Document:

Exhibit 10.2

                      SETTLEMENT AGREEMENT AND RELEASE BY,
                     BETWEEN AND AMONG CONGOLEUM CORPORATION
                        AND CERTAIN AIG MEMBER COMPANIES

      This Settlement Agreement and Release (the "Agreement") is made by,
between and among (a) each of the following (each, a "Debtor" and, collectively,
the "Debtors"): Congoleum Corporation (together with its affiliates,
predecessors, successors and assigns, collectively "Congoleum"), Congoleum
Sales, Inc., and Congoleum Fiscal, Inc., as debtors and debtors-in-possession,
and their affiliates, predecessors, successors and assigns, (b) AIU Insurance
Company, American Home Assurance Company, Granite State Insurance Company,
National Union Fire Insurance Company of Pittsburgh, PA and their respective
predecessors, successors and assigns (collectively, the "AIG Companies"); and
(c) upon its creation, the Plan Trust. The Debtors, the AIG Companies and the
Plan Trust, upon its creation, are each referred to herein in their individual
capacity as a "Party" and collectively as the "Parties."

                                    RECITALS

      WHEREAS, numerous "Asbestos Claims" (as defined herein) have been asserted
against Congoleum; and

      WHEREAS, the AIG Companies issued or allegedly issued to Congoleum certain
liability insurance policies including but not limited to, the policies listed
on Attachment A hereto (the "AIG Policies," as defined herein); and

      WHEREAS, there is a dispute between the Debtors and the AIG Companies
regarding their respective rights and obligations with respect to insurance
coverage for Asbestos Claims (the "Coverage Dispute" ); and

      WHEREAS, Congoleum and the AIG Companies are parties to a lawsuit styled
Congoleum Corporation v. ACE American Insurance Company, et al., Docket No.
MID-L-8908-01 pending in the Superior Court of New Jersey, Law Division,
Middlesex County (the "Coverage Action"); and

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      WHEREAS, the "Plan Proponents" (as defined herein) distributed their Joint
Prepackaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code for
Congoleum Corporation, et al., dated October 27, 2003, as amended (the "Original
Plan"); and

      WHEREAS, on or about December 31, 2003, the Debtors filed reorganization
Case No. 03-51524 (KCF) jointly administered pursuant to chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
District of New Jersey (the "Chapter 11 Case"), and the Debtors continue to
operate their businesses as debtors and debtors-in-possession; and

      WHEREAS, Congoleum seeks in the Coverage Action actual compensatory and
consequential damages, plus interest thereon, among other relief, and the AIG
Companies deny they owe any damages as alleged and have defended against
Congoleum's claims in the Coverage Action; and

      WHEREAS, on or about November 12, 2004, the Debtors filed with the
Bankruptcy Court the Fourth Modified Joint Plan of Reorganization Under Chapter
11 of the Bankruptcy Code of Congoleum Corporation, et al. (the "Fourth Modified
Plan"), and the Debtors anticipate filing with the Bankruptcy Court a Fifth
Modified Joint Plan of Reorganization in or before June 2005 (the "Fifth
Modified Plan"); and

      WHEREAS, the Debtors and the AIG Companies entered into settlement
negotiations to resolve the Coverage Dispute and to further define their
respective rights and obligations under the AIG Policies and (a) the Debtors and
the AIG Companies agreed to a settlement involving the AIG Settlement Payments
(as defined herein); (b) the Debtors agreed to accept payment of the AIG

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Settlement Payments (plus any and all interest accrued thereon as provided for
herein) to the Plan Trust or as otherwise directed by the Bankruptcy Court and
(c) the AIG Companies agreed to pay to the Plan Trust or as otherwise directed
by the Bankruptcy Court the AIG Settlement Payments (plus any and all interest
accrued thereon as provided for herein), provided that the AIG Companies are
designated as Settling Asbestos Insurance Companies in the Plan and the other
conditions to the Trigger Date are satisfied; and

      WHEREAS, subject to the terms of this Agreement, the Debtors and the AIG
Companies now wish to enter into an agreement, as set forth below, to settle and
resolve the Coverage Dispute as between them, to provide for mutual releases of
their claims under the AIG Policies, to provide for dismissals with prejudice of
the Coverage Action as between them, to provide for a permanent withdrawal of
all of the AIG Companies' claims, objections and appeals, if any, in the Chapter
11 Case, and to resolve certain other matters, all as set forth below; and

      WHEREAS, the Debtors and the AIG Companies desire that, upon creation of
the Plan Trust, the Plan Trust shall become a Party to this Agreement.

      WHEREAS, the Plan Trust may wish to secure, from one or more "Permitted
Assignees" (as defined herein) immediate funds in exchange for its right to the
AIG Settlement Payments; and

      WHEREAS, the Parties now wish to enter into an agreement, as set forth
below, to settle and resolve the outstanding disputes referred to above;

      NOW, THEREFORE, in consideration of the foregoing facts and the mutual
covenants contained herein, and intending to be legally bound hereby, the
Parties hereby agree as follows:

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                                    AGREEMENT

I.    DEFINITIONS

      A. For purposes of this Agreement, the following definitions apply to the
capitalized terms herein wherever those terms appear in this Agreement,
including the prefatory paragraph, recitals, the sections below and any
attachments hereto. Capitalized terms in the prefatory paragraph, recitals, the
sections below and any attachments hereto have the meanings ascribed to them
therein to the extent they are not otherwise defined in this Definitions
section. Capitalized terms that are not defined in this Agreement are given the
meanings designated in the Fourth Modified Plan, as presently constituted.
Moreover, each defined term stated in the singular shall include the plural and
each defined term stated in the plural shall include the singular. The word
"including" means "including but not limited to." The following terms shall have
the meanings ascribed to such terms in, as applicable, the prefatory paragraph
or the recitals to this Agreement: "Agreement", "AIG Companies", "Chapter 11
Case", "Congoleum", "Coverage Action", "Coverage Dispute", "Fifth Modified
Plan", "Fourth Modified Plan", "Original Plan", and "Parties", and

      B. "AIG Companies Releasees" means (i) the AIG Companies; (ii) each of the
AIG Companies' parents, subsidiaries, divisions, holding companies, merged
companies, acquired companies, predecessors-in-interest, successors-in-interest
and assigns, solely in their capacities as such; and (iii) each of the
directors, officers, shareholders, agents and employees of the foregoing, solely
in their capacities as such.

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      C. "AIG Policies" means the insurance policies listed on Attachment A to
this Agreement and any insurance policy issued or allegedly issued by the AIG
Companies providing general liability coverage to Congoleum or under which one
or more of the Debtors are an insured.

      D. "AIG Settlement Payments" means the stream of payments to be made by
the AIG Companies to the Plan Trust or as otherwise directed by the Bankruptcy
Court, in the amounts set forth on Attachment C hereto.

      E. "Approval Order" means an order of the Bankruptcy Court or the District
Court exercising its original bankruptcy jurisdiction approving this Agreement
and the compromise and settlement memorialized herein between the Debtors and
the AIG Companies, which order shall be in the form of Attachment B hereto or
such other order that is in a form and substance acceptable to the Debtors and
the AIG Companies.

      F. "Asbestos Claims" means any and all past, present and future claims,
demands, actions, suits, proceedings, notices of partial or total
responsibility, whether presently known or unknown, that seek compensatory,
punitive or statutory damages, declaratory judgment, injunctive relief, medical
monitoring, or any other form of relief whatsoever, on account of alleged bodily
injury, personal injury, fear of future injury, medical monitoring, mental
injury or anguish, emotional distress, shock, sickness, disease, or any other
illness or condition, death, property damage, loss of use of property, or
diminution in the value of property arising from alleged, potential or actual
exposure of any type or nature whatsoever to asbestos, an asbestos-containing
product, and/or any other substance, product, matter or material in any form or
state that contains or is alleged to contain asbestos, either alone or in
combination with any other substance. The term "Asbestos Claims" also includes,
without limitation, claims or suits alleging in whole or in part exposure to

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asbestos and/or asbestos containing products in addition to any other substance,
chemical, pollutant, waste, or material of any nature as well as claims that
involve, in whole or in part, alleged exposure to asbestos or asbestos
containing products relating to or arising out of or from the installation,
removal, manufacture, distribution, sale, re-sale, existence or presence
(whether on premises owned or controlled by the Debtors or otherwise) of
asbestos or an asbestos-containing product, either alone or in combination with
any other substance. The term "Asbestos Claims" also includes the definitions of
the following terms, as set forth in Section 1.2 (as presently enumerated) of
the Plan: ABI Asbestos Claim, Asbestos Personal Injury Claim, Asbestos Property
Damage Claim, Asbestos Property Damage Contribution Claim, Indirect Asbestos
Claim, and Unknown Asbestos Claim. Notwithstanding anything to the contrary
herein, the term "Asbestos Claims" does not include any Claims (as defined
herein) for property damage brought by any Governmental Unit, including, but not
limited to, the United States of America, under applicable Environmental Laws
where such Claims fall outside the scope of the "products" or "completed
operations" hazards of the AIG Policies (as those terms are defined in the AIG
Policies).

      G. "Claim" means any of the following: (1) "Claim" as that term is defined
in the United States Bankruptcy Code, 11 U.S.C. ss. 101(5); (2) Demand; or (3)
any claim, whether past, present or future, known or unknown, asserted or
unasserted, foreseen or unforeseen, fixed or contingent, or direct or indirect,
and whether in law, equity, admiralty or otherwise (including any claim (a)
arising out of, related to, or involving asbestos or any other substance,
product, matter or material in any form or state, any cumulative or other injury
or damage, any activity, operation, premises, or exposure or any alleged bad
faith, unfair claim practices, unfair trade practices, deceptive trade
practices, insurance code violations, fraud, misrepresentation, non-disclosure,

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breach of fiduciary duty, conspiracy, or extra-contractual or tort liability;
(b) for any form of damages, indemnity or defense obligations, insurance
premiums (whether retrospectively rated or otherwise), deductibles, self-insured
retentions, costs, expenses, contribution or subrogation (except as specified in
Paragraph II.J, below); or (c) pursuant to or under a contract, other agreement,
promise, representation or warranty; or (d) pursuant to any direct action or
statutory or regulatory right of action, assertion of right, complaint,
cross-complaint, counterclaim, affirmative defense, writ, demand, inquiry,
request, suit, lawsuit, liability, action, cause of action, administrative
proceeding, governmental action, order, judgment, settlement, lien, loss, cost
or expense.

      H. "Confirmation Order" means an order entered by the Bankruptcy Court in
the Chapter 11 Case confirming the Plan, together with any order of the United
States District Court issued pursuant to section 524(g)(3)(A) of the Bankruptcy
Code confirming or affirming such order.

      I. "Congoleum Releasees" means (i) Congoleum Corporation and each of the
other Debtors; (ii) each of their respective parents, subsidiaries, divisions,
holding companies, merged companies, acquired companies,
predecessors-in-interest, successors-in-interest and assigns, solely in their
capacities as such; and (iii) the directors, members, officers, shareholders,
agents and employees of the foregoing, solely in their capacities as such.

      J. "Creditors' Committee" means the Official Committee of Unsecured
Asbestos Claimants initially appointed by the United States Trustee in the
Reorganization Cases on or about April 21, 2004.

      K. "Entity" means "Entity" as that term is defined in the Plan, as
amended.

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      L. "Execution Date" means the earliest date on which this Agreement is
signed by the Debtors and the AIG Companies.

      M. "Final Order" means an order or judgment of a court, the
implementation, operation or effect of which has not been stayed and as to which
the time to appeal, seek review, petition for certiorari, or move for
reargument, reconsideration or rehearing has expired and as to which no appeal,
petition for review, reconsideration, rehearing or certiorari or other
proceedings for reargument or rehearing shall then be pending; provided,
however, if an appeal, writ of certiorari, reargument, reconsideration or
rehearing thereof has been filed or sought, such order of the court shall have
been affirmed by the highest court to which such order was appealed, or
certiorari shall have been denied or reargument or rehearing shall have been
denied or resulted in no modification of such order, and the time to take any
further appeal, petition for certiorari, or move for reargument, reconsideration
or rehearing shall have expired; provided, further, that, for the avoidance of
doubt, the Parties acknowledge and agree that the possibility that a motion
filed with respect to such order under Rule 59 or Rule 60 of the Federal Rules
of Civil Procedure, or other analogous rule under the Bankruptcy Rules, may be
filed, does not cause such order not to be a Final Order (provided, further,
that such a motion has not been filed as of a date that such order would
otherwise be considered a Final Order.

      N. "FCR" means the Futures Representative appointed pursuant to the
Bankruptcy Court's February 18, 2004 Order in the Chapter 11 Case, solely in his
capacity as such.

      O. "Legislation Clause" has the meaning ascribed to such term in Section
XVI(A) of this Agreement.

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      P. "Motion" has the meaning ascribed to such term in sub-paragraph
III.E.1.c of this Agreement.

      Q. "Permitted Assignee" means any Person to whom the Plan Trust's right,
title and interest under this Agreement are assigned, with the prior consent of
the AIG Companies (which consent shall not be unreasonably withheld), pursuant
to Section IV of this Agreement.

      R. "Person" means any natural person, corporation, limited liability
company, syndicate, trust, joint venture, association, company, partnership,
governmental authority or other entity.

      S. "Plan" means the Fourth Modified Plan, as such Fourth Modified Plan may
be further modified from time to time (including the anticipated Fifth Modified
Plan ) in accordance with the terms thereof; provided, however, that (i) such
modifications are consistent with the terms of this Agreement and do not
adversely affect the interests of the AIG Companies under this Agreement and
such modifications do not revise or delete the Claimant Agreement (Exhibit E to
the Disclosure Statement), and (ii) the Plan, as so further modified, provides
an injunction at least as broad and inclusive as the "Asbestos Channeling
Injunction" (as defined in the Plan) that applies to Settling Asbestos Insurance
Companies.

      T. "Plan Proponents" means the Debtors in the Chapter 11 cases jointly
administered under Case No. 03-51524 (KCF) in the United States Bankruptcy Court
for the District of New Jersey.

      U. "Plan Trust" means the Plan Trust as defined in the Plan.

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      V. "Prior Payments" has the meaning ascribed to such term in Paragraph
II.G of this Agreement.

      W. "Termination Event" means the occurrence for any reason of any of the
contingencies set forth in Paragraph III.H below and/or the subsequent
declaration of this Agreement as null and void in accordance with Paragraph
III.H below.

      X. "Trigger Date" means the earliest date upon which written notice is
sent to the AIG Companies by the Debtors, pursuant to Section VI below, stating
that all of the following events have occurred, if ever: (1) the Approval Order
is a Final Order; (2) the "Effective Date," as defined in the Plan, has
occurred; (3) the Confirmation Order is a Final Order; and (4) the AIG Companies
have been designated as Settling Asbestos Insurance Companies (entitled to all
of the rights and protections of Settling Asbestos Insurance Companies,
including an injunction under section 524(g) of the Bankruptcy Code under the
Plan) in the schedule of Settling Asbestos Insurance Companies filed by the Plan
Proponents prior to the conclusion of the Confirmation Hearing, pursuant to the
Plan.

II.   PAYMENT BY THE AIG COMPANIES

      A. The AIG Companies agree to pay to the Plan Trust or as otherwise
directed by the Bankruptcy Court, the total amount of One Hundred Three Million
Four Hundred Twenty Two Thousand Six Hundred Fifty Two Dollars ($103,422,652.00)
(the "Settlement Amount") representing costs associated with Asbestos Claims, in
the manner specified in this Paragraph II.A and in the amounts set forth on
Attachment C hereto (such scheduled payments, collectively, the "AIG Settlement
Payments"). The first AIG Settlement Payment listed on Attachment C hereto shall
be paid to the Plan Trust or as otherwise directed by the Bankruptcy Court on

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the last day of the calendar quarter (i.e., March 31, June 30, September 30 or
December 31) that is at least thirty (30) days but no more than ninety-two (92)
days following the Trigger Date. Thereafter, each successive AIG Settlement
Payment listed on Attachment C hereto shall be paid to the Plan Trust or as
otherwise directed by the Bankruptcy Court on the last day of the immediately
following calendar quarter. By way of example, assuming that the Trigger Date is
December 5, 2005, the first AIG Settlement Payment listed on Attachment C hereto
would be due on or before March 31, 2006. Under this example, the second AIG
Settlement Payment listed on Attachment C hereto would be due on or before June
30, 2006; the third AIG Settlement Payment listed on Attachment C hereto would
be due on or before September 30, 2006, and so on for each successive AIG
Settlement Payment listed on Attachment C hereto.

      B. No later than five (5) days after the Trigger Date, the Debtors or the
Plan Trust shall provide the AIG Companies with instructions with respect to the
payment of the Settlement Amount. Such instructions will include provisions for
payment by check and by wire transfer.

      C. The proceeds of the AIG Companies' payments hereunder shall be used
only to pay Asbestos Claims and/or to pay other amounts payable by the Plan
Trust pursuant to the Plan and the Trust Distribution Procedures for the
Congoleum Plan Trust, as may be amended. The foregoing provisions of this
Paragraph II.C shall apply only with respect to AIG Settlement Payments actually
received by the Plan Trust and shall not apply with respect to any AIG
Settlement Payments made to a Permitted Assignee. Notwithstanding anything to
the contrary herein, nothing in this Agreement, including, without limitation,
the provisions of this Paragraph II.C, shall be construed to impair, restrict,
diminish or otherwise limit the Plan Trust's right to assign any or all of the
AIG Settlement Payments, pursuant to the terms of Section IV herein.

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      D. Each of the AIG Companies covenants and agrees that it shall not,
without the written consent of the Debtors, and after the Effective Date, the
Plan Trust, consent to, and instead shall oppose, the entry of any order,
decree, judgment or injunction that would require the AIG Companies to make
payment of any one or more AIG Settlement Payments to, or for the benefit of, a
Person other than (1) the Plan Trust, or (2) a Permitted Assignee, as
applicable, or that would prohibit, divert, channel or otherwise limit or
restrict payment to the Plan Trust or a Permitted Assignee, as applicable, of
the AIG Settlement Payments, or which would have any such effect.

      E. Time is of the essence with respect to payment of the AIG Settlement
Payments (together with any and all interest accrued thereon as provided for
herein), and all other payments set forth in this Agreement. Subject to the
provisions of Paragraphs II.A and II.B above, all payments made by an AIG
Company pursuant hereto shall be made no later than the date when due as set
forth in Paragraph II.A above, in U.S. dollars, in the full amount of the
applicable AIG Settlement Payment as set forth on Attachment C hereto (together
with any and all interest accrued thereon as provided for herein), without any
set-off, counterclaim, diminution or any other deduction whatsoever; provided,
however, that if such applicable date is not a Business Day, then such payment
shall be made on the immediately preceding Business Day.

      F. Any AIG Settlement Payment that is not made when due shall bear
interest from (and including) the date that is three days after the date of
notice of such overdue payment to the AIG Companies in the manner specified in
Section VI herein to (but excluding) the date said AIG Settlement Payment plus
all interest accrued thereon is actually paid, at an interest rate equal to the
prime rate of Citibank, N.A. in effect on the date such payment was due plus
three percent (3%), compounded daily.

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      G. The Settlement Amount and/or the AIG Settlement Payments are in
addition to any and all amounts paid prior to the Execution Date by or on behalf
of the AIG Companies to or for the benefit of the Debtors in connection with
Asbestos Claims or otherwise (the "Prior Payments"). From and after the Trigger
Date, and unless this Agreement is declared null and void pursuant to Paragraph
III.H below, any and all payments by the AIG Companies, including, without
limitation, the Prior Payments, if any, the Settlement Amount and/or the AIG
Settlement Payments, shall be deemed final and irrevocable payments.

      H. In entering into this Agreement, the AIG Companies have relied upon the
fact that nothing in this Agreement and nothing in the Plan is intended to
alter, amend or impair the rights and duties of the Parties in connection with
insurance or other transactions that are unrelated to (1) asbestos or (2) the
release of insurance coverage as set forth in sub-paragraph V.A.1.

      I. The AIG Companies shall have the right to allocate the Settlement
Amount and/or the AIG Settlement Payments, or any portions thereof, solely for
their own purposes, in their own books and records, to the various types and
classifications of claims released by the Debtors pursuant to Section IV, below;
provided, however that neither the Debtors nor the Plan Trust shall be bound by
or be deemed to agree with any such allocation for any reason or purpose and
that the AIG Companies' allocation shall not, in any way, limit the AIG
Companies' obligation to pay the AIG Settlement Payments when due or limit the
Debtors' or the Plan Trust's use or allocation of the Settlement Amount and/or
the AIG Settlement Payments, as applicable.

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      J. The AIG Companies shall not seek reimbursement of any payments that the
AIG Companies made (including, without limitation, Prior Payments) or are
obligated to make under this Agreement or otherwise, whether by way of a claim
for contribution or subrogation, or otherwise, from any Entity other than the
AIG Companies' reinsurers in their capacity as such. Each of the Debtors shall
use its reasonable best efforts to obtain from all insurers with which it
settles an agreement similar to that set forth in the preceding sentence;
provided, however, that notwithstanding anything to the contrary herein, the
failure of the Debtors to obtain such an agreement from any other insurer with
which it settles shall not constitute a breach of this Agreement.
Notwithstanding the foregoing, subject to the effect of any injunction issued
pursuant to section 524(g) of the Bankruptcy Code, the AIG Companies may file a
cross-complaint or counterclaim against any Entity that has first asserted a
claim seeking reimbursement for any payment that it has paid or is required to
pay, whether by way of a claim for contribution and/or subrogation or otherwise,
against the AIG Companies in connection with any Claims released hereunder;
provided, however, that to the extent the AIG Companies recover any amount in
respect of such cross-complaint or counterclaim from such third party, the
proceeds of such recovery shall be paid by the AIG Companies per the instruction
of the Debtors or the Plan Trust, (as the case may be) after the AIG Companies
are reimbursed from such proceeds for their reasonable fees, costs and expenses
incurred in prosecuting and defending such claim. For the avoidance of doubt,
any payment of such proceeds per the Debtors' or the Plan Trust's instructions
shall not reduce or count towards the AIG Companies' obligation to pay the AIG
Settlement Payments (plus any and all interest accrued thereon as provided for
herein).

      K. Each Party acknowledges and agrees that the Debtors' rights to the AIG
Settlement Payments derive from and are coextensive with the Debtors' rights to
the proceeds of the AIG Policies. Each Party agrees that it shall not take any
action inconsistent with such acknowledgement and agreement.

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      L. In the event that any insurer of the Debtors obtains a binding
arbitration award or final judgment against or a settlement with one or more of
the AIG Companies (with the consent of the Debtors prior to the "Effective Date"
(as defined in the Plan) or with the consent of the Plan Trust following said
Effective Date (which consent in either case shall not be unreasonably withheld)
entitling it to obtain a sum certain from the AIG Companies as a result of said
insurer's claim for contribution, subrogation, indemnification, reimbursement or
other similar claim against the AIG Companies for the AIG Companies' alleged
share or equitable share of the defense and/or indemnity of the Debtors for any
Claims released pursuant to this Agreement, the Debtors or the Plan Trust (as
the case may be) shall voluntarily reduce the amount of any such final judgment
or settlement payment that they have obtained or may obtain from such other
insurer by the amount of such other insurer's binding arbitration award or final
judgment awarded against or settlement with the AIG Companies in connection with
such contribution, subrogation, indemnification or other similar claim and shall
direct that such AIG Companies shall not be subject to liability for such
judgment, arbitration award or settlement. Such a reduction in judgment or
arbitration award or settlement will be accomplished by subtracting from the
judgment, arbitration award or settlement against the other insurers the share
of the judgment, arbitration award or settlement attributable to the AIG
Companies.

      M. In the event that any two (2) consecutive AIG Settlement Payments
(together with any and all interest accrued thereon, as set forth herein) are
past due for more than ten (10) days following the dates on which such AIG
Settlement Payments are due and payable (as set forth in Paragraph II.A above),

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the Plan Trust or a Permitted Assignee (as the case may be) may send a notice of
default to the AIG Companies in the manner set forth in Section VI below (a
"Default Notice"). If the AIG Settlement Payments that are the subject of any
such Default Notice (together with any and all interest accrued thereon, as set
forth herein) are not paid in full within sixty (60) days following the date on
which the Default Notice is sent, then the Plan Trust or a Permitted Assignee
(as the case may be) may send a notice to the AIG Companies, in the manner set
forth in Section VI below, indicating its intent to accelerate payment of the
AIG Settlement Payments (an "Intent to Accelerate Notice"). If the AIG
Settlement Payments that are the subject of such Intent to Accelerate Notice
(together with any and all interest accrued thereon, as set forth herein) are
not paid in full within thirty (30) days following the date on which the Intent
to Accelerate Notice is sent (the "Acceleration Payment Date"), then an amount
equal to the sum of all unpaid AIG Settlement Payments (including, without
limitation, the AIG Settlement Payments that are the subject of the Intent to
Accelerate Notice), as discounted to present value as of the Acceleration
Payment Date by applying a discount rate that is equal to the Six Month Treasury
Rate in effect on the Acceleration Payment Date (the "Acceleration Payment"),
shall become immediately due and payable to the Plan Trust or the Permitted
Assignee (as the case may be). Notwithstanding the foregoing, the Acceleration
Payment shall not become immediately due and payable in the event that the AIG
Companies' failure to pay or to cure was the result of (i) an act of God; (ii) a
suspension or material limitation in trading in securities generally on the New
York Stock Exchange or on NASDAQ; (iii) a general moratorium on commercial
banking activities declared by either Federal or New York State banking
authorities; (iv) the outbreak or escalation of hostilities involving the United
States or the declaration by the United States of a national emergency or war;
or (v) a good faith dispute by the AIG Companies of the amount of interest
allegedly due with respect to the AIG Settlement Payments that are the subject
of the Intent to Accelerate Notice (and any other AIG Settlement Payments that
are past due as of the date the Intent to Accelerate Notice is sent); provided
that this clause (v) shall be applicable only if the AIG Companies have paid in

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full, within thirty (30) days after the Intent to Accelerate Notice is sent, the
scheduled amount of the AIG Settlement Payments, as set forth on Attachment C
hereto, that are the subject of the Intent to Accelerate Notice (and any other
AIG Settlement Payments that are past due as of the date the Intent to
Accelerate Notice is sent), together with all undisputed amounts of interest
thereon.

III.  BANKRUPTCY OBLIGATIONS

      A. In consideration for the promises and covenants hereunder, the Plan
Proponents shall (i) designate the AIG Companies as Settling Asbestos Insurance
Companies (entitled to all of the rights and protections of Settling Asbestos
Insurance Companies under the Plan) in the schedule of Settling Asbestos
Insurance Companies filed by the Plan Proponents prior to the conclusion of the
Confirmation Hearing, pursuant to the Plan; and (ii) file, within ten (10)
business days of the Execution Date, the Motion (as defined herein) pursuant to
Federal Rule of Bankruptcy Procedure 9019 seeking entry of the Approval Order,
and the AIG Companies will support the Plan Proponents' efforts to obtain such
approval, which Motion must be in form and substance reasonably acceptable to
the AIG Companies.

      B. Upon the later of (1) the Effective Date or (2) the Confirmation Order
becoming a Final Order, if any Claim released under the AIG Policies pursuant to
this Agreement, or that is subject to the Asbestos Channeling Injunction or any
other injunctive protection provided for in the Plan or Confirmation Order, is

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brought against the AIG Companies, then the Plan Trust will cooperate with the
AIG Companies in establishing that the AIG Companies are Settling Asbestos
Insurance Companies entitled to the protections afforded such Settling Asbestos
Insurance Companies under the Plan.

      C. Once the Asbestos Channeling Injunction becomes effective, each of the
Debtors agrees not to modify the terms of said injunction without first
obtaining the consent of the AIG Companies, which consent shall not be withheld
unreasonably.

      D. The AIG Companies will not assert, file, or pursue any motions,
objections, claims, proofs of claim, or appeals in the Chapter 11 Case and shall
support and not oppose entry of the Approval Order.

      E. The AIG Companies will not object to or oppose confirmation of the Plan
(or of any subsequently modified plan(s) of reorganization in the Chapter 11
Case), and the AIG Companies will not appeal the Confirmation Order provided
that the Plan does not in any way impair, diminish or detract from the benefit
to the AIG Companies of this Agreement and provided further that the Approval
Order includes:

      1.    findings that:

            a.    The AIG Companies' payment in full of the first AIG Settlement
                  Payment identified on Attachment C hereto, as provided for in
                  Paragraph II.A, above, shall satisfy and extinguish in full
                  the AIG Companies' obligation for Asbestos Claims under the
                  AIG Policies but shall not release the AIG Companies from
                  their obligations to make all AIG Settlement Payments
                  identified on Attachment C hereto.

            b.    The AIG Companies' payment of the AIG Settlement Payments
                  shall be made to the Plan Trust or as otherwise directed by
                  the Bankruptcy Court, or, if the Plan Trust elects to sell and
                  assign some or all of the AIG Settlement Payments, to a
                  Permitted Assignee, as applicable. The proceeds of the AIG
                  Settlement Payments shall be paid only to pay Asbestos Claims
                  and/or to pay other amounts payable by the Trust pursuant to

                                       18
<PAGE>

                  the Plan and the Trust Distribution Procedures for the
                  Congoleum Plan Trust, as may be amended; provided that this
                  provision regarding proceeds of the AIG Settlement Payments
                  shall apply only with respect to AIG Settlement Payments
                  actually received by the Plan Trust and shall not apply with
                  respect to any AIG Settlement Payments made to a Permitted
                  Assignee.

            c.    Adequate notice of the Debtors' Motion for Approval of the
                  Settlement Agreement Between the Debtors and Certain AIG
                  Member Companies (the "Motion") and of the hearing on the
                  Motion was given by mailing a copy of the Motion and notice of
                  the hearing on the Motion to: (a) the members of the Official
                  Committee of Asbestos Claimants (the "Committee") and the
                  Committee's counsel; (b) the FCR and the counsel for the FCR;
                  (c) the Claimants' Counsel; (d) all other Persons or Entities
                  that, as of the date the Motion was filed, had filed a notice
                  of appearance or other demand for service of papers in the
                  Debtors' Chapter 11 Case; (e) the United States Trustee; (f)
                  the Collateral Trustee (the "Collateral Trustee") of the
                  Congoleum Collateral Trust (the "Collateral Trust")
                  established pursuant to a Collateral Trust Agreement dated
                  April 17, 2003; (g) Congoleum Corporation's majority
                  shareholder, American Builtrite, Inc.; (h) any other presently
                  existing Entities that are insureds under the AIG Policies;
                  (i) counsel to all known holders of Asbestos Claims as
                  reflected in the claims filed in this case, claims submitted
                  in connection with the Settlement Between Congoleum
                  Corporation and Various Asbestos Claimants attached as Exhibit
                  E to the Disclosure Statement with respect to the Plan (the
                  "Claimant Agreement"), or ballots submitted in connection with
                  this case; and (j) to all known holders of Asbestos Claims
                  whose counsel is not included within the preceding clause who,
                  as of at least five (5) days prior to the Hearing, became
                  known through filing of a proof of claim or otherwise.

            d.    Notice to an attorney for the holder of an Asbestos Claim
                  constitutes notice to the claimant for purposes of the
                  Agreement.

            e.    Notice of the Agreement, the Motion and the Hearing is
                  sufficient to bind the Creditors' Committee and its members,
                  all known creditors and claimants, the FCR and all future
                  claimants and demand holders whose interests are represented
                  by the FCR, and all other Persons or Entities, including but
                  not limited to the Debtors' insurers, that, as of the date the
                  Motion was filed, had filed a notice of appearance and demand
                  for service of papers in the Debtors' Chapter 11 Case.

                                       19
<PAGE>

            f.    The Approval Order and each of its Findings and Conclusions
                  are binding upon the Creditors' Committee and its members, all
                  known creditors and claimants, the FCR and all future
                  claimants and demand holders whose interests are represented
                  by the FCR, and all other Persons or Entities, including but
                  not limited to the Debtors' insurers, that, as of the date the
                  Motion was filed, had filed a notice of appearance or other
                  demand for service of papers in the Debtors' Chapter 11 Case.
                  The AIG Companies will not object to or oppose confirmation of
                  the Plan (or confirmation of any subsequently modified plan(s)
                  of reorganization in the Chapter 11 Case), and the AIG
                  Companies will not appeal the Confirmation Order provided that
                  the Plan does not in any way impair, diminish or detract from
                  the benefit to the AIG Companies of this Agreement and
                  provided further that the Approval Order includes a provision
                  acknowledging that the Plan, as amended, states that any
                  right, claim or cause of action that an Asbestos Insurance
                  Company may have been entitled to assert against a Settling
                  Asbestos Insurance Company based on or relating to Asbestos
                  Claims shall be channeled to and become a right, claim or
                  cause of action against the Plan Trust and not against the
                  Settling Asbestos Insurance Company in question and that all
                  persons, including any Asbestos Insurance Company, shall be
                  enjoined from asserting any such right, claim or cause of
                  action against a Settling Asbestos Insurance Company which
                  shall be protected by injunction from assertion against it, by
                  an Asbestos Insurance Company, of any Asbestos Claims.

      F. Upon its creation, the Plan Trust (1) automatically and without need
for further action shall become a Party to this Agreement; and (2) promptly
shall execute this Agreement. Upon the Trigger Date, and without limiting the
obligations of the Debtors under this Agreement, the Plan Trust automatically
shall succeed to all of the rights and be bound by all of the obligations of the
Debtors under this Agreement without necessity of further action; provided,
however, that the release provisions of Section V below shall be binding on and
inure to the benefit of the Debtors, the Plan Trust and the AIG Companies. The
Debtors shall include in the Plan Trust Agreement as an obligation of the Plan
Trust, effective from the creation of the Plan Trust, that such trust shall be
subject to and bound by this Agreement and the Approval Order.

                                       20
<PAGE>

      G. Upon the occurrence of the Trigger Date, all of the Debtors' Asbestos
Insurance Rights under this Agreement shall be assigned to the Plan Trust
pursuant to the Plan and the Plan Documents, automatically and without need of
further action by any Party or Entity; provided, however, that the provisions of
Sections V and X below, shall remain binding on and shall continue to inure to
the benefit of the Debtors and the AIG Companies, and in addition shall be
binding on and inure to the benefit of the Plan Trust. The Plan Proponents shall
propose to the Bankruptcy Court technical modifications to the Plan providing
that the provisions of the Asbestos Insurance Settlement Agreements shall be
binding on the Plan Trust with the same force and effect as if the Plan Trust
were a party to the Asbestos Insurance Settlement Agreements.

      H. Notwithstanding Paragraph III.G above, and subject to Paragraph III.I
below, any Party may declare this Agreement, except for the provisions in
Paragraph III.I and Sections I and VI herein, to be null and void upon the
occurrence of any of the following contingencies: (i) the entry of an order by
the Bankruptcy Court (or the District Court exercising its original bankruptcy
jurisdiction) denying approval of this Agreement; (ii) the entry of an order by
the Bankruptcy Court (or the District Court exercising its original bankruptcy
jurisdiction) converting the Chapter 11 Case into a Chapter 7 case or dismissing
the Chapter 11 Case prior to the Approval Order becoming a Final Order or prior
to the Confirmation Order becoming a Final Order; (iii) the failure of the
Bankruptcy Court (or the District Court exercising its original bankruptcy
jurisdiction) to find in the Approval Order that the AIG Companies' payment in
full of the first AIG Settlement Payment listed on Attachment C hereto, as
provided for in Paragraph II.A above, satisfies in full and extinguishes the AIG
Companies' obligation for Asbestos Claims under the AIG Policies but does not
release the AIG Companies from their obligations to make all AIG Settlement

                                       21
<PAGE>

Payments identified on Attachment C hereto, or to make any of the other findings
set forth in Section III above; (iv) if the Plan as confirmed does not contain a
provision stating that any right, claim or cause of action that an Asbestos
Insurance Company may have been entitled to assert against a Settling Asbestos
Insurance Company under the AIG Policies based on or relating to Asbestos Claims
shall be channeled to and become a right, claim or cause of action against the
Plan Trust and not against the Settling Asbestos Insurance Company in question
and that all persons, including any Asbestos Insurance Company, shall be
enjoined from asserting any such right, claim or cause of action against a
Settling Asbestos Insurance Company (including each of the AIG Companies), which
Settling Asbestos Insurance Company shall be protected by injunction from
assertion against it, by an Asbestos Insurance Company, of any Asbestos Claims
under the AIG Policies; (v) the failure of the Confirmation Order to become a
Final Order within twenty-four (24) months of the Execution Date; or (vi) the
confirmation of a plan of reorganization that is not substantially similar to
the Plan. Any such declaration pursuant to this Paragraph III.A must be made in
writing and sent to all Parties in the manner set forth in Section VI below.

      I. Notwithstanding anything in this Agreement to the contrary, in the
event that this Agreement is declared null and void pursuant to Paragraph III.H
above, (1) this Agreement (except for Sections I and VI and Paragraphs III.H and
III.I herein) shall be vitiated and shall be a nullity; (2) neither the AIG
Companies nor any Permitted Assignee, as applicable, shall be obligated to pay
or to cause to be paid the Settlement Amount or the AIG Settlement Payments
pursuant to this Agreement; (3) no Party shall be bound by the terms of any
Approval Order; (4) the AIG Policies shall remain in the same force and effect
as if this Agreement had never existed, and the Debtors and the AIG Companies
shall have all of the rights and obligations under or with respect to the AIG

                                       22
<PAGE>

Policies that they would have had if this Agreement had never existed; (5) the
AIG Companies shall not be entitled to and shall not claim, any right or benefit
of Settling Asbestos Insurance Companies; and (6) any and all statutes of
limitation or repose, or other time-related limitations, shall be deemed to have
been tolled for the period from June 15, 2004 through the date that is thirty
(30) days following the date on which the Agreement is declared null and void,
and no Party shall assert or rely on any time-related defense to any Claim or
Demand by any other Party related to such period.

IV.   RIGHT OF ASSIGNMENT BY THE PLAN TRUST

      A. The AIG Companies agree that the Plan Trust has the absolute and
unconditional right, with the prior consent of the AIG Companies (which consent
shall not be unreasonably withheld), to assign any or all of the AIG Settlement
Payments to one or more Permitted Assignees, and that such Permitted Assignee
has the right to collect the AIG Settlement Payments so assigned. The AIG
Companies shall cooperate in assisting the Debtors and/or the Plan Trust (as the
case may be) to effect any such assignment; provided that none of the AIG
Companies and their respective affiliates shall be required to provide any
information relating to the AIG Policies to any Permitted Assignee (or any of
its counsel, agents or representatives), including but not limited to claims
data, or otherwise comply with due diligence requests from a Permitted Assignee
(or any of its counsel, agents or representatives). Any assignment of the AIG
Settlement Payments shall be available to the Plan Trust on the following terms,
to which the AIG Companies hereby agree:

                                       23
<PAGE>

            1. Assignment. The Plan Trust may, in its sole discretion, enter
into an assignment agreement assigning to one or more Permitted Assignees all or
a portion of its right, title and interest in and to the AIG Settlement Payments
(an "Assignment Agreement"). No assignment to a Permitted Assignee shall occur
prior to the Trigger Date.

            2. Recourse to the AIG Companies. Immediately upon the assignment to
one or more Permitted Assignees of all or a portion of the Debtors' and/or the
Plan Trust's right, title and interest in and to the AIG Settlement Payments,
all of such assigned right, title and interest in and to the AIG Settlement
Payments shall be transferred to such Permitted Assignees as if the AIG
Settlement Payments were owed to such Permitted Assignees. Furthermore, should
the AIG Companies in any manner fail to fulfill their obligations under Section
II herein, such Permitted Assignees shall have recourse only against the AIG
Companies and shall have no recourse against the Debtors or the Plan Trust.

            3. Further Assignment. Any Permitted Assignee shall have the same
right as the Plan Trust to assign freely (with the prior consent of the AIG
Companies, which consent shall not be unreasonably withheld) all or a portion of
the AIG Settlement Payments assigned to it to another Permitted Assignee.

      B. Notwithstanding anything to the contrary herein, the Parties
acknowledge and agree that an assignment of any right, title and interest in and
to the AIG Settlement Payments to a Person who is not a Permitted Assignee shall
be null and void and of no effect whatsoever.

V.    RELEASE, DISMISSAL AND WAIVER

      A. Effective upon payment in full by the AIG Companies of the first AIG
Settlement Payment listed on Attachment C hereto, as provided for in Paragraph
II.A above, to or for the benefit of the Plan Trust or one or more Permitted
Assignees, as applicable, in the manner contemplated in this Agreement:

                                       24
<PAGE>

            1. Each of the Debtors and the Plan Trust releases the AIG Companies
Releasees forever from any and all known or unknown, suspected or unsuspected,
past, present, existing, potential or future obligations, duties, Claims,
demands, penalties, costs, fees, attorneys' fees, debts, actions, causes of
action, choses in action, administrative actions or proceedings, suits,
arbitrations, mediations or other proceedings, offsets, damages, injuries,
rights, agreements, requests for relief, sums of money, losses or liabilities of
any kind, nature, character or description, whether fixed or unliquidated,
whether conditional or contingent, whether in law or equity (a) for insurance
coverage with respect to the applicable products/completed operations hazards
limits under the AIG Policies; and (b) for insurance coverage for Asbestos
Claims under the AIG Policies. Notwithstanding anything to the contrary herein,
nothing in this Paragraph V.A shall be construed as releasing the AIG Companies
from their obligations to make all Settlement Payments identified on Attachment
C hereto.

            2. The AIG Companies release the Congoleum Releasees and the Plan
Trust forever from any and all known or unknown, suspected or unsuspected, past,
present, existing, potential or future obligations, duties, Claims, demands,
penalties, costs, fees, attorneys' fees, debts, actions, causes of action,
choses in action, administrative actions or proceedings, suits, arbitrations,
mediations or other proceedings, offsets, damages, injuries, rights, agreements,
requests for relief, sums of money, losses or liabilities of any kind, nature,
character or description, whether fixed or unliquidated, whether conditional or
contingent, whether in law or equity (a) in connection with the applicable
products/completed operations hazards limits under the AIG Policies; and (b) in
connection with Asbestos Claims under the AIG Policies.

                                       25
<PAGE>

      B. Upon the Execution Date, Congoleum will promptly dismiss the AIG
Companies and the AIG Policies from the Coverage Action by entering into a
stipulation of dismissal, and the Parties shall bear their own fees, costs and
expenses incurred in connection with the Coverage Action and this Agreement. The
stipulation of dismissal shall state that Congoleum's claims are dismissed with
prejudice except that such stipulation will provide that, in the event that this
Agreement becomes null and void pursuant to Paragraph III.H below, Congoleum may
re-join the AIG Companies to the Coverage Action and re-assert all claims
against the AIG Companies in the Coverage Action, other than the bad faith
claims that have been asserted in the Coverage Action, which bad faith claims
shall not be re-asserted against the AIG Companies in the Coverage Action or in
any new action. In such event, the Parties agree that each of Congoleum and the
AIG Companies will be bound by all issues adjudicated or rulings in the Coverage
Action after the date of the stipulation of dismissal despite the fact that the
AIG Companies did not actually participate in the litigation of such issues.

      C. The Parties acknowledge that they have been advised by their respective
legal counsel and are familiar with the provisions of Section 1542 of the
California Civil Code, which provides:

            A general release does not extend to claims which the creditor does
            not know or suspect to exist in his or her favor at the time of the
            executing of the release which if known by him or her must have
            materially affected his or her settlement with the debtor.

The Parties hereto expressly consent that this settlement and release shall be
given full force and effect according to each and all of its express terms and
provisions, including those dealing with unknown and unsuspected claims, and
causes of action. The Parties further agree that this reference to the
California Civil Code shall not give rise to any argument that California law
applies to this Agreement or the disputes resolved pursuant hereto.

                                       26
<PAGE>

      D. Notwithstanding anything in this Section V to the contrary, the
foregoing release provisions of this Section V shall not be construed to apply
to any breach by a Party of any of its obligations under this Agreement or to
discharge any rights that any of the Parties has to enforce this Agreement or
any Assignment Agreement.

VI.   NOTICES

      Any and all statements, communications or notices to be provided pursuant
to or in connection with this Agreement shall be in writing and sent by
facsimile, e-mail and first-class mail, postage prepaid. Such notices shall be
sent to the individuals noted below, or to such other individuals as hereafter
designated in writing:

                  TO CONGOLEUM CORPORATION AND THE OTHER DEBTORS:

                  Howard N. Feist III
                  Congoleum Corporation
                  57 River Street
                  Wellesley, MA  02481-2097
                  Phone: (781) 237-6655
                  Fax: (781) 237-6880
                  e-mail: sfeist@alumni.princeton.edu

                  With a copy to

                  Pillsbury Winthrop LLP
                  1540 Broadway
                  New York, NY  10036-4039
                  Attn: Richard L. Epling, Esq.
                        Kerry A. Brennan, Esq.
                  Phone: (212) 858-1000
                  Fax: (212) 858-1500
                  e-mail: repling@pillsburywinthrop.com
                          kbrennan@pillsburywinthrop.com

                   and

                                       27
<PAGE>

                  Gilbert Heintz & Randolph LLP
                  1100 New York Avenue, N.W.
                  Washington, D.C.  20005
                  Attn: Bette Orr, Esq.
                  Phone: (202) 772-2340
                  Fax: (202) 772-2325
                  e-mail: orrb@ghrdc.com

                  TO THE AIG COMPANIES:

                  Christopher J. Eskeland
                  Vice-President
                  AIG Domestic Claims, Inc.
                  101 Hudson Street, 29th floor
                  Jersey City, NJ 07032
                  Phone: (201) 631-7016
                  Fax: (201) 631-5008
                  e-mail: chris.eskelan@aig.com

                  With a copy to

                  R. Jeff Carlisle, Esq.
                  Lynberg & Watkins
                  16th Floor
                  International Tower Plaza
                  888 South Figueroa Street
                  Los Angeles, CA  90017-5475
                  Phone: (213) 532-7003
                  Fax: (213) 892-2773
                  e-mail: jcarlisle@lynberg.com

VII.  NO ADMISSIONS BY THE PARTIES; RIGHTS OF THIRD PARTIES

      A. Nothing contained herein is or shall be deemed to be: (1) an admission
by the AIG Companies that any of the Debtors or any other Entity was or is
entitled to any insurance coverage under the AIG Policies, or as to the validity
of any of the positions that have been or could have been asserted by any of the
Debtors; (2) an admission by any of the Debtors as to the validity of any of the
positions or defenses to coverage that have been or could have been asserted by
the AIG Companies; or (3) an admission by any of the Debtors or the AIG

                                       28
<PAGE>

Companies of any liability whatsoever with respect to Asbestos Claims or other
Claims or Demands. In entering into this Agreement, no Party has waived nor
shall be deemed to have waived, modified, or retracted any rights, obligations,
privileges, or positions it has asserted or might in the future assert in
connection with any Claim or Demand, matter, bankruptcy procedure or process,
insurance policy, or Entity outside the scope of this Agreement.

      B. Each of the Parties agrees that any Permitted Assignee will be a third
party beneficiary of the terms hereof. Except as expressly provided in this
Agreement, the Parties specifically disavow any intention to create rights in
third parties under or in relation to this Agreement.

      C. Notwithstanding anything to the contrary herein, the releases in
Section V above in no way impair any third party or direct claim or action by
any Entity against the AIG Companies for any wrongful conduct allegedly
committed by the AIG Companies arising from the AIG Companies' insurance of any
manufacturer, supplier, distributor, or user of asbestos or asbestos-containing
products other than the Debtors or defense of or settlement of any asbestos
claims against any manufacturer, supplier, distributor, or user of asbestos or
asbestos-containing products other than the Debtors.

VIII. CONFIDENTIALITY

      The Parties agree, subject to any disclosure obligations imposed by law,
to hold confidential, and not to disclose to third parties, this Agreement
unless and until the Debtors file the Motion seeking entry of an Approval Order.
Notwithstanding anything to the contrary in this Section VIII, any Party may
disclose this Agreement at any time (i) to the Party's reinsurers, auditors,
regulators, reinsurance intermediaries, creditors, and lenders; (ii) to any
Permitted Assignee; (iii) to Entities by any Permitted Assignee in connection
with any financing or refinancing in connection with or relating to the AIG

                                       29
<PAGE>

Settlement Payments or the Settlement Amount; (iv) as required to obtain the
necessary court approval of this Agreement or the Plan in the Chapter 11 Case;
and/or (v) to Entities by the Plan Trust in connection with the ordinary course
of the Plan Trust's operations.

IX.   COOPERATION

      A. The AIG Companies shall use their reasonable best efforts to comply
with reasonable requests from the Debtors or the Plan Trust for documents and
other information required by the Debtors or the Plan Trust in connection with
any insurance claims, arbitrations, or litigations related to the Settlement
Amount and/or the AIG Settlement Payments, this Agreement, or the Debtors'
Asbestos Claims, including the AIG Companies' claims and underwriting files and
billing and payment records with respect to the Debtors' Asbestos Claims.

      B. Each of the Debtors and the Plan Trust shall use their reasonable best
efforts to comply with reasonable requests from the AIG Companies for documents
and other information required by the AIG Companies in connection with any
reinsurance claims, arbitrations, or litigations relating to the Settlement
Amount and/or the AIG Settlement Payments, this Agreement, or the Debtors'
Asbestos Claims. For purposes of this Section IX, "reasonable best efforts"
shall not include disclosure of information that is subject to a confidentiality
agreement or privilege.

X.    REPRESENTATIONS AND WARRANTIES

      A. Each of the Debtors represents and warrants that it has full corporate
authority to enter this Agreement as a binding and legal obligation of such
Debtor, subject to approval by the Bankruptcy Court. The person signing this
Agreement on behalf of any of the Debtors represents and warrants that he or she
is authorized by such Debtor to execute this Agreement as a binding and legal
obligation of such Debtor, subject to approval by the Bankruptcy Court.

                                       30
<PAGE>

      B. The Plan Trust, upon its execution and delivery of this Agreement,
represents and warrants that it has full trust authority to enter this Agreement
as a binding and legal obligation of the Plan Trust. The person signing this
Agreement on behalf of the Plan Trust represents and warrants that he or she is
authorized by the Plan Trust to execute this Agreement as a binding and legal
obligation of the Plan Trust, subject to approval by the Bankruptcy Court.

      C. The AIG Companies represent and warrant that the AIG Companies have
full corporate authority to enter this Agreement as a binding and legal
obligation of the AIG Companies. The person signing this Agreement on behalf of
the AIG Companies represents and warrants that he or she is authorized by the
AIG Companies to execute this Agreement as a binding and legal obligation of the
AIG Companies.

      D. Each Party represents and warrants that as of the Execution Date, it is
not aware of any the existence of any AIG Policy other than the insurance
policies identified on Attachment A hereto.

XI.   JURISDICTION

      The Bankruptcy Court shall retain exclusive jurisdiction over any dispute
relating to this Agreement.

XII.  NO PREJUDICE AND CONSTRUCTION OF AGREEMENT

      This Agreement is the product of informed negotiations and involves
compromises of the Parties' previously stated legal positions. This Agreement is
without prejudice to positions taken by the AIG Companies with regard to other
insureds or by the Debtors with regard to other insurers. This Agreement is the
jointly drafted product of arm's-length negotiations between the Parties with

                                       31
<PAGE>

the benefit of advice from counsel, and the Parties agree that it shall be so
construed. As such, no Party will claim that any ambiguity in this Agreement
shall be construed against any other Party by reason of the identity of the
drafter.

XIII. ENTIRE AGREEMENT AND TERM

      A. This Agreement and the Approval Order express the entire agreement and
understanding between the Debtors, the AIG Companies and the Plan Trust. Except
as expressly set forth in this Agreement, there are no representations,
warranties, promises, or inducements, whether oral, written, expressed or
implied, that in any way affect or condition the validity of this Agreement or
alter its terms. If the facts or law related to the subject matter of this
Agreement are found hereafter to be other than is now believed by any of the
Parties, the Parties expressly accept and assume the risk of such possible
difference of fact or law and agree that this Agreement nonetheless shall be and
remain effective according to its terms.

      B. Titles and captions contained in this Agreement are inserted only as a
matter of convenience and are for reference purposes only. Such titles and
captions are intended in no way to define, limit, expand, or describe the scope
of this Agreement or the intent of any provision hereof.

XIV.  MODIFICATION

      No change or modification of this Agreement shall be valid unless it is
made in writing and signed by the Parties hereto.

XV.   EXECUTION

      This Agreement shall be executed in counterparts, each of which shall be
deemed an original and all of which, taken together, shall constitute one and
the same instrument. Upon execution of the counterparts by the Plan Trust, the

                                       32
<PAGE>

Plan Trust shall provide its address for notices to the other Parties under
Section VI. Each counterpart may be delivered by facsimile transmission, and a
faxed signature shall have the same force and effect as an original signature.

XVI.  MISCELLANEOUS

      A. Only in the event that any of the Debtors enters into a final, written
Asbestos Insurance Settlement Agreement with any other Settling Asbestos
Insurance Company prior to the time that the Confirmation Order becomes a Final
Order, and if such Asbestos Insurance Settlement Agreement contains a provision
that allows such Settling Asbestos Insurance Company to void or nullify that
Asbestos Insurance Settlement Agreement because of the enactment of Federal
legislation designed to resolve the asbestos-related bodily injury Claims that
are the subject of this Agreement (a "Legislation Clause"), then the AIG
Companies shall have, and shall be deemed to have, the same right to void or
nullify this Agreement as is provided in the Legislation Clause of that other
Asbestos Insurance Settlement Agreement; provided, however, that, that any such
right to void or nullify this Agreement shall terminate on the date on which the
Confirmation Order becomes a Final Order. Notwithstanding anything to the
contrary herein, in no event shall the AIG Companies be entitled to any
reimbursement of any amount already paid pursuant to this Agreement, nor shall
the AIG Companies be relieved of any obligation to pay any part of the
Settlement Amount and/or the AIG Settlement Payments due and owing pursuant to
this Agreement at the time that any such Debtor executes such Asbestos Insurance
Settlement Agreement containing a Legislation Clause.

      B. Notwithstanding anything to the contrary herein, the Parties hereby
agree that no Party hereto shall have any liability to the other Parties for the
occurrence of any Termination Event or the failure of the Trigger Date to occur.

                                       33
<PAGE>

      C. The settlement negotiations leading up to this Agreement and all
related discussions and negotiations shall be deemed to fall within the
protection afforded to compromises and to offers to compromise by Rule 408 of
the Federal Rules of Evidence and any parallel state law provisions.

      D. Except as expressly provided herein, this Agreement does not modify or
supersede the Parties' rights and obligations under the AIG Policies.

            [The remainder of this page is left blank intentionally.]

                                       34
<PAGE>

      IN WITNESS WHEREOF, this Agreement, consisting of thirty-five (35) pages,
including the signature page, and three (3) Attachments, has been read and
signed by the duly authorized representatives of the Parties as of the dates set
forth below.

May 12, 2005

                                    CONGOLEUM CORPORATION

                                    BY: /s/ Howard N. Feist III
                                       ----------------------------------
                                    Name:  Howard N. Feist
                                    Title:  Chief Financial Officer

                                    CONGOLEUM SALES, INC.

                                    BY: /s/ Howard N. Feist III
                                       ----------------------------------
                                    Name:  Howard N. Feist
                                    Title: Chief Financial Officer

                                    CONGOLEUM FISCAL, INC.

                                    BY: /s/ Howard N. Feist III
                                       ----------------------------------
                                    Name:  Howard N. Feist
                                    Title: Chief Financial Officer

May 12, 2005                        AIG DOMESTIC CLAIMS, INC. as authorized
                                       agent for AIU INSURANCE COMPANY,
                                       AMERICAN HOME ASSURANCE COMPANY,
                                       GRANITE STATE INSURANCE COMPANY AND
                                       NATIONAL UNION FIRE INSURANCE COMPANY
                                       OF PITTSBURGH, PA

                                       BY: /s/ Christopher J. Eckeland
                                           ------------------------------
                                       Name:  Christopher J. Eckeland
                                       Title  Vice President AIG Domestic
                                              Claims, Inc.

                                       35
<PAGE>

                                       ATTACHMENT A

                                       AIG POLICIES

<PAGE>

                                  ATTACHMENT A

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
          Insurer               Policy Number       Policy Period      Applicable Limit
                                                                         Of Liability
------------------------------------------------------------------------------------------
<S>                             <C>              <C>                      <C>
   AIU Insurance Company          75-100034      01/01/78 - 01/01/79      $3,000,000
------------------------------------------------------------------------------------------
   AIU Insurance Company          75100996       01/01/79 - 01/01/80      $3,000,000
------------------------------------------------------------------------------------------
   AIU Insurance Company          75101790       01/01/80 - 01/01/81      $3,000,000
------------------------------------------------------------------------------------------
   AIU Insurance Company          75102500       01/01/81 - 01/01/82      $5,000,000
------------------------------------------------------------------------------------------
   AIU Insurance Company          75102594       01/01/82 - 01/01/83      $5,000,000
------------------------------------------------------------------------------------------
   AIU Insurance Company        75103280 (A)     01/01/83 - 01/01/84      $5,000,000
------------------------------------------------------------------------------------------
   AIU Insurance Company        75103280 (B)     01/01/83 - 01/01/84      $5,000,000
------------------------------------------------------------------------------------------
   AIU Insurance Company          75103173       01/01/84 - 01/01/85      $10,000,000
------------------------------------------------------------------------------------------
American Home Assurance Co.       CE3380176      10/12/72 - 01/01/73      $10,000,000
------------------------------------------------------------------------------------------
American Home Assurance Co.       CE3380176      01/01/73 - 01/01/74      $10,000,000
------------------------------------------------------------------------------------------
American Home Assurance Co.     SCLE80-65428     01/01/76 - 01/01/77      $5,000,000
------------------------------------------------------------------------------------------
American Home Assurance Co.     SCLE80-65427     01/01/76 - 01/01/77      $5,000,000
------------------------------------------------------------------------------------------
  Granite State Insurance        SCLD8094046     01/01/77 - 01/01/78      $5,000,000
          Company
------------------------------------------------------------------------------------------
  Granite State Insurance        SCLD8094047     01/01/77 - 01/01/78      $5,000,000
          Company
------------------------------------------------------------------------------------------
  Granite State Insurance         61790998       01/01/79 - 01/01/80      $5,000,000
          Company
------------------------------------------------------------------------------------------
  Granite State Insurance         61801880       01/01/80 - 01/01/81      $5,000,000
          Company
------------------------------------------------------------------------------------------
  Granite State Insurance         64815121       01/01/81 - 01/01/82      $5,000,000
          Company
------------------------------------------------------------------------------------------
  Granite State Insurance         64825348       01/01/82 - 01/01/83      $5,000,000
          Company
------------------------------------------------------------------------------------------
  Granite State Insurance         64835546       01/01/83 - 01/01/84      $10,000,000
          Company
------------------------------------------------------------------------------------------
  Granite State Insurance         64840070       01/01/84 - 01/01/85      $5,000,000
          Company
------------------------------------------------------------------------------------------
    National Union Fire          GLA 1979064      07/01/86-07/01/87       $1,000,000
    Insurance Company of
       Pittsburgh, PA
------------------------------------------------------------------------------------------
    National Union Fire          GLA 4300960      07/01/87-07/01/88       $1,000,000
    Insurance Company of
       Pittsburgh, PA
------------------------------------------------------------------------------------------
    National Union Fire          GLA 4300960      07/01/88-07/01/89       $1,000,000
    Insurance Company of
       Pittsburgh, PA
------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                  ATTACHMENT B

                                 APPROVAL ORDER

<PAGE>

                                  ATTACHMENT B

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW JERSEY

------------------------------------------
                                          )
In re:                                    )  Chapter 11
                                          )
CONGOLEUM CORPORATION, et al.,            )  Case No. 03-51524 (KCF)
                                          )  Jointly Administered
                Debtors-in-Possession.    )
__________________________________________)  Judge Honorable Kathryn C. Ferguson

     ORDER AUTHORIZING AND APPROVING SETTLEMENT AGREEMENT AND RELEASE AMONG
    DEBTORS, PLAN TRUST AND AIG COMPANIES AND RELATED TRANSACTIONS, INCLUDING
             THE POSSIBLE ASSIGNMENT OF THE AIG SETTLEMENT PAYMENTS

      The Court has considered the "Motion to Approve Settlement Agreement and
Release among Debtors, Plan Trust and AIG Companies and the Transactions Related
Thereto, Including the Possible Assignment of AIG Settlement Payments", dated
May __, 2005 (the "Motion"), filed by Congoleum Corporation, Congoleum Sales,
Inc., and Congoleum Fiscal, Inc., the debtors and debtors-in-possession herein
(collectively, the "Debtors"), seeking approval, pursuant to Rules 2002(a)(3),
9014 and 9019 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy
Rules") and sections 363(f), 1107, 1108 and1146(c) and other applicable sections
of the title 11 of the United States Code, 11 U.S.C. ss.ss. 101 et seq. (the
"Bankruptcy Code"), of (1) that certain Settlement Agreement and Release (such
agreement, including the exhibits thereto, the "Settlement Agreement") dated as
of May ____, 2005, among (a) the Debtors, along with their predecessors,

<PAGE>

successors and assigns; (b) AIU Insurance Company, American Home Assurance
Company, Granite State Insurance Company, National Union Fire Insurance Company
of Pittsburgh, Pa. and their respective predecessors, successors and assigns
(collectively, the "AIG Companies"); and (c) upon its creation, the Plan
Trust,(1) and (2) the transactions set forth therein (the "Transactions"),
including, but not limited to, the compromises, settlements and releases set
forth in the Settlement Agreement, and the transfer by the Debtors to the Plan
Trust, and the potential transfer by the Plan Trust, of the AIG Settlement
Payments free and clear of all security interests, liens, claims, encumbrances
and other interests of any nature. Capitalized terms used in this Approval Order
and not otherwise defined herein shall have the meanings ascribed to such terms
in the Settlement Agreement. The Settlement Agreement relates to the AIG
Policies.

            Adequate notice of the Motion was given by individual mailing to:
(a) the members of the Official Committee of Asbestos Claimants (the
"Committee") and the Committee's counsel; (b) the FCR and the counsel for the
FCR; (c) the Claimants' Counsel; (d) all other Persons or Entities, including
but not limited to Congoleum's insurers, that, as of the date the Motion was
filed, had filed a notice of appearance or other demand for service of papers in
the Debtors' Chapter 11 Case; (e) Congoleum's insurers that are or were parties
to the Coverage Action; (f) the United States Trustee; (g) the Collateral
Trustee (the "Collateral Trustee") of the Congoleum Collateral Trust (the
"Collateral Trust") established pursuant to a Collateral Trust Agreement dated
April 17, 2003; (h) Congoleum Corporation's majority shareholder, American

----------
(1)   As defined in the Fourth Modified Joint Prepackaged Plan of Reorganization
      Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al.,
      dated November 12, 2004 (the "Fourth Modified Plan"), as presently
      constituted.

                                       2
<PAGE>

Builtrite, Inc.; (i) any other presently existing Entities that are insureds
under the AIG Policies; (j) counsel to all known holders of Asbestos Claims as
reflected in the claims filed in this case, claims submitted in connection with
the Settlement Between Congoleum Corporation and Various Asbestos Claimants
attached as Exhibit E to the Disclosure Statement with respect to the Plan (the
"Claimant Agreement"), or ballots submitted in connection with this case; and
(k) to all known holders of Asbestos Claims whose counsel is not included within
the preceding clause who, as of at least five (5) days prior to the Hearing,
became known through filing of a proof of claim or otherwise.

            A hearing was held on __________ __, 2005 the ("Hearing") to
consider the Motion, the Settlement Agreement and the Transactions, and all
interested parties were given an opportunity to be heard and to present
evidence. Objections to the Motion, if any, have been resolved by agreement or
are overruled, and after due deliberation and sufficient cause appearing
therefore, this Court hereby makes the following Findings of Fact and
Conclusions of Law:

I.    FINDINGS OF FACT:

            IT IS HEREBY FOUND AND DETERMINED THAT:(2)

Jurisdiction, Final Order And Statutory Predicates

            A. This Court has jurisdiction to hear and determine the Motion and
to grant the relief requested therein pursuant to 28 U.S.C. ss.ss. 157(b)(1) and
1334(b). This Motion presents a core proceeding pursuant to 28 U.S.C. ss.ss.
157(b)(2)(A), (M) and (O).

----------
(2)   Findings of fact shall be construed as conclusions of law, and conclusions
      of law shall be construed as findings of fact when appropriate. See Fed.
      R. Bankr. P. 7052.

                                       3
<PAGE>

            B. This Approval Order constitutes a final order within the meaning
of 28 U.S.C. ss. 158(a). The parties may consummate the Settlement Agreement
immediately upon entry of this Approval Order, provided that the other
conditions precedent have been satisfied or waived in accordance with the terms
of the Settlement Agreement. To any extent necessary under Bankruptcy Rule 9014
and Rule 54(b) of the Federal Rules of Civil Procedure, as made applicable by
Bankruptcy Rule 7054, the Court expressly finds that there is no just reason for
delay in the implementation of this Approval Order.

Notice of the Motion and the Settlement

            C. The notice of the Motion described above constitutes due,
sufficient and timely notice of the Motion, the Hearing, and the Settlement
Agreement to all Entities entitled thereto in accordance with the requirements
of the Bankruptcy Code, the Bankruptcy Rules, this Court's orders in these
Chapter 11 Cases, and of due process. No other or further notice of the Motion,
the Hearing, the Settlement Agreement or this Approval Order is necessary. This
Court hereby further finds that notice to an attorney for the holder of an
Asbestos Claim constitutes notice to such holder for purposes of notice of the
Motion, the Hearing, the Settlement Agreement or this Approval Order and any
other matters set forth in this Order.

The Consent and/or Interposition of No Objection from Claimants
Representative, the Committee, the FCR and the Collateral Trustee

            D. The Claimants Representative has expressly consented to the
Settlement Agreement. The Committee, the FCR, and the Collateral Trustee have
interposed no objection to: (1) the Debtors' and Plan Trust's entry into the
Settlement Agreement and (2) the entry of this Approval Order by this Court.

                                       4
<PAGE>

Good Faith Nature of Settlement Agreement and Reasonableness of the Terms
of the Settlement Agreement

            E. The Debtors negotiated with the AIG Companies at arm's length and
in good faith to reach agreement on the matters resolved through the Settlement
Agreement.

            F. Pursuant to Bankruptcy Rule 9019, and in consideration of the
terms, compromises and exchanges of consideration contained in the Settlement
Agreement and all other facts and circumstances of this Chapter 11 Case, the
provisions of the Settlement Agreement are (i) fair and reasonable settlements;
(ii) valid and proper exercises of the Debtors' business judgment; (iii)
exchanges for reasonably equivalent value; (iv) fair, equitable, and well within
the range of reasonableness required for approval of the Settlement Agreement;
and (v) considering all the factors set forth in In re Martin, 91 F.3d 389, 393
(3d Cir. 1996), as discussed in the Motion, in the best interests of the
Debtors, their Estates, their creditors, the Plan Trust, and other
parties-in-interest.

            G. The Settlement Agreement confers a substantial benefit upon the
Debtors' Estates by providing for, among other things: (i) the settlement of
complex litigation; and (ii) payment to the Plan Trust of the AIG Settlement
Payments, as provided for in the Settlement Agreement (plus interest thereon to
the extent provided in the Settlement Agreement).

            H. The payments by the AIG Companies under the AIG Policies and
pursuant to the Settlement Agreement constitute reasonable and substantial
settlements and fair resolutions of the alleged liability of the AIG Companies
under the AIG Policies for Asbestos Claims, and such contributions satisfy the
liability of the AIG Companies, if any, for Asbestos Claims under the AIG
Policies.

                                       5
<PAGE>

Validity of Transfer

            I. Should the Plan Trustees, on or after the Trigger Date elect to
sell and assign the AIG Settlement Payments to a purchaser as permitted in the
Settlement Agreement, such sale and transfer shall be free and clear of all
right, title, and interest of the Debtors, the Collateral Trust, the Collateral
Trustee and the beneficiaries of the Collateral Trust, and such a transfer by
the Plan Trust of the AIG Settlement Payments shall be free and clear of all of
the following (collectively, "Encumbrances"): mortgages, security interests,
conditional sale or other title retention agreements, pledges, liens (as that
term is defined in section 101(37) of the Bankruptcy Code), judgments, demands,
easements, charges, encumbrances, defects, options, interests, covenants,
claims, other encumbrances and restrictions of all kind of the Debtors and
creditors of the Debtors.

No Successor Liability

            J. Should the Plan Trustees, on or after the Trigger Date, elect to
sell and assign the AIG Settlement Payments, the transfer of the AIG Settlement
Payments to a purchaser does not and will not subject that purchaser to any
liability (other than for payment of the agreed upon consideration) by reason of
such transfer under the laws of the United States, any state, territory, or
possession thereof, or the District of Columbia, based, in whole or in part,
directly or indirectly, including, without limitation, on any theory of
antitrust, insurance, environmental, successor or transferee liability, labor
law, de facto merger, or substantial continuity or otherwise. Nothing in the
Settlement Agreement or this Approval Order creates or imposes any liability
upon such a purchaser on account of the AIG Policies and the purchaser is not
assuming any liabilities or obligations under the AIG Policies.

                                       6
<PAGE>

Authority To Enter Into Settlement Agreement And To Effect The Transactions

            K. Each of the Debtors and, upon its creation, the Plan Trust: (i)
has full corporate or trust (as the case may be) power and authority to enter
into and perform the Settlement Agreement; and (ii) has the authority to take
all corporate or trust action (as the case may be) necessary to authorize and
approve the Settlement Agreement. In addition, no consent, authorization or
approval, and no filing or registration, of any type or kind, other than those
expressly provided for in the Settlement Agreement, is required for the Debtors
and the Plan Trust to (i) give effect to the terms of the Settlement Agreement.
Further, the consummation of the Settlement Agreement by the Debtors and the
Plan Trust does not conflict, contravene, or cause a breach, default or
violation of any law, rule, regulation, contractual obligation or organizational
or formation document.

Releases And Designation Of The AIG Companies
As Settling Asbestos Insurance Companies

            L. Pursuant and subject to the terms and conditions of the
Settlement Agreement, the AIG Companies specifically have contracted to receive
(a) all of the benefits of being designated in the Confirmation Order as a
Settling Asbestos Insurance Company, including, but not limited to, the
channeling injunction and releases set forth in section 11.6 (as presently
enumerated) of the Plan, and (b) the releases contained in the Settlement
Agreement, and, pursuant and subject to the terms and conditions of the
Settlement Agreement, the AIG Companies shall be entitled to, upon entry of this
Approval Order, the protections provided by such designation and treatment
without further order of this Court.

            M. Pursuant and subject to the terms and conditions of the
Settlement Agreement, the AIG Companies specifically have agreed not to object
to or oppose confirmation of the Plan, and the AIG Companies have agreed not to
appeal the Confirmation Order provided that the Plan does not in any way impair,
diminish or detract from the benefit to the AIG Companies of the Settlement

                                       7
<PAGE>

Agreement and provided further that the Approval Order includes a provision
acknowledging that the Plan, as amended, states that any right, claim or cause
of action that an Asbestos Insurance Company may have been entitled to assert
against a Settling Asbestos Insurance Company under the AIG Policies based on or
relating to Asbestos Claims shall be channeled to and become a right, claim or
cause of action against the Plan Trust and not against the Settling Asbestos
Insurance Company in question and that all persons, including any Asbestos
Insurance Company, shall be enjoined from asserting any such right, claim or
cause of action against a Settling Asbestos Insurance Company which shall be
protected by injunction from assertion against it, by an Asbestos Insurance
Company, of any Asbestos Claims.

No Objections Filed

            N. [TO BE MODIFIED TO THE EXTENT THAT ANY OBJECTIONS ARE FILED] No
objections have been filed with respect to the Motion or the entry of this
Approval Order. To the extent any Entity (a) either (i) received proper notice
of these matters (or is represented by an Entity (including, without limitation,
the FCR or counsel) that received such notice) or (ii) having had notice of this
Chapter 11 Case, elected not to request notices regarding this Chapter 11 Case,
and (b) failed to object to the Motion and the entry of the Approval Order, then
such Entities (including, without limitation, the Debtors and the Plan Trust
(or, to the extent that it has not yet been formed or does not yet exist, its
predecessor(s) in interest), the FCR, the Claimants Representative and the
Committee) hereby shall have no right to file or prosecute an appeal of this
Approval Order.

                                       8
<PAGE>

II.   CONCLUSIONS OF LAW

      NOW, THEREFORE, BASED ON THE FOREGOING FINDINGS OF FACT, IT IS HEREBY
ORDERED, ADJUDGED AND DECREED EFFECTIVE IMMEDIATELY, AS FOLLOWS:

            To the extent any Conclusion of Law set forth below herein
constitutes a Finding of Fact, this Court so finds.

General Provisions

            1. Pursuant to the terms of this Approval Order, the relief
requested in the Motion is granted and approved in all respects, and the
Settlement Agreement is hereby approved in all respects.

            2. All objections, if any, to the Motion or the relief requested
therein that have not been withdrawn, waived, or settled, and all reservations
of rights included in such objections, are overruled on the merits.

Approval of Settlement Agreement

            3. The Settlement Agreement and all of the terms and conditions
thereof are hereby approved in their entirety and, notwithstanding anything to
the contrary in this Approval Order, to the extent of any conflict or
inconsistency between the provisions of this Approval Order and the terms and
conditions of the Settlement Agreement, as between the Debtors, Plan Trust, and
the AIG Companies, as the case may be, the Settlement Agreement shall govern and
control.

            4. Each of the Debtors and the Plan Trust are authorized and
empowered, and hereby directed, to take any and all actions necessary or
appropriate, in accordance with the terms of the Settlement Agreement, and,
without further order of the Court, to (a) consummate, carry out and implement

                                       9
<PAGE>

the Settlement Agreement, (b) execute and deliver, perform under, consummate,
carry out, implement and close fully the Settlement Agreement, together with all
additional instruments and documents that may be reasonably necessary or
desirable to implement the Settlement Agreement and, and (c) to take all further
actions as may be reasonably requested in accordance with the Settlement
Agreement by the AIG Companies as may be reasonably necessary or appropriate to
the performance of the obligations as contemplated by the Settlement Agreement.
The Settlement Agreement and this Approval Order constitute valid and binding
obligations of the Debtors, their Estates and the Plan Trust, which shall be
enforceable in accordance with the terms thereof. The Plan Trust Agreement shall
include as an obligation of the Plan Trust, effective from the creation of the
Plan Trust, that such trust shall be subject to and bound by the Settlement
Agreement and the Approval Order. Upon its creation, the Plan Trust, without
further order of any court or action by any Entity, shall be deemed to be
automatically a party to the Settlement Agreement. The Debtors are hereby
authorized and directed to amend the Plan Trust Agreement (as defined in the
Plan) in accordance with Section III.F of the Settlement Agreement to provide
that the Plan Trust shall be subject to and bound by the Settlement Agreement
and the Approval Order.

            5. All of the terms and provisions of this Approval Order shall be
binding in all respects upon each of the Debtors, the Plan Trust, any trustees
of any of the Debtors, the Debtors' Estates, the FCR and each of the Entities
whose interests he represents, the Collateral Trustee, the Collateral Trust, the
Claimants Representative, each Asbestos Claimant, all other creditors and
shareholders of any of the Debtors, all interested parties, and their respective
successors and assigns.

                                       10
<PAGE>

Transfer of the AIG Settlement Payments

            6. Should the Plan Trustees, on or after the Trigger Date, elect to
sell and assign the AIG Settlement Payments in accordance with the terms of the
Settlement Agreement, pursuant to section 363(f) of the Bankruptcy Code, the AIG
Settlement Payments shall be transferred to the purchaser free and clear of (a)
all Encumbrances, and (b) any and all Claims of any kind and nature, whether
arising prior to or subsequent to the commencement of the Chapter 11 Case, in
each case accruing, arising or relating to the period on or prior to the
Effective Date.

Releases

            7. Except with respect to any rights, obligations, Claims or
liabilities under or relating to the Settlement Agreement, and subject to the
limitations set forth in the Settlement Agreement, and subject to all of the
provisions of the Settlement Agreement, including provisions rendering the
Settlement Agreement null and void in certain circumstances, immediately upon
payment in full of the first AIG Settlement Payment identified on Attachment C
to the Settlement Agreement, by the AIG Companies to the Plan Trust, to a
Permitted Assignee, or as otherwise ordered by this Court, and without the
necessity of any further act by the Debtors, Plan Trust or further order of this
Court, the releases and provisions set forth in section V.A of the Settlement
Agreement shall be effective and binding upon the Entities set forth therein,
and all those who might claim derivatively through such Entities, including,
without limitation, any holder of an Asbestos Claim, any other holder of a Claim
against any of the Debtors, the Debtors' successors, assigns, affiliates and
shareholders, including, but not limited to, American Builtrite, Inc., and any
beneficiary of the Plan Trust.

                                       11
<PAGE>

            8. Upon the Execution date, the Debtors on the one hand, and the AIG
Companies, on the other hand, shall dismiss all Claims against each other in the
Coverage Action with prejudice, with each Party bearing its own fees, costs and
expenses. The Parties' stipulation of dismissal shall state that Congoleum's
claims are dismissed with prejudice except that such stipulation will provide
that, in the event that the Settlement Agreement becomes null and void pursuant
to Paragraph III.H thereof, Congoleum may re-join the AIG Companies to the
Coverage Action and re-assert all claims against the AIG Companies in the
Coverage Action, other than the bad faith claims that have been asserted in the
Coverage Action, which bad faith claims shall not be re-asserted against the AIG
Companies in the Coverage Action or in any new action. The Parties have agreed
that in such event, each of Congoleum and the AIG Companies will be bound by all
issues adjudicated or rulings in the Coverage Action after the date of the
stipulation of dismissal despite the fact that the AIG Companies did not
actually participate in the litigation of such issues.

            9. The AIG Companies' payment in full of the first AIG Settlement
Payment identified on Attachment C to the Settlement Agreement, as provided for
in Paragraph II.A of the Settlement Agreement, shall satisfy and extinguish in
full the AIG Companies' obligation for Asbestos Claims under the AIG Policies
but shall not release the AIG Companies from their obligations to make all AIG
Settlement Payments indentified on Attachment C to the Settlement Agreement.

Additional Provisions

            10. The terms and provisions of the Settlement Agreement, together
with the terms and provisions of this Approval Order, shall be binding in all
respects upon all entities, including the Debtors, the Plan Trust, any trustee
of any Debtor, the Debtors' Estates, the FCR and each of the Entities whose
interests it represents, the Collateral Trustee, the Collateral Trust, the

                                       12
<PAGE>

Claimants Representative, each Asbestos Claimant, the Debtors' other creditors,
shareholders of any of the Debtors, and all interested parties, administrative
agencies, governmental units, secretaries of state, federal, state and local
officials, maintaining any authority relating to the AIG Settlement Payments,
and their respective successors or assigns.

            11. The AIG Companies' payment of the AIG Settlement Payments shall
be made to the Plan Trust or as otherwise directed by the Bankruptcy Court, or,
if the Plan Trust elects to sell and assign some or all of the AIG Settlement
Payments, to a Permitted Assignee, as applicable. The proceeds of the AIG
Settlement Payments shall be utilized only to pay Asbestos Claims and/or to pay
other amounts payable by the Trust pursuant to the Plan and the Trust
Distribution Procedures for the Congoleum Plan Trust, as may be amended.

            12. Nothing contained in the Plan or any other plan of
reorganization or liquidation, or order of any type or kind entered in (a) this
Chapter 11 Case, (b) any subsequent chapter 7 case into which the chapter 11
case may be converted, or (c) any related proceeding subsequent to entry of this
Approval Order, shall conflict with or derogate from the provisions of the
Settlement Agreement or the terms of this Approval Order. This Approval Order
shall be binding upon and enforceable against, among others, each of the
Debtors, their Estates, any and all chapter 7 and chapter 11 trustees thereof,
the Plan Trust, the FCR and each of the Entities whose interests it represents,
the Collateral Trustee, the Collateral Trust, the Claimants Representative and
each Asbestos Claimant.

            13. The failure specifically to include any particular provision of
the Settlement Agreement in this Approval Order shall not diminish or impair the
efficacy of such provision, it being the intent of this Court that the
Settlement Agreement and each and every provision, term, and condition thereof
be authorized and approved in its entirety.

                                       13
<PAGE>

            14. This Approval Order shall be effective immediately upon its
entry. The ten (10) day stay provided in Bankruptcy Rule 6004(c) is hereby
waived.

            15. The Settlement Agreement and other related documents may be
modified, amended, or supplemented by the parties thereto, in a writing signed
by such parties in accordance with the terms thereof, without further order of
the Court, provided that (a) any such modification, amendment, or supplement is
not material and (b) to the extent practicable, notice of any modification,
amendment, or supplement should be delivered to (i) the Committee, (ii) the FCR
and (iii) the Claimants' Counsel at least five (5) days prior to the effective
date of any such modification, amendment, or supplement.

            16. Notwithstanding any other provision of this Approval Order, if
the Settlement Agreement is properly terminated under the terms thereof, then
this Approval Order, with the exception of sections 8, 17 and 18 hereof, subject
to the terms of sections III.H and III.I of the Settlement Agreement, shall be
null and void and not be binding on any entity.

            17. If the Settlement Agreement is properly terminated under the
terms thereof, then any and all statutes of limitation or repose or other
time-related limitations, with respect to any Claim by any Entity, shall be
deemed to have been tolled for the period from June 15, 2004 through the date
that is thirty (30) days following the date on which the Settlement Agreement is
declared terminated or null and void, and no Party shall be entitled to assert
or rely on any time-related defense to any Claim by any other Party related to
such period.

            18. The Court shall retain exclusive jurisdiction over any
proceeding that involves the validity, application, construction, modification
or termination of the Settlement Agreement and this Approval Order, and may make
such further orders with respect thereto as are proper and appropriate.

                                       14
<PAGE>

            19. The provisions of this Approval Order are non-severable and
mutually dependent.

            20. In the event that a court with competent jurisdiction over a
coverage dispute between an insurer (other than any of the AIG Companies) (an
"Other Insurer") and the Debtors (or their successors or assigns) determines
that such Other Insurer would have been entitled, but for the terms of this
Approval Order, to recover from any of the AIG Companies as a result of said
Other Insurer's claim for contribution, subrogation, indemnification,
reimbursement or other similar claim, against any of the AIG Companies for such
AIG Company's alleged share or equitable share of the defense and/or indemnity
of the Debtors (or their successors or assigns), for any claims released
pursuant to the Settlement Agreement then, as adequate protection for any
interest that such Other Insurer may have had in the AIG Policies, such Other
Insurer's obligation to the Debtors (and their successors or assigns) shall be
reduced, dollar for dollar, by the amount of said Other Insurer's determined
claim against any such AIG Company eliminated by this Approval Order. Nothing in
this Approval Order is intended to determine or affect the appropriate
allocation of claims-related defense costs or liabilities to Congoleum's
insurance coverages as provided by applicable law. Nothing in this paragraph
limits the relief afforded to any of the AIG Companies under this Approval Order
or the Settlement Agreement, or may serve as a basis for or shall be relied upon
as imposing liability on any of the AIG Companies for any present or future
Asbestos Claims under the AIG Policies or otherwise.

                                       15
<PAGE>

            21. Counsel for the Debtors shall immediately serve a copy of this
Approval Order on all parties who have filed a request for notice in this case,
all parties to the Settlement Agreement, counsel to the Committee, the
Claimants' Counsel, the Collateral Trustee, and the FCR and file a certificate
of service with the Clerk of the Bankruptcy Court within ten (10) days hereof.

Dated: ___________ __, 2005

                                          _________________________________
                                          The Honorable Kathryn C. Ferguson
                                          United States Bankruptcy Judge

                                       16
<PAGE>

                                  ATTACHMENT C

                             AIG SETTLEMENT PAYMENTS

<PAGE>

                                  ATTACHMENT C

                   =========================================
                        AIG Settlement
                        Payment Number           Payment
                   -----------------------------------------
                              1                $1,127,358
                              2                $1,127,358
                              3                $1,127,358
                              4                $1,127,358
                   -----------------------------------------
                              5                $1,127,358
                              6                $1,127,358
                              7                $1,127,358
                              8                $1,127,358
                   -----------------------------------------
                              9                $1,127,358
                              10               $1,127,358
                              11               $1,127,358
                              12               $1,127,358
                   -----------------------------------------
                              13               $1,127,358
                              14               $1,127,358
                              15               $1,127,358
                              16               $1,127,358
                   -----------------------------------------
                              17               $1,352,830
                              18               $1,352,830
                              19               $1,352,830
                              20               $1,352,830
                   -----------------------------------------
                              21               $2,254,716
                              22               $2,254,716
                              23               $2,254,716
                              24               $2,254,716
                   -----------------------------------------
                              25               $3,156,603
                              26               $3,156,603
                              27               $3,156,603
                              28               $3,156,603
                   -----------------------------------------
                              29               $4,058,490
                              30               $4,058,490
                              31               $4,058,490
                              32               $4,058,490
                   -----------------------------------------
                              33               $4,960,376
                              34               $4,960,376
                              35               $4,960,376
                              36               $4,960,376
                   -----------------------------------------
                              37               $5,862,263
                              38               $5,862,263
                              39               $5,862,263
                              40               $4,666,075
                   -----------------------------------------
                            Total             $ 103,422,652
                   =========================================Exhibit 10.3

                            CONFIDENTIAL SETTLEMENT AGREEMENT
                                       AND RELEASE

                                          AMONG

                          CONGOLEUM CORPORATION, THE PLAN TRUST

                                           And

                         CERTAIN UNDERWRITERS AT LLOYD'S, LONDON

                                                                   June 22, 2005

<PAGE>

                  CONFIDENTIAL SETTLEMENT AGREEMENT AND RELEASE

      This Confidential Settlement Agreement and Release (the "Agreement") is
made this 22nd day of June, 2005, by and between Congoleum Corporation, on its
own behalf and on behalf of all other "Persons" (as defined herein) within the
definition of "Congoleum" (as defined herein) and, upon its creation, the Plan
Trust, on the one part, and certain Underwriters at Lloyd's, London ("Lloyd's
Underwriters," as hereinafter defined), on the other part, (Congoleum, the Plan
Trust and Lloyd's Underwriters are each referred to herein as a "Party" and
collectively as the "Parties").

                                WITNESSETH THAT:

      WHEREAS, Lloyd's Underwriters severally subscribed to certain policies of
insurance that provide insurance to Congoleum (the "London Policies," as more
fully described and defined herein); and

      WHEREAS, Persons within the definition of Congoleum have incurred and may
incur in the future certain liabilities, expenses and losses arising out of
various "Claims" (as defined herein), including asbestos-related bodily injury
claims, other asbestos-related claims, environmental claims and/or other types
of claims; and

      WHEREAS, Congoleum asserts that Lloyd's Underwriters are obligated under
the London Policies to make liability payments and pay defense costs in
connection with Claims, including Claims for asbestos-related bodily injury; and

                                       2
<PAGE>

      WHEREAS, there are disputes among the Parties regarding their respective
rights and obligations with respect to insurance coverage for asbestos-related
bodily injury claims (the "Coverage Dispute"); and

      WHEREAS, Congoleum and Lloyd's Underwriters are parties to a lawsuit
styled Congoleum Corporation v. ACE American Insurance Company, et al., Docket
No. MID-L-8908-01 pending in the Superior Court of New Jersey, Law Division,
Middlesex County (the "Coverage Action"); and

      WHEREAS, the "Plan Proponents" (as defined herein) distributed their Joint
Prepackaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code for
Congoleum Corporation, et al., dated October 27, 2003, as amended (the "Original
Plan"); and

      WHEREAS, on or about December 31, 2003, the Debtors filed reorganization
Case No. 03-51524 (KCF) jointly administered pursuant to chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
District of New Jersey (the "Chapter 11 Case"), and the Debtors continue to
operate their businesses as debtors and debtors-in-possession; and

      WHEREAS, Congoleum seeks in the Coverage Action actual compensatory and
consequential damages, plus interest thereon, among other relief, and Lloyd's
Underwriters deny they owe any damages as alleged and have defended against
Congoleum's claims in the Coverage Action; and

                                       3
<PAGE>

      WHEREAS, on or about June 10, 2005, the Debtors filed with the Bankruptcy
Court the Fifth Modified Joint Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code of Congoleum Corporation, et al. (the "Fifth Modified Plan");
and

      WHEREAS, in consideration of certain monetary payments and other
considerations, as more fully set forth herein, by this Agreement, the Parties
intend to adopt, by way of compromise, and without (i) prejudice to or waiver of
their respective positions in other matters, (ii) trial or adjudication of any
issues of fact or law, and (iii) Lloyd's Underwriters' admission of liability or
responsibility under the London Policies, a full and final settlement that
releases and terminates all rights, obligations and liabilities (if any) that
Lloyd's Underwriters may owe Congoleum with respect to the London Policies, any
other agreement among or between the Parties concerning the London Policies (if
any), and/or the Coverage Action.

                                   AGREEMENTS:

      NOW, THEREFORE, in full consideration of the foregoing and of the mutual
agreements contained herein, and intending to be legally bound hereby, the
Parties agree as follows:

      1.    Definitions

            For purposes of this Agreement and the attachments hereto, the
following definitions apply to the capitalized terms herein wherever those terms
appear in this Agreement, including the prefatory paragraph, recitals, the
sections below and any attachments hereto. Capitalized terms in the prefatory

                                       4
<PAGE>

paragraph, recitals, the sections below and any attachments hereto have the
meanings ascribed to them therein to the extent they are not otherwise defined
in this Definitions section. Capitalized terms that are not defined in this
Agreement are given the meanings designated in the Fifth Modified Plan, as
presently constituted. Moreover, each defined term stated in the singular shall
include the plural and each defined term stated in the plural shall include the
singular, and each defined term stated in the masculine form or in the feminine
form or in the neuter form shall include all others. The word "including" means
"including but not limited to."

            A. Agreement: The term "Agreement" means this Confidential
Settlement Agreement and Release, as the same may be amended from time to time
in writing in accordance with the provisions thereof.

            B. Approval Order: The term "Approval Order" means an order of the
Bankruptcy Court (or the District Court exercising its original bankruptcy
jurisdiction) approving this Agreement and the compromise and settlement
memorialized herein between Congoleum and Lloyd's Underwriters, which order
shall be in the form of Attachment C hereto or such other order that is in a
form and substance acceptable to Congoleum and Lloyd's Underwriters.

            C. Asbestos Claims: The term "Asbestos Claims" means any and all
past, present and future claims, demands, actions, suits, proceedings, notices
of partial or total responsibility, whether presently known or unknown, that
seek compensatory, punitive or statutory damages, declaratory judgment,
injunctive relief, medical monitoring, or any other form of relief whatsoever,
on account of alleged bodily injury, personal injury, fear of future injury,
medical monitoring, mental injury or anguish, emotional distress, shock,
sickness, disease, or any other illness or condition, death, property damage,
loss of use of property, or diminution in the value of property, arising from

                                       5
<PAGE>

alleged, potential or actual exposure of any type or nature whatsoever to
asbestos, an asbestos-containing product, and/or any other substance, product,
matter or material in any form or state that contains or is alleged to contain
asbestos, either alone or in combination with any other substance. The term
"Asbestos Claims" also includes, without limitation, claims or suits alleging in
whole or in part exposure to asbestos and/or asbestos containing products in
addition to any other substance, chemical, pollutant, waste, or material of any
nature as well as claims that involve, in whole or in part, alleged exposure to
asbestos or asbestos containing products relating to or arising out of or from
the installation, removal, manufacture, distribution, sale, re-sale, existence
or presence (whether on premises owned or controlled by the Debtors or
otherwise) of asbestos or an asbestos-containing product, either alone or in
combination with any other substance. The term "Asbestos Claims" also includes
the definitions of the following terms, as set forth in Section 1.2 of the Plan:
ABI Asbestos Claim, Asbestos Personal Injury Claim, Asbestos Property Damage
Claim, Asbestos Property Damage Contribution Claim, Indirect Asbestos Claim, and
Unknown Asbestos Claim.

            D. Business Day: The term "Business Day" means any day that is not a
Saturday, a Sunday, a federal holiday in the United States of America or a
national holiday in the United Kingdom.

            E. Claim: The term "Claim" means any of the following: (1) "Claim"
as that term is defined in the United States Bankruptcy Code, 11 U.S.C. ss.
101(5); (2) "Demand" as that term is defined in the United States Bankruptcy
Code, 11 U.S.C. Sec. 524(g)(5); or (3) any claim, whether past, present or
future, known or unknown, asserted or unasserted, foreseen or unforeseen, fixed

                                       6
<PAGE>

or contingent, or direct or indirect, and whether in law, equity, admiralty or
otherwise, including without limitation, an Asbestos Claim. The term "Claim"
further includes, without limitation any claim (a) arising out of, related to,
or involving asbestos or any other substance, product, matter or material in any
form or state, any cumulative or other injury or damage, any activity,
operation, premises, or exposure or any alleged bad faith, unfair claim
practices, unfair trade practices, deceptive trade practices, insurance code
violations, fraud, misrepresentation, non-disclosure, breach of fiduciary duty,
conspiracy, or extra-contractual or tort liability; (b) for any form of damages,
indemnity or defense obligations, insurance premiums (whether retrospectively
rated or otherwise), deductibles, self-insured retentions, costs, expenses,
contribution or subrogation; or (c) pursuant to or under a contract, other
agreement, promise, representation or warranty; or (d) pursuant to any direct
action or statutory or regulatory right of action, assertion of right,
complaint, cross-complaint, counterclaim, affirmative defense, writ, demand,
inquiry, request, suit, lawsuit, liability, action, cause of action,
administrative proceeding, governmental action, order, judgment, settlement,
lien, loss, cost or expense.

            F. Confirmation Order: The term "Confirmation Order" means an order
entered by the Bankruptcy Court in the Chapter 11 Case confirming the Plan,
together with any order of the United States District Court issued pursuant to
section 524(g)(3)(A) of the Bankruptcy Code confirming or affirming such order.

            G. Creditors' Committee: The term "Creditors' Committee" means the
Official Committee of Unsecured Asbestos Claimants initially appointed by the
United States Trustee in the Reorganization Cases on or about April 21, 2004.

                                       7
<PAGE>

            H. Execution Date: The term "Execution Date" means the earliest date
upon which all of the Parties (or their authorized representatives) have
executed this Agreement.

            I. Equitas: The term "Equitas" shall mean (i) Equitas Limited,
Equitas Reinsurance Limited, Equitas Holdings Limited, Equitas Management
Services Limited, and Equitas Policyholders Trust Limited; (ii) all the present
and former officers, directors, employees, subsidiaries, affiliates,
representatives, attorneys and agents of the entities set forth in sub-paragraph
1.I(i) hereof, and their respective predecessors and successors, if any, solely
in such capacity; and (iii) the respective heirs, executors, administrators,
successors, assigns and reinsurers (as such) of any of the Persons identified in
sub-paragraphs 1.I(i) and 1.I(ii) hereof.

            J. Escrow Account: The term "Escrow Account" means the account
established pursuant to the "Escrow Agreement" (as defined herein).

            K. Escrow Agent: The term "Escrow Agent" means the Escrow Agent as
defined in the Escrow Agreement.

            L. Escrow Agreement: The term "Escrow Agreement" means the agreement
entered into by Congoleum, Lloyd's Underwriters and the Escrow Agent, which
agreement shall be in the form of Attachment D hereto or such other agreement
that is in form and substance acceptable to Congoleum and Lloyd's Underwriters.

            M. FCR: The term "FCR" means the Futures Representative appointed
pursuant to the Bankruptcy Court's February 18, 2004 Order in the Chapter 11
Case, solely in his capacity as such.

                                       8
<PAGE>

            N. Final Order: The term "Final Order" means an order as to which
the time to appeal, petition for certiorari, or move for reargument, rehearing
or reconsideration has expired and as to which no appeal, petition for
certiorari, or other proceedings for reargument, rehearing, or reconsideration
shall then be pending or as to which any right to appeal, petition for
certiorari, reargue, rehear or reconsider shall have been waived in writing by
the Entity possessing such right, or, in the event that an appeal, writ of
certiorari, or reargument, rehearing or reconsideration thereof has been sought,
such order shall have been affirmed by the highest court to which such order was
appealed, or from which certiorari has been denied or reargument, rehearing or
reconsideration was sought and denied, and the time to take any further appeal,
petition for certiorari, or move for further reargument, rehearing or
reconsideration shall have expired.

            O. Congoleum: The term "Congoleum" shall mean:

                  (i) the corporation now named Congoleum Corporation that was
incorporated in the State of Delaware in 1986; its predecessors, successors and
past and present assigns; all its past and present subsidiaries and the
predecessors, successors and past and present assigns of such subsidiaries; any
Persons in which the corporation now named Congoleum Corporation that was
incorporated in the State of Delaware in 1986 has an ownership interest,
directly or indirectly, of fifty percent (50%) or more, and any Persons on whose
behalf Congoleum has the power to release claims under the London Policies;

                  (ii) any Persons that have been acquired by, merged into or
combined with any of the Persons identified in sub-paragraph 1.P(i) above;

                                       9
<PAGE>

                  (iii) any and all Persons named as insureds, other insureds,
or otherwise insured or claimed to be insured under the London Policies;

                  (iv) Congoleum Sales, Inc. and Congoleum Fiscal, Inc., debtors
and debtors-in-possession; and

                  (iv) the directors, officers, agents, employees,
representatives and attorneys of any of the foregoing Persons, solely in their
respective capacities as such.

            Q. Lloyd's Underwriters: The term "Lloyd's Underwriters" shall mean
(i) all the underwriters, members or Names, at Lloyd's, London who, through
their participation in syndicates (including without limitation, those
identified on Attachment B hereto), severally subscribed, each in his own
proportionate share, to one or more of the London Policies, as well as all
underwriters, members or names at Lloyd's, London (whether or not they
participated in the syndicates identified in Attachment B hereto) who, through
their participation in syndicates (including without limitation, those
identified on Attachment B hereto) severally subscribed to any London Policies
the existence of which (a) has not presently been established; or (b) has been
established but as to which the identities of the Names, members or syndicates
are not presently known; (ii) all the present and former employees (if any),
representatives, attorneys and agents of the Persons set forth in sub-paragraph
1.Q(i) hereof, and their respective predecessors and successors, if any, solely
in such capacity; and (iii) the respective heirs, executors, administrators,
successors, assigns and reinsurers (as such) of any of the Persons identified in
sub-paragraphs 1.Q(i) and 1.Q(ii) hereof. For avoidance of doubt, Equitas is not
within the definition of "Lloyd's Underwriters. "

                                       10
<PAGE>

            R. London Policies: The term "London Policies" shall mean (i) all
insurance policies listed in Attachment A hereto, to the extent such policies
exist and provide insurance coverage to Congoleum; (ii) all known and unknown
contracts of insurance (whether or not listed in Attachment A hereto),
(excepting contracts of life insurance) (a) that are severally subscribed to or
participated in by Lloyd's Underwriters; (b) that provide insurance coverage to
Congoleum; (c) that were originally allocated to the 1992 year of account or any
earlier year of account (including without limitation, any liabilities under
such contracts reinsured to close into the 1993 or any later year of account,
but excluding any liabilities re-signed or reallocated pursuant to a premium
transfer into the 1993 or later year); and (d) for which the liabilities
thereunder have been reinsured by Equitas Reinsurance Limited pursuant to the
Reinsurance and Run-off Contract dated September 3, 1996 or the Lioncover
Reinsurance Contract dated December 18, 1997.

            S. Person: The term "Person" shall mean an individual, a
corporation, a partnership, a joint venture, an association, a trust, any other
Entity or organization, and any federal, state or local government or any
governmental or quasi-governmental body or political subdivision or any agency,
department, board or instrumentality thereof.

            T. Plan: The term "Plan" means the Fifth Modified Plan, as such
Fifth Modified Plan may be further modified from time to time in accordance with
the terms thereof; provided, however, that such modifications:

            1.    are consistent with the terms of this Agreement;

                                       11
<PAGE>

            2.    do not materially and adversely affect the interests under
                  this Agreement of Lloyd's Underwriters or Congoleum;

            3.    continue to provide for an injunction that is at least as
                  broad and inclusive as the "Asbestos Channeling Injunction"
                  (as defined in the Fourth Modified Plan) that applies to
                  Settling Asbestos Insurance Companies; and

            4.    continue to provide that the Plan Trust shall be bound to the
                  provisions of this Agreement with the same force and effect as
                  if the Plan Trust were a party to this Agreement from the
                  Execution Date.

            U. Plan Proponents: The term "Plan Proponents" means the Debtors in
the Chapter 11 cases jointly administered under Case No. 03-51524 (KCF) in the
United States Bankruptcy Court for the District of New Jersey.

            V. Settlement Amount: The term "Settlement Amount" means the sum of
Nineteen Million Nine Hundred Fifty Thousand United States dollars. (US
$19,950,000).

            W. Trigger Date: The term "Trigger Date" means the day on which
written notice is provided to Lloyd's Underwriters in the manner set forth in
Section 19 of this Agreement, stating that all of the following have occurred,
provided that all of the following have in fact occurred:

                  1. the Approval Order becomes a Final Order;

                                       12
<PAGE>

                  2. Lloyd's Underwriters are designated as Settling Asbestos
      Insurance Companies (entitled to all the rights and protections afforded
      Settling Asbestos Insurance Companies under the Plan, including the
      protection of an injunction under Section 524(g) of the Bankruptcy Code)
      in the schedule of Settling Asbestos Insurance Companies filed by the Plan
      Proponents prior to the conclusion of the confirmation hearing, and such
      designation has not been deleted or modified.

                  3. the Confirmation Order becomes a Final Order;

                  4. the occurrence of the Plan Effective Date; and

                  5. The date is January 4, 2006 or thereafter and no Asbestos
      Legislation was enacted into Law.

2.    Payment of the Settlement Amount

      A. Within fifteen (15) Business Days of the Execution Date, Lloyd's
Underwriters agree to pay the Settlement Amount into the Escrow Account by wire
transfer as follows:

            ABA No.        053000219
                           D/5000000016439
                           CT/BRANCH 2800

            Bank Name:     WACHOVIA BANK, NATIONAL ASSOCIATION
                           CHARLOTTE, NC

            Account No.    2572008482

            Acct Name:     Congo/Lloyds Esc

            Attn.          Rick Barnes

Thereafter, within five (5) Business Days of the Trigger Date, the Parties shall
direct the Escrow Agent to release the Settlement Amount in full, along with any
and all interest or investment income accrued thereon (less (a) any expenses
that the Escrow Agent incurs; (b) any reserves required under the Approval Order

                                       13
<PAGE>

to be held for the payment of taxes, indemnities, or otherwise; and (c) losses
incurred under any investment of the Settlement Amount permissible under the
terms of the Approval Order and the Escrow Agreement) to the Plan Trust or as
otherwise directed by the Court. Subject to the provisions of Paragraph 2.D
below, upon the release of the Settlement Amount pursuant to this Paragraph 2.A,
legal and equitable title to the Settlement Amount shall pass irrevocably to the
Plan Trust or to such other Entity as is directed by the Court.

      B.    Time is of the Essence.

            Time is of the essence with respect to the payment of the Settlement
Amount.

      C.    Finality of Payment.

      The Settlement Amount is in addition to any and all amounts paid prior to
the Execution Date by or on behalf of Lloyd's Underwriters to or for the benefit
of Congoleum in connection with Asbestos Claims or otherwise (the "Prior
Payments"). Subject to the provisions of Paragraph 2.D below, any and all
payments by Lloyd's Underwriters, including, without limitation, the Prior
Payments (if any) and the Settlement Amount are deemed final and irrevocable
payments upon the occurrence of the Trigger Date. Lloyd's Underwriters' payment
of the Settlement Amount is in addition to any and all payments made by Lloyd's
Underwriters to or for the benefit of Congoleum prior to the Execution Date,
including any Prior Payments.

      D.    Federal Asbestos Legislation

            1.    Definitions for this Paragraph 2.D

                                       14
<PAGE>

                  a. Asbestos Legislation: The term "Asbestos Legislation" means
any legislation enacted by the United States Congress and signed by the
President of the United States by no later than January 3, 2006 or that becomes
law without the President's signature by no later than January 3, 2006, that (1)
regulates, limits or controls the prosecution of Asbestos Claims in the state or
federal courts, (2) creates or purports to create an obligation on Lloyd's
Underwriters to pay money pursuant to the legislation for the benefit of
asbestos claimants; and (3) replaces, at least in part, Lloyd's Underwriters'
obligations to policyholders under policies of insurance covering or alleged to
cover Asbestos Claims. The term "Asbestos Legislation" is intended to encompass
what is commonly understood to be "asbestos reform" legislation and is not
intended to encompass general tort reform, class action reform, malpractice
reform, or tax reform, or any other legislation that would regulate, limit or
control Claims without regard to whether such claims arise from or are
attributable to exposure to asbestos or asbestos-containing products. For the
avoidance of doubt, the fact that legislation alters or modifies the
requirements or standards for establishing liability against the Debtors and/or
the Plan Trust (including legislation that imposes medical and/or exposure
criteria, imposes strict liability on the Debtors and/or the Plan Trust, or
regulates or limits the jurisdiction or forum in which an Asbestos Claim may be
brought) does not make such legislation "Asbestos Legislation" under this
sub-paragraph 2.D.1.a.

                  b. Federal Fund: "Federal Fund" means the Person to which
Lloyd's Underwriters are obligated or purportedly obligated to pay money
pursuant to Asbestos Legislation.

                  c. Repayment Amount: "Repayment Amount" means (A + B) - (Y +
Z) where:

             A = the Settlement Amount;

                                       15
<PAGE>

                  B = all interest or other investment return on the Settlement
Amount balance from the date that the Settlement Amount is deposited into the
Escrow Account to the date the Settlement Amount balance is disbursed pursuant
to this Paragraph 2.D;

                  Y = any actual monetary decrease in Lloyd's Underwriters'
payment or contribution or liability to pay or contribute under any Asbestos
Legislation that is attributable to their payment of the Settlement Amount under
this Agreement; and

                  Z = the reasonable and proper charges, fees and expenses of
the Plan Trustee and the Escrow Agent.

                  2. Subject to the provisions of this Paragraph 2.D, the
Parties intend that, if Asbestos Legislation is enacted into law, Lloyd's
Underwriters will not be required to pay under this Agreement any portion of the
Settlement Amount that Lloyd's Underwriters will be required to pay (or do in
fact pay) to the Federal Fund with respect to the London Policies.

                  3. Solely in the event that Asbestos Legislation (if any) is
enacted into law, then, notwithstanding any other provision in this Agreement to
the contrary, the Plan Trustee or the Escrow Agent (as the case may be) shall
hold the Repayment Amount until one of the following events has occurred:

                  a. Pursuant to the Asbestos Legislation, a date is set on
which Lloyd's Underwriters are legally obligated to pay money to the Federal
Fund. In that event, Lloyd's Underwriters shall have the right, in their sole
discretion, to direct the Plan Trustee or the Escrow Agent (as the case may be)
to pay the Repayment Amount to the Federal Fund on the date and in the manner
that Lloyd's Underwriters are legally obligated to pay money pursuant to the
Asbestos Legislation. The Plan Trustee or the Escrow Agent (as the case may be)
shall be required under the Trust Agreement or the Escrow Agreement (as the case
may be) to pay the Repayment Amount as directed by Lloyd's Underwriters pursuant
to this sub-paragraph 2.D.3.a.

                                       16
<PAGE>

                  b. If the Plan Trustee or the Escrow Agent (as the case may
be) has not disbursed money pursuant to Lloyd's Underwriters' direction as
authorized by sub-paragraph 2.D.3.a above, and there is a legal challenge
relating to the Asbestos Legislation that results in a Final Order pursuant to
which Lloyd's Underwriters have no legal obligation to pay money pursuant to the
Asbestos Legislation, then the Plan Trustee or the Escrow Agent (as the case may
be) shall retain the Repayment Amount and shall disburse such amounts in the
case of the Plan Trustee, pursuant to the Plan and the TDPs, or in the case of
the Escrow Agent, pursuant to the Escrow Agreement.

                  c. If the Plan Trustee or the Escrow Agent (as the case may
be) have disbursed money pursuant to Lloyd's Underwriters' direction as
authorized by sub-paragraph 2.D.3.a above, and there is a legal challenge
relating to the Asbestos Legislation that results in a Final Order pursuant to
which the Repayment Amount disbursed under sub-paragraph 2.D.3.a above is repaid
to Lloyd's Underwriters and such repayment is attributable to a disbursement
under sub-paragraph 2.D.3.a above, then Lloyd's Underwriters shall, within ten
(10) Business Days of receipt of the Repayment Amount, pay the Repayment Amount
to the Plan Trust or deposit the Repayment Amount into the Escrow Account, as
applicable.

            4. Congoleum, the Plan Trust and Lloyd's Underwriters agree that
they shall take such action as is necessary to facilitate payment of the
Repayment Amount as authorized by this Paragraph 2.D and expressly agree that
they will not take (and shall not be permitted to take, support or sponsor) an
action that might directly or indirectly delay such payment.

                                       17
<PAGE>

            5. If Asbestos Legislation is enacted into law, at the request of
any Party, the Parties shall meet and confer concerning the practical
implementation of this Paragraph 2.D in light of the Asbestos Legislation.

            6. Any Dispute among the Parties arising out of or relating to this
Paragraph 2.D, including the breach, termination or validity thereof, shall be
finally resolved by binding arbitration in accordance with the CPR Rules for
Non-Administered Arbitration then currently in effect by a sole arbitrator. Such
arbitration must be resolved on an expedited basis, and must be completed with
an award by the arbitrator entered no more than ninety (90) days from the date
any Party demands arbitration pursuant to this sub-paragraph 2.D.6. The
arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.
ss.ss.1-16, and judgment upon the award rendered by the arbitrator(s) may be
entered by any court having jurisdiction thereof. Each Party shall bear its own
fees and costs incurred in connection with the arbitration.

      3.    Several Liability

            Congoleum acknowledges that the obligations of Lloyd's Underwriters
are several, and not joint. Congoleum agrees that no Lloyd's Underwriter shall
be liable for any portion of the Settlement Amount allocated to any other
Lloyd's Underwriter.

      4.    Release

            A.    Releases By Congoleum

                  1. Upon Lloyd's Underwriters' payment in full of the
Settlement Amount as provided by the terms of this Agreement, and except for the
obligations created by this Agreement, Congoleum and the future assigns of all

                                       18
<PAGE>

Persons within the definition of Congoleum, in their capacity as such, and the
Plan Trust, upon its creation, shall be deemed to release, remise, covenant not
to sue and forever discharge Lloyd's Underwriters from and against all manner of
action, causes of action, suits, debts, accounts, promises, warranties, damages
(consequential or punitive), agreements, costs, expenses, Claims or Demands
whatsoever, in law or in equity, whether presently known or unknown, asserted or
unasserted, whether sounding in tort or contract, or arising under the statutes
or administrative regulations of any jurisdiction, with respect to any and all
past, present or future claims, of any type whatsoever, that Congoleum ever had,
now has, or hereafter may have (a) for insurance coverage, including both
defense costs and indemnification claims, under the Subject Insurance Policies;
(b) arising out of or relating to any act, omission, representation, or conduct
of any sort in connection with any of the London Policies, including but not
limited to the placement of and/or subscription to the London Policies and the
handling of any claim thereunder; (c) arising out of or in connection with any
agreements between or among the Parties relating to the London Policies and/or
the Coverage Action, other than this Agreement; and (d) arising under or
relating in any way to the London Policies.

                  2. Solely with respect to the Lloyd's Underwriters'
subscription in and to the London Policies, it is the intention of Congoleum to
reserve no rights or benefits whatsoever under the London Policies or in
connection with any past, present or future claims under the London Policies,
and to assure Lloyd's Underwriters their peace and freedom from such claims and
from all assertions of rights in connection with such claims.

                                       19
<PAGE>

                  3. Upon Lloyd's Underwriters' payment in full of the
Settlement Amount, any and all rights, duties, responsibilities and obligations
of Lloyd's Underwriters created by or in connection with the London Policies are
hereby terminated. As of the date of such payment in full, Congoleum shall no
longer have any insurance coverage from Lloyd's Underwriters under the London
Policies. The various releases contained in this Paragraph 4.A are intended to
operate as though Lloyd's Underwriters had never subscribed to or reinsured the
London Policies.

                  4. All releases contained in this Paragraph 4.A shall also
extend to Equitas, which is an intended third-party beneficiary of the terms of
the releases. Notwithstanding the foregoing, all such releases shall become null
and void as to Equitas if Equitas seeks to assert any claim against Congoleum
relating in any way to the London Policies, except as to enforcement of any
provision of this Agreement. Similarly, the releases provided by this Paragraph
4.A in favor of presently unknown Lloyd's Underwriters shall become null and
void as to any such Lloyd's Underwriter if he seeks to assert any claim against
Congoleum relating in any way to the London Policies, except as to enforcement
of any provision of this Agreement.

                  5. CONGOLEUM ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY ITS
ATTORNEYS CONCERNING, AND IS FAMILIAR WITH, THE CALIFORNIA CIVIL CODE SECTION
1542 AND EXPRESSLY WAIVES ANY AND ALL RIGHTS UNDER CALIFORNIA CIVIL CODE SECTION
1542, WHICH PROVIDES THAT "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY
AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR," AND UNDER ANY OTHER FEDERAL OR
STATE STATUTE OR LAW OF SIMILAR EFFECT.

                                       20
<PAGE>

                  6. Congoleum expressly assumes the risk that acts, omissions,
matters, causes or things may have occurred that they do not know or do not
suspect to exist. Congoleum hereby waives the terms and provisions of any
statute, rule or doctrine of common law that either: (i) narrowly construes
releases purporting by their terms to release claims in whole or in part based
upon, arising from, or related to such acts, omissions, matters, causes or
things; or, (ii) restricts or prohibits the releasing of such claims.

B.    Release By Lloyd's Underwriters

                  1. At the same time the releases described in Paragraph 4.A
above become effective, each Lloyd's Underwriter so released, and any
subsequently appointed trustee or representative acting for such Lloyd's
Underwriter, shall remise, release, covenant not to sue and forever discharge
Congoleum from and against all manner of action, causes of action, suits, debts,
accounts, promises, warranties, damages (consequential or punitive), agreements,
costs, expenses, Claims or Demands whatsoever, in law or in equity, whether
presently known or unknown, asserted or unasserted, whether sounding in tort or
in contract, or arising under the statutes or administrative regulations of any
jurisdiction, with respect to any and all past, present or future claims, of any
type whatsoever, that each such Lloyd's Underwriter ever had, now has, or
hereinafter may have arising under or in any way relating to the London
Policies.

                                       21
<PAGE>

                  2. LLOYD'S UNDERWRITERS ACKNOWLEDGE THAT THEY HAVE BEEN
ADVISED BY THEIR ATTORNEYS CONCERNING, AND ARE FAMILIAR WITH, THE CALIFORNIA
CIVIL CODE SECTION 1542 AND EXPRESSLY WAIVE ANY AND ALL RIGHTS UNDER CALIFORNIA
CIVIL CODE SECTION 1542, WHICH PROVIDES THAT "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER
FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST
HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR," AND UNDER ANY
OTHER FEDERAL OR STATE STATUTE OR LAW OF SIMILAR EFFECT.

                  3. Lloyd's Underwriters expressly assume the risk that acts,
omissions, matters, causes or things may have occurred that they do not know or
do not suspect to exist. Lloyd's Underwriters hereby waive the terms and
provisions of any statute, rule or doctrine of common law that either: (i)
narrowly construes releases purporting by their terms to release claims in whole
or in part based upon, arising from, or related to such acts, omissions,
matters, causes or things; or, (ii) restricts or prohibits the releasing of such
claims.

                  4. It is the intention of Lloyd's Underwriters to reserve no
rights or benefits whatsoever under or in connection with the London Policies,
with respect to any past, present or future claims, and to assure Congoleum its
peace and freedom from all such claims and from all assertions of rights in
connection with such claims.

                                       22
<PAGE>

5.    Defense Of The Asbestos Channeling Injunction

      A. Subject to the provisions of Paragraph 5.E below, in the event that any
Claim is brought against Lloyd's Underwriters and/or Equitas that is subject to
the Asbestos Channeling Injunction, the Plan Trust will exercise its reasonable
best efforts (at the expense of the Plan Trust) to establish that such Claim is
enjoined as to Lloyd's Underwriters and/or Equitas by operation of the Asbestos
Channeling Injunction. To that end, subject to the provisions of Paragraph 5.E
below, the Plan Trust will, at its expense, defend the application of the
Asbestos Channeling Injunction as to any Claim asserted against Lloyd's
Underwriters and/or Equitas that is subject to the Asbestos Channeling
Injunction.

      B. In the event that the Plan Trust is precluded by an order of any court
of competent jurisdiction from defending the application of the Asbestos
Channeling Injunction as to any Claim asserted against Lloyd's Underwriters
and/or Equitas that is subject to the Asbestos Channeling Injunction, the Plan
Trust shall reimburse Lloyd's Underwriters and/or Equitas, subject to the
provisions of Paragraph 5.E below, for the reasonable costs they incur in
defending the Asbestos Channeling Injunction; provided, however, that the Plan
Trust shall have no obligation to pay any internal costs of Lloyd's Underwriters
or Equitas (including costs associated with time or expenses of Lloyd's
Underwriters' employees). For the avoidance of doubt, other than the
reimbursement obligation provided in this Paragraph 5.B, the Plan Trust has no
obligation:

            1.    to defend any Claim against Lloyd's Underwriters and/or
                  Equitas with respect to any issue, including the application
                  of any defense to insurance coverage or defense to any tort
                  liability; or

                                       23
<PAGE>

            2.    to indemnify Lloyd's Underwriters and/or Equitas to any extent
                  for any Claims, whether for defense costs, expenses,
                  judgments, settlements, or otherwise.

      C. Within fifteen (15) Business Days of receipt of any demand, notice,
summons or other process received by Lloyd's Underwriters and/or Equitas in
connection with any Claim that Lloyd's Underwriters and/or Equitas believe is
subject to the Asbestos Channeling Injunction, Lloyd's Underwriters and/or
Equitas (as the case may be) shall forward such demand, notice, summons or other
process to the Plan Trust. The Plan Trust shall notify Lloyd's Underwriters
and/or Equitas in writing within fifteen (15) Business Days of receipt of notice
of such Claim from Lloyd's Underwriters and/or Equitas whether the Plan Trust
agrees that such Claim triggers the Plan Trust's obligations pursuant to
Paragraph 5.A above. In the event that there is a dispute whether a Claim
triggers the Plan Trust's obligations pursuant to Paragraph 5.A above, the Plan
Trust and Lloyd's Underwriters and/or Equitas shall meet and confer to attempt
to resolve any such dispute. If they are unable to resolve such dispute by
meeting and conferring, they may litigate before the Court (or, if the Court
refuses to exercise jurisdiction, before any court of competent jurisdiction)
whether the Claim at issue triggers the Plan Trust's obligations pursuant to
Paragraph 5.A above. While such dispute remains unresolved, Lloyd's Underwriters
and/or Equitas have the right to defend the Asbestos Channeling Injunction as
they deem appropriate. Lloyd's Underwriters and Equitas shall cooperate
reasonably with the Plan Trust with respect to the obligations provided in this
Section 5.

                                       24
<PAGE>

      D. The obligations set forth in this Section 5 shall also extend to the
benefit of Equitas, which is an intended third-party beneficiary of the terms of
this Section 5. However, if Equitas fails to perform the obligations required of
it or Lloyd's Underwriters under Paragraph 5.C above with respect to any Claim,
and such failure materially prejudices the Plan Trust, the Plan Trust shall have
no obligation to defend the Asbestos Channeling Injunction pursuant to this
Section 5 as to Equitas with respect to that Claim. Such obligations shall be
deemed to have been met if Lloyd's Underwriters perform such obligations with
respect to such Claim, so long as any agreement Lloyd's Underwriters reach
pursuant to Paragraph 5.C above binds Equitas.

      E. Notwithstanding anything in this Section 5 to the contrary, in no event
shall the Plan Trust's obligation pursuant to this Section 5 exceed $500,000 in
the aggregate in the defense of Claims brought against the Protected Parties,
which Claims are subject to the Asbestos Channeling Injunction.

6.    Dismissal of Coverage Action

      No later than fourteen (14) days after the date that the Court enters the
Approval Order:

      A. Congoleum will dismiss without prejudice its Claims, counterclaims or
cross-claims (if any) against Lloyd's Underwriters in the Coverage Action;

      B. Lloyd's Underwriters shall dismiss without prejudice their Claims,
counterclaims or cross-claims (if any) against Congoleum in the Coverage Action.

      C. Upon the occurrence of the Trigger Date, the dismissals provided for in
Paragraphs 6.A and B above shall be deemed to be dismissals with prejudice. The
Parties shall bear their own costs, expenses, and counsel fees in the Coverage
Action. Nothing herein shall prevent Congoleum from recovering its costs,
expenses and counsel fees in the Coverage Action from any Entity other than
Lloyd's Underwriters or Equitas; and

                                       25
<PAGE>

      D. The Parties' stipulation of dismissal shall state that, in the event
that this Agreement becomes null and void pursuant to Section 9 below, Congoleum
may re-join Lloyd's Underwriters to the Coverage Action and re-assert all claims
against Lloyd's Underwriters in the Coverage Action, other than the bad faith
claims that have been asserted in the Coverage Action, which bad faith claims
shall not be re-asserted against Lloyd's Underwriters in the Coverage Action or
in any new action. In such event, the Parties agree that each of Congoleum and
Lloyd's Underwriters will be bound by all issues adjudicated or rulings in the
Coverage Action after the date of the stipulation of dismissal despite the fact
that Lloyd's Underwriters did not actually participate in the litigation of such
issues.

7.    Bankruptcy Obligations

      A. Pursuant to the Plan, prior to the conclusion of the Confirmation
Hearing, the Plan Proponents shall designate Lloyd's Underwriters and Equitas
(solely in its capacity as Lloyd's Underwriters' reinsurer and run-off agent) as
Settling Asbestos Insurance Companies in the schedule of Settling Asbestos
Insurance Companies filed by the Plan Proponents.

      B. Congoleum shall file, no later than ten (10) Business Days after the
Execution Date, a motion pursuant to Federal Rule of Bankruptcy Procedure 9019
seeking entry of the Approval Order, which motion shall be in a form and in
substance reasonably satisfactory to Lloyd's Underwriters, and Lloyd's
Underwriters will reasonably support and Lloyd's Underwriters and Equitas will
not oppose the Plan Proponents' efforts to obtain such approval.

                                       26
<PAGE>

      C. Promptly following the Execution Date, Lloyd's Underwriters and the
Debtors shall advise the Bankruptcy Court that the Parties have entered into a
settlement agreement. Provided that the Approval Order includes the findings set
forth in Paragraph 7.D below, promptly following the date on which the Approval
Order becomes a Final Order, unless and until this Agreement becomes null and
void pursuant to its terms (if ever), Lloyd's Underwriters shall:

            1.    not cooperate with any other defendant in the Coverage Action;

            2.    withdraw their participation in any and all objections they
                  have made to the Plan and/or to any findings or conclusions of
                  law issued by or recommended by the Bankruptcy Court, and any
                  and all motions, Claims, and any appeals or notices of appeal
                  that they have filed or made in the Chapter 11 Reorganization
                  Cases;

            3.    not file any new objections to the Plan or appeal the
                  Confirmation Order (for the avoidance of doubt, this provision
                  does not apply to a plan of reorganization other than the
                  Plan)

            4.    not pursue any Claims against the Debtors;

            5.    withdraw their participation in any and all outstanding
                  discovery requests; and

            6.    serve no new discovery requests in the Debtors' confirmation
                  proceeding; in either the case of (4) or (5), directed by
                  Congoleum to Lloyd's Underwriters or by Lloyd's Underwriters
                  to Congoleum.

                                       27
<PAGE>

The Parties recognize and agree that subscribers to the London Policies other
than Lloyd's Underwriters have joined in various motions, Claims, appeals,
notices of appeal and discovery requests of Lloyd's Underwriters and that this
Agreement shall not affect in any way the rights of such other subscribers to
continue to prosecute such motions, Claims, appeals, notices of appeal and
discovery requests. Such withdrawals by Lloyd's Underwriters shall be without
prejudice until the occurrence of the Trigger Date, at which time such
withdrawals shall be deemed to be with prejudice. Notwithstanding the foregoing,
sub-paragraph 7.C.1 above shall not be construed to preclude or limit in any way
the representation of subscribers to the London Policies other than Lloyd's
Underwriters by any counsel of record in the Coverage Action or the Chapter 11
Case that previously represented Lloyd's Underwriters and/or Equitas in the
Coverage Action or the Chapter 11 Case.

      D. As a condition precedent to the obligations of Lloyd's Underwriters
under Paragraph 7.C above, the Approval Order must include findings that:

            1.    Lloyd's Underwriters' payment in full of the Settlement Amount
                  shall satisfy and extinguish in full their obligations under
                  the London Policies.

            2.    The Settlement Amount shall be used only to pay Asbestos
                  Claims and/or to pay other amounts payable by the Plan Trust
                  pursuant to the Plan and the Trust Distribution Procedures for
                  the Congoleum Plan Trust, as may be amended.

            3.    Adequate notice of the Debtors' Motion for Approval of the
                  Settlement Agreement Between the Debtors and Lloyd's
                  Underwriters (the "Motion") and of the hearing on the Motion
                  was given by mailing a copy of the Motion and notice of the

                                       28
<PAGE>

                  hearing on the Motion to: (a) the members of the Official
                  Committee of Asbestos Claimants (the "Committee") and the
                  Committee's counsel; (b) the FCR and the counsel for the FCR;
                  (c) the Claimants' Counsel; (d) all other Persons or Entities
                  that, as of the date the Motion was filed, had filed a notice
                  of appearance or other demand for service of papers in the
                  Debtors' Chapter 11 Case; (e) the United States Trustee; (f)
                  the Collateral Trustee (the "Collateral Trustee") of the
                  Congoleum Collateral Trust (the "Collateral Trust")
                  established pursuant to a Collateral Trust Agreement dated
                  April 17, 2003; (g) Congoleum Corporation's majority
                  shareholder, American Builtrite, Inc.; (h) any other presently
                  existing Entities that are insureds under the London Policies;
                  (i) counsel to all known holders of Asbestos Claims as
                  reflected in the claims filed in this case, claims submitted
                  in connection with the Settlement Between Congoleum
                  Corporation and Various Asbestos Claimants attached as Exhibit
                  E to the Disclosure Statement with respect to the Plan (the
                  "Claimant Agreement"), or ballots submitted in connection with
                  this case; and (j) to all known holders of Asbestos Claims
                  whose counsel is not included within the preceding clause who,
                  as of at least five (5) days prior to the Hearing, became
                  known through filing of a proof of claim or otherwise.

                                       29
<PAGE>

            4.    Notice to an attorney for the holder of an Asbestos Claim
                  constitutes notice to the claimant for purposes of the
                  Agreement and the Motion.

            5.    Notice of the Agreement, the Motion and the Hearing is
                  sufficient to bind the Creditors' Committee and its members,
                  all known creditors and claimants, the FCR and all future
                  claimants and demand holders whose interests are represented
                  by the FCR, and all other Persons, including but not limited
                  to the Debtors' insurers, that, as of the date the Motion was
                  filed, had filed a notice of appearance and demand for service
                  of papers in the Debtors' Chapter 11 case.

            6.    The Approval Order and each of its Findings and Conclusions
                  are binding upon the Creditors' Committee and its members, all
                  known creditors and claimants, the FCR and all future
                  claimants and demand holders whose interests are represented
                  by the FCR, and all other Persons or Entities, including but
                  not limited to the Debtors' insurers, that, as of the date the
                  Motion was filed, had filed a notice of appearance or other
                  demand for service of papers in the Debtors' Chapter 11 Case.

            7.    The Approval Order includes a provision acknowledging that the
                  Plan, as amended, states that any right, claim or cause of
                  action that an Asbestos Insurance Company may have been
                  entitled to assert against a Settling Asbestos Insurance
                  Company based on or relating to Asbestos Claims shall be

                                       30
<PAGE>

                  channeled to and become a right, claim or cause of action
                  against the Plan Trust and not against the Settling Asbestos
                  Insurance Company in question and that all persons, including
                  any Asbestos Insurance Company, shall be enjoined from
                  asserting any such right, claim or cause of action against a
                  Settling Asbestos Insurance Company which shall be protected
                  by injunction from assertion against it, by an Asbestos
                  Insurance Company, of any Asbestos Claims.

      D. Upon the occurrence of the Plan Effective Date, all of Congoleum's
Asbestos Insurance Rights under this Agreement shall be assigned to the Plan
Trust pursuant to the Plan, automatically and without need of further action by
any Party or Entity, provided that this Agreement has not then and does not
thereafter become null and void pursuant to its terms.

      E. Upon its creation, the Plan Trust (1) automatically and without need
for further action shall become a Party to this Agreement; and (2) promptly
shall execute this Agreement. Upon the Trigger Date, and without limiting the
obligations of Congoleum under this Agreement, the Plan Trust automatically
shall succeed to all the rights and be bound by all of the obligations of the
Debtors under this Agreement without necessity of further action. Congoleum
shall include in the Plan Trust Agreement as an obligation of the Plan Trust,
effective from its creation, that such trust shall be subject to and bound by
this Agreement and the Approval Order.

      F. Congoleum and the Plan Trust shall not seek to terminate, reduce, or
limit the scope of the Asbestos Channeling Injunction with respect to Lloyd's
Underwriters and/or Equitas after the Confirmation Order becomes a Final Order.

                                       31
<PAGE>

8.    Effectiveness Of Agreement And Voidability

      A. This Agreement is subject to the contingencies set forth in
sub-paragraphs 8.A.1 - 8.A.5 below. If any of the following events occurs, any
Party may declare this Agreement null and void by providing written notice to
the other Parties in the manner provided in Section 19 below, in which case,
this Agreement shall terminate, subject to the provisions of Paragraph 8.C
below:

            1.    The Court or a court of competent jurisdiction enters an order
                  confirming a Chapter 11 plan of reorganization for Congoleum
                  or one or more of the other Debtors other than the Plan;

            2.    The Court or a court of competent jurisdiction enters an order
                  that provides that Lloyd's Underwriters and/or Equitas are not
                  Settling Asbestos Insurance Companies or otherwise contravenes
                  the designation of Lloyd's Underwriters and/or Equitas as
                  Settling Asbestos Insurance Companies;

            3.    The Court, or any other court of competent jurisdiction enters
                  an order denying approval of the Agreement;

            4.    The Court or a court of competent jurisdiction enters an order
                  converting the Chapter 11 Case into a Chapter 7 case or
                  dismissing the Chapter 11 Case;

            5.    The Court or a court of competent jurisdiction enters an order
                  appointing a trustee or examiner substantially possessing the
                  rights, powers and duties of a trustee in the Chapter 11 Case;
                  or

                                       32
<PAGE>

            6.    The Confirmation Order does not become a Final Order within
                  two years of the Execution Date.

      B. In the event that the Court or a court of competent jurisdiction enters
an order approving the Agreement, which order is other than an Approval Order
that includes the findings set forth in Paragraph 7.D above, then any Party may
declare the Agreement to be null and void within sixty (60) days following the
entry of such order approving the Agreement. The Parties shall meet and confer
at some point during said sixty (60) day period to determine whether the order
so entered is satisfactory to each of them and/or to explore whether a proposed
order can be fashioned and jointly submitted to the Court for approval.

      C. Notwithstanding anything in this Agreement to the contrary, in the
event this Agreement is declared by any Party to be null and void pursuant to
this Section 8:

            1.    this Agreement, other than Sections 1, 8 and 19 (which
                  sections shall remain in full force and effect), shall be
                  vitiated and shall be a nullity and shall be void ab initio;

            2.    The Parties shall direct the Escrow Agent to return to or at
                  the direction of Lloyd's Underwriters or Equitas, with thirty
                  (30) days prior written notice to the Congoleum and the Plan
                  Trust, if it exists, the Settlement Amount plus any interest
                  or investment income accrued on the Settlement Amount minus:
                  (i) any reasonable and proper costs incurred by the Escrow
                  Agent; (ii) any reserves required under the Escrow Agreement
                  to be held for the payment of taxes, indemnities, or
                  otherwise; or (iii) losses incurred under any investment of
                  the Settlement Amount permissible under the terms of the
                  Approval Order;

                                       33
<PAGE>

            3.    None of the Parties shall be bound by the terms of any
                  Approval Order;

            4.    Lloyd's Underwriters and Equitas shall not be designated as
                  Settling Asbestos Insurance Companies, and neither Lloyd's
                  Underwriters nor Equitas shall seek or receive any benefit or
                  protection of a Settling Asbestos Insurance Company;

            5.    the Parties shall have the rights, defenses and obligations
                  under or with respect to the London Policies that they would
                  have had absent this Agreement,

            6.    the releases provided in Section 4 above shall become null and
                  void ab initio;

            7.    Lloyd's Underwriters shall be free to pursue their objections
                  to the Plan and to appeal from the Confirmation Order and
                  Congoleum shall be free to oppose any such objections or
                  appeals and the Parties shall be free to pursue their claims
                  against one another in the Coverage Action; and

            8.    any otherwise applicable statutes of limitations or repose, or
                  other time-related limitations, shall be deemed to have been
                  tolled for the period from the Execution Date through the date
                  that this Agreement is declared null and void, and no Party
                  shall assert, plead, raise or otherwise rely on or take
                  advantage, whether actively or passively, of any time-related

                                       34
<PAGE>

                  defense to any Claim by any other Party related to such
                  period, and if any Party breaches this obligation, it shall be
                  deemed to have created a new cause of action against it at the
                  time of such breach for which it shall be liable in damages
                  equal to the amount of damages it avoided by reason of the
                  breach.

            9.    Assignment of Subrogation, Contribution and Reimbursement
                  Rights Against Other Insurers

      Other than claims against Lloyd's Underwriters' reinsurers or
retrocessionaires, Lloyd's Underwriters agree that they shall not pursue
subrogation, equitable indemnity, contribution, or reimbursement of the
Settlement Amount or any part thereof from any third party, including without
limitation any other primary or excess insurer of Congoleum or any other
subscriber to any of the London Policies. To the extent permitted by law,
Lloyd's Underwriters hereby transfer and assign to Congoleum all such rights,
claims, and causes of action relating to subrogation, reimbursement, or
contribution that Lloyd's Underwriters may have, arising out of the Settlement
Amount paid hereunder, provided always that if any third-party Person asserts
any claim against Lloyd's Underwriters, Lloyd's Underwriters shall be permitted
to pursue subrogation, equitable indemnity, contribution, or reimbursement of
the Settlement Amount or any part thereof from any such third-party Person in
any cross-claim, counter-claim or similar procedure. The Parties expressly agree
that nothing in this Section 9 or in this Agreement shall limit the rights of
Lloyd's Underwriters to make reinsurance claims and pursue their reinsurance
recoveries (if any).

                                       35
<PAGE>

10.   Cooperation

      Congoleum will undertake all reasonable actions to cooperate with Lloyd's
Underwriters in connection with their reinsurers, including (at Lloyd's
Underwriters' sole expense with respect to services and/or assistance provided
by external Congoleum vendors, and out-of-pocket expenses incurred by Congoleum)
responding to reasonable requests for information and meeting with
representatives of reinsurers. Such cooperation shall include providing Lloyd's
Underwriters' representative, upon reasonable request, access to all claim files
maintained by Congoleum, including but not limited to, all product exposure,
medical, claim status, and payment records contained in such files.

11.   Claim Reporting

      A. As of the Trigger Date, Lloyd's Underwriters shall have the right (upon
reasonable notice and in a manner convenient to the Plan Trust, as applicable)
to review and obtain from the Plan Trust all files, information and documents:

            1.    concerning Claims subject to payment or potential payment with
                  the proceeds of this Agreement, and

            2.    required of or necessary to Lloyd's Underwriters in connection
                  with any Claims, arbitrations, or litigations relating to
                  reinsurance of the Settlement Amount or in connection with
                  this Agreement.

      B. For the avoidance of doubt, the relevant files, information and
documents referenced in Paragraph 11.A above shall include, without limitation:

            1.    information from any database maintained by the Plan Trust,
                  any information that the Plan Trust collects pursuant to the
                  TDP, and any information included on any claim form used by
                  the Plan Trust with respect to Asbestos Personal Injury Claims
                  and Indirect Asbestos Claims; and

                                       36
<PAGE>

            2.    for each Asbestos Personal Injury Claim and Indirect Asbestos
                  Claim resolved:

                  a.    the Claimant's name;

                  b.    a claim number if the Plan Trust uses such a number to
                        identify claims;

                  c.    status (open or closed);

                  d.    date of first exposure, if the Plan Trust collects such
                        information;

                  e.    alleged disease and date of diagnosis, if the Plan Trust
                        collects such information; and

                  f.    the amount of indemnity paid.

      C. The Plan Trust shall reasonably cooperate in obtaining and providing
the files, information and documents referred to in Paragraphs 11.A and 11.B
above at Lloyd's Underwriters' reasonable request and sole expense (provided
that Lloyd's Underwriters shall have no obligation to pay any internal costs of
the Plan Trust, including costs associated with time or expenses of the Plan
Trust's employees). For the avoidance of doubt and without limitation of the
foregoing, the Plan Trust will undertake all reasonable actions to cooperate
with Lloyd's Underwriters in connection with their reinsurers, including (upon
reasonable notice, at Lloyd's the Plan Trust, and in a manner convenient to the
Plan Trust as applicable) responding to reasonable requests for information and

                                       37
<PAGE>

meeting with representatives of reinsurers. Such cooperation shall include
providing Lloyd's Underwriters' representative access to all claim files related
to Asbestos Personal Injury Claims and Indirect Asbestos Claims maintained by
the Plan Trust, including all product exposure, medical, claim status, and
payment records contained in such files.

      D. For the avoidance of doubt, this Section 11, and any results of such a
review contemplated hereby:

            1.    shall not affect Lloyd's Underwriters' payment obligations
                  under this Agreement;

            2.    shall not obligate the Plan Trust to collect any information
                  from any Claimant that it is not otherwise obligated to
                  collect; and

            3.    shall not give Underwriters and/or Equitas any right to
                  challenge the allowance or payment of any Claim by the Plan
                  Trust.

      E. Lloyd's Underwriters shall not provide any "Report" (as defined in
Paragraph 11.G below), results, files, information, or documents obtained by
Lloyd's Underwriters pursuant to this Section 11 (the "Materials") to any other
Entity and shall keep the Materials confidential, except that Lloyd's
Underwriters may:

            1.    provide the Materials to Entities identified in Paragraph 13.C
                  below; and

            2.    use the Materials in any proceeding to obtain reinsurance with
                  respect to the Settlement Amount or this Agreement or in
                  connection with its compliance with applicable laws or
                  regulations.

                                       38
<PAGE>

      F. Lloyd's Underwriters shall exercise their reasonable best efforts to
maintain the confidentiality of the Materials, including seeking a
confidentiality pledge from any Entity with which they share the Materials and
seeking a protective order in any proceeding in which they use the Materials,
but Lloyd's Underwriters' right to disclose any portion of the Materials to any
of the Entities identified in Paragraph 13.C below, shall not be affected if
their reasonable best efforts do not result in a confidentiality pledge being
given or a confidentiality order being entered. Nothing in this Section 11 shall
prevent Lloyd's Underwriters or Equitas from using the Materials for their own
internal purposes.

      G. In the Plan Trust's sole discretion, the Plan Trust may, in response to
a request from Lloyd's Underwriters pursuant to Paragraphs 11.A through 11.C,
provide Lloyd's Underwriters (or their representatives) with a report concerning
asbestos-related bodily injury claims activity with respect to the time period
that is the subject of Lloyd's Underwriters' request for relevant files,
information and documents (the "Report"). Notwithstanding anything to the
contrary in this Section 11, the Plan Trust shall not be required to include in
any Report any information that such the Plan Trust is not required to collect
under the Plan or the TDP or that the Plan Trust in fact collects. If the Plan
Trust (as applicable) is required to collect under the Plan or the TDP (or in
fact collects) the following information, such Reports shall include:

            1.    the number of total claims filed, pending, settled, dismissed
                  or that went to judgment, the total indemnity paid, and total
                  expense paid; and

            2.    with respect to each claim resolved during the relevant
                  period:

                                       39
<PAGE>

                  a.    the claimant's name;

                  b.    the claim number;

                  c.    jurisdiction, if any;

                  d.    status (open or closed);

                  e.    the date of first exposure as set forth in the complaint
                        or as reflected by information reasonably available to
                        the Plan Trust (as applicable);

                  f.    the asbestos product(s) or premises for which Congoleum
                        is responsible to which the claimant alleges exposure;

                  g.    the Entity(ies) within Congoleum that the claimant
                        alleges caused his injury;

                  h.    the alleged disease and the date of diagnosis;

                  i.    whether there is a medical diagnosis of the alleged
                        disease;

                  j.    date of death if applicable; and

                  k.    the amount of indemnity paid.

If the Plan Trust exercises its discretion to provide Reports to Lloyd's
Underwriters pursuant to this Paragraph 11.G, the Plan Trust shall still be
obligated, at the request of Lloyd's Underwriters (upon reasonable notice, at
Lloyd's Underwriters' sole expense, and in a manner convenient to the Plan
Trust) to make available to Lloyd's Underwriters files, information and
documents described in Paragraphs 11.A and B that relate to the asbestos bodily
injury claims that are the subject of the Report subject to Paragraphs 11.D
through 11.F above.

                                       40
<PAGE>

      H. If the Plan Trust does not exist, or for whatever reason fails to
provide any of the documents or other information set forth above after request
by Lloyd's Underwriters, and Congoleum has, or has the right to obtain, access
to such documents or information, Congoleum shall be obligated to provide such
documents or information to Lloyd's Underwriters to the same extent, and subject
to the same conditions and limitations, as the Plan Trust.

12.   Reasonably Equivalent Value

      The Parties acknowledge and agree that: (i) the Agreement was bargained
for and entered into in good faith and as the result of arms'-length
negotiations; and (ii) was based on their respective independent assessments,
with the assistance and advice of counsel, the payments and other benefits to be
received by the Parties pursuant to this Agreement constitute a fair and
reasonable settlement of the Parties' claims against each other and constitute
reasonably equivalent value for the releases, indemnity, and other benefits
conveyed under this Agreement.

13.   Confidentiality

      A. The Parties agree that all matters relating to the negotiation of this
Agreement shall be confidential and are not to be disclosed except by order of a
court of competent jurisdiction or by written agreement of the Parties except to
the extent that disclosure of matters relating to the negotiation of this matter
is necessary in connection with seeking approval of this Agreement by the Court.

      B. In the event that a private litigant, by way of document request,
interrogatory, subpoena, or questioning at deposition, trial, or other
proceeding attempts to compel disclosure of anything protected by this Section
13, the Party from whom disclosure is sought shall decline to provide the
requested information on the ground that this Agreement prevents such

                                       41
<PAGE>

disclosure. In the event that such private litigant seeks an order from any
court or governmental body to compel such disclosure, or in the event that a
court, government official, or governmental body (other than the Inland Revenue,
Internal Revenue Service, Securities and Exchange Commission or Financial
Services Authority) requests or requires disclosure of anything protected by
this Section 13, the Party from whom disclosure is sought shall immediately give
written notice by facsimile or hand-delivery to the other Parties, and shall
immediately provide copies of all notice papers, orders, requests or other
documents in order to allow each Party to take such protective steps as may be
appropriate. Notice under this Section 13 shall be made to the Persons
identified in Section 19 of this Agreement.

      C. Material protected by this Section 13 shall be deemed to fall within
the protection afforded to compromises and offers to compromise by Rule 408 of
the Federal Rules of Evidence and similar provisions of state law or state rules
of court.

      Notwithstanding anything in this Section 13, nothing in this Agreement
shall prevent any Party from disclosing or releasing information regarding the
negotiation of this Agreement in any form and at any time after the Execution
Date to:

            1.    reinsurers or retrocessionaires of any Lloyd's Underwriter
                  directly or through intermediaries;

            2.    outside auditors, attorneys or accountants of any Party;

            3.    to the extent required by law, including, to the extent
                  applicable, to the Inland Revenue, the Internal Revenue
                  Service, the Securities and Exchange Commission, the Financial
                  Services Authority or other U.S., U.K., or other governmental
                  authority that properly requires disclosure by a Party hereto;

                                       42
<PAGE>

            4.    to the extent and in any form that such information is
                  required to be disclosed or released to satisfy reporting
                  requirements imposed by law, including any Federal securities
                  laws; and

            5.    as necessary in connection with the approval of this Agreement
                  by any Court.

      D. Notwithstanding the foregoing, Lloyd's Underwriters may issue a press
release at any time following the Execution Date stating in substance that
Lloyd's Underwriters have reached comprehensive agreements to settle insurance
coverage claims brought by multiple policyholders for an aggregate amount that
identifies some or all of the policyholders that reached such settlements,
including Congoleum, but does not disclose the amounts or other terms of
individual settlements. Congoleum may also issue a press release at any time
following the filing of a motion with the Bankruptcy Court seeking approval or
this Agreement; provided that Congoleum first provides Lloyd's Underwriters with
a copy of the press release and permits Lloyd's Underwriters adequate time to
provide any comments thereon.

14.   Non-Prejudice and Construction of Agreement

      A. This Agreement is not a contract of insurance. This Agreement is not
subject to rules or construction governing contracts of insurance, including
without limitation, the doctrine of contra proferentum. This Agreement is a
compromise between the Parties and shall not be construed as an admission of
coverage under the London Policies, nor shall this Agreement or any provision

                                       43
<PAGE>

hereof be construed as a waiver, modification or retraction of the positions of
the Parties with respect to the interpretation and application of the London
Policies.

      B. This Agreement is the product of informed negotiations and involves
compromises of the Parties' previously stated legal positions. Accordingly, this
Agreement does not reflect upon the Parties' views as to rights and obligations
with respect to matters or Persons outside the scope of this Agreement. This
Agreement is without prejudice to positions taken by the Lloyd's Underwriters
with regard to other insureds, and without prejudice to positions taken by
Congoleum with regard to other insurers. Except for the express references
herein to Equitas and currently unknown Lloyd's Underwriters, the Parties
specifically disavow any intention to create rights in third-parties under or in
relation to this Agreement.

      C. This Agreement is the jointly-drafted product of arms'-length
negotiations between the Parties with the benefit of advice from counsel, and
the Parties agree that it shall be so construed. As such, no Party will claim
that any ambiguity in this Agreement shall be construed against the other Party.

15.   No Modification

      No change or modification of this Agreement shall be valid unless made in
writing and signed by the Parties (or their attorney-in-fact) whose interests
are affected by such change or modification.

16.   Integration

      This Agreement, including the Attachments hereto, constitutes the entire
agreement among the Parties with respect to the subject matter hereof, and
supersedes all discussions, agreements and understandings, both written and
oral, among the Parties with respect hereto.

                                       44
<PAGE>

17.   Governing Law

      This Agreement shall be governed by, and shall be construed in accordance
with, the laws of New Jersey without regard to its choice of law rules.

18.   Execution

      There will be two signed originals of this Agreement, which may be
executed in duplicate counterparts. Facsimiles or scanned versions of signatures
by the Parties shall be treated as originals.

19.   Notices

      Unless another person is designated, in writing, for receipt of notices
hereunder, notices to the respective Parties shall be sent to the following
Persons, provided that notices to the Plan Trust, upon its creation, shall be
sent to such Person(s) as the Plan Trust then designates in writing..

If to Congoleum:                      Pillsbury Winthrop LLP
                                      1540 Broadway
                                      New York, NY  10036-4039
                                      Attn:  Richard L. Epling, Esq.
                                             Kerry A. Brennan, Esq.
                                      Phone:  (212) 858-1000
                                      Fax:  (212) 858-1500
                                      e-mail:  repling@pillsburywinthrop.com
                                               kbrennan@pillsburywinthrop.com

                                      and

                                      Gilbert Heintz & Randolph LLP
                                      1100 New York Avenue, N.W.
                                      Washington, D.C.  20005
                                      Attn:  Bette Orr, Esq.
                                      Phone:  (202) 772-2340
                                      Fax:  (202) 772-2325
                                      e-mail:  orrb@ghrdc.com

                                       45
<PAGE>

With a copy to:                       Howard N. Feist III
                                      Congoleum Corporation
                                      57 River Street
                                      Wellesley, MA  02481-2097
                                      Phone:  (781) 237-6655
                                      Fax:  (781) 237-6880
                                      e-mail:  sfeist@alumni.princeton.edu

If to Underwriters or Equitas:        Equitas Limited
                                      Claims Division
                                      33 St. Mary Axe
                                      London  EC3A 8LL  ENGLAND
                                      Attn:  Head of Direct Claims

With a copy to:                       Zuckerman Spaeder LLP
                                      1201 Connecticut Avenue, NW [after July
                                      1, 2005, 1800 M Street, NW]
                                      Washington, DC  20036
                                      Attn:  James Sottile, IV, Esq.

            [The remainder of this page is left blank intentionally]

                                       46
<PAGE>

      IN WITNESS WHEREOF, the Parties have executed this Agreement by their duly
authorized representatives.

      Lloyd's Underwriters participating in the syndicates identified in
Attachment B have each respectively designated Zuckerman Spaeder LLP as their
attorneys-in-fact for the limited purpose of executing this Agreement on their
behalf with express authority to do so.

                        FOR CONGOLEUM

                        By:    /s/ Howard N. Feist III
                               ----------------------------------------

                        Name:  Howard N. Feist III
                               ----------------------------------------

                        Title: Chief Financial Officer
                               ----------------------------------------

                        Date:  June 22, 2005
                               ----------------------------------------

                        FOR LLOYD'S UNDERWRITERS

                        By:    James Sotille, Esq., attorney,-in-fact
                               ----------------------------------------

                        Name:  James Sotille
                               ----------------------------------------

                        Title: Attorney-in-fact
                               ----------------------------------------

                        Date:  June 22, 2005
                               ----------------------------------------

                                       47
<PAGE>

                        FOR THE PLAN TRUST

                        By:_____________________________________________

                        Name:___________________________________________

                        Title:__________________________________________

                        Date:___________________________________________

                                       48
<PAGE>

                                  Attachment A

             Known Congoleum and/or Bath Iron Works London Policies

Policy Number                             Inception         Termination
-------------                             ---------         -----------

356999 -WCA                               01-Jan-1953       01-Jan-1954
357003 -WCA                               01-Jan-1953       01-Jan-1954
K21782                                    12-Nov-1953       12-Nov-1954
K21783                                    12-Nov-1953       12-Nov-1954
K21784                                    12-Nov-1953       12-Nov-1954
K28288                                    12-Nov-1954       01-Jan-1956
K28289                                    12-Nov-1954       01-Jan-1956
K28290                                    12-Nov-1954       01-Jan-1956
K28291                                    12-Nov-1954       01-Jan-1956
U43702-WCA/CON 4628                       01-Jan-1954       01-Jan-1955
U43781-WCA/CON 54/4282                    01-Jan-1954       01-Jan-1955
U45129-WCA (CONT 54/4628)                 01-Jan-1955       01-Jan-1956
U46187-WCA (CON 55/4282)                  01-Jan-1955       01-Jan-1956
K28288                                    01-Jan-1956       01-Jan-1957
K28289                                    01-Jan-1956       01-Jan-1957
K28290                                    01-Jan-1956       01-Jan-1957
K28291                                    01-Jan-1956       01-Jan-1957
U53889-WCA (CONT 55/4628)                 01-Jan-1956       01-Jan-1957
U55135-WCA (CON 56/4282)                  01-Jan-1956       01-Jan-1957
K28288                                    01-Jan-1957       01-Jan-1958
K28289                                    01-Jan-1957       01-Jan-1958
K28290                                    01-Jan-1957       01-Jan-1958
K28291                                    01-Jan-1957       01-Jan-1958
U61306-WCA (CONT 56/4628)                 01-Jan-1957       01-Jan-1958
U61820-WCA (CONT 57/4282)                 01-Jan-1957       01-Jan-1958
CK2458/K47201/A/57/460                    01-Jan-1958       01-Jan-1959
CK2459/K47202/A/58/460                    01-Jan-1958       01-Jan-1959
U66779-WCA (CON 57/4628)                  01-Jan-1958       01-Jan-1959
U67387-WCA (CONT 58/4282)                 01-Jan-1958       01-Jan-1959
CK2458/K47201/A/58/460                    01-Jan-1959       01-Jan-1960
CK2459/K47202/A/58/460                    01-Jan-1959       01-Jan-1960
U72524-WCA (CONT 58/4628)                 01-Jan-1959       01-Jan-1960
U72809-WCA (CONT 59/4282)                 01-Jan-1959       01-Jan-1960
CK2458/K47201/A/58/460                    01-Jan-1960       01-Feb-1961
CK2459/K47202/A/58/460                    01-Jan-1960       01-Feb-1961
U77419-WCA (CONT59/4628)                  01-Jan-1960       01-Jan-1961
U78535-WCA (CONT 60/4282)                 01-Jan-1960       01-Jan-1961
U82967-WCA (CONT 61/4282)                 01-Jan-1961       01-Jan-1962
U85412-WCA (CONT 62/4282)                 01-Jan-1962       01-Jan-1963

<PAGE>

                                  Attachment A

       Known Congoleum and/or Bath Iron Works London Policies (continued)

881/WHL551                                01-Apr-1976       01-Apr-1977
UHL0036                                   12-Jan-1976       01-Jan-1977
881/WJ0741                                01-Apr-1977       01-Jan-1978
881/WJU551                                01-Apr-1977       01-Jan-1978
UJL0056                                   01-Jan-1977       01-Jan-1978
UJL0057                                   01-Jan-1977       01-Jan-1978
UJL0389                                   01-Jan-1977       01-Jan-1978
881/WK0091                                01-Jan-1978       01-Jan-1979
881/WK0151                                01-Jan-1978       01-Jan-1979
881/WK0161                                01-Jan-1978       01-Jan-1979
881/WKT051                                01-Jan-1978       01-Jan-1979
UJL0389                                   01-Jan-1978       01-Jan-1979
UJL0389                                   01-Jan-1979       01-Jan-1980
WLT121                                    01-Jan-1979       01-Jan-1980
FUL08367                                  01-Jan-1980       01-Jan-1981
FUL083811                                 01-Jan-1981       01-Jan-1982
FUL084656                                 01-Jan-1982       01-Jan-1983
FUL085565                                 01-Jan-1983       01-Jan-1984
CON M800855/LCX-6-01453                   01-Jan-1986       01-Jan-1987
CON M800855/LCX-6-01454                   01-Jan-1986       01-Jan-1987
M80312/LCX-10035                          01-Jan-1987       01-Jan-1988
M803127/LCX-10012                         01-Jan-1987       01-Jan-1988
M803127/LCX-10013                         01-Jan-1987       01-Jan-1988
OMP-10036                                 01-Jan-1987       01-Jan-1988
CON M804036/LCX10737                      01-Jan-1988       01-Jan-1989
CON M804036/LCX10738                      01-Jan-1988       01-Jan-1989
M804041/LCX-10739                         01-Jan-1988       01-Jan-1989
CON M806376/LCX11480                      01-Jan-1989       01-Jan-1990
CON M806376/LCX11481                      01-Jan-1989       01-Jan-1990
CON M806379/LCX11482                      01-Jan-1989       01-Jan-1990
CON M806376/LCX11480                      01-Jan-1990       01-Jan-1991
CON M807846/LCX-11481                     01-Jan-1990       01-Jan-1991
CON M807847/LCX-11482                     01-Jan-1990       01-Jan-1991
TA0011B01/CON TA4000B01                   01-Jul-1991       31-Dec-1992
LCX-13308                                 01-Jul-1991       01-Jan-1992
CON MA8026H00/LCX-13387                   01-Jan-1992       01-Jan-1993
CON MA8026H00/LCX-13388                   01-Jan-1992       01-Jan-1993
LCX-13389                                 01-Jan-1992       01-Jan-1993

<PAGE>

                                  ATTACHMENT B

              Known Syndicate Subscribers to Known London Policies

010         114         311         531         744         943
018         1215        317         535         745         947
033         122         329         535         748         964
034         123         334         540         761         970
035         123         335         540         764         971
036         127         347         552         772         972
040         130         358         573         773         972
042         164         365         573         782         975
052         169         367         583         790         990
052         174         368         584         795         998
056         178         371         588         796
057         185         372         596         803
059         187         401         601         803
062         190         404         604         812
064         194         406         615         819
065         199         406         616         829
067         203         407         617         833
069         204         417         620         836
079         206         418         625         838
079         207         428         625         842
079         208         433         629         845
086         209         440         632         849
088         209         446         633         857
090         210         448         650         860
092         212         457         653         861
098         219         470         662         867
1009        223         475         672         868
1009        231         479         672         869
1014        235         483         677         870
102         250         483         687         872
1023        264         484         687         872
1023        273         488         697         875
108         275         490         700         900
1081        277         499         707         900
1084        282         500         724         901
1084        282         502         725         904
109         284         505         729         905
110         288         507         735         924
112         299         507         735         926
1125        301         517         741         933
114         309         522         741         937

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00089-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00089-of-00352.parquet"}]]