eps2916.htm

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mc9VJulLWJBCl+OisWIK55MJBhuHsMWm0Muu0AIcWWLYgbOM/x4yA4GjVr4uhyjP MH4s+qp33w+AsIpvICK9EA== 0001171520-08-000199.txt : 20080331 0001171520-08-000199.hdr.sgml : 20080331 20080331171424 ACCESSION NUMBER: 0001171520-08-000199 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080331 DATE AS OF CHANGE: 20080331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONGOLEUM CORP CENTRAL INDEX KEY: 0000023341 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 020398678 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13612 FILM NUMBER: 08726031 BUSINESS ADDRESS: STREET 1: 3500 QUAKERBRIDGE RD STREET 2: PO BOX 3127 CITY: MERCERVILLE STATE: NJ ZIP: 08619-0127 BUSINESS PHONE: 6095843000 MAIL ADDRESS: STREET 1: 3500 QUAKERBRIDGE RD STREET 2: PO BOX 3127 CITY: MERCERVILLE STATE: NJ ZIP: 08619-0127 FORMER COMPANY: FORMER CONFORMED NAME: BATH INDUSTRIES INC DATE OF NAME CHANGE: 19750528 FORMER COMPANY: FORMER CONFORMED NAME: BATH IRON WORKS CORP DATE OF NAME CHANGE: 19670907 10-K 1 eps2916.htm CONGOLEUM CORP. eps2916.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ___________

Commission File Number 1-13612

CONGOLEUM CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware	02-0398678
(State or Other Jurisdiction of	(IRS Employer Identification No.)
Incorporation or Organization)

3500 Quakerbridge Road

P.O. Box 3127

Mercerville, NJ 08619-0127

(Address of Principal Executive Offices and Zip Code)

(609) 584-3000

(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act: Class A Common Stock, par value $0.01 per share

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x

As of June 29, 2007, the aggregate market value of all shares of Class A Common Stock held by non-affiliates of the Registrant was approximately $3.3 million based on the closing price of $0.95 per share on the American Stock Exchange. For purposes of determining this amount, affiliates are defined as directors and executive officers of the Registrant, American Biltrite Inc. and Hillside Capital Incorporated. All of the shares of Class B Common Stock of the Registrant are held by affiliates of the Registrant. As of March 10, 2008, an aggregate of 3,663,390 shares of Class A Common Stock and an aggregate of 4,608,945 shares of Class B Common Stock of the Registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Congoleum Corporation’s Proxy Statement for the 2008 Annual Meeting of Stockholders to be held on May 6, 2008, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2007, are incorporated by reference into Part III of this Annual Report on Form 10-K.

TABLE OF CONTENTS		Page
PART I

ITEM 1.	BUSINESS	5

ITEM 1A.	RISK FACTORS	11

ITEM 1B.	UNRESOLVED STAFF COMMENTS	16

ITEM 2.	PROPERTIES	17

ITEM 3.	LEGAL PROCEEDINGS	18

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	29

PART II

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	30

ITEM 6.	SELECTED FINANCIAL DATA	31

ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31

ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	43

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	83

ITEM 9A(T).	CONTROLS AND PROCEDURES	83

ITEM 9B.	OTHER INFORMATION	84

PART III

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	84

ITEM 11.	EXECUTIVE COMPENSATION	85

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	85

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	86

ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	86

PART IV

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	87

Factors That May Affect Future Results

Some of the information presented in or incorporated by reference in this report constitutes "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks, uncertainties and assumptions. These statements can be identified by the use of the words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project” and other words of similar meaning. In particular, these include statements relating to intentions, beliefs or current expectations concerning, among other things, future performance, results of operations, the outcome of contingencies such as bankruptcy and other legal proceedings, and financial conditions. These statements do not relate strictly to historical or current facts. These forward-looking statements are based on the expectations of Congoleum Corporation (the “Company” or “Congoleum”), as of the date of this report, of future events, and the Company undertakes no obligation to update any of these forward-looking statements. Although the Company believes that these expectations are based on reasonable assumptions, within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Readers are cautioned not to place undue reliance on any forward-looking statements. Any or all of these statements may turn out to be incorrect. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Any forward-looking statement made in this report speaks only as of the date of such statement. It is not possible to predict or identify all factors that could potentially cause actual results to differ materially from expected and historical results. Factors that could cause or contribute to the Company's actual results differing from its expectations include those factors discussed elsewhere in this report, including in the section of this report entitled "Risk Factors" and in the Company's other filings with the Securities and Exchange Commission.

PART I

Item 1. BUSINESS

General

Congoleum was incorporated in Delaware in 1986, but traces its history in the flooring business back to Nairn Linoleum Co., which began in 1886.

Congoleum produces both sheet and tile floor covering products with a wide variety of product features, designs and colors. Sheet flooring, in its predominant construction, is produced by applying a vinyl gel to a flexible felt, printing a design on the gel, applying a wear layer, heating the gel layer sufficiently to cause it to expand into cushioned foam and, in some products, adding a urethane coating. The Company also produces through-chip-inlaid sheet products for both residential and commercial markets. These products are produced by applying an adhesive coat and solid vinyl colored chips to a felt backing and laminating the sheet under pressure with a heated drum. Tile flooring is manufactured by creating a base stock (consisting primarily of limestone and vinyl resin) which is less flexible than the backings for sheet flooring, and transferring or laminating to it preprinted colors and designs followed by a wear layer and, in some cases, a urethane coating. Commercial tile is manufactured by including colored vinyl chips in the pigmented base stock. For do-it-yourself tile, an adhesive is applied to the back of the tile. The differences between products within each of the two product lines consist primarily of content and thickness of wear layers and coatings, the use of chemical embossing to impart a texture, the complexity of designs and the number of colors. Congoleum also purchases sundries and accessory products for resale.

Congoleum’s products serve both the residential and commercial hard-surface flooring markets, and are used in remodeling, manufactured housing, new construction and commercial applications. These products, together with a limited quantity of related products purchased for resale, are sold primarily to wholesale distributors and major retailers in the United States and Canada. Based upon the nature of the Company’s operations, facilities and management structure, the Company considers its business to constitute a single segment for financial reporting purposes.

On December 31, 2003, Congoleum filed a voluntary petition with the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”) (Case No. 03-51524) seeking relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago. During 2003, Congoleum had obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of a proposed, pre-packaged Chapter 11 plan of reorganization. In January 2004, the Company filed its proposed plan of reorganization and disclosure statement with the Bankruptcy Court. In November 2004, Congoleum filed a modified plan of reorganization and related documents with the Bankruptcy Court (the "Fourth Plan") reflecting the result of further negotiations with representatives of the Asbestos Claimants’ Committee (the “ACC”), the Future Claimants’ Representative (the “FCR”) and other asbestos claimant representatives. The Bankruptcy Court approved the disclosure statement and plan

voting procedures in December 2004 and Congoleum obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of the Fourth Plan. In April 2005, Congoleum announced that it had reached an agreement in principle with representatives of the ACC and the FCR to make certain modifications to its proposed plan of reorganization and related documents governing the settlement and payment of asbestos-related claims against Congoleum. Under the agreed-upon modifications, asbestos claimants with claims settled under Congoleum's pre-petition settlement agreements would agree to forbear from exercising the security interest they were granted and share on a pari passu basis with all other present and future asbestos claimants in insurance proceeds and other assets of the trust to be formed upon confirmation of the plan under Section 524(g) of the Bankruptcy Code (the “Plan Trust”) to pay asbestos claims against Congoleum. In July 2005, Congoleum filed an amended plan of reorganization (the “Sixth Plan”) and related documents with the Bankruptcy Court which reflected the result of these negotiations, as well as other technical modifications. The Bankruptcy Court approved the disclosure statement and voting procedures and Congoleum commenced solicitation of acceptances of the Sixth Plan in August 2005. In September 2005, Congoleum learned that certain asbestos claimants were unwilling to agree to forbear from exercising their security interest as contemplated by the Sixth Plan and the Sixth Plan was subsequently withdrawn. In November 2005, the Bankruptcy Court denied a request to extend Congoleum’s exclusive right to file a plan of reorganization and solicit acceptances thereof. In March 2006, Congoleum filed a new amended plan of reorganization (the “Eighth Plan”). In addition, an insurance company, Continental Casualty Company, and its affiliate, Continental Insurance Company (collectively, “CNA”), filed a plan of reorganization and the Official Committee of Bondholders (the “Bondholders’ Committee”) (representing holders of the Company’s 8 5/8% Senior Notes due August 1, 2008 (the “Senior Notes”)) also filed a plan of reorganization. In May 2006, the Bankruptcy Court ordered all parties in interest in Congoleum’s reorganization proceedings to participate in global mediation discussions. Numerous mediation sessions took place from June through September 2006. During the initial mediation negotiations, Congoleum reached an agreement in principle, subject to mutually agreeable definitive documentation, with the ACC, the FCR and the Company’s controlling shareholder, American Biltrite, Inc. (“ABI”), on certain terms of an amended plan of reorganization (the “Ninth Plan”), which Congoleum filed and proposed jointly with the ACC in August 2006. CNA and the Bondholders’ Committee jointly filed a new, competing plan in August 2006 and each withdrew its prior plan of reorganization. Following further mediated negotiations, Congoleum, the ACC, the FCR, ABI and the Bondholders’ Committee reached agreement on the terms of a new amended plan (the “Tenth Plan”), which Congoleum filed jointly with the ACC in September 2006. Following the Bondholders’ Committee’s withdrawal of support for CNA’s plan, CNA filed an amended plan of reorganization (the “CNA Plan”). In October 2006, Congoleum and the ACC jointly filed a revised version of the Tenth Plan (the “Eleventh Plan”) which reflected minor technical changes agreed to by the various parties supporting Congoleum’s plan. In October 2006, the Bankruptcy Court held a hearing to consider the adequacy of the disclosure statements with respect to the Tenth Plan and the CNA Plan and to hear arguments on respective summary judgment motions as to whether the Tenth Plan and the CNA Plan were confirmable as a matter of law. The Bankruptcy Court provisionally approved the disclosure statements for both the Tenth Plan and the CNA Plan subject to the Bankruptcy Court’s ruling on the respective summary judgment motions. In February 2007, the Bankruptcy Court issued two separate opinions ruling that the Tenth Plan and the CNA Plan were not

confirmable as a matter of law. In March 2007, Congoleum resumed global plan mediation discussions with the various parties seeking to resolve the issues raised in the Bankruptcy Court’s ruling with respect to the Tenth Plan. In July 2007, the FCR filed a plan of reorganization and proposed disclosure statement. After extensive further mediation sessions, on February 5, 2008, the FCR, the ACC, the Bondholders’ Committee and Congoleum jointly filed a plan of reorganization (the “Joint Plan”). The Bankruptcy Court approved the disclosure statement for the Joint Plan in February 2008, and a confirmation hearing is scheduled for June 26, 2008. See Notes 1 and 17 of the Notes to Consolidated Financial Statements, which are contained in Item 8 of this Annual Report on Form 10-K.

The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge through its Internet website (www.congoleum.com), as soon as reasonably practicable after being electronically filed with, or otherwise furnished to, the Securities and Exchange Commission.

As a result of filing its bankruptcy case, the Company is required to file periodically with the Bankruptcy Court certain financial information on an unconsolidated basis for itself and two subsidiaries. This information includes Statements of Financial Affairs, schedules and certain monthly operating reports (in forms prescribed by the Federal Rules of Bankruptcy Procedure). The debtors' informational filings with the Bankruptcy Court, including the Statements of Financial Affairs, schedules and monthly operating reports (collectively, the "Bankruptcy Reports"), are available to the public at the office of the Clerk of the Bankruptcy Court, Clarkson S. Fisher U.S. Courthouse, 402 East State Street, Trenton, NJ 08608. Certain of the Bankruptcy Reports may be viewed at www.njb.uscourts.gov (Case No. 03-51524).

The Company is furnishing the information set forth above for convenience of reference only. The Company cautions that the information contained in the Bankruptcy Reports is or will be unaudited and subject to change and not prepared in accordance with generally accepted accounting principles or for the purpose of providing the basis for an investment decision relating to any of the securities of the Company. In view of the inherent complexity of the matters that may be involved in the bankruptcy case, the Company does not undertake any obligation to make any further public announcement with respect to any Bankruptcy Reports that may be filed with the Bankruptcy Court or the matters referred to therein.

Raw Materials

The Company’s business is dependent upon a continuous supply of raw materials from third party suppliers. The principal raw materials used by the Company in its manufacture of sheet and tile flooring are vinyl resins, plasticizers, latex, limestone, stabilizers, cellulose paper fibers, urethane and transfer print film. The Company purchases most of these raw materials from multiple sources. Although the Company has generally not had difficulty in obtaining its requirements for these materials, it has periodically experienced significant price increases for some of these materials. Although the Company has been able to obtain sufficient supplies of specialty resin and other raw materials, there can be no assurances that it may not experience difficulty in the future, particularly if global supply conditions deteriorate, which could have a material adverse effect on profit margins.

The Company believes that suitable alternative suppliers are generally available for substantially all of its raw material requirements, although quantities of certain materials available from alternative suppliers may be in limited supply and production trials may be required to qualify new materials for use. The Company does not have readily available alternative sources of supply for specific designs of transfer print film, which are produced utilizing print cylinders engraved to the Company's specifications. Although no loss of this source of supply is anticipated, replacement could take a considerable period of time and interrupt production of some of the Company's products. In an attempt to protect against this risk of loss of supply, the Company maintains a raw material inventory and continually seeks to develop new sources which will provide continuity of supply for its raw material requirements.

In addition, the Company could incur significant increases in the costs of its raw materials due to market conditions, energy costs, and other factors. Although the Company generally attempts to pass on increases in the costs of its raw materials to its customers, the Company’s ability to do so is, to a large extent, dependent upon the rate and magnitude of any increase, competitive pressures and market conditions for its products. There have been in the past, and may be in the future, periods of time during which increases in these costs cannot be recovered.

Patents and Trademarks

The Company believes that the Congoleum brand name, as well as the other trademarks it holds, is important to maintaining its competitive position.

The Company also believes that patents and know-how play an important role in furthering and maintaining competitive position.

Distribution

The Company currently sells its products through approximately 13 distributors providing approximately 51 distribution points in the United States and Canada, as well as directly to a limited number of mass market retailers. Net sales to customers in the United States for the years ended December 31, 2007 and 2006 totaled $192.9 million and $209.8 million, respectively, with net sales to customers outside the United States for the years ended December 31, 2007 and 2006 totaled $11.4 million and $9.6 million, respectively.

The Company’s sales pattern is seasonal, with peaks in retail sales typically occurring during March/April/May and September/October. See Note 21 of the Notes to Consolidated Financial Statements for a comparison of quarterly operating results for the years ended December 31, 2007 and 2006. Orders are generally shipped as soon as a truckload quantity has been accumulated, and backorders can be canceled without penalty. At December 31, 2007, the backlog of unshipped orders was $6.6 million, compared to $5.2 million at December 31, 2006.

The Company considers its distribution network very important to maintaining its competitive position. Although the Company has more than one distributor in some of its distribution territories and actively manages its credit exposure to its distributors, the loss of a major distributor could have a material adverse impact on the Company’s sales, at least until a suitable replacement was in place. For the year ended December 31, 2007, two customers each accounted for over 10% of the Company’s net sales. These customers were its manufactured housing market distributor, LaSalle-Bristol Corporation, and its retail market distributor, Mohawk Industries, Inc. Together, they accounted for approximately 66% of the Company’s net sales in 2007.

Working Capital

The Company produces goods for inventory and sells on credit to customers. Generally, the Company’s distributors carry inventory as needed to meet local or rapid delivery requirements. The Company’s credit terms generally require payment on invoices within 31 days, with a discount available for earlier payment. These practices are typical within the industry.

Congoleum anticipates that its debtor-in-possession financing facility (including anticipated extensions thereof and any replacement facility provided in connection with exiting bankruptcy) together with cash from operations, will provide it with sufficient liquidity to operate during 2008 while under Chapter 11 protection and to exit bankruptcy pursuant to the terms of the Joint Plan. There can be no assurances that the Company will continue to be in compliance with the required covenants under this facility, or that the debtor-in-possession facility (as extended) will be renewed prior to its expiration if the Joint Plan is not confirmed and becomes effective before June 30, 2008. For any plan of reorganization to be confirmed, the Company will need to obtain and demonstrate the sufficiency of exit financing. The Company cannot presently determine the terms of such financing, nor can there be any assurances of its success obtaining it.

Product Warranties

The Company offers a limited warranty on all of its products against manufacturing defects. In addition, as a part of its efforts to differentiate mid- and high-end products through color, design and other attributes, the Company offers enhanced warranties with respect to wear, moisture discoloration and other performance characteristics, which generally increase with the price of such products.

Competition

The market for the Company’s products is highly competitive. Resilient sheet and tile compete for both residential and commercial customers primarily with carpeting, hardwood, melamine laminate and ceramic tile. In residential applications, both tile and sheet products are used primarily in kitchens, bathrooms, laundry rooms and foyers and, to a lesser extent, in playrooms and basements. Ceramic tile is used primarily in kitchens, bathrooms and foyers. Carpeting is used primarily in bedrooms, family rooms and living rooms. Hardwood flooring and melamine laminate are used primarily in family rooms, foyers and kitchens. Commercial

grade resilient flooring faces substantial competition from carpeting, ceramic tile, rubber tile, hardwood flooring and stone in commercial applications. The Company believes, based upon its market research, that purchase decisions are influenced primarily by fashion elements such as design, color and style, durability, ease of maintenance, price and ease of installation. Both tile and sheet resilient flooring are easy to replace for repair and redecoration and, in the Company’s view, have advantages over other floor covering products in terms of both price and ease of installation and maintenance.

The Company encounters competition from three other manufacturers in North America and, to a lesser extent, foreign manufacturers. In the resilient category, Armstrong World Industries, Inc. has the largest market share. Some of the Company’s competitors have substantially greater financial and other resources and access to capital than the Company.

Research and Development

The Company’s research and development efforts concentrate on new product development, improving product durability and expanding technical expertise in the manufacturing process. Expenditures for research and development for the year ended December 31, 2007 were $4.2 million, compared to $4.2 million for the year ended December 31, 2006.

Environmental Regulation

Due to the nature of the Company's business and certain of the substances which are or have been used, produced or discharged by the Company, the Company's operations are subject to extensive federal, state and local laws and regulations relating to the generation, storage, disposal, handling, emission, transportation and discharge into the environment of hazardous substances. Pursuant to administrative consent orders signed in 1986 and in connection with a prior restructuring, the Company is in the process of implementing cleanup measures at its Trenton sheet facility under New Jersey’s Environmental Clean-up Responsibility Act, as amended by the New Jersey Industrial Site Recovery Act. The Company does not anticipate that the additional costs of these measures will be significant. The Company also agreed to be financially responsible for any cleanup measures required at its Trenton tile facility when that facility was acquired in 1993. In 2007, the Company incurred capital expenditures of less than $80 thousand for environmental compliance and control facilities.

The Company has historically expended substantial amounts for compliance with existing environmental laws and regulations, including those matters described above. The Company will continue to be required to expend amounts in the future for costs related to prior activities at its facilities and third party sites and for ongoing costs to comply with existing environmental laws, and those amounts may be substantial. Because environmental requirements have grown increasingly strict, the outcome of these matters could result in significant expenses or judgments that could have a material adverse effect on the financial position of the Company. See Item 3 of this Annual Report on Form 10-K for certain additional information regarding environmental matters.

Employees

At December 31, 2007, the Company employed a total of 753 employees compared to 823 employees at December 31, 2006.

The Company has entered into collective bargaining agreements with hourly employees at its four plants and with the drivers of the trucks that provide interplant transportation. These agreements cover approximately 500 of the Company’s employees. The Trenton tile plant has a five-year collective bargaining agreement with United Steelworkers of America – Local 547, which expires in June 2008. The Trenton warehouse has a five-year collective bargaining agreement with United Steelworkers of America – Local 107L, which expires in February 2011. The Marcus Hook plant has a five-year collective bargaining agreement with the United Steelworkers of America – Local 12698-01, which expires in November 2008. The Marcus Hook plant also has a five-year collective bargaining agreement with the Teamsters Union – Local 312, which expires in January 2009. The Finksburg plant negotiated its first collective bargaining agreement and ratified this agreement in April 2007. This is a three-year agreement with the United Steelworkers of America – Local 9477-27, which expires in January 2010. In the past five years, there have been no strikes by employees of the Company and the Company believes that its employee relations are satisfactory.

Item 1A. RISK FACTORS

The Company has significant asbestos liability and funding exposure.

As more fully set forth in Notes 1 and 17 of the Notes to Consolidated Financial Statements, which are included in this Annual Report on Form 10-K, the Company has significant liability and funding exposure for asbestos claims. The Company has entered into settlement agreements with various asbestos claimants totaling in excess of $491 million.

There can be no assurance that the Joint Plan or any other plan will receive the acceptances necessary for confirmation, that the Joint Plan will not be modified further, that the Joint Plan or any other plan will receive necessary court approvals from the Bankruptcy Court and the United States District Court for the District of New Jersey (the “District Court”), or that such approvals will be received in a timely fashion, that any plan will be confirmed, that any plan, if confirmed, will become effective, or that there will be sufficient funds to pay for continued litigation over any plan of reorganization. It also is unclear whether any other person might successfully propose and confirm a plan or what any such plan, when confirmed, would ultimately provide, and whether the Bankruptcy Court would approve such a plan. Any plan of reorganization pursued by the Company will be subject to numerous conditions, approvals and other requirements, including Bankruptcy Court and District Court approvals, and there can be no assurance that such conditions, approvals and other requirements will be satisfied or obtained.

Confirmation of any plan of reorganization will depend on the Company obtaining exit financing to provide it with sufficient liquidity to fund obligations upon the plan becoming effective. If the Company’s cash flow from operations is materially less than anticipated, and/or if the costs in connection with seeking confirmation of the Joint Plan or any other plan of reorganization or in connection with the New Jersey State Court (the “State Court”) insurance coverage litigation discussed elsewhere in this Annual Report on Form 10-K are materially more than anticipated, the Company may be unable to obtain exit financing which, when combined with net cash provided from operating activities, would provide it with sufficient funds. Such a circumstance would likely result in the Company not being able to confirm the Joint Plan or have such plan become effective.

Some additional factors that could cause actual results to differ from the Company's goals for resolving its asbestos liability through an amended plan of reorganization include: (i) the future cost and timing of estimated asbestos liabilities and payments, (ii) the availability of insurance coverage and reimbursement from insurance companies that underwrote the applicable insurance policies for the Company for asbestos-related claims, (iii) the costs relating to the execution and implementation of any plan of reorganization pursued by the Company, (iv) timely agreement with other creditors, or classes of creditors, that exist or may emerge, (v) satisfaction of the conditions and obligations under the Company's outstanding debt instruments, (vi) the response from time to time of the lenders, customers, suppliers and other constituencies of the Company and ABI to the ongoing process arising from the Company's strategy to settle its asbestos liability, (vii) the Company's ability to maintain debtor-in-possession financing sufficient to provide it with funding that may be needed during the pendency of its Chapter 11 case and to obtain exit financing sufficient to provide it with funding that may be needed for its operations after emerging from the bankruptcy process, in each case, on reasonable terms, (viii) timely creditor and court approval (including the results of any relevant appeals) of any reorganization plan pursued by the Company and the court overruling any objections to the Company's reorganization plan that may be filed, (ix) costs of, developments in and the outcome of insurance coverage litigation pending in the State Court involving Congoleum and certain insurers, (x) compliance with the Bankruptcy Code, including Section 524(g), and (xi) the possible adoption of another party's plan of reorganization which may prove to be unfeasible. In any event, if the Company is not successful in obtaining sufficient creditor and court approval of its amended plan of reorganization, such failure would have a material adverse effect upon its business, results of operations and financial condition.

For further information regarding the Company’s asbestos liability, insurance coverage and strategy to resolve its asbestos liability, please see Notes 1 and 17 of Notes to the Consolidated Financial Statements, which are included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

Under the Joint Plan, if effective, holders of existing equity securities will receive nothing on account of their interests.

Under the terms of the Joint Plan, existing Class A and Class B common shares of Congoleum will be cancelled when the plan takes effect and holders of those shares will not receive anything on account of their cancelled shares.

The Company’s common stock is thinly traded, which will affect a stockholder’s ability to sell the Company’s stock or the price for which it can be sold; the Company's common stock will be cancelled if the Joint Plan is confirmed and becomes effective.

There has been and may continue to be, at least for the immediate future, a limited public market for the Company’s common stock. The Company’s Class A common stock was delisted by the American Stock Exchange ("Amex") on February 19, 2008 because it did not meet Amex listing standards for share value, share price and aggregate market capitalization. From February 19, 2008, the Company’s common stock has not been listed on any securities exchange or on an automated dealer quotation system. Accordingly, there is a limited trading market for our shares. Under the terms of the Joint Plan, if confirmed and effective, the Company's common stock will be cancelled.

The Company may incur substantial liability for environmental, product and general liability claims in addition to asbestos-related claims, and its insurance coverage and its likely recoverable insurance proceeds may be substantially less than the liability incurred by the Company for these claims.

Environmental Liabilities. Due to the nature of the Company's business and certain of the substances which are or have been used, produced or discharged by the Company, the Company's operations are subject to extensive federal, state and local laws and regulations relating to the generation, storage, disposal, handling, emission, transportation and discharge into the environment of hazardous substances. The Company has historically expended substantial amounts for compliance with existing environmental laws and regulations, including environmental remediation costs at both third-party sites and Company-owned sites. The Company will continue to be required to expend amounts in the future for costs related to prior activities at its facilities and third party sites, and for ongoing costs to comply with existing environmental laws and such amounts may be substantial. There is no certainty that these amounts will not have a material adverse effect on its business, results of operations and financial condition because, as a result of environmental requirements becoming increasingly strict, the Company is unable to determine the ultimate cost of compliance with environmental laws and enforcement policies. Moreover, in addition to potentially having to pay substantial amounts for compliance, future environmental laws and regulations may require or cause the Company to modify or curtail its operations, which could have a material adverse effect on the Company's business, results of operations and financial condition.

Product and General Liabilities. In the ordinary course of its business, the Company becomes involved in lawsuits, administrative proceedings, product liability claims (in addition to asbestos-related claims) and other matters. In some of these proceedings, plaintiffs may seek to recover large and sometimes unspecified amounts and the matters may remain unresolved for several years. These matters could have a material adverse effect on the Company's business, results of operations and financial condition if the Company is unable to successfully defend against or settle these matters, its insurance coverage is insufficient to satisfy unfavorable judgments or settlements relating to these matters, or the Company is unable to collect insurance proceeds relating to these matters.

The Company is dependent upon a continuous supply of raw materials from third party suppliers and would be harmed if there were a significant, prolonged disruption in supply or increase in its raw material costs.

The Company operates in a highly competitive flooring industry and some of its competitors have greater resources and broader distribution channels than the Company.

The market for the Company's products is highly competitive. The Company encounters competition from three other manufacturers in North America and, to a lesser extent, foreign manufacturers. Some of the Company's competitors have greater financial and other resources and access to capital than the Company. Furthermore, one of the Company's major competitors has successfully confirmed a plan of reorganization under Chapter 11 of the Bankruptcy Code. Having shed much of its pre-filing asbestos and other liabilities, that competitor may have a competitive cost advantage over the Company. In addition, in order to maintain its competitive position, the Company may need to make substantial investments in its business, including its product development, manufacturing facilities, distribution network and sales and marketing activities. Competitive pressures may also result in decreased demand for the Company's products and in the loss of the Company's market share for its products. Moreover, due to the competitive nature of the Company's industry, the Company may be commercially restricted from raising or even maintaining the sales prices of its products, which could result in the Company incurring significant operating losses if its expenses were to increase or otherwise represent an increased percentage of the Company's sales.

The Company’s business is subject to general economic conditions and conditions specific to the remodeling and housing industries.

The Company is subject to the effects of general economic conditions. A sustained general economic slowdown could have serious negative consequences for the Company's business, results of operations and financial condition. Moreover, the Company's business is cyclical and is affected by the economic factors that affect the remodeling and housing industries in general and the manufactured housing industry specifically, including the availability of credit, consumer confidence, changes in interest rates, market demand and general economic conditions. The Company has experienced a significant decline in sales as a result of weakness in the housing market and general economy. The Company may experience further sales declines resulting from continued deterioration in the housing market.

The Company could realize shipment delays, depletion of inventory and increased production costs resulting from unexpected disruptions of operations at any of the Company's facilities.

The Company's business depends upon its ability to timely manufacture and deliver products that meet the needs of its customers and the end users of the Company's products. If the Company were to realize an unexpected, significant and prolonged disruption of its operations at any of its facilities, including disruptions in its manufacturing operations, it could result in shipment delays of its products, depletion of its inventory as a result of reduced production and increased production costs as a result of taking actions in an attempt to cure the disruption or carry on its business while the disruption remains. Any resulting delay, depletion or increased production cost could result in increased costs, lower revenues and damaged customer and product end user relations, which could have a material adverse effect on the Company's business, results of operations and financial condition.

The Company offers limited warranties on its products which could result in the Company incurring significant costs as a result of warranty claims.

The Company is heavily dependent upon its distributors to sell the Company's products and the loss of a major distributor could have a material adverse effect on the Company's business, results of operations and financial condition.

The Company currently sells its products through approximately 13 distributors providing approximately 51 distribution points in the United States and Canada, as well as directly to a limited number of mass market retailers. The Company considers its distribution network very important to maintaining its competitive position. Although the Company has more than one distributor in some of its distribution territories and actively manages its credit exposure to its distributors, the loss of a major distributor could have a material adverse impact on the Company's business, results of operations and financial condition. The Company derives a significant percentage of its sales from two of its distributors, LaSalle-Bristol Corporation and Mohawk Industries, Inc. LaSalle-Bristol Corporation serves as the Company's manufactured housing market distributor, and Mohawk Industries, Inc. serves as its retail market distributor. These two distributors accounted for approximately 66% and 67% of the Company's net sales for the year ended December 31, 2007 and 2006, respectively.

Stockholder votes are controlled by ABI; Congoleum’s interests may not be the same as ABI’s interests.

ABI owns a majority (approximately 55% as of December 31, 2007) of the outstanding shares of the Company’s common stock, representing a 69.4% voting interest. As a result, ABI can elect all of the Company’s directors and can control the vote on all matters that require Shareholder or Board of Director approval. In addition, certain officers of Congoleum are officers of ABI and members of the family group that owns a controlling interest in ABI.

Item 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

Item 2. PROPERTIES

The Company owns four manufacturing facilities located in Maryland, Pennsylvania and New Jersey and leases corporate and marketing offices in Mercerville, New Jersey, which are described below:

Location	Owned/Leased	Usage	Square Feet

Finksburg, MD	Owned	Felt	107,000
Marcus Hook, PA	Owned	Sheet Flooring	1,000,000
Trenton, NJ	Owned	Sheet Flooring	1,050,000
Trenton, NJ	Owned	Tile Flooring	282,000
Mercerville, NJ	Leased	Corporate Offices	55,902

The Finksburg facility consists primarily of a 16-foot wide flooring felt production line.

The Marcus Hook facility is capable of manufacturing rotogravure printed sheet flooring in widths of up to 16 feet. Major production lines at this facility include a 12-foot wide oven, two 16-foot wide ovens, a 12-foot wide printing press and a 16-foot wide printing press.

The Trenton sheet facility is capable of manufacturing rotogravure printed and through-chip inlaid sheet products in widths up to 6 feet. Major production lines, all six-foot wide, include an oven, a rotary laminating line and a press. The examination, packing and warehousing of all sheet products (except products for the manufactured housing market) occur at the Trenton plant distribution center.

The Trenton tile facility consists of three major production lines, which are a four-foot wide commercial tile line, a two-foot wide residential tile line and a one-foot wide residential tile line.

Productive capacity and extent of utilization of the Company’s facilities are dependent on a number of factors, including the size, construction, and quantity of product being manufactured, some of which also dictate which production line(s) must be utilized to make a given product. The Company’s major production lines were operated an average of 58% of the hours available on a five-day, three-shift basis in 2007 with the corresponding figure for individual production lines ranging from 25% to 83%.

Although many of the Company’s manufacturing facilities have been substantially depreciated for financial reporting purposes, the Company has generally maintained and improved the productive capacity of these facilities over time through a program of regular capital expenditures. The Company considers its manufacturing facilities to be adequate for its present and anticipated near-term production needs.

Item 3. LEGAL PROCEEDINGS

Bankruptcy Proceedings and Asbestos-Related Liabilities: On December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy Court (Case No. 03-51524) seeking relief under Chapter 11 of the Bankruptcy Code as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago. During 2003, Congoleum had obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of a proposed, pre-packaged Chapter 11 plan of reorganization. In January 2004, the Company filed its proposed plan of reorganization and disclosure statement with the Bankruptcy Court. In November 2004, Congoleum filed the Fourth Plan with the Bankruptcy Court reflecting the result of further negotiations with representatives of the ACC, the FCR and other asbestos claimant representatives. The Bankruptcy Court approved the disclosure statement and plan voting procedures in December 2004 and Congoleum obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of the Fourth Plan. In April 2005, Congoleum announced that it had reached an agreement in principle with representatives of the ACC and the FCR to make certain modifications to its proposed plan of reorganization and related documents governing the settlement and payment of asbestos-related claims against Congoleum. Under the agreed-upon modifications, asbestos claimants with claims settled under Congoleum's pre-petition settlement agreements would agree to forbear from exercising the security interest they were granted and share on a pari passu basis with all other present and future asbestos claimants in insurance proceeds and other assets of the Plan Trust to pay asbestos claims against Congoleum. In July 2005, Congoleum filed the Sixth Plan and related documents with the Bankruptcy Court which reflected the result of these negotiations, as well as other technical modifications. The Bankruptcy Court approved the disclosure statement and voting procedures and Congoleum commenced solicitation of acceptances of the Sixth Plan in August 2005. In September 2005, Congoleum learned that certain asbestos claimants were unwilling to agree to forbear from exercising their security interest as contemplated by the Sixth Plan and the Sixth Plan was subsequently withdrawn. In November 2005, the Bankruptcy Court denied a request to extend Congoleum’s exclusive right to file a plan of reorganization and solicit acceptances thereof. In March 2006, Congoleum filed the Eighth Plan. In addition, CNA filed a plan of reorganization and the Bondholders’ Committee also filed a plan of reorganization. In May 2006, the Bankruptcy Court ordered all parties in interest in Congoleum’s reorganization proceedings to participate in global mediation discussions. Numerous mediation sessions took place from June through September 2006. During the initial mediation negotiations, Congoleum reached an agreement in principle, subject to mutually agreeable definitive documentation, with the ACC, the FCR and the Company’s controlling shareholder, ABI, on certain terms of the Ninth Plan, which Congoleum filed and proposed jointly with the ACC in August 2006. CNA and the Bondholders’ Committee jointly filed a new, competing plan in August 2006 and each withdrew its prior plan of reorganization. Following further mediated negotiations, Congoleum, the ACC, the FCR, ABI and the Bondholders’ Committee reached agreement on the terms of the Tenth Plan, which Congoleum filed jointly with the ACC in September 2006. Following the Bondholders’ Committee’s withdrawal of support for CNA’s plan, CNA filed the CNA Plan. In October 2006, Congoleum and the ACC jointly filed the Eleventh Plan, a revised version of the Tenth Plan which reflected minor technical changes agreed to by the various parties supporting Congoleum’s plan. In October 2006, the Bankruptcy Court held a hearing to consider the adequacy of the disclosure statements with respect to the Tenth Plan and the CNA Plan and to

hear arguments on respective summary judgment motions as to whether the Tenth Plan and the CNA Plan were confirmable as a matter of law. The Bankruptcy Court provisionally approved the disclosure statements for both the Tenth Plan and the CNA Plan subject to the Bankruptcy Court’s ruling on the respective summary judgment motions. In February 2007, the Bankruptcy Court issued two separate opinions ruling that the Tenth Plan and the CNA Plan were not confirmable as a matter of law. In March 2007, Congoleum resumed global plan mediation discussions with the various parties seeking to resolve the issues raised in the Bankruptcy Court’s ruling with respect to the Tenth Plan. In July 2007, the FCR filed a plan of reorganization and proposed disclosure statement. After extensive further mediation sessions, on February 5, 2008, the FCR, the ACC, the Bondholders’ Committee and Congoleum jointly filed the Joint Plan. The Bankruptcy Court approved the disclosure statement for the Joint Plan in February 2008, and a confirmation hearing is scheduled for June 26, 2008.

There can be no assurance that the Joint Plan or any other plan will receive the acceptances necessary for confirmation, that the Joint Plan will not be modified further, that the Joint Plan or any other plan will receive necessary court approvals from the Bankruptcy Court and the District Court, or that such approvals will be received in a timely fashion, that any plan will be confirmed, that any plan, if confirmed, will become effective, or that there will be sufficient funds to pay for continued litigation over any plan of reorganization. It also is unclear whether any other person might successfully propose and confirm a plan or what any such plan, when confirmed, would ultimately provide, and whether the Bankruptcy Court would approve such a plan. Any plan of reorganization pursued by the Company will be subject to numerous conditions, approvals and other requirements, including Bankruptcy Court and District Court approvals, and there can be no assurance that such conditions, approvals and other requirements will be satisfied or obtained.

Congoleum is presently involved in litigation with certain insurance carriers related to disputed insurance coverage for asbestos-related liabilities, and certain insurance carriers filed various objections to Congoleum’s previously proposed plans of reorganization and related matters and are expected to file objections to any future plan. Certain other parties have also filed various objections to Congoleum’s previously proposed plans of reorganization and may file objections to any future plan.

In anticipation of Congoleum's commencement of the Chapter 11 cases, Congoleum entered into a settlement agreement with approximately 79,000 asbestos personal injury claimants (the "Claimant Agreement"), which provides for an aggregate settlement value of at least $466 million as well as an additional number of individually negotiated trial listed settlements with an aggregate value of approximately $25 million, for total settlements in excess of $491 million. As contemplated by the Claimant Agreement, Congoleum also entered into agreements establishing a pre-petition trust (the "Collateral Trust") to distribute funds in accordance with the terms of the Claimant Agreement and granting the Collateral Trust a security interest in Congoleum’s rights under its applicable insurance coverage and payments from Congoleum’s insurers for asbestos claims. In December 2005, Congoleum commenced an Omnibus Avoidance Action and a Sealed Avoidance Action (collectively, the “Avoidance Actions”) seeking to void the security interest granted to the Collateral Trust and such settlements. In March 2006, Congoleum filed a motion for summary judgment in the Omnibus

Avoidance Action seeking to avoid the Claimant Agreement settlements and liens under various bankruptcy theories, which motion was denied in June 2006. Subsequently, Congoleum filed another summary judgment motion in the Omnibus Avoidance Action seeking a determination that any security interests conveyed in connection with the Claimant Agreement and the other pre-petition asbestos settlement agreements were ineffective and unenforceable. In July 2007, the Bankruptcy Court ruled that the security interests in insurance collateral conveyed to the settled claimants pre-bankruptcy were ineffective and unenforceable against Congoleum’s insurance policies or the proceeds of those policies because the attempts to create security interests were outside the scope of the Uniform Commercial Code; nor could such security interests be considered to be a common law pledge. The Bankruptcy Court therefore granted summary judgment in Congoleum’s favor on those counts of the Omnibus Avoidance Action which sought to void these security interests.

During the period that Congoleum produced asbestos-containing products, the Company purchased primary and excess insurance policies providing in excess of $1 billion of coverage for general and product liability claims. These policies did not contain asbestos exclusions. Through August 2002, substantially all asbestos-related claims and defense costs were paid through primary insurance coverage. In August 2002, the Company received notice that its primary insurance limits had been paid in full. The payment of limits in full by one of the primary insurance companies was based on its contention that limits in successive policies were not cumulative for asbestos claims and that Congoleum was limited to only one policy limit for multiple years of coverage. Certain excess insurance carriers claimed that the non-cumulation provisions of the primary policies were not binding on them and that there remained an additional $13 million in primary insurance limits plus related defense costs before their policies were implicated. There is insurance coverage litigation currently pending in the New Jersey State Court between Congoleum and its excess insurance carriers, and the guaranty funds and associations for the State of New Jersey. The litigation was initiated in September 2001, by one of Congoleum’s excess insurers (the “Coverage Action”). In April 2003, the New Jersey Supreme Court ruled in another case involving the same non-cumulation provisions as in the Congoleum primary policies (the "Spaulding Case") that the non-cumulation provisions are invalid under New Jersey law and that the primary policies provide coverage for the full amount of their annual limits for all successive policies. Congoleum has reached a settlement agreement (the “Liberty Settlement”) with the insurance carrier whose policies contained the non-cumulation provisions, pursuant to which the insurance carrier will pay Congoleum $15.4 million in full satisfaction of the applicable policy limits, of which $14.5 million has been paid to date. Pursuant to the terms of the Security Agreement, the Company is obligated to pay any insurance proceeds it receives under the Liberty Settlement, net of any fees and expenses it may be entitled to deduct, to the Collateral Trust or Plan Trust. Payment of such fees and expenses are subject to Bankruptcy Court order or approval. As of December 31, 2002, the Company had already entered into settlement agreements with asbestos claimants exceeding the amount of this previously disputed primary coverage. Based on these settlements, the Company contended that, even allowing for annual limits of all primary policies, primary coverage was exhausted and the excess policies triggered. The excess carriers have objected to the reasonableness of several of these settlements, and Congoleum believes that they will continue to dispute the reasonableness of the settlements and contend that their policies still are not implicated and will dispute their coverage for that and other various reasons in ongoing coverage litigation.

The excess insurance carriers have objected to the global settlement of the asbestos claims currently pending against Congoleum as contemplated by the Claimant Agreement on the grounds that, among other things, the negotiations leading to the settlement and the Claimant Agreement violate provisions in their insurance policies, including but not limited to the carriers' right to associate in the defense of the asbestos cases, the duty of Congoleum to cooperate with the carriers and the right of the carriers to consent to any settlement. The excess insurance carriers also contend the settlement terms in the Claimant Agreement are not fair or reasonable and/or that the Claimant Agreement was not negotiated at arm’s length or in good faith. Additionally, certain insurers have argued that Congoleum’s entering into the Claimant Agreement voids the insurance for the underlying claims in their entirety. Certain insurers also have claimed that the Claimant Agreement voids their entire policy obligations. Congoleum has disputed the allegations and contentions of the excess insurance carriers. In November 2003, the State Court denied a motion for summary judgment by the excess insurance carriers that the Claimant Agreement was not fair, reasonable or in good faith, ruling that material facts concerning these issues were in dispute. In April 2004, the State Court denied motions for summary judgment by the excess carriers that the Claimant Agreement was not binding on them because Congoleum had breached the consent and cooperation clauses of their insurance policies by, among other things, entering into the Claimant Agreement without their consent. Congoleum has argued, among other things, that it was entitled to enter into the Claimant Agreement and/or the Claimant Agreement was binding on the excess insurance carriers because they were in breach of their policies and/or had denied coverage and/or had created a conflict with Congoleum by reserving rights to deny coverage and / or the Claimant Agreement was fair, reasonable and in good faith and/or there was and is no prejudice to the excess insurance carriers from the Claimant Agreement and/or the excess insurance carriers had breached their duties of good faith and fair dealing.

In March 2004, the Bankruptcy Court approved the retention of Gilbert, Heintz & Randolph LLP (“GHR”) as special insurance counsel to the Company. An insurance company appealed the retention order.

In August 2004, the State Court entered a case management order that divided the trial into three phases. A new judge was assigned to the case in February 2005 and the schedule was modified as a result.

In February 2005, the State Court ruled on a series of summary judgment motions filed by various insurers. The State Court denied a motion for summary judgment filed by certain insurers, holding that there were disputed issues of fact regarding whether the Claimant Agreement and other settlement agreements between Congoleum and the claimants had released Congoleum and the insurers from any liability for the asbestos bodily injury claims of the claimants who signed the Claimant Agreement and the other settlement agreements.

The State Court also denied another motion for summary judgment filed by various insurers who argued that they did not have to cover the liability arising from the Claimant Agreement because they had not consented to it.

The State Court granted summary judgment regarding Congoleum’s bad faith claims against excess insurers (other than first-layer excess insurers), holding that the refusal of these excess insurers to cover the Claimant Agreement was at least fairly debatable and therefore not in bad faith.

In March 2005, the Company filed a motion in the Bankruptcy Court asking the Bankruptcy Court to vacate its prior order lifting the automatic stay in bankruptcy to permit the Coverage Action to proceed. The Company requested that the Coverage Action proceedings be stayed until the Company has completed its plan confirmation process in the Bankruptcy Court. A hearing on the Company’s motion was held in April 2005 and the motion was denied.

The first phase of the Coverage Action began in August 2005. Phase 1 was limited to deciding whether the insurers are obligated to provide coverage under the policies at issue in this litigation for the asbestos claims settled under the terms of the global Claimant Agreement. Three months into the trial, in October 2005, a federal appeals court ruled that GHR, which had been acting as the Company’s insurance co-counsel in the Coverage Action, had other representations which were in conflict with its representation of Congoleum. As a result of this ruling, with Bankruptcy Court approval, Congoleum retained the firm of Covington & Burling to represent it as co-counsel with Dughi & Hewit in the insurance coverage litigation and insurance settlement matters previously handled by GHR.

In the middle of Congoleum presenting its case, in or about mid-November 2005 and early December 2005, certain insurers filed motions for summary judgment on the grounds, inter alia, that the federal appeals court decision regarding GHR, and/or Congoleum’s filing of the Avoidance Actions in the Bankruptcy Court, entitled them to judgment as a matter of law on the Phase 1 issues. Congoleum opposed the motions. The motions were argued in January 2006, and in March 2006 the State Court denied the motions for summary judgment.

Congoleum completed the presentation of its case in April 2006. Certain insurers moved for a directed verdict in their favor during the first week of May 2006. Hearings of arguments on the directed verdict motion took place in June 2006. In July 2006 the State Court denied the motion for a directed verdict. The trial resumed in September 2006. Defendant insurers presented their case, for the most part, through documents and deposition designations. Post-trial briefs were submitted by the parties in November 2006.

In May 2007, the State Court issued a decision ruling that Congoleum’s insurers have no coverage obligations under New Jersey law for the Claimant Agreement. In that ruling, the State Court judge also cited trial testimony in his opinion that the releases (given by claimants who signed the Claimant Agreement) were non-recourse to Congoleum whether or not any claimant recovered insurance proceeds. Based in part upon that finding, Congoleum filed an objection (the “Omnibus Objection”) in the Bankruptcy Court in June 2007 requesting that all asbestos-related personal injury claims settled and / or liquidated (the "Settled Claims") pursuant to either a pre-petition settlement agreement or the Claimant Agreement be disallowed and expunged. The Omnibus Objection also requested in the event the Bankruptcy Court found that the holders of Settled Claims retained viable tort claims with recourse against Congoleum, that the Bankruptcy Court rescind the pre-petition settlement agreements and the Claimant Agreement and the claims settled thereunder be disallowed and expunged because, since the filing of Congoleum’s bankruptcy case, supervening events have resulted in a substantial frustration of the purpose of those agreements. The Bankruptcy Court heard arguments on the Omnibus Objection in July 2007 and ruled that the Omnibus Objection should be heard in the context of an adversary proceeding (a formal lawsuit) in order to insure that the Bankruptcy Court has jurisdiction over all the affected claimants and that their due process rights are otherwise protected. The Company amended the Omnibus Avoidance Action to seek the same relief requested in the Omnibus Objection.

In September 2007, Congoleum filed the Third Amended Complaint in the Omnibus Adversary Proceeding adding new counts that encompass the subject matter and relief requested in the Omnibus Objection. The Third Amended Complaint remains pending. In October 2007, Congoleum filed a motion for summary judgment in the Omnibus Adversary Proceeding seeking a ruling that all of the pre-petition settlement agreements, including the Claimant Agreement, were null and void or should be rescinded. Argument on the summary judgment motion was heard in November 2007 and by opinion dated December 28, 2007, the Bankruptcy Court denied the motion for summary judgment. Congoleum and the Bondholders' Committee have filed notice of appeal from this decision to the District Court.

The second phase of the Coverage Action trial will address all coverage issues, including but not limited to whether certain other trial listed settlements were fair, reasonable and negotiated in good faith and covered by insurance as well as trigger and allocation of asbestos losses to insurance policies. In February 2008, the State Court expanded the scope of Phase 2 of the Coverage Action to include obligations of insurers with respect to the settlement agreement in the Joint Plan with respect to the Avoidance Actions. The State Court has entered a new case management order scheduling further discovery. Congoleum sought to stay Phase 2 of the Coverage Action because of the pendency of the solicitation and balloting and scheduled confirmation hearing on the Joint Plan, but the Bankruptcy Court denied the stay motion, which decision is being appealed to the District Court.

The third and final phase of the Coverage Action will address bad faith punitive damages, if appropriate.

As a result of the Federal appeals court decision on GHR's retention, in February 2006, the Bankruptcy Court ordered GHR to disgorge all fees and certain expenses it was paid by Congoleum. The amount of the disgorgement is approximately $9.6 million. In October 2006, Congoleum and GHR entered into a settlement agreement (the “GHR Settlement”) under which GHR is to pay Congoleum approximately $9.2 million plus accruing interest in full satisfaction of the disgorgement order. The payment is secured by assets of GHR and is to be made over time according to a formula based on GHR’s earnings. The Bankruptcy Court approved the GHR Settlement in April 2007. Payments received pursuant to the GHR Settlement in 2007 were not significant. By correspondence dated March 27, 2008, GHR notified Congoleum of its intention to pay all sums outstanding under the GHR Settlement in full. GHR requested a payoff amount for an April 1, 2008 payment date.

During 2005 and 2006, Congoleum entered into a number of settlement agreements with excess insurance carriers over coverage for asbestos-related claims.

In May 2005, certain AIG companies agreed to pay approximately $103 million over ten years to the Plan Trust. This settlement resolves coverage obligations of policies with a total of $114 million in liability limits for asbestos bodily injury claims. Payment is subject to various conditions, including without limitation, the effectiveness of a plan of reorganization that provides AIG with certain specified relief including a channeling injunction pursuant to Section 524(g) of the Bankruptcy Code. An insurer appealed the approval order granted by the Bankruptcy Court to the District Court. The District Court, however, entered an order in September 2006 that administratively terminated the appeal. The AIG settlement provided that any party may declare that the settlement agreement is null and void if the Confirmation Order failed to become a final order by May 12, 2007. In June 2007, Congoleum and AIG executed a letter agreement providing that the parties would provide 45 days’ advance notice of their intent to terminate the AIG settlement. To date, neither party has given notice of an intent to terminate the agreement. At this time, it is not known whether AIG will seek to terminate the settlement agreement.

In June 2005, the Company entered into a settlement agreement with certain underwriters at Lloyd’s, London, pursuant to which the certain underwriters paid approximately $20 million into an escrow account in exchange for a release of insurance coverage obligations. The escrow agent will transfer certain of the funds to the Plan Trust once a plan of reorganization with the Section 524(g) protection specified in the settlement agreement goes effective and the Bankruptcy Court approves the transfer of the funds. The settlement provided that any party may declare that the settlement would be null and void if the confirmation order failed to become a final order by June 22, 2007. In November 2007, Congoleum filed a motion to amend the settlement agreement to, among other things, remove the termination provision in exchange for revised terms relating to disposition of interest and earnings that have accrued and will continue to accrue on the settlement amount being held in an escrow account. In December 2007, the Bankruptcy Court entered an order approving the amendment and no party has appealed from that decision.

In August 2005, the Company entered into a settlement agreement with Federal Insurance Company (“Federal”) pursuant to which Federal will pay $4 million to the Plan Trust, subject to certain adjustments, once a plan of reorganization with the Section 524(g) protection specified in the settlement agreement goes effective and the Bankruptcy Court approves the transfer of the funds. The FCR appealed the approval order granted by the Bankruptcy Court to the District Court. The FCR, Federal and the Company reached an agreement to resolve the appeal pursuant to which the Federal settlement agreement was amended to fix the settlement amount payable by Federal at $2.1 million and to delete from the settlement agreement the adjustment mechanism, which operated under certain circumstances to reduce the settlement amount, and the Bankruptcy Court approved this amendment.

In October 2005, Congoleum entered into a settlement agreement with Mt. McKinley Insurance Company (“Mt. McKinley”) and Everest Reinsurance Company (“Everest”) pursuant to which Mt. McKinley and Everest paid $21.5 million into an escrow account, which funds were to be transferred to the Plan Trust once a plan of reorganization with the Section 524(g) protection specified in the settlement agreement goes effective and the Bankruptcy Court approves the transfer of the funds. An insurer and the FCR appealed the approval order granted by the Bankruptcy Court to the District Court, but the appeal was administratively terminated by agreement. The Mt. McKinley settlement agreement contains a provision that any party may declare the agreement to be null and void if the confirmation order and approval order do not become final orders within two years of the execution date of the Mt. McKinley settlement agreement. In January 2008, Congoleum and Mt. McKinley and Everest entered in to an amended settlement agreement which, among other things, maintained the settlement amount, removed the temporal condition to termination of the agreement, caused the escrow agent to pay Mt. McKinley and Everest all interest and other income earned in the escrow account, net of all applicable fees, taxes and expenses and restructured the settlement as a sale and buyback of the insurance policies not subject to confirmation of any Section 524(g) plan of reorganization. The Bankruptcy Court approved the amended settlement agreement in February 2008.

In March 2006, Congoleum entered into a settlement agreement with Harper Insurance Limited (“Harper”). Under the terms of this settlement, Harper will pay approximately $1.4 million to Congoleum or the Plan Trust once certain conditions are satisfied, including the effectiveness of a plan of reorganization containing the Section 524(g) protection specified in the settlement agreement. The Bankruptcy Court approved this settlement in April 2006.

In April 2006, Congoleum entered into a settlement agreement with Travelers Casualty and Surety Company and St. Paul Fire and Marine Insurance Company (collectively, “Travelers”). Under the terms of this settlement, Travelers will pay $25 million in two installments over thirteen months to the Plan Trust once a plan of reorganization with the Section 524(g) protection specified in the settlement agreement goes effective and the Bankruptcy Court approves the transfer of the funds. The FCR sought, and was granted, limited discovery with respect to the Travelers settlement to which the FCR has objected. A hearing to consider approval of the Travelers settlement was held in April 2007, and in May 2007, the Bankruptcy Court issued a decision denying approval of the Travelers settlement, and Congoleum and Travelers appealed that decision to the District Court. Travelers has taken the position that the filing of the Joint Plan in February 2008 constitutes the failure of a condition precedent to the

effectiveness of the settlement agreement. By letter agreement dated March 18, 2008, Travelers, ABI and Congoleum extended the time for Travelers to exercise its right to waive the putative failure of the contingency allegedly caused by the filing of the Joint Plan to April 29, 2008. On March 25, 2008, the District Court issued a decision remanding the case to the Bankruptcy Court for further consideration of the Travelers Settlement.

In April 2006, Congoleum entered into a settlement agreement with Fireman’s Fund Insurance Company (“Fireman’s Fund”). Under the terms of this settlement, Fireman’s Fund will pay $1 million to the Plan Trust once a plan of reorganization with the Section 524(g) protection specified in the settlement agreement becomes effective and the Bankruptcy Court approves the transfer of the funds. The settlement was approved by the Bankruptcy Court in September 2006.

In August 2006, Congoleum entered into a settlement agreement with Century Indemnity Company and its affiliates (“Century”). Under the terms of this settlement, Century will pay $16.95 million to the Plan Trust in four installments over a three-year period commencing 60 days after all conditions to the agreement have been satisfied. The Bankruptcy Court approved this settlement in September 2006. Certain insurance companies initially appealed the Bankruptcy Court approval order to the District Court. Upon the entry of stipulations with the appellants, the appeal was dismissed.

In February 2008, Congoleum entered into a settlement agreement with Protective National Insurance, which insurer is presently in liquidation. Under the terms of this settlement, Congoleum will receive an allowed claim in the amount of $3 million to be paid over time at the payment percentage in such liquidation proceedings. The settlement was approved by the Bankruptcy Court.

It is possible that one or more of the settling insurers may argue temporal, Plan-related, and other conditions to payment have not been satisfied and therefore such insurer is relieved of certain of its settlement obligations. If the Company is unable to confirm a plan of reorganization with Section 524(g) protection, certain settlements described above may be subject to termination.

There were no asbestos related property damage claims asserted against the Company at the time of its bankruptcy filing. The Bankruptcy Court approved an order establishing a bar date of May 3, 2004 for the filing of asbestos property damage claims. The claims agent appointed in the Company’s bankruptcy proceeding advised the Company that, as of the bar date, it received 35 timely filed asbestos property damage claims asserting liquidated damages in the amount of approximately $0.8 million plus additional unspecified amounts. The Company objected to certain claims on various grounds, and the Bankruptcy Court ultimately allowed 19 claims valued at $133 thousand. It is anticipated that any plan of reorganization will provide for payment of those claims in full from certain insurance proceeds.

Based on the Joint Plan, Congoleum has made provision in its financial statements for the minimum estimated cost to effect its plan to settle asbestos liabilities through confirmation of a plan that complies with section 524(g) of the Bankruptcy Code. Congoleum recorded charges aggregating approximately $51.3 million in prior years. Based on the terms of the Joint Plan, in the fourth quarter of 2007 Congoleum recorded an additional $41.3 million charge. Of this charge, $14.9 million related to the write-off of certain insurance litigation costs receivable that will not be collected under the terms of the Joint Plan and $26.4 million was an additional provision for estimated costs for the reorganization proceedings and coverage litigation. In the fourth quarter of 2007 Congoleum also recorded a $41.0 million interest expense credit to reverse post-petition interest accrued on its Senior Notes. Terms of previous reorganization plans had provided, among other things, for the payment of post-petition interest on the Senior Notes and therefore Congoleum had continued to accrue such interest. Under the terms of the Joint Plan, the Senior Noteholders will not receive any post-petition interest.

Costs for pursuing and implementing the Joint Plan or any plan of reorganization could be materially higher than currently recorded or previously estimated. Delays in proposing, filing or obtaining approval of the Joint Plan, or the proposal or solicitation of additional plans by other parties could result in a proceeding that takes longer and is more costly than the Company has previously estimated. The Company may experience and therefore record significant additional charges in connection with its reorganization proceedings.

Environmental Liabilities: The Company is named, together with a large number (in most cases, hundreds) of other companies, as a potentially responsible party ("PRP") in pending proceedings under the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), and similar state laws. In addition, in four other instances, although not named as a PRP, the Company has received a request for information. The pending proceedings relate to eight disposal sites in New Jersey, Pennsylvania, and Maryland in which recovery from generators of hazardous substances is sought for the cost of cleaning up the contaminated waste sites. The Company’s ultimate liability and funding obligations in connection with those sites depends on many factors, including the volume of material contributed to the site, the number of other PRPs and their financial viability, the remediation methods and technology to be used and the extent to which costs may be recoverable from insurance. However, under CERCLA and certain other laws, the Company, as a PRP, can be held jointly and severally liable for all environmental costs associated with a site.

remedy is more than $10 million, the PRPs may decline to perform it or they may elect to perform anyway. Cost estimates for the OU-1 and OU-2 work combined (including natural resource damages) range between $22 million and $34 million, with the Company’s share ranging between approximately $1.0 million and $1.6 million. This assumes that all parties participate and that none cash-out and pay a premium; those two factors may account for some fluctuation in the Company’s share. Fifty percent (50%) of Congoleum’s share of the costs is presently being paid by one of its insurance carriers, Liberty Mutual Insurance Company, whose remaining policy limits for this claim are expected to cover approximately $0.3 million in additional costs. Congoleum expects to fund the balance to the extent further insurance coverage is not available.

The Company filed a motion before the Bankruptcy Court seeking authorization and approval of the Consent Decree and related settlement agreements for the Galaxy/Spectron Superfund Site, as well as authorization for Liberty Mutual Insurance Company and the Company to make certain payments that have been invoiced to the Company with respect to the Consent Decree and related settlement agreements. An order authorizing and approving the Consent Decree and related settlement agreements was issued by the Bankruptcy Court in August 2006.

The Company also accrues remediation costs for certain of the Company’s owned facilities on an undiscounted basis. The Company has entered into an administrative consent order with the New Jersey Department of Environmental Protection and has established a remediation trust fund of $100 thousand as financial assurance for certain remediation funding obligations. Estimated total cleanup costs of $1.3 million, including capital outlays and future maintenance costs for soil and groundwater remediation, are primarily based on engineering studies. Of this amount, $0.3 million is included in current liabilities subject to compromise and $1.0 million is included in non-current liabilities subject to compromise.

The Company anticipates that these matters will be resolved over a period of years and that after application of expected insurance recoveries, funding the costs will not have a material adverse impact on the Company’s liquidity or financial position. However, unfavorable developments in these matters could result in significant expenses or judgments that could have a material adverse effect on the financial position of the Company.

Other: In the ordinary course of its business, the Company becomes involved in lawsuits, administrative proceedings, product liability claims (in addition to asbestos-related claims), and other matters. In some of these proceedings, plaintiffs may seek to recover large and sometimes unspecified amounts and the matters may remain unresolved for several years.

The total balances of environmental, asbestos-related, and other liabilities and the related insurance receivable and deemed probable of recovery at December 31, 2007 and December 31, 2006 are as follows:

	2007				2006
(in millions)	Liability		Receivable		Liability		Receivable

Environmental liabilities	$	4.4	$	2.1	$	4.4	$	2.2
Asbestos product liability(1)		31.2		10.5		13.9		21.8
Other		0.9		0.1		1.0		0.2
Total	$	36.5	$	12.7	$	19.3	$	24.2

(1)

Asbestos product liability at December 31, 2007 and 2006 reflects the accrued cost to settle asbestos liabilities through a plan of reorganization under Chapter 11. This liability at December 31, 2006 and 2007 includes $6.1 million and $6.5 million, respectively, received in connection with an insurance settlement (recorded as restricted cash), which the Company is required to contribute to a trust. Stated liability pursuant to settlement agreements is in excess of $491 million. See Note 17 of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

Item 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Under the terms of the Joint Plan, if confirmed and effective, Congoleum’s existing equity securities will be cancelled and holders of equity securities and options to acquire equity securities will receive nothing for their cancelled shares or options.

The Company’s Class A common stock is not listed on any securities exchange or on an automated dealer quotation system. During 2007 and 2006, the stock was listed on the Amex under the symbol CGM. The Company’s Class A common stock was delisted by the Amex on February 19, 2008 because it did not meet Amex listing standards for share value, share price, and aggregate market capitalization.

The following table reflects the high and low prices of the Company’s Class A Common Stock (rounded to the nearest one-hundredth) based on American Stock Exchange trading over the past two years.

Sales Prices of Class A Common Stock:

2007	High		Low
First Quarter	$	1.78	$	1.47
Second Quarter		1.63		0.90
Third Quarter		1.07		0.40
Fourth Quarter		0.66		0.35

Sales Prices of Class A Common Stock:

2006	High		Low
First Quarter	$	3.08	$	1.47
Second Quarter		2.36		1.94
Third Quarter		2.25		1.87
Fourth Quarter		2.24		1.49

The Company’s Class B common stock is not listed on any exchange. Holders of Class A common stock are entitled to one vote per share on all matters submitted to a vote of stockholders and holders of Class B common stock are entitled to two votes per share on all matters other than certain extraordinary matters. Each share of Class B common stock is convertible into one share of Class A common stock under certain circumstances, including a sale or other transfer by the holders of such shares to a person or entity other than an affiliate of the transferor. Both classes vote together as a single class on all matters with limited exceptions. Except with respect to voting rights and conversion rights, the Class A common stock and the Class B common stock are identical.

The Company has not paid any cash dividends in 2007 or 2006 and does not anticipate paying any cash dividends prior to confirmation of a plan of reorganization or in the foreseeable future thereafter. The Company’s current debtor-in-possession credit facility prohibits payment of cash dividends. Any change in the Company's dividend policy after confirmation of a plan of reorganization will be within the discretion of the Board of Directors, subject to restrictions contained in the Company's plan of reorganization and debt or other agreements, and will depend, among other things, on the Company's solvency, earnings, debt service and capital requirements, restrictions in financing agreements, business conditions and other factors that the Board of Directors deems relevant.

The number of registered and beneficial holders of the Company’s Class A common stock on March 10, 2008 was approximately 1,000. The number of registered and beneficial holders of the Company’s Class B common stock on March 10, 2008 was two.

Item 6. SELECTED FINANCIAL DATA

Not applicable.

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in Item 8 of this Annual Report on Form 10-K.

Results of Operations

The Company’s business is cyclical and is affected by the same economic factors that affect the remodeling and housing industries in general, including the availability of credit, consumer confidence, changes in interest rates, market demand and general economic conditions.

In addition to external economic factors, the Company’s results are sensitive to sales and manufacturing volume, competitors’ pricing, consumer preferences for flooring products, raw material costs and the mix of products sold. The manufacturing process is capital intensive and requires substantial investment in facilities and equipment. The cost of operating these facilities generally does not vary in direct proportion to production volume and, consequently, operating results fluctuate disproportionately with changes in sales volume.

On December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy Court (Case No. 03-51524) seeking relief under Chapter 11 of the Bankruptcy Code as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago. During 2003, Congoleum had obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of a proposed, pre-packaged Chapter 11 plan of reorganization. In January 2004, the Company filed its proposed plan of reorganization and disclosure statement with the Bankruptcy Court. In November 2004, Congoleum filed the Fourth Plan with the Bankruptcy Court reflecting the result of further negotiations with representatives of the ACC, the FCR and other asbestos claimant representatives. The Bankruptcy Court approved the disclosure statement and plan voting procedures in December 2004 and Congoleum obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of the Fourth Plan. In April 2005, Congoleum announced that it had reached an agreement in principle with representatives of the ACC and the FCR to make certain modifications to its proposed plan of reorganization and related documents governing the settlement and payment of asbestos-related claims against Congoleum. Under the agreed-upon modifications, asbestos claimants with claims settled under Congoleum's pre-petition settlement agreements would agree to forbear from exercising the security interest they were granted and share on a pari passu basis with all other present and future asbestos claimants in insurance proceeds and other assets of the Plan Trust to pay asbestos claims against Congoleum. In July 2005, Congoleum filed the Sixth Plan and related documents with the Bankruptcy Court which reflected the result of these negotiations, as well as other technical modifications. The Bankruptcy Court approved the disclosure statement and voting procedures and Congoleum commenced solicitation of acceptances of the Sixth Plan in August 2005. In September 2005, Congoleum learned that certain asbestos claimants were unwilling to agree to forbear from exercising their security interest as contemplated by the Sixth Plan and the Sixth Plan was subsequently withdrawn. In November 2005, the Bankruptcy Court denied a request to extend Congoleum’s exclusive right to file a plan of reorganization and solicit acceptances thereof. In March 2006, Congoleum filed the Eighth Plan. In addition, CNA filed a plan of reorganization and the Bondholders’ Committee also filed a plan of reorganization. In May 2006, the Bankruptcy Court ordered all parties in interest in Congoleum’s reorganization proceedings to participate in global mediation discussions. Numerous mediation sessions took place from June through September 2006. During the initial mediation negotiations, Congoleum reached an agreement in principle, subject to mutually agreeable definitive documentation, with the ACC, the FCR and the Company’s controlling shareholder, ABI, on certain terms of the Ninth Plan, which Congoleum filed and proposed jointly with the ACC in August 2006. CNA and the Bondholders’ Committee jointly filed a new, competing plan in August 2006 and each withdrew its prior plan of reorganization. Following further mediated negotiations, Congoleum, the ACC, the FCR, ABI and the Bondholders’ Committee reached agreement on the terms of the Tenth Plan, which Congoleum filed jointly with the ACC in September 2006. Following the Bondholders’ Committee’s

withdrawal of support for CNA’s plan, CNA filed the CNA Plan. In October 2006, Congoleum and the ACC jointly filed the Eleventh Plan, a revised version of the Tenth Plan which reflected minor technical changes agreed to by the various parties supporting Congoleum’s plan. In October 2006, the Bankruptcy Court held a hearing to consider the adequacy of the disclosure statements with respect to the Tenth Plan and the CNA Plan and to hear arguments on respective summary judgment motions as to whether the Tenth Plan and the CNA Plan were confirmable as a matter of law. The Bankruptcy Court provisionally approved the disclosure statements for both the Tenth Plan and the CNA Plan subject to the Bankruptcy Court’s ruling on the respective summary judgment motions. In February 2007, the Bankruptcy Court issued two separate opinions ruling that the Tenth Plan and the CNA Plan were not confirmable as a matter of law. In March 2007, Congoleum resumed global plan mediation discussions with the various parties seeking to resolve the issues raised in the Bankruptcy Court’s ruling with respect to the Tenth Plan. In July 2007, the FCR filed a plan of reorganization and proposed disclosure statement. After extensive further mediation sessions, on February 5, 2008 the FCR, the ACC, the Bondholders’ Committee and Congoleum jointly filed the Joint Plan. The Bankruptcy Court approved the disclosure statement for the Joint Plan in February 2008, and a confirmation hearing is scheduled for June 26, 2008.

There can be no assurance that the Joint Plan or any other plan will receive the acceptances necessary for confirmation, that the Joint Plan will not be modified further, that the Joint Plan or any other plan will receive necessary court approvals from the Bankruptcy Court and the District Court, or that such approvals will be received in a timely fashion, that any plan will be confirmed, that any plan, if confirmed, will become effective, or that there will be sufficient funds to pay for continued litigation over any plan of reorganization. It also is unclear whether any other person might successfully propose and confirm a plan or what any such plan, when confirmed, would ultimately provide, and whether the Bankruptcy Court would approve such a plan. Any plan of reorganization pursued by the Company will be subject to numerous conditions, approvals and other requirements, including Bankruptcy Court and District Court approvals, and there can be no assurance that such conditions, approvals and other requirements will be satisfied or obtained.

Congoleum is presently involved in litigation with certain insurance carriers related to disputed insurance coverage for asbestos related liabilities, and certain insurance carriers filed various objections to Congoleum’s previously proposed plans of reorganization and related matters and are expected to file objections to any future plan. Certain other parties have also filed various objections to Congoleum’s previously proposed plans of reorganization and may file objections to any future plan.

asbestos claims. In December 2005, Congoleum commenced the Avoidance Actions seeking to void the security interest granted to the Collateral Trust and such pre-petition settlements. Following summary judgment hearings, the Bankruptcy Court has rendered decisions that the grant of the security interest was not valid but denying motions to avoid the settlements; certain of these decisions are under appeal. The terms of the Joint Plan provide for a settlement of litigation related to the Avoidance Actions. However, at this time, it is not possible to estimate how that settlement may affect the nominal liability. In addition, as a result of tabulating ballots on the Fourth Plan, the Company is also aware of claims by claimants whose claims were not determined under the Claimant Agreement but who have submitted claims with a value of approximately $512 million based on the settlement values applicable in the Sixth Plan. It is also likely that additional new claims will be asserted in connection with solicitation of acceptances of the Joint Plan. Congoleum does not believe it can reasonably estimate the liability associated with claims that may be pending.

For more information regarding the Company’s asbestos liability and plan for resolving that liability, please refer to Notes 1 and 17 of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. In addition, please refer to “Risk Factors – The Company has significant asbestos liability and funding exposure," contained in Item 1A of this Annual Report on Form 10-K for a discussion of certain factors that could cause actual results to differ from the Company’s goals for resolving its asbestos liability through a plan of reorganization. Readers should also refer to the Disclosure Statement with respect to the Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code of the Futures Representative, the Debtors, the Official Asbestos Claimants’ Committee and the Official Committee of Bondholders for Congoleum Corporation, et al., dated as of February 5, 2008, a copy of which has been filed as an exhibit to this Annual Report on Form 10-K.

Year ended December 31, 2007 as compared to year ended December 31, 2006

	2007					2006
	(In thousands of dollars)

Net sales	$	204,262				$	219,474
Cost of sales		153,809					169,023
Gross profit		50,453		24.7	%		50,451		23.0	%

Selling, general & administrative expenses		37,469		18.3	%		39,906		18.2	%
Asbestos-related reorganization charges		41,315					—
Operating (loss) income		(28,331	)				10,545
Bond interest (reversal) expense		29,603					(10,612	)
Interest income (expense), net		197					(260	)
Other (expense) income, net		(447	)				162
Income (loss) before taxes		1,022					(165	)
Provision for (benefit from) income taxes		1,713					(844	)

Net (loss) income	$	(691	)			$	679

Net sales for the year ended December 31, 2007 totaled $204.3 million as compared to $219.5 million for the year ended December 31, 2006, a decrease of $15.2 million or 6.9%. The decrease in sales was primarily attributable to declines in new home construction, softness in the remodeling market and lower production of homes in the manufactured housing segment. The impact of these sales decreases was partially mitigated by continued sales growth in the Duraproduct category and the impact of price increases instituted in mid-2007.

Gross profit for the year ended December 31, 2007 totaled $50.5 million, or 24.7% of net sales, compared to $50.5 million or 23.0% of net sales for the year ended December 31, 2006. Gross profit for the year was essentially the same year over year, as raw material costs and the unfavorable impact of unabsorbed manufacturing overhead due to lower volumes were offset by price increases and manufacturing cost reduction programs.

Selling, general and administrative expenses were $37.5 million for the year ended December 31, 2007 as compared to $39.9 million for the year ended December 31, 2006, a decrease of $2.4 million. The decrease in selling, general and administrative expenses reflects cost reduction programs, including headcount reductions, instituted in early 2007. As a percent of net sales, selling, general and administrative expenses were 18.3% and 18.2% for the years ended December 31, 2007 and 2006, respectively. In August 2006, an explosion caused extensive damage to components of a major production line at Congoleum's Marcus Hook facility. By implementing a seven-day operation on its other production line and purchasing base material from a competitor, Congoleum was able to meet substantially all production requirements. Congoleum’s insurance carrier paid substantially all excess costs (beyond a deductible) for replacing the damaged equipment and expenses to replace production capacity. Fabrication and installation of replacement equipment was completed by December 31, 2006. The line was operational by January 2007. The

cost to replace equipment and excess expenses incurred to meet production requirements totaled $10.1 million which was reimbursed to Congoleum by the insurer. Congoleum recognized a $1.3 million gain to recognize the difference between insurance proceeds for the replacement of fixed assets and their respective book value, which was included in selling, general and administrative expenses.

Based on the terms of the Joint Plan, in the fourth quarter of 2007 Congoleum recorded an additional $41.3 million charge. Of this charge, $14.9 million related to the write-off of certain insurance litigation costs receivable that will not be collected under the terms of the Joint Plan and $26.4 million was an additional provision for estimated costs for the reorganization proceedings and coverage litigation. In the fourth quarter of 2007 Congoleum also recorded a $41.0 million interest expense credit to reverse post-petition interest accrued on its Senior Notes.

Income from operations, excluding the one-time charge above, was $13.0 million for the year ended December 31, 2007 compared to $10.5 million for the year ended December 31, 2006, an increase of $2.4 million. This increase in operating income primarily reflects the reduction in operating expenses. Operating income for the year ended December 31, 2006 included a $1.3 million gain, included in selling, general and administrative expenses, on the replacement of a damaged production line that was covered by insurance.

Interest income was $1.2 million and $0.5 million in 2007 and 2006, respectively, with the increase of $0.7 million versus the prior year reflecting interest earned on federal income tax refunds and higher cash balances. Interest expense, excluding interest on the Senior Notes, for 2007, was $1.0 million as compared to interest expense of $0.8 million for 2006. Bond interest reversal on the Senior Notes in 2007 was $29.6 million as compared to interest expense on the Senior Notes in 2006 of $10.6 million.

Provision for income taxes was $1.7 million in 2007 and a benefit of $0.8 million in 2006, reflecting an increase in non-deductible expenses for tax purposes for 2007.

Liquidity and Capital Resources

The Consolidated Financial Statements of the Company have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. As described more fully in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K, there is substantial doubt about the Company's ability to continue as a going concern unless it obtains relief from its substantial asbestos liabilities through a successful reorganization under Chapter 11 of the Bankruptcy Code.

On December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy Court (Case No. 03-51524) seeking relief under the Bankruptcy Code. See Notes 1 and 17 of the Notes to the Consolidated Financial Statements, which are contained in Item 8 of this Annual Report on Form 10-K, for a discussion of the Company’s bankruptcy proceedings. These matters continue to have a material adverse impact on liquidity and capital resources. During 2007, the Company paid $13.1 million in fees and expenses related to reorganization proceedings under Chapter 11 and litigation with certain insurance companies. The Company expects to spend an additional $24.7 million in 2008 on these matters. At December 31, 2007 the Company had incurred but not paid approximately $9 million in additional fees and expenses for services rendered through that date.

In February 2006, the Bankruptcy Court ordered GHR to disgorge all fees and certain expenses it was paid by Congoleum. The amount of the disgorgement is approximately $9.6 million. In October 2006, Congoleum and GHR entered into the GHR Settlement under which GHR is to pay Congoleum approximately $9.2 million plus accruing interest in full satisfaction of the disgorgement order. The payment is secured by assets of GHR and is to be made over time according to a formula based on GHR’s earnings. The Bankruptcy Court approved the GHR Settlement in April 2007. Payments received pursuant to the GHR Settlement in 2007 were not significant. By correspondence dated March 27, 2008, GHR notified Congoleum of its intention to pay all sums outstanding under the GHR Settlement in full. GHR requested a payoff amount for an April 1, 2008 payment date.

Unrestricted cash and cash equivalents, including short-term investments at December 31, 2007, were $26.3 million, an increase of $7.7 million from December 31, 2006. Under the terms of its revolving credit agreement, payments on the Company’s accounts receivable are deposited in an account assigned by the Company to its lender and the funds in that account are used by the lender to pay down any loan balance. Funds deposited in this account but not yet applied to the loan balance, which amounted to $0.0 million and $3.6 million at December 31, 2007 and December 31, 2006, respectively, are recorded as restricted cash. Additionally, $6.5 million remaining from a $14.5 million settlement received in August 2004 from an insurance carrier, which is subject to a court order, is included as restricted cash at December 31, 2007. The Company expects to contribute these funds, less any amounts withheld pursuant to reimbursement arrangements, to the Plan Trust. Working capital was $9.4 million at December 31, 2007, down from $11.5 million one year earlier. The ratio of current assets to current

liabilities was 1.1 to 1.0 at December 31, 2007 and December 31, 2006, respectively. Net cash provided by operations during the year ended December 31, 2007 was $11.3 million, as compared to net cash used in operations of $8.2 million during the year ended December 31, 2006.

Capital expenditures in 2007 totaled $4.5 million. The Company is currently planning capital expenditures of approximately $6.5 million in 2008 and between $5 million and $7 million in 2009, primarily for maintenance and improvement of plants and equipment, which it expects to fund with cash from operations and credit facilities.

In January 2004, the Bankruptcy Court authorized entry of a final order approving Congoleum’s debtor-in-possession financing, which replaced its pre-petition credit facility on substantially similar terms. The debtor-in-possession financing agreement (as amended and approved by the Bankruptcy Court to date) provides a revolving credit facility expiring on (i) the earlier of June 30, 2008 and (ii) the date the plan of reorganization in Congoleum's bankruptcy cases as confirmed by the Bankruptcy Court becomes effective. Total borrowing under the facility may not exceed $30 million. Interest is based on 0.25% above the prime rate. This financing agreement contains certain covenants, which include the maintenance of minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”). It also includes restrictions on the incurrence of additional debt and limitations on capital expenditures. The covenants and conditions under this financing agreement must be met in order for the Company to borrow from the facility. The Company was in compliance with these covenants at December 31, 2007. Borrowings under this facility are collateralized by inventory and receivables. At December 31, 2007, based on the level of receivables and inventory, $14.2 million was available under the facility, of which $2.2 million was utilized for outstanding letters of credit and $10.5 million was utilized by the revolving loan. The Company anticipates that its debtor-in-possession financing facility (including anticipated extensions thereof) together with cash from operations will provide it with sufficient liquidity to operate during 2008 while under Chapter 11 protection. There can be no assurances that the Company will continue to be in compliance with the required covenants under this facility or that the debtor-in-possession facility (as extended) will be renewed prior to its expiration if a plan of reorganization is not confirmed before that time. For a plan of reorganization to be confirmed, the Company will need to obtain and demonstrate the sufficiency of exit financing. The Company cannot presently determine the terms of such financing, nor can there be any assurances of its success obtaining it.

In addition to the provision for asbestos litigation discussed previously, the Company has also recorded what it believes are adequate provisions for environmental remediation and product-related liabilities (other than asbestos-related claims), including provisions for testing for potential remediation of conditions at its own facilities. The Company is subject to federal, state and local environmental laws and regulations and certain legal and administrative claims are pending or have been asserted against the Company. Among these claims, the Company is a named party in several actions associated with waste disposal sites (more fully discussed in Note 16 to the Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K). These actions include possible obligations to remove or mitigate the effects on the environment of wastes deposited at various sites, including Superfund sites and certain of the Company’s owned and previously owned facilities. The contingencies also include claims for

personal injury and/or property damage. The exact amount of such future cost and timing of payments are indeterminable due to such unknown factors as the magnitude of cleanup costs, the timing and extent of the remedial actions that may be required, the determination of the Company’s liability in proportion to other potentially responsible parties, and the extent to which costs may be recoverable from insurance. The Company has recorded provisions in its financial statements for the estimated probable loss associated with all known general and environmental contingencies. While the Company believes its estimate of the future amount of these liabilities is reasonable, and that they will be paid over a period of five to ten years, the timing and amount of such payments may differ significantly from the Company’s assumptions. Although the effect of future government regulation could have a significant effect on the Company’s costs, the Company is not aware of any pending legislation which would reasonably have such an effect. There can be no assurances that the costs of any future government regulations could be passed along to its customers. Estimated insurance recoveries related to these liabilities are reflected in other non-current assets.

The outcome of these environmental matters could result in significant expenses incurred by or judgments assessed against the Company.

The Company's principal sources of capital are net cash provided by operating activities and borrowings under its financing agreement. The Company believes that its existing cash (including restricted cash), cash generated from operations, and debtor-in-possession credit arrangements should be sufficient to provide adequate working capital for operations during 2008. Congoleum’s ability to emerge from Chapter 11 will depend on obtaining sufficient exit financing to settle administrative expenses of the reorganization and any other related obligations, and to provide adequate future liquidity.

Critical Accounting Policies

The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires making estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that entail significant judgments and estimates, and could potentially result in materially different results under different assumptions and conditions. The Company believes its most critical accounting policies upon which its financial condition depends, and which involve the most complex or subjective decisions or assessments, are those described below. For a discussion on the application of these and other accounting policies, See Note 1 in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

Asbestos Liabilities - As discussed in Notes 1 and 17 in the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K, the Company is a party to a significant number of lawsuits stemming from its manufacture of asbestos-containing products. During 2007, the Company paid $13.0 million in fees and expenses related to implementation of its planned reorganization under Chapter 11 of the Bankruptcy Code and litigation with certain insurance companies. Based on the Joint Plan, Congoleum has made provision in its financial statements for the minimum estimated cost to effect its plan to settle asbestos liabilities through confirmation of a plan that complies with section 524(g) of the Bankruptcy Code. Congoleum recorded charges aggregating approximately $51.3 million in prior years. Based on the terms of the Joint Plan, in the fourth quarter of 2007 Congoleum recorded an additional $41.3 million charge. Of this charge, $14.9 million related to the write-off of certain insurance litigation costs receivable that will not be collected under the terms of the Joint Plan and $26.4 million was an additional provision for estimated costs for the reorganization proceedings and coverage litigation. In the fourth quarter of 2007 Congoleum also recorded a $41.0 million interest expense credit to reverse post-petition interest accrued on its Senior Notes. Terms of previous reorganization plans had provided, among other things, for the payment of post-petition interest on the Senior Notes and therefore Congoleum had continued to accrue such interest. Under the terms of the Joint Plan, the Senior Noteholders will not receive any post-petition interest.

In anticipation of Congoleum's commencement of the Chapter 11 cases, Congoleum entered into the Claimant Agreement, which provides for an aggregate settlement value of at least $466 million as well as an additional number of individually negotiated trial listed settlements with an aggregate value of approximately $25 million, for total settlements in excess of $491 million. Participants in the Claimant Agreement signed releases limiting their recourse against Congoleum to what they would receive from the Plan Trust and Congoleum has therefore estimated its liability under the Claimant Agreement as the cost of effecting the settlement through confirmation of a plan of reorganization. In addition, as a result of tabulating ballots on the Fourth Plan, the Company is also aware of claims by claimants whose claims were not determined under the Claimant Agreement but who have submitted claims with a value of approximately $512 million based on the settlement values applicable in the Sixth Plan. It is also likely that additional new claims will be asserted in connection with solicitation of acceptances of the Joint Plan. Congoleum does not believe it can reasonably estimate the liability associated with claims that may be pending.

The Company expects that insurance will provide the substantial majority of the recovery available to claimants, due to the amount of insurance coverage it purchased and the comparatively limited resources and value of the Company itself. The Company does not have the necessary financial resources to litigate and/or settle asbestos claims in the ordinary course of business.

While the Company has provided for the anticipated costs to effect the Joint Plan, costs for pursuing and implementing the Joint Plan and any plan of reorganization could be materially higher than recorded amounts and previous estimates.

The Company will update its estimates, if appropriate, as additional information becomes available during the reorganization process, which could result in potentially material adjustments to the Company’s earnings in future periods.

Inventories - Inventories are stated at the lower of LIFO cost or market. The LIFO (last-in, first-out) method of determining cost is used for substantially all inventories. The Company records as a charge to cost of goods sold any amount required to reduce the carrying value of inventories to the net realizable sales value.

Valuation of Deferred Tax Assets - The Company provides for valuation reserves against its deferred tax assets in accordance with the requirements of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). In evaluating the recovery of deferred tax assets, the Company makes certain assumptions as to future events such as the ability to generate future taxable income.

Environmental Contingencies - The Company has incurred liabilities related to environmental remediation costs at both third-party sites and Company-owned sites. Management has recorded both liabilities and insurance receivables in its financial statements for its estimate of costs and insurance recoveries for future remediation activities. These estimates are based on certain assumptions such as the extent of cleanup activities to be performed, the methods employed in the cleanup activities, the Company’s relative share in costs at sites where other parties are involved, and the ultimate insurance coverage available. These projects tend to be long-term in nature, and these assumptions are subject to refinement as facts change. As such, it is possible that the Company may need to revise its recorded liabilities and receivables for environmental costs in future periods resulting in potentially material adjustments to the Company’s earnings in future periods.

Pension and Other Postretirement Plans - The Company accounts for its defined benefit pension plans in accordance with SFAS No. 87, “Employers' Accounting for Pensions” ("SFAS No. 87"), which requires that amounts recognized in financial statements be determined on an actuarial basis. As permitted by SFAS No. 87, the Company uses a calculated value of the expected return on plan assets (which is further described below). Under SFAS No. 87, the effects of the actual performance of the pension plan’s assets and changes in pension liability discount rates on the Company’s computation of pension income or expense are amortized over future periods.

The most significant element in determining the Company’s pension income or expense in accordance with SFAS No. 87 is the expected return on plan assets. For 2007, the Company has assumed that the expected long-term rate of return on plan assets will be 7.0%. The assumed long-term rate of return on assets is applied to the value of plan assets, which produces the expected return on plan assets that is included in determining pension expense. The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past actuarial gains or losses ($22.1 million loss and $22.7 million loss at December 31, 2007 and 2006, respectively) will ultimately be recognized as an adjustment to future pension expense.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS No. 158”), which amends SFAS No. 87, “Employers' Accounting for Pensions”, SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” ("SFAS No. 106"), and SFAS No. 132R, “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (revised 2003). SFAS No. 158 requires companies to recognize an asset or liability for the overfunded or underfunded status of their benefit plans in their financial statements. SFAS No. 158 also requires the measurement date for plan assets and liabilities to coincide with the sponsor’s year end. This standard provides two transition alternatives related to the change in measurement date provisions. The recognition of an asset and liability related to the funded status provision is effective for fiscal years ending after December 15, 2006, and the change in measurement date provisions is effective for fiscal years ending after December 15, 2008. See Note 11 of the Notes to Consolidated Financial Statements, which are contained in Item 8 of this Annual Report on Form 10-K.

At the end of each year, the Company determines the discount rate to be used to calculate the present value of plan liabilities. The discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the Company looks to rates of return on high-quality, fixed-income investments that receive one of the two highest ratings given by a recognized ratings agency. At December 31, 2007, the Company determined this rate to be 6.0%.

The Company accounts for its post-retirement benefits other than pensions in accordance with SFAS No. 106, which requires that amounts recognized in financial statements be determined on an actuarial basis. These amounts are projected based on the January 1, 2005 SFAS No. 106 valuation and the 2006 year-end disclosure assumptions, including a discount rate of 6.0% and health care cost trend rates of 8.5% in 2007 reducing to an ultimate rate of 5% in 2012.

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Balance Sheets

(dollars in thousands, except per share amounts)

	December 31,			December 31,
	2007			2006
ASSETS
Current assets:
Cash and cash equivalents	$	26,327		$	18,591
Restricted cash		6,501			9,656
Accounts receivable, less allowances of $1,017 and $1,142
as of December 31, 2007 and 2006		14,162			17,598
Inventories		35,182			34,220
Prepaid expenses and other current assets		13,138			25,610
Total current assets		95,310			105,675
Property, plant and equipment, net		61,993			67,757
Other assets, net		15,402			10,770
Total assets	$	172,705		$	184,202

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	10,399		$	10,428
Accrued liabilities		20,933			22,263
Asbestos-related liabilities		31,207			13,950
Revolving credit loan		10,551			12,715
Accrued taxes		7,850			264
Liabilities subject to compromise – current		4,997			34,602
Total current liabilities		85,937			94,222
Liabilities subject to compromise - long term		133,224			136,533
Total liabilities		219,161			230,755
STOCKHOLDERS’ EQUITY (DEFICIT)
Class A common stock, par value $0.01; 20,000,000 shares authorized;
4,736,950 shares issued and 3,663,390 shares outstanding at
December 31, 2007 and 2006		47			47
Class B common stock, par value $0.01; 4,608,945 shares authorized,
issued and outstanding at December 31, 2007 and 2006		46			46
Additional paid-in capital		49,368			49,349
Retained deficit		(65,417	)		(64,726	)
Accumulated other comprehensive loss		(22,687	)		(23,456	)
		(38,643	)		(38,740	)
Less Class A common stock held in treasury, at cost; 1,073,560 shares at
December 31, 2007 and 2006		7,813			7,813
Total stockholders’ equity (deficit)		(46,456	)		(46,553	)
Total liabilities and stockholders’ equity (deficit)	$	172,705		$	184,202

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

Consolidated Statements of Operations

(in thousands, except per share amounts)

	For the years ended
	December 31,
	2007			2006


Net sales	$	204,262		$	219,474
Cost of sales		153,809			169,023
Selling, general and administrative expenses		37,469			39,906
Asbestos-related reorganization charges		41,315			—

(Loss) income from operations		(28,331	)		10,545
Other income (expense):
Interest income		1,224			515
Bond interest (expense) reversal		29,603			(10,612	)
Interest expense		(1,027	)		(775	)
Other income		564			746
Other expense		(1,011	)		(584	)

Income (loss) before income taxes		1,022			(165	)
Provision for (benefit from) income taxes		1,713			(844	)

Net (loss) income	$	(691	)	$	679

Net (loss) income per common share
Basic	$	(0.08	)	$	0.08
Diluted		(0.08	)		0.08
Weighted average number of common shares outstanding
Basic		8,272			8,272
Diluted		8,272			8,293

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

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(dollars in thousands)

	Common Stock Class A		Common Stock Class B		Additional Paid-in Capital		Retained Deficit			Accumulated Other Comprehensive Loss			Treasury Stock		Total Stockholders' Equity (Deficit)			Comprehensive Income (Loss)
Balance, December 31, 2005	$	47	$	46	$	49,126	$	(65,405	)	$	(20,961	)	$	7,813	$	(44,960	)

Stock based compensation expense		—		—		223		—			—			—		223

Minimum pension liability		—		—		—		—			1,296			—		1,296		$	1,296

Adoption of SFAS 158		—		—		—		—			(3,791	)		—		(3,791	)

Net income		—		—		—		679			—			—		679			679
Net comprehensive income		—		—		—		—			—			—		—		$	1,975

Balance at December 31, 2006	$	47	$	46	$	49,349	$	(64,726	)	$	(23,456	)	$	7,813	$	(46,553	)

Stock based compensation expense		—		—		19		—			—			—		19

Minimum pension liability		—		—				—			769			—		769		$	769

Net loss		—		—		—		(691	)		—			—		(691	)		(691	)

Net comprehensive income		—		—		—		—			—			—		—		$	78

Balance at December 31, 2007	$	47	$	46	$	49,368	$	(65,417	)	$	(22,687	)	$	7,813	$	(46,456	)

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

Consolidated Statements of Cash Flows

(dollars in thousands)

	For the years ended
	December 31,
	2007			2006
Cash flows from operating activities:
Net (loss) income	$	(691	)	$	679
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation		10,305			10,092
Amortization		385			386
Gain on insurance recovery in excess of book value		—			(1,266	)
Asbestos-related charges		41,315			—
Bond interest (expense) reversal		(29,603	)		10,612
Stock based compensation expense		19			223
Changes in certain assets and liabilities:
Accounts and notes receivable		3,436			(506	)
Inventories		(962	)		387
Prepaid expenses and other assets		1,965			(347	)
Accounts payable		(29	)		(1,341	)
Accrued liabilities		(1,068	)		(3,609	)
Asbestos-related liabilities.		(13,048	)		(22,373	)
Asbestos-related reimbursement from insurance settlement		—			3,684
Reimbursement from other insurance settlements		1,498			—
Other liabilities		(2,236	)		(4,784	)
Net cash provided by (used in)
operating activities		11,286			(8,163	)
Cash flows from investing activities:
Capital expenditures, net		(4,541	)		(4,642	)
Insurance proceeds for oven line replacement		—			1,586
Net cash used in investing activities		(4,541	)		(3,056	)
Cash flows from financing activities:
Net short-term borrowings		(2,164	)		3,311
Net change in restricted cash		3,155			1,988
Net cash provided by financing activities		991			5,299
Net increase (decrease) in cash and cash equivalents		7,736			(5,920	)
Cash and cash equivalents:
Beginning of year		18,591			24,511
End of year.	$	26,327		$	18,591

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

Notes to Consolidated Financial Statements

1. Basis of Presentation:

The Consolidated Financial Statements of Congoleum Corporation (the “Company” or “Congoleum”) have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. As described more fully below, there is substantial doubt about the Company's ability to continue as a going concern unless it obtains relief from its substantial asbestos liabilities through a successful reorganization under Chapter 11 of the Bankruptcy Code.

shareholder, ABI, on certain terms of the Ninth Plan, which Congoleum filed and proposed jointly with the ACC in August 2006. CNA and the Bondholders’ Committee jointly filed a new, competing plan in August 2006 and each withdrew its prior plan of reorganization. Following further mediated negotiations, Congoleum, the ACC, the FCR, ABI and the Bondholders’ Committee reached agreement on the terms of the Tenth Plan, which Congoleum filed jointly with the ACC in September 2006. Following the Bondholders’ Committee’s withdrawal of support for CNA’s plan, CNA filed the CNA Plan. In October 2006, Congoleum and the ACC jointly filed the Eleventh Plan, a revised version of the Tenth Plan which reflected minor technical changes agreed to by the various parties supporting Congoleum’s plan. In October 2006, the Bankruptcy Court held a hearing to consider the adequacy of the disclosure statements with respect to the Tenth Plan and the CNA Plan and to hear arguments on respective summary judgment motions as to whether the Tenth Plan and the CNA Plan were confirmable as a matter of law. The Bankruptcy Court provisionally approved the disclosure statements for both the Tenth Plan and the CNA Plan subject to the Bankruptcy Court’s ruling on the respective summary judgment motions. In February 2007, the Bankruptcy Court issued two separate opinions ruling that the Tenth Plan and the CNA Plan were not confirmable as a matter of law. In March 2007, Congoleum resumed global plan mediation discussions with the various parties seeking to resolve the issues raised in the Bankruptcy Court’s ruling with respect to the Tenth Plan. In July 2007, the FCR filed a plan of reorganization and proposed disclosure statement. After extensive further mediation sessions, on February 5, 2008 the FCR, the ACC, the Bondholders’ Committee and Congoleum jointly filed the Joint Plan. The Bankruptcy Court approved the disclosure statement for the Joint Plan in February 2008, and a confirmation hearing is scheduled for June 26, 2008.

There can be no assurance that the Joint Plan or any other plan will receive the acceptances necessary for confirmation, that the Joint Plan will not be modified further, that the Joint Plan or any other plan will receive necessary court approvals from the Bankruptcy Court and the District Court, or that such approvals will be received in a timely fashion, that any plan will be confirmed, that any plan, if confirmed, will become effective, or that there will be sufficient funds to pay for continued litigation over any plan of reorganization. It also is unclear whether any other person might successfully propose and confirm a plan or what any such plan, when confirmed, would ultimately provide, and whether the Bankruptcy Court would approve such a plan. Any plan of reorganization pursued by the Company will be subject to numerous conditions, approvals and other requirements, including Bankruptcy Court and District Court approvals, and there can be no assurance that such conditions, approvals and other requirements will be satisfied or obtained.

For more information regarding the Company’s asbestos liability and plan for resolving that liability, please refer to Note 17 of the Notes to Consolidated Financial Statements.

American Institute of Certified Public Accountant Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7") provides financial reporting guidance for entities that are reorganizing under the Bankruptcy Code. The Company implemented this guidance in consolidated financial statements for periods after December 31, 2003.

Pursuant to SOP 90-7, companies are required to segregate pre-petition liabilities that are subject to compromise and report them separately on the balance sheet. Liabilities that may be affected by a plan of reorganization are recorded at the amount of the expected allowed claims, even if they may be settled for lesser amounts. Substantially all of the Company’s liabilities at December 31, 2003 have been reclassified as liabilities subject to compromise. Obligations arising post-petition, and pre-petition obligations that are secured, are not classified as liabilities subject to compromise.

Additional pre-petition claims (liabilities subject to compromise) may arise due to the rejection of executory contracts or unexpired leases, or as a result of the allowance of contingent or disputed claims.

2. Summary of Significant Accounting Policies:

Nature of Business - Congoleum manufactures resilient sheet and tile flooring products. These products, together with a limited quantity of related products purchased for resale, are sold primarily to wholesale distributors and major retailers in the United States and Canada. Based upon the nature of the Company’s operations, facilities and management structure, the Company considers its business to constitute a single segment for financial reporting purposes.

Basis of Consolidation - The accompanying consolidated financial statements reflect the operations, financial position and cash flows of the Company and include the accounts of the Company and its subsidiaries after elimination of all significant inter-company transactions in consolidation.

Use of Estimates and Critical Accounting Policies - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are defined as those that entail significant judgments and estimates, and could potentially result in materially different results under different assumptions and conditions. The Company believes that the most critical accounting policies upon which its financial condition depends, and which involve the most complex or subjective decisions or assessments, concern asbestos liabilities, inventories, environmental contingencies, valuation of deferred tax assets, and pension plan and post-retirement benefits.

Although the Company believes it employs reasonable and appropriate estimates and assumptions in the preparation of its financial statements and in the application of accounting policies, if business conditions are different than the Company has assumed they will be, or if the Company used different estimates and assumptions, it is possible that materially different amounts could be reported in the Company’s financial statements.

Revenue Recognition - Revenue is recognized when products are shipped and title has passed to the customer. Net sales are comprised of the total sales billed during the period less the sales value of estimated returns and sales incentives, which consist primarily of trade discounts and customers’ allowances. The Company defers recognition of revenue for its estimate of potential sales returns under right-of-return agreements with its customers until the right-of-return period lapses.

Selling, General and Administrative Expenses - Selling, general and administrative expenses are charged to income as incurred. Expenses promoting and selling products are classified as selling expenses and include such items as advertising, sales commissions and travel. Advertising expense amounted to $1.0 million and $1.1 million in 2007 and 2006. General and administrative expenses include such items as officers’ salaries, office supplies, insurance and office rental. In addition, general and administrative expenses include other operating items such as provision for doubtful accounts, professional (accounting and legal) fees, purchasing and environmental remediation costs.

Cash and Cash Equivalents - All highly liquid debt instruments with a maturity of three months or less at the time of purchase are considered to be cash equivalents.

Restricted Cash – Under the terms of its revolving credit agreement, payments on the Company’s accounts receivable are deposited in an account assigned by the Company to its lender and the funds in that account are used by the lender to pay down any loan balance. Restricted cash represents funds deposited in this account but not immediately applied to the loan balance. At December 31, 2007 and 2006, cash of approximately $0.0 million and $3.6 million, respectively, was restricted under this financing agreement. Additionally, $6.5 million remaining from a $14.5 million settlement received in August 2004 from an insurance carrier is included as restricted cash at December 31, 2007 and 2006.

Short-Term Investments - The Company invests in highly liquid debt instruments with strong credit ratings. Commercial paper investments with a maturity greater than three months, but less than one year at the time of purchase, are considered to be short-term investments. The Company maintains cash and cash equivalents and short-term investments with certain financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Company’s investment strategy.

Property, Plant, and Equipment - Property, plant, and equipment are recorded at cost and are depreciated over their estimated useful lives (30 years for buildings, 15 years for building improvements, production equipment and heavy-duty vehicles, 3 to 10 years for light-duty vehicles and office furnishings and equipment) on the straight-line method for financial reporting and accelerated methods for income tax purposes. Costs of major additions and betterments are capitalized; maintenance and repairs which do not improve or extend the life of the respective assets are charged to operations as incurred. When an asset is sold, retired or otherwise disposed of, the cost of the asset and the related accumulated depreciation are removed from the respective accounts and any resulting gain or loss is reflected in operations.

Debt Issue Costs - Costs incurred in connection with the issuance of debt have been capitalized and are being amortized over the life of the related debt. Such costs at December 31, 2007 and 2006 amounted to $0.1 million and $0.4 million, respectively, net of accumulated amortization of $3.2 million and $2.8 million, respectively, and are included in other non-current assets.

Environmental Remediation - The Company is subject to federal, state and local environmental laws and regulations. The Company records a liability for environmental remediation claims when a cleanup program or claim payment becomes probable and the costs can be reasonably estimated. The recorded liabilities are not discounted for delays in future payments (see Note 16).

Asbestos Liabilities and Plan of Reorganization – The Company is a defendant in a large number of asbestos-related lawsuits and has filed a proposed joint plan of reorganization under Chapter 11 of the United States Bankruptcy Code to resolve this liability (see Note 17). Accounting for asbestos-related and reorganization costs includes significant assumptions and estimates, and actual results could differ materially from those estimates.

Income Taxes - The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). Under SFAS No. 109, deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. SFAS No. 109 requires current recognition of net deferred tax assets to the extent that it is more likely than not that such net assets will be realized. To the extent that the Company believes that its net deferred tax assets will not be realized, a valuation allowance must be recorded against those assets. Effective January 1, 2007, the Company adopted FASB Interpretation 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109 (FIN 48). FIN 48 prescribes, among other things, a recognition threshold and measurement attributes for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company’s income tax return. FIN 48 utilizes a two-step approach for evaluating uncertain tax positions accounted for in accordance with FASB Statement 109, Accounting for Income Taxes. Step one, Recognition, requires a company to determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two, Measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority.

Allowance for Doubtful Accounts and Cash Discounts – The Company provides an allowance for doubtful accounts and cash discounts based on estimates of historical collection experience and a review of the current status of trade accounts receivable, revising its estimates when circumstances dictate.

Product Warranties – The Company provides product warranties for specific product lines and accrues for estimated future warranty cost in the period in which the revenue is recognized. The following table sets forth activity in the Company’s warranty reserves (in millions):

	December 31,
	2007			2006

Beginning balance	$	2.0		$	2.1

Accruals		3.2			3.8

Charges		(3.4	)		(3.9	)

Ending balance	$	1.8		$	2.0

Shipping and Handling Costs - Shipping costs for the years ended December 31, 2007 and 2006, were $0.6 million and are included in selling, general and administrative expenses.

Earnings Per Share – SFAS No. 128, “Earnings Per Share”, requires the computation of basic and diluted earnings per share. The calculation of basic earnings per share is based on the average number of common shares outstanding during the period. Diluted earnings per share reflect the effect of all potentially diluted securities which consist of outstanding common stock options.

Long-lived Assets - The Company periodically considers whether there has been a permanent impairment in the value of its long-lived assets, primarily property and equipment, in accordance with Financial Accounting Standards Board ("FASB") Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The Company evaluates various factors, including current and projected future operating results and the undiscounted cash flows for the under-performing long-lived assets. The Company then compares the carrying amount of the asset to the estimated future undiscounted cash flows expected to result from the use of the asset. To the extent that the estimated future undiscounted cash flows are less than the carrying amount of the asset, the asset is written down to its estimated fair market value and an impairment loss is recognized. The value of impaired long-lived assets is adjusted periodically based on changes in these factors. At December 31, 2007, the Company determined, based on its evaluation, that the carrying value of its long-lived assets was appropriate. No adjustments to the carrying costs were made.

Share Based Payment - On December 16, 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123R supersedes Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), and amends SFAS No. 95, "Statement of Cash Flows" ("SFAS No. 95"). SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values at the date of grant.

Effective January 1, 2006, the Company adopted SFAS 123R using the modified prospective method as permitted under SFAS 123R. Under this transition method, compensation cost recognized in 2006 includes: (a) compensation cost for all share-based payments granted prior to but not yet vested as of December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with the modified prospective method of adoption, the Company’s results of operations and financial position for prior periods have not been restated. Prior to the adoption of SFAS 123R, the Company accounted for stock option grants in accordance with APB No. 25 (the intrinsic value method), and, accordingly, recognized no compensation expense for stock option grants as the exercise price of the grant was equal to the market price of the underlying common stock on the date of grant.

As a result of adopting SFAS 123R effective January 1, 2006, income before taxes, net income and basic and diluted earnings per share for the year were $223 thousand and $0.03 per share lower, respectively, than if the Company had continued to account for stock-based compensation under APB Opinion No. 25 for our stock option grants.

At December 31, 2007, there was $28 thousand of unrecognized compensation expense related to share-based payments, which is expected to be recognized over a weighted-average period of 3.5 years.

The fair value for these options granted was estimated at the date of grant using a Black-Scholes option pricing model.

New Accounting Standards

In February 2007, the FASB issued SFAS No. 159, ‘‘The Fair Value Option for Financial Assets and Liabilities, Including an amendment of FASB Statement No. 115’’, (‘‘SFAS 159’’). SFAS 159 permits companies to choose to measure certain financial instruments and other items at fair value. SFAS 159 is effective as of the beginning of 2008. The Company does not believe that SFAS 159 will have a significant impact on its results of operations and financial position upon adoption.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 provides a common fair value hierarchy for companies to follow in determining fair value measurements in the preparation of financial statements and expands disclosure requirements relating to how such fair value measurements were developed. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions that the marketplace would use when pricing an asset or liability, rather than company-specific data. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. However, on February 12, 2008, the FASB issued Staff Position 157-2 which delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. For items within its scope, this Staff Position defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008. The Company is currently evaluating the impact, if any, that the adoption of SFAS No. 157 would have on its financial position or results of operations.

Reclassifications - Certain amounts appearing in the prior years’ financial statements have been reclassified to conform to the current year’s presentation. In 2006, the Company presented the gain on insurance recovery in excess of book value as other income. In 2007, the gain has been reclassified to general and administrative expenses.

3. Inventories:

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

	December 31,		December 31,
	2007		2006

Finished goods	$	28,445	$	26,515
Work-in-process		1,108		1,912
Raw materials and supplies		5,629		5,793

Total inventories	$	35,182	$	34,220

If the FIFO (first in, first out) inventory method, which approximates replacement cost, had been used to value these inventories, they would have been $4,825 higher at December 31, 2007 and $2,700 higher at December 31, 2006. During 2007, inventory quantities were increased. During 2006 certain inventory quantities were reduced, which resulted in liquidations of LIFO (last in, first out) inventory layers. The effect of the liquidations was to increase cost of sales by $28 in 2006. The LIFO method is utilized in determining inventory values as it results in better matching of costs and revenue.

4. Property, Plant, and Equipment:

A summary of the major components of property, plant, and equipment is as follows (in thousands):

	December 31,		December 31,
	2007		2006

Land	$	2,931	$	2,931
Buildings and improvements		47,697		47,136
Machinery and equipment		193,627		187,583
Construction-in-progress		2,047		4,111

		246,302		241,761

Less accumulated depreciation		184,309		174,004


Total property, plant, and equipment, net	$	61,993	$	67,757

Interest is capitalized in connection with the construction of major facilities and equipment. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life. There were no capitalized interest costs in 2007 and $0.1 million in 2006.

5. Liabilities Subject to Compromise:

As a result of the Company’s Chapter 11 filing (see Notes 1 and 17), pursuant to SOP 90-7, the Company is required to segregate pre-petition liabilities that are subject to compromise and report them separately on the consolidated balance sheet. Liabilities that may be affected by a plan of reorganization are recorded at the amount of the expected allowed claims, even if they may be settled for lesser amounts. Substantially all of the Company’s pre-petition debt is recorded at face value and is classified within liabilities subject to compromise. Prior to the fourth quarter of 2007, the Company’s accrued interest expense on its Senior Notes was also recorded in liabilities subject to compromise. In the fourth quarter of 2007 Congoleum also recorded a $41.0 million interest expense credit to reverse post-petition interest accrued on its Senior Notes. Terms of previous reorganization plans had provided, among other things, for the payment of post-petition interest on the Senior Notes and therefore Congoleum had continued to accrue such interest. Under the terms of the Joint Plan, the Senior Note holders will not receive any post-petition interest.

Liabilities subject to compromise are as follows (in thousands):

	December 31,		December 31,
	2007		2006
Current
Pre-petition other payables and accrued interest	$	4,997	$	34,602

Non-current
Debt (at face value)		100,000		100,000
Pension liability		10,772		15,494
Other post-retirement benefit obligation		9,337		9,249
Pre-petition other liabilities		13,115		11,790


Total liabilities subject to compromise	$	138,221	$	171,135

6. Accrued Liabilities:

A summary of the significant components of accrued liabilities consists of the following (in thousands):

	December 31,		December 31,
	2007		2006

Accrued warranty, marketing and
sales promotion	$	16,636	$	18,429
Employee compensation and
related benefits		3,584		3,333
Other		713		501
Total accrued liabilities	$	20,933	$	22,263

As a result of the Company’s Chapter 11 bankruptcy filing and in accordance with SOP 90-7, certain liabilities are included in liabilities subject to compromise on the balance sheet as of December 31, 2007 (see Note 5).

7. Debt:

In January 2004, the Bankruptcy Court authorized entry of a final order approving Congoleum’s debtor-in-possession financing, which replaced its pre-petition credit facility on substantially similar terms. The debtor-in-possession financing agreement (as amended and approved by the Bankruptcy Court to date) provides a revolving credit facility expiring on (i) the earlier of June 30, 2008 and (ii) the date the plan of reorganization in Congoleum’s bankruptcy cases as confirmed by the Bankruptcy Court becomes effective. Total borrowing under the facility may not exceed $30 million. Interest is based on 0.25% above the prime rate. This financing agreement contains certain covenants, which include the maintenance of minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”). It also includes restrictions on the incurrence of additional debt and limitations on capital expenditures. The covenants and conditions under this financing agreement must be met in order for the Company to borrow from the facility. The Company was in compliance with these covenants at December 31, 2007. Borrowings under this facility are collateralized by inventory and receivables. At December 31, 2007, based on the level of receivables and inventory, $14.2 million was available under the facility, of which $2.2 million was utilized for outstanding letters of credit and $10.5 million was utilized by the revolving loan. The Company anticipates that its debtor-in-possession financing facility (including anticipated extensions thereof) together with cash from operations will provide it with sufficient liquidity to operate during 2008 while under Chapter 11 protection. There can be no assurances that the Company will continue to be in compliance with the required covenants under this facility or that the debtor-in-possession facility (as extended) will be renewed prior to its expiration if a plan of reorganization is not confirmed before that time. For a plan of reorganization to be confirmed, the Company will need to obtain and demonstrate the sufficiency of exit financing. The Company cannot presently determine the terms of such financing, nor can there be any assurances of its success obtaining it.

On August 3, 1998, the Company issued $100 million of the Senior Notes priced at 99.505% to yield 8.70%. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after August 1, 2003 at predetermined redemption prices (ranging from 104% to 100%), plus accrued and unpaid interest to the date of redemption. The indenture governing the Senior Notes includes certain restrictions on additional indebtedness and uses of cash, including dividend payments. The commencement of the Chapter 11 proceedings constituted an event of default under the indenture governing the Senior Notes. During 2003, the Company and the trustee under the indenture governing the Senior Notes amended the indenture, and sufficient note holders consented, to explicitly permit the Company to take steps in connection with preparing and filing its prepackaged plan of reorganization under Chapter 11 of the Bankruptcy Code. The amount of accrued interest on the Senior Notes that was not paid as of the bankruptcy filing on December 31, 2003 was approximately $3.6 million. The accrued interest and the principal amount of the Senior Notes, are included in “Liabilities Subject to Compromise” (see Note 5) as of December 31, 2007.

8. Other Liabilities:

9. Research and Development Costs:

Total research and development costs charged to operations amounted to $4.2 million for the years ended December 31, 2007 and 2006.

10. Operating Lease Commitments and Rent Expense:

The Company leases certain office facilities and equipment under leases with varying terms. Certain leases contain rent escalation clauses. These rent expenses are recognized on a straight-line basis over the respective term of the lease.

Future minimum lease payments of non-cancelable operating leases having initial or remaining lease terms in excess of one year as of December 31, 2007 are as follows (in thousands):

Years Ending:

2008	$	2,426
2009		2,583
2010		2,038
2011		73
Thereafter		—


Total minimum lease payments	$	7,120

Rent expense was $3.1 million and $3.2 million for the years ended December 31, 2007 and 2006, respectively.

11. Pensions and Other Postretirement Plans:

The Company sponsors several non-contributory defined benefit pension plans covering most of the Company’s employees. Benefits under the plans are based on years of service and employee compensation. Amounts funded annually by the Company are actuarially determined using the projected unit credit and unit credit methods and are equal to or exceed the minimum required by government regulations. The Company also maintains health and life insurance programs for retirees (reflected in the table below in “Other Benefits”).

The following summarizes the change in the benefit obligation, the change in plan assets, the funded status, and reconciliation to the amounts recognized in the balance sheets for the pension benefits and other benefit plans. The measurement date for all items set forth below is the last day of the fiscal year presented.

Obligations and Funded Status:	At December 31,

	Pension Benefits						Other Benefits
(in thousands)	2007			2006			2007			2006

Change in Benefit Obligation:
Benefit obligation at beginning of year	$	79,821		$	75,245		$	9,664		$	8,988
Service cost		1,381			1,327			213			194
Interest cost		4,559			4,485			566			537
Actuarial gain (loss)		(1,378	)		3,826			(137	)		420
Benefits paid		(4,596	)		(5,062	)		(380	)		(475	)
Benefit obligation at end of year	$	79,787		$	79,821		$	9,926		$	9,664

Change in Plan Assets:
Fair value of plan assets at beginning of year	$	64,319		$	55,970		$	—		$	—
Actual return on plan assets		2,514			6,837			—			—
Employer contribution		6,779			6,574			—			—
Benefits paid		(4,596	)		(5,062	)		—			—
Fair value of plan assets at end of year	$	69,016		$	64,319		$	—		$	—

Unfunded status	$	(10,771	)	$	(15,502	)	$	(9,926	)	$	(9,664	)
Unrecognized net actuarial loss		—			22,711			250			458
Unrecognized prior service cost		—			76			3			13
Net amount recognized	$	(10,771	)	$	7,285		$	(9,673	)	$	(9,193	)

Amounts recorded in the balance sheets consist of:

	Pension Benefits						Other Benefits
(in thousands)	2007			2006			2007			2006

Accrued benefit cost	$	(10,771	)	$	(15,502	)	$	(9,926	)	$	(9,664	)
Intangible asset		—			—			—			—
Accumulated other comprehensive loss		22,098			22,787			253			471
Net amounts recorded	$	11,327		$	7,285		$	(9,673	)	$	(9,913	)

Included in accumulated other comprehensive loss at December 31, 2007 and 2006 was the tax effect of $0.2 million for the changes in minimum pension liability recorded in prior years.

Information for pension plans with an accumulated benefit obligation in excess of plan assets:

	December 31,
(in thousands)	2007		2006

Projected benefit obligation	$	79,787	$	79,821
Accumulated benefit obligation		76,916		76,549
Fair value of plan assets		69,016		64,319

Components of Net Periodic Benefit Cost:

	Pension Benefits						Other Benefits
(in thousands)	2007			2006			2007		2006

Service cost	$	1,381		$	1,327		$	213	$	194
Interest cost		4,559			4,485			566		537
Expected return on plan assets		(4,590	)		(3,985	)		—		—
Recognized net actuarial loss		1,340			1,676			71		80
Amortization of prior service cost		46			(215	)		10		34
Net periodic benefit cost	$	2,736		$	3,288		$	860	$	845

For the Company's pension plans, the estimated net loss and prior service cost to be amortized from accumulated other comprehensive loss during 2008 is expected to be $1.4 million and $24 thousand, respectively. For the Company's post-retirement benefit plans, the estimated net loss and prior service cost to be amortized from accumulated other comprehensive loss during 2008 is expected to be $71 thousand and $10 thousand, respectively.

Additional Information:

Prior to the adoption of SFAS No. 158, the Company recorded an increase to the additional minimum pension liability of $1.3 million and $2.4 million for the years ended December 31, 2006 and 2005, respectively.

The Company adopted SFAS No. 158 as of December 31, 2006. The impact from recognizing the funded status of the defined benefit plans, representing the fair value of the plan assets versus the projected benefit obligation, was a decrease to Stockholders’ Equity of $3.8 million. No tax effect was recorded for the cumulative adjustment to equity because the Company has a full valuation allowance recorded against its net deferred tax assets. The Company uses a fiscal year-end date to value all plans. The following table summarized the impact of adopting SFAS No. 158 on the Consolidated Balance Sheet at December 31, 2006:

(in thousands)	Defined Benefit Plans Before Adoption of SFAS No. 158	Impact of SFAS No. 158 Adoption	Defined Benefit Plans After Adoption of SFAS No. 158

Benefit liability	$(21,376)	$ (3,790)	$ (25,166)
Accumulated other comprehensive loss	19,666	3,790	23,456

The weighted average assumptions used to determine benefit obligation as of year-end were as follows:

	Pension Benefits		Other Benefits
	2007	2006	2007	2006

Discount rate	6.00%	6.00%	6.00%	6.00%
Rate of compensation increase	5.00%	5.00%	—	—

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

	Pension Benefits		Other Benefits
	2007	2006	2007	2006

Discount rate	6.00%	6.00%	6.00%	6.00%
Expected long-term return on plan assets	7.00%	7.00%	—	—
Rate of compensation increase	5.00%	5.00%	—	—

In developing the expected long-term return on plan assets assumption, a building block approach was used in which rates of return in excess of inflation were considered separately for equity securities, debt securities, and other assets. The excess returns were weighted by the representative target allocation and added, with an appropriate rate of inflation, to develop the overall expected long-term return on plan assets assumption. The Company believes this determination is consistent with SFAS No. 87.

Assumed healthcare cost trend rates as of year-end were as follows:

	December 31,
	2007	2006

Healthcare cost trend rate assumed for next year	9.5%	9.0%
Ultimate healthcare cost trend rate	5.0%	5.0%
Year that the assumed rate reaches ultimate rate	2012	2011

Assumed healthcare cost trend rates have a significant effect on the amounts reported for healthcare benefits. A one-percentage point change in assumed healthcare cost trend rates would have the following effects:

	December 31,
	2007	2006
(in thousands)	1 Percentage Point Increase	1 Percentage Point Decrease

Effect on total of service and interest cost components	$ 70	$ 62
Effect on post-retirement benefit obligation	734	667

Plan Assets:

For the pension plans, the weighted-average asset allocation at December 31, 2007 and 2006 by asset category is as follows:

	Plan Assets at
	December 31,
Asset Category:	2007	2006
Equity securities	61%	63%
Debt securities	38%	36%
Other	1%	1%
Total	100%	100%

The Company has developed an investment strategy for the pension plans. The investment strategy is to emphasize total return; that is, the aggregate return from capital appreciation and dividend and interest income. The primary objective of the investment management for the plans’ assets is the emphasis on consistent growth; specifically, growth in a manner that protects the plans’ assets from excessive volatility in market value from year to year. The investment policy takes into consideration the benefit obligations, including timing of distributions.

The primary objective for the plans is to provide long-term capital appreciation through investment in equity and debt securities. The Company’s target asset allocation is consistent with the weighted – average allocation at December 31, 2007.

The Company selects professional money managers whose investment policies are consistent with the Company’s investment strategy and monitors their performance against appropriate benchmarks.

Contributions:

The Company expects to contribute $3.5 million to its pension plan and $0.6 million to its other postretirement plan in 2008.

Estimated Future Benefit Payments:

The following benefit payments, which reflect future service as appropriate, are expected to be paid. The benefit payments are based on the same assumptions used to measure the Company’s benefit obligation at the end of 2006.

(in thousands)	Pension Benefit	Other Benefits Projected Net Benefit Payments

2008	$ 5,043	$ 606
2009	5,200	661
2010	5,385	719
2012	5,486	794
2012	5,729	827
2013-2017	30,332	4,765

Defined Contribution Plan:

The Company also has two 401(k) defined contribution retirement plans that cover substantially all employees. Eligible employees may contribute up to 50% of compensation, with partially matching Company contributions. The charge to income relating to the Company match was $0.4 million for the years ended December 31, 2007 and 2006.

12.	Income Taxes:

The Company recorded a tax expense of $1.7 million on income before income taxes of $1.0 million in 2007. The main component of the tax provision was an increase in deferred taxes primarily due to non-deductibility, for tax purposes, of legal reserves in the amount of $1.6 million, for the balance of the Company’s reorganization plan. In 2006 the Internal Revenue Service (IRS) completed and closed its audit of the Company's income tax returns for the years 2000 to 2003 and the Company entered into a closing agreement with the IRS in October 2006, after which it reversed previously established reserves for the years under audit, resulting in the tax benefit recorded in 2006.

Income taxes are comprised of the following (in thousands):

	For the years ended December 31,
	2007			2006
Current:
Federal	$	1,276		$	(877	)
State		112			33
Deferred:
Federal		1,759			(524	)
State		(289	)		116
Valuation allowance		(1,145	)		408

Provision (benefit) for income taxes	$	1,713		$	(844	)

The following is a reconciliation of the statutory federal income tax rate to the Company's effective tax rate expressed as a percentage of income before income taxes:

	For the years ended December 31,
	2007			2006
Statutory federal income tax rate		34.0	%		34.0	%
State income taxes, net of federal benefit		(12.1	)		(7.4	)
Non-deductible expenses		265.8			(78.8	)
Change in valuation allowance		(118.3	)		12.7
Tax credits		(3.9	)		28.9
Change in prior year estimates		16.1			(259.3	)
Adjustment to current tax reserve		(15.8	)		782.0
Other		1.8			(0.6	)

Effective tax rate		167.6	%		511.5	%

During 2007 and 2006, the Company made payments for income taxes of $4 thousand and $77 thousand.

Deferred income taxes are recorded using enacted tax rates based upon differences between financial statement and tax bases of assets and liabilities. Valuation allowances are established to reduce deferred tax assets when it is more likely than not that some or all will not be realized.

The components of the deferred tax asset and liability relate to the following temporary differences (in thousands):

	December 31,			December 31,
	2007			2006
Deferred tax assets:
Accounts receivable	$	120		$	121
Environmental remediation and product-related reserves		13,073			8,267
Postretirement benefit obligations		3,930			3,740
Tax credit and other carryovers		18,408			16,192
Other accruals		1,680			1,215

Deferred tax assets		37,211			29,535
Valuation allowances		(3,876	)		(5,021	)

Net deferred tax asset		33,335			24,514

Deferred tax liabilities:
Depreciation and amortization		(6,685	)		(8,489	)
Inventory		(586	)		(1,779	)
Unfunded pension		(4,313	)		(3,209	)
Casualty insurance receivable		(6,780	)		(11,037	)
Accrued interest expense		(15,296	)		—

Total deferred tax liabilities		(33,660	)		(24,514	)

Net deferred tax (liability)	$	(325	)	$	—

At December 31, 2007 and 2006, the Company had available federal net operating loss carry forwards of approximately $31.9 million and $31.2 million, respectively, to offset future taxable income. The federal loss carry forwards will begin to expire in 2023. At December 31, 2007 and 2006, the Company had available state net operating loss carry forwards of approximately $41.2 million and $44.8 million, respectively, to offset future taxable income. The state loss carry forwards will begin to expire in 2008. At both December 31, 2007 and 2006, the Company had available federal tax credit carry forwards of $2.1 million, which will begin to expire in 2018. Additionally, the Company has state tax credit carry forwards of $1.6 million and $1.5 million at December 31, 2007 and 2006, respectively, which will begin to expire in 2008.

Accounting for Uncertainty in Income Taxes

Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 requires that the Company recognize the impact of a tax position taken, or expected to be taken, in tax returns if that position is more likely than not of being sustained on audit, based on the technical merits of the position. Under FIN 48, tax positions are evaluated for recognition using a "more-likely-than-not" threshold, and those tax positions requiring recognition are measured as the largest amount of tax benefit that is greater than fifty percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. The Company evaluated its tax positions in the tax returns filed, as well as unfiled tax positions and the amounts comprising deferred tax assets and determined that the adoption of FIN 48 did not have a material impact on its financial position or results of operations. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:

	(in thousands)
Balance at January 1, 2007	$	1,561

Additions based on tax positions related to the current year	$	704
Additions for tax positions of prior years		43
Reductions for tax positions of prior years		0
Settlements		0

Balance at December 31, 2007	$	2,308

Of the unrecognized tax benefits, $1.6 million would affect the effective tax rate if recognized in a future period, not considering the impact of the current valuation allowance. $113 thousand of this benefit would currently be offset by an increase in the valuation allowance as it is not more likely than not that the Company would have sufficient earnings to recognize this amount. Included in the balance at December 31, 2007 are $704 thousand of benefits from tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but could accelerate the payment of cash to the taxing authority to an earlier period.

The Company anticipates decreases in unrecognized tax benefits of approximately $704 thousand related to accounting method changes during 2008.

The Company's policy is to report interest expense (and penalties, if applicable) as tax provision (benefit), and interest earned as interest income in the Consolidated Statements of Operations. During the years ended December 31, 2007 and 2006, the Company recognized approximately $31 thousand and $19 thousand in interest and penalties, respectively. Congoleum had approximately $50 thousand and $19 thousand accrued for the payment of interest and penalties at December 31, 2007 and 2006, respectively.

The Company and / or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, it is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2000. The Company is not currently under examination by the Internal Revenue Service or state taxing authorities. The Company's tax return net operating loss carry forwards are significant and calendar years in which losses arose may be subject to audit when such carry forwards are utilized to offset taxable income in future periods.

13. Supplemental Cash Flow Information:

Cash payments for interest were $0.9 million and $0.8 million for the years ended December 31, 2007 and 2006. Net cash refunds for income taxes were $2.2 million and $0.0 million for the years ended December 31, 2007 and 2006.

14. Related Party Transactions:

The Company and its controlling shareholder, American Biltrite Inc. (“ABI”), provide certain goods and services to each other pursuant to negotiated agreements. The Company had the following transactions with ABI (in thousands):

	For the years ended December 31,
	2007		2006
Sales made to ABI	$	—	$	14
Sales commissions earned by ABI		865		525
Raw material transfers to ABI		1,108		1,109
Computer service income earned from ABI		55		50
Material purchases from ABI		4,656		5,290
Management fees paid to ABI		696		674

There were no amounts due from ABI on December 31, 2007 and December 31, 2006, respectively. Amounts as of December 31, 2007 and 2006 due to ABI totaled $0.0 million and $0.4 million, respectively, and are included in accounts payable and accrued expenses.

15. Major Customers:

Substantially all the Company’s sales are to select flooring distributors and retailers located in the United States and Canada. Economic and market conditions, as well as the individual financial condition of each customer, are considered when establishing allowances for losses from doubtful accounts.

Two customers, LaSalle-Bristol Corporation and Mohawk Industries, Inc., accounted for approximately 25% and 40%, respectively, of the Company’s net sales for the year ended December 31, 2007, and 27% and 40%, respectively, for the year ended December 31, 2006. Mohawk Industries accounted for 38% and 48% of accounts receivable at December 31, 2007 and 2006, respectively, while LaSalle–Bristol Corporation accounted for 5% and 6%, respectively, of accounts receivable at December 31, 2007 and 2006.

16. Environmental and Other Liabilities

The Company records a liability for environmental remediation claims when a cleanup program or claim payment becomes probable and the costs can be reasonably estimated. As assessments and cleanup programs progress, these liabilities are adjusted based upon the progress in determining the timing and extent of remedial actions and the related costs and damages. The recorded liabilities, totaling $4.4 million at December 31, 2007 and December 31, 2006, are not reduced by the amount of insurance recoveries. Such estimated insurance recoveries approximated $2.1 million at December 31, 2007 and $2.2 million at December 31, 2006, and are reflected in other non-current assets. Receivables for expected insurance recoveries are recorded if the related carriers are solvent and paying claims under a reservation of rights or under an obligation pursuant to coverage in place or a settlement agreement. Substantially all of Congoleum’s recorded insurance asset for environmental matters is collectible from a single carrier.

The Company is named, together with a large number (in most cases, hundreds) of other companies, as a potentially responsible party ("PRP") in pending proceedings under the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), and similar state laws. In addition, in four other instances, although not named as a PRP, the Company has received a request for information. The pending proceedings relate to eight disposal sites in New Jersey, Pennsylvania, and Maryland in which recovery from generators of hazardous substances is sought for the cost of cleaning up the contaminated waste sites. The Company’s ultimate liability and funding obligations in connection with those sites depends on many factors, including the volume of material contributed to the site, the number of other PRPs and their financial viability, the remediation methods and technology to be used and the extent to which costs may be recoverable from insurance. However, under CERCLA and certain other laws, the Company, as a PRP, can be held jointly and severally liable for all environmental costs associated with a site.

The most significant exposure for which the Company has been named a PRP relates to a recycling facility site in Elkton, Maryland (the “Galaxy/Spectron Superfund Site”). The PRP group at this site is made up of 81 companies, substantially all of which are large financially solvent entities. Two removal actions were substantially complete as of December 31, 1998 and a groundwater treatment system was installed thereafter. The Environmental Protection Agency (“EPA”) has selected a remedy for the soil and shallow groundwater (“Operable Unit 1” or OU-1); however, the remedial investigation/feasibility study related to the deep groundwater (OU-2) has not been completed. The PRP group, of which the Company is a part, has entered into a Consent Decree to perform the remedy for OU-1 and resolve natural resource damage claims. The Consent Decree also requires the PRPs to perform the OU-2 remedy, assuming that the estimated cost of the remedy is not more than $10 million. If the estimated cost of the OU-2 remedy is more than $10 million, the PRPs may decline to perform it or they may elect to perform anyway. Cost estimates for the OU-1 and OU-2 work combined (including natural resource damages) range between $22 million and $34 million, with the Company’s share ranging between approximately $1.0 million and $1.6 million. This assumes that all parties participate and that none cash-out and pay a premium; those two factors may account for some

fluctuation in the Company’s share. Fifty percent (50%) of Congoleum’s share of the costs is presently being paid by one of its insurance carriers, Liberty Mutual Insurance Company, whose remaining policy limits for this claim are expected to cover approximately $0.3 million in additional costs. Congoleum expects to fund the balance to the extent further insurance coverage is not available.

The Company filed a motion before the Bankruptcy Court seeking authorization and approval of the Consent Decree and related settlement agreements for the Galaxy/Spectron Superfund Site, as well authorization for Liberty Mutual Insurance Company and the Company to make certain payments that have been invoiced to the Company with respect to the Consent Decree and related settlement agreements. An order authorizing and approving the Consent Decree and related settlement agreements was issued by the Bankruptcy Court in August 2006.

17. Asbestos Liabilities:

Claims Settlement and Chapter 11 Reorganization

reorganization and related documents governing the settlement and payment of asbestos-related claims against Congoleum. Under the agreed-upon modifications, asbestos claimants with claims settled under Congoleum's pre-petition settlement agreements would agree to forbear from exercising the security interest they were granted and share on a pari passu basis with all other present and future asbestos claimants in insurance proceeds and other assets of the Plan Trust to pay asbestos claims against Congoleum. In July 2005, Congoleum filed the Sixth Plan and related documents with the Bankruptcy Court which reflected the result of these negotiations, as well as other technical modifications. The Bankruptcy Court approved the disclosure statement and voting procedures and Congoleum commenced solicitation of acceptances of the Sixth Plan in August 2005. In September 2005, Congoleum learned that certain asbestos claimants were unwilling to agree to forbear from exercising their security interest as contemplated by the Sixth Plan and the Sixth Plan was subsequently withdrawn. In November 2005, the Bankruptcy Court denied a request to extend Congoleum’s exclusive right to file a plan of reorganization and solicit acceptances thereof. In March 2006, Congoleum filed the Eighth Plan. In addition, CNA filed a plan of reorganization and the Bondholders’ Committee also filed a plan of reorganization. In May 2006, the Bankruptcy Court ordered all parties in interest in Congoleum’s reorganization proceedings to participate in global mediation discussions. Numerous mediation sessions took place from June through September 2006. During the initial mediation negotiations, Congoleum reached an agreement in principle, subject to mutually agreeable definitive documentation, with the ACC, the FCR and the Company’s controlling shareholder, ABI, on certain terms of the Ninth Plan, which Congoleum filed and proposed jointly with the ACC in August 2006. CNA and the Bondholders’ Committee jointly filed a new, competing plan in August 2006 and each withdrew its prior plan of reorganization. Following further mediated negotiations, Congoleum, the ACC, the FCR, ABI and the Bondholders’ Committee reached agreement on the terms of the Tenth Plan, which Congoleum filed jointly with the ACC in September 2006. Following the Bondholders’ Committee’s withdrawal of support for CNA’s plan, CNA filed the CNA Plan. In October 2006, Congoleum and the ACC jointly filed the Eleventh Plan, a revised version of the Tenth Plan which reflected minor technical changes agreed to by the various parties supporting Congoleum’s plan. In October 2006, the Bankruptcy Court held a hearing to consider the adequacy of the disclosure statements with respect to the Tenth Plan and the CNA Plan and to hear arguments on respective summary judgment motions as to whether the Tenth Plan and the CNA Plan were confirmable as a matter of law. The Bankruptcy Court provisionally approved the disclosure statements for both the Tenth Plan and the CNA Plan subject to the Bankruptcy Court’s ruling on the respective summary judgment motions. In February 2007, the Bankruptcy Court issued two separate opinions ruling that the Tenth Plan and the CNA Plan were not confirmable as a matter of law. In March 2007, Congoleum resumed global plan mediation discussions with the various parties seeking to resolve the issues raised in the Bankruptcy Court’s ruling with respect to the Tenth Plan. In July 2007, the FCR filed a plan of reorganization and proposed disclosure statement. After extensive further mediation sessions, on February 5, 2008 the FCR, the ACC, the Bondholders’ Committee and Congoleum jointly filed the Joint Plan. The Bankruptcy Court approved the disclosure statement for the Joint Plan in February 2008, and a confirmation hearing is scheduled for June 26, 2008.

If the Joint Plan is approved by the Bankruptcy Court and accepted by the requisite creditor constituencies, it will permit Congoleum to exit Chapter 11 free of liability for existing or future asbestos claims. Under the terms of the Joint Plan, a trust will be created that will assume the liability for Congoleum’s current and future asbestos claims. That trust will receive the proceeds of various settlements Congoleum has reached with a number of insurance carriers, and will be assigned Congoleum’s rights under its remaining policies covering asbestos product liability. The trust will also receive 50.1% of the newly issued common stock in reorganized Congoleum when the Joint Plan takes effect (the “Trust Shares”).

Holders of Congoleum’s $100 million in 8.625% Senior Notes due in August 2008 will receive on a pro rata basis $80 million in new 9.75% senior secured notes that mature five years from issuance. The new senior secured notes will be subordinated to the working capital facility that provides Congoleum’s financing upon exiting reorganization. In addition, holders of the $100 million in 8.625% Senior Notes due in August 2008 will receive 49.9% of the common stock in reorganized Congoleum. Congoleum’s obligations for the $100 million in 8.625% senior notes due in August 2008, including accrued interest (which amounted to $44.6 million at December 31, 2007) will be satisfied by the new senior secured notes and the common stock issued when the Joint Plan takes effect.

In connection with the Joint Plan, Congoleum and certain parties have entered into an agreement (the “Put/Call Agreement”). Pursuant to the Put/Call Agreement, for the first 60 days after the date the Joint Plan is effective (the “Effective Date”), the Plan Trust may, at its sole option, elect to cause participating holders of Senior Notes (the “Backstop Participants”) to purchase all, but not less than all, of the Trust Shares for an aggregate purchase price equal to $5.25 million. Similarly, for the first 90 days after the Effective Date, the Backstop Participants will have the right to cause the Plan Trust to sell all, but not less than all, of the Trust Shares to the Backstop Participants for an aggregate purchase price equal to $7.5 million.

There can be no assurance that the Joint Plan or any other plan will receive the acceptances necessary for confirmation, that the Joint Plan will not be modified further, that the Joint Plan or any other plan will receive necessary court approvals from the Bankruptcy Court and the District Court, or that such approvals will be received in a timely fashion, that any plan will be confirmed, that any plan, if confirmed, will become effective, or that there will be sufficient funds to pay for continued litigation over any plan of reorganization. It also is unclear whether any other person might successfully propose and confirm a plan or what any such plan, when confirmed, would ultimately provide, and whether the Bankruptcy Court would approve such a plan. Any plan of reorganization pursued by the Company will be subject to numerous conditions, approvals and other requirements, including Bankruptcy Court and District Court approvals, and there can be no assurance that such conditions, approvals and other requirements will be satisfied or obtained.

In February 2006, the Bankruptcy Court ordered GHR to disgorge all fees and certain expenses it was paid by Congoleum. The amount of the disgorgement is approximately $9.6 million. In October 2006, Congoleum and GHR entered into a settlement agreement (the “GHR Settlement”) under which GHR is to pay Congoleum approximately $9.2 million plus accruing interest in full satisfaction of the disgorgement order. The payment is secured by assets of GHR and is to be made over time according to a formula based on GHR’s earnings. The Bankruptcy Court approved the GHR Settlement in April 2007. Payments received pursuant to the GHR settlement in 2007 were not significant. By correspondence dated March 27, 2008, GHR notified Congoleum of its intention to pay all sums outstanding under the GHR Settlement in full. GHR requested a payoff amount for an April 1, 2008 payment date.

During 2007, the Company paid $13.0 million in fees and expenses related to implementation of its planned reorganization under Chapter 11 of the Bankruptcy Code and litigation with certain insurance companies. Based on the Joint Plan, Congoleum has made provision in its financial statements for the minimum estimated cost to effect its plan to settle asbestos liabilities through confirmation of a plan that complies with section 524(g) of the Bankruptcy Code. Congoleum recorded charges aggregating approximately $51.3 million in prior years. Based on the terms of the Joint Plan, in the fourth quarter of 2007 Congoleum recorded an additional $41.3 million charge. Of this charge, $14.9 million related to the write-off of certain insurance litigation costs receivable that will not be collected under the terms of the Joint Plan and $26.4 million was an additional provision for estimated costs for the reorganization proceedings and coverage litigation. In the fourth quarter of 2007 Congoleum also recorded a $41.0 million interest expense credit to reverse post-petition interest accrued on its Senior Notes. Terms of previous reorganization plans had provided, among other things, for the payment of post-petition interest on the Senior Notes and therefore Congoleum had continued to accrue such interest. Under the terms of the Joint Plan, the Senior Noteholders will not receive any post-petition interest.

Status of Insurance Coverage

In August 2004, the State Court entered a case management order that divided the Coverage Action into three phases. A new judge was assigned to the case in February 2005 and the schedule was modified as a result.

In the middle of Congoleum presenting its case, in or about mid-November 2005 and early December 2005, certain insurers filed motions for summary judgment on the grounds, inter alia, that the Federal Appeals Court decision regarding GHR and/or Congoleum’s filing of the Avoidance Actions in the Bankruptcy Court, entitled them to judgment as a matter of law on the Phase 1 issues. Congoleum opposed the motions. The motions were argued in January 2006, and in March 2006 the State Court denied the motions for summary judgment.

jurisdiction over all the affected claimants and that their due process rights are otherwise protected. The Company amended the Omnibus Avoidance Action to seek the same relief requested in the Omnibus Objection.

The third and final phase of the Coverage Action will address bad faith punitive damages, if appropriate.

Amounts Recorded in Financial Statements

The table below provides an analysis of changes in the Company’s asbestos reserves and insurance receivables from December 31, 2006 to December 31, 2007:

(in thousands)	Balance at 12/31/2006			Additions (Deletions)		Spending Against Reserve			Recoveries From Insurance		Balance at 12/31/2007

Reserves
Current	$	7,800			26,448	$	(9,504	)		—	$	24,744

Receivables
Current		(21,813	)		14,867		(3,544	)		—		(10,490	)


Net Asbestos Liability	$	(14,013	)	$	41,315	$	(13,048	)	$	—	$	14,254

Restricted Cash
Insurance Proceeds	$	6,149		$	314						$	6,463

The table below provides an analysis of changes in the Company’s asbestos reserves and related receivables from December 31, 2005 to December 31, 2006:

(in thousands)	Balance at 12/31/2005			Additions (Deletions)		Spending Against Reserve			Recoveries From Insurance			Balance at 12/31/2006

Reserves
Current	$	19,469		$	—	$	(11,669	)	$	—		$	7,800

Receivables
Current		(14,793	)		—		(10,704	)		3,684			(21,813	)


Net Asbestos Liability (Asset)	$	4,676		$	—	$	(22,373	)	$	3,684		$	(14,013	)

Restricted Cash
Insurance Proceeds	$	8,901		$	932	$	—		$	(3,684	)	$	6,149

18. Stock Option Plans:

Under the Company’s 1995 Stock Option Plan, as amended (the “1995 Plan”), options to purchase up to 800,000 shares of the Company’s Class A common stock may be issued to officers and key employees. Such options may be either incentive stock options or nonqualified stock options, and the options’ exercise price must be at least equal to the fair value of the Company’s Class A common stock on the date of grant. All options granted under the 1995 Plan have ten-year terms and vest over five years at the rate of 20% per year beginning on the first anniversary of the date of grant.

On July 1, 1999, the Company established its 1999 Stock Option Plan for Non-Employee Directors, as amended (the “1999 Plan”), under which non-employee directors may be granted options to purchase up to 50,000 shares of the Company’s Class A common stock. Options granted under the 1999 Plan have ten-year terms and vest six months from the grant date.

In December 2001, the Company offered its eligible option holders an exchange of all options then outstanding and granted to them under the 1995 Plan or the 1999 Plan for new stock options to be granted under those plans not earlier than six months and one day after the date the Company canceled any options tendered to and accepted by it pursuant to the offer to exchange. On January 4, 2002, the Company accepted and canceled 667,500 options that had been previously granted under the 1995 Plan and 9,500 options that had been previously granted under the 1999 Plan that were tendered to and accepted by the Company pursuant to the offer to exchange.

A summary of the Company’s 1995 Plan activity, and related information, is as follows:

December 31, 2007:
	Shares			Weighted average exercise price
Options outstanding beginning of year		638,000		$	2.03
Options granted		—			—
Options exercised		—			—
Options forfeited		(2,500	)		(2.05	)

Options outstanding end of year		635,500		$	2.03


Exercisable at end of year		613,300		$	2.02
Weighted average remaining contractual life	4.61 years
Stock options available for future issuance		150,300

December 31, 2007:
	Shares		Weighted average exercise price
Options outstanding beginning of year		24,000	$	2.37
Options granted		2,500		0.95
Options exercised		—		—
Options forfeited		—		—

Options outstanding end of year		26,500	$	2.24


Exercisable at end of year		24,000	$	2.37
Weighted average remaining contractual life	5.27 years
Stock options available for future issuance		23,500

Stock option information related to non-vested shares for the Congoleum Stock Option Plans for the year ended December 31, 2007, was as follows:

1995 Plan:	Number of Shares			Weighted Average Grant-Date Fair Value
Non-vested stock options at January 1, 2007		148,800		$	1.55
Granted		—			—
Forfeited		(300	)		1.65
Vested		(126,300	)		1.78

Non-vested stock options at December 31, 2007		22,200		$	1.76

1999 Plan:	Number of Shares			Weighted Average Grant-Date Fair Value
Non-vested stock options at January 1, 2007		2,500		$	1.68
Granted		2,500			0.75
Forfeited		—			—
Vested		(2,500	)		1.68

Non-vested stock options at December 31, 2007		2,500		$	0.75

The intrinsic value of stock options exercised during 2007 and stock options outstanding and exercisable at December 31, 2007, under the Congoleum Stock Option Plans were as follows:

(in thousands)	Intrinsic Value

Exercised during 2007	NA
Outstanding at December 31, 2007	NA
Exercisable at December 31, 2007	NA

Upon exercise of stock options under the Congoleum Stock Option Plans, Congoleum shares are issued from treasury stock.

19. Stockholders’ Equity:

Holders of shares of the Company’s Class B common stock are entitled to two votes per share on all matters submitted to a vote of stockholders other than certain extraordinary matters. The holders of shares of the Company’s Class A common stock are entitled to one vote per share on all matters submitted to a vote of stockholders.

In November 1998, the Board of Directors authorized the Company to repurchase an additional $5.0 million of the Company’s common stock (Class A and Class B shares) through the open market or through privately negotiated transactions, bringing the total authorized common share repurchases to $15.0 million. Under the plan, Congoleum has repurchased shares of its common stock at an aggregate cost of $14.0 million through December 31, 2007. No shares were repurchased during 2007 or 2006. Shares of Class B stock repurchased (totaling 741,055 shares) have been retired. As of December 31, 2007, ABI owned 69.4% of the voting interest of the Company.

20. Fair Value of Financial Instruments:

The Company’s cash and cash equivalents, short-term investments, accounts receivable, accounts payable and long-term debt are financial instruments. With the exception of the Company’s long-term debt, the carrying value of these financial instruments approximates their fair value at December 31, 2007 and 2006. The Company’s long-term debt had a book value of $99.9 million and, based on bid prices quoted by an investment bank, a fair market value of $72.0 million at December 31, 2007. The Company’s long-term debt had a book value of $99.9 million and a fair market value of $91.0 million at December 31, 2006.

The fair value of the Company’s long-term debt is determined based on bid prices quoted by an investment bank. The fair value of the Company’s other financial instruments is determined based on discounted cash flows. Due to the short period over which the cash flows are expected to be realized, the carrying value of the financial instruments approximates the net present value of cash flows and changes in interest rate assumptions would not have a material effect on the calculation.

21. Quarterly Financial Data (Unaudited):

The following table summarizes unaudited quarterly financial information (in thousands):

	Year ended December 31, 2007

	First Quarter			Second Quarter		Third Quarter		Fourth Quarter(1)

Net sales	$	49,315		$	57,541	$	53,588	$	43,818

Gross profit		11,999			13,744		14,223		10,486

Net income (loss)		(351	)		835		1,200		(2,375	)

Net income (loss) per common share:

Basic	$	(0.04	)	$	0.10	$	0.15	$	(0.29	)
Diluted		(0.04	)		0.10		0.14		(0.29	)

	Year ended December 31, 2006

	First Quarter		Second Quarter		Third Quarter			Fourth Quarter(2)

Net sales	$	57,237	$	58,743	$	57,460		$	46,034

Gross profit		13,277		13,604		12,898			10,673

Net income (loss)		210		627		(424	)		266

Net income (loss) per common share:
Basic	$	0.03	$	0.08	$	(0.05	)	$	0.02
Diluted		0.03		0.08		(0.05	)		0.02

(1)

The fourth quarter of 2007 includes $41.5 million or $4.99 per share for the effect of the asbestos-related charges described in Notes 1 and 17, and $29.6 million or $3.57 per share for the reversal (credit) of interest on the Company’s long-term debt.

(2)

Includes $1.3 million of insurance recoveries in excess of book value of assets.

Report of Independent Registered Public Accounting Firm

We have audited the accompanying consolidated balance sheets of Congoleum Corporation (the Company) as of December 31, 2007 and 2006, and the related consolidated statement of operations, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2007. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Congoleum Corporation at December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

The accompanying financial statements have been prepared assuming that Congoleum Corporation will continue as a going concern. As more fully described in Note 1, “Basis of Presentation”, to the consolidated financial statements, the Company has been and continues to be named in a significant number of lawsuits stemming primarily from the Company's manufacture of asbestos-containing products. The Company has recorded significant charges to earnings to reflect its estimate of costs associated with this litigation. On December 31, 2003, Congoleum filed a voluntary petition with the United States Bankruptcy Court for the District of New Jersey (Case No. 03-51524) seeking relief under Chapter 11 of the United States Bankruptcy Code, as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1 to the consolidated financial statements. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Boston, Massachusetts

March 21, 2008

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A(T). CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2007. Based on this evaluation, the Company’s CEO and CFO concluded that, as of December 31, 2007, the Company’s disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

(b)

Management’s Annual Report on Internal Control Over Financial Reporting. The management of Congoleum Corporation is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined under Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. The management of Congoleum Corporation designed Congoleum Corporation’s internal control system to provide reasonable assurance to management and the Board of Directors regarding the preparation and fair presentation of Congoleum Corporation’s financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the applicable policies or procedures may deteriorate.

The management of Congoleum Corporation assessed the effectiveness of Congoleum Corporation’s internal control over financial reporting as of December 31, 2007. In making this assessment, the management of Congoleum Corporation used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on its assessment, the management of Congoleum Corporation believes that, as of December 31, 2007, Congoleum Corporation’s internal control over financial reporting is effective at a reasonable assurance level based on these criteria.

This Annual Report on Form 10-K does not include an attestation report of Congoleum Corporation’s registered public accounting firm regarding internal control over financial reporting. This Management's Annual Report on Internal Control Over Financial Reporting was not subject to attestation by Congoleum Corporation’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit Congoleum Corporation to provide only management's report in this annual report.

/s/ Roger S. Marcus	/s/ Howard N. Feist III
Roger S. Marcus, Chairman of the Board, Chief Executive Officer and Director	Howard N. Feist III, Vice President Finance and Chief Financial Officer

(c)

Changes in Internal Controls. No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) occurred during the fiscal quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. OTHER INFORMATION

None.

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Company has adopted a code of ethics (as that term is defined in Regulation S-K of the Exchange Act) that applies to its Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer or other persons performing such functions.

The text of the Company's code of ethics is posted on its Internet website at www.congoleum.com or may be obtained without charge by sending a written request to Mr. Howard N. Feist III, Chief Financial Officer of the Company, at the Company's office at 3500 Quakerbridge Road, P.O. Box 3127, Mercerville, NJ 08619. Amendments to, or waivers of, the code of ethics, if any, that relate to the Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer or other persons performing such function, will also be posted on the Internet website.

The other information called for by this Item is hereby incorporated by reference to the Registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 6, 2008.

Item 11. EXECUTIVE COMPENSATION

The information called for by this Item is hereby incorporated by reference to the Registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 6, 2008.

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information regarding the Company’s equity compensation plans as of December 31, 2007:

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights	Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (A))
	(A)	(B)	(C)
Equity compensation plans approved by security holders	635,500	$2.03	150,300

Equity compensation plans not approved by security holders	26,500	$2.24	23,500

Total	662,000	$2.03	173,800

On September 21, 1995, the Company established its 1995 Stock Option Plan, as amended (the “1995 Plan”), under which options to purchase up to 800,000 shares of the Company’s Class A common stock may be issued to officers and key employees. The 1995 Plan was approved by stockholders. Such options may be either incentive stock options or nonqualified stock options, and the options’ exercise price must be at least equal to the fair value of the Company’s Class A common stock on the date of grant. All options granted under the 1995 Plan have ten-year terms and vest over five years at the rate of 20% per year beginning on the first anniversary of the date of grant.

On July 1, 1999, the Company established its 1999 Stock Option Plan for Non-Employee Directors, as amended (the “1999 Plan”), under which non-employee directors may be granted non-qualified options (the “Options”) to purchase up to 50,000 shares of the Company’s Class A common stock. The 1999 Plan did not require or receive stockholder approval. The Options granted under the 1999 Plan have ten-year terms and vest six months from the grant date. The exercise price for each Option is the fair market value on the date of the grant.

For more information on the 1995 Plan and the 1999 Plan, see Note 18 of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

As of December 31, 2007, an aggregate of 637,300 shares of common stock were issuable upon the exercise of outstanding vested options under the 1995 Plan and 1999 Plan.

The other information called for by this Item is hereby incorporated by reference to the Registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 6, 2008.

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information called for by this Item is hereby incorporated by reference to the Registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 6, 2008.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information called for by this Item is hereby incorporated by reference to the Registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 6, 2008.

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) (1) The following financial statements of the Company are included in this Annual Report on Form 10-K:

		Page Numbers
	Consolidated Balance Sheets at December 31, 2007 and 2006	43
	Consolidated Statements of Operations for each of the two years ended December 31, 2007 and 2006	44
	Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for each of the two years ended December 31, 2007 and 2006	45
	Consolidated Statements of Cash Flows for each of the two years ended December 31, 2007 and 2006	46
	Notes to Consolidated Financial Statements	47
	Supplementary Data — Quarterly Financial Data (Unaudited)	81

(2)

The following financial statement schedule is included in this Annual Report on Form 10-K:

	Schedule II - Valuation and Qualifying Accounts	91
	All other schedules are omitted because they are not required, are inapplicable, or the information is otherwise shown in the financial statements or notes thereto.

(B) These exhibits, required to be filed by Item 601 of Regulation S-K under the Exchange Act, are listed in the Index to Exhibits included in this Annual Report on Form 10-K beginning on Page 93.

Exhibit Number	Exhibits

3.1	Amended Certificate of Incorporation of the Company.(3)
3.2	Amended and Restated Bylaws of the Company as of December 12, 2007.(26)
4.1	Registration Rights Agreement, dated as of February 8, 1995, by and between the Company and Hillside Industries, Incorporated ("Hillside").(2)
4.2	Indenture, dated as of August 3, 1998, by and between the Company and First Union National Bank, as trustee.(4)
4.2.1	First Supplemental Indenture, dated as of March 28, 2003, between the Company and Wachovia Bank, National Association (as successor to First Union National Bank), as trustee.(11)
4.2.2	Second Supplemental Indenture, dated as of August 7, 2003, between the Company and Wachovia Bank, National Association (as successor to First Union National Bank), as trustee.(12)
4.2.3	Instrument of Resignation, Appointment and Acceptance dated as of December 14, 2005 among the Company, Wachovia Bank, National Association and HSBC Bank USA, National Association, as Successor Trustee.(17)

10.1	Joint Venture Agreement, dated as of December 16, 1992, by and among Resilient Holdings, Incorporated, Hillside, the Company (collectively, the "Congoleum Group"), Hillside Capital Incorporated ("Hillside Capital") and American Biltrite Inc. ("American Biltrite").(1)
10.2	Closing Agreement, dated as of March 11, 1993, by and among the Congoleum Group, Hillside Capital and American Biltrite.(1)
10.3	Personal Services Agreement, dated as of March 11, 1993 (the "Personal Services Agreement"), by and between American Biltrite and the Company.(1)
10.3.1	First Amendment, dated February 8, 1995, to Personal Services Agreement, by and between American Biltrite and the Company.(2)
10.3.2	Second Amendment, dated November 15, 1996, to Personal Services Agreement, by and between American Biltrite and the Company.(5)
10.3.3	Third Amendment, dated as of March 10, 1998, to Personal Services Agreement, by and between American Biltrite and the Company.(5)
10.3.4	Fourth Amendment, dated as of November 7, 2002, to Personal Services Agreement, by and between American Biltrite and the Company.(11)
10.3.5	Fifth Amendment, dated as of March 11, 2008, to Personal Services Agreement, by and between American Biltrite and the Company. (23)
10.4	Business Relations Agreement, dated as of March 11, 1993, by and between American Biltrite and the Company.(1)
10.4.1	First Amendment, dated August 19, 1997, to Business Relations Agreement, by and between American Biltrite and the Company.(5)
10.4.2	Amendment to Business Relations Agreement, dated as of March 11, 2008, by and between American Biltrite and the Company. (23)
10.5	Tax Sharing Agreement, dated as of November 1, 1996, between American Biltrite and the Company.(5)
10.6	Trademark Purchase Agreement, dated November 29, 1993, by and between the Company and The Amtico Company LTD ("Amtico Company").(2)
10.7	First Right of Refusal, dated November 29, 1993, by and between American Biltrite (Canada) Limited and Amtico Company.(2)
10.8	Undertaking Concerning Amtico Trademark, dated November 29, 1993, by and between American Biltrite and Amtico Company.(2)
10.9	Form of 1995 Stock Option Plan.(2)
10.9.1	Form of Amendment to 1995 Stock Option Plan.(6)
10.9.2	Form of Nonqualified Stock Option Award Agreement Under the Congoleum 1995 Stock Option Plan.(15)
10.10	Congoleum Corporation 1999 Stock Option Plan for Non-Employee Directors.(8)
10.10.1	Form of Amendment to Non-qualified, Non-employee Directors Stock Option Plan.(9)
10.10.2	Form of Stock Option Agreement Under the Congoleum Corporation 1999 Stock Option Plan for Non-Employee Directors.(15)
10.11	Loan and Security Agreement, dated December 10, 2001 (the "Congress Financial Loan Agreement") by and between Congress Financial Corp. (the "Lender") and the Company.(9)
10.11.1	Amendment No. 1 to Loan and Security Agreement, dated September 24, 2002, by and between Congress Financial Corporation and Congoleum Corporation.(10)

10.11.2	Amendment No. 2 to Loan and Security Agreement, dated as of February 27, 2003, by and between Congress Financial Corporation and Congoleum Corporation.(11)
10.11.3	Ratification and Amendment Agreement dated January 7, 2004, by and between the Company and Congress Financial Corporation.(13)
10.11.4	Amendment No. 1 to Ratification and Amendment Agreement and Amendment No. 3 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of December 14, 2004.(14)
10.11.5	Amendment No. 2 to Ratification and Amendment Agreement and Amendment No. 4 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of January 13, 2005. (24)
10.11.6	Amendment No. 3 to Ratification and Amendment Agreement and Amendment No. 5 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of June 7, 2005. (24)
10.11.7	Amendment No. 4 to Ratification and Amendment Agreement and Amendment No. 6 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of December 19, 2005. (24)
10.11.8	Amendment No. 5 to Ratification and Amendment Agreement and Amendment No. 7 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of September 27, 2006. (24)
10.11.9	Amendment No. 6 to Ratification and Amendment Agreement and Amendment No. 8 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of November 27, 2006. (24)
10.11.10	Amendment No. 7 to Ratification and Amendment Agreement and Amendment No. 9 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of June 12, 2007. (20)
10.11.11	Amendment No. 8 to Ratification and Amendment Agreement and Amendment No. 10 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of December 11, 2007.
10.12	Settlement Agreement Between the Company and Various Asbestos Claimants dated April 10, 2003.(12)
10.12.1	First Amendment to Settlement Agreement Between the Company and Various Asbestos Claimants dated June 6, 2003.(12)
10.13	Collateral Trust Agreement, dated April 16, 2003, by and between the Company, Arthur J. Pergament, solely in his capacity as the Collateral Trustee of the Collateral Trust, and Wilmington Trust Company, solely in its capacity as Delaware Trustee of the Collateral Trust.(12)
10.13.1	First Amendment to Collateral Trust Agreement, dated June 6, 2003, by and between the Company, Arthur J. Pergament, solely in his capacity as the Collateral Trustee of the Collateral Trust, and Wilmington Trust Company, solely in its capacity as Delaware Trustee of the Collateral Trust.(12)
10.14	Security Agreement, dated April 16, 2003, by and between the Company and Arthur J. Pergament, solely in his capacity as the Collateral Trustee of the Collateral Trust.(12)
10.14.1	Second Security Agreement, dated April 17, 2003, by and between the Company and Arthur J. Pergament, solely in his capacity as the Collateral Trustee of the Collateral Trust.(12)

10.14.2	Termination Agreement, dated June 6, 2003, by and between the Company and Arthur J. Pergament, solely in his capacity as the Collateral Trustee of the Collateral Trust.(12)
10.14.3	Superseding Security Agreement, dated June 11, 2003, by and between the Company and Arthur J. Pergament, solely in his capacity as the Collateral Trustee of the Collateral Trust.(12)
10.15	Purchase Agreement, effective as of September 1, 2006, between the Company and Armstrong World Industries, Inc. (24)
10.16	Note Agreement, dated as of October 12, 2006, by and between Gilbert Heinz & Randolph, LLP (“GHR”) and the Company.(25)
10.17	Promissory Note dated October 12, 2006 of GHR. (25)
10.18	Security Agreement, dated as of October 12, 2006 made by GHR in favor of the Company. (25)
10.19	Put/Call Agreement, dated as of February 20, 2008, between the Company, the Initial Backstop Participants and the Trust to be formed. (22)
14.1	Code of Ethics.(14)
21.1	Subsidiaries of the Company.(7)
23.1	Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP.
31.1	Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.
31.2	Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.
32.1	Section 1350 Certification of the Chief Executive Officer.
32.2	Section 1350 Certification of the Chief Financial Officer.
99.1	Settlement Agreement and Release by and between Congoleum Corporation and Liberty Mutual Insurance Company.(16)
99.2	Settlement Agreement and Release by, between and among Congoleum Corporation and certain AIG Member Companies.(16)
99.3	Confidential Settlement Agreement and Release among Congoleum Corporation, the Plan Trust and Certain Underwriters at Lloyd's, London dated June 22, 2005.(16)
99.3.1	Amendment dated July 29, 2005, to the Confidential Settlement Agreement and Release among Congoleum Corporation, the Plan Trust and Certain Underwriters at Lloyd's, London, dated June 22, 2005.(16)
99.3.2	Second Amendment, dated November 8, 2007, to the Confidential Settlement Agreement and Release among Congoleum Corporation, the Plan Trust and Certain Undewriters at Lloyd’s, London, dated June 22, 2005.
99.4	Settlement Agreement and Release by, between and among Congoleum Corporation and Federal Insurance Company.(15)
99.5	Amended and Restated Settlement Agreement and Release, dated as of January 18, 2008, among Congoleum Corporation, the Plan Trust and Mt. McKinley Insurance Company and Everest Reinsurance Company.
99.6	Settlement Agreement and Release by and between Congoleum Corporation and Harper Insurance Limited, formerly known as Turegum Insurance Company.(18)
99.7	Settlement and Policy Buyback Agreement and Release, dated as of April 25, 2006, by and among Congoleum Corporation, the Plan Trust, American Biltrite, Travelers Casualty and Surety Co., and St. Paul Fire and Marine Insurance Company.(18)

99.7.1	Letter Agreement, dated March 18, 2008, amending the Settlement and Policy Buyback Agreement and Release, dated as of April 25, 2006, by and among Congoleum Corporation, the Plan Trust, American Biltrite, Travelers Casualty and Surety Co. and St. Paul Fire and Marine Insurance Company
99.8	Settlement Agreement, made as of April 27, 2006, by and between Congoleum Corporation and Fireman’s Fund Insurance Company.(18)
99.9	Settlement and Policy Buyback Agreement and Release, made as of August 17, 2006, by and between Congoleum Corporation and Century Insurance Company.(19)
99.10	Disclosure Statement with respect to the Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of the Futures Representative for Congoleum Corporation, et al., dated as of January 17, 2008. (21)
99.11	Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of the Futures Representative for Congoleum Corporation, et al., dated as of January 17, 2008. (21)

SCHEDULE II

CONGOLEUM CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

(in thousands)	Balance at Beginning Of Period			Reversed to Income Statement		Other Changes			Deductions(a)		Balance At end of Period

Year ended December 31, 2007: Allowance for doubtful accounts and cash discounts	$	(1,142	)	$	—	$	125	(b)	$	—	$	(1,017	)

Year ended December 31, 2006: Allowance for doubtful accounts and cash discounts	$	(1,142	)	$	—	$	—	(b)	$	—	$	(1,142	)

(a) Balances written off, net of recoveries.

(b) Represents (provision) utilization of the allowance for doubtful accounts and cash discounts.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 10th day of March 2008.

CONGOLEUM CORPORATION

By: /s/ Roger S. Marcus

Roger S. Marcus

President, Chairman & Chief Executive Officer

(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Roger S. Marcus	President, Chairman, Chief Executive Officer	March 10, 2008
Roger S. Marcus	and Director (Principal Executive Officer)

/s/ Howard N. Feist III	Chief Financial Officer	March 10, 2008
Howard N. Feist III	(Principal Financial and Accounting Officer)

/s/ Richard G. Marcus	Vice Chairman and Director	March 10, 2008
Richard G. Marcus

/s/ William M. Marcus	Director	March 10, 2008
William M. Marcus

/s/ Mark S. Newman	Director	March 10, 2008
Mark S. Newman

/s/ Mark N. Kaplan	Director	March 10, 2008
Mark N. Kaplan

_______________	Director
C. Barnwell Straut

/s/ Jeffrey H. Coats	Director	March 10, 2008
Jeffrey H. Coats

/s/ Adam H. Slutsky	Director	March 10, 2008
Adam H. Slutsky

INDEX TO EXHIBITS

Exhibit Number	Exhibits

3.1	Amended Certificate of Incorporation of the Company.(3)
3.2	Amended and Restated Bylaws of the Company as of December 12, 2007.(26)
4.1	Registration Rights Agreement, dated as of February 8, 1995, by and between the Company and Hillside Industries, Incorporated ("Hillside").(2)
4.2	Indenture, dated as of August 3, 1998, by and between the Company and First Union National Bank, as trustee.(4)
4.2.1	First Supplemental Indenture, dated as of March 28, 2003, between the Company and Wachovia Bank, National Association (as successor to First Union National Bank), as trustee.(11)
4.2.2	Second Supplemental Indenture, dated as of August 7, 2003, between the Company and Wachovia Bank, National Association (as successor to First Union National Bank), as trustee.(12)
4.2.3	Instrument of Resignation, Appointment and Acceptance dated as of December 14, 2005 among the Company, Wachovia Bank, National Association and HSBC Bank USA, National Association, as Successor Trustee.(17)
10.1	Joint Venture Agreement, dated as of December 16, 1992, by and among Resilient Holdings, Incorporated, Hillside, the Company (collectively, the "Congoleum Group"), Hillside Capital Incorporated ("Hillside Capital") and American Biltrite Inc. ("American Biltrite").(1)
10.2	Closing Agreement, dated as of March 11, 1993, by and among the Congoleum Group, Hillside Capital and American Biltrite.(1)
10.3	Personal Services Agreement, dated as of March 11, 1993 (the "Personal Services Agreement"), by and between American Biltrite and the Company.(1)
10.3.1	First Amendment, dated February 8, 1995, to Personal Services Agreement, by and between American Biltrite and the Company.(2)
10.3.2	Second Amendment, dated November 15, 1996, to Personal Services Agreement, by and between American Biltrite and the Company.(5)
10.3.3	Third Amendment, dated as of March 10, 1998, to Personal Services Agreement, by and between American Biltrite and the Company.(5)
10.3.4	Fourth Amendment, dated as of November 7, 2002, to Personal Services Agreement, by and between American Biltrite and the Company.(11)
10.3.5	Fifth Amendment, dated as of March 11, 2008, to Personal Services Agreement, by and between American Biltrite and the Company.(23)
10.4	Business Relations Agreement, dated as of March 11, 1993, by and between American Biltrite and the Company.(1)
10.4.1	First Amendment, dated August 19, 1997, to Business Relations Agreement, by and between American Biltrite and the Company.(5)
10.4.2	Amendment to Business Relations Agreement, dated as of March 11, 2008, by and between American Biltrite and the Company.(23)
10.5	Tax Sharing Agreement, dated as of November 1, 1996, between American Biltrite and the Company.(5)

10.6	Trademark Purchase Agreement, dated November 29, 1993, by and between the Company and The Amtico Company LTD ("Amtico Company").(2)
10.7	First Right of Refusal, dated November 29, 1993, by and between American Biltrite (Canada) Limited and Amtico Company.(2)
10.8	Undertaking Concerning Amtico Trademark, dated November 29, 1993, by and between American Biltrite and Amtico Company.(2)
10.9	Form of 1995 Stock Option Plan.(2)
10.9.1	Form of Amendment to 1995 Stock Option Plan.(6)
10.9.2	Form of Nonqualified Stock Option Award Agreement Under the Congoleum 1995 Stock Option Plan.(15)
10.10	Congoleum Corporation 1999 Stock Option Plan for Non-Employee Directors. (8)
10.10.1	Form of Amendment to Non-qualified, Non-employee Directors Stock Option Plan.(9)
10.10.2	Form of Stock Option Agreement Under the Congoleum Corporation 1999 Stock Option Plan for Non-Employee Directors.(15)
10.11	Loan and Security Agreement, dated December 10, 2001 (the "Congress Financial Loan Agreement") by and between Congress Financial Corp. (the "Lender") and the Company.(9)
10.11.1	Amendment No. 1 to Loan and Security Agreement, dated September 24, 2002, by and between Congress Financial Corporation and Congoleum Corporation.(10)
10.11.2	Amendment No. 2 to Loan and Security Agreement, dated as of February 27, 2003, by and between Congress Financial Corporation and Congoleum Corporation.(11)
10.11.3	Ratification and Amendment Agreement dated January 7, 2004, by and between the Company and Congress Financial Corporation.(13)
10.11.4	Amendment No. 1 to Ratification and Amendment Agreement and Amendment No. 3 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of December 14, 2004.(14)
10.11.5	Amendment No. 2 to Ratification and Amendment Agreement and Amendment No. 4 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of January 13, 2005. (24)
10.11.6	Amendment No. 3 to Ratification and Amendment Agreement and Amendment No. 5 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of June 7, 2005. (24)
10.11.7	Amendment No. 4 to Ratification and Amendment Agreement and Amendment No. 6 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of December 19, 2005. (24)
10.11.8	Amendment No. 5 to Ratification and Amendment Agreement and Amendment No. 7 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of September 27, 2006. (24)
10.11.9	Amendment No. 6 to Ratification and Amendment Agreement and Amendment No. 8 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of November 27, 2006. (24)

10.11.10	Amendment No. 7 to Ratification and Amendment Agreement and Amendment No. 9 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of June 12, 2007. (20)
10.11.11	Amendment No. 8 to Ratification and Amendment Agreement and Amendment No. 10 to Loan and Security Agreement, by and between the Company and Congress Financial Corporation dated as of December 11, 2007.
10.12	Settlement Agreement Between the Company and Various Asbestos Claimants dated April 10, 2003.(12)
10.12.1	First Amendment to Settlement Agreement Between the Company and Various Asbestos Claimants dated June 6, 2003.(12)
10.13	Collateral Trust Agreement, dated April 16, 2003, by and between the Company, Arthur J. Pergament, solely in his capacity as the Collateral Trustee of the Collateral Trust, and Wilmington Trust Company, solely in its capacity as Delaware Trustee of the Collateral Trust.(12)
10.13.1	First Amendment to Collateral Trust Agreement, dated June 6, 2003, by and between the Company, Arthur J. Pergament, solely in his capacity as the Collateral Trustee of the Collateral Trust, and Wilmington Trust Company, solely in its capacity as Delaware Trustee of the Collateral Trust.(12)
10.14	Security Agreement, dated April 16, 2003, by and between the Company and Arthur J. Pergament, solely in his capacity as the Collateral Trustee of the Collateral Trust.(12)
10.14.1	Second Security Agreement, dated April 17, 2003, by and between the Company and Arthur J. Pergament, solely in his capacity as the Collateral Trustee of the Collateral Trust.(12)
10.14.2	Termination Agreement, dated June 6, 2003, by and between the Company and Arthur J. Pergament, solely in his capacity as the Collateral Trustee of the Collateral Trust.(12)
10.14.3	Superseding Security Agreement, dated June 11, 2003, by and between the Company and Arthur J. Pergament, solely in his capacity as the Collateral Trustee of the Collateral Trust.(12)
10.15	Purchase Agreement, effective as of September 1, 2006, between the Company and Armstrong World Industries, Inc. (24)
10.16	Note Agreement, dated as of October 12, 2006, by and between Gilbert Heintz & Randolph LLP (“GHR”) and the Company.(25)
10.17	Promissory Note dated October 12, 2006 of GHR. (25)
10.18	Security Agreement, dated as of October 12, 2006 made by GHR in favor of the Company. (25)
10.19	Put/Call Agreement, dated as of February 20, 2008, between the Company, the Initial Backstop Participants and the Trust to be formed. (22)
12.1	Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
14.1	Code of Ethics.(14)
21.1	Subsidiaries of the Company.(7)
23.1	Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP.

31.1	Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.
31.2	Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.
32.1	Section 1350 Certification of Chief Executive Officer.
32.2	Section 1350 Certification of Chief Financial Officer.
99.1	Settlement Agreement and Release by and between Congoleum Corporation and Liberty Mutual Insurance Company.(16)
99.2	Settlement Agreement and Release by, between and among Congoleum Corporation and certain AIG Member Companies.(16)
99.3	Confidential Settlement Agreement and Release among Congoleum Corporation, the Plan Trust and Certain Underwriters at Lloyd's, London dated June 22, 2005.(16)
99.3.1	Amendment dated July 29, 2005, to the Confidential Settlement Agreement and Release among Congoleum Corporation, the Plan Trust and Certain Underwriters at Lloyd's, London, dated June 22, 2005.(16)
99.3.2	Second Amendment, dated November 8, 2007, to the Confidential Settlement Agreement and Release among Congoleum Corporation, the Plan Trust and Certain Undewriters at Lloyd’s, London, dated June 22, 2005.
99.4	Settlement Agreement and Release by, between and among Congoleum Corporation and Federal Insurance Company.(15)
99.5	Amended and Restated Settlement Agreement and Release, dated as of January 18, 2008, among Congoleum Corporation, the Plan Trust and Mt. McKinley Insurance Company and Everest Reinsurance Company.
99.6	Settlement Agreement and Release by and between Congoleum Corporation and Harper Insurance Limited, formerly known as Turegum Insurance Company.(18)
99.7	Settlement and Policy Buyback Agreement and Release, dated as of April 25, 2006, by and among Congoleum Corporation, the Plan Trust, American Biltrite, Travelers Casualty and Surety Co., and St. Paul Fire and Marine Insurance Company.(18)
99.7.1	Letter Agreement, dated March 18, 2008, amending the Settlement and Policy Buyback Agreement and Release, dated as of April 25, 2006, by and among Congoleum Corporation, the Plan Trust, American Biltrite, Travelers Casualty and Surety Co. and St. Paul Fire and Marine Insurance Company.
99.8	Settlement Agreement, made as of April 27, 2006, by and between Congoleum Corporation and Fireman’s Fund Insurance Company.(18)
99.9	Settlement and Policy Buyback Agreement and Release, made as of August 17, 2006, by and between Congoleum Corporation and Century Insurance Company.(19)
99.10	Disclosure Statement with respect to the Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of the Futures Representative for Congoleum Corporation, et al., dated as of January 17, 2008. (21)
99.11	Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of the Futures Representative for Congoleum Corporation, et al., dated as of January 17, 2008. (21)

(1)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Registration Statement on Form S-1 (File No. 33-71836) declared effective by the Securities and Exchange Commission on January 25, 1994.

(2)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Registration Statement on Form S-1 (File No. 33-87282) declared effective by the Securities and Exchange Commission on February 1, 1995.

(3)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Quarterly Report on Form 10-Q (File No. 001-13612) for the period ended June 30, 1996.

(4)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Quarterly Report on Form 10-Q (File No. 001-13612) for the period ended June 30, 1998.

(5)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Annual Report on Form 10-K (File No. 001-13612) for the period ended December 31, 1997.

(6)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Annual Report on Form 10-K (File No. 001-13612) for the period ended December 31, 1996.

(7)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Annual Report on Form 10-K (File No. 001-13612) for the period ended December 31, 1998.

(8)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Registration Statement on Form S-8 (File No. 333-84387) declared effective by the Securities and Exchange Commission on August 3, 1999.

(9)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Annual Report on Form 10-K (File No. 001-13612) for the period ended December 31, 2001.

(10)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Quarterly Report on Form 10-Q (File No. 001-13612) for the period ended September 30, 2002.

(11)	Incorporated by reference to the exhibit bearing the same description filed with the Company’s Annual Report on Form 10-K (File No. 001-13612) for the period ended December 31, 2002.

(12)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Quarterly Report on Form 10-Q (File No. 001-13612) for the period ended June 30, 2003.

(13)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Annual Report on Form 10-K (File No. 001-13612) for the period ended December 31, 2003.

(14)	Incorporated by reference to the exhibit bearing the same description filed with the Company’s Annual Report on Form 10-K (File No. 001-13612) for the period ended December 31, 2004.

(15)	Incorporated by reference to the exhibit bearing the same description filed with the Company’s Quarterly Report on Form 10-Q (File No. 001-13612) for the period ended September 30, 2005.

(16)	Incorporated by reference to the exhibit bearing the same description filed with the Company’s Quarterly Report on Form 10-Q (File No. 001-13612) for the period ended June 30, 2005.

(17)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Annual Report on Form 10-K (File No. 001-13612) for the period ended December 31, 2005.

(18)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Quarterly Report on Form 10-Q (File No. 001-13612) for the period ended March 31, 2006.

(19)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Quarterly Report on Form 10-Q (File No. 001-13612) for the period ended September 30, 2006

(20)	Incorporated by reference to the exhibit bearing the same description filed with the Company's Quarterly Report on Form 10-Q (File No. 001-13612) for the period ended June 30, 2007.

(21)	Incorporated by reference to the exhibit bearing the same description filed with the Company’s Current Report on Form 8-K (File No. 001-13612) on January 23, 2008.

(22)	Incorporated by reference to the exhibit bearing the same description filed with the Company’s Current Report on Form 8-K (File No. 001-13612) on February 22, 2008.

(23)	Incorporated by reference to the exhibit bearing the same description filed with the Company’s Current Report on Form 8-K (File No. 001-13612) on March 17, 2008.

(24)	Incorporated by reference to the exhibit bearing the same description filed with the Company’s Annual Report on Form 10-K (File No. 001-13612) for the period ended December 31, 2006.

(25)	Incorporated by reference to the exhibit bearing the same description filed with the Company’s Current Report on Form 8-K (File No. 001-13612) on April 10, 2007.

(26)	Incorporated by reference to the exhibit bearing the same description filed with the Company’s Current Report on Form 8-K (File No. 001-13612) on December 12, 2007.

EX-10.11.11 2 ex10-1111.htm ex10-1111.htm

Exhibit 10.11.11

AMENDMENT NO. 8 TO RATIFICATION AND AMENDMENT AGREEMENT AND

AMENDMENT NO. 10 TO LOAN AND SECURITY AGREEMENT

AMENDMENT NO. 8 TO RATIFICATION AND AMENDMENT AGREEMENT AND AMENDMENT NO. 10 TO LOAN AND SECURITY AGREEMENT, dated as of December 11, 2007 (this “Eighth Ratification Amendment”), by and among CONGOLEUM CORPORATION, a Delaware corporation, as debtor and debtor-in-possession (“Borrower”), CONGOLEUM FISCAL, INC., a New York corporation, as debtor and debtor-in-possession (“CFI”), CONGOLEUM SALES, INC., a New York corporation, as debtor and debtor-in-possession (“CSI” and together with CFI, collectively, “Guarantors” and each individually, a “Guarantor”), and WACHOVIA BANK, NATIONAL ASSOCIATION, successor by merger to Congress Financial Corporation (“Lender”).

W I T N E S S E T H:

WHEREAS, Lender, Borrower and Guarantors have entered into financing arrangements pursuant to which Lender may make loans and advances and provide other financial accommodations to Borrower as set forth in the Loan and Security Agreement, dated December 10, 2001, between Lender and Borrower, as amended by Amendment No. 1 to Loan and Security Agreement, dated September 19, 2002, between Lender and Borrower, Amendment No. 2 to Loan and Security Agreement, dated as of February 27, 2003, among Lender, Borrower and Guarantors, and as further amended and ratified by the Ratification and Amendment Agreement, dated as of January 7, 2004 (the “Ratification Agreement”), between Lender and Borrower, as acknowledged by Guarantors, Amendment No. 1 to Ratification Agreement and Amendment No. 3 to Loan and Security Agreement, dated as of December 14, 2004, between Lender and Borrower, as acknowledged by Guarantors, Amendment No. 2 to Ratification Agreement and Amendment No. 4 to Loan and Security Agreement, dated as of January 13, 2005, between Lender and Borrower, as acknowledged by Guarantors, Amendment No. 3 to Ratification Agreement and Amendment No. 5 to Loan and Security Agreement, dated as of June 7, 2005, between Lender and Borrower, as acknowledged by Guarantors, Amendment No. 4 to Ratification Agreement and Amendment No. 6 to Loan and Security Agreement, dated as of December 19, 2005, as acknowledged by Guarantors, Amendment No. 5 to Ratification Agreement and Amendment No. 7 to Loan and Security Agreement, dated as of September 27, 2006 between Lender and Borrower, as acknowledged by Guarantors, Amendment No. 6 to Ratification Agreement and Amendment No. 8 to Loan and Security Agreement, dated as of November 27, 2006 between Lender and Borrower, as acknowledged by Guarantors, and Amendment No. 7 to Ratification Agreement and Amendment No. 9 to Loan and Security Agreement dated as of June 12, 2007 between Lender and Borrowers, as acknowledged by Guarantors, permitting debtor and debtor-in-possession financing for Borrower and Guarantors, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced (all of the foregoing, as amended hereby and as the same may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, collectively, the “Loan Agreement”, and together with all agreements, documents and instruments at any time executed and/or delivered in connection therewith or related thereto, including the Reaffirmation and Amendment of Guarantor Documents, dated as of January 7, 2004, between Lender and Guarantors, as from time to time amended, modified, supplemented, extended, renewed, restated or replaced, collectively, the “Financing Agreements”);

WHEREAS, Borrower and each Guarantor have each commenced a case under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of New Jersey and have each retained possession of its assets and is authorized under the Bankruptcy Code to continue the operation of its businesses as a debtor-in-possession;

WHEREAS, Borrower and Guarantors have requested that Lender make certain amendments to the Loan Agreement, and Lender is willing to agree to such request, subject to the terms and conditions contained herein;

WHEREAS, by this Eighth Ratification Amendment, Lender, Borrower and Guarantors desire and intend to evidence such amendments;

WHEREAS, this Eighth Ratification Amendment has been filed with the Bankruptcy Court and notice thereof has been served upon all parties that have requested notice in the Borrower’s and Guarantors’ bankruptcy cases pursuant to the Final Order (1) Authorizing Debtors’ Use of Cash Collateral, (2) Authorizing Debtors to Obtain Post-Petition Financing, (3) Granting Senior Liens and Priority Administrative Expense Status Pursuant to 11 U.S.C. §§105 and 364(c), (4) Modifying the Automatic Stay Pursuant to 11 U.S.C. §362, and (5) Authorizing Debtors to Enter Into Agreements with Congress Financial Corporation (as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, the “Final DIP Financing Order”), which was approved by the Bankruptcy Court on February 2, 2004;

WHEREAS, no objection has been filed by any interested party to the terms and conditions of this Eighth Ratification Amendment and Borrower and Guarantors are authorized to execute and deliver this Eighth Ratification Amendment in accordance with the terms of the Final DIP Financing Order; and

NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender, Borrower and Guarantors hereby covenant, warrant and agree as follows:

1. DEFINITIONS.

1.1 Additional Definition. “Eighth Ratification Amendment” shall mean this Eighth Ratification Amendment, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.

1.2 Amendments to Definitions in Financing Agreements.

(a) All references to the term “Financing Agreements” in this Eighth Ratification Amendment and in any of the Financing Agreements shall be deemed and each such reference is hereby amended to include, in addition and not in limitation, this Eighth Ratification Amendment, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.

(b) All references to the term “Ratification Agreement” in this Eighth Ratification Amendment and in any of the Financing Agreements shall be deemed and each such reference is hereby amended to mean the Ratification Agreement, as amended hereby, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.

1.3 Interpretation. For purposes of this Eighth Ratification Amendment, unless otherwise defined herein, all capitalized terms used herein, including, but not limited to, those terms used and/or defined in the recitals above, shall have the respective meanings assigned to such terms in the Loan Agreement.

2. AMENDMENTS TO LOAN AGREEMENT

2.1 Minimum EBITDA. Section 9.23(c) of the Loan Agreement is hereby deleted in its entirety and replaced with the following:

“(c) Borrower and its Subsidiaries shall not, for any period set forth below during fiscal year 2007 and 2008 of Borrower and its Subsidiaries (each, a “Test Period”), permit EBITDA of Borrower and its Subsidiaries on a rolling four (4) quarter basis to be less than the respective amount set forth below opposite such Test Period; provided, that, if Excess Availability was equal to or greater than $15,000,000 for each of the ninety (90) consecutive days immediately preceding the last day of any such Test Period, then Borrower and its Subsidiaries shall not be required to comply with the terms of this Section 9.23(c) for such Test Period:

Test Period	Minimum EBITDA
For the four (4) quarters ending December 31, 2007	$20,000,000
For the four (4) quarters ending March 31, 2008	$20,000,000
For the four (4) quarters ending June 30, 2008	$20,000,000

2.2 Term.

(a) The first sentence of Section 12.1(a) of the Loan Agreement is hereby deleted in its entirety and replaced with the following:

“This Agreement and the other Financing Agreements shall become effective as of the date set forth on the first page hereof and shall continue in full force and effect for a term ending on the earlier of (i) June 30, 2008 and (ii) the date the plan of reorganization in the Borrower’s and Guarantors’ bankruptcy cases, as confirmed by the Bankruptcy Court, becomes effective (such earlier date, the “Termination Date”).”

(b) Section 12.1(c)(iii) of the Loan Agreement is hereby amended by deleting the reference to “December 31, 2007” and replacing it with “June 30, 2008”.

3. AMENDMENT FEE. In addition to and not in limitation of all other fees, costs and expenses payable to Lender under the Financing Agreements, in consideration of this Eighth Ratification Amendment, Borrower shall pay Lender an amendment fee in the amount of $100,000 (the “Amendment Fee”), which fee shall be fully earned as of and payable on the date hereof and may be charged directly to the loan account of Borrower.

4. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition to the continuing representations, warranties and covenants heretofore made in the Loan Agreement or otherwise and hereafter made by Borrower and Guarantors to Lender, whether pursuant to the Financing Agreements or otherwise, and not in limitation thereof, Borrower and Guarantors hereby represent, warrant and covenant with, to and in favor of Lender the following (which shall survive the execution and delivery of this Agreement), the truth and accuracy of which, or compliance with, to the extent such compliance does not violate the terms and provisions of the Bankruptcy Code, being a continuing condition of the making of loans by Lender:

4.1 This Eighth Ratification Amendment has been duly authorized, executed and delivered by Borrower and Guarantors and the agreements and obligations of Borrower and Guarantors contained herein constitute legal, valid and binding obligations of Borrower and Guarantors enforceable against Borrower and Guarantors in accordance with their respective terms.

4.2 No Default or Event of Default or act, condition or event which with notice or passage of time or both would constitute an Event of Default exists or has occurred as of the date of this Eighth Ratification Amendment.

5. CONDITIONS PRECEDENT. In addition to any other conditions contained herein or in the Loan Agreement, as in effect immediately prior to the date hereof, with respect to the Loans, Letter of Credit Accommodations and other financial accommodations available to Borrower (all of which conditions, except as modified or made pursuant to this Eighth Ratification Amendment shall remain applicable to the Loans and be applicable to Letter of Credit Accommodations and other financial accommodations available to Borrower), the following are conditions to Lender’s obligation to extend further loans, advances or other financial accommodations to Borrower pursuant to the Loan Agreement:

5.1 Borrower and Guarantors shall execute and/or deliver to Lender this Eighth Ratification Amendment, and all other Financing Agreements that Lender may request to be delivered in connection herewith, in form and substance satisfactory to Lender;

5.2 No trustee, examiner or receiver or the like shall have been appointed or designated with respect to Borrower or any Guarantor, as debtor and debtor-in-possession, or its business, properties and assets;

5.3 Borrower and Guarantors shall execute and/or deliver to Lender all other Financing Agreements, and other agreements, documents and instruments, in form and substance satisfactory to Lender, which, in the good faith judgment of Lender are necessary or appropriate and implement the terms of this Eighth Ratification Amendment and the other Financing Agreements, as modified pursuant to this Eighth Ratification Amendment, all of which contains provisions, representations, warranties, covenants and Events of Default, as are reasonably satisfactory to Lender and its counsel;

5.4 Each of Borrower and Guarantors shall comply in full with the notice and other requirements of the Bankruptcy Code, the applicable Federal Rules of Bankruptcy Procedure, and the terms and conditions of the Final DIP Financing Order in a manner acceptable to Lender and its counsel;

5.5 No objection has been filed by any interested party to the terms and conditions of this Eighth Ratification Amendment and Borrower and Guarantors are authorized, in accordance with the terms of the Final DIP Financing Order, to execute, deliver, comply with and fully be bound by this Eighth Ratification Amendment; and

5.6 No Default or Event of Default shall be continuing under any of the Financing Agreements, as of the date hereof.

6. MISCELLANEOUS.

6.1 Amendments and Waivers. Neither this Eighth Ratification Amendment nor any other instrument or document referred to herein or therein may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought.

6.2 Further Assurances. Each of Borrower and Guarantors shall, at its expense, at any time or times duly execute and deliver, or shall cause to be duly executed and delivered, such further agreements, instruments and documents, and do or cause to be done such further acts as may be necessary or proper in Lender’s opinion to evidence, perfect, maintain and enforce the security interests of Lender, and the priority thereof, in the Collateral and to otherwise effectuate the provisions or purposes of this Eighth Ratification Amendment, any of the other Financing Agreements or the Financing Order.

6.3 Headings. The headings used herein are for convenience only and do not constitute matters to be considered in interpreting this Eighth Ratification Amendment.

6.4 Counterparts. This Eighth Ratification Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which shall together constitute one and the same agreement.

6.5 Additional Events of Default. The parties hereto acknowledge, confirm and agree that the failure of Borrower or any Guarantor to comply with any of the covenants, conditions and agreements contained herein or in any other agreement, document or instrument at any time executed by Borrower or any Guarantor in connection herewith shall constitute an Event of Default under the Financing Agreements.

6.6 Effectiveness. This Eighth Ratification Amendment shall become effective upon the execution hereof by Lender.

IN WITNESS WHEREOF, the parties hereto have caused this Eighth Ratification Amendment to be duly executed as of the day and year first above written.

WACHOVIA BANK, NATIONAL ASSOCIATION,

successor by merger to Congress Financial Corporation

By: /s/ Herbert C. Korn

Title: Director

CONGOLEUM CORPORATION,

as Debtor and Debtor-in-Possession

By: /s/ Howard N. Feist III

Title: Chief Financial Office

CONGOLEUM SALES, INC.,

as Debtor and Debtor-in-Possession

By: /s/ Howard N. Feist III

Title: Chief Financial Office

CONGOLEUM FISCAL, INC.,

as Debtor and Debtor-in-Possession

By: /s/ Howard N. Feist III

Title: Chief Financial Office

EX-23.1 3 ex23-1.htm ex23-1.htm

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-34653 and 333-84387) pertaining to the Congoleum Corporation 1995 Stock Option Plan and the Non-Qualified, Non-Employee Directors Stock Option Plan of our report dated March 21, 2008, with respect to the Consolidated Financial Statements and schedule of Congoleum Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 2007.

/s/ Ernst & Young LLP

Ernst & Young LLP

Boston, Massachusetts

March 31, 2008

EX-31.1 4 ex31-1.htm ex31-1.htm

EXHIBIT 31.1

CERTIFICATION

I, Roger S. Marcus, certify that:

I have reviewed this Annual Report on Form 10-K of Congoleum Corporation the "registrant");

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 31, 2008	/s/ Roger S. Marcus
	Roger S. Marcus
	Chief Executive Officer

EX-31.2 5 ex31-2.htm ex31-2.htm

EXHIBIT 31.2

CERTIFICATION

I, Howard N. Feist III, certify that:

I have reviewed this Annual Report on Form 10-K of Congoleum Corporation the "registrant");

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 31, 2008	s/ Howard N. Feist III
	Howard N. Feist III
	Chief Financial Officer

EX-32.1 6 ex32-1.htm ex32-1.htm

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Congoleum Corporation (the “Company”) on Form 10-K for the period ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Roger S. Marcus, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 31, 2008

/s/ Roger S. Marcus

Roger S. Marcus

Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Congoleum Corporation and will be retained by Congoleum Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 7 ex32-2.htm ex32-2.htm

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Congoleum Corporation (the “Company”) on Form 10-K for the period ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Howard N. Feist III, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 31, 2008

/s/ Howard N. Feist III

Howard N. Feist III

Chief Financial Officer

EX-99.3.2 8 ex99-32.htm ex99-32.htm

Exhibit 99.3.2

SECOND AMENDMENT TO THE CONFIDENTIAL SETTLEMENT AGREEMENT

AND RELEASE AMONG CONGOLEUM CORPORATION,

THE PLAN TRUST AND CERTAIN UNDERWRITERS AT LLOYD’S, LONDON

This Second Amendment (the “Second Amendment”) to that certain Confidential Settlement Agreement and Release Among Congoleum Corporation, the Plan Trust and Certain Underwriters at Lloyd’s, London, dated June 22, 2005 (the “Agreement”), is made this 8th day of November, 2007, by and between Congoleum and, upon its creation, the Plan Trust, on the one hand, and Lloyd’s Underwriters, on the other hand.

RECITALS

WHEREAS, Congoleum and Lloyd’s Underwriters executed the Agreement on June 22, 2005, and they executed an Amendment to the Agreement on July 29, 2005; and

WHEREAS, the Bankruptcy Court entered the Approval Order on August 11, 2005; and

WHEREAS, Lloyd’s Underwriters and Congoleum recognize that Paragraph 8.A.6 of the Agreement provides that any Party may declare the Agreement null and void if “[t]he Confirmation Order does not become a Final Order within two years of the Execution Date;” and

WHEREAS, Lloyd’s Underwriters and Congoleum have discussed making adjustments to the Agreement in order to avoid either a termination of the Agreement or a dispute over termination rights under the Agreement; and

WHEREAS, Lloyd’s Underwriters and Congoleum, with the approval of the FCR and the Creditors’ Committee, have agreed upon the terms of an amendment to the Agreement as set forth herein; and

NOW, THEREFORE, pursuant to Section 15 of the Agreement and in consideration of the mutual covenants and promises contained herein, and intending to be legally bound hereby, Congoleum and Lloyd’s Underwriters agree to modify the Agreement thought this Second Amendment as follows:

1. Definitions. Capitalized terms used in this Second Amendment, regardless of whether they appear in the prefatory paragraph, the recitals, the numbered paragraphs, or elsewhere herein, shall bear the meanings assigned to them either in this Second Amendment or, in the absence of a meaning being assigned herein, in the Agreement as modified by the Amendment. The reference to “Fifth Modified Plan, as presently constituted” in the prefatory paragraph of Section I of the Agreement shall be deemed to be amended to read “Eleventh Modified Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of Congoleum Corporation, et al., and the Asbestos Claimants Committee, dated as of October 23, 2006 (“Eleventh Modified Plan”).”

2. Section 8 of the Agreement. Paragraph 8.A.6 of the Agreement is and shall be deemed to be deleted in its entirely. Paragraph 8.A.4 of the Agreement is deemed to be amended by inserting the word “or” after the semicolon at the end of said Paragraph 8.A.4, and Paragraph 8.A.5 of the Agreement is deemed to be amended by striking the semicolon and the word “or” at the end of said Paragraph 8.A.5 and replacing them with a period.

3. Disposition of Interest on Settlement Amount. The text of Paragraph 2.A that follows the words “Attn. Rick Barnes” is and shall be deemed to be deleted in its entirety and replaced with the following:

“The interest and earnings that accrue on the Settlement Amount while in the Escrow Account, after subtracting (i) any expenses that the Escrow Agent incurs, (ii) any reserves required under the Approval Order to be held for the payment of taxes, indemnities, or otherwise, and (iii) losses incurred under any investment of the Settlement Amount permissible under the terms of the Approval Order and the Escrow Agreement, shall be referred to as ‘Net Interest.’ Within ten (10) Business Days after the order approving the Second Amendment becomes a Final Order, Congoleum and Lloyd’s Underwriters shall jointly direct the Escrow Agent: (i) promptly to disburse to Lloyd’s Underwriters twenty-five percent (25%) of the Net Interest that had accrued in the Escrow Account as of September 30, 2007; and (ii) to disburse to Lloyd’s Underwriters, within twenty (20) days of the end of each calendar quarter, seventy-five percent (75%) of the Net Interest that accrued during each quarterly period occurring after September 30, 2007.

Within five (5) Business Days following the Trigger Date, Congoleum and Lloyd’s Underwriters shall jointly direct the Escrow Agent: (x) to release the Settlement Amount in full, together with seventy-five percent (75%) of the Net Interest that had accrued in the Escrow Account as of September 30, 2007, and twenty-five percent (25%) of the Net Interest that accrued in the Escrow Account after September 30, 2007, to the Plan Trust or as otherwise directed by the Court; and (y) to release seventy-five percent (75%) of the Net Interest that accrued in the Escrow Account after September 30, 2007, to Lloyd’s Underwriters, to the extent not already disbursed to Lloyd’s Underwriters. Upon the release of the Settlement Amount pursuant to clause (y) of 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.”

4. Provisions Concerning Asbestos Legislation. The Parties acknowledge that various provisions in the Agreement relating to Asbestos Legislation have become moot. To account for the mootness of such provisions, the Agreement is hereby amended as follows:

Paragraph 1.W.5 is and shall be deemed to be deleted in its entirety;

Paragraph 1.W.3 is deemed to be amended by inserting the word “and” after the semicolon at the end of said Paragraph 1.W.3, and Paragraph 1.W.4 is deemed to be amended by striking the semicolon and the word “and” at the end of said Paragraph 1.W.4 and replacing them with a period;

The phrase “Subject to the provisions of Paragraph 2.D below” in Paragraph 2.C is and shall be deemed to be deleted, and the word “any” appearing after the deleted phrase shall be amended to read “Any”; and

Paragraph 2.D is and shall be deemed to be deleted its entirety.

5. Miscellaneous. The phrase “Subject Insurance Policies” in Paragraph 4.A.1 shall be deemed amended to read “London Policies.” The phrase “that has not already been disbursed” shall be deemed inserted after the phrase “accrued on the Settlement Amount” in Paragraph 8.C.2.

6. Execution Date. The text in Paragraph 1.H following the word “means” shall be deemed to be deleted and replaced with text reading “June 22, 2005.”

7. Plan Definition. The phrase “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:” in Paragraph 1.T shall be deemed amended to read “Eleventh Modified-Plan, as such Eleventh Modified Plan may be further modified from time to time in accordance with the terms thereof, or such other plan of reorganization; provided, however, that such modifications to the Eleventh Modified Plan or the differences between the Eleventh Modified Plan and such other plan of reorganization:”. The phrase “Fourth Modified Plan” in Paragraph 1.T.3 shall be deemed to be amended to read “Eleventh Modified Plan.”

8. Approval. Within ten (10) Business Days after Congoleum and Lloyd’s Underwriters shall have both executed this Second Amendment, Congoleum shall file a motion with the Bankruptcy Court seeking entry of an order approving the Second Amendment. The form and substance of the motion and proposed order shall be reasonably satisfactory to Lloyd’s Underwriters.

FOR CONGOLEUM

By: /s/ Howard N. Feist

Name: Howard N. Feist

Title: Chief Financial Officer

Date: November 8, 2007

FOR LLOYD’S UNDERWRITERS

By: /s/ James Sottile

Name: James Sottile

Title: Attorney-in-fact for Lloyd’s Underwriters

Date: November 8, 2007

EX-99.5 9 ex99-5.htm ex99-5.htm

Exhibit 99.5

AMENDED AND RESTATED

SETTLEMENT AGREEMENT AND RELEASE

This Amended and Restated Settlement Agreement and Release is made as of this 18th day of January, 2008, by and between CONGOLEUM CORPORATION, on its own behalf and on behalf of all “Persons” (as defined herein) within the definition of “Congoleum” (as defined herein), and upon its creation, the Plan Trust, on the one part, and MT. MCKINLEY INSURANCE COMPANY and EVEREST REINSURANCE COMPANY (“Mt. McKinley and Everest” as defined herein), on the other part.

WITNESSETH:

WHEREAS, Mt. McKinley and Everest issued the Subject Policies (as defined herein) to Congoleum Corporation; 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 Mt. McKinley and Everest are obligated under the Subject Policies to make liability payments and pay defense costs in connection with Claims, including Claims for asbestos-related bodily injury; and

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

WHEREAS, the Coverage Dispute is the subject of a lawsuit styled Congoleum Corporation v. ACE American Insurance Company, et al., Docket No. MID-L-8908-01

pending in the Superior Court of New Jersey, Law Division, Middlesex County (the “Coverage Action”); and

WHEREAS, on or about December 31, 2003, Congoleum Corporation, Congoleum Sales, Inc. and Congoleum Fiscal, Inc. (collectively, the “Debtors”) filed petitions under Chapter 11 of the Bankruptcy Code (collectively, the “Chapter 11 Cases”) in the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”), and continue to operate as debtors-in-possession; and

WHEREAS, on or about October 23, 2006, the 11th Modified Joint Plan of Reorganization (the “11th Modified Plan”) was filed in the Bankruptcy Court; and

WHEREAS, in consideration of certain monetary payments and other considerations, Congoleum, Mt. McKinley and Everest, on or about September 30, 2005, entered into the Confidential Settlement Agreement and Release (“Settlement Agreement”), which was approved by a Final Order of the Bankruptcy Court; and

WHEREAS, Congoleum, Mt. McKinley and Everest, pursuant to the terms of the Settlement Agreement, entered into the Escrow Agreement (as defined herein); and

WHEREAS, Mt. McKinley and Everest, pursuant to the terms of the Settlement Agreement, paid the Settlement Amount (as defined herein) to the Escrow Agent (as defined herein), which amount is currently being held by the Escrow Agent pursuant to the terms of the Escrow Agreement; and

WHEREAS, the Parties desire to amend the provisions of the Settlement Agreement, by, among other things (i) eliminating the sunset provision pursuant to which Congoleum, Mt. McKinley and Everest, in certain circumstances, may terminate the Settlement Agreement; (ii) causing the Escrow Agent to pay to Mt. McKinley and Everest all interest

and other income earned in the Escrow Account, net of all applicable fees, taxes and expenses; (iii) restructuring the Settlement Agreement as a sale and buyback of the Subject Policies pursuant to Section 363(f) of the Bankruptcy Code, supplemented by a Section 105 injunction; (iv) eliminating the condition precedent of the Confirmation Order (as defined herein); and (v) modifying the terms of the Settlement Agreement as further set forth herein; and

WHEREAS, the Parties intend to incorporate the desired amendments into the Settlement Agreement by restating the Settlement Agreement in the form and substance of this Amended and Restated Agreement (as defined herein);

WHEREAS, the Parties intend that the Settlement Agreement will continue in full force and effect in accordance with its terms until the order approving this Amended and Restated Agreement becomes a Final Order, at which time this Amended and Restated Agreement shall supersede and replace the Settlement Agreement in its entirety; and

WHEREAS, the Asbestos Claimants’ Committee (as defined herein) and the FCR (as defined herein) participated in the negotiations leading to this Amended and Restated Agreement, consent to the Parties entering into this Amended and Restated Agreement, and agree to be bound solely with respect to those terms that relate specifically to the Asbestos Claimants’ Committee and the FCR.

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

ARTICLE I -- DEFINITIONS

For purposes of this Amended and Restated Agreement and the attachments hereto, the following definitions apply to the capitalized terms herein wherever those terms appear in this Amended and Restated Agreement, including the prefatory paragraph, the recitals, the sections below and the attachments hereto. 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, feminine or neuter form shall include the others. The words “includes” and “including” mean “including but not limited to.”

1.1 “Amended and Restated Agreement” means this Amended and Restated Settlement Agreement and Release, as it may be amended from time to time in accordance with its terms.

1.2 “Approval Order” means an order of the Bankruptcy Court (or the U.S. District Court for the District of New Jersey exercising its original bankruptcy jurisdiction) approving this Amended and Restated Agreement, the compromise and settlement memorialized herein, and the sale and buyback of the Subject Policies between Congoleum and Mt. McKinley and Everest, which order shall be in the form and substance of Attachment A hereto, or such other order that is in a form and substance acceptable to Congoleum, Mt. McKinley and Everest.

1.3 “Asbestos Channeling Injunction” shall have the meaning provided in Section 8.2.

1.4 “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 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 Congoleum or otherwise) of asbestos or an asbestos-containing product, either alone or in combination with any other substance.

1.5 “Asbestos Claimants’ Committee” means the Official Committee of Unsecured Asbestos Claimants initially appointed by the United States Trustee in the Chapter 11 Cases on or about April 21, 2004.

1.6 “Business Day” means any day that is not a Saturday, a Sunday or a federal holiday in the United States of America.

1.7 “Claim” means any of the following: (i) “claim” as that term is defined in the United States Bankruptcy Code, 11 U.S.C. § 101(5); (ii) “demand” as that term is defined in the United States Bankruptcy Code, 11 U.S.C. § 524(g)(5); or (iii) 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 an Asbestos Claim. The term “Claim” includes any claim (i) 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; (ii) 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; (iii) pursuant to or under a contract, other agreement, promise, representation or warranty; or (iv) pursuant to any direct action (including any claim by any Person who is not an insured under the Subject Policies seeking any type of relief under the laws of any jurisdiction that gives such person a direct cause of action against an insurer) 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.

1.8 “Confirmation Order” means an order entered by the Bankruptcy Court in the Chapter 11 Cases confirming the Plan, together with any order of the United States District Court issued, pursuant to the Bankruptcy Code, confirming or affirming such order.

1.9 “Congoleum” means:

(a) The corporation now named Congoleum Corporation that was incorporated in the State of Delaware in 1986;

(b) All present subsidiaries of Congoleum Corporation, including Congoleum Sales, Inc., and Congoleum Fiscal, Inc., and any other Persons in which Congoleum Corporation has an ownership interest, directly or indirectly, of fifty percent (50%) or more, and any other Persons on whose behalf Congoleum Corporation has the power and authority to release Claims under the Subject Policies;

(c) Any Persons that have been acquired by, merged into or combined with any of the Persons identified in Sections 1.9(a) and (b) above;

(d) Congoleum Corporation’s predecessors, successors, past, present and future assigns, joint ventures, affiliates other than American Biltrite Inc., all of Congoleum Corporation’s past subsidiaries and the predecessors, successors and past and present assigns of such past subsidiaries; provided, however, that, as to each of the foregoing, Congoleum Corporation has the power and authority to release Claims under the Subject Policies on their behalf;

(e) Any and all Persons named as insureds, other insureds, or otherwise insured or claimed to be insured under the Subject Policies; provided, however, that, as to each of the foregoing, Congoleum Corporation has the power and authority to release Claims under the Subject Policies on their behalf;

(f) Congoleum Sales, Inc. and Congoleum Fiscal, Inc., Debtors and Debtors-In-Possession;

(g) American Biltrite Inc., solely to the extent that it seeks coverage under insurance policies issued by Mt. McKinley and/or Everest to Congoleum Corporation; and

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

1.10 “Escrow Account” means the escrow account established pursuant to the Escrow Agreement.

1.11 “Escrow Agent” means the Escrow Agent as defined in the Escrow Agreement.

1.12 “Escrow Agreement” means the escrow agreement entered into by Congoleum, Mt. McKinley and Everest, and the Escrow Agent.

1.13 “FCR” means the Futures Representative appointed pursuant to the Bankruptcy Court’s February 18, 2004 Order in the Chapter 11 Cases, solely in his capacity as such.

1.14 “Final Order” means an order or judgment of the Bankruptcy Court or other court of competent jurisdiction, as to which no appeal, petition for certiorari, or other proceedings for reargument, rehearing or reconsideration have been sought and are pending and the time for such appeal or review, rehearing, reconsideration, or certiorari has expired; provided, however, that this provision may be modified by agreement of all the Parties.

1.15 “Injunction Claim” shall have the meaning provided in Section 7.1.

1.16 “Interests” means all liens, Claims, encumbrances, interests and other rights of any nature, whether at law or in equity.

1.17 “Mt. McKinley and Everest” means both Mt. McKinley and Everest, collectively and individually.

“Mt. McKinley” means Mt. McKinley Insurance Company, formerly known as Gibraltar Casualty Company, all of its corporate predecessors, and all of their former or current corporate parents, subsidiaries and affiliates, and their respective directors, officers, employees, agents, partners, representatives, attorneys, joint venturers and assigns, solely in their respective capacities as such.

“Everest” means Everest Reinsurance Company, formerly known as Prudential Reinsurance Company, all of its corporate predecessors, and all of their former or current corporate parents, subsidiaries and affiliates, and their respective directors, officers, employees, agents, partners, representatives, attorneys, joint venturers and assigns, solely in their respective capacities as such.

1.18 “Parties” mean Congoleum, Mt. McKinley and Everest, and, upon the later of its formation and the occurrence of the effective date of the Plan (as defined herein), the Plan Trust.

1.19 “Person” means 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.

1.20 “Plan” means (i) the 11th Modified Plan, as such plan may be further amended or modified from time to time; (ii) any plan of reorganization or liquidation of which Congoleum is a proponent or co-proponent; or (iii) any plan of reorganization proposed by the FCR.

1.21 “Plan Trust” means the trust established under the Plan, pursuant to Section 524(g) and/or 105 of the Bankruptcy Code and the Confirmation Order, for the payment of, and into which shall be channeled, all Asbestos Claims against Congoleum and certain of its insurers.

1.22 “Prior Payments” shall have the meaning provided in Section 2.4.

1.23 “Sale Injunction” shall have the meaning provided in Section 7.1.

1.24 “Settlement Amount” means the sum of Twenty-One Million Five Hundred Thousand United States dollars (US $21,500,000).

1.25 “Settling Parties” shall have the meaning provided in Section 14.1.

1.26 “Subject Policies” means: (i) all insurance policies at issue in the Coverage Action, listed in Attachment B hereto; and (ii) all known and unknown policies issued or allegedly issued by Mt. McKinley and Everest to Congoleum.

1.27 “Trigger Date” means the day on which the Approval Order becomes a Final Order and the funds in the Escrow Account are released pursuant to Section 2.2.

ARTICLE II -- SETTLEMENT AMOUNT

2.1 The Settling Parties acknowledge that Mt. McKinley and Everest have previously paid the Settlement Amount into the Escrow Account by wire transfer, and that the Settlement Amount is being held by the Escrow Agent pursuant to the terms of the Escrow Agreement.

2.2 Within ten (10) Business Days after the Approval Order becomes a Final Order, Congoleum and Mt. McKinley and Everest shall jointly direct the Escrow Agent to release the Settlement Amount and any interest or income accrued thereon as follows:

(a) To Congoleum Corporation (or as may be otherwise directed by the Bankruptcy Court in the Approval Order), the Settlement Amount in full, exclusive of any interest or income accrued thereon; and

(b) To Mt. McKinley and Everest, all interest or income accrued on the Settlement Amount, less any expenses of, or incurred by, the Escrow Agent pursuant to the Escrow Agreement, including fees, taxes and indemnities.

2.3 Upon the release of the Settlement Amount and the interest or income accrued thereon pursuant to Section 2.2, legal and equitable title to the Settlement Amount shall pass irrevocably to Congoleum (or to such other Person as is directed by the Bankruptcy Court in the Approval Order), and legal and equitable title to the net interest or income on the Settlement Amount shall pass irrevocably to Mt. McKinley and Everest.

2.4 The Settlement Amount is in addition to any and all amounts paid prior to the date of the Settlement Agreement by or on behalf of Mt. McKinley and Everest to or for the benefit of Congoleum in connection with Asbestos Claims or otherwise (collectively, the “Prior Payments”). Any and all payments by Mt. McKinley and Everest, including the Prior Payments (if any) and the Settlement Amount are deemed final and irrevocable payments upon the occurrence of the Trigger Date. Mt. McKinley’s and Everest’s payment of the Settlement Amount is in addition to any and all payments made by Mt. McKinley and Everest to or for the benefit of Congoleum prior to the date of the Settlement Agreement, including any Prior Payments.

2.5 The Settlement Amount shall be held by Congoleum until the earlier of confirmation of the Plan or the dismissal or conversion of the Chapter 11 cases; and shall be used only in connection with the payment of Asbestos Claims and/or to pay any other amounts payable by the Plan Trust pursuant to the Plan or the Confirmation Order.

ARTICLE III -- SALE AND BUYBACK OF THE SUBJECT POLICIES

3.1 Effective upon the Trigger Date, and without the need for any further action, Congoleum shall be deemed to have sold, conveyed, assigned, transferred and delivered to Mt. McKinley and Everest, and Mt. McKinley and Everest shall be deemed to have purchased from Congoleum, all rights, title and Interests of Congoleum in and under the Subject Policies, free and clear of all Interests of all Persons pursuant to Section 363(f) and (h) of the Bankruptcy Code and the Approval Order.

ARTICLE IV -- RELEASES BY CONGOLEUM

AND THE PLAN TRUST

4.1 Effective upon the Trigger Date, and except for the rights and obligations created by this Amended and Restated Agreement, Congoleum and, upon the later of its formation and the effective date of the Plan, the Plan Trust shall be deemed to release, remise, covenant not to sue and forever discharge Mt. McKinley and Everest from and against all manner of actions, causes of action, suits, debts, accounts, promises, warranties, damages (consequential or punitive), agreements, costs, expenses and Interests 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 Congoleum ever had, now has, or hereafter may have (i) for insurance coverage, including both defense costs and indemnification claims, under the Subject Policies; (ii) arising out of or relating to any act, omission, representation, or conduct of any sort in connection with any of the Subject Policies, including the issuance of the Subject Policies and the handling of any claim thereunder; (iii) arising out of or in connection with any agreements between or among the Parties relating to the Subject Policies and/or the Coverage Action, other than this Amended and Restated Agreement; and/or (iv) arising under or relating in any way to the Subject Policies.

4.2 Effective on the Trigger Date, the Parties shall have been deemed (i) to terminate any and all obligations whatsoever of Mt. McKinley and Everest to any Person, including Congoleum and the Plan Trust arising under or relating to the Subject Policies; (ii) to exhaust all limits of liability, including all occurrence and aggregate limits of the Subject Policies; and (iii) to constitute a “policy buyback” fully and finally extinguishing and exhausting all rights, duties, limits and coverage under the Subject Policies as if they were never issued. The Parties agree that the Subject Policies are rescinded as of the Trigger Date. If any Person inquires after the Trigger Date regarding exhaustion of the Subject Policies, Congoleum, and Mt. McKinley and Everest, and, upon the later of its formation and the effective date of the Plan, the Plan Trust, shall represent that all limits of liability of the Subject Policies have been exhausted or are no longer available. It is the intention of Congoleum to reserve no rights or benefits whatsoever under the Subject Policies or in connection with any past, present or future Claims under the Subject Policies, and to assure Mt. McKinley and Everest their peace and freedom from such Claims and from all assertions of rights in connection with such Claims.

4.3 Effective upon the Trigger Date, any and all rights, duties, responsibilities and obligations of Mt. McKinley and Everest created by or in connection with the Subject Policies are terminated. As of the Trigger Date, Congoleum, and, upon the later of its formation and the effective date of the Plan, the Plan Trust, shall no longer have any insurance coverage from Mt. McKinley and Everest under the Subject Policies. The releases contained in this Article IV are intended to operate as though Mt. McKinley and Everest had never issued the Subject Policies.

4.4 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.

4.5 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.

ARTICLE V -- RELEASES BY MT. MCKINLEY AND EVEREST

5.1 Effective upon the Trigger Date, and except for the rights and obligations created by this Amended and Restated Agreement, Mt. McKinley and Everest, and any subsequently appointed trustee or representative acting for Mt. McKinley and/or Everest, shall be deemed to release, remise, covenant not to sue and forever discharge Congoleum from and against all manner of actions, causes of action, suits, debts, accounts, promises, warranties, damages (consequential or punitive), agreements, costs, expenses, and Interests

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 either of Mt. McKinley or Everest ever had, now has, or hereinafter may have (i) arising out of or relating to any act, omission, representation, or conduct of any sort in connection with any of the Subject Policies, including the issuance of the Subject Policies and the handling of any claim thereunder; (ii) arising out of or in connection with any agreements between or among the Parties relating to the Subject Policies and/or the Coverage Action, other than this Amended and Restated Agreement; and/or (iii) arising under or relating in any way to the Subject Policies.

5.2 Effective upon the Trigger Date, any and all rights, duties, responsibilities and obligations of Congoleum created by or in connection with the Subject Policies are hereby terminated. As of the Trigger Date, Congoleum shall no longer have any insurance coverage from Mt. McKinley and Everest under the Subject Policies. The releases contained in this Article V are intended to operate as though Mt. McKinley and Everest had never issued the Subject Policies.

5.3 MT. MCKINLEY AND EVEREST 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.

5.4 Mt. McKinley and Everest 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. Mt. McKinley and Everest 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.

5.5 It is the intention of Mt. McKinley and Everest to reserve no rights or benefits whatsoever under or in connection with the Subject Policies, with respect to any past, present or future Claims, and to assure Congoleum peace and freedom from all such Claims and from all assertions of rights in connection with such Claims.

5.6 Effective upon the Trigger Date, and except for the rights and obligations created by this Amended and Restated Agreement, Mt. McKinley and Everest shall be deemed to release, remise and forever discharge, any Claims that were or could have been brought in the Chapter 11 Cases, including any Claim for substantial contribution.

ARTICLE VI - ACKNOWLEDGEMENT AND CONSENT TO

RELEASES BY FCR AND ASBESTOS CLAIMANTS’ COMMITTEE

6.1 The FCR and the Asbestos Claimants’ Committee acknowledge and consent to the releases provided by Congoleum in Article IV of this Amended and Restated Agreement.

ARTICLE VII -- DEFENSE OF SALE INJUNCTION

7.1 Subject to the provisions of Section 7.4 below, in the event that any Claim is brought against Mt. McKinley and Everest that is (i) subject to the Section 105 Injunction issued by the Bankruptcy Court in connection with the Approval Order; or (ii) is a Claim relating to or arising out of the Subject Policies, which Subject Policies were sold free and clear of such Claims pursuant to Section 363(f) of the Bankruptcy Code (the “Injunction Claim”), Congoleum (prior to the effective date of the Plan) and the Plan Trust (on and after the effective date of the Plan) shall use their reasonable best efforts to establish that such Injunction Claim is enjoined as to Mt. McKinley and Everest by operation of the Approval Order and/or the Section 105 Injunction (“Sale Injunction”). To that end, Congoleum (prior to the effective date of the Plan) and the Plan Trust (on and after the effective date of the Plan), at their respective expense but subject to the provisions of Section 7.4, shall defend the application of the Sale Injunction to any Injunction Claim asserted against Mt. McKinley and Everest.

7.2 In the event that Congoleum or the Plan Trust is precluded by an order of any court of competent jurisdiction from defending the application of the Sale Injunction to any Injunction Claim asserted against Mt. McKinley and Everest, Congoleum or the Plan Trust (as the case may be) shall reimburse Mt. McKinley and Everest, subject to the

provisions of Section 7.4 below, for the reasonable costs they incur in defending the Sale Injunction; provided, however, that Congoleum and the Plan Trust shall have no obligation to pay any internal costs of Mt. McKinley and Everest (including costs associated with the time or expenses of Mt. McKinley’s and Everest’s employees). For the avoidance of doubt, other than the obligation provided in Section 7.1, Congoleum and the Plan Trust have no obligation:

(a) To defend any Claim against Mt. McKinley and Everest with respect to any issue, including the application of any defense to insurance coverage or to any tort liability; or

(b) To indemnify Mt. McKinley and Everest to any extent for any Claims, whether for defense costs, expenses, judgments, settlements, or otherwise.

7.3 Within fifteen (15) Business Days of receipt of any demand, notice, summons or other process received by Mt. McKinley or Everest in connection with any Claim that Mt. McKinley or Everest believes is subject to the Sale Injunction, Mt. McKinley or Everest (as the case may be) shall forward such demand, notice, summons or other process to Congoleum or the Plan Trust (as the case may be). Congoleum or the Plan Trust (as the case may be) shall notify Mt. McKinley or Everest in writing within fifteen (15) Business Days of receipt of notice of such Claim from Mt. McKinley or Everest whether it agrees that such Claim triggers the defense obligations pursuant to Section 7.1. In the event that there is a dispute whether a Claim triggers the defense obligations pursuant to Section 7.1, Congoleum or the Plan Trust (as the case may be) and Mt. McKinley or Everest (as the case may be) 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 Bankruptcy

Court (or, if the Bankruptcy Court refuses to exercise jurisdiction, before any court of competent jurisdiction) whether the Claim at issue triggers the defense obligations pursuant to Section 7.1. While such dispute remains unresolved, Mt. McKinley or Everest has the right to defend the Sale Injunction as they deem appropriate. Mt. McKinley and Everest shall cooperate reasonably with Congoleum and the Plan Trust with respect to the obligations provided in this Article VII.

7.4 Notwithstanding anything to the contrary in this Article VII, the collective obligations of Congoleum and the Plan Trust under Sections 7.1 and 7.2 shall not, in any event, exceed an aggregate of Five Hundred Thousand dollars ($500,000.00), inclusive of attorneys’ fees, expenses, settlements and judgments incurred in connection with the defense of Injunction Claims brought against Mt. McKinley and Everest, and/or any similar claims brought against any other insurer with which Congoleum has obtained a settlement pursuant to a sale and buyback of any insurance policies under Section 363(f) of the Bankruptcy Code.

ARTICLE VIII -- ASBESTOS CHANNELING INJUNCTION

8.1 Congoleum shall use its reasonable best efforts to confirm the 11th Modified Plan, as such plan may be further amended or modified from time to time, or any plan of reorganization or liquidation of which Congoleum is a proponent or co-proponent; provided, however, that the confirmation of the Plan is not a condition or requirement of this Amended and Restated Agreement.

8.2 Congoleum shall use its reasonable best efforts to include in the 11th Modified Plan, as such plan may be further amended or modified from time to time, or any plan of reorganization or liquidation of which Congoleum is a proponent or co-proponent, and/or the Confirmation Order in respect of such plan an injunction against Asbestos Claims

pursuant to, and to the fullest extent permitted by, Section 524(g) of the Bankruptcy Code (the “Asbestos Channeling Injunction”); provided, however, that the inclusion in the such plan and/or the Confirmation Order of the Asbestos Channeling Injunction is not a condition or requirement of this Amended and Restated Agreement. The FCR shall use his reasonable best efforts to include in any plan proposed by the FCR and/or the Confirmation Order in respect of such plan the Asbestos Channeling Injunction; provided, however, that the inclusion in such plan and/or the Confirmation Order of the Asbestos Channeling Injunction is not a condition or requirement of this Amended and Restated Agreement.

8.3 In the event that the Plan is confirmed and it includes the Asbestos Channeling Injunction, Mt. McKinley and Everest, automatically and without any further action, shall be entitled to, and shall be protected by, the Asbestos Channeling Injunction to the same extent that other settling insurers are protected by the Asbestos Channeling Injunction pursuant to the terms of the Plan, and, subject to Section 8.4, the Plan Trust will use its reasonable best efforts to ensure that Mt. McKinley and Everest are protected by the Asbestos Channeling Injunction to the same extent that other settling insurers are protected by the Asbestos Channeling Injunction in accordance with the terms of the Plan.

8.4 In the event that, after the effective date of the Plan, any Asbestos Claim is brought against Mt. McKinley or Everest that is subject to the Asbestos Channeling Injunction, the Plan Trust shall use its reasonable best efforts to establish that such Asbestos Claim is enjoined as to Mt. McKinley and Everest by operation of the Asbestos Channeling Injunction. To that end, the Plan Trust shall defend the application of the Asbestos

Channeling Injunction as to any Asbestos Claim asserted against Mt. McKinley and Everest that is subject to the Asbestos Channeling Injunction, subject to any limitations provided in the Plan or the Confirmation Order; provided, however, that the obligation of the Plan Trust shall not, in any event, exceed an aggregate of Three Million Six Hundred Thousand dollars ($3,600,000.00) incurred in connection with the defense of the Asbestos Channeling Injunction for the benefit of all settling insurers (including Mt. McKinley and Everest), inclusive of attorneys’ fee, expenses, settlements and judgments.

ARTICLE IX -- DISMISSAL OF COVERAGE ACTION

9.1 No later than three (3) Business Days after the Trigger Date, Congoleum, Mt. McKinley and Everest shall submit a stipulation of dismissal with prejudice with respect to the Claims, counterclaims or cross-claims (if any) each asserted against the other in the Coverage Action. 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 Person other than Mt. McKinley and Everest.

ARTICLE X -- BANKRUPTCY OBLIGATIONS

10.1 No later than ten (10) Business Days after the date of this Amended and Restated Agreement, Congoleum shall file a motion with the Bankruptcy Court, pursuant to Sections 105 and 363(f) of the Bankruptcy Code, and Federal Rule of Bankruptcy Procedure 9019, seeking entry of the Approval Order, which motion shall be in a form and substance reasonably satisfactory to Mt. McKinley and Everest. Mt. McKinley and Everest shall use their reasonable best efforts to support Congoleum’s efforts to obtain the Approval Order.

10.2 Congoleum, the Asbestos Claimants’ Committee and the FCR shall not include any provision in the Plan that materially and adversely affects the rights and obligations of Mt. McKinley and Everest under this Amended and Restated Agreement.

10.3 On and after the Trigger Date, Mt. McKinley and Everest shall not cooperate with any defendant in the Coverage Action.

10.4 On and after the Trigger Date, Mt. McKinley and Everest shall cease 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 Cases; shall not file any new objections to the Plan or appeal the Confirmation Order; shall not pursue any Claims against Congoleum; shall withdraw their participation in any and all outstanding discovery requests; and shall serve no new discovery requests in the Chapter 11 Cases.

10.5 On and after the Trigger Date, Congoleum, the Plan Trust, the FCR and the Asbestos Claimants’ Committee shall not serve any new discovery in its confirmation proceeding upon Mt. McKinley and Everest; shall not pursue any outstanding discovery against Mt. McKinley and Everest in connection with the confirmation proceeding; and shall not seek to introduce evidence in any way related to Mt. McKinley and Everest in either the confirmation proceeding or the Coverage Action; provided, however, that Congoleum may seek to introduce as evidence (i) only in the confirmation proceeding, this Amended and Restated Agreement and the Settlement Amount to be paid hereunder; (ii) the policies of insurance issued by Mt. McKinley and Everest to Congoleum; and (iii) such portions of any documents or other materials that are not specific to Mt. McKinley and

Everest and that do not characterize any act, decision, obligation or position of Mt. McKinley and Everest or characterize the terms and conditions of any of the Subject Policies. Notwithstanding anything to the contrary in this Section 10.5, Congoleum may seek to introduce as evidence in the confirmation proceeding and/or the Coverage Action communications with multiple entities that include Mt. McKinley and Everest, but Congoleum will not characterize any act, decision, obligation or position of Mt. McKinley and Everest.

10.6 Upon the later of its formation and the effective date of the Plan, the Plan Trust (i) automatically and without need for further action shall become a Party to this Amended and Restated Agreement without limiting the obligations of Congoleum under this Agreement, and (ii) automatically shall succeed to all the rights and be bound by all of the obligations of the Debtors under this Amended and Restated Agreement without need for further action.

10.7 The Settling Parties shall include in the Plan Trust Agreement as an obligation of the Plan Trust, effective from its creation, that the Plan Trust shall be subject to and bound by this Amended and Restated Agreement.

10.8 To the extent that a Section 524(g) plan is confirmed, Congoleum and the Plan Trust shall not seek to terminate, reduce, or limit the scope of the Asbestos Channeling Injunction with respect to Mt. McKinley and Everest after the Confirmation Order becomes a Final Order.

ARTICLE XI -- EFFECTIVENESS OF

AMENDED AND RESTATED AGREEMENT

11.1 This Amended and Restated Agreement is subject to, and shall not become effective and binding unless and until the Approval Order becomes a Final Order.

Immediately and automatically upon the Approval Order becoming a Final Order, and without any need for further action (i) the Settlement Agreement shall be amended and restated as provided in this Amended and Restated Agreement; (ii) this Amended and Restated Agreement shall supersede and replace the Settlement Agreement in its entirety; and (iii) this Amended and Restated Agreement shall become effective and binding in accordance with its terms.

11.2. This Amended and Restated Agreement shall be null and void, and shall have no legal effect in the event that Congoleum’s motion for the Approval Order is denied by an order of the Bankruptcy Court and such order is not the subject of a timely appeal or timely motion for reargument, rehearing or reconsideration, or, in the event that an appeal, reargument, rehearing or reconsideration thereof has been sought, such order shall have been affirmed by the highest court to which the order was appealed, or from which reargument, rehearing or reconsideration was sought, and the time to take any further appeal, or move for reargument, rehearing or reconsideration shall have expired, and no such further appeal, or motion for reargument, rehearing or reconsideration shall have been filed.

11.3 In the event that this Amended and Restated Agreement is null and void and has no legal effect as provided in Section 11.2, the Settlement Agreement remains in full force and effect, and shall continue to be valid and enforceable in accordance with its terms, and the rights and obligations of the Parties under the Settlement Agreement, including the right (if any) to terminate the Settlement Agreement, shall not be affected or impaired by this Amended and Restated Agreement or by the Parties’ conduct in entering into this Amended and Restated Agreement and seeking the Approval Order. In such event, it is the intention of the Parties that their rights and obligations shall be as if this Amended and Restated Agreement had never been formed.

ARTICLE XII -- JUDGMENT REDUCTION

12.1 In the event that another insurer of Congoleum brings a claim for contribution, subrogation, indemnification, reimbursement or other similar claim against Mt. McKinley and/or Everest in connection with Claims released in this Amended and Restated Agreement, and such insurer obtains a final binding arbitration award or final judgment against or a settlement with Mt. McKinley or Everest (with the consent of Congoleum prior to the effective date of the Plan or with the consent of the Plan Trust following said effective date, which consent in either case shall not be unreasonably withheld), Congoleum or the Plan Trust (as the case may be) shall voluntarily reduce the amount of any final binding arbitration award, final judgment or settlement payment that it has obtained or may obtain from such other insurer by the amount of such other insurer’s final binding arbitration award or final judgment awarded against or settlement with Mt. McKinley or Everest in connection with such contribution, subrogation, indemnification or other similar claim, and shall direct that Mt. McKinley or Everest (as the case may be) shall not be subject to liability for such judgment, arbitration award or settlement.

12.2 Any reduction in judgment, arbitration award or settlement will be accomplished by subtracting from the judgment, arbitration award or settlement against the other insurer the share of the judgment, arbitration award or settlement attributable to Mt. McKinley or Everest (as the case may be).

ARTICLE XIII -- SUBROGATION

13.1 Other than claims against Mt. McKinley’s and Everest’s reinsurers or retrocessionaires, Mt. McKinley and Everest 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 any other primary or excess insurer of Congoleum or any other subscriber to any of the Subject Policies.

13.2 Effective upon the Trigger Date and to the extent permitted by law, Mt. McKinley and Everest, immediately and automatically, and without any need for further action, hereby transfer and assign to Congoleum all rights, claims, and causes of action relating to subrogation, reimbursement, or contribution that Mt. McKinley and Everest may have, arising out of the Settlement Amount paid hereunder; provided, however, that, if any third-party Person asserts any claim against Mt. McKinley or Everest, Mt. McKinley or Everest 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.

13.3 The Parties agree that nothing in this Amended and Restated Agreement shall limit the rights of Mt. McKinley and Everest to make reinsurance claims and pursue their reinsurance recoveries (if any).

ARTICLE XIV -- CONFIDENTIALITY

14.1 Congoleum, Mt. McKinley, Everest, the FCR and the Asbestos Claimants’ Committee (collectively, the “Settling Parties”) each agrees that all matters relating to the negotiation of this Amended and Restated 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 Settling Parties except to the extent that disclosure of matters relating to the negotiation of this matter is necessary in connection with obtaining the Approval Order.

14.2 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 Section 14.1, the Settling Party from whom disclosure is sought shall decline to provide the requested information on the ground that this Amended and Restated Agreement prevents such 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 Internal Revenue Service or the Securities and Exchange Commission) requests or requires disclosure of anything protected by Section 14.1, the Settling Party from whom disclosure is sought shall immediately give written notice by facsimile or hand-delivery to the other Settling Parties, and shall immediately provide copies of all notice papers, orders, requests or other documents in order to allow each Settling Party to take such protective steps as may be appropriate. Notice shall be made to the Persons identified in Section 15.12.

14.3 Material protected by Section 14.1 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 court rules.

14.4 Nothing in this Amended and Restated Agreement shall prevent any Settling Party from disclosing or releasing information regarding the negotiation of this Amended and Restated Agreement in any form and at any time after the date of said agreement to (i) reinsurers or retrocessionaires of Mt. McKinley and Everest directly or through intermediaries; (ii) outside auditors, attorneys or accountants of Congoleum, Mt. McKinley and Everest; (iii) to the extent required by law, including, to the extent applicable, to the Internal Revenue Service, the Securities and Exchange Commission, or

other United States or other governmental authority that properly requires disclosure by a Settling Party; (iv) 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 (v) as necessary in connection with the approval of this Amended and Restated Agreement by the Bankruptcy Court.

14.5 Notwithstanding anything to the contrary in this Article XIV, Congoleum may issue a press release at any time following the filing of a motion with the Bankruptcy Court seeking approval of this Amended and Restated Agreement; provided, however, that Congoleum first provides Mt. McKinley and Everest with a copy of the press release and obtains Mt. McKinley’s and Everest’s consent to said press release (such consent to be provided promptly and not to be unreasonably withheld).

ARTICLE XV -- MISCELLANEOUS

15.1 Congoleum will undertake all reasonable actions to cooperate with Mt. McKinley and Everest in connection with their reinsurers, including (at Mt. McKinley’s and Everest’s 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 Mt. McKinley’s and Everest’s representative, upon reasonable request, access to all claim files maintained by Congoleum, including all product exposure, medical, claim status, and payment records contained in such files; provided, however, that Mt. McKinley and Everest shall have no obligation to pay any internal costs of Congoleum (including costs associated with time or expense of Congoleum’s employees or agents).

15.2 The Parties acknowledge and agree that: (i) the Amended and Restated Agreement was bargained for and entered into in good faith and as the result of arm’s-length negotiations; and (ii) the Amended and Restated Agreement is based on their respective independent assessments, with the assistance and advice of counsel, that the payments and other benefits to be received by the Parties pursuant to this Amended and Restated 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 Amended and Restated Agreement.

15.3 This Amended and Restated Agreement is not a contract of insurance and is not subject to rules of construction governing contracts of insurance, including the doctrine of contra proferentem. This Amended and Restated Agreement is a compromise between the Parties, and shall not be construed as an admission of coverage under the Subject Policies, nor shall it or any provision thereof be construed as a waiver, modification or retraction of the positions of the Parties with respect to the interpretation and application of the Subject Policies.

15.4 This Amended and Restated Agreement is the product of informed negotiations and involves compromises of the Parties’ previously stated legal positions. Accordingly, it does not reflect upon the Parties’ views as to rights and obligations with respect to matters or Persons outside its scope. This Amended and Restated Agreement is without prejudice to positions taken by Mt. McKinley and Everest with regard to other insureds, and without prejudice to positions taken by Congoleum, the FCR and the Asbestos Claimants’ Committee with regard to other insurers.

15.5 This Amended and Restated Agreement is the jointly-drafted product of arm’s-length negotiations between the Parties, the Asbestos Claimants’ Committee and the FCR with the benefit of advice from counsel, and the Parties, the Asbestos Claimants’ Committee and the FCR agree that it shall be so construed. As such, no Party will claim that any ambiguity in this Amended and Restated Agreement shall be construed against the other Party.

15.6 No change, amendment or modification of this Amended and Restated Agreement shall be valid unless in writing and signed on behalf of Congoleum, Mt. McKinley, Everest, the FCR and the Asbestos Claimants’ Committee (or their respective attorney-in-fact).

15.7 This Amended and Restated 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.

15.8 This Amended and Restated 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.

15.9 There may be multiple originals of this Amended and Restated Agreement, which may be executed in counterparts. Facsimiles or scanned versions of signatures of the undersigned shall be treated as originals.

15.10 This Amended and Restated Agreement shall be binding, in accordance with its terms, upon any subsequent trustee in the Chapter 11 Cases and any successor to the FCR.

15.11 Upon the later of its formation and the occurrence of the effective date of the Plan, the Plan Trust shall become a Party to this Amended and Restated Agreement, automatically and without any further action.

15.12 Unless another person is designated, in writing, for the receipt of notices hereunder, notices to the undersigned shall be sent to the following Persons; provided, however, that notices to the Plan Trust shall be sent to such Person(s) as the Plan Trust designates in writing.

If to Congoleum:

Covington & Burling LLP

1201 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

Attn: Mitchell F. Dolin, Esq.

Michael St. Patrick Baxter, Esq.

Phone: (202) 662-6000

Fax: (202) 662-6291

e-mail: mdolin@cov.com

mbaxter@cov.com

and

Pillsbury Winthrop Shaw Pittman LLP

1540 Broadway

New York, NY 10036-4039

Attn: Richard L. Epling, Esq.

Kerry A. Brennan, Esq.

Phone: (212) 858-1000

Fax: (212) 858-1500

e-mail: richard.epling@pillsburylaw.com

kerry.brennan@pillsburylaw.com

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 Mt. McKinley and Everest:	General Counsel Everest Reinsurance Company Westgate Corporate Center 477 Martinsville Road, P.O. Box 830 Liberty Comer, NJ 07938-0830 Phone: (908) 604-3000 Fax: (908) 604-3434

With a copy to:	Fred L. Alvarez, Esq. Walker Wilcox Matousek LLP 225 West Washington Street Chicago, IL 60606 Phone: (312) 224-6748 Fax: (312) 224-6700 e-mail: falvarez@wwmlawyers.com and Kevin M. Haas, Esq. Cozen O’Connor 1085 Raymond Boulevard, Suite 1900 Newark, NJ 07102 Phone: (973) 286-1200 Fax: (973) 242-2121 e-mail: KHaas@cozen.com and David P. McClain, Esq. McClain& Patchin, P.C. 711 Louisiana, Suite 3100 South Tower, Pennzoil Place Houston, TX 77002 Phone: (713) 654-8001 Fax: (713) 6548818 e-mail: mcclain@mcclainpatchin.com

If to the FCR:	R. Scott Williams, Esq. Haskell / Slaughter 1400 Park Place Tower 2001 Park Place North Birmingham, AL 35203 Phone: 205-254-1435 Fax: 205-324-1133 e-mail: rsw@hsy.com

With a copy to:	Orrick, Herrington & Sutcliffe, LLP Columbia Center 1152 15th Street, NW Washington, DC 20005 Attn: Jonathan P. Guy, Esq. Richard H. Wyron, Esq. Phone: 202-339-8516 Fax: 202-339-8500 email: jguy@orrick.com rwyron@orrick.com

If to the Asbestos Claimants’ Committee:	c/o Peter Van N. Lockwood, Esq. Ronald E. Reinsel, Esq. Caplin & Drysdale, Chtd. One Thomas Circle, NW Suite 1100 Washington, DC 20005-5802 Phone: 202-862-7837 Fax: 202-429-3301

With a copy to:	Ronald E. Reinsel, Esq. Caplin & Drysdale, Chtd. One Thomas Circle, NW Suite 1100 Washington, DC 20005-5802 Phone: 202-862-7837 Fax: 202-429-3301 email: rer@capdale.com

ARTICLE XVI -- REPRESENTATIONS AND WARRANTIES

16.1 Congoleum represents and warrants that it has full corporate authority to enter this Amended and Restated Agreement as its binding and legal obligation, subject to approval by the Bankruptcy Court. The person signing this Amended and Restated Agreement on behalf of Congoleum represents and warrants that he or she is authorized to execute this Amended and Restated Agreement as a binding and legal obligation of Congoleum in accordance with its terms.

16.2 Mt. McKinley and Everest represent and warrant that they have full corporate authority to enter this Amended and Restated Agreement as a binding and legal obligation of Mt. McKinley and Everest. The person signing this Amended and Restated Agreement on behalf of Mt. McKinley and Everest represents and warrants that he or she is authorized by Mt. McKinley and Everest to execute this Amended and Restated Agreement as a binding and legal obligation of Mt. McKinley and Everest in accordance with its terms.

16.3 The person signing this Amended and Restated Agreement on behalf of the Asbestos Claimants’ Committee represents and warrants that he or she is authorized by the Asbestos Claimants’ Committee to execute this Amended and Restated Agreement as a binding and legal obligation of the Asbestos Claimants’ Committee in accordance with its terms.

16.4 Congoleum, Mt. McKinley and Everest each represents and warrants that it has conducted a diligent search for copies or other evidence of the Subject Policies and that, as of the date of this Amended and Restated Agreement, it is not aware of the existence of any liability insurance policies issued to Congoleum and subscribed to by Mt. McKinley and Everest, other than the Subject Policies listed on Attachment B hereto.

[SIGNATURES ON THE FOLLOWING PAGES]

IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated Agreement by their duly authorized representatives as of the date first above written.

	CONGOLEUM CORPORATION, CONGOLEUM SALES, INC. AND CONGOLEUM FISCAL, INC.


	By:	/s/ Howard N. Fiest
	Name:	Howard N. Feist
	Title:	Chief Financial Officer


	MT. McKINLEY INSURANCE COMPANY


	By:	/s/ Adam Kenney
	Name:	Adam Kenney
	Title:	Vice President, Claim


	EVEREST REINSURANCE COMPANY


	By:	/s/ Adam Kenney
	Name:	Adam Kenney
	Title:	Vice President, Claim

CONSENTED TO AND AGREED

TO THE EXTENT APPLICABLE TO:

OFFICIAL COMMITTEE OF

UNSECURED ASBESTOS CLAIMANTS

By: /s/ Ronald E. Reinsel

Name: Ronald E. Reinsel

Title: its Attorney

F. SCOTT WILLIAMS

FUTURES REPRESENTATIVE

Solely in his capacity as Futures Representative

By: /s/ F. Scott Williams

Name: F. Scott Williams

Title: Futures Representative

Attachment A

Form of Approval Order

Attachment B

Known Subject Policies

Policy Number	Inception	Termination
DXC 901037	January 1, 1976	January 1, 1977
DXCDX 0067	January 1, 1977	January 1, 1978
DXCDX 0588	January 1, 1978	January 1, 1979
DXCDX 0659	January 1, 1978	January 1, 1979
DXCDX 1356	January 1, 1979	January 1, 1980
DXCDX 1357	January 1, 1979	January 1, 1980
GMX 00451	January 1, 1980	January 1, 1981
GMX 00452	January 1, 1980	January 1, 1981
GMX 00856	January 1, 1981	January 1, 1982
GMX 00857	January 1, 1981	January 1, 1982
GMX 01497	January 1, 1982	January 1, 1983
GMX 01498	January 1, 1982	January 1, 1983
GMX 02027	January 1, 1983	January 1, 1984
GMX 02028	January 1, 1983	January 1, 1984
GMX 02545	January 1, 1984	January 1, 1985
GMX 02546	January 1, 1984	January 1, 1985

EX-99.7.1 10 ex99-71.htm LETTER AGREEMENT ex99-71.htm

Exhibit 99.7.1

LETTER AGREEMENT

March 18, 2008

VIA FACSIMILE AND U.S. MAIL

Howard N. Feist III

Congoleum Corporation

57 River Street

Wellesley Heights, MA 02481-2097

Fax: (781) 237-6880

Roger S. Marcus

American Biltrite Inc.

57 River Street

Wellesley Heights, MA 02481

Fax: (781) 237-6880

Re: Amendments to Settlement and Policy Buyback Agreement and Release

Gentlemen:

Reference is hereby made to the Settlement and Policy Buyback Agreement and Release (“Settlement and Buyback Amendment”), dated as of April 25, 2006, by and among Congoleum Corporation (“Congoleum”), individually and on behalf of all of the Congoleum Entities; upon its creation, the Plan Trust; American Biltrite Inc. (“ABI”), individually and on behalf of all of the ABI Entities; and Travelers Casualty and Surety Co., formerly known as Aetna Casualty and Surety Company (“Travelers”), and St. Paul Fire and Marine Insurance Company (“St. Paul”), individually and on behalf of the St. Paul Travelers Entities.

The undersigned hereby agree to the following amendments to the Settlement and Buyback Agreement:

Pursuant to Section V.A, the deadline for Travelers to exercise its right to waive the occurrence of the contingencies set forth in Section V.A(vii) shall be extended to April 29, 2008.

This Letter Agreement may be executed by the parties hereto in counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

Except as expressly amended hereby, the Settlement and Buyback Agreement shall continue to be and remain in full force and effect.

Please signify your agreement to the terms of this Letter Agreement by counter-signing in the place provided below.

Very truly yours,

TRAVELERS CASUALTY AND SURETY

COMPANY AND ST. PAUL FIRE AND MARINE

INSURANCE COMPANY (on behalf of all of the

St. Paul Travelers Entities)

By: /s/ William Gresham

Officer

Acknowledged and agreed, this 17th day of March, 2008:

CONGOLEUM CORPORATION, AMERICAN BILTRITE INC.

CONGOLEUM SALES, INC. and (on behalf of all of the ABI Entities)

CONGOLEUM FISCAL, INC.

(on behalf of all of the Congoleum Entities)

By: /s/ Howard N. Feist By: /s/ Roger S. Marcus

Howard N. Feist III Roger S. Marcus

Chief Financial Officer Chief Executive Officer

cc: Pillsbury Winthrop Shaw Pittman LLP

1540 Broadway

New York, NY 10036-4036

Fax: (212)858-1500

Attn: Richard L. Epling, Esq.

Kerry A. Brennan, Esq.

Covington & Burling

1201 Pennsylvania Avenue, N.W.

Washington, DC 20004-2401

Fax: (202) 662-6291

Attn: Mitchell F. Dolin, Esq.

Winston & Strawn LLP

1700 K Street, N.W.

Washington, DC 20006

Fax: (202) 282-5100

Attn: William N. Hall, Esq.
John A. Fehrenbach, Esq.

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