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

 

 

                                                                    Exhibit 10.2

 

 

                      SETTLEMENT AGREEMENT AND RELEASE BY,

                     BETWEEN AND AMONG CONGOLEUM CORPORATION

                        AND CERTAIN AIG MEMBER COMPANIES

 

 

      This Settlement Agreement and Release (the "Agreement") is made by,

between and among (a) each of the following (each, a "Debtor" and, collectively,

the "Debtors"): Congoleum Corporation (together with its affiliates,

predecessors, successors and assigns, collectively "Congoleum"), Congoleum

Sales, Inc., and Congoleum Fiscal, Inc., as debtors and debtors-in-possession,

and their affiliates, predecessors, successors and assigns, (b) AIU Insurance

Company, American Home Assurance Company, Granite State Insurance Company,

National Union Fire Insurance Company of Pittsburgh, PA and their respective

predecessors, successors and assigns (collectively, the "AIG Companies"); and

(c) upon its creation, the Plan Trust. The Debtors, the AIG Companies and the

Plan Trust, upon its creation, are each referred to herein in their individual

capacity as a "Party" and collectively as the "Parties."

 

                                    RECITALS

 

      WHEREAS, numerous "Asbestos Claims" (as defined herein) have been asserted

against Congoleum; and

 

      WHEREAS, the AIG Companies issued or allegedly issued to Congoleum certain

liability insurance policies including but not limited to, the policies listed

on Attachment A hereto (the "AIG Policies," as defined herein); and

 

      WHEREAS, there is a dispute between the Debtors and the AIG Companies

regarding their respective rights and obligations with respect to insurance

coverage for Asbestos Claims (the "Coverage Dispute" ); and

 

      WHEREAS, Congoleum and the AIG Companies are parties to a lawsuit styled

Congoleum Corporation v. ACE American Insurance Company, et al., Docket No.

MID-L-8908-01 pending in the Superior Court of New Jersey, Law Division,

Middlesex County (the "Coverage Action"); and

 

<PAGE>

 

      WHEREAS, the "Plan Proponents" (as defined herein) distributed their Joint

Prepackaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code for

Congoleum Corporation, et al., dated October 27, 2003, as amended (the "Original

Plan"); and

 

      WHEREAS, on or about December 31, 2003, the Debtors filed reorganization

Case No. 03-51524 (KCF) jointly administered pursuant to chapter 11 of the

United States Bankruptcy Code in the United States Bankruptcy Court for the

District of New Jersey (the "Chapter 11 Case"), and the Debtors continue to

operate their businesses as debtors and debtors-in-possession; and

 

      WHEREAS, Congoleum seeks in the Coverage Action actual compensatory and

consequential damages, plus interest thereon, among other relief, and the AIG

Companies deny they owe any damages as alleged and have defended against

Congoleum's claims in the Coverage Action; and

 

      WHEREAS, on or about November 12, 2004, the Debtors filed with the

Bankruptcy Court the Fourth Modified Joint Plan of Reorganization Under Chapter

11 of the Bankruptcy Code of Congoleum Corporation, et al. (the "Fourth Modified

Plan"), and the Debtors anticipate filing with the Bankruptcy Court a Fifth

Modified Joint Plan of Reorganization in or before June 2005 (the "Fifth

Modified Plan"); and

 

      WHEREAS, the Debtors and the AIG Companies entered into settlement

negotiations to resolve the Coverage Dispute and to further define their

respective rights and obligations under the AIG Policies and (a) the Debtors and

the AIG Companies agreed to a settlement involving the AIG Settlement Payments

(as defined herein); (b) the Debtors agreed to accept payment of the AIG

 

 

                                       2

<PAGE>

 

Settlement Payments (plus any and all interest accrued thereon as provided for

herein) to the Plan Trust or as otherwise directed by the Bankruptcy Court and

(c) the AIG Companies agreed to pay to the Plan Trust or as otherwise directed

by the Bankruptcy Court the AIG Settlement Payments (plus any and all interest

accrued thereon as provided for herein), provided that the AIG Companies are

designated as Settling Asbestos Insurance Companies in the Plan and the other

conditions to the Trigger Date are satisfied; and

 

      WHEREAS, subject to the terms of this Agreement, the Debtors and the AIG

Companies now wish to enter into an agreement, as set forth below, to settle and

resolve the Coverage Dispute as between them, to provide for mutual releases of

their claims under the AIG Policies, to provide for dismissals with prejudice of

the Coverage Action as between them, to provide for a permanent withdrawal of

all of the AIG Companies' claims, objections and appeals, if any, in the Chapter

11 Case, and to resolve certain other matters, all as set forth below; and

 

       WHEREAS, the Debtors and the AIG Companies desire that, upon creation of

the Plan Trust, the Plan Trust shall become a Party to this Agreement.

 

      WHEREAS, the Plan Trust may wish to secure, from one or more "Permitted

Assignees" (as defined herein) immediate funds in exchange for its right to the

AIG Settlement Payments; and

 

      WHEREAS, the Parties now wish to enter into an agreement, as set forth

below, to settle and resolve the outstanding disputes referred to above;

 

      NOW, THEREFORE, in consideration of the foregoing facts and the mutual

covenants contained herein, and intending to be legally bound hereby, the

Parties hereby agree as follows:

 

 

                                       3

<PAGE>

 

                                    AGREEMENT

 

I.     DEFINITIONS

 

      A. For purposes of this Agreement, the following definitions apply to the

capitalized terms herein wherever those terms appear in this Agreement,

including the prefatory paragraph, recitals, the sections below and any

attachments hereto. Capitalized terms in the prefatory paragraph, recitals, the

sections below and any attachments hereto have the meanings ascribed to them

therein to the extent they are not otherwise defined in this Definitions

section. Capitalized terms that are not defined in this Agreement are given the

meanings designated in the Fourth Modified Plan, as presently constituted.

Moreover, each defined term stated in the singular shall include the plural and

each defined term stated in the plural shall include the singular. The word

"including" means "including but not limited to." The following terms shall have

the meanings ascribed to such terms in, as applicable, the prefatory paragraph

or the recitals to this Agreement: "Agreement", "AIG Companies", "Chapter 11

Case", "Congoleum", "Coverage Action", "Coverage Dispute", "Fifth Modified

Plan", "Fourth Modified Plan", "Original Plan", and "Parties", and

 

      B. "AIG Companies Releasees" means (i) the AIG Companies; (ii) each of the

AIG Companies' parents, subsidiaries, divisions, holding companies, merged

companies, acquired companies, predecessors-in-interest, successors-in-interest

and assigns, solely in their capacities as such; and (iii) each of the

directors, officers, shareholders, agents and employees of the foregoing, solely

in their capacities as such.

 

 

                                       4

<PAGE>

 

      C. "AIG Policies" means the insurance policies listed on Attachment A to

this Agreement and any insurance policy issued or allegedly issued by the AIG

Companies providing general liability coverage to Congoleum or under which one

or more of the Debtors are an insured.

 

      D. "AIG Settlement Payments" means the stream of payments to be made by

the AIG Companies to the Plan Trust or as otherwise directed by the Bankruptcy

Court, in the amounts set forth on Attachment C hereto.

 

      E. "Approval Order" means an order of the Bankruptcy Court or the District

Court exercising its original bankruptcy jurisdiction approving this Agreement

and the compromise and settlement memorialized herein between the Debtors and

the AIG Companies, which order shall be in the form of Attachment B hereto or

such other order that is in a form and substance acceptable to the Debtors and

the AIG Companies.

 

      F. "Asbestos Claims" means any and all past, present and future claims,

demands, actions, suits, proceedings, notices of partial or total

responsibility, whether presently known or unknown, that seek compensatory,

punitive or statutory damages, declaratory judgment, injunctive relief, medical

monitoring, or any other form of relief whatsoever, on account of alleged bodily

injury, personal injury, fear of future injury, medical monitoring, mental

injury or anguish, emotional distress, shock, sickness, disease, or any other

illness or condition, death, property damage, loss of use of property, or

diminution in the value of property arising from alleged, potential or actual

exposure of any type or nature whatsoever to asbestos, an asbestos-containing

product, and/or any other substance, product, matter or material in any form or

state that contains or is alleged to contain asbestos, either alone or in

combination with any other substance. The term "Asbestos Claims" also includes,

without limitation, claims or suits alleging in whole or in part exposure to

 

 

                                       5

<PAGE>

 

asbestos and/or asbestos containing products in addition to any other substance,

chemical, pollutant, waste, or material of any nature as well as claims that

involve, in whole or in part, alleged exposure to asbestos or asbestos

containing products relating to or arising out of or from the installation,

removal, manufacture, distribution, sale, re-sale, existence or presence

(whether on premises owned or controlled by the Debtors or otherwise) of

asbestos or an asbestos-containing product, either alone or in combination with

any other substance. The term "Asbestos Claims" also includes the definitions of

the following terms, as set forth in Section 1.2 (as presently enumerated) of

the Plan: ABI Asbestos Claim, Asbestos Personal Injury Claim, Asbestos Property

Damage Claim, Asbestos Property Damage Contribution Claim, Indirect Asbestos

Claim, and Unknown Asbestos Claim. Notwithstanding anything to the contrary

herein, the term "Asbestos Claims" does not include any Claims (as defined

herein) for property damage brought by any Governmental Unit, including, but not

limited to, the United States of America, under applicable Environmental Laws

where such Claims fall outside the scope of the "products" or "completed

operations" hazards of the AIG Policies (as those terms are defined in the AIG

Policies).

 

      G. "Claim" means any of the following: (1) "Claim" as that term is defined

in the United States Bankruptcy Code, 11 U.S.C. ss. 101(5); (2) Demand; or (3)

any claim, whether past, present or future, known or unknown, asserted or

unasserted, foreseen or unforeseen, fixed or contingent, or direct or indirect,

and whether in law, equity, admiralty or otherwise (including any claim (a)

arising out of, related to, or involving asbestos or any other substance,

product, matter or material in any form or state, any cumulative or other injury

or damage, any activity, operation, premises, or exposure or any alleged bad

faith, unfair claim practices, unfair trade practices, deceptive trade

practices, insurance code violations, fraud, misrepresentation, non-disclosure,

 

 

                                       6

<PAGE>

 

breach of fiduciary duty, conspiracy, or extra-contractual or tort liability;

(b) for any form of damages, indemnity or defense obligations, insurance

premiums (whether retrospectively rated or otherwise), deductibles, self-insured

retentions, costs, expenses, contribution or subrogation (except as specified in

Paragraph II.J, below); or (c) pursuant to or under a contract, other agreement,

promise, representation or warranty; or (d) pursuant to any direct action or

statutory or regulatory right of action, assertion of right, complaint,

cross-complaint, counterclaim, affirmative defense, writ, demand, inquiry,

request, suit, lawsuit, liability, action, cause of action, administrative

proceeding, governmental action, order, judgment, settlement, lien, loss, cost

or expense.

 

      H. "Confirmation Order" means an order entered by the Bankruptcy Court in

the Chapter 11 Case confirming the Plan, together with any order of the United

States District Court issued pursuant to section 524(g)(3)(A) of the Bankruptcy

Code confirming or affirming such order.

 

      I. "Congoleum Releasees" means (i) Congoleum Corporation and each of the

other Debtors; (ii) each of their respective parents, subsidiaries, divisions,

holding companies, merged companies, acquired companies,

predecessors-in-interest, successors-in-interest and assigns, solely in their

capacities as such; and (iii) the directors, members, officers, shareholders,

agents and employees of the foregoing, solely in their capacities as such.

 

      J. "Creditors' Committee" means the Official Committee of Unsecured

Asbestos Claimants initially appointed by the United States Trustee in the

Reorganization Cases on or about April 21, 2004.

 

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

amended.

 

 

                                       7

<PAGE>

 

      L. "Execution Date" means the earliest date on which this Agreement is

signed by the Debtors and the AIG Companies.

 

      M. "Final Order" means an order or judgment of a court, the

implementation, operation or effect of which has not been stayed and as to which

the time to appeal, seek review, petition for certiorari, or move for

reargument, reconsideration or rehearing has expired and as to which no appeal,

petition for review, reconsideration, rehearing or certiorari or other

proceedings for reargument or rehearing shall then be pending; provided,

however, if an appeal, writ of certiorari, reargument, reconsideration or

rehearing thereof has been filed or sought, such order of the court shall have

been affirmed by the highest court to which such order was appealed, or

certiorari shall have been denied or reargument or rehearing shall have been

denied or resulted in no modification of such order, and the time to take any

further appeal, petition for certiorari, or move for reargument, reconsideration

or rehearing shall have expired; provided, further, that, for the avoidance of

doubt, the Parties acknowledge and agree that the possibility that a motion

filed with respect to such order under Rule 59 or Rule 60 of the Federal Rules

of Civil Procedure, or other analogous rule under the Bankruptcy Rules, may be

filed, does not cause such order not to be a Final Order (provided, further,

that such a motion has not been filed as of a date that such order would

otherwise be considered a Final Order.

 

      N. "FCR" means the Futures Representative appointed pursuant to the

Bankruptcy Court's February 18, 2004 Order in the Chapter 11 Case, solely in his

capacity as such.

 

      O. "Legislation Clause" has the meaning ascribed to such term in Section

XVI(A) of this Agreement.

 

 

                                        8

<PAGE>

 

      P. "Motion" has the meaning ascribed to such term in sub-paragraph

III.E.1.c of this Agreement.

 

      Q. "Permitted Assignee" means any Person to whom the Plan Trust's right,

title and interest under this Agreement are assigned, with the prior consent of

the AIG Companies (which consent shall not be unreasonably withheld), pursuant

to Section IV of this Agreement.

 

      R. "Person" means any natural person, corporation, limited liability

company, syndicate, trust, joint venture, association, company, partnership,

governmental authority or other entity.

 

      S. "Plan" means the Fourth Modified Plan, as such Fourth Modified Plan may

be further modified from time to time (including the anticipated Fifth Modified

Plan ) in accordance with the terms thereof; provided, however, that (i) such

modifications are consistent with the terms of this Agreement and do not

adversely affect the interests of the AIG Companies under this Agreement and

such modifications do not revise or delete the Claimant Agreement (Exhibit E to

the Disclosure Statement), and (ii) the Plan, as so further modified, provides

an injunction at least as broad and inclusive as the "Asbestos Channeling

Injunction" (as defined in the Plan) that applies to Settling Asbestos Insurance

Companies.

 

      T. "Plan Proponents" means the Debtors in the Chapter 11 cases jointly

administered under Case No. 03-51524 (KCF) in the United States Bankruptcy Court

for the District of New Jersey.

 

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

 

 

                                       9

<PAGE>

 

      V. "Prior Payments" has the meaning ascribed to such term in Paragraph

II.G of this Agreement.

 

      W. "Termination Event" means the occurrence for any reason of any of the

contingencies set forth in Paragraph III.H below and/or the subsequent

declaration of this Agreement as null and void in accordance with Paragraph

III.H below.

 

      X. "Trigger Date" means the earliest date upon which written notice is

sent to the AIG Companies by the Debtors, pursuant to Section VI below, stating

that all of the following events have occurred, if ever: (1) the Approval Order

is a Final Order; (2) the "Effective Date," as defined in the Plan, has

occurred; (3) the Confirmation Order is a Final Order; and (4) the AIG Companies

have been designated as Settling Asbestos Insurance Companies (entitled to all

of the rights and protections of Settling Asbestos Insurance Companies,

including an injunction under section 524(g) of the Bankruptcy Code under the

Plan) in the schedule of Settling Asbestos Insurance Companies filed by the Plan

Proponents prior to the conclusion of the Confirmation Hearing, pursuant to the

Plan.

 

II.    PAYMENT BY THE AIG COMPANIES

 

      A. The AIG Companies agree to pay to the Plan Trust or as otherwise

directed by the Bankruptcy Court, the total amount of One Hundred Three Million

Four Hundred Twenty Two Thousand Six Hundred Fifty Two Dollars ($103,422,652.00)

(the "Settlement Amount") representing costs associated with Asbestos Claims, in

the manner specified in this Paragraph II.A and in the amounts set forth on

Attachment C hereto (such scheduled payments, collectively, the "AIG Settlement

Payments"). The first AIG Settlement Payment listed on Attachment C hereto shall

be paid to the Plan Trust or as otherwise directed by the Bankruptcy Court on

 

 

                                       10

<PAGE>

 

the last day of the calendar quarter (i.e., March 31, June 30, September 30 or

December 31) that is at least thirty (30) days but no more than ninety-two (92)

days following the Trigger Date. Thereafter, each successive AIG Settlement

Payment listed on Attachment C hereto shall be paid to the Plan Trust or as

otherwise directed by the Bankruptcy Court on the last day of the immediately

following calendar quarter. By way of example, assuming that the Trigger Date is

December 5, 2005, the first AIG Settlement Payment listed on Attachment C hereto

would be due on or before March 31, 2006. Under this example, the second AIG

Settlement Payment listed on Attachment C hereto would be due on or before June

30, 2006; the third AIG Settlement Payment listed on Attachment C hereto would

be due on or before September 30, 2006, and so on for each successive AIG

Settlement Payment listed on Attachment C hereto.

 

      B. No later than five (5) days after the Trigger Date, the Debtors or the

Plan Trust shall provide the AIG Companies with instructions with respect to the

payment of the Settlement Amount. Such instructions will include provisions for

payment by check and by wire transfer.

 

      C. The proceeds of the AIG Companies' payments hereunder shall be used

only to pay Asbestos Claims and/or to pay other amounts payable by the Plan

Trust pursuant to the Plan and the Trust Distribution Procedures for the

Congoleum Plan Trust, as may be amended. The foregoing provisions of this

Paragraph II.C shall apply only with respect to AIG Settlement Payments actually

received by the Plan Trust and shall not apply with respect to any AIG

Settlement Payments made to a Permitted Assignee. Notwithstanding anything to

the contrary herein, nothing in this Agreement, including, without limitation,

the provisions of this Paragraph II.C, shall be construed to impair, restrict,

diminish or otherwise limit the Plan Trust's right to assign any or all of the

AIG Settlement Payments, pursuant to the terms of Section IV herein.

 

 

                                       11

<PAGE>

 

      D. Each of the AIG Companies covenants and agrees that it shall not,

without the written consent of the Debtors, and after the Effective Date, the

Plan Trust, consent to, and instead shall oppose, the entry of any order,

decree, judgment or injunction that would require the AIG Companies to make

payment of any one or more AIG Settlement Payments to, or for the benefit of, a

Person other than (1) the Plan Trust, or (2) a Permitted Assignee, as

applicable, or that would prohibit, divert, channel or otherwise limit or

restrict payment to the Plan Trust or a Permitted Assignee, as applicable, of

the AIG Settlement Payments, or which would have any such effect.

 

      E. Time is of the essence with respect to payment of the AIG Settlement

Payments (together with any and all interest accrued thereon as provided for

herein), and all other payments set forth in this Agreement. Subject to the

provisions of Paragraphs II.A and II.B above, all payments made by an AIG

Company pursuant hereto shall be made no later than the date when due as set

forth in Paragraph II.A above, in U.S. dollars, in the full amount of the

applicable AIG Settlement Payment as set forth on Attachment C hereto (together

with any and all interest accrued thereon as provided for herein), without any

set-off, counterclaim, diminution or any other deduction whatsoever; provided,

however, that if such applicable date is not a Business Day, then such payment

shall be made on the immediately preceding Business Day.

 

      F. Any AIG Settlement Payment that is not made when due shall bear

interest from (and including) the date that is three days after the date of

notice of such overdue payment to the AIG Companies in the manner specified in

Section VI herein to (but excluding) the date said AIG Settlement Payment plus

all interest accrued thereon is actually paid, at an interest rate equal to the

prime rate of Citibank, N.A. in effect on the date such payment was due plus

three percent (3%), compounded daily.

 

 

                                       12

<PAGE>

 

      G. The Settlement Amount and/or the AIG Settlement Payments are in

addition to any and all amounts paid prior to the Execution Date by or on behalf

of the AIG Companies to or for the benefit of the Debtors in connection with

Asbestos Claims or otherwise (the "Prior Payments"). From and after the Trigger

Date, and unless this Agreement is declared null and void pursuant to Paragraph

III.H below, any and all payments by the AIG Companies, including, without

limitation, the Prior Payments, if any, the Settlement Amount and/or the AIG

Settlement Payments, shall be deemed final and irrevocable payments.

 

      H. In entering into this Agreement, the AIG Companies have relied upon the

fact that nothing in this Agreement and nothing in the Plan is intended to

alter, amend or impair the rights and duties of the Parties in connection with

insurance or other transactions that are unrelated to (1) asbestos or (2) the

release of insurance coverage as set forth in sub-paragraph V.A.1.

 

      I. The AIG Companies shall have the right to allocate the Settlement

Amount and/or the AIG Settlement Payments, or any portions thereof, solely for

their own purposes, in their own books and records, to the various types and

classifications of claims released by the Debtors pursuant to Section IV, below;

provided, however that neither the Debtors nor the Plan Trust shall be bound by

or be deemed to agree with any such allocation for any reason or purpose and

that the AIG Companies' allocation shall not, in any way, limit the AIG

Companies' obligation to pay the AIG Settlement Payments when due or limit the

Debtors' or the Plan Trust's use or allocation of the Settlement Amount and/or

the AIG Settlement Payments, as applicable.

 

 

                                       13

<PAGE>

 

      J. The AIG Companies shall not seek reimbursement of any payments that the

AIG Companies made (including, without limitation, Prior Payments) or are

obligated to make under this Agreement or otherwise, whether by way of a claim

for contribution or subrogation, or otherwise, from any Entity other than the

AIG Companies' reinsurers in their capacity as such. Each of the Debtors shall

use its reasonable best efforts to obtain from all insurers with which it

settles an agreement similar to that set forth in the preceding sentence;

provided, however, that notwithstanding anything to the contrary herein, the

failure of the Debtors to obtain such an agreement from any other insurer with

which it settles shall not constitute a breach of this Agreement.

Notwithstanding the foregoing, subject to the effect of any injunction issued

pursuant to section 524(g) of the Bankruptcy Code, the AIG Companies may file a

cross-complaint or counterclaim against any Entity that has first asserted a

claim seeking reimbursement for any payment that it has paid or is required to

pay, whether by way of a claim for contribution and/or subrogation or otherwise,

against the AIG Companies in connection with any Claims released hereunder;

provided, however, that to the extent the AIG Companies recover any amount in

respect of such cross-complaint or counterclaim from such third party, the

proceeds of such recovery shall be paid by the AIG Companies per the instruction

of the Debtors or the Plan Trust, (as the case may be) after the AIG Companies

are reimbursed from such proceeds for their reasonable fees, costs and expenses

incurred in prosecuting and defending such claim. For the avoidance of doubt,

any payment of such proceeds per the Debtors' or the Plan Trust's instructions

shall not reduce or count towards the AIG Companies' obligation to pay the AIG

Settlement Payments (plus any and all interest accrued thereon as provided for

herein).

 

      K. Each Party acknowledges and agrees that the Debtors' rights to the AIG

Settlement Payments derive from and are coextensive with the Debtors' rights to

the proceeds of the AIG Policies. Each Party agrees that it shall not take any

action inconsistent with such acknowledgement and agreement.

 

 

                                       14

<PAGE>

 

      L. In the event that any insurer of the Debtors obtains a binding

arbitration award or final judgment against or a settlement with one or more of

the AIG Companies (with the consent of the Debtors prior to the "Effective Date"

(as defined in the Plan) or with the consent of the Plan Trust following said

Effective Date (which consent in either case shall not be unreasonably withheld)

entitling it to obtain a sum certain from the AIG Companies as a result of said

insurer's claim for contribution, subrogation, indemnification, reimbursement or

other similar claim against the AIG Companies for the AIG Companies' alleged

share or equitable share of the defense and/or indemnity of the Debtors for any

Claims released pursuant to this Agreement, the Debtors or the Plan Trust (as

the case may be) shall voluntarily reduce the amount of any such final judgment

or settlement payment that they have obtained or may obtain from such other

insurer by the amount of such other insurer's binding arbitration award or final

judgment awarded against or settlement with the AIG Companies in connection with

such contribution, subrogation, indemnification or other similar claim and shall

direct that such AIG Companies shall not be subject to liability for such

judgment, arbitration award or settlement. Such a reduction in judgment or

arbitration award or settlement will be accomplished by subtracting from the

judgment, arbitration award or settlement against the other insurers the share

of the judgment, arbitration award or settlement attributable to the AIG

Companies.

 

      M. In the event that any two (2) consecutive AIG Settlement Payments

(together with any and all interest accrued thereon, as set forth herein) are

past due for more than ten (10) days following the dates on which such AIG

Settlement Payments are due and payable (as set forth in Paragraph II.A above),

 

 

                                       15

<PAGE>

 

the Plan Trust or a Permitted Assignee (as the case may be) may send a notice of

default to the AIG Companies in the manner set forth in Section VI below (a

"Default Notice"). If the AIG Settlement Payments that are the subject of any

such Default Notice (together with any and all interest accrued thereon, as set

forth herein) are not paid in full within sixty (60) days following the date on

which the Default Notice is sent, then the Plan Trust or a Permitted Assignee

(as the case may be) may send a notice to the AIG Companies, in the manner set

forth in Section VI below, indicating its intent to accelerate payment of the

AIG Settlement Payments (an "Intent to Accelerate Notice"). If the AIG

Settlement Payments that are the subject of such Intent to Accelerate Notice

(together with any and all interest accrued thereon, as set forth herein) are

not paid in full within thirty (30) days following the date on which the Intent

to Accelerate Notice is sent (the "Acceleration Payment Date"), then an amount

equal to the sum of all unpaid AIG Settlement Payments (including, without

limitation, the AIG Settlement Payments that are the subject of the Intent to

Accelerate Notice), as discounted to present value as of the Acceleration

Payment Date by applying a discount rate that is equal to the Six Month Treasury

Rate in effect on the Acceleration Payment Date (the "Acceleration Payment"),

shall become immediately due and payable to the Plan Trust or the Permitted

Assignee (as the case may be). Notwithstanding the foregoing, the Acceleration

Payment shall not become immediately due and payable in the event that the AIG

Companies' failure to pay or to cure was the result of (i) an act of God; (ii) a

suspension or material limitation in trading in securities generally on the New

York Stock Exchange or on NASDAQ; (iii) a general moratorium on commercial

banking activities declared by either Federal or New York State banking

authorities; (iv) the outbreak or escalation of hostilities involving the United

States or the declaration by the United States of a national emergency or war;

or (v) a good faith dispute by the AIG Companies of the amount of interest

allegedly due with respect to the AIG Settlement Payments that are the subject

of the Intent to Accelerate Notice (and any other AIG Settlement Payments that

are past due as of the date the Intent to Accelerate Notice is sent); provided

that this clause (v) shall be applicable only if the AIG Companies have paid in

 

 

                                       16

<PAGE>

 

full, within thirty (30) days after the Intent to Accelerate Notice is sent, the

scheduled amount of the AIG Settlement Payments, as set forth on Attachment C

hereto, that are the subject of the Intent to Accelerate Notice (and any other

AIG Settlement Payments that are past due as of the date the Intent to

Accelerate Notice is sent), together with all undisputed amounts of interest

thereon.

 

III.   BANKRUPTCY OBLIGATIONS

 

      A. In consideration for the promises and covenants hereunder, the Plan

Proponents shall (i) designate the AIG Companies as Settling Asbestos Insurance

Companies (entitled to all of the rights and protections of Settling Asbestos

Insurance Companies under the Plan) in the schedule of Settling Asbestos

Insurance Companies filed by the Plan Proponents prior to the conclusion of the

Confirmation Hearing, pursuant to the Plan; and (ii) file, within ten (10)

business days of the Execution Date, the Motion (as defined herein) pursuant to

Federal Rule of Bankruptcy Procedure 9019 seeking entry of the Approval Order,

and the AIG Companies will support the Plan Proponents' efforts to obtain such

approval, which Motion must be in form and substance reasonably acceptable to

the AIG Companies.

 

      B. Upon the later of (1) the Effective Date or (2) the Confirmation Order

becoming a Final Order, if any Claim released under the AIG Policies pursuant to

this Agreement, or that is subject to the Asbestos Channeling Injunction or any

other injunctive protection provided for in the Plan or Confirmation Order, is

 

 

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<PAGE>

 

brought against the AIG Companies, then the Plan Trust will cooperate with the

AIG Companies in establishing that the AIG Companies are Settling Asbestos

Insurance Companies entitled to the protections afforded such Settling Asbestos

Insurance Companies under the Plan.

 

      C. Once the Asbestos Channeling Injunction becomes effective, each of the

Debtors agrees not to modify the terms of said injunction without first

obtaining the consent of the AIG Companies, which consent shall not be withheld

unreasonably.

 

      D. The AIG Companies will not assert, file, or pursue any motions,

objections, claims, proofs of claim, or appeals in the Chapter 11 Case and shall

support and not oppose entry of the Approval Order.

 

      E. The AIG Companies will not object to or oppose confirmation of the Plan

(or of any subsequently modified plan(s) of reorganization in the Chapter 11

Case), and the AIG Companies will not appeal the Confirmation Order provided

that the Plan does not in any way impair, diminish or detract from the benefit

to the AIG Companies of this Agreement and provided further that the Approval

Order includes:

 

      1.     findings that:

 

            a.     The AIG Companies' payment in full of the first AIG Settlement

                  Payment identified on Attachment C hereto, as provided for in

                  Paragraph II.A, above, shall satisfy and extinguish in full

                   the AIG Companies' obligation for Asbestos Claims under the

                  AIG Policies but shall not release the AIG Companies from

                  their obligations to make all AIG Settlement Payments

                  identified on Attachment C hereto.

 

            b.     The AIG Companies' payment of the AIG Settlement Payments

                  shall be made to the Plan Trust or as otherwise directed by

                  the Bankruptcy Court, or, if the Plan Trust elects to sell and

                   assign some or all of the AIG Settlement Payments, to a

                  Permitted Assignee, as applicable. The proceeds of the AIG

                  Settlement Payments shall be paid only to pay Asbestos Claims

                  and/or to pay other amounts payable by the Trust pursuant to

 

 

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<PAGE>

 

                  the Plan and the Trust Distribution Procedures for the

                  Congoleum Plan Trust, as may be amended; provided that this

                   provision regarding proceeds of the AIG Settlement Payments

                  shall apply only with respect to AIG Settlement Payments

                  actually received by the Plan Trust and shall not apply with

                  respect to any AIG Settlement Payments made to a Permitted

                  Assignee.

 

            c.     Adequate notice of the Debtors' Motion for Approval of the

                  Settlement Agreement Between the Debtors and Certain AIG

                  Member Companies (the "Motion") and of the hearing on the

                  Motion was given by mailing a copy of the Motion and notice of

                  the hearing on the Motion to: (a) the members of the Official

                  Committee of Asbestos Claimants (the "Committee") and the

                  Committee's counsel; (b) the FCR and the counsel for the FCR;

                  (c) the Claimants' Counsel; (d) all other Persons or Entities

                  that, as of the date the Motion was filed, had filed a notice

                  of appearance or other demand for service of papers in the

                  Debtors' Chapter 11 Case; (e) the United States Trustee; (f)

                  the Collateral Trustee (the "Collateral Trustee") of the

                   Congoleum Collateral Trust (the "Collateral Trust")

                  established pursuant to a Collateral Trust Agreement dated

                  April 17, 2003; (g) Congoleum Corporation's majority

                  shareholder, American Builtrite, Inc.; (h) any other presently

                  existing Entities that are insureds under the AIG Policies;

                  (i) counsel to all known holders of Asbestos Claims as

                  reflected in the claims filed in this case, claims submitted

                  in connection with the Settlement Between Congoleum

                  Corporation and Various Asbestos Claimants attached as Exhibit

                  E to the Disclosure Statement with respect to the Plan (the

                  "Claimant Agreement"), or ballots submitted in connection with

                  this case; and (j) to all known holders of Asbestos Claims

                  whose counsel is not included within the preceding clause who,

                  as of at least five (5) days prior to the Hearing, became

                  known through filing of a proof of claim or otherwise.

 

            d.     Notice to an attorney for the holder of an Asbestos Claim

                  constitutes notice to the claimant for purposes of the

                  Agreement.

 

            e.     Notice of the Agreement, the Motion and the Hearing is

                  sufficient to bind the Creditors' Committee and its members,

                  all known creditors and claimants, the FCR and all future

                  claimants and demand holders whose interests are represented

                  by the FCR, and all other Persons or Entities, including but

                  not limited to the Debtors' insurers, that, as of the date the

                   Motion was filed, had filed a notice of appearance and demand

                  for service of papers in the Debtors' Chapter 11 Case.

 

 

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<PAGE>

 

            f.     The Approval Order and each of its Findings and Conclusions

                  are binding upon the Creditors' Committee and its members, all

                  known creditors and claimants, the FCR and all future

                  claimants and demand holders whose interests are represented

                   by the FCR, and all other Persons or Entities, including but

                  not limited to the Debtors' insurers, that, as of the date the

                  Motion was filed, had filed a notice of appearance or other

                  demand for service of papers in the Debtors' Chapter 11 Case.

                  The AIG Companies will not object to or oppose confirmation of

                  the Plan (or confirmation of any subsequently modified plan(s)

                  of reorganization in the Chapter 11 Case), and the AIG

                  Companies will not appeal the Confirmation Order provided that

                  the Plan does not in any way impair, diminish or detract from

                  the benefit to the AIG Companies of this Agreement and

                  provided further that the Approval Order includes a provision

                  acknowledging that the Plan, as amended, states that any

                  right, claim or cause of action that an Asbestos Insurance

                   Company may have been entitled to assert against a Settling

                  Asbestos Insurance Company based on or relating to Asbestos

                  Claims shall be channeled to and become a right, claim or

                  cause of action against the Plan Trust and not against the

                  Settling Asbestos Insurance Company in question and that all

                  persons, including any Asbestos Insurance Company, shall be

                  enjoined from asserting any such right, claim or cause of

                  action against a Settling Asbestos Insurance Company which

                  shall be protected by injunction from assertion against it, by

                  an Asbestos Insurance Company, of any Asbestos Claims.

 

      F. Upon its creation, the Plan Trust (1) automatically and without need

for further action shall become a Party to this Agreement; and (2) promptly

shall execute this Agreement. Upon the Trigger Date, and without limiting the

obligations of the Debtors under this Agreement, the Plan Trust automatically

shall succeed to all of the rights and be bound by all of the obligations of the

Debtors under this Agreement without necessity of further action; provided,

however, that the release provisions of Section V below shall be binding on and

inure to the benefit of the Debtors, the Plan Trust and the AIG Companies. The

Debtors shall include in the Plan Trust Agreement as an obligation of the Plan

Trust, effective from the creation of the Plan Trust, that s