COLLATERAL TRUST AGREEMENT



      This irrevocable trust agreement (the "Collateral Trust Agreement") is

entered into by and between Congoleum Corporation, a Delaware Corporation

("Congoleum"), Arthur J. Pergament, solely in his capacity as the Collateral

Trustee hereunder (the "Collateral Trustee"), and Wilmington Trust Company, a

Delaware banking corporation, solely in its capacity as Delaware Trustee

hereunder ("Delaware Trustee") (the Collateral Trustee and Delaware Trustee are

sometimes referred to herein as "Trustee" or collectively as the "Trustees")

(Congoleum and the Trustees collectively, the "Parties").



                                    RECITALS



      WHEREAS, numerous individuals have asserted asbestos-related bodily injury

claims against Congoleum (each an "Asbestos Claimant" and collectively, the

"Asbestos Claimants"), each alleging exposure to an asbestos-containing product

manufactured, sold, or distributed by Congoleum or for which Congoleum otherwise

may have legal liability (the "Asbestos Claims"), and it is anticipated that

additional asbestos-related bodily injury claims will continue to be asserted

against Congoleum (collectively, the "Asbestos Actions"); and



      WHEREAS, Congoleum and certain Asbestos Claimants, contemporaneously

herewith, are executing a settlement agreement, titled Settlement Agreement

Between Congoleum Corporation and Various Asbestos Claimants (the "Claimant

Agreement"); and



      WHEREAS, Congoleum entered into settlement agreements prior to the

Claimant Agreement to resolve certain Asbestos Claims, under which some or all

of the consideration has yet to be paid (the "Pre-Existing Settlement

Agreements"); and



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      WHEREAS, Congoleum may enter into additional settlement agreements to

resolve certain Asbestos Claims that are scheduled for trial prior to the

commencement of an anticipated chapter 11 reorganization case for Congoleum in

an aggregate amount not to exceed $15,000,000.00 (the "Trial-Listed Settlement

Agreements"); and



      WHEREAS, Congoleum, contemporaneously herewith, is executing an agreement

titled Security Agreement ("Security Agreement"), granting to the Collateral

Trust (as defined below) a present and continuing security interest in certain

insurance proceeds; and



      WHEREAS, Congoleum, to the extent permissible under applicable law,

intends that the Collateral Trust be characterized as a Qualified Settlement

Fund pursuant to Section 468B of the Internal Revenue Code of 1986, as amended,

and the Treasury regulations promulgated thereunder ("QSF"); and



      WHEREAS, Congoleum has asked the Trustees to act as the Collateral Trustee

and the Delaware Trustee, as applicable, and the Trustees have agreed to accept

this appointment under the terms hereof; and



      WHEREAS, the Parties desire to enter into this Collateral Trust Agreement

to confirm their agreements with respect to (i) the establishment, maintenance,

investment and disbursement of the Trust Assets (as defined below); and (ii)

certain other matters relating to the foregoing, as hereafter provided.



      NOW, THEREFORE, the Parties hereby agree as follows:



                                    AGREEMENT



I.    Establishment of THE Collateral Trust



      A. Creation and Name. The Parties hereby create a trust known as the

"Congoleum Collateral Trust," which is the "Collateral Trust" provided for and

referred to in the Claimant Agreement. The Collateral Trustee may transact the

business and affairs of the Collateral Trust in the name "Congoleum Collateral

Trust."





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      B. Purpose. The purpose of the Collateral Trust is: (i) to hold security

interests in the Collateral (as defined in the Security Agreement); (ii) to

receive Insurance Proceeds (as defined in the Security Agreement); and (3) to

pay amounts owed by Congoleum to various parties to Pre-Existing Settlement

Agreements, Trial-Listed Settlement Agreements, and Claimant Agreement, and

otherwise to meet the purposes and requirements stated in those agreements.



II.   Payment of Claims and Collateral Trust Administration



      A. Qualified Claims. Subject to the terms and conditions herein and in the

Claimant Agreement, the following persons and entities shall be entitled to

receive payment from the Collateral Trust in the following amounts:



            1. An Asbestos Claimant as to which Congoleum notifies the

      Collateral Trustee in writing that such Asbestos Claimant who entered into

      a Pre-Existing Settlement Agreement or a Trial-Listed Settlement Agreement

      with Congoleum has satisfied the requirements to qualify for payment under

      the terms of the applicable Pre-Existing Settlement Agreement or

      Trial-Listed Settlement Agreement (an Asbestos Claimant who has qualified

      under either a Pre-Existing Settlement Agreement or a Trial-Listed

      Settlement Agreement shall be referred to herein as a "Qualified First

      Priority Claimant"). Such Qualified First Priority Claimant shall be paid

      the applicable amount specified in the notice of satisfaction of the

      requirements for payment provided by Congoleum to the Trustee (the "First

      Priority Settlement Amount"). First Priority Settlement Amounts shall be

      paid in the order in which such Asbestos Claimants become Qualified First

      Priority Claimants. Each Qualified First Priority Claimant's First

      Priority Settlement Amount shall be fully secured, and shall be reduced by

      the amount of all payments received by the Qualified First Priority

      Claimant from Congoleum, the Collateral Trust, or any successor trust.





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            2. An Asbestos Claimant as to which the Claims Reviewer (as defined

      below) notifies the Trustee in writing that an Asbestos Claimant has

      satisfied the requirements to qualify as a Participating Asbestos Claimant

      (as defined in the Claimant Agreement). Such Participating Asbestos

      Claimant shall have a secured claim (the "Asbestos Claimant's Secured

      Claim") equal to seventy-five percent (75%) of the Participating Asbestos

      Claimant's Settlement Amount (as defined in the Claimant Agreement). Each

      Asbestos Claimant's Secured Claim shall be reduced by the amount of all

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