------------

<S>                                    <C>              <C>             <C>            <C>              <C>           <C>
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
                                       ========         =======         =======        ========         ======        ========
</TABLE>


                                      C-39
<PAGE>

                                           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:

<TABLE>
<CAPTION>
                                                                                       Spending     Recoveries
                                   Balance at                        Additions          Against        From         Balance at
(in thousands)                      12/31/03    Reclassifications   (Deletions)         Reserve     Insurance        12/31/04
                                  --------------------------------------------------------------------------------------------

<S>                                  <C>             <C>             <C>              <C>              <C>         <C>
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
                                     =======         =======         ========         ========         ====        ========
</TABLE>

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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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
<PAGE>

                                           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):

<TABLE>
<CAPTION>
                                                                 Year ended December 31, 2005
                                                    ----------------------------------------------------
                                                       First       Second         Third      Fourth
                                                      Quarter     Quarter(1)     Quarter    Quarter(2)
--------------------------------------------------------------------------------------------------------

<S>                                                    <C>         <C>            <C>       <C>
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)
========================================================================================================
</TABLE>


                                      C-45
<PAGE>

                                           EXHIBIT C TO THE DISCLOSURE STATEMENT


<TABLE>
<CAPTION>
                                                               Year ended December 31, 2004
                                                    ----------------------------------------------------
                                                        First       Second    Third     Fourth
                                                       Quarter     Quarter   Quarter   Quarter(3)
--------------------------------------------------------------------------------------------------------

<S>                                                    <C>         <C>       <C>       <C>
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
========================================================================================================
</TABLE>

(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
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


  Unaudited Financial Statements of Congoleum Corporation for the Quarter Ended
                               September 30, 2005


                                      D-1
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


                              CONGOLEUM CORPORATION
                           Consolidated Balance Sheets
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                         September 30,  December 31,
                                                                                             2005           2004
                                                                                          (unaudited)
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents ............................................................   $  17,658      $  29,710
  Restricted cash ......................................................................      11,334         15,682
  Accounts receivable, less allowances of $1,509 and $1,174 as of September 30, 2005
     and December 31, 2004, respectively ...............................................      26,159         17,621
  Inventories ..........................................................................      37,065         39,623
  Prepaid expenses and other current assets ............................................       7,302          5,124
  Deferred income taxes ................................................................      10,678         10,678
-------------------------------------------------------------------------------------------------------------------
       Total current assets ............................................................     110,196        118,438
Property, plant, and equipment, net ....................................................      75,107         79,550
Other assets, net ......................................................................      14,642         14,894
-------------------------------------------------------------------------------------------------------------------
       Total assets ....................................................................   $ 199,945      $ 212,882
-------------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable .....................................................................   $   9,583      $  10,296
  Accrued liabilities ..................................................................      22,694         26,395
  Asbestos-related liabilities .........................................................      18,771         21,079
  Revolving credit loan ................................................................      12,595          9,500
  Accrued taxes ........................................................................       1,282          1,670
Liabilities subject to compromise - current ............................................      21,377         14,225
-------------------------------------------------------------------------------------------------------------------
       Total current liabilities .......................................................      86,302         83,165
Asbestos-related
liabilities ............................................................................       2,738          2,738
Deferred income taxes ..................................................................      10,678         10,678
Liabilities subject to compromise - long term ..........................................     135,841        137,290
-------------------------------------------------------------------------------------------------------------------
       Total liabilities ...............................................................     235,559        233,871
-------------------------------------------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY (DEFICIT)
Class A common stock, par value $0.01; 20,000,000 shares authorized; 4,736,950
   shares issued and 3,652,190 shares outstanding as of September 30,  2005 and
   December 31, 2004 ...................................................................          47             47
Class B common stock, par value $0.01; 4,608,945 shares authorized, issued and
   outstanding at September 30, 2005 and December 31, 2004 .............................          46             46
Additional paid-in capital .............................................................      49,106         49,106
Retained deficit .......................................................................     (58,455)       (43,830)
Accumulated other comprehensive loss ...................................................     (18,545)       (18,545)
                                                                                           ---------      ---------
                                                                                             (27,801)       (13,176)
Less Class A common stock held in treasury, at cost; 1,085,760 shares at
   September 30, 2005 and December 31, 2004 ............................................       7,813          7,813
-------------------------------------------------------------------------------------------------------------------
     Total stockholders' equity (deficit) ..............................................     (35,614)       (20,989)
                                                                                           ---------      ---------
-------------------------------------------------------------------------------------------------------------------
     Total liabilities and stockholders' equity ........................................   $ 199,945      $ 212,882
-------------------------------------------------------------------------------------------------------------------
</TABLE>

               The accompanying notes are an integral part of the
                  condensed consolidated financial statements.


                                      D-2
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


                              CONGOLEUM CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                    Three Months Ended          Nine Months Ended
                                                       September 30,              September 30,
                                                   ---------------------     -----------------------
                                                     2005         2004          2005         2004
                                                      (In thousands, except per share amounts)

<S>                                                <C>          <C>          <C>           <C>
Net sales .....................................    $ 60,507     $ 58,871     $ 176,245     $ 173,822
Cost of sales .................................      47,270       41,812       135,577       126,326
Selling, general and administrative expenses ..      10,556       12,959        48,416        37,961
                                                   --------     --------     ---------     ---------
   Income (loss) from operations ..............       2,681        4,100        (7,748)        9,535
Other income (expense):
   Interest income ............................          91           26           273            26
   Interest expense ...........................      (2,670)      (2,417)       (7,788)       (6,976)
   Other income ...............................         223          212           638           877
                                                   --------     --------     ---------     ---------
   Income (loss) before taxes .................         325        1,921       (14,625)        3,462

Provision for income taxes ....................          --          768            --         1,384
                                                   --------     --------     ---------     ---------


Net income (loss) .............................    $    325     $  1,153     $ (14,625)    $   2,078
                                                   ========     ========     =========     =========

Net income (loss) per common share, basic .....    $   0.04     $   0.14     $   (1.77)    $    0.25
                                                   ========     ========     =========     =========

Net income (loss) per common share, diluted ...    $   0.04     $   0.13     $   (1.77)    $    0.25
                                                   ========     ========     =========     =========

Weighted average number of common shares
    outstanding, basic ........................       8,261        8,260         8,261         8,260
                                                   ========     ========     =========     =========

Weighted average number of common shares
    outstanding, diluted ......................       8,642        8,583         8,261         8,422
                                                   ========     ========     =========     =========
</TABLE>

               The accompanying notes are an integral part of the
                  condensed consolidated financial statements.


                                      D-3
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


                              CONGOLEUM CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                    Nine Months Ended
                                                                                      September 30,
                                                                                 ----------------------
                                                                                    2005         2004
                                                                                     (In thousands)

<S>                                                                               <C>          <C>
Cash flows from operating activities:
   Net (loss) income .........................................................    $(14,625)    $  2,078
   Adjustments to reconcile net (loss) income to net cash (used in)
   provided by operating activities:
      Depreciation ...........................................................       8,083        8,126
      Amortization ...........................................................         288          419
      Asbestos-related charge ................................................      15,454           --
      Deferred income taxes ..................................................          --          550
      Changes in certain assets and liabilities:
          Accounts receivable ................................................      (8,538)      (5,009)
          Inventories ........................................................       2,558        1,899
          Prepaid expenses and other assets ..................................         577        3,498
          Accounts payable ...................................................        (712)       8,990
          Accrued expenses ...................................................       3,415       14,526
          Asbestos-related expenses ..........................................     (20,819)      (4,500)
          Asbestos-related expense reimbursements from insurance settlement ..       6,091           --
          Other liabilities ..................................................      (1,838)         504
                                                                                  --------     --------
             Net cash (used in) provided by operating activities .............     (10,066)      31,081
                                                                                  --------     --------
Cash flows from investing activities:
      Capital expenditures ...................................................      (3,640)      (2,246)
      Proceeds from asset retirement .........................................          --           30
                                                                                  --------     --------
             Net cash used in investing activities ...........................      (3,640)      (2,216)
Cash flows from financing activities:
      Net short-term borrowings ..............................................       3,095       (1,594)
      Net change in restricted cash ..........................................      (1,441)      (1,854)
                                                                                  --------     --------
             Net cash provided by financing activities .......................       1,654       (3,448)
                                                                                  --------     --------
Net (decrease) increase in cash and cash equivalents .........................     (12,052)      25,417
Cash and cash equivalents:
   Beginning of period .......................................................      29,710        2,169
                                                                                  --------     --------
   End of period .............................................................    $ 17,658     $ 27,586
                                                                                  ========     ========
</TABLE>

               The accompanying notes are an integral part of the
                  condensed consolidated financial statements.


                                      D-4
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


                              CONGOLEUM CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (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 as well as
provisions to effect its plan to settle asbestos liability) 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 three and nine
months period ended September 30, 2005 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2005. 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, 2004.

      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 of the Notes to Unaudited Condensed Consolidated Financial
Statements, 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").

      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 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 modified


                                      D-5
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


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. In October 2005, Congoleum sought and obtained
an extension of the voting deadline to December 14, 2005 to allow time to
address this issue. Congoleum is presently in negotiations with these claimants,
as well as other constituencies, to determine the modifications of the Sixth
Plan and other steps that may be appropriate for the implementation of the plan.
The Bankruptcy Court has given Congoleum permission to file a new amended plan
and disclosure statement by December 2, 2005. On November 7, 2005, the
Bankruptcy Court denied a request to extend Congoleum's exclusive right to file
a plan of reorganization and solicit acceptances thereof. The Bankruptcy Court
ruled that other parties may file proposed reorganization plans by December 2,
2005. It is unclear whether any person other than Congoleum will attempt to
propose a plan or what any such plan would provide or propose.

      There can be no assurance that the Company will finalize the terms of a
new amended plan by that date, that the Company will receive the acceptances
necessary for confirmation of a new amended plan of reorganization, that a new
amended plan will not be modified further, that a new amended 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 a new
amended plan will be confirmed, or that a new amended plan, if confirmed, will
become effective.

      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
may file objections to any new amended plan. Certain other parties have also
filed various objections to Congoleum's previously proposed plans of
reorganization and may file objections to any new amended plan.

      Although the terms of a new amended plan have not been determined, the
Company is negotiating amendments and modifications with reference to the terms
of the Sixth Plan. Any descriptions of the Sixth Plan provided in these Notes to
Unaudited Condensed Consolidated Financial Statements are provided to assist the
reader in understanding the basis from which any further amended plan may be
negotiated. There can be no assurance that the terms of any new amended plan
will not materially differ from the terms of the Sixth Plan or that Congoleum
will reach agreement on a new amended plan on or before December 2, 2005.


                                      D-6
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


       The Sixth Plan would leave the Company's non-asbestos creditors
unimpaired and would resolve all pending and future asbestos claims against the
Company. The Sixth 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 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 second or third quarter of 2006 at the earliest to obtain
confirmation of any new amended plan of reorganization.

      Based on the Sixth 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 $15.5 million in the second quarter of 2005, to
provide for the estimated minimum costs of completing its reorganization given
the revised timeline then assumed in the second quarter of 2005 for anticipated
confirmation and as based on the Sixth Plan. The Company is not yet able to
determine the additional costs that may be required to effect a new amended
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 and obtaining
approval of any new amended plan of reorganization 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 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.


                                      D-7
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


2.    Recent Accounting Principles:

       Stock Based Compensation

      In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 (revised 2004), Share-Based Payment. SFAS No. 123(R) replaces SFAS
No. 123, Accounting for Stock-Based Compensation, supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees and amends SFAS No. 95, Statement of
Cash Flows. SFAS No. 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial
statements based on their fair values. Pro forma disclosure is no longer an
alternative to financial statement recognition. SFAS No. 123(R) was originally
effective for public companies at the beginning of the first interim or annual
period beginning after June 15, 2005. In April 2005, the Securities and Exchange
Commission ("SEC") provided for a phased-in implementation process for public
companies. Based on the Company's year end of December 31, the Company must
adopt SFAS No. 123(R) on January 1, 2006.

      SFAS No. 123(R) allows for either prospective recognition of compensation
expense or retrospective recognition, which may be back to the original issuance
of SFAS No. 123 or only to interim periods in the year of adoption. The Company
is currently evaluating these transition methods and determining the effect on
the Company's consolidated results of operations and whether the adoption will
result in amounts that are similar to the current pro forma disclosures under
SFAS No. 123. For 2005, the Company will continue to disclose 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 Statement No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation."

      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:

<TABLE>
<CAPTION>
                                                For the Three Months        For the Nine Months
                                                 Ended September 30,        Ended September 30,
                                                 2005        2004          2005           2004
                                              ----------  ----------    ----------     ----------
                                                (Dollars in thousands, except per share amounts)
<S>                                           <C>            <C>            <C>            <C>
Net income (loss):
  As reported                                 $      325  $    1,153    $  (14,625)    $    2,078
  Deduct: Total stock-based employee
    compensation expense determined
    under fair value based method for
    all awards, net of related tax effects           (59)        (57)         (173)          (161)
                                              ----------  ----------    ----------     ----------
  As adjusted                                 $      266  $    1,096    $  (14,798)    $    1,917
                                              ==========  ==========    ==========     ==========
Net ncome (loss) per share:
  As reported basic                           $      .04  $     0.14    $    (1.77)    $     0.25
  Pro forma compensation expense                    (.01)      (0.01)         (.02)         (0.02)
                                              ----------  ----------    ----------     ----------
  Pro forma basic                             $      .03  $     0.13    $    (1.79)    $     0.23
                                              ==========  ==========    ==========     ==========
Net Income / (Loss) per share:
  As reported diluted                         $     0.04  $     0.13    $    (1.77)    $     0.25
  Pro forma compensation expense                   (0.01)      (0.01)        (0.02)         (0.02)
                                              ----------  ----------    ----------     ----------
  As adjusted diluted                         $     0.03  $     0.12    $    (1.79)    $     0.23
                                              ==========  ==========    ==========     ==========
</TABLE>


                                      D-8
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


3.    Inventories

      A summary of the major components of inventories is as follows (in
thousands):

                                            September 30,     December 31,
                                                 2005             2004
                                            -------------     ------------

      Finished goods                        $  28,126         $  32,811
      Work-in-process                           2,041             1,415
      Raw materials and supplies                6,898             5,397
      -----------------------------------------------------------------
      Total inventories                     $  37,065         $  39,623
      -----------------------------------------------------------------

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 (loss) per share is calculated by dividing net income
(loss) 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 $4.6 million at September 30, 2005 and at December 31,
2004, are not reduced by the amount of insurance recoveries. Such estimated
insurance recoveries approximated $2.1 million at September 30, 2005 and at
December 31, 2004, and are reflected in other noncurrent assets and are
considered probable of recovery.

      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


                                      D-9
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


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 to 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. 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.

      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 $ 1.7 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 $1.4 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.

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 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. Under the terms of the Sixth


                                      D-10
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


Plan, participants in the Claimant Agreement who vote in favor of the plan agree
to forbear from exercising the security interest in and priority rights to
distributions from the Collateral Trust. As discussed below, in September 2005
certain asbestos claimants indicated that they are not willing to agree to
forbear from exercising their security interest as contemplated by the Sixth
Plan. The Company is presently in negotiations with these claimants, as well as
other constituencies, to determine the modifications of the Sixth Plan and other
steps that may be appropriate for the implementation of the plan. Although the
terms of any new amended plan have not been determined, the Company is
negotiating amendments and modifications with reference to the terms of the
Sixth Plan. There can be no assurance that the terms of any new amended plan
will not materially differ from the terms of the Sixth Plan.

      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%. Under the Sixth 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 Sixth Plan, which incorporates the forbearance.

      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 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 modified
plan.


                                      D-11
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


      In April 2005, Congoleum announced that it had reached an agreement in
principle with representatives of the Asbestos Claimants' Committee and the
Future Claimants' Representative to make certain modifications to its proposed
plan of reorganization and related documents governing the settlement and
payment of asbestos-related claims against Congoleum. Under the agreed-upon
modifications, asbestos claimants with claims settled under Congoleum's
pre-petition settlement agreements would agree to forbear from exercising the
security interest they were granted and share on a pari passu basis with all
other present and future asbestos claimants in insurance proceeds and other
assets of the Plan Trust.

      In July 2005, Congoleum filed the Sixth Plan and related documents with
the Bankruptcy Court which reflected the result of these negotiations, as well
as other technical modifications. The Bankruptcy Court approved the disclosure
statement and voting procedures and Congoleum commenced solicitation of
acceptances of the Sixth Plan in August 2005. In September 2005, Congoleum
learned that certain asbestos claimants were unwilling to agree to forbear from
exercising their security interest as contemplated by the Sixth Plan.

       In October 2005, Congoleum sought and obtained an extension of the voting
deadline to December 14, 2005 to allow time to address this issue. Congoleum is
presently in negotiations with these claimants, as well as other constituencies,
to determine the modifications of the Sixth Plan and other steps that may be
appropriate for the implementation of the plan. The Bankruptcy Court has given
Congoleum permission to file a new amended plan and disclosure statement by
December 2, 2005. On November 7, 2005, the Bankruptcy Court denied a request to
extend Congoleum's exclusive right to file a plan of reorganization and solicit
acceptances thereof. The Bankruptcy Court ruled that other parties may file
proposed reorganization plans by December 2, 2005. It is unclear whether any
person other than Congoleum will attempt to propose a plan or what any such plan
would provide or propose.

      There can be no assurance that the Company will finalize the terms of a
new amended plan by that date, that the Company will receive the acceptances
necessary for confirmation of a new amended plan of reorganization, that a new
amended plan will not be modified further, that a new amended 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 a new
amended plan will be confirmed, or that a new amended plan, if confirmed, will
become effective.

      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
may file objections to any new amended plan. Certain other parties have also
filed various objections to Congoleum's previously proposed plans of
reorganization and may file objections to any new amended plan.

      During 2005, 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, and is subject to 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


                                      D-12
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


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. A motion to reconsider the Bankruptcy Court's approval of
the settlement with Federal is scheduled to be heard by the Bankruptcy Court on
November 21, 2005. 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 has 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.
Court approval of these settlement agreements may be appealed by other insurance
carriers who are not party to the agreements, or by other parties. It also is
possible that a settling insurer may argue that any new amended plan is not
substantially similar to the Sixth Plan and therefore is relieved of its
settlement obligation.

      Although the terms of a new amended plan have not yet been determined, the
Company is negotiating amendments and modifications with reference to the terms
of the Sixth Plan. There can be no assurance that terms of any new amended plan
will not materially differ from the terms of the Sixth Plan or that the Company
will reach agreement on a new amended plan before December 2, 2005. The
following description of the Sixth Plan is provided to assist the reader in
understanding the basis from which any further amended plan may be negotiated.
There can be no assurance that the terms of any new amended plan will not
materially differ from the terms of the Sixth Plan or that the Company will
reach agreement on a new amended plan on or before December 2, 2005. The Company
expects that it will take until some time in the second or third quarter of 2006
at the earliest to obtain confirmation of any new amended plan of
reorganization.

      Under the Sixth Plan and related documents, 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 in excess of $6 million.
Furthermore, once insurance recoveries exceed $375 million, Congoleum is
entitled to withhold from recoveries, or seek reimbursement from the Plan Trust,
for the first $6 million of such costs for which it could not presently seek
reimbursement due to the above items of the Sixth Plan. Congoleum also paid
$1.3 million in claims processing fees in connection with claims settled under
the Claimant Agreement. Under the Sixth Plan, Congoleum is entitled to withhold
from recoveries, or seek reimbursement from the Plan Trust, for the $1.3 million
claims processing fee once insurance recoveries exceed $375 million. There can
be no assurance that any future plan will provide for Congoleum to recover any
coverage litigation costs or claims processing fees.

      In connection with modifications to the Sixth Plan and certain prior
proposed plans and to the Collateral Trust, Congoleum agreed to indemnify the
Claimants Counsel and the trustee of the Collateral Trust for all acts relating
to the modifications of such plan, and the Collateral Trust made on or after
April 1, 2005, including attorneys' fees, up to a maximum of $3 million.



                                      D-13
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


      The Sixth Plan provides for the channeling of asbestos property damage
claims in addition to asbestos personal injury claims to the Plan Trust. There
were no 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 Sixth Plan provides that the Company will issue a promissory note (the
"Company Note") to the Plan Trust. Under the terms of the Sixth Plan, the
original principal amount of the Company Note will be $2,738,234.75 (the
"Original Principal Amount") and will be subject to increase as of the last
trading day of the 90 consecutive trading day period commencing on the first
anniversary of the effective date of the Company's confirmed Chapter 11 plan of
reorganization (the "Principal Adjustment Date") in an amount equal to the
excess, if any, of the amount by which 51% of the Company's market
capitalization as of the Principal Adjustment Date (based upon (subject to
certain exceptions) the total number of shares of the Company's common stock
outstanding as of such date multiplied by the average of the closing trading
prices of the Company's Class A common stock for the 90 consecutive trading days
ending on the Principal Adjustment Date) exceeds the Original Principal Amount
(the "Additional Principal Amount"), plus any accrued but unpaid interest or
other amounts that may be added to such principal amount pursuant to the terms
of the Company Note. This adjustment amount could result in the principal amount
of the note increasing materially. For example, if the adjustment amount were
calculated during the 90 consecutive day trading period ended September 30,
2005, the resulting adjustment amount would be $14.9 million. Under the terms of
the Sixth Plan, interest on the outstanding principal of the Company Note will
accrue at a rate of 9% per annum, with interest on the Original Principal Amount
payable quarterly and interest on the Additional Principal Amount added to the
Additional Principal Amount as additional principal. Upon the earlier of August
1, 2008 and the date that all of the Company's outstanding 8-5/8% Senior Notes
due 2008 (the "Senior Notes") are repaid in full, interest on the then
outstanding Additional Principal Amount will become payable quarterly.

      Under the terms of the Sixth Plan, all principal on the Company Note then
outstanding together with any accrued but unpaid interest will be payable in
full on the tenth anniversary of the date of the Company Note, subject to the
right of the Plan Trust to accelerate all amounts then owed on the Company Note
following an uncured event of default under the Company Note. Events of default
under the Company Note would include the failure to pay interest and principal
prior to the expiration of a 10-day grace period following the applicable due
date, the occurrence of an event of default under the indenture governing the
Senior Notes, the breach by the Company of any covenant or agreement contained
in the Company Note which remains uncured 30 days following notice by the Plan
Trust to the Company and its controlling shareholder, American Biltrite Inc.
("ABI"), of the breach and a material breach of the pledge agreement (the "ABI
Pledge Agreement") by ABI (which agreement is discussed below) which remains
uncured 30 days following notice by the Plan Trust to ABI and the Company of the
breach. The terms of the Company Note would provide that, upon the occurrence of
an event of default under the Company Note, the Company and ABI would have 10
days from the date they receive notice that an event of default has occurred to
cure the event of default. If the event of default remains uncured after the


                                      D-14
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


10-day cure period, the aggregate outstanding principal amount of the Company
Note together with any accrued but unpaid interest thereon would become
immediately due and payable if the event of default relates to an uncured event
of default under the indenture governing the Senior Notes, and with regard to
other events of default under the Company Note, the Plan Trust may, upon notice
to the Company and ABI, declare the aggregate outstanding principal amount of
the Company Note together with any accrued but unpaid interest thereon to be
immediately due and payable. The Plan Trust's rights to payment under the
Company Note will be subordinate and subject in right of payment to the prior
payment in full of all amounts owing and payable pursuant to the Senior Notes
and the Company's credit facility, except that regularly scheduled interest
payments under the Company Note are expected to be payable by the Company so
long as no default or event of default has occurred or is continuing under the
indenture governing the Senior Notes or the Company's credit facility.

      The Sixth Plan contemplates that, pursuant to the ABI Pledge Agreement,
ABI will pledge all of the shares of the Company's common stock that ABI owns,
together with any other equity interests and rights ABI may own or hold in the
Company, as of the date of the Company Note, as collateral for the Company's
obligations under the Company Note. As additional security for the Company Note,
the ABI Pledge Agreement and the terms of the Sixth Plan provide that any
amounts that the Company would be obligated to pay ABI pursuant to any rights of
indemnity that ABI may have against the Plan Trust for asbestos-related claims
pursuant to the Sixth Plan or a certain Joint Venture Agreement, entered into in
1992, to which both the Company and ABI are parties (as amended, the "Joint
Venture Agreement"), will not be paid by the Plan Trust until after any amounts
due and payable to the Plan Trust under the Company Note have been paid in full
to the Plan Trust. Until such time, any such indemnity payments that would
otherwise have been payable by the Plan Trust to ABI would be set aside by the
Plan Trust and held in escrow by the Plan Trust for ABI's benefit and pledged by
ABI as additional collateral securing the Company's obligations under the
Company Note until released from such escrow and paid to ABI, as further
provided under the Sixth Plan, the Company Note and the ABI Pledge Agreement.

      The Company Note, the ABI Pledge Agreement and the Sixth Plan also provide
that the Company would be prohibited from making any payments to ABI pursuant to
any rights of indemnity that ABI may have against the Company for claims
pursuant to the Joint Venture Agreement until after any amounts due and payable
to the Plan Trust under the Company Note have been paid in full to the Plan
Trust. Until such time, any such indemnity payments that would otherwise have
been payable to ABI by the Company will be paid by the Company to the Plan Trust
and the Plan Trust will set aside and hold in escrow such amounts for ABI's
benefit and ABI will pledge such amounts as additional collateral securing the
Company's obligations under the Company Note until released from such escrow and
paid to ABI, as further provided under the Sixth Plan, the Company Note and the
ABI Pledge Agreement.

      Under the Sixth Plan, ABI would be permitted to prepay the principal
amount of the Company Note, in whole but not in part, without any penalty or
premium at any time following the Principal Adjustment Date and any interest
that may have accrued but not yet paid at the time of any principal repayment
would be due and payable at the time of the principal repayment. The Company
would be obligated to repay ABI for any amounts paid by ABI pursuant to the
Company Note, which repayment obligation would by evidenced by a promissory note
or notes to be issued by the Company to ABI. Any such note would have similar
payment terms as those expected to be afforded to the Plan Trust with regard to
the Company Note, which rights of repayment are expected to be subordinate and
subject in right of payment to the prior payment in full of all amounts owing
and payable to the Plan Trust with regard to the Company Note and with regard to


                                      D-15
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


amounts owing and payable pursuant to the Senior Notes and credit facility,
except that the right of full subordination with regard to the Senior Notes and
credit facility would contain an exception that would allow the Company to make
regularly scheduled interest payments to ABI pursuant to any such note so long
as no default or event of default has occurred or is continuing under the
indenture governing the Senior Notes or the Company's credit facility.

      The Sixth Plan also provides that if ABI prepays the Company Note and ABI
sells all or substantially all of the shares of the Company's stock that it
holds as of the Principal Adjustment Date during the three-year period following
such date, ABI would be obligated to make a contribution to the Plan Trust if
the equity value of the Company implied by the price paid to ABI for the shares
of the Company's stock exceeded the greater of $2,738,234.75 or 51% of the
Company's market capitalization as of the Principal Adjustment Date (based upon
(subject to certain exceptions) the total number of shares of the Company's
common stock outstanding as of such date multiplied by the average of the
closing trading prices of the Company's Class A common stock for the 90
consecutive trading days ending on the Principal Adjustment Date). In such
instance, the Sixth Plan would obligate ABI to pay to the Plan Trust an amount
equal to 50% of such excess amount. Under the terms of the Sixth Plan, the
Company would be obligated to repay ABI for any amounts paid by ABI to the Plan
Trust pursuant to this obligation. In satisfaction of this repayment obligation,
the Company would issue a promissory note to ABI in a principal amount equal to
the amount of any such payments made by ABI plus any accrued but unpaid interest
or other amounts that may be added to such principal amount pursuant to the
terms of the promissory note which would be subordinate and subject in right of
payment to the prior payment in full of all amounts owing and payable pursuant
to the Senior Notes and credit facility, except that regularly scheduled
interest payments could be paid on such note so long as no default or event of
default has occurred or is continuing under the indenture governing the Senior
Notes or the Company's credit facility.

      The Sixth Plan provides that the Plan Trust would be able to transfer the
Company Note, in whole but not in part, at any time following the Principal
Adjustment Date. Upon any transfer of the Company Note, the amounts pledged by
ABI and held in escrow by the Plan Trust for ABI's benefit with regard to ABI's
indemnity rights discussed above will be paid by the Plan Trust, first, to the
Plan Trust in repayment of principal then outstanding on the Company Note
together with any accrued but unpaid interest thereon and, second, any amounts
remaining would be distributed by the Plan Trust to ABI.

      Under the Sixth 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 Sixth 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 Sixth Plan does not provide that
any other asbestos claims that may be asserted against ABI would be channeled to
the Plan Trust.

      While the Company believes that it will be able to negotiate a new amended
plan which is feasible and should be confirmed by the Bankruptcy Court, there
are sufficient risks and uncertainties such that no assurances of the outcome
can be given. In addition, the remaining costs to effect the reorganization


                                      D-16
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


process, consisting principally of legal and advisory fees and contributions to
the Plan Trust, including one or more notes expected to be contributed to the
Plan Trust by the Company, are expected to be approximately $12.7 million at a
minimum, not including any Additional Principal Amount arising from revaluation
of the Company Note, and could be materially higher. The Company is not yet able
to determine the additional costs that may be required to effect a new amended
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.

      Based on the Sixth 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 $15.5 million in the second quarter of 2005, to
provide for the estimated minimum costs of completing its reorganization given
the revised timeline then assumed in the second quarter of 2005 for anticipated
confirmation and as based on the Sixth Plan. The Company is not yet able to
determine the additional costs that may be required to effect a new amended
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 and obtaining
approval of any new amended plan of reorganization 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.

      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 nonfriable
(i.e., cannot be crumbled by hand pressure) because the asbestos was
encapsulated in the products during the manufacturing process. Thus,
governmental authorities have concluded that these products do not pose a health
risk when they are properly maintained in place or properly removed so that they
remain nonfriable. The Company has issued warnings not to remove
asbestos-containing flooring by sanding or other methods that may cause the
product to become friable.


                                      D-17
<PAGE>

                                           EXHIBIT D 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. Congoleum disputes 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 argues, among other things,


                                      D-18
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


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 divides 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
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.


                                      D-19
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


      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
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. The retention of Covington &
Burling is subject to Bankruptcy Court approval. A Bankruptcy Court hearing on
Covington & Burling's retention was held on November 7, 2005 and has been
adjourned to November 29, 2005, pending certain additional disclosures requested
by the Bankruptcy Court.

      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.

      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 of approximately $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 amended 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 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


                                      D-20
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


reorganization under Chapter 11. At September 30, 2005, the Company estimates
the minimum remaining amount of the contributions and costs to be $12.7 million,
of which it has recorded $10.0 million as a current liability and $2.7 million
as a non-current liability. These amounts do not include the liability
associated with a $14.5 million insurance settlement recorded as restricted
cash, which the Company expects to contribute, less any amounts withheld
pursuant to reimbursement arrangements, to the Plan Trust. At September 30, 2005
this liability (comprised of the original settlement plus interest to date, less
$6.1 million in reimbursements approved by the bankruptcy court) amounted to
$8.7 million and is included in current asbestos-related liabilities. The
Company is not yet able to determine the additional costs that may be required
to effect a new amended 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.

      The Company recorded charges aggregating approximately $26 million in
prior years and a further approximately $15.5 million in the second quarter of
2005, to provide for the estimated minimum costs of completing its
reorganization given the revised timeline then assumed in the second quarter of
2005 for anticipated confirmation and based on the Sixth Plan. 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 September 30, 2005:

<TABLE>
<CAPTION>
                                                              Reimbursement
                                                                  From
                          Balance at                Reserve     Insurance   Balance at
     (In thousands)        12/31/04    Spending    Addition    Settlements    9/30/05
                          -----------------------------------------------------------

<S>                       <C>          <C>          <C>          <C>         <C>
Reserves
   Current                $  6,550     $ (9,610)    $13,092          --      $ 10,032
   Long-Term                 2,738           --          --          --         2,738

Receivables
   Current                  (1,509)     (11,209)      2,362      $6,091        (4,265)
   Long-Term                (7,300)          --          --          --        (7,300)
                          -----------------------------------------------------------
Net Asbestos Liability    $    479     $(20,819)    $15,454      $6,091      $  1,205
                          ========     ========     =======      ======      ========

Restricted Cash
   Insurance Proceeds     $ 14,530       (6,091)        302          --      $  8,741
</TABLE>


                                      D-21
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


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) for the:

                                 Nine Months Ended     Nine Months Ended
                                   September 30,         September 30,
                                        2005                 2004
                                        ----                 ----

      Beginning balance                $ 2.8                 $ 2.7

      Accruals                           2.5                   4.4

      Charges                           (3.2)                 (4.2)
                                       -----                 -----

      Ending balance                   $ 2.1                 $ 2.9
                                       =====                 =====

8.    Liabilities Subject to Compromise

      As a result of the Company's Chapter 11 filing (see Notes 1 and 6 to the
Unaudited Condensed Consolidated Financial Statements), 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 September 30, 2005 and December 31,
2004 are as follows:

                                                          (In thousands)
                                                   September 30,    December 31,
                                                       2005             2004
--------------------------------------------------------------------------------
Current
Other pre-petition payables and accrued interest    $  21,377       $  14,225

Non-current
Debt (at face value)                                  100,000         100,000
Pension liability                                      15,490          16,936
Other post-retirement benefit obligation                8,067           8,303
Other pre-petition liabilities                         12,284          12,051
                                                    ---------       ---------
--------------------------------------------------------------------------------
Non-current                                           135,841         137,290
--------------------------------------------------------------------------------
Total liabilities subject to compromise             $ 157,218       $ 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.


                                      D-22
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


9.    Accrued Liabilities

      A summary of the significant components of accrued liabilities consists of
the following:

                                                         (In thousands)
                                                  September 30,   December 31,
                                                      2005           2004
--------------------------------------------------------------------------------

Accrued warranty, marketing and sales promotion      $ 17,864      $ 18,487

Employee compensation and related benefits              3,576         4,735

Other                                                   1,254         3,173
--------------------------------------------------------------------------------

Total accrued liabilities                            $ 22,694      $ 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 September 30, 2005 (see Note
8).

10.   Pension 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 September 30,
2005 and 2004:

<TABLE>
<CAPTION>
                                                             (In thousands)
                                               Three Months Ended       Three Months Ended
                                               September 30, 2005       September 30, 2004
                                               ------------------       ------------------
                                                            Other                   Other
                                              Pension     Benefits     Pension    Benefits
                                              -------     --------     -------    --------
<S>                                            <C>         <C>         <C>         <C>
Components of Net Periodic Benefit Cost:
    Service cost                               $   285     $  46       $   312     $  50
    Interest cost                                1,092       130         1,052       140
    Expected return on plan assets                (976)       --          (842)       --
    Recognized net actuarial loss                  280        15           349        11
    Amortization of transition obligation           (9)       --           (18)       --
    Amortization of prior service cost             (72)      (47)          (72)     (116)
                                               -------     -----       -------     -----
Net periodic benefit cost                      $   600     $ 144       $   781     $  85
                                               =======     =====       =======     =====
</TABLE>


                                      D-23
<PAGE>

                                           EXHIBIT D TO THE DISCLOSURE STATEMENT


      The weighted average assumptions used to determine net periodic benefit
cost were as follows:

<TABLE>
<CAPTION>
                                           September 30, 2005       September 30, 2004
                                           ------------------       ------------------
                                                       Other                    Other
                                          Pension     Benefits     Pension     Benefits
                                          -------     --------     -------     --------
<S>                                         <C>         <C>          <C>         <C>
Discount rate                               6.25%       6.25%        6.25%       6.75%
Expected long-term return on plan assets    7.00%         --         7.00%         --
Rate of compensation increase               4.00%         --         4.00%         --
                                            5.50%                    5.50%
</TABLE>

      The following summarizes the components of the net periodic benefit cost
for the Pension and Other Benefit Plans for the nine months ended September 30,
2005 and 2004:

<TABLE>
<CAPTION>
                                                             (In thousands)
                                               Nine Months Ended        Nine Months Ended
                                               September 30, 2005       September 30, 2004
                                               ------------------       ------------------
                                                           Other                    Other
                                              Pension     Benefits     Pension     Benefits
                                              -------     --------     -------     --------
<S>                                           <C>          <C>         <C>          <C>
Components of Net Periodic Benefit Cost:
    Service cost                              $   995      $ 138       $   982      $ 150
    Interest cost                               3,280        390         3,212        420
    Expected return on plan assets             (2,738)        --        (2,538)        --
    Recognized net actuarial loss               1,049         45         1,098         33
    Amortization of transition obligation         (45)        --           (54)        --
    Amortization of prior service cost           (216)      (141)         (214)      (348)
                                              -------      -----       -------      -----
Net periodic benefit cost                     $ 2,325      $ 432       $ 2,486      $ 255
                                              =======      =====       =======      =====
</TABLE>

      The weighted average assumptions used to determine net periodic benefit
cost were as follows:

<TABLE>
<CAPTION>
                                           September 30, 2005       September 30, 2004
                                           ------------------       ------------------
                                                       Other                    Other
                                          Pension     Benefits     Pension     Benefits
                                          -------     --------     -------     --------
<S>                                         <C>         <C>          <C>         <C>
Discount rate                               6.25%       6.25%        6.25%       6.75%
Expected long-term return on plan assets    7.00%         --         7.00%         --
Rate of compensation increase               4.00%         --         4.00%         --
                                            5.50%                    5.50%
</TABLE>


                                      D-24
<PAGE>

                                               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


<PAGE>

                                               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


                                        2
<PAGE>

                                               EXHIBIT E TO DISCLOSURE STATEMENT


      WHEREAS, Congoleum anticipates that it will commence a reorganization case
under chapter 11 of the U.S. Bankruptcy Code; and

      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
<PAGE>

                                               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
<PAGE>

                                               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
<PAGE>

                                               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
<PAGE>

                                               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
<PAGE>

                                               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
<PAGE>

                                               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
<PAGE>

                                               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
<PAGE>

                                               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
<PAGE>

                                               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.

XI.   GOVERNING LAW


                                       12
<PAGE>

                                               EXHIBIT E TO DISCLOSURE STATEMENT


      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
<PAGE>

                                               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                             $3,000
        Non-Malignant
    ------------------------------------------------------------------------
    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.


<PAGE>

                                               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
            the ATS guidelines in 144 American Review of Respiratory Disease


                                        2
<PAGE>

                                               EXHIBIT E TO DISCLOSURE STATEMENT


            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
<PAGE>

                                               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:


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                                               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
<PAGE>

                                               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
<PAGE>

                                               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
<PAGE>

                                            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


<PAGE>

                                               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
<PAGE>

                                               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


<PAGE>

                                               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
<PAGE>

                                               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
<PAGE>

                                               EXHIBIT E TO DISCLOSURE STATEMENT


      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

      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

      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


                                       2
<PAGE>

                                               EXHIBIT E TO DISCLOSURE STATEMENT


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
<PAGE>

                                               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


                                       4
<PAGE>

                                               EXHIBIT E TO DISCLOSURE STATEMENT


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. 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
<PAGE>

                                               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