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SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

|/x/ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2000

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the transition period from

Commission file number 333-59485

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HENRY COMPANY(Exact Name of Registrant as Specified in its Charter)

California

95-3618402(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)2911 Slauson Avenue,
Huntington Park, California

90255(Address of Principal Executive Offices)

(Zip Code)


Registrant's telephone number, including area code(323) 583-5000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which RegisteredNone


Securities registered pursuant to Section 12(g) of the Act:

10% Series B Senior Notes Due 2008(Title of Class)

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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 / /  No /x/

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.

As
of June 30, 2001, there were outstanding 221,500 shares of the Registrant's common stock ("Common Stock") and 6,000 shares of the Registrant's class A common stock
("Class A Common Stock"). As of June 30, 2001, no shares of the Common Stock or the Class A Common Stock were held by non-affiliates of the Registrant.

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HENRY COMPANY
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2000

TABLE OF CONTENTS

|Item No. |  |                                                                                       |  | Report Page
|-------- |  | ------------------------------------------------------------------------------------- |  | -----------
|         |  | PART I                                                                                |  |            
|1.       |  | Business                                                                              |  | 2          
|2.       |  | Properties                                                                            |  | 10         
|3.       |  | Legal Proceedings                                                                     |  | 10         
|4.       |  | Submission of Matters to a Vote of Security Holders                                   |  | 11         
|         |  | PART II                                                                               |  |            
|5.       |  | Market for the Registrant's Common Equity and Related Shareholder Matters             |  | 11         
|6.       |  | Selected Financial Data                                                               |  | 12         
|7.       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 15         
|7A.      |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 21         
|8.       |  | Financial Statements and Supplementary Data                                           |  | 21         
|9.       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 21         
|         |  | PART III                                                                              |  |            
|10.      |  | Directors and Executive Officers of the Registrant                                    |  | 22         
|11.      |  | Executive Compensation                                                                |  | 25         
|12.      |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 28         
|13.      |  | Certain Relationships and Related Transactions                                        |  | 30         
|         |  | PART IV                                                                               |  |            
|14.      |  | Exhibits, Financial Statements, Schedules and Reports on Form 8-K                     |  | 31         

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FORWARD LOOKING STATEMENTS

Statements in this Form 10-K that are not historical facts are hereby identified as "forward looking statements" for the purpose of the safe harbor provided by
Section 21E of the Securities Exchange Act of 1934, as amended (the "Securities Act"). Henry Company ("Henry" or the "Company") cautions readers that such "forward looking statements," including
without limitation those relating to the Company's future business prospects, revenues, working capital, liquidity, capital needs and income, wherever they may appear in this document or in other
statements attributable to the Company, are necessarily estimates reflecting the best judgment of the Company's senior management and involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the "forward looking statements." Such "forward looking statements" should, therefore, be considered in light of various important factors
("Cautionary Statements"), including those set forth below and others set forth from time to time in the Company's reports and registration statements filed with the Securities and Exchange Commission
(the "SEC").

These
"forward looking statements" are found at various places throughout this document. Additionally, the discussions herein under the captions "Business," "Properties," "Legal
Proceedings," and "Management's Discussion and Analysis of Financial Condition and Results of Operation" are susceptible to the risks and uncertainties discussed under "Risk Factors" and elsewhere in
this Form 10-K. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will," "expect," "should," "intend," "estimate,"
"anticipate," "believe," or "continue" or the negative thereof or variations thereon or similar terminology. Moreover, the Company, through its senior management or persons acting on its behalf, may
from time to time make "forward looking statements" about the matters described herein or other matters concerning the Company and such statements are subject to the qualifications set forth herein
and in the Cautionary Statements. The Company disclaims any intent or obligation to update publicly or revise "forward looking statements."

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PART I

ITEM 1.  BUSINESS



The Company is a construction materials company focusing primarily on products for roofing, sealing and paving applications. The Company develops, manufactures
and markets several separate but related product lines including roof and driveway coatings and paving products, industrial emulsions, air barriers, polyurethane foam for roofing and commercial uses,
sealants for construction and marine uses and specialty products.

Beginning
in 1988, the Company's management focused on expanding the Henry brand from its Southern California base initially through the acquisition of regional roof coatings
manufacturers and distributors in contiguous regions of the Southwest, the Northwest, Northern California and the Rocky Mountain region. In 1998, the Company became a national organization by
acquiring Monsey Bakor (the "Acquisition"), which has served the U.S. and Canadian markets for over 50 years as a leading manufacturer and distributor of a broad spectrum of building products for
residential and commercial use with a product line consisting of roof coatings, adhesives and membranes, roofing and air barrier systems as well as specialized industrial emulsions. In 1999, the
Company acquired Grundy Industries, a leading roof coatings manufacturer focused on servicing the professional trade in the Midwest and Rocky Mountain region of the U.S.



The Company's two major divisions are the Henry Coatings Division and the Resin Technology Division.



The Henry Coatings Division, which accounted for the bulk of the Company's 2000 net sales, develops, manufactures and markets coatings, sealants and membranes
for construction, industrial, building materials and other specialty applications. The Company also manufactures wax-based emulsions for the gypsum industry.



Roofing products represent the majority of the Coatings Division's total revenues. Henry's roofing products are designed to address the problems of water
invasion, wind erosion and ultraviolet damage. Henry offers a full line of liquid roof coatings and adhesives including both solvent and water-based products. In addition to roof coatings and mastics,
Henry manufactures high-quality styrene-butadiene-styrene (SBS) modified bitumen roofing membrane products designed to be used in roofing systems that can meet the challenge of the elements
encountered throughout North America.

The
Company offers a full line of reflective coatings designed to improve roof aesthetics and aid in the conservation of energy through their reflective qualities. Henry's reflective
coatings product line includes both white acrylic and solvent-based coatings and high-quality aluminum products and the accessories needed to protect roofs for years.

Henry's
industrial emulsions are used as coating, sizing, strengthening and moisture-proofing additives by manufacturers of fiber products such as gypsum wallboard, insulation board,
gaskets, paper board, and glass fibers. The Company's primary emulsion product, wax-based industrial emulsions, are specifically used by manufacturers of gypsum wallboards. Sales of industrial
emulsions have increased in recent years partially due to increased environmental restrictions on volatile organic compound emissions, which has created a demand for emulsion-based products over
solvent-based products. The

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Company's wax-based emulsions are manufactured with proprietary and patented processes that management believes contributes to higher margins relative to those of competitors.

Driveway
maintenance and paving products manufactured by Henry are used for the asphalt highway market and the preventative maintenance of asphalt parking lots and driveways. Henry
Company produces polymerized asphalt, an asphalt binder that is a key ingredient of paving asphalts.

The
Company's air barrier systems are designed to reduce air flows through exterior walls of buildings. The movement of air into a building (infiltration) and out of a building
(exfiltration) is caused by pressure differences produced by wind, chimney effect and pressurization. If air flows through a building and exfiltrates, it can deposit moisture on the cold masonry
cladding, causing brick or stone to undergo major changes due to moisture absorption. This dampness can cause dimensional changes and accelerate the deterioration process. Moisture-laden air from a
humidified building can also develop into ice under freezing conditions, causing displacement of the exterior masonry cladding, corrosion, and lower energy efficiency. The advantage of the Company's
prefabricated modified bitumen sheet is that it provides a flexible air barrier membrane capable of bridging construction gaps and absorbing deflection. The Company's line of air barriers can be
installed into existing buildings on either internal or external walls or used in the construction of new buildings. In 1986, Canada required air barriers in all buildings as an amendment to the
National Building Code. In the United States, however, there is no national standard and the air barrier market remains in its infancy.

The
Company's specialty products include protective coatings for a variety of industrial and commercial applications, such as specialty asphalt coatings to protect wood, metal, mortar
or thermal insulation. The Company manufactures undercoatings for mobile homes, as well as both solvent and water-based rust-proofing products for the automobile industry. The Company also produces a
broad range of paint products for interior and exterior use and a number of coatings for wood preservation and agricultural purposes.

The
Company's sealant line has three distinct product categories: sealants for construction applications, hatch cover sealants for ocean freighters, and preformed adhesive waterstops
for expansion joint applications on construction projects. Products include preformed plastic gaskets for precast concrete structures, which provides watertight sealing for joints such as those on
underground concrete drainage and manhole structures. These products are also used for sealing hatch covers on ships to prevent water damage to cargoes that can occur in heavy seas. There is also a
preformed plastic adhesive waterstop which is used as a construction joint sealant in poured-in-place concrete structures. Henry Company believes this product allows for an easier, more reliable and
more efficient sealing method than the traditional PVC-type waterstop.



For purposes of organizing its manufacturing process, the Company uses seven related product groups. The product groups are: cold applied liquid coatings,
cements and adhesives; asphalt, coal tar and wax emulsions; acrylic-based roof and insulation coatings; hot melt rubberized asphalt roofing and waterproofing products; SBS modified bitumen membranes,
air barrier and waterproofing membranes; specialty adhesives; and specialty preformed asphaltic tapes. The facilities at which these products are produced are shown in Item 2 ("Properties").

The
key materials used in the production of roofing and pavement products are asphalt, mineral spirits, various fibers, resins, and polyester and glass matting. For the production of
industrial emulsions, the primary material is refined wax. These raw materials are generally available on a regional basis and supply disruptions are very rare. The Company maintains multiple sourcing
arrangements for all of its key materials helping to mitigate price increases over the past year. In addition to raw materials, packaging supplies represent a meaningful portion of production cost.

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The Company, like many of its competitors, uses fibers such as chrysotile asbestos in its production process. Management believes that its use of chrysotile asbestos is in accordance
with regulations of the Occupational Safety and Health Administration ("OSHA"). OSHA requires that chrysotile asbestos fibers not be exposed to an open-air environment. In the Company's production
process, the cellulose or chrysotile asbestos fiber is pumped through a negative pressure fluffer that separates the fibers for optimal dispersion in the product mixture. The fibers are then mixed
into and fully encapsulated by the asphalt. Once encapsulated the fibers are "locked" into the asphalt cutback and cannot be physically separated from the product. OSHA and other regulatory bodies
have determined that encapsulation renders the chrysotile asbestos harmless. The Environmental Protection Agency ("EPA") does not regulate or enforce any special procedures for the application of
chrysotile asbestos-containing roof coatings or sealants.

Management
believes that chrysotile asbestos-fibered roofing cements have better application quality and durability as compared to those containing chrysotile asbestos substitutes.
The primary industries that currently continue to use chrysotile asbestos are those manufacturing chrysotile asbestos-cement pipe and shingles, automobile brake pads, gaskets and roof coatings and
sealants. Although chrysotile asbestos-cement pipe and shingles are no longer manufactured in the United States, these products are still currently sold in various parts of the country. Domestic
manufacturers of brake pads, gaskets and roof coatings use roughly 22,000 tons of chrysotile asbestos annually because of its strength, durability and heat resistance. Although some roofing products
manufacturers have switched to an exclusively non-asbestos line, some of the leading firms in the industry continue to use asbestos in at least some of their products.



Due to the many products manufactured by the Henry Coatings Division, the Company markets its products by focusing on four business segments. These segments
are: Retail; Industrial, Commercial and Institutional ("ICI"); Specialty Products; and International.

The
Retail segment is focused on selling products to national home center chains, retail building material suppliers, hardware distributors, paint and sundry distributors, farm and
hardware cooperatives, and mass merchandisers. To reach customers, the Company employs a trained sales organization and has an in-house Creative Services Department which produces customized brochures
and promotional materials and coordinates national and regional advertising programs.

The
ICI products are used by contractors throughout North America and sold through both national and regional roofing distributors. Henry maintains a technical selling staff engaged
in both sales and training to help ensure that the Company's products are applied properly.

The
Specialty Products segment markets a broad array of products using a technical sales force trained to help customers in the use of the various products. The two leading products
in the Specialty Products segment are wax emulsions and asphalt emulsions. Wax emulsions are sold to the gypsum wallboard industry while major roofing companies are the primary market for asphalt
emulsions for use as a sizing agent in insulation board.

The
International segment is engaged in the sale of all Henry products to the international market with special focus on the Company's basic product line of roof coatings and cements
and industrial emulsions.



Henry Company has developed a roofing systems segment for one-stop commercial roofing or re-roofing or roofing maintenance with warranty protection. The
Company's personnel work with architects, building owners and contractors to develop custom specifications utilizing Henry products for

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the design, construction and maintenance of commercial roofs. An important component of the Company's roof systems program's success is that building owners are assured that Henry Company will stand
behind the roof from beginning to end. A Henry Company sales consultant will write a custom specification for the roof and the roofing system will be applied by a Henry Company-approved contractor
generally using Henry Company products. A Henry Company technical inspector will inspect the roof application during installation and regular follow-up inspections and in some instances maintenance
will be performed throughout the life of the warranty. Henry Company offers 5 to 20-year warranties on its reroofing systems and 5-year warranties on its maintenance systems calculated on a fee per
square-foot basis. Since its inception, expenses for warranty claims experience has been very low. In part, this is due to Henry Company's continuing inspection program. Management believes that the
roofing systems business represents a significant growth opportunity.



The Resin Technology Company ("RTC"), founded as an independent company in 1982 and now a division of the Company, produces polyurethane foam products for
roofing and other industrial applications. RTC also sells coating products manufactured for it by third parties for application on foam. The acquisition of RTC in 1988 has enabled the Company to offer
a broader range of roofing products to meet the needs of the commercial and residential roofing markets.



RTC's primary product categories are polyurethane foam and coatings. Polyurethane foam has two liquid components, resin and hardener, which are mixed together
in a spray unit during application. A chemical reaction causes the liquid to expand many times in thickness creating a rigid layer of closed-cell foam. In roofing applications, this foam is strong
enough to be walked on minutes after the application. The result is a seamless barrier against water penetration that is durable and easy to maintain. In roofing applications, an elastomeric coating
must be applied as protection against the sun's ultraviolet radiation. RTC sells acrylic, urethane, silicone and polyurea coatings.

RTC's
products offer users several advantages, including a seamless barrier that minimizes the likelihood of leaks and provides superior insulation characteristics that can reduce
energy costs. It is relatively light in weight and is therefore particularly adaptable to large arenas or other structures that may benefit from a lighter weight roof. Furthermore, it can be applied
directly over an existing roof, potentially avoiding the costly "tear-offs" that may be required with other roofing systems.

RTC's
products are also used in a number of original equipment manufacturer applications. The insulation and weight characteristics of polyurethane foam make it an integral part of
the thermal panel, spa and packaging industries, among others.



RTC manufactures all of its polyurethane foam products in its Ontario, California manufacturing facility. Its polyurethane resin system is made up of two
components: a hardening agent that is purchased by the Company and resin that is manufactured in the Ontario facility. Raw materials are automatically pumped from one or more of the 11 raw material
storage tanks within the facility, blended and then poured into 55-gallon drums, tote capsules or bulk tanker trucks. The production
process is highly automated. The bulk of RTC's coatings products for polyurethane foam applications are produced by a third-party manufacturer also located in Ontario. The Company believes that it
derives its success in the polyurethane foam market from its superior understanding of technology and the Company has secured a number of original equipment manufacturer accounts because of its
ability to produce products for a customer's very specific technical requirements.

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The Resin Technology Company sells primarily to roofing contractors and original equipment manufacturers in the western United States. RTC's roofing products
are sold directly to pre-qualified contractors experienced in applying and spraying polyurethane foam onto roofs. Sales to original equipment manufacturers include those to spa equipment
manufacturers, and management believes the Company is the leading supplier to this market. RTC also supplies manufacturers in many other industries including those producing freezer panels, thermal
food transportation equipment, boat floatation and packaging products. RTC's remaining sales are made to several distributors, particularly in the Northwest and upper Midwest.

RTC
supports its sales efforts with a sales staff organized according to market segment and regional location. Henry Company believes that RTC's marketing advantages are based on a
commitment to technical development and customer support and also believes that RTC has captured a number of original equipment manufacturer accounts from its competitors by efficiently responding to
the customer's technical requirements. In both the roofing and original equipment manufacturer segments Henry Company provides just-in-time delivery capability which is essential in time and
labor-sensitive roofing applications.

Employees

As of December 31, 2000, Henry Company employed approximately 660 persons, the majority of whom were involved in production and distribution, with the
balance engaged in administration, sales and clerical work. Of these employees, approximately 520 were employed in the United States and 140 in Canada. Approximately 40 employees located in Huntington
Park, California, 25 employees in Kimberton, Pennsylvania, 8 employees in Rock Hill, South Carolina, 29 employees in Ville St. Pierre, Quebec and 2 employees in Mirabel, Quebec are unionized and
covered by collective bargaining agreements. These collective bargaining agreements expire on June 30, 2003, March 31, 2003, February 1, 2004, June 30, 2002 and
June 30, 2002, respectively. The Company believes that its relationship with its employees is good. The Company has not experienced a work stoppage at any of its facilities in over 20
years.

Risk Factors

Substantial Leverage

The Company has consolidated indebtedness that is substantial in relation to the book value of its shareholders' equity. As of December 31, 2000, Henry
Company had approximately $95.4 million of debt (the sum of long-term debt, including current maturities of long-term debt, notes payable and capitalized lease obligations) and a shareholders' deficit
of approximately ($6.4) million.

The
Company's significant level of borrowings has several important consequences for the Company including but not limited to the following: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to debt service and are not available for other purposes; (ii) the Company's ability to obtain additional financing in the future for
working capital, acquisitions or capital expenditures has been significantly impaired and (iii) the Company's substantial leverage may make it more vulnerable to economic downturns and may
limit its ability to withstand competitive pressures or to take advantage of business opportunities.

The
Company's ability to make cash payments to satisfy its debt obligations will depend on its future operating performance, which will be affected by financial, business,
competitive, general economic and other factors, many of which are beyond the Company's control. Based upon current levels of operations and anticipated cost savings and future growth, the Company
believes that its expected cash flows from operations, together with available borrowings under its credit facility will be

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adequate to meet its anticipated requirements for working capital, scheduled principal and interest payments, lease payments and capital expenditures for the next twelve months. See "Management's
Discussion and Analysis of Financial Condition, Results of Operations, and Liquidity and Capital Resources".

Ability to Achieve Anticipated Cost Savings or Revenue Growth

The Company's operating and financial results for the year 2000 were disappointing. Accordingly, the Company has instituted a number of initiatives to improve
operating results including, but not limited
to (i) the adoption of a restructuring plan in which the Company closed a plant and reorganized or eliminated certain administrative functions, and (ii) a change in executive level
management, appointing Mr. Baribault as temporary Chief Operating Officer and President. There can be no assurance that any of these actions will result in any improvement in the Company's
future financial and operating results. Any statements concerning potential cost savings and revenue growth contained in this annual report are forward-looking statements that are based on estimates
and assumptions made by the Company's management. The following important factors, among others, could cause the Company's business, financial condition or results of operations to be adversely
affected in future periods: (i) loss of key customers or continued or increased competitive pressures; (ii) changes in customer spending levels; (iii) absence of inclement
weather; (iv) loss or retirement of key members of management; (v) increases in interest rates or the Company's cost of borrowing or additional defaults under any material debt agreement;
(vi) unavailability of funds for capital expenditures or research and development; (vii) changes in governmental, environmental or other regulations or (viii) changes in general
economic conditions. Certain of these factors are discussed in more detail elsewhere in this annual report. Given these uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligation to update factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein
to reflect future events or developments.

Fluctuation of Raw Material Cost

The Company utilizes a number of raw materials in its manufacturing processes, some of which have historically fluctuated in price at particular times. These
price fluctuations have been based on such factors as the capacity of the raw material supply chain, demand in the market, weather, general economic factors and the availability of alternative raw
materials. Raw materials utilized by the Company that have historically experienced some price fluctuation include asphalt, aluminum paste, rubber and certain diisocynates, among others. For example,
asphalt, which is a byproduct of crude oil refining, has fluctuated in price with changes in worldwide crude oil prices and capacity and with changes in the supply and demand in the oil, gasoline and
fossil fuel markets. Significant increases in asphalt prices or in the prices of other raw materials, if not offset by product price increases, could have a material adverse impact on the profits of
the Company. Specifically, in 2000 the cost of petroleum based products did increase and the Company was unable to offset such increases fully with price increases, thereby adversely affecting the
Company's operating results in 2000. There can be no assurance that the Company will be able to pass any future cost increases through to its customers in the form of price increases.

Impact of Weather

Because many of the Company's products are designed to patch or fix damaged roofs, the Company's revenues are affected by weather conditions. Sales of roofing
products have historically tended to increase in areas which have experienced severe weather. The results of severe weather or the anticipation of severe weather may motivate property owners to
undertake required roof maintenance or to replace an old or worn roof. The absence of inclement weather in some or all of the

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Company's markets could have an adverse impact on the Company's business, financial condition or results of operations.

Product Liability and Asbestos Litigation

The Company's business entails an inherent risk of product liability claims, including a particular risk with respect to chrysotile asbestos-containing
products that the Company manufactures. Although some roofing products manufacturers have switched to an exclusively non-asbestos line, some of the leading firms in the industry continue to use
chrysotile asbestos in at least some of their products. The Company believes that its use of chrysotile asbestos fibers, which are encapsulated by asphalt in the manufacturing process, is in
accordance with applicable laws. However, the Company has been named as a defendant in suits alleging certain asbestos-related injuries. Although the Company has not paid any amounts in judgment or
settlement of any asbestos-related claim to date, there can be no assurance that any such claim will not in the future result in a material adverse judgment against, or settlement by, the Company.
Other than these asbestos-related claims, no material product liability claims are currently pending against Henry Company. However, there can be no assurance that such claims will not arise in the
future. The costs of defending the pending asbestos-related suits are currently funded by a joint defense arrangement among the Company's insurance carriers and the Company believes such insurance
coverage is adequate. However, Henry Company is not covered by insurance for asbestos-related claims for injuries that are alleged to have arisen after 1985.

The
Company maintains product liability insurance for non-asbestos claims in the amount of $21,000,000. However, there can be no assurance that the product liability coverage
maintained by the Company will be adequate to cover product liability claims or that the applicable insurer will be solvent at the time of any required payment. In addition, there can be no assurance
that the Company will be able to maintain its product liability coverage on current or otherwise acceptable terms. A product liability or asbestos-related claim that results in a judgment or
settlement in excess of the Company's insurance coverage, or a material judgment or settlement for an asbestos-related claim for injuries alleged to have arisen after 1985, would have a material
adverse effect on the Company.

Reliance on Key Personnel

The Company's future success will depend to a significant extent on its executive officers and other key management personnel. Although the Company has
employment agreements with two of its executive officers, Monsey Bakor's former Chairman of the Board and the former President of Monsey Bakor's Canadian operations, there can be no assurance that the
Company will be able to retain its executive officers and key personnel or attract additional qualified management in the future. Although the Company is the beneficiary under key-person life
insurance policies on the life of and Monsey Bakor's former Chairman of the Board (who has become a Vice Chairman of the Board and an executive officer of the Company following the Acquisition), there
can be no assurance that the proceeds of
these policies would be adequate to compensate the Company for the loss of services due to the death of such individual.

Competition

The roofing products and roofing systems industries are highly competitive in most product categories and geographic regions. Competition is largely based on
quality, service, price and distribution capabilities. The Company competes for retail and wholesale business with both large national manufacturers and smaller regional producers. In certain
circumstances, due primarily to factors such as freight rates and customer preference for local brands, manufacturers with better access to certain geographic markets may have a competitive advantage
in such markets. In addition, many of the Company's competitors within the roofing products industry have greater financial, marketing, distribution, management and other resources than the Company,
and as the industry consolidates, the

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Company's competitors may further enhance these resources. The Company also believes that excess capacity in the roofing products and roofing systems industry, especially during slow periods for the
industry, could result in downward pricing pressure and intensified competition. Given these factors, there can be no assurance that the Company will be able to continue to compete successfully
against existing or new competitors, and the failure to do so would have a material adverse effect on the Company's business, financial condition and results of operations.

Environmental Matters

The past and present business operations of the Company and the past and present ownership and operation of real property by the Company are subject to
extensive and changing federal, state, local and foreign environmental laws and regulations pertaining to the discharge of materials into the environment, the handling, storage, treatment and disposal
of wastes (including solid and hazardous wastes), the remediation of releases of toxic or hazardous materials or otherwise relating to health, safety and protection of the environment ("Environmental
Laws"). As such, the nature of the Company's operations as well as previous operations by others at real property owned, leased or used by the Company, expose the Company to the risk of claims under
Environmental Laws, and there can be no assurance that material costs or liabilities will not be incurred in connection with such claims. Based on its experience to date, the Company does not expect
such claims or the costs of compliance with the scope or enforcement of Environmental Laws to have a material impact on its earnings or competitive position. The Company believes that it is in
substantial compliance with applicable Environmental Laws. No assurance can be given, however, that the discovery of presently unknown environmental conditions, changes in the scope or enforcement of
Environmental Laws or their interpretation, or other unanticipated events will not give rise to expenditures or liabilities that may have a material adverse effect on the Company's business, financial
condition or results of operations. The Company, through its acquisition of Monsey Bakor, has been named as a potentially responsible party in litigation concerning contamination at a former waste-oil
recycling facility used by it in
Douglassville, Pennsylvania. The Company, also through its acquisition of Monsey Bakor, is also a party to a consent decree issued by the federal Environmental Protection Agency relating to
remediation of contamination at its corporate headquarters. It is sharing remediation costs with a former owner of the facility that is also a party to the consent decree. Based on currently available
information, the Company believes that neither this litigation nor this remediation will have a material adverse effect on the Company's business, financial condition or results of operations.

Governmental Regulation and Permits

The Company is subject to regulation under various federal, state and local laws, including laws regulating its manufacturing operations and laws relating to
employee health and safety. Permits are required for operation of the Company's business, and such permits are subject to renewal, modification and, in certain circumstances, revocation by
governmental authorities. The loss of certain of such permits could have a material adverse effect on the Company's business, financial condition or results of operations. The Company expects to incur
ongoing capital and operating costs and administrative expenses to maintain compliance with its permits and with applicable laws and regulations. The Company cannot predict the legislation or
regulations that may be enacted in the future or how existing or future laws or regulations will be administered or interpreted. Compliance with new laws or regulations, as well as more vigorous
enforcement policies of the regulatory agencies or stricter interpretation of existing laws, may require additional expenditures by the Company, some or all of which may be material.

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ITEM 2.  PROPERTIES

The Company's operations are conducted at the owned or leased facilities described below:

Locations

Facility
Square Footage

Owned/LeasedUnited StatesHuntington Park, California

95,478

LeasedSacramento (Elk Grove), California

18,871

LeasedPortland, Oregon

55,735

LeasedSeattle (Auburn), Washington

12,500

LeasedOntario, California

13,330

LeasedHouston, Texas

44,000

OwnedKimberton, Pennsylvania

147,400

OwnedIndianapolis, Indiana

63,000

OwnedWaterford, New York

120,000

OwnedRock Hill, South Carolina

40,000

OwnedGarland, Texas

76,500

OwnedBartow, Florida

34,000

OwnedKingman, Arizona

39,275

OwnedJoilet, Illinois

72,000

OwnedDenver, Colorado

13,112

OwnedCanadaPetrolia, Ontario

58,500

OwnedMirabel, Quebec

6,100

OwnedVille St. Pierre (Montreal), Quebec

44,000

Owned


The
Company also owns or leases smaller sales and administration facilities in Costa Mesa, California and Mississauga, Ontario. In addition, the Company owns a small facility in Troy,
New York that it leases to a third party. The Company believes that its facilities are in good operating condition and are adequate to meet anticipated future requirements.

ITEM 3.  LEGAL PROCEEDINGS

In the ordinary course of business, the Company is periodically named as a defendant in a variety of product liability lawsuits including "slip and fall"
claims relating to pavement sealants and claims for alleged product failure. The Company does not believe these cases will have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows.

As
of December 31, 2000, the Company was a party to approximately 30 active state court cases alleging certain asbestos-related injuries. There were two new cases filed in
2000, six in 1999, seven in 1998 and two in 1997. The Company believes that its use of chrysotile asbestos fibers, which are encapsulated by asphalt in the manufacturing process, is in accordance with
applicable laws. Although the Company has not paid any amounts in judgment or settlement of any asbestos-related claim to date, there can be no assurance that any such claim will not in the future
result in a material adverse judgment against, or settlement by, the Company. The costs of these suits are currently funded by a joint-defense arrangement among the Company's insurance carriers and
the Company believes that such insurance coverage is adequate. However, Henry Company is not covered by insurance for asbestos-related claims for injuries that are alleged to have arisen after
December 1, 1985.

The
Company does not believe, based in part on the advice of outside counsel, that the outcome of these suits and legal proceedings will have a material adverse effect on the
Company's financial condition, results of operations, or cash flows.

10

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Environmental Matters

The Company is subject to extensive and changing environmental laws and regulations with which it believes it is in substantial compliance. However, there can
be no assurance that the discovery of presently unknown environmental conditions or changes in the scope, interpretation or enforcement of environmental laws and regulations will not have a material
adverse effect on the Company's business, financial condition or results of operations.

The
Company's Kimberton facility was formerly occupied by a pharmaceutical manufacturer whose operations resulted in groundwater contamination identified on the site and surrounding
area. The contaminant of concern was trichloroethylene which required various remedial activities, including the provision of alternate water supplies to users in the surrounding area and a
groundwater treatment program. Remedial work is being completed under a consent decree the EPA negotiated in 1990 with the pharmaceutical manufacturer and the Company and a confidential cost sharing
agreement between these two companies. The Company's costs under the consent decree in 1998, 1999 and 2000 were approximately $70,000, $73,000 and $73,000, respectively, and are not expected to be
significantly different during 2001 and 2002. The Company has a liability recorded for the entire expected costs of the remedial work over the remaining term of the consent decree and cost-sharing
agreement. Costs paid under the consent decree and cost-sharing agreement of $73,000 in 2000 reduced the liability to $3.3 million at December 31, 2000.

The
Company is currently upgrading, replacing or closing underground storage tanks that it owns or operates to meet certain corrosion protection and overfill/spill containment
standards. The Company estimates that the capital expenditures required to comply with various regulatory programs in 2001 will not have a material adverse effect on the Company's earnings, cash flows
or competitive position. Such estimates, however, are based on factors and assumptions that are subject to change, including potential modifications of regulatory requirements, detection of
unanticipated environmental conditions or other currently unexpected circumstances.

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

No matters were submitted to a vote of the Company's stockholders during the fourth quarter of the fiscal year covered by this report.

PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

There is no established public trading market for the Company's common equity.

As
of December 31, 2000, there were seven (7) beneficial holders of the Company's Common Stock and one beneficial holder of the Company's Class A Common Stock.

At
the present time, the Company intends to retain all earnings for use in the operation and development of its business and does not expect to declare or pay any cash dividends in
the foreseeable future. The Company's credit facility also prohibits the payment of any dividends. Any determination in the future to pay dividends will depend on the Company's earnings, financial
condition, capital requirements, level of indebtedness and other factors deemed relevant by the Company's Board of Directors, including any contractual or statutory restrictions on the Company's
ability to pay dividends.

11

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ITEM 6.  SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with Henry Company's consolidated financial statements and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this document. The consolidated statement of operations data for each of the
years in the three-year period ended December 31, 2000, and the consolidated balance sheet data at December 31, 1999 and 2000, are derived from the consolidated financial statements of
Henry Company which have been audited by PricewaterhouseCoopers LLP, independent accountants, and are included elsewhere in this document. The consolidated statement of operations data for the years
ended December 31, 1996 and 1997, respectively, and the consolidated balance sheet data at December 31, 1996, 1997, and 1998 are derived from audited financial statements of Henry
Company not included in the document. Historical results are not necessarily indicative of the results to be expected in the future.

|                                                                      |                                                            | Year Ended December 31 |       
|--------------------------------------------------------------------- | ---------------------------------------------------------- | ---------------------- | ------
|
|
|Consolidated Statement of Operations Data(1):                         |                                                            |                        |       
|Net sales                                                             |                                                            | $                      | 59,186
|Cost of sales                                                         |                                                            |                        | 40,867
|                                                                      |                                                            |                        |       
|                                                                      | Gross profit                                               |                        |       
|Operating expenses:                                                   |                                                            |                        |       
|                                                                      | Selling, general and administrative                        |                        |       
|                                                                      | Restructuring charges                                      |                        |       
|                                                                      | Amortization of intangibles                                |                        |       
|                                                                      |                                                            |                        |       
|                                                                      | Operating income (loss)                                    |                        |       
|Interest expense                                                      |                                                            |                        | 1,475 
|Interest and other income, net                                        |                                                            |                        | (345  
|                                                                      |                                                            |                        |       
|                                                                      | Income (loss) before extraordinary item                    |                        |       
|                                                                      | Extraordinary gain related to early extinguishment of debt |                        |       
|                                                                      |                                                            |                        |       
|Income (loss) before provision (benefit) for taxes                    |                                                            |                        | 72    
|Provision (benefit) for income taxes(2)                               |                                                            |                        | 1     
|                                                                      |                                                            |                        |       
|                                                                      | Net income (loss)                                          |                        | $     
|                                                                      |                                                            |                        |       
|Pro forma provision (benefit) for income taxes(3)                     |                                                            |                        | 29    
|Pro forma net income (loss)(3)                                        |                                                            |                        | 43    
|Other Financial Data:                                                 |                                                            |                        |       
|Capital expenditures                                                  |                                                            | $                      | 1,449 
|Depreciation and amortization (including amortization of intangibles) |                                                            |                        | 1,645 
|EBITDA(4)                                                             |                                                            |                        | 3,192 
|Cash flows provide by (used in):                                      |                                                            |                        |       
|                                                                      | Operating activities                                       |                        |       
|                                                                      | Investing activities                                       |                        |       
|                                                                      | Financing activities                                       |                        |       

12

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|                                                                               |  | 1996 |        | 1997 |  | 1998   |  | 1999 |         | 2000 | 
|------------------------------------------------------------------------------ |  | ---- | ------ | ---- |  | ------ |  | ---- | ------- | ---- | 
|Combined Balance Sheet Data(1):                                                |  |      |        |      |  |        |  |      |         |      | 
|Cash and cash equivalents                                                      |  |      | 300    |      |  | 119    |  |      | 12,023  |      | 
|Working capital                                                                |  |      | 5,121  |      |  | 7,204  |  |      | 32,380  |      | 
|Total assets                                                                   |  |      | 31,204 |      |  | 30,418 |  |      | 125,514 |      | 
|Long-term debt, including current maturities and borrowings on lines of credit |  |      | 17,416 |      |  | 13,748 |  |      | 87,631  |      | 
|Total shareholders' equity                                                     |  |      | 2,934  |      |  | 5,122  |  |      | 5,830   |      | 

---

13

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|                                             |  | Years Ended December 31, |      
|-------------------------------------------- |  | ------------------------ | -----
|
|
|Net income (loss)                            |  | $                        | 71   
|Provision for income taxes                   |  |                          | 1    
|Interest expense                             |  |                          | 1,475
|Depreciation and amortization                |  |                          | 1,645
|Extraordinary gain on debt extinguishment(6) |  |                          |     
|                                             |  |                          |      
|EBITDA                                       |  | $                        | 3,192
|                                             |  |                          |      

14

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

The following discussion and analysis of the Company's consolidated results of operations and consolidated financial position should be read in conjunction
with the Selected Financial Data and the Company's Consolidated Financial Statements, including notes thereto, appearing elsewhere in this Annual Report.

General

The Company is a construction materials company focusing primarily on products for roofing, sealing and paving applications. The Company develops, manufactures
and markets several separate but related product lines including roof and driveway coatings and paving products, industrial emulsions, air barriers, polyurethane foam for roofing and commercial uses,
sealants for construction and marine uses and specialty products. The Company has nineteen manufacturing and distribution facilities throughout North America. The Company's business is seasonal and is
dependent on weather trends which vary by geographic region.

The
Company's operations include the operations of Monsey Bakor and its subsidiaries which were acquired in April 1998 for a purchase price of $46 million (including $3.2
million for a noncompetition agreement). The acquisition was accounted for using the purchase method of accounting. Concurrent with this acquisition, the Company conducted a senior note offering in
the aggregate principal amount of $85.0 million.

The
Company's operating and financial results for the year 2000 were disappointing. Accordingly, the Company has instituted a number of initiatives to improve operating results
including, but not limited to (i) the adoption of a restructuring plan in which the Company closed a plant and reorganized or
eliminated certain administrative functions, and (ii) a change in executive level management, appointing Mr. Baribault as temporary Chief Operating Officer and President.

The
Company manages its business through two reportable segments or primary business units with separate management teams, infrastructures, marketing strategies and customers. The
Company's reportable segments are: the Henry Coatings Division, which develops, manufactures and markets roof and driveway coatings and paving products, industrial emulsions, air barriers, and
specialty products; and the Resin Technology Division, which develops, manufactures and sells polyurethane foam for roofing and commercial construction. The Company evaluates the performance of its
operating segments based on sales, gross profit and operating income. Intersegment sales and transfers are not significant.

Summarized
financial information concerning the Company's reportable segments is shown below.

Henry Coatings Division

Resin Technology Division

Total2000Net sales

$
171,427,721

$
22,033,865

$
193,461,586Gross profit


46,278,492


3,916,938


50,195,430Operating income (loss)


(2,054,982
)

422,296


(1,632,686
)Depreciation and amortization


7,424,855


166,043


7,590,898Total assets


112,346,023


12,941,546


125,287,569Capital expenditures


2,755,164


297,286


3,052,450


15

---

1999Net sales

$
160,209,476

$
18,495,180

$
178,704,656Gross profit


50,512,550


3,285,908


53,798,458Operating income


2,938,915


68,251


3,007,166Depreciation and amortization


6,976,246


195,021


7,171,267Total assets


106,700,898


12,624,539


119,325,437Capital expenditures


4,024,680


159,741


4,184,4211998Net sales

$
130,054,094

$
20,102,027

$
150,156,121Gross profit


41,240,101


3,773,436


45,013,537Operating income


7,491,372


412,369


7,903,741Depreciation and amortization


4,666,246


227,548


4,893,794Total assets


112,978,409


12,535,391


125,513,800Capital expenditures


2,875,566


121,154


2,996,720


The
Company is domiciled in the United States with foreign operations based in Canada which were acquired during 1998. Prior to the 1998 acquisition of Monsey Bakor, the Company had
no foreign operations. Summarized geographic data related to the Company's operations for 2000, 1999 and 1998 are as follows:

Net Sales

Long-Lived Assets2000United States

$
160,639,850

$
62,725,434Canada


32,821,736


8,478,534Total

$
193,461,586

$
71,203,9681999United States

$
148,874,641

$
67,079,856Canada


29,830,015


8,921,012Total

$
178,704,656

$
76,000,8681998United States

$
129,492,180

$
64,555,982Canada


20,663,941


8,548,168Total

$
150,156,121

$
73,104,150


16

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RESULTS OF OPERATIONS

Consolidated Statements of Operations Data:

|                               |                                          | Year Ended December 31, |      
|------------------------------ | ---------------------------------------- | ----------------------- | -----
|
|
|Net sales                      |                                          | $                       | 150.1
|Cost of sales                  |                                          |                         | 105.1
|                               |                                          |                         |      
|                               | Gross profit                             |                         |      
|Operating expenses:            |                                          |                         |      
|                               | Selling, general and administrative      |                         |      
|                               | Restructuring charges                    |                         |      
|                               | Amortization of intangibles              |                         |      
|                               |                                          |                         |      
|                               | Operating income                         |                         |      
|Interest expense               |                                          |                         | 6.6  
|Interest and other income, net |                                          |                         | (0.3 
|                               |                                          |                         |      
|                               | Income (loss) before extraordinary item  |                         |      
|                               | Extraordinary gain debt extinguishment   |                         |      
|                               | Income (loss) before provision for taxes |                         |      
|Provision for income taxes     |                                          |                         | 0.5  
|                               |                                          |                         |      
|Net income (loss)              |                                          | $                       | 1.1  
|                               |                                          |                         |      

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Net Sales.The Company's net sales increased to $193.5 million for the year ended December 31, 2000, an increase
of $14.8 million, or 8.3%, from $178.7 million for the year ended December 31, 1999. The increase was primarily due to product sales price increases enacted in the second and third quarters of
2000, growth in sales with several existing major accounts and increased sales in the southwest during the first quarter of 2000 as a result of heavy rainfalls.

Gross Profit.The Company's gross profit decreased to $50.2 million for the year ended December 31, 2000, a
decrease of $3.6 million, or 6.7%, from $53.8 million for the year ended December 31, 1999. Gross profit decreased as a percentage of net sales to 25.9% for the year ended December 31,
2000 from 30.1% for the year ended December 31, 1999. The decrease was primarily attributable to increased raw material costs primarily related to petroleum based products and the inability of
the Company to pass such costs through to its customers during the first six months of 2000.

Selling, General and Administrative.Selling general and administrative expenses as a percentage of net sales decreased
to 25.1% for the year ended December 31, 2000 from 26.8% for the year ended December 31, 1999. The Company's selling, general and administrative expense increased to $48.5 million for
the year ended December 31, 2000, an increase of $0.6 million, or 1.3%, from $47.9 million for the year ended December 31, 1999. The increase was primarily due to the more than commensurate
increase in net sales and the Company's continued support of its national brand strategy.

Restructuring Charges.Restructuring charges amounted to $0.7 million for the year ended December 31, 2000.
These charges primarily relate to a plant closing, the reorganization of certain operational and marketing functions and the related severance costs for approximately 24 employees.

17

---

Amortization of Intangibles.Amortization of intangibles decreased to $2.6 million for the year ended
December 31, 2000, a decrease of $0.3 million, or 10.3%, from $2.9 million for the year ended December 31, 1999. The decrease was primarily due to the expiration of a noncompete
agreement.

Operating Income (Loss).Operating loss amounted to $1.6 million for the year ended December 31, 2000, a
decrease of $4.6 million, or 153.3%, from operating income of $3.0 million for the year ended December 31, 1999. The decrease of $4.6 million was primarily attributable to decreased gross
profit as a result of higher raw material costs and restructuring charges.

Interest Expense.Interest expense increased to $9.9 million for the year ended December 31, 2000, an increase
of $0.7 million, or 7.6%, from $9.2 million for the year ended December 31, 1999. The increase was primarily attributable to additional working capital borrowings to support the growth of the
business.

Extraordinary Gain Related to Early Extinguishment of Debt.The Company did not retire any of its outstanding Senior
Notes for the year ended December 31, 2000. The Company retired a portion of the outstanding Senior Notes which resulted in a $0.6 million gain, net of income taxes for the year ended
December 31, 1999.

Provision (Benefit) for Income Taxes.The provision for income taxes decreased to a benefit of $4.6 million for the
year ended December 31, 2000, a decrease of $4.9 million, from a provision of $0.3 million for the year ended December 31, 1999. The decrease was primarily due to the loss before income
taxes of $11.3 million and related tax benefits.

Net Loss.Net loss was $6.7 million for the year ended December 31, 2000, an increase of $1.0 million, or 17.5%
from a $5.7 million net loss for the year ended December 31, 1999. The net loss was primarily due to increased raw material costs, increased interest expense, restructuring charges and other
factors discussed above.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Net Sales.The Company's net sales increased to $178.7 million for the year ended December 31, 1999, an increase
of $28.6 million, or 19.1%, from $150.1 million for the year ended December 31, 1998. The acquisition of Monsey Bakor (the "Acquisition") represented $33.8 million of the increase and was
partially offset by a decrease of $5.2 million due primarily to the bankruptcy of a large customer and the lack of rainfall in excess of annual averages, which resulted in decreased net sales in both
the professional and retail roofing business as the need to repair leaking roofs was not as pronounced.

Gross Profit.The Company's gross profit increased to $53.8 million for the year ended December 31, 1999, an
increase of $8.8 million, or 19.6%, from $45.0 million for the year ended December 31, 1998. The acquisition of Monsey Bakor represented $8.5 million of the increase. The remaining increase of
$0.3 million was primarily due to an improved sales mix of higher margin products.

Selling, General and Administrative.The Company's selling, general and administrative expense increased to $47.9
million for the year ended December 31, 1999, an increase of $12.4 million, or 34.9%, from $35.5 million for the year ended December 31, 1998. The acquisition of Monsey Bakor represented
$7.6 million of the increase. The remaining increase of $4.8 million was primarily due to incremental selling, general and administrative expenses associated with the Company's continued expansion in
both the retail roofing and the roofing systems business, and integration expenses related to the Acquisition.

18

---

Amortization of Intangibles.Amortization of intangibles increased to $2.9 million for the year ended
December 31, 1999, an increase of $1.3 million, or 81.3%, from $1.6 million for the year ended December 31, 1998. The increase was primarily due to the amortization of intangible assets
created as a result of the Acquisition.

Operating Income.Operating income decreased to $3.0 million for the year ended December 31, 1999, a decrease of
$4.9 million, or 62.0%, from $7.9 million for the year ended December 31, 1998. The acquisition of Monsey Bakor resulted in a $0.9 million increase in operating income which was offset by a
decrease of $5.8 million. The Monsey Bakor increase was offset by the amortization of intangible assets created as a result of the Acquisition and increased selling, general and administrative
expenses.

Interest Expense.Interest expense increased to $9.2 million for the year ended December 31, 1999, an increase
of $2.6 million, or 39.4%, from $6.6 million for the year ended December 31, 1998. The increase was attributable to interest expense incurred on the Senior Notes used to finance the
Acquisition.

Extraordinary Gain Related to Early Extinguishment of Debt.The Company retired approximately $3.6 million of the
outstanding Senior Notes which resulted in a $0.6 million gain, net of income taxes.

Provision for Income Taxes.The provision for income taxes decreased to $0.3 million for the year ended
December 31, 1999, a decrease of $0.2 million, or 40%, from $0.5 million for the year ended December 31, 1998. The decrease was primarily due to the loss before income taxes of ($5.2)
million partially offset by a $0.4 million deferred tax benefit.

Net Income.Net loss was ($5.7) million for the year ended December 31 1999, a decrease of $6.8 million, or
618.2% from $1.1 million for the year ended December 31, 1998. The Acquisition represented an increase of $0.2 million, which was offset by increased amortization expense, increased interest
expense and other factors noted above.

Liquidity and Capital Resources

The Company's historical requirements for capital have been primarily for working capital, capital expenditures and acquisitions. The Company's primary sources
of capital to finance such needs have been cash flow from operations and borrowings under bank credit facilities. In August 2001, the Company entered into a replacement credit facility agreement and
received funding from two new lending institutions. The replacement credit facility provides for a $25 million revolving credit facility and a $10.0 million term loan. Upon closing,
$3.5 million of the term loan was funded. The replacement facility expires in August 2006 and is collateralized by substantially all of the Company's United States assets. Borrowings on the
line of credit bear interest at the Prime rate with an option to borrow based on the LIBOR rate. The Company also maintains a credit line with a Canadian bank. Balances outstanding under this line
were $3.6 million at December 31, 2000. The Company believes that cash from operations and fundings on its bank lines of credit will be sufficient to meet its working capital and capital
expenditure requirements.

Cash Flows for the Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999

The Company's net cash used in operations was $10.9 million and $4.0 million for the years ended December 31, 2000 and 1999, respectively. The increase
in cash used in operations from December 31, 1999 to December 31, 2000 of $6.9 million was primarily attributable to the loss incurred in 2000 and an increase in trade receivables,
inventories, and deferred income tax benefit partially offset by an increase in depreciation and amortization. Net cash used in investing activities during the year ended December 31, 2000 and
the year ended December 31, 1999 was $2.8 million and $6.8 million respectively. The decrease in cash used in investing activities of $4.0 million from the year ended

19

---

December 31, 1999 to the year ended December 31, 2000 was primarily due to decreased capital expenditures of $1.1 million and acquisition of businesses in March 1999 for $2.7
million. Cash flows provided by financing activities during the year ended December 31, 2000 and December 31, 1999 were $14.1 million compared to $0.8 million used by financing
activities for the year ended December 31, 1999. The increase in cash flows from financing activities of $14.9 million from the year ended December 31, 1999 to December 31, 2000
was primarily due to book overdrafts and borrowings under the line of credit agreement.

The
Company believes that available cash and cash equivalents, cash generated from operations and available borrowings under the new credit facility, will be sufficient to finance
working capital, capital expenditures, and scheduled principal and interest payments for the next twelve months. There can be no assurance, however, that such resources will be sufficient to meet the
Company's anticipated working capital, capital expenditure or other financing requirements or that the Company will not require additional financing within this time frame.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standard Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivatives and Hedging Activities", which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. The Company's adoption of SFAS No. 133 in the first quarter of 2001 did not have a significant impact on the Company's financial
position or results of operations.

In
December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," which
provides the SEC's views on applying generally accepted accounting principles to selected revenue recognition issues. The Company's adoption of SAB 101 did not have an impact on the Company's revenue
recognition.

In
July 2001, the FASB issued Statement of Financial Accounting Standards ("SFAS") Nos. 141 and 142 (SFAS No. 141 and SFAS No. 142), "Business Combinations" and
"Goodwill and Other Intangible Assets". SFAS No. 141 replaces APB 16 and eliminates pooling-of-interests accounting prospectively. It also provides guidance on purchase accounting
related to the recognition of intangible assets and accounting for negative goodwill. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only
approach. Under SFAS No. 142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. SFAS No. 141 and SFAS No. 142
are effective for all business combinations completed after June 30, 2001. Upon adoption of SFAS No. 142, amortization of goodwill recorded for business combinations consummated prior to
July 1, 2001 will cease, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under SFAS No. 141 will be reclassified to goodwill.
Companies are required to adopt SFAS No. 142 for fiscal years beginning after December 15, 2001, but early adoption is permitted. The Company will adopt SFAS No. 142 on
January 1, 2002, at the beginning of fiscal year 2002. In connection with the adoption of SFAS No. 142, the Company will be required to perform a transitional goodwill impairment
assessment. The Company has not yet determined the impact these standards will have on its result of operations and financial position.

20

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ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk generally represents the risk that losses may occur in the value of financial instruments as a result of movements in interest rates, foreign
currency exchange rates and commodity prices. As part of its overall risk management strategies, the Company monitors and manages these risks by reviewing key trends and indicators on a continuous
basis.

Interest Rate RiskFrom time to time, the Company temporarily invests its excess cash in interest bearing temporary
investments of high quality issuers or with major financial institutions. Due to the short-term maturity of the investments are outstanding and their general liquidity, these instruments are
classified as cash equivalents in the consolidated balance sheet and do not represent a material interest rate risk to the Company. The Company's primary market risk exposure for changes in interest
rates relates to the Company's debt obligations. The Company manages its exposure to changing interest rates principally through the use of a combination of fixed and floating rate debt. The majority
of the Company's long-term debt is comprised of $81.4 million of Series B Senior Notes which represent fixed rate borrowings. The fair value of the Senior Notes at December 31, 2000 was
approximately $28.5 million. The Company believes that near term changes in interest rates would not have a significant impact on the Company's financial position as the Company has a limited amount
of interest rate risk sensitive financial instruments at December 31, 2000.

Foreign Exchange Rate RiskThe Company conducts business principally in North America and in U.S. and Canadian currencies.
The Company's U.S. operations denominates all sales transactions in U.S. dollars. The Company's Canadian subsidiaries are paid in Canadian dollars for sales made in Canada. Excess Canadian funds
generally have been invested in the Canadian operation rather than being remitted to the U.S. parent.

At
December 31, 2000, the Company has no foreign currency exchange contracts or hedging instruments.

Commodity Price RiskThe Company uses certain raw materials in its manufacturing process that fluctuate with certain
commodity prices. These raw materials include asphalt, aluminum paste, rubber and certain dissoynates. The Company continuously monitors key trends in the commodity prices impacting raw materials. At
December 31, 2000, the Company has no commodity risk hedges or derivative instruments.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of Henry Company are included in a separate section of this Annual Report on Form 10-K as set forth in the "Index to
Consolidated Financial Statements" on Page F-1.

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

NONE

21

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PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information regarding each of the Company's directors and executive officers as of December 31, 2000:

|Name                          |  | Age |  | Position                                         
|----------------------------- |  | --- |  | -------------------------------------------------
|Warner W. Henry(1)(2)         |  | 62  |  | Chairman of the Board and Chief Executive Officer
|Joseph T. Mooney, Jr.(1)      |  | 66  |  | Vice Chairman of the Board                       
|Paul H. Beemer(1)(2)          |  | 78  |  | Vice Chairman of the Board                       
|Richard B. Gordinier(1)(2)(3) |  | 58  |  | President, Chief Operating Officer and Director  
|Jeffrey A. Wahba(1)(2)        |  | 44  |  | Chief Financial Officer, Secretary and Director  
|S. Duncan Moffat(4)           |  | 53  |  | PresidentHenry Coatings Division                
|James Doose                   |  | 52  |  | PresidentResin Technology Company               
|Larry A. Karasiuk             |  | 56  |  | PresidentBakor Division                         
|Norman F. Nickerson           |  | 60  |  | Senior Vice PresidentHenry Coatings Division    
|Frederick H. Muhs(1)          |  | 62  |  | Director                                         
|Carol F. Henry                |  | 61  |  | Director                                         
|Donald H. Ford                |  | 93  |  | Director                                         
|Terrill M. Gloege(2)          |  | 65  |  | Director                                         

---

Warner W. Henryhas been Chairman of the Board, Chief Executive Officer and a director of Henry Company or its parent
since 1974, and has served in various sales and sales management positions with Henry Company from 1963 to 1974. Mr. Henry also serves on the board or is an Overseer of the following
organizations: The Employers Group, Hoover Institution, Los Angeles Music Center Opera and the Los Angeles Chamber Orchestra. Mr. Henry received his A.B. in Economics from Stanford University
and his M.B.A. from Stanford University, Graduate School of Business.

Joseph T. Mooney, Jr.has served as a Vice Chairman of the Board of the Company since the closing of the Acquisition. Mr. Mooney
began his career with Monsey Bakor in 1960 and previously served as Chairman of the Board and President of Monsey Bakor from 1972 to April 1998, where his responsibilities included major
strategic decisions regarding product and equipment purchases as well as oversight of all of Monsey Bakor's financial operations. Mr. Mooney received a B.S. from Villanova University.

Paul H. Beemerhas served as Vice Chairman of Henry Company since 1983, and as a director of Henry Company or its parent since 1964.
Mr. Beemer began with Henry Company in 1947, holding various technical and sales management positions, and has also served as General Manager and President. Mr. Beemer was responsible
for the formulation and development of a number of Henry Company's key products and continues to serve in a part-time technical consulting role. Mr. Beemer received a B.S. from Loyola
University in Los Angeles.

Richard B. Gordinierhas been President and a director of Henry Company from 1988 until January 2001. From 1985 to 1988,
Mr. Gordinier was President of Van De Kamp Dutch Bakers. From 1979 to 1984, Mr. Gordinier served as President of the International Division of Max Factor and Co., and from 1964 to 1979
held senior management positions at Estee Lauder, Procter and Gamble Co. and Bristol-Myers Squibb Co. Mr. Gordinier is currently a director of The Raymond Company and

22

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Lawry's Restaurants, Inc. Mr. Gordinier received a B.S. in Civil Engineering from Princeton University. Mr. Gordinier separated from the Company in January 2001.

Jeffrey A. Wahbahas been Chief Financial Officer, Secretary and a director of Henry Company since 1986. From 1984 to 1985,
Mr. Wahba served as Chief Financial Officer of Vault Corporation. From 1980 to 1984, Mr. Wahba was with Max Factor and Co. and served as Controller of the International Division.
Mr. Wahba received a B.S. in Industrial Engineering and an M.S. in Industrial Engineering
and Engineering Management from Stanford University, as well as an M.B.A. from the University of Southern California.

S. Duncan Moffathas served as PresidentHenry Coatings Division from 1997 until his departure from the Company in
February, 2001. From 1992 to 1997, Mr. Moffat was Senior Vice President of Coatings Operations for Henry Company, and from 1989 to 1992 served as Director of West Coast Operations for Esselte
Pendaflex Corporation. Prior to that time, Mr. Moffat served in various operations management capacities for Procter and Gamble Co. Mr. Moffat received a B.S. in Mechanical Engineering
from Princeton University. Mr. Moffat separated from the Company in March 2001.

James Doosehas been the President of Resin Technology Company since 1994. Mr. Doose and a partner founded Resin Technology
Company in 1982. Mr. Doose served as Executive Vice President of Resin Technology Company from 1982 to 1994. From 1973 to 1982, Mr. Doose was with Reichold Chemical Company in various
sales and technical positions. Mr. Doose received a B.S. in Chemistry from California Polytechnic University at Pomona.

Larry A. Karasiukhas served as PresidentBakor Canada since the closing of the Acquisition. Mr. Karasiuk served as
the President of Bakor Holdings, Inc. and as the President of Monsey Bakor's Canadian operations beginning in 1991. From 1982 to 1991, Mr. Karasiuk was the Vice President of Marketing
and Sales with the predecessor company of Bakor Holdings, Inc., Bakelite Thermosets Building Materials Division. Prior to that time, Mr. Karasiuk served in various management positions
with Hunter Douglas, a subsidiary of Alcan. Mr. Karasiuk attended Simon Fraser University and York University.

Norman F. Nickersonhas served as Vice President of SalesMonsey Bakor U.S. since the closing of the Acquisition until
February 2001 when he was named President of the Henry Coatings Division. Mr. Nickerson served as Vice President of Sales of Monsey Bakor from 1985 to 1998. From 1979 to 1985,
Mr. Nickerson was General Manager of Monsey Bakor's Southeastern division. From 1972 to 1979, Mr. Nickerson was General Manager of Cosmicoat, Inc. Mr. Nickerson received
his B.A. in History from Allegheny College.

Frederick H. Muhshas been a director of Henry Company since 1996. Since 1991, Mr. Muhs has been a private investor and business
consultant. From 1963 to 1990, Mr. Muhs held various positions in the investment and investment banking operations of the Prudential Insurance Company of America, including as Managing Director
for its Prudential Bache Securities, Inc. subsidiary. Mr. Muhs received an A.B. in Economics from Stanford University and his M.B.A. from Stanford University, Graduate School of
Business.

Carol F. Henryhas been a director of Henry Company since 1970. She is currently involved with several civic and charitable
organizations. Mrs. Henry received an A.B. and M.A. in Education from Stanford University.

Donald H. Fordhas been director of Henry Company since 1958. From 1933 to the present, Mr. Ford has practiced law with the law
firm of Overton, Lyman and Prince in Los Angeles, California. Mr. Ford received a B.S. in Commerce from Oregon State University and a J.D. from the University of Michigan.

Terrill M. Gloegehas been a director of Henry Company since 1993. He is currently the Chief Financial Officer of the Carson Companies.
Mr. Gloege is currently a director of Dominguez Services

23

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Corporation, a water services utility company. Mr. Gloege received a B.S. from the United States Coast Guard Academy and an M.B.A. from Stanford University.

The
Company's bylaws provide that the Board of Directors of the Company shall consist of nine directors. The number of authorized directors may be increased or decreased from time to
time by an amendment to the bylaws adopted by the Board of Directors or by the Company's shareholders. Directors are elected at each annual meeting of the Company's shareholders to hold office until
the next annual meeting and until their successors have been elected and qualified. Executive officers are appointed by the Board of Directors and serve at the Board's discretion, subject to any
contracts of employment with the Company.

Warner
W. Henry and Carol F. Henry are husband and wife.

Board Committees

The Executive Committee is comprised of Warner W. Henry, Paul H. Beemer, Joseph T. Mooney, Jr., Richard B. Gordinier and Frederick H. Muhs. Jeffrey A. Wahba
serves as Secretary of the Executive Committee without a vote. The Executive Committee has the full authority of the Board of Directors, except with respect to the approval of any action for which
shareholder approval is required by law or for certain other fundamental corporate actions, which require the act of the full Board. The Audit Committee is comprised of Warner W. Henry, Paul H.
Beemer, Richard B. Gordinier, Terrill M. Gloege, Jeffrey A. Wahba, and Frederick H. Muhs. The Audit Committee oversees the activities of Henry Company's independent accountants. The Compensation
Committee is comprised of Warner W. Henry, Terrill M. Gloege and Frederick H. Muhs.

Effective
January 2001, William H. Baribault assumed all of the duties of Richard B. Gordinier including all positions relating to Board Committees.

Executive and Director Compensation

The Company's directors do not receive any cash compensation for service on the Board of Directors or any Committee thereof, but directors may be reimbursed
for certain expenses in connection with attendance at board and committee meetings.

The
Compensation Committee and Richard B. Gordinier oversaw the Company's compensation policies and reviewed executive and employee annual increases. Annual increases in compensation
for Mr. Gordinier were determined by the Compensation Committee without the participation of Mr. Gordinier and increases in Mr. Henry's annual compensation is determined by the
Executive Committee without the participation of Mr. Henry. No executive officer of the Company serves as a member of the Board of Directors of any other entity which has one or more members
serving as a member of the Company's Board of Directors.

Paul
H. Beemer is compensated for consulting advisory services pursuant to a consulting agreement with the Company. Mr. Beemer provides the Company with a certain number of
hours of consulting advisory services each quarter for compensation of $100,000 per year. Mr. Beemer may also provide additional services which are compensated at the rate of $105 per hour. The
consulting agreement also contains a noncompetition clause restricting Mr. Beemer's employment or service with a business entity that competes with the Company in its present or future
marketing areas. Mr. Beemer's consulting agreement expires June 30, 2002. In fiscal year 2000, Mr. Beemer received $115,225 in compensation under his consulting agreement.

In
connection with services provided by The Muhs Company, Inc., Frederick H. Muhs provides certain business and financial consulting services to Henry Company. Henry Company
pays The Muhs Company, Inc. a retainer of $8,000 per month for these services. In fiscal year 2000, The Muhs Company, Inc. received $96,000 for business and financial consulting
services. See "Certain Transactions."

24

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ITEM 11.  EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation received for services rendered to Henry Company in all capacities during the fiscal
year ended December 31, 2000 by Henry Company's Chief Executive Officer and each of Henry Company's four other most highly compensated executive officers whose annual salary and bonus for the
year ended December 31, 2000 exceeded $100,000 (collectively, the "Named Executive Officers"):

|                                                                  |  | Annual Compensation |  |   |                         |  |   |                     
|----------------------------------------------------------------- |  | ------------------- |  | - | ----------------------- |  | - | --------------------
|
|
|Warner W. Henry
Chairman of the Board and Chief Executive Officer |  | 2000
1999
1998      |  | $ | 285,000
386,000
330,000 |  |   | 
                 
|Richard B. Gordinier
President and Chief Operating Officer        |  | 2000
1999
1998      |  |   | 285,000
285,875
285,875 |  | $ | 
100,000
200,000   
|James Doose
PresidentResin Technology Company                    |  | 2000
1999
1998      |  |   | 251,084
243,620
237,450 |  |   | 22,700
22,700
40,800
|Joseph T. Mooney
Vice Chairman of the Board                       |  | 2000
1999
1998      |  |   | 236,672
350,000
241,760 |  |   | 
                 
|James Van Pelt
Vice President Grundy Division                     |  | 2000
1999
1998      |  |   | 195,921
186,390
       |  |   | 140,000

         

---

Warrant Grants Outstanding

The following table provides certain information regarding warrants to purchase shares of Henry Company's capital stock outstanding to any Named Executive
Officer during the fiscal years ended December 31, 1999 and 2000:

Warrant Grants

|                |  | Individual Grants
|--------------- |  | -----------------
|
|Warner W. Henry |  | 400,000          

---

25

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Executive Deferral Plan

Henry Company has adopted an Executive Deferral Plan (the "Plan") to allow certain management personnel and highly compensated employees to defer a portion of
their annual salary and bonus to be paid at a future date chosen by them or upon their retirement, death, disability or termination of employment. Participants in the Plan are selected by an
administrative committee (the "Plan Committee") appointed by the Board of Directors which establishes eligibility qualifications and manages and administers the Plan. To participate in the Plan for
any year, a participant must make an irrevocable election to defer at least $2,000 to a maximum of 100% of his or her base salary and bonus for such year prior to the beginning of the year for which
the salary and bonus relate. For each Plan year Henry Company may contribute to each participant's account at the Plan Committee's discretion. Deferred amounts are credited with interest at the
September "Moody's Seasoned Corporate Bond" rate that is published prior to the end of the Plan year preceding the Plan year for which the rate is used. Participants are at all times fully
vested in their deferred compensation accounts except in the event of a termination of their employment, in which case participants are vested to only a percentage of any Company contributions that
have been made, calculated according to the executive's number of years of employment. At the time of deferral, participants may elect to receive future short-term payouts with respect to each year's
deferral, payable in a lump sum not prior to the sixth Plan year following such deferral. Amounts payable to a participant pursuant to the Plan are unfunded amounts to be paid from the general assets
of the Company and are at all times subject to the risk of the Company's business. The Company funds the Plan with whole life insurance policies.

Profit Sharing/401(k) Plan

Henry Company's Profit Sharing/401(k) Plan, as amended and restated as of January 1, 1995 (the "401(k) Plan") is a qualified profit sharing plan with a
401(k) feature covering salaried and hourly employees of Henry Company and its affiliates, other than union employees, who have completed one year of service and attained the age of 21. Participants
in the 401(k) Plan may contribute up to 15% of their annual compensation to the 401(k) Plan through salary deferral up to a maximum of $10,500. In addition, Henry Company may make annual discretionary
matching contributions not to exceed 10% of a participant's annual compensation. Currently, participant contributions are matched at the rate of $0.50 for each dollar up to 4% of the participants
compensation. Participating employees are 100% vested in participant contributions and become vested to a certain percentage of any Henry Company discretionary matching contributions according to the
employee's years of service with Henry Company or its affiliates.

Employment Agreements and Compensation Arrangements

Henry Company has entered into employment agreements with Mr. Gordinier, Mr. Doose and Mr. Mooney.

Mr. Gordinier's
employment was terminated in January, 2001 and the Company and Mr. Gordinier are attempting to negotiate a severance agreement pursuant to the terms of
his employment agreement. Mr. Gordinier's employment agreement entitled him to a base salary and a bonus, subject to annual review by the Executive Committee of the Board of Directors, and to
certain other benefits, including reimbursement of certain club memberships. In 2000, Mr. Gordinier's base salary was $285,000 and he received no bonus. Mr. Gordinier was also entitled
to a bonus if a distribution of money or assets is made to the shareholders of the Company. No bonus was paid in 2000. In connection with

26

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Mr. Gordinier's employment agreement, Henry Company has loaned him a total of $175,000 which does not bear interest. As of December 31, 2000, the aggregate amount outstanding under these
loans was $175,000. The agreement provides that if Mr. Gordinier voluntarily terminates his employment or if the Company terminates his employment for any reason other than "for cause" (as
defined in the employment agreement), Mr. Gordinier is entitled to a one-year severance payment equal to his then salary and guaranteed bonus and a termination award (the "Termination Award").
The Termination Award is equal to 10% of the amount by which the fair market value of the Company exceeds $5,895,595, such fair market value to be determined by appraisal, subject to reduction by
$200,000 plus outstanding loans. The Termination Award is payable in four equal annual installments, with the unpaid balance bearing interest at the Bank of America prime rate existing on the due date
of the first installment.

Mr. Doose's
employment agreement provides for a base salary, subject to annual cost-of-living and discretionary increases. For 2000, Mr. Doose's base salary was
$251,084. Mr. Doose also receives annual bonuses based on the net operating profits of, and on the return on capital employed at, RTC. If Mr. Doose is terminated without cause, he is
entitled to base compensation plus the bonus calculated on net operating profits for the remaining term of the agreement. The agreement contains a covenant restricting Mr. Doose from competing
with Henry Company for two years after the termination of employment. Mr. Doose's employment agreement terminates January 1, 2004.

Mr. Mooney
is a Vice Chairman of the Board of the Company with an annual base salary of $236,672, subject to annual review. The term of Mr. Mooney's employment agreement
is for two years from the closing of the Acquisition. With respect to the capital stock of the Company that was purchased by Mr. Mooney in connection with the Acquisition, Mr. Mooney has
the right to require the Company to purchase one-sixth of such capital stock each year over a five-year period beginning January 1, 2004 (except that the last one-sixth would be repurchased
July 1, 2008) for an aggregate purchase price of $3.0 million. Such capital stock would also be repurchased upon Mr. Mooney's death, in which event the purchase would be funded by the
proceeds from the key person life insurance policies the Company holds on Mr. Mooney's life.

Indemnification of Directors and Officers

The Company's Articles of Incorporation authorize the indemnification of Company officers and directors to the fullest extent permissible under California law.
Subject to the Articles of Incorporation and California law, the Bylaws provide that Henry Company shall indemnify each of its directors and officers against expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact that any person is or was a Company director or officer. The Company also purchased a
directors and officers liability insurance policy following the Acquisition.

Key Person Life Insurance

Henry Company currently maintains a term life insurance policy in the amount of $2,000,000 on the life of Richard B. Gordinier, under which Henry Company is
the sole beneficiary. The Company also maintains whole life insurance policies in the amount of $7,770,000 on the life of Joseph T. Mooney, Jr., under which the Company is the sole beneficiary.

27

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following sets forth information regarding beneficial ownership of the Common Stock and the Class A Common Stock of the Company as of
December 31, 2000. Henry Company believes that persons and entities named in the table have sole voting and investment power with respect to all shares of Class A Common Stock and Common
Stock shown as beneficially owned by them, subject to community property laws, where applicable. There is no established public trading market for any class of Henry Company's equity securities. See
"The Transactions."

|                                                                                                                                                           |  |         |     |      |   | Beneficial Ownership of Class A Common Stock |     |       |   |      |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | --- | ---- | - | -------------------------------------------- | --- | ----- | - | ---- | -
|
|
|
|
|Warner W. Henry, Trustee, Warner W. Henry Living Trust(6)
2911 Slauson Ave.
Huntington Park, CA 90255                                                      |  | 388,000 | (1) | 53.0 | % | 18,000                                       | (4) | 100.0 | % | 74.7 | %
|Terrill M. Gloege as Trustee of the William Warner Henry Trust established under the Henry Trust dated 9/17/93
2911 Slauson Ave.
Huntington Park, CA 90255 |  | 64,106  |     | 8.8  |   |                                             |     |      |   | 4.7  |  
|Terrill M. Gloege as Trustee of the Catherine Anne Henry Trust established under the Henry Trust dated 9/17/93
2911 Slauson Ave.
Huntington Park, CA 90255 |  | 64,106  |     | 8.8  |   |                                             |     |      |   | 4.7  |  
|Terrill M. Gloege as Trustee of the Michael Andrew Henry Trust established under the Henry Trust dated 9/17/93
2911 Slauson Ave.
Huntington Park, CA 90255 |  | 64,106  |     | 8.8  |   |                                             |     |      |   | 4.7  |  
|Frederick H. Muhs                                                                                                                                          |  | 82,500  | (2) | 11.3 |   |                                             |     |      |   | 6.1  |  
|Joseph T. Mooney, Jr                                                                                                                                       |  | 67,500  | (3) | 9.2  |   |                                             |     |      |   | 5.0  |  
|Carol F. Henry                                                                                                                                             |  | 1,682   |     | 0.2  |   |                                             |     |      |   | 0.1  |  

---

28

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29

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ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company leases its Huntington Park headquarters and certain operating equipment from a family trust and living trust for which Warner W. Henry is the
trustee pursuant to three separate real property leases and one equipment lease. These leases expire in 2002, 2006 and 2016. The total rent paid in 1999 and 2000 for the Huntington Park leases was
approximately $424,904 each year. The Company leases additional property at its Huntington Park headquarters from Alamo Development Company. Frederick H. Muhs, a director of the Company, is a
shareholder of Alamo Development Company along with certain other members of his family. The Company currently pays rent of $5,478 per month pursuant to this lease which is subject to annual
adjustments to reflect changes in the Bank of America prime rate. The lease expires February 28, 2002 and provides for the Company's option to purchase the property upon six months written
notice. The Company believes that the rent paid under the above leases represent substantially fair market value and that the other terms and conditions of the leases are commercially reasonable.

Henry
Company has made loans to Richard B. Gordinier for personal reasons pursuant to various loan agreements and promissory notes originated at various times since 1988 for one year
terms that were subsequently extended for successive one year terms. The loans currently bear interest at Bank of America's prime rate, currently 7.5%, and may be prepaid without penalty. As of
December 31, 2000, an aggregate of $568,771 was outstanding on these loans. In addition, Mr. Gordinier has received $175,000 of non-interest bearing loans in connection with his
employment. See "Management-Employment Agreements and Compensation Arrangements."

Henry
Company performs certain administrative services for an affiliate, Henry II, Inc., a California corporation, pursuant to an administrative services agreement that provides for
payments from Henry II, Inc. to Henry Company. These payments totaled $0.7 million in 2000. Henry II, Inc. Company's shareholders are Warner W. Henry, Carol Henry, and certain trusts for the benefit
of their children.

At
December 31, 1997, Henry Company received a note from Henry II, Inc. for $1.9 million representing the purchase price for its interest in certain real property. Such real
property related solely to the business of Henry II, Inc. and had a net book value of $1.9 million. The note bears interest at the prime rate, and is repayable in a lump sum at any time up to
December 31, 2002. The balance of such note was $1.9 million at December 31, 2000. In addition, at December 31, 1999, Henry II, Inc. owed $2.1 million to Henry Company,
representing past advances made on behalf of Henry II, Inc. The note evidencing this debt does not bear interest and is payable upon demand.

Henry
Company receives business and financial consulting services from The Muhs Company, Inc., of which Frederick H. Muhs, a director of the Company, is the President and
controlling shareholder. Henry Company paid $96,000 for these services in 1999 and $75,000 in 2000. See "Executive Compensation."

The
Company is a party to employment and consulting agreements with certain directors and officers of the Company. See "Employment Agreements and Compensation Arrangements."

30

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PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(A) DOCUMENTS FILED AS PART OF THIS REPORT

1. Financial Statements

The Consolidated Financial Statements of Henry Company are contained herein as listed on the "Index to Consolidated Financial Statements" on page F-1.

2. Financial Statement Schedules

The financial statement schedules of Henry Company have been omitted because they are not applicable, not required, or the information is included in the
consolidated financial statement or notes there to.

All
other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or
are not applicable, and, therefore, have been omitted.

Reports on Form 8-K

The Company did not file any reports on Form 8-K during the quarter ended December 31, 2000.

Exhibits

See Exhibit Index

31

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HENRY COMPANY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                           |  | Page
|---------------------------------------------------------- |  | ----
|Report Of Independent Accountants                          |  | F-2 
|Consolidated Balance Sheets                                |  | F-3 
|Consolidated Statements Of Operations                      |  | F-4 
|Consolidated Statements Of Changes In Shareholders' Equity |  | F-5 
|Consolidated Statements Of Cash Flows                      |  | F-6 
|Notes To Consolidated Financial Statements                 |  | F-7 

F1

---

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors,
Bond Holders and Shareholders
of Henry Company

In
our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in shareholders' equity and of cash flows present fairly,
in all material respects, the financial position of Henry Company and subsidiaries (the "Company") at December 31, 1999 and 2000, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit 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.

PricewaterhouseCoopers
LLP
Los Angeles, California
April 13, 2001, except for the information in
Note 5, as to which the date is August 24, 2001

F2

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HENRY COMPANY

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 1999 AND 2000

|                                            |                                                                                                                                | 1999                                       |            | 2000       |            
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ---------- | ---------- | -----------
|ASSETS:                                     |                                                                                                                               
|Current assets:                             |                                                                                                                                |                                            |            |            |            
|                                            | Cash and cash equivalents                                                                                                      |                                            | $          | 685,044    |            
|                                            | Trade accounts receivable, net of allowance for doubtful accounts of $1,027,825 and $2,044,158 for 1999 and 2000, respectively |                                            |            | 21,349,756 |            
|                                            | Inventories, net                                                                                                               |                                            |            | 15,606,752 |            
|                                            | Receivables from affiliate                                                                                                     |                                            |            | 2,144,212  |            
|                                            | Notes receivable                                                                                                               |                                            |            | 516,210    |            
|                                            | Prepaid expenses and other current assets                                                                                      |                                            |            | 2,035,198  |            
|                                            | Income tax receivable                                                                                                          |                                            |            | 377,118    |            
|                                            | Deferred income taxes                                                                                                          |                                            |            | 610,279    |            
|                                            |                                                                                                                                |                                            |            |            |            
|                                            |                                                                                                                                | Total current assets                       |            |            | 43,324,569 
|Property and equipment, net                 |                                                                                                                                |                                            | 36,751,720 |            |            
|Cash surrender value of life insurance, net |                                                                                                                                |                                            | 4,340,388  |            |            
|Intangibles, net                            |                                                                                                                                |                                            | 29,461,779 |            |            
|Notes receivable                            |                                                                                                                                |                                            | 354,462    |            |            
|Note receivable from affiliate              |                                                                                                                                |                                            | 1,863,072  |            |            
|Deferred income taxes                       |                                                                                                                                |                                            | 2,940,375  |            |            
|Other assets                                |                                                                                                                                |                                            | 289,072    |            |            
|                                            |                                                                                                                                |                                            |            |            |            
|                                            |                                                                                                                                | Total assets                               |            | $          | 119,325,437
|                                            |                                                                                                                                |                                            |            |            |            
|LIABILITIES AND SHAREHOLDERS' EQUITY:       |                                                                                                                               
|Current liabilities:                        |                                                                                                                                |                                            |            |            |            
|                                            | Accounts payable                                                                                                               |                                            | $          | 6,548,674  |            
|                                            | Accrued expenses                                                                                                               |                                            |            | 7,798,942  |            
|                                            | Book overdrafts                                                                                                                |                                            |            | 1,114,126  |            
|                                            | Income taxes payable                                                                                                           |                                            |            | 715,969    |            
|                                            | Deferred income taxes                                                                                                          |                                            |            | 529,545    |            
|                                            | Notes payable, current portion                                                                                                 |                                            |            | 124,994    |            
|                                            | Borrowings under lines of credit                                                                                               |                                            |            | 2,629,837  |            
|                                            |                                                                                                                                |                                            |            |            |            
|                                            |                                                                                                                                | Total current liabilities                  |            |            | 19,462,087 
|Notes payable                               |                                                                                                                                |                                            | 516,214    |            |            
|Environmental reserve                       |                                                                                                                                |                                            | 3,375,025  |            |            
|Deferred income taxes                       |                                                                                                                                |                                            | 8,369,192  |            |            
|Deferred warranty revenue                   |                                                                                                                                |                                            | 2,563,231  |            |            
|Deferred compensation                       |                                                                                                                                |                                            | 1,071,073  |            |            
|Series B Senior notes                       |                                                                                                                                |                                            | 81,400,000 |            |            
|                                            |                                                                                                                                |                                            |            |            |            
|                                            |                                                                                                                                | Total liabilities                          |            |            | 116,756,822
|Commitments and contingencies (Note 7)      |                                                                                                                                |                                            |            |            |            
|Redeemable convertible preferred stock      |                                                                                                                                |                                            | 1,764,594  |            |            
|Shareholders' equity (deficit):             |                                                                                                                                |                                            |            |            |            
|                                            | Common stock                                                                                                                   |                                            |            | 4,691,080  |            
|                                            | Additional paid-in capital                                                                                                     |                                            |            | 2,519,147  |            
|                                            | Cumulative translation adjustment                                                                                              |                                            |            | (149,083   | )          
|                                            | Accumulated deficit                                                                                                            |                                            |            | (6,257,123 | )          
|                                            |                                                                                                                                |                                            |            |            |            
|                                            |                                                                                                                                | Total shareholders' equity (deficit)       |            |            | 804,021    
|                                            |                                                                                                                                |                                            |            |            |            
|                                            |                                                                                                                                | Total liabilities and shareholders' equity |            | $          | 119,325,437
|                                            |                                                                                                                                |                                            |            |            |            

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

F3

---

HENRY COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED:

|                        |                                                                                      | December 31             |            
|----------------------- | ------------------------------------------------------------------------------------ | ----------------------- | -----------
|
|Net sales               |                                                                                      | $                       | 150,156,121
|Cost of sales           |                                                                                      |                         | 105,142,584
|                        |                                                                                      |                         |            
|                        | Gross profit                                                                         |                         |            
|Operating expenses:     |                                                                                      |                         |            
|                        | Selling, general and administrative                                                  |                         |            
|                        | Restructuring charges                                                                |                         |            
|                        | Amortization of intangibles                                                          |                         |            
|                        |                                                                                      |                         |            
|                        |                                                                                      | Operating income (loss) |            
|Other expense (income): |                                                                                      |                         |            
|                        | Interest expense                                                                     |                         |            
|                        | Interest and other income, net                                                       |                         |            
|                        |                                                                                      |                         |            
|                        | Income (loss) before extraordinary item                                              |                         |            
|                        | Extraordinary gain related to early extinguishment of debt, net of taxes of $400,800 |                         |            
|                        |                                                                                      |                         |            
|                        | Income (loss) before income taxes                                                    |                         |            
|                        | Provision (benefit) for income taxes                                                 |                         |            
|                        |                                                                                      |                         |            
|                        | Net income (loss)                                                                    |                         | $          
|                        |                                                                                      |                         |            

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

F4

---

HENRY COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

|                                                                 |                                    | Common Stock                                |                            |   |           |   |   |           |   |   |         
|---------------------------------------------------------------- | ---------------------------------- | ------------------------------------------- | -------------------------- | - | --------- | - | - | --------- | - | - | --------
|
|Balances, December 31, 1997                                      |                                    | 200,100                                     |                            | $ | 2,853,669 |   | $ | 2,682,152 |   |   |        
|Merger of Warner Development Company of Texas into Henry Company |                                    | (100                                        | )                          |   | (162,589  | ) |   | 162,589   |   |   |        
|Issuance of common stock                                         |                                    | 27,500                                      |                            |   | 2,000,000 |   |   |          |   |   |        
|Dividend to shareholders                                         |                                    |                                            |                            |   |          |   |   |          |   |   |        
|Accretion on redeemable convertible preferred stock              |                                    |                                            |                            |   |          |   |   |          |   | $ | (221,874
|Comprehensive income:                                            |                                    |                                             |                            |   |           |   |   |           |   |   |         
|                                                                 | Net income                         |                                             |                           |   |           |  |   |           |  |   |         
|                                                                 | Other comprehensive income (loss): |                                             |                            |   |           |   |   |           |   |   |         
|                                                                 |                                    | Change in cumulative translation adjustment |                            |  |           |   |  |           |   |  |         
|                                                                 |                                    |                                             |                            |   |           |   |   |           |   |   |         
|                                                                 |                                    |                                             | Total comprehensive income |   |          |   |   |          |   |   |        
|                                                                 |                                    |                                             |                            |   |           |   |   |           |   |   |         
|Balances, December 31, 1998                                      |                                    | 227,500                                     |                            |   | 4,691,080 |   |   | 2,622,867 |   |   | (892,724
|Accretion on redeemable convertible preferred stock              |                                    |                                            |                            |   |          |   |   | (103,720  | ) |   |        
|Comprehensive loss:                                              |                                    |                                             |                            |   |           |   |   |           |   |   |         
|                                                                 | Net loss                           |                                             |                           |   |           |  |   |           |  |   |         
|                                                                 | Other comprehensive income (loss): |                                             |                            |   |           |   |   |           |   |   |         
|                                                                 |                                    | Change in cumulative translation adjustment |                            |  |           |   |  |           |   |  |         
|                                                                 |                                    |                                             |                            |   |           |   |   |           |   |   |         
|                                                                 |                                    |                                             | Total comprehensive loss   |   |          |   |   |          |   |   |        
|                                                                 |                                    |                                             |                            |   |           |   |   |           |   |   |         
|Balances, December 31, 1999                                      |                                    | 227,500                                     |                            |   | 4,691,080 |   |   | 2,519,147 |   |   | (149,083
|Accretion on redeemable convertible preferred stock              |                                    |                                            |                            |   |          |   |   | (154,839  | ) |   |        
|Comprehensive loss:                                              |                                    |                                             |                            |   |           |   |   |           |   |   |         
|                                                                 | Net loss                           |                                             |                           |   |           |  |   |           |  |   |         
|                                                                 | Other comprehensive income (loss): |                                             |                            |   |           |   |   |           |   |   |         
|                                                                 |                                    | Change in cumulative translation adjustment |                            |  |           |   |  |           |   |  |         
|                                                                 |                                    |                                             |                            |   |           |   |   |           |   |   |         
|                                                                 |                                    |                                             | Total comprehensive loss   |   |          |   |   |          |   |   |        
|                                                                 |                                    |                                             |                            |   |           |   |   |           |   |   |         
|Balances, December 31, 2000                                      |                                    | 227,500                                     |                            | $ | 4,691,080 |   | $ | 2,364,308 |   | $ | (497,228
|                                                                 |                                    |                                             |                            |   |           |   |   |           |   |   |         

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

F5

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HENRY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED:

|                                      |                                                                                                    | December 31,                                                         |                                       
|------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | --------------------------------------
|
|Cash flows from operating activities: |                                                                                                    |                                                                      |                                       
|                                      | Net income (loss)                                                                                  |                                                                      | $                                     
|                                      | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                                      |                                       
|                                      |                                                                                                    | Depreciation and amortization                                        |                                       
|                                      |                                                                                                    | Provision for doubtful accounts                                      |                                       
|                                      |                                                                                                    | Deferred income taxes                                                |                                       
|                                      |                                                                                                    | Noncompetition and goodwill amortization                             |                                       
|                                      |                                                                                                    | Interest on subordinated shareholder debt                            |                                       
|                                      |                                                                                                    | (Gain) loss on disposal of property and equipment                    |                                       
|                                      |                                                                                                    | Gain on sale of investment                                           |                                       
|                                      |                                                                                                    | Gain on purchase of bonds                                            |                                       
|                                      |                                                                                                    | Changes in operating assets and liabilities, net of assets acquired: |                                       
|                                      |                                                                                                    |                                                                      | Accounts receivable                   
|                                      |                                                                                                    |                                                                      | Inventories                           
|                                      |                                                                                                    |                                                                      | Receivables from affiliates           
|                                      |                                                                                                    |                                                                      | Notes receivable                      
|                                      |                                                                                                    |                                                                      | Cash surrender value of life insurance
|                                      |                                                                                                    |                                                                      | Other assets                          
|                                      |                                                                                                    |                                                                      | Income tax receivable                 
|                                      |                                                                                                    |                                                                      | Accounts payable and accrued expenses 
|                                      |                                                                                                    |                                                                      | Deferred warranty revenue             
|                                      |                                                                                                    |                                                                      | Deferred compensation                 
|                                      |                                                                                                    |                                                                      |                                       
|                                      |                                                                                                    |                                                                      |                                       
|                                      |                                                                                                    |                                                                      |                                       
|Cash flows from investing activities: |                                                                                                    |                                                                      |                                       
|                                      | Capital expenditures                                                                               |                                                                      |                                       
|                                      | Proceeds from the disposal of property and equipment                                               |                                                                      |                                       
|                                      | Proceeds from sale of investment                                                                   |                                                                      |                                       
|                                      | Acquisition of business, net of cash acquired                                                      |                                                                      |                                       
|                                      | Investment in affiliate                                                                            |                                                                      |                                       
|                                      |                                                                                                    |                                                                      |                                       
|                                      |                                                                                                    |                                                                      |                                       
|                                      |                                                                                                    |                                                                      |                                       
|Cash flows from financing activities: |                                                                                                    |                                                                      |                                       
|                                      | Net borrowings (repayments) under line-of-credit agreements                                        |                                                                      |                                       
|                                      | Repayments under note payable agreements                                                           |                                                                      |                                       
|                                      | Increase in book overdrafts                                                                        |                                                                      |                                       
|                                      | Payments on subordinated shareholder debt                                                          |                                                                      |                                       
|                                      | Payments of finance fees for note offering                                                         |                                                                      |                                       
|                                      | Proceeds from Series B Senior Notes                                                                |                                                                      |                                       
|                                      | Purchase of Series B Senior Notes                                                                  |                                                                      |                                       
|                                      | Proceeds from issuance of common stock                                                             |                                                                      |                                       
|                                      | Proceeds from issuance of preferred stock                                                          |                                                                      |                                       
|                                      | Dividends paid                                                                                     |                                                                      |                                       
|                                      |                                                                                                    |                                                                      |                                       
|                                      |                                                                                                    |                                                                      |                                       
|                                      |                                                                                                    |                                                                      |                                       
|                                      | Effect of exchange rate changes on cash                                                            |                                                                      |                                       
|                                      |                                                                                                    |                                                                      |                                       
|                                      |                                                                                                    |                                                                      |                                       
|                                      | Cash and cash equivalents, beginning of year                                                       |                                                                      |                                       
|                                      |                                                                                                    |                                                                      |                                       
|                                      | Cash and cash equivalents, end of year                                                             |                                                                      | $                                     
|                                      |                                                                                                    |                                                                      |                                       

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

F6

---

HENRY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

The Henry Company (the "Company") develops, manufactures and markets materials for the construction industry focusing primarily on roofing, sealing and paving
applications. The Company's products include: roof/driveway coatings and paving products, industrial emulsions, air barriers, specialty products, polyurethane foam for residential and commercial uses,
and sealants for the construction and marine industries.

The
consolidated financial statements of the Company include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been
eliminated.

For
periods prior to April 21, 1998, the Company's financial statements were prepared on a combined basis with Warner Development Company of Texas ("Warner Development") as
both entities were under common control with identical shareholder ownership interests. On April 21, 1998, Warner
Development was merged into Henry Company and the outstanding shares of Warner Development capital stock were cancelled.

Revenue Recognition

Revenues are recognized when product is shipped and title transfers. The Company has established programs which, under specified conditions, allow customers to
return products. The Company establishes liabilities for estimated returns and allowances at the time of shipment. In addition, accruals for customer discounts and allowances are recorded when
revenues are recognized.

The
Company offers its customers an optional separately purchased warranty program for its commercial roofing systems. Revenue from the warranty program is recognized over the
warranty periods which range from 5 to 20 years. Warranty repair expenses under the program are charged to expense as incurred.

In
December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," which
provides the SEC's views on applying generally accepted accounting principles to selected revenue recognition issues. The Company's adoption of this standard did not have any impact on the Company's
revenue recognition policy.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Under
the Company's cash management system, checks issued but not presented to banks frequently result in overdraft balances for accounting purposes and are included in "book
overdrafts" in the accompanying balance sheet. At December 31, 1999 and 2000, these overdraft balances amounted to $1,114,126 and $4,516,278, respectively.

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market. Cost is determined using standard cost which approximates actual costs on a
first-in, first-out method.

F7

---

Property and Equipment

Property and equipment are stated at cost. Leasehold improvements are amortized on a straight-line basis over the remaining lease term, or the asset's
estimated useful life, whichever is shorter. All other depreciable assets are depreciated using the double-declining-balance method or the straight-line method, over the assets' estimated useful
lives.

Depreciation
periods are as follows:

Buildings

20 to 40 yearsMachinery and equipment

6 yearsOffice furniture and equipment

5 yearsAutomotive equipment

3 to 5 yearsLeasehold improvements

Primary term of leaseOther assets

5 years


Additions,
major renewals and betterments are capitalized. Repair and maintenance costs are expensed as incurred. Upon sale or retirement of property and equipment, the cost and
accumulated depreciation are removed from the appropriate accounts and any corresponding gain or loss is included in income in the year the asset is disposed.

Intangibles

Intangible assets are comprised of the excess purchase price over the estimated fair value of net tangible assets acquired. Intangible assets are being
amortized over periods ranging from 6 to 15 years. At December 31, 1999 and 2000, intangible assets are comprised of the following components:

December 31,1999

2000Goodwill

$
27,083,373

$
26,992,321Noncompetition agreement


4,727,199


4,727,199Financing fees


2,442,000


2,442,00034,252,572


34,161,520Less, accumulated amortization


(4,790,793
)

(7,340,598
)$
29,461,779

$
26,820,922


Long-Lived Assets

The Company periodically evaluates the carrying value of goodwill, intangibles and other long-lived assets, including the related depreciation or amortization
periods. In evaluating goodwill, the Company determines whether there has been an impairment and the amount thereof, if any, by comparing the undiscounted future operating income of the acquired
business with the carrying value of the goodwill. In evaluating other intangible assets and other long-lived assets, the Company determines whether there has been impairment by comparing the
anticipated undiscounted future operating income to be generated by the asset with their carrying values. If the undiscounted operating income is less than the carrying value, the amount of the
impairment, if any, will be determined by comparing the carrying

F8

---

value of each asset with its fair value. Fair value is generally based on a discounted cash flows analysis. The Company does not believe that any impairments of its goodwill, intangibles, or other
long-lived assets.

Income Taxes

In April 1998, the Company converted its tax status from an S Corporation under Section 1361 of the Internal Revenue Code to a C Corporation status (the
"Conversion"). Upon conversion, the Company is required to pay federal and state corporate income taxes on its taxable income.

Upon
the completion of the Conversion, the Company recognized deferred taxes in accordance with the liability method of accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The provision for income
taxes represents income taxes payable for the period and the change during the period in deferred tax assets and liabilities.

For
periods prior to the Conversion, the Company did not pay federal corporate income taxes on its taxable income. Instead the shareholders were individually liable for the federal
and state income taxes based on the Company's taxable income. For state income tax purposes, the Company was required to pay an S Corporation tax based on 1.5% of taxable income. This state tax
liability is included in the provision for income taxes for periods prior to the Conversion.

Environmental Reserve

The Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Accruals for
estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility
study. Such accruals are adjusted as further information develops or circumstances change. Cost of future expenditures for environmental remediation obligations are not discounted.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include all costs associated with marketing and distributing the Company's products. Also included in selling,
general and administrative expenses are research and development costs. Research and development costs incurred in developing and improving product formulas are charged to expense in the year
incurred. Total research and development costs were $1,037,703, $1,582,468 and $1,545,855 for the years ended December 31, 1998, 1999 and 2000, respectively.

Advertising and Promotion Costs

All costs associated with advertising and promoting products are expensed in the year incurred and are included in selling, general and administrative
expenses. Advertising and promotion expenses were $3,025,741, $4,375,061 and $4,724,666 for the years ended December 31, 1998, 1999 and 2000, respectively.

F9

---

Foreign Currency Translation

The assets and liabilities of the Company's wholly-owned Canadian subsidiaries are translated from Canadian dollars to U.S. dollars using exchange rates in
effect at the balance sheet date. Revenues and expenses are translated using average exchange rates prevailing during the period. The effect of the unrealized exchange rate fluctuations on translating
foreign currency assets and liabilities into U.S. dollars are accumulated as a separate component of shareholders' equity. Gains and losses resulting from foreign currency transactions are included in
operations. For the years ended December 31, 1998,
1999 and 2000, the aggregate foreign exchange gains included in operations were $48,700 $128,446 and $31,050, respectively.

Financial Instruments and Risk Management

Financial instruments which potentially expose the Company to concentration of credit risk consist primarily of cash and cash equivalents and trade
receivables. The Company currently maintains substantially all of its day-to-day operating cash balances with major financial institutions. At times, cash balances may be in excess of Federal
Depository Insurance Corporation ("FDIC") insurance limits. Cash equivalents principally consist of money market funds on deposit with major financial institutions.

Concentration
of credit risk with respect to trade receivables is derived from the Company's largest customer, which represents approximately 12.1% and 11.5% of accounts receivable at
December 31, 1999 and 2000, respectively. This customer also accounted for approximately 8% of net sales in fiscal year 1998, 8.6% of net sales in fiscal year 1999 and 11.9% of net sales in
fiscal year 2000. However, the majority of the Company's customers are geographically diverse roofing distributors and contractors located throughout the United States and eastern Canada, which limits
the extent of trade credit risk. The Company also maintains credit insurance that provides for reimbursement, less deductibles, for actual credit losses relating to its Henry Coatings Division. In
addition, the Company controls credit risk through credit approvals, credit limits and monitoring procedures.

The Value of Financial Instruments

SFAS No. 107, "Disclosure About Fair Value of Financial Instruments", requires disclosure of fair value information about most financial instruments both on
and off the balance sheet, if it is practicable to estimate. SFAS No. 107 excludes certain financial instruments such as certain insurance contracts and all non-financial instruments from its
disclosure requirements. A financial instrument is defined as a contractual obligation that ultimately ends with the delivery of cash or an ownership interest in an entity. Disclosures regarding the
fair value of financial instruments are derived using external market sources, estimates using present value or other valuation techniques. Cash, accounts receivable, accounts payable, accrued
liabilities and short-term debt are reflected in the financial statements at fair value because of the short-term maturity of these instruments. The Company's long-term debt is
primarily comprised of Senior Notes with a carrying value of $81.4 million at December 31, 2000. The fair value of the Senior Notes was $28.5 million at December 31, 2000.

The
Company has issued a standby letter of credit relating to its business insurance and is contingently liable for approximately $925,685. The standby letter of credit is in force
for the term of the insurance policy, and reflects the current fair value.

F10

---

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, and 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 could differ from those estimates.

Reclassifications

Certain previously reported amounts have been reclassified to conform with the current year's presentation.

Comprehensive Income

During 1998, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes guidelines for the reporting and
display of comprehensive income and its components in the financial statements.

Comprehensive
income, as defined, includes all changes in shareholders' equity during a period from non-owner sources. The only component of comprehensive income not included in the
Company's operating results relates to the change in the cumulative translation adjustment related to the foreign currency effects of the Canadian operations acquired during 1998 as part of the
Acquisition as discussed in Note 2.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. The Company adopted SFAS No. 133 in the first quarter of 2001. The Company's adoption of SFAS No. 133 did not have a significant impact on its financial position, results of
operations, or cash flow.

In
July 2001, the FASB issued Statement of Financial Accounting Standards ("SFAS") Nos. 141 and 142 (SFAS No. 141 and SFAS No. 142), "Business
Combinations" and "Goodwill and Other Intangible Assets". SFAS No. 141 replaces APB 16 and eliminates pooling-of-interests accounting prospectively. It also provides guidance on purchase
accounting related to the recognition of intangible assets and accounting for negative goodwill. SFAS No. 142 changes the accounting for goodwill from an amortization method to an
impairment-only approach. Under SFAS No. 142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. SFAS No. 141 and
SFAS No. 142 are effective for all business combinations completed after June 30, 2001. Upon adoption of SFAS No. 142, amortization of goodwill recorded for business
combinations consummated prior to July 1, 2001 will cease, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under SFAS No. 141
will be reclassified to goodwill. Companies are required to adopt SFAS No. 142 for fiscal years beginning after December 15, 2001, but early adoption is permitted. The Company will adopt
SFAS No. 142 on January 1, 2002, the beginning of fiscal year 2002. In connection with the adoption of SFAS No. 142, the Company will be required to

F11

---

perform a transitional goodwill impairment assessment. The Company has not yet determined the impact these standards will have on its financial statements.

2. BUSINESS ACQUISITION AND NOTE OFFERING:

On April 22, 1998, the Company completed the acquisition of Monsey Bakor and its subsidiaries (the "Acquisition") which are engaged in the distribution
and manufacture of roof coatings, adhesives and membranes, and waterproofing and air barrier systems, for residential and commercial applications. The cash purchase price was $42,750,000 with an
additional $3,227,000 paid at closing to certain selling shareholders of Monsey Bakor for noncompetition agreements. A selling shareholder also purchased 22,500 shares of redeemable convertible
preferred stock of the Company for $600,000 cash as more fully discussed in Note 12. The Acquisition was accounted for using the purchase method of accounting.

Concurrent
with the Acquisition, the Company conducted a senior note offering the (the "Offering") in the aggregate principal amount of $85,000,000 as more fully discussed in
Note 5.

In
accordance with the requirements of Accounting Principles Board ("APB") Opinion No. 16 "Business Combinations," the following unaudited pro forma summary presents the results of
operations of the Company as if the Acquisition and Offering had occurred as of the beginning of 1998. The pro forma adjustments include the results of operations for Monsey Bakor for the period prior
to the Acquisition, adjustment for compensation expense in excess of amounts paid under new employment agreements, amortization of intangible assets created as a result of the Acquisition, interest
expense on the debt issued as part of the Offering, and related income tax effects. The unaudited pro forma financial information is presented for information purposes only and may not be indicative
of the results of operations as they would have been if the Company and Monsey Bakor had been a single entity during the years ended December 31, 1998.

For the Year Ended
December 31, 1998(Unaudited)Net sales

$
183,996,121Net loss

$
(970,175
)


On
March 26, 1999, the Company completed the acquisition of Grundy Industries which is engaged in the manufacture of roof coating products. The purchase price was $2.0 million
with an additional $0.6 million paid to a shareholder for a noncompetition agreement.

F12

---

3. INVENTORIES:

Inventories consist of the following:

December 31,1999

2000Raw materials

$
7,333,325

$
8,296,980Finished goods


8,273,427


9,716,118$
15,606,752

$
18,013,098


4. PROPERTY AND EQUIPMENT, NET:

Property and equipment consist of the following:

December 31,1999

2000Buildings

$
14,621,684

$
14,856,607Machinery and equipment


26,799,922


27,579,944Office furniture and equipment


6,236,473


6,953,666Automotive equipment


1,521,456


1,349,267Leasehold improvements


3,183,658


2,928,565Other assets


454,834


454,83452,818,027


54,122,883Less, accumulated depreciation and amortization


(20,449,525
)

(24,582,232
)32,368,502


29,540,651Land


3,475,849


3,262,550Construction-in-progress


907,369


1,377,440$
36,751,720

$
34,180,641


5. LONG-TERM DEBT AND CREDIT FACILITIES:

On April 22, 1998, the Company privately issued and sold $85,000,000 of senior notes (the "Senior Notes") due in 2008. Interest on the Senior Notes is
payable semi-annually a 10% per annum. In October 1998, the Company completed an exchange offer for all of the Senior Notes with identical terms in all material respects to the original private
issue. The proceeds from the offering were used to (i) retire existing Company bank debt, (ii) retire existing Company subordinated shareholder debt, (iii) acquire Monsey Bakor,
(iv) retire a substantial portion of Monsey Bakor's then-existing bank debt with (v) the remainder providing additional working capital.

F13

---

Long-term debt and credit facilities consists of the following:

December 31,1999

200010.0% Series B Senior Notes due April 2008

$
81,400,000

$
81,400,000Canadian bank line of credit borrowings, subject to annual confirmation, interest rate at prime plus 0.5% (8.064% at December 31, 1999 and 8.0% at December 31, 2000)


2,492,640


3,636,107Line of credit borrowing, at the bank's prime interest rate (8.50% at December 31, 1999 and 9.50% at December 31, 2000)


137,197


9,817,987Term note payable to third party, with interest at 8.5% at December 31, 1999 and 2000, respectively, principal and interest payable monthly in installments of $4,848, due in fiscal year 2007


460,056


440,222Other notes payable, with unpaid amounts of interest ranging from 6.0% to 8.5%, at December 31, 1999 and 2000 total monthly payments amount to $22,010, due in the fiscal years 2001 through 2003


181,152


75,99284,671,045


95,370,308Less, current maturities


(2,754,831
)

(13,505,690
)$
81,916,214

$
81,864,618


The
Company's Senior Notes are guaranteed by all of the Company's United States subsidiaries, Kimberton Enterprises, Inc. and Grundy Industries, Inc. (the "Subsidiary Guarantors").
The guarantee obligations of the Subsidiary Guarantors are full, unconditional and joint and several. See Note 14 for the Guarantor Condensed Consolidating Financial Statements. The notes payable
agreement limits the Company's ability to make dividend payments and incur additional debt.

In
1999, the Company repurchased and retired $3.6 million of the Senior Notes which resulted in a gain of $0.6 million, net of income taxes.

In
August 2001, the Company entered into a replacement credit facility agreement with two new financial institutions and received funding. The replacement credit facility
provides for a $25 million revolving credit facility and a $10.0 million term loan. Upon closing, $3.5 million of the term loan was funded. The replacement facility expires in
August 2006 and is collateralized by substantially all of the Company's United States assets. Borrowings on the line of credit will bear interest at the prime rate with an option to borrow
based on the LIBOR rate. The Company also maintains a credit line with a Canadian bank. Balances outstanding under this line were $3.6 million at December 31, 2000.

F14

---

The following are future maturities of long-term debt and credit facilities for each of the next five years ending December 31 and total thereafter:

2001

$
13,505,6902002


55,5132003


39,5382004


27,8332005


30,293Thereafter


81,711,441Total

$
95,370,308


6. INCOME TAXES:

The significant components of the provision (benefit) for income taxes for the years ended December 31, 1998, 1999 and 2000 are as follows:

1998

1999

2000Current:Federal

$
534,973

$


$
State


169,891





Foreign


293,544


681,896


650,918998,408


681,896


650,918Deferred:Federal


(537,001
)

(207,557
)

(4,754,626
)State


(117,521
)

(170,370
)

(271,295
)Foreign


165,456





(220,910
)(489,066
)

(377,927
)

(5,246,831
)$
509,342

$
303,969

$
(4,595,913
)


F15

---

The
Company's effective tax rate differs from the federal statutory tax rate for the years ended December 31, 1998, 1999 and 2000 as follows:

1998

1999

2000Provision for income taxes at the federal statutory tax rate

34
%
(34
)%
(34
)%State taxes net of federal tax benefit

7

(6
)
(3
)Foreign income taxes in excess of U.S. statutory rate

6

20

1Recognition of deferred tax benefits upon conversion to C status

(56
)


Income not subject to federal and state income tax prior to conversion to C status

(7
)


Prior year net operating loss adjustment





(8
)Nondeductible intangibles

43

26

5Nondeductible life insurance

4



1Nondeductible business expenses

6

5

Other, net

(5
)
(2
)
(3
)32
%
9
%
(41
)%


Income
(loss) before income taxes of the Company's Canadian operations was $1,083,430, ($281,974) and ($1,499,096) for the years ended December 31, 1998, 1999 and 2000,
respectively.

The
significant components of the Company's deferred tax assets and liabilities as of December 31, 1999 and 2000 are as follows:

1999

2000Deferred tax assets:Environmental reserve

$
1,461,386

$
1,429,569Allowances and reserves deductible in the future


525,799


923,819Inventory capitalization


211,372


123,098Deferred revenue


1,109,879


919,062Net operating loss


(221,557
)

4,210,307Other accruals


463,775


406,114Deferred tax assets


3,550,654


8,011,969Deferred tax liabilities:Depreciation


(2,685,994
)

(2,825,169
)Deferred gain on discharge of liability


(1,850,503
)

(1,668,291
)Asset step-up due to valuation increase


(3,839,836
)

(3,570,153
)Inventory reserve


(260,684
)

(130,342
)Deferred gain on repurchase of Senior Notes


(260,320
)

Other accruals


(1,400
)

Deferred tax liabilities


(8,898,737
)

(8,193,955
)Net deferred tax liability

$
(5,348,083
)
$
(181,986
)


F16

---

7. COMMITMENTS AND CONTINGENCIES:

The Company conducts certain operations out of leased facilities, including the corporate office and divisional warehouses. The lease terms range from 1 to 6
years and begin to expire in 2001. Certain of the Company's operating lease agreements provide for escalation of payments, which are based on fluctuations of certain published cost-of-living indices.
The Company also leases certain land, buildings and equipment from related parties, with terms expiring in 2001. Various leases also contain certain renewal options.

Total
rent expense was, $1,223,744, $1,487,854 and $1,721,660 for the years ended December 31, 1998, 1999 and 2000, respectively. Included in rent expense is rent paid to
related parties of $757,539, $767,923 and $771,433 for the years ended December 31, 1998, 1999 and 2000, respectively. The minimum rental commitments for land, buildings and equipment under all
noncancelable operating leases, with lease terms in excess of one year, are as follows:

2001

$
1,544,1812002


1,273,7472003


1,004,3362004


523,2712005


437,956Thereafter


424,898$
5,208,389


Included
in the annual minimum rental commitments are operating lease payments due to related parties of $772,393 in 2001, $717,614 in 2002, $706,658 in 2003, $432,836 in 2004,
$424,898 in 2005 and $424,898 thereafter.

The
Company is involved in various lawsuits, claims and inquiries, most of which are routine to the nature of its business. In the opinion of management, the resolution of these
matters will not materially affect the financial position, results of operations or cash flows of the Company.

8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

1998

1999

2000Cash paid during the year for:Interest

$
4,893,760

$
8,807,940

$
9,617,073Income taxes

$
2,098,969

$
924,442

$
889,820Non-cash investing and financing activities:Note receivable from sale of assets

$
150,000

$


$
123,000


9. PROFIT-SHARING AND PENSION PLAN:

The Company sponsors a deferred qualified profit-sharing plan with a 401(k) feature covering salaried and hourly employees of Henry Company and its affiliates,
other than union employees, who have completed one year of service. Contributions made to the profit-sharing plan by the Company are based on the Company's performance and are at the discretion of the
Board of Directors. Total Company contributions for fiscal years ended December 31, 1998, 1999 and 2000 were $444,631, $0 and $0, respectively. Participants in the 401(k) Plan may contribute up
to 15% of their annual compensation

F17

---

to the 401(k) Plan through salary deferral up to a maximum of $10,500 of a participant's annual compensation. In 1999, the 401(k) plan was amended to include a discretionary Company matching
contribution to eligible participants. For 2000, participant contributions were matched at the rate of
$.50 for each dollar up to 4% of the participants' compensation. Total Company matching contributions for years ending December 31, 1998, 1999 and 2000 were $0, $212,828 and $211,698,
respectively.

Hourly
employees at the Huntington Park, Kimberton and Rock Hill facilities are covered by multi-employer union plans to which the Company makes periodic contributions as determined
by collective bargaining agreements. The Company is also subject to additional charges as determined by the plans' trustees during the term of the agreement to maintain the current level of health and
welfare benefits. The information with respect to the plans' net assets and actuarial present value of accumulated plan benefits are not determinable due to the nature of the plans. The costs incurred
during the years ended December 31, 1998, 1999 and 2000 were $271,244, $301,817 and $313,905, respectively.

10. RELATED PARTIES:

The Company is obligated under certain leases at December 31, 2000 and has incurred rent expense in 1998, 1999 and 2000 with related parties, as more
fully described in Note 7.

Receivables
from affiliate represent amounts due from Henry II, Inc., an affiliated group of companies under common control, and relates to operating advances made to Henry II, Inc.

The
note receivable from affiliate relates to proceeds due the Company on the sale of property to Henry II, Inc. at its then net book value at December 31, 1997. The note receivable
is repayable by December 31, 2002, bears interest at the prime interest rate and is collateralized by an interest in the property.

The
Company charges Henry II, Inc. certain direct administrative costs for services provided by the Company's finance, human resources, and management information systems departments.
In 1998, the Company entered into a new administrative services agreement with Henry II, Inc. for reimbursement of administrative services provided by the Company. The administrative cost charged in
1998, 1999 and 2000 totaled $1,255,130, $775,000 and $775,000, respectively.

As
of December 31, 1999 and 2000, notes receivable in the accompanying balance sheet include outstanding principal and accrued interest due from Richard Gordinier, the
Company's President until January 2001 in the amount of $636,181 and $743,770, respectively. The notes bear interest at Bank of America's Prime Rate (9.5% at December 31, 2000) and are
payable in installments or lump sum payments due through December 31, 2000 with the exception of $175,000 which is noninterest bearing and due and payable upon termination of Mr. Gordinier's
employment. Mr. Gordinier separated from the Company in January 2001. The Company is negotiating settlement of these receivables.

11. CAPITAL STOCK:

On April 21, 1998, Warner Development Company of Texas ("Warner Development") was merged into the Company. The outstanding shares of Warner Development
were canceled in the merger. For periods prior to this date, the financial results of the Company and Warner Development were presented on a combined basis as both entities were under common control
with identical management and shareholder ownership and interest.

F18

---

In addition, on April 21, 1998, the number of authorized shares of Company Common Stock was increased to 1,000,000 shares.

On
April 22, 1998, the Company issued 27,500 shares of Common Stock to Frederick Muhs, a director of the Company, for $2,000,000 in cash.

As
of December 31, 1999 and 2000, common stock is composed of the following:

1999

2000Henry Company, common stock, no par value, stated value $5 per share, 100,000 shares authorized, issued and outstanding

$
500,000

$
500,000Henry Company, common stock, no par value, stated value $21.78 per share, 94,000 shares authorized, issued and outstanding


2,047,320


2,047,320Henry Company, common stock, no par value, stated value $72.73 per share, 27,500 share authorized, issued and outstanding


2,000,000


2,000,000Henry Company, super voting class A common stock, no par value, stated value $23.96 per share, 6,000 shares authorized, issued and outstanding


143,760


143,760$
4,691,080

$
4,691,080


On
October 1, 1997, Henry Company granted the Warner W. Henry Living Trust warrants to purchase an aggregate of 400,000 shares of Henry Company capital stock, consisting of
12,000 shares of Class A common stock and 388,000 shares of common stock (the "Warrants"). The Warrants expire on September 30, 2012 and may be exercised in whole or in part at variable and
increasing exercise prices over the term of the warrants. The current and maximum exercise prices for both Class A common stock and common stock are $12.94 and $38.82 per share, respectively.

The
warrants have an initial exercise price that exceeds the fair value of the capital stock at the date of grant. The grant date present value of each warrant is estimated at $114 or
an aggregate of $44,000 using the Black-Scholes pricing model, using the following assumptions: risk-free interest rate at 6.0%; expected warrant life of 15 years; volatility of 20.0%; forfeiture rate
zero (0); no expected dividends; and no adjustments for nontransferability. As of December 31, 2000, no warrants have been exercised.

12. REDEEMABLE CONVERTIBLE PREFERRED STOCK:

In connection with the Acquisition, the Company sold 22,500 shares of redeemable convertible preferred stock in the Company to Joseph T. Mooney, Jr. for
$600,000. The Company is obligated, upon the exercise of Mr. Mooney's put option, to redeem the stock for cash in annual amounts of $500,000 beginning in 2004 and aggregating $3,000,000, or for
$3,000,000 upon the death of Mr. Mooney. The shares are convertible into shares of Common Stock. The fair value recorded for the issuance of the preferred stock represents the estimated present value
of the redemption payments.

F19

---

The carrying amount of the Preferred Stock is being increased by periodic accretions so that the amount reflected in the balance sheet will equal the mandatory redemption amount at
the redemption date.

13. RESTRUCTURING CHARGES

In 2000, the Company recorded a $735,127 restructuring charge pertaining to a plant closing and the reorganization or elimination of certain of administrative
and selling functions. The charges represent severance and other personnel payments related to the streamlining of operations associated with the implementation of cost reduction initiatives noted
above.

14. SEGMENT AND GEOGRAPHIC INFORMATION:

During 1999, the Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", which requires the Company to report
information about its operating segments using a management approach.

The
Company manages its business through two reportable segments, or primary business units with separate management teams, infrastructures, marketing strategies and customers. The
Company's primary business units are: the Henry Coatings Division, which develops, manufactures and markets roof and driveway coatings and paving products, industrial emulsions, air barriers, and
specialty products; and the Resin Technology Division, which develops, manufactures and sells polyurethane foam for roofing and commercial uses.

The
accounting policies of the reportable segments are the same as those described in Note 1 of the Notes to Consolidated Financial Statements. The Company evaluates the performance
of its operating segments based on net sales, gross profit and operating income. Intersegment sales and transfers are not significant.

F20

---

Summarized financial information concerning the Company's reportable segments is shown below.

Henry Coatings Division

Resin Technology Division

Total2000Net sales

$
171,427,721

$
22,033,865

$
193,461,586Gross profit


46,278,492


3,916,938


50,195,430Operating income (loss)


(2,054,982
)

422,296


(1,632,686
)Depreciation and amortization


7,424,855


166,043


7,590,898Total assets


112,346,023


12,941,546


125,287,569Capital expenditures


2,755,164


297,286


3,052,4501999Net sales

$
160,209,476

$
18,495,180

$
178,704,656Gross profit


50,512,550


3,285,908


53,798,458Operating income


2,938,915


68,251


3,007,166Depreciation and amortization


6,976,246


195,021


7,171,267Total assets


106,700,898


12,624,539


119,325,437Capital expenditures


4,024,680


159,741


4,184,4211998Net sales

$
130,054,094

$
20,102,027

$
150,156,121Gross profit


41,240,101


3,773,436


45,013,537Operating income


7,491,372


412,369


7,903,741Depreciation and amortization


4,666,246


227,548


4,893,794Total assets


112,978,409


12,535,391


125,513,800Capital expenditures


2,875,566


121,154


2,996,720


F21

---

The
Company is domiciled in the United States with foreign operations based in Canada which were acquired during 1998. Prior to the Acquisition, the Company had no foreign operations.
Summarized geographic data related to the Company's operations for 1999 and 2000 are as follows:

Net Sales

Long-Lived Assets2000United States

$
160,639,850

$
62,725,434Canada


32,821,736


8,478,534Total

$
193,461,586

$
71,203,9681999United States

$
148,874,641

$
67,079,856Canada


29,830,015


8,921,012Total

$
178,704,656

$
76,000,8681998United States

$
129,492,180

$
64,555,982Canada


20,663,941


8,548,168Total

$
150,156,121

$
73,104,150


15. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS:

The Company's United States subsidiaries, Kimberton Enterprises, Inc. and Grundy Industries, Inc. (the "Guarantor Subsidiaries") are unconditional guarantors,
on a full, joint and several basis, of the Company's debt represented by the Senior Notes. The Company's Canadian subsidiaries are not guarantors of the Senior Notes.

Condensed
consolidating financial statements of the Guarantors are combined with the Henry Company and are presented below. Separate financial statements of the Guarantor Subsidiaries
are not presented and the Guarantor Subsidiaries are not filing separate reports under the Exchange Act because the Subsidiary Guarantors have fully and unconditionally guaranteed the Senior Notes on
a joint and several basis under the guarantees and management has determined that separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not material to
investors.

F22

---

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2000

|                                            |                                           | Henry Company
(Parent Corporation) and Guarantor Subsidiaries |            | Nonguarantor Subsidiaries |             | Consolidated Elimination Entries |            | Consolidated Total |           
|------------------------------------------- | ----------------------------------------- | ------------------------------------------------------------- | ---------- | ------------------------- | ----------- | -------------------------------- | ---------- | ------------------ | ----------
|ASSETS:                                     |                                           |                                                               |            |                           |             |                                  |            |                    |           
|Current assets:                             |                                           |                                                               |            |                           |             |                                  |            |                    |           
|                                            | Cash and cash equivalents                 |                                                               | $          | 1,044,276                 |             | $                                | 1,839      |                    |           
|                                            | Accounts receivable, net                  |                                                               |            | 22,201,195                |             |                                  | 3,052,104  |                    |           
|                                            | Inventories, net                          |                                                               |            | 14,257,986                |             |                                  | 3,755,112  |                    |           
|                                            | Receivables from affiliate                |                                                               |            | 7,000,818                 |             |                                  | 2,486,652  |                    | $         
|                                            | Notes receivable                          |                                                               |            | 763,947                   |             |                                  |           |                    |           
|                                            | Prepaid expenses and other current assets |                                                               |            | 1,364,281                 |             |                                  | 127,793    |                    |           
|                                            | Income tax receivable                     |                                                               |            |                          |             |                                  | 133,935    |                    |           
|                                            | Deferred income taxes                     |                                                               |            | 5,218,525                 |             |                                  | 38,698     |                    |           
|                                            |                                           |                                                               |            |                           |             |                                  |            |                    |           
|                                            |                                           | Total current assets                                          |            |                           | 51,851,028  |                                  |            | 9,596,133          |           
|Property and equipment, net                 |                                           |                                                               | 28,169,355 |                           |             | 6,011,286                        |            |                    |          
|Investment in subsidiaries                  |                                           |                                                               | 8,564,729  |                           |             |                                 |            |                    | (8,564,729
|Cash surrender value of life insurance, net |                                           |                                                               | 5,087,384  |                           |             |                                 |            |                    |          
|Intangibles, net                            |                                           |                                                               | 24,353,674 |                           |             | 2,467,248                        |            |                    |          
|Notes receivable                            |                                           |                                                               | 271,600    |                           |             |                                 |            |                    |          
|Note receivable from affiliate              |                                           |                                                               | 1,863,072  |                           |             |                                 |            |                    |          
|Deferred income taxes                       |                                           |                                                               | 2,754,746  |                           |             |                                 |            |                    |          
|Other                                       |                                           |                                                               | 225,603    |                           |             |                                 |            |                    |          
|                                            |                                           |                                                               |            |                           |             |                                  |            |                    |           
|                                            |                                           | Total assets                                                  |            | $                         | 123,141,191 |                                  | $          | 18,074,667         |           
|                                            |                                           |                                                               |            |                           |             |                                  |            |                    |           
|LIABILITIES AND SHAREHOLDERS' EQUITY:       |                                           |                                                               |            |                           |             |                                  |            |                    |           
|Current liabilities:                        |                                           |                                                               |            |                           |             |                                  |            |                    |           
|                                            | Accounts payable                          |                                                               | $          | 4,886,168                 |             | $                                | 1,257,085  |                    |           
|                                            | Accrued expenses                          |                                                               |            | 8,033,860                 |             |                                  | 956,744    |                    |           
|                                            | Book overdrafts                           |                                                               |            | 4,167,547                 |             |                                  | 348,731    |                    |           
|                                            | Intercompany payables                     |                                                               |            | 2,486,652                 |             |                                  | 4,876,908  |                    | $         
|                                            | Deferred income taxes                     |                                                               |            | 130,342                   |             |                                  |           |                    |           
|                                            | Notes payable, current portion            |                                                               |            | 51,596                    |             |                                  |           |                    |           
|                                            | Borrowings under line of credit           |                                                               |            | 9,817,987                 |             |                                  | 3,636,107  |                    |           
|                                            |                                           |                                                               |            |                           |             |                                  |            |                    |           
|                                            |                                           | Total current liabilities                                     |            |                           | 29,574,152  |                                  |            | 11,075,575         |           
|Notes payable                               |                                           |                                                               | 464,618    |                           |             |                                 |            |                    |          
|Environmental reserve                       |                                           |                                                               | 3,301,546  |                           |             |                                 |            |                    |          
|Deferred income taxes                       |                                           |                                                               | 6,395,322  |                           |             | 1,668,291                        |            |                    |          
|Deferred warranty revenue                   |                                           |                                                               | 2,122,546  |                           |             | 156,275                          |            |                    |          
|Deferred compensation                       |                                           |                                                               | 937,908    |                           |             |                                 |            |                    |          
|Senior notes                                |                                           |                                                               | 81,400,000 |                           |             |                                 |            |                    |          
|                                            |                                           |                                                               |            |                           |             |                                  |            |                    |           
|                                            |                                           | Total liabilities                                             |            |                           | 124,196,092 |                                  |            | 12,900,141         |           
|Redeemable convertible preferred stock      |                                           |                                                               | 1,919,433  |                           |             |                                 |            |                    |          
|Shareholders' equity:                       |                                           |                                                               |            |                           |             |                                  |            |                    |           
|                                            | Common stock                              |                                                               |            | 4,691,080                 |             |                                  | 7,194,402  |                    |           
|                                            | Additional paid-in capital                |                                                               |            | 2,364,308                 |             |                                  |           |                    |           
|                                            | Cumulative translation adjustment         |                                                               |            |                          |             |                                  | (1,085,228 | )                  |           
|                                            | Accumulated (deficit) retained earnings   |                                                               |            | (10,029,722               | )           |                                  | (934,648   | )                  |           
|                                            |                                           |                                                               |            |                           |             |                                  |            |                    |           
|                                            |                                           | Total shareholders' equity (deficit)                          |            |                           | (2,974,334  | )                                |            | 5,174,526          |           
|                                            |                                           |                                                               |            |                           |             |                                  |            |                    |           
|                                            |                                           | Total liabilities and shareholders' equity (deficit)          |            | $                         | 123,141,191 |                                  | $          | 18,074,667         |           
|                                            |                                           |                                                               |            |                           |             |                                  |            |                    |           

F23

---

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000

|                                     |                                     | Henry Company
(Parent Corporation) and Guarantor Subsidiaries |             | Nonguarantor Subsidiaries |            | Consolidated Elimination Entries |           | Consolidated Total |           
|------------------------------------ | ----------------------------------- | ------------------------------------------------------------- | ----------- | ------------------------- | ---------- | -------------------------------- | --------- | ------------------ | ----------
|Net sales                            |                                     | $                                                             | 169,855,810 |                           | $          | 32,821,736                       |           | $                  | (9,215,960
|Cost of sales                        |                                     |                                                               | 126,184,981 |                           |            | 26,297,135                       |           |                    | (9,215,960
|                                     |                                     |                                                               |             |                           |            |                                  |           |                    |           
|                                     | Gross profit                        |                                                               |             | 43,670,829                |            |                                  | 6,524,601 |                    |           
|Operating expenses:                  |                                     |                                                               |             |                           |            |                                  |           |                    |           
|                                     | Selling, general and administrative |                                                               |             | 40,956,530                |            |                                  | 7,586,654 |                    |           
|                                     | Restructuring charges               |                                                               |             | 735,127                   |            |                                  |          |                    |           
|                                     | Amortization of intangibles         |                                                               |             | 2,427,624                 |            |                                  | 122,181   |                    |           
|                                     |                                     |                                                               |             |                           |            |                                  |           |                    |           
|                                     |                                     | Operating loss                                                |             |                           | (448,452   | )                                |           | (1,184,234         | )         
|Other expense (income):              |                                     |                                                               |             |                           |            |                                  |           |                    |           
|                                     | Interest expense                    |                                                               |             | 9,574,463                 |            |                                  | 314,862   |                    |           
|                                     | Interest and other income, net      |                                                               |             | (260,524                  | )          |                                  |          |                    |           
|                                     |                                     |                                                               |             |                           |            |                                  |           |                    |           
|Loss before income taxes             |                                     |                                                               | (9,762,391  | )                         |            | (1,499,096                       | )         |                    |          
|Provision (benefit) for income taxes |                                     |                                                               | (5,025,922  | )                         |            | 430,009                          |           |                    |          
|                                     |                                     |                                                               |             |                           |            |                                  |           |                    |           
|                                     |                                     | Net loss                                                      |             | $                         | (4,736,469 | )                                | $         | (1,929,105         | )         
|                                     |                                     |                                                               |             |                           |            |                                  |           |                    |           

F24

---

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000

|                                      |                                                      | Henry Company
(Parent Corporation) and Guarantor Subsidiaries |             | Nonguarantor Subsidiaries |            | Consolidated Elimination Entries |           | Consolidated Total |  
|------------------------------------- | ---------------------------------------------------- | ------------------------------------------------------------- | ----------- | ------------------------- | ---------- | -------------------------------- | --------- | ------------------ | -
|Net cash used in operating activities |                                                      | $                                                             | (10,206,339 | )                         | $          | (654,718                         | )         | $                  | 
|Cash flows from investing activities: |                                                      |                                                               |             |                           |            |                                  |           |                    |  
|                                      | Capital expenditures                                 |                                                               |             | (2,365,940                | )          |                                  | (686,510  | )                  |  
|                                      | Proceeds from the disposal of property and equipment |                                                               |             | 40,217                    |            |                                  |          |                    |  
|                                      | Proceeds from sale of investment                     |                                                               |             | 204,423                   |            |                                  |          |                    |  
|                                      | Investment in affiliate                              |                                                               |             | 7,080                     |            |                                  |          |                    |  
|                                      |                                                      |                                                               |             |                           |            |                                  |           |                    |  
|                                      |                                                      | Net cash used in investing activities                         |             |                           | (2,114,220 | )                                |           | (686,510           | )
|                                      |                                                      |                                                               |             |                           |            |                                  |           |                    |  
|Cash flows from financing activities: |                                                      |                                                               |             |                           |            |                                  |           |                    |  
|                                      | Net borrowings under line-of-credit agreements       |                                                               |             | 9,680,790                 |            |                                  | 1,143,467 |                    |  
|                                      | Repayments under notes payable agreements            |                                                               |             | (70,641                   | )          |                                  | (54,353   | )                  |  
|                                      | Increase in book overdrafts                          |                                                               |             | 3,071,548                 |            |                                  | 330,605   |                    |  
|                                      |                                                      |                                                               |             |                           |            |                                  |           |                    |  
|                                      |                                                      | Net cash provided by financing activities                     |             |                           | 12,681,697 |                                  |           | 1,419,719          |  
|                                      |                                                      | Effect of changes in exchange rate on cash                    |             |                           |           |                                  |           | (78,558            | )
|                                      |                                                      |                                                               |             |                           |            |                                  |           |                    |  
|                                      |                                                      | Net increase (decrease) in cash and cash equivalents          |             |                           | 361,138    |                                  |           | (67                | )
|                                      | Cash and cash equivalents, beginning of year         |                                                               |             | 683,138                   |            |                                  | 1,906     |                    |  
|                                      |                                                      |                                                               |             |                           |            |                                  |           |                    |  
|                                      | Cash and cash equivalents, end of year               |                                                               | $           | 1,044,276                 |            | $                                | 1,839     |                    | $
|                                      |                                                      |                                                               |             |                           |            |                                  |           |                    |  

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

F25

---

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1999

|                                            |                                           | Henry Company
(Parent Corporation) and Guarantor Subsidiaries |            | Nonguarantor Subsidiaries |             | Consolidated Elimination Entries |           | Consolidated Total |           
|------------------------------------------- | ----------------------------------------- | ------------------------------------------------------------- | ---------- | ------------------------- | ----------- | -------------------------------- | --------- | ------------------ | ----------
|ASSETS:                                     |                                           |                                                               |            |                           |             |                                  |           |                    |           
|Current assets:                             |                                           |                                                               |            |                           |             |                                  |           |                    |           
|                                            | Cash and cash equivalents                 |                                                               | $          | 683,138                   |             | $                                | 1,906     |                    |           
|                                            | Accounts receivable, net                  |                                                               |            | 17,969,205                |             |                                  | 3,380,551 |                    |           
|                                            | Inventories                               |                                                               |            | 12,203,913                |             |                                  | 3,402,839 |                    |           
|                                            | Receivables from affiliate                |                                                               |            | 5,561,087                 |             |                                  | 1,929,938 |                    | $         
|                                            | Notes receivable                          |                                                               |            | 516,210                   |             |                                  |          |                    |           
|                                            | Prepaid expenses and other current assets |                                                               |            | 1,915,668                 |             |                                  | 119,530   |                    |           
|                                            | Income tax receivable                     |                                                               |            |                          |             |                                  | 377,118   |                    |           
|                                            | Deferred income taxes                     |                                                               |            | 529,545                   |             |                                  | 80,734    |                    |           
|                                            |                                           |                                                               |            |                           |             |                                  |           |                    |           
|                                            |                                           | Total current assets                                          |            |                           | 39,378,766  |                                  |           | 9,292,616          |           
|Property and equipment, net                 |                                           |                                                               | 30,528,264 |                           |             | 6,223,456                        |           |                    |          
|Investment in subsidiaries                  |                                           |                                                               | 8,689,690  |                           |             |                                 |           |                    | (8,564,729
|Cash surrender value of life insurance, net |                                           |                                                               | 4,340,388  |                           |             |                                 |           |                    |          
|Intangibles, net                            |                                           |                                                               | 26,776,513 |                           |             | 2,685,266                        |           |                    |          
|Notes receivable                            |                                           |                                                               | 354,462    |                           |             |                                 |           |                    |          
|Note receivable from affiliate              |                                           |                                                               | 1,863,072  |                           |             |                                 |           |                    |          
|Deferred income taxes                       |                                           |                                                               | 2,940,375  |                           |             |                                 |           |                    |          
|Other                                       |                                           |                                                               | 151,821    |                           |             | 12,290                           |           |                    |          
|                                            |                                           |                                                               |            |                           |             |                                  |           |                    |           
|                                            |                                           | Total assets                                                  |            | $                         | 115,023,351 |                                  | $         | 18,213,628         |           
|                                            |                                           |                                                               |            |                           |             |                                  |           |                    |           
|LIABILITIES AND SHAREHOLDERS' EQUITY:       |                                           |                                                               |            |                           |             |                                  |           |                    |           
|Current liabilities:                        |                                           |                                                               |            |                           |             |                                  |           |                    |           
|                                            | Accounts payable                          |                                                               | $          | 5,212,881                 |             | $                                | 1,335,793 |                    |           
|                                            | Accrued expenses                          |                                                               |            | 6,752,311                 |             |                                  | 1,046,631 |                    |           
|                                            | Book overdrafts                           |                                                               |            | 1,096,000                 |             |                                  | 18,126    |                    |           
|                                            | Intercompany payables                     |                                                               |            | 1,929,938                 |             |                                  | 3,416,875 |                    | $         
|                                            | Income taxes payable                      |                                                               |            | 169,038                   |             |                                  | 546,931   |                    |           
|                                            | Deferred income taxes                     |                                                               |            | 529,545                   |             |                                  |          |                    |           
|                                            | Notes payable, current portion            |                                                               |            | 70,641                    |             |                                  | 54,353    |                    |           
|                                            | Borrowings under line of credit           |                                                               |            | 137,197                   |             |                                  | 2,492,640 |                    |           
|                                            |                                           |                                                               |            |                           |             |                                  |           |                    |           
|                                            |                                           | Total current liabilities                                     |            |                           | 15,897,551  |                                  |           | 8,911,349          |           
|Notes payable                               |                                           |                                                               | 516,214    |                           |             |                                 |           |                    |          
|Environmental reserve                       |                                           |                                                               | 3,375,025  |                           |             |                                 |           |                    |          
|Deferred income taxes                       |                                           |                                                               | 6,518,689  |                           |             | 1,850,503                        |           |                    |          
|Deferred warranty revenue                   |                                           |                                                               | 2,563,231  |                           |             |                                 |           |                    |          
|Deferred compensation                       |                                           |                                                               | 1,071,073  |                           |             |                                 |           |                    |          
|Senior notes                                |                                           |                                                               | 81,400,000 |                           |             |                                 |           |                    |          
|                                            |                                           |                                                               |            |                           |             |                                  |           |                    |           
|                                            |                                           | Total liabilities                                             |            |                           | 111,341,783 |                                  |           | 10,761,852         |           
|Redeemable convertible preferred stock      |                                           |                                                               | 1,764,594  |                           |             |                                 |           |                    |          
|Shareholders' equity:                       |                                           |                                                               |            |                           |             |                                  |           |                    |           
|                                            | Common stock                              |                                                               |            | 4,691,080                 |             |                                  | 7,194,402 |                    |           
|                                            | Additional paid-in capital                |                                                               |            | 2,519,147                 |             |                                  |          |                    |           
|                                            | Cumulative translation adjustment         |                                                               |            |                          |             |                                  | (737,083  | )                  |           
|                                            | Accumulated (deficit) retained earnings   |                                                               |            | (5,293,253                | )           |                                  | 994,457   |                    |           
|                                            |                                           |                                                               |            |                           |             |                                  |           |                    |           
|                                            |                                           | Total shareholders' equity (deficit)                          |            |                           | 1,916,974   |                                  |           | 7,451,776          |           
|                                            |                                           |                                                               |            |                           |             |                                  |           |                    |           
|                                            |                                           | Total liabilities and shareholders' equity (deficit)          |            | $                         | 115,023,351 |                                  | $         | 18,213,628         |           
|                                            |                                           |                                                               |            |                           |             |                                  |           |                    |           

F26

---

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

|                                                                                     |                                     | Henry Company
(Parent Corporation) and Guarantor Subsidiaries |             | Nonguarantor Subsidiaries |            | Consolidated Elimination Entries |           | Consolidated Total |           
|------------------------------------------------------------------------------------ | ----------------------------------- | ------------------------------------------------------------- | ----------- | ------------------------- | ---------- | -------------------------------- | --------- | ------------------ | ----------
|Net sales                                                                            |                                     | $                                                             | 156,086,424 |                           | $          | 29,830,015                       |           | $                  | (7,211,783
|Cost of sales                                                                        |                                     |                                                               | 109,910,900 |                           |            | 22,332,889                       |           |                    | (7,337,591
|                                                                                     |                                     |                                                               |             |                           |            |                                  |           |                    |           
|                                                                                     | Gross profit                        |                                                               |             | 46,175,524                |            |                                  | 7,497,126 |                    |           
|Operating expenses:                                                                  |                                     |                                                               |             |                           |            |                                  |           |                    |           
|                                                                                     | Selling, general and administrative |                                                               |             | 40,258,214                |            |                                  | 7,479,474 |                    |           
|                                                                                     | Amortization of intangibles         |                                                               |             | 2,806,516                 |            |                                  | 121,280   |                    |           
|                                                                                     |                                     |                                                               |             |                           |            |                                  |           |                    |           
|                                                                                     |                                     | Operating income (loss)                                       |             |                           | 3,110,794  |                                  |           | (103,628           | )         
|Other expense (income):                                                              |                                     |                                                               |             |                           |            |                                  |           |                    |           
|                                                                                     | Interest expense                    |                                                               |             | 9,016,150                 |            |                                  | 178,346   |                    |           
|                                                                                     | Interest and other income, net      |                                                               |             | (224,103                  | )          |                                  |          |                    |           
|                                                                                     |                                     |                                                               |             |                           |            |                                  |           |                    |           
|                                                                                     | Loss before extraordinary item      |                                                               |             | (5,681,253                | )          |                                  | (281,974  | )                  |           
|Extraordinary gain related to early extinguishment of debt, net of taxes of $400,800 |                                     |                                                               | (601,200    | )                         |            |                                 |           |                    |          
|                                                                                     |                                     |                                                               |             |                           |            |                                  |           |                    |           
|Loss before (benefit)/provision for income taxes                                     |                                     |                                                               | (5,080,053  | )                         |            | (281,974                         | )         |                    |          
|(Benefit)/provision for income taxes                                                 |                                     |                                                               | (377,927    | )                         |            | 681,896                          |           |                    |          
|                                                                                     |                                     |                                                               |             |                           |            |                                  |           |                    |           
|                                                                                     |                                     | Net loss                                                      |             | $                         | (4,702,126 | )                                | $         | (963,870           | )         
|                                                                                     |                                     |                                                               |             |                           |            |                                  |           |                    |           

F27

---

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999

|                                      |                                                      | Henry Company
(Parent Corporation) and Guarantor Subsidiaries |            | Nonguarantor Subsidiaries |             | Consolidated Elimination Entries |          | Consolidated Total |  
|------------------------------------- | ---------------------------------------------------- | ------------------------------------------------------------- | ---------- | ------------------------- | ----------- | -------------------------------- | -------- | ------------------ | -
|Net cash used in operating activities |                                                      | $                                                             | (2,993,982 | )                         | $           | (958,009                         | )        | $                  | 
|Cash flows from investing activities: |                                                      |                                                               |            |                           |             |                                  |          |                    |  
|                                      | Capital expenditures                                 |                                                               |            | (3,543,295                | )           |                                  | (641,126 | )                  |  
|                                      | Proceeds from the disposal of property and equipment |                                                               |            | 75,125                    |             |                                  | 1,682    |                    |  
|                                      | Acquisition of business, net of cash acquired        |                                                               |            | (2,645,401                | )           |                                  |         |                    |  
|                                      | Investment in affiliate                              |                                                               |            | (30,127                   | )           |                                  |         |                    |  
|                                      |                                                      |                                                               |            |                           |             |                                  |          |                    |  
|                                      |                                                      | Net cash used in investing activities                         |            |                           | (6,143,698  | )                                |          | (639,444           | )
|                                      |                                                      |                                                               |            |                           |             |                                  |          |                    |  
|Cash flows from financing activities: |                                                      |                                                               |            |                           |             |                                  |          |                    |  
|                                      | Net borrowings under line-of-credit agreements       |                                                               |            | 137,197                   |             |                                  | 835,140  |                    |  
|                                      | Repayments under notes payable agreements            |                                                               |            | (151,959                  | )           |                                  | (179,972 | )                  |  
|                                      | Increase in book overdraft                           |                                                               |            | 1,096,000                 |             |                                  | 18,126   |                    |  
|                                      | Purchase of Series B Senior Notes                    |                                                               |            | (2,564,000                | )           |                                  |         |                    |  
|                                      |                                                      |                                                               |            |                           |             |                                  |          |                    |  
|                                      | Net cash (used in) provided by financing activities  |                                                               |            | (1,482,762                | )           |                                  | 673,294  |                    |  
|                                      | Effect of changes in exchange rate on cash           |                                                               |            |                          |             |                                  | 206,969  |                    |  
|                                      |                                                      |                                                               |            |                           |             |                                  |          |                    |  
|                                      |                                                      | Net decrease in cash and cash equivalents                     |            |                           | (10,620,442 | )                                |          | (717,190           | )
|                                      | Cash and cash equivalents, beginning of year         |                                                               |            | 11,303,580                |             |                                  | 719,096  |                    |  
|                                      |                                                      |                                                               |            |                           |             |                                  |          |                    |  
|                                      | Cash and cash equivalents, end of year               |                                                               | $          | 683,138                   |             | $                                | 1,906    |                    | $
|                                      |                                                      |                                                               |            |                           |             |                                  |          |                    |  

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

F28

---

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

|                           |                                          | Henry Company
(Parent Corporation) and Guarantor Subsidiaries |             | Nonguarantor Subsidiaries |           | Consolidated Elimination Entries |           | Consolidated Total |           
|-------------------------- | ---------------------------------------- | ------------------------------------------------------------- | ----------- | ------------------------- | --------- | -------------------------------- | --------- | ------------------ | ----------
|Net sales                  |                                          | $                                                             | 134,318,475 |                           | $         | 20,663,941                       |           | $                  | (4,826,295
|Cost of sales              |                                          |                                                               | 94,586,709  |                           |           | 15,507,978                       |           |                    | (4,952,103
|                           |                                          |                                                               |             |                           |           |                                  |           |                    |           
|                           | Gross profit                             |                                                               |             | 39,731,766                |           |                                  | 5,155,963 |                    |           
|Operating expenses:        |                                          |                                                               |             |                           |           |                                  |           |                    |           
|                           | Selling, general and administrative      |                                                               |             | 30,939,357                |           |                                  | 3,791,133 |                    |           
|                           | Amortization of intangibles              |                                                               |             | 1,492,999                 |           |                                  | 136,069   |                    |           
|                           |                                          |                                                               |             |                           |           |                                  |           |                    |           
|                           |                                          | Operating income (loss)                                       |             |                           | 7,299,410 |                                  |           | 1,228,761          |           
|Other expense (income):    |                                          |                                                               |             |                           |           |                                  |           |                    |           
|                           | Interest expense                         |                                                               |             | 6,421,349                 |           |                                  | 145,331   |                    |           
|                           | Interest and other income, net           |                                                               |             | (243,493                  | )         |                                  |          |                    |           
|                           |                                          |                                                               |             |                           |           |                                  |           |                    |           
|                           | Income before provision for income taxes |                                                               |             | 1,121,554                 |           |                                  | 1,083,430 |                    |           
|Provision for income taxes |                                          |                                                               | 50,342      |                           |           | 459,000                          |           |                    |          
|                           |                                          |                                                               |             |                           |           |                                  |           |                    |           
|                           |                                          | Net income (loss)                                             |             | $                         | 1,071,212 |                                  | $         | 624,430            |           
|                           |                                          |                                                               |             |                           |           |                                  |           |                    |           

F29

---

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998

|                                          |                                                      | Henry Company
(Parent Corporation) and Guarantor Subsidiaries |           | Nonguarantor Subsidiaries |             | Consolidated Elimination Entries |            | Consolidated Total |  
|----------------------------------------- | ---------------------------------------------------- | ------------------------------------------------------------- | --------- | ------------------------- | ----------- | -------------------------------- | ---------- | ------------------ | -
|Net cash provided by operating activities |                                                      | $                                                             | 5,385,914 |                           | $           | 4,594,711                        |            |                    | 
|Cash flows from investing activities:     |                                                      |                                                               |           |                           |             |                                  |            |                    |  
|                                          | Capital expenditures                                 |                                                               |           | (2,680,354                | )           |                                  | (316,366   | )                  |  
|                                          | Proceeds from the disposal of property and equipment |                                                               |           | 119,112                   |             |                                  | 12,420     |                    |  
|                                          | Acquisition of business, net of cash acquired        |                                                               |           | (48,165,012               | )           |                                  |           |                    | $
|                                          | Investment in affiliate                              |                                                               |           | (30,645                   | )           |                                  |           |                    |  
|                                          |                                                      |                                                               |           |                           |             |                                  |            |                    |  
|                                          |                                                      | Net cash (used in) provided by Investing activities           |           |                           | (50,756,899 | )                                |            | (303,946           | )
|                                          |                                                      |                                                               |           |                           |             |                                  |            |                    |  
|Cash flows from financing activities:     |                                                      |                                                               |           |                           |             |                                  |            |                    |  
|                                          | Net repayments under line-of-credit agreements       |                                                               |           | (13,734,381               | )           |                                  | (2,918,500 | )                  |  
|                                          | Repayments under notes payable agreements            |                                                               |           | (11,358,730               | )           |                                  | (144,675   | )                  |  
|                                          | Payments on subordinated shareholder debt            |                                                               |           | (5,199,972                | )           |                                  |           |                    |  
|                                          | Payments of financing fees for note offering         |                                                               |           | (2,550,000                | )           |                                  |           |                    |  
|                                          | Proceeds from Series B Senior Notes                  |                                                               |           | 85,000,000                |             |                                  |           |                    |  
|                                          | Proceeds from issuance of common stock               |                                                               |           | 2,000,000                 |             |                                  |           |                    |  
|                                          | Proceeds from issuance of preferred stock            |                                                               |           | 600,000                   |             |                                  |           |                    |  
|                                          | Dividends paid                                       |                                                               |           | (1,248,876                | )           |                                  |           |                    |  
|                                          |                                                      |                                                               |           |                           |             |                                  |            |                    |  
|                                          | Net cash provided by (used in) financing activities  |                                                               |           | 53,508,041                |             |                                  | (3,063,175 | )                  |  
|                                          |                                                      | Effect of changes in exchange rate on cash                    |           |                           |            |                                  |            | (512,139           | )
|                                          |                                                      |                                                               |           |                           |             |                                  |            |                    |  
|                                          |                                                      | Net increase in cash and cash equivalents                     |           |                           | 8,137,056   |                                  |            | 715,451            |  
|                                          | Cash and cash equivalents, beginning of year         |                                                               |           | 3,166,524                 |             |                                  | 3,645      |                    |  
|                                          |                                                      |                                                               |           |                           |             |                                  |            |                    |  
|                                          | Cash and cash equivalents, end of year               |                                                               | $         | 11,303,580                |             | $                                | 719,096    |                    | $
|                                          |                                                      |                                                               |           |                           |             |                                  |            |                    |  

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

F30

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

| |  | HENRY COMPANY(Registrant)
| |  | -------------------------
| |  | By                       

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

|Name                                        |  | Title                                           |  | Date           
|------------------------------------------- |  | ----------------------------------------------- |  | ---------------
|/s/JEFFREY A. WAHBAJeffrey A. Wahba         |  | Chief Financial Officer, Secretary and Director |  | August 24, 2001
|/s/GARY T. SPENCEGary T. Spence             |  | Corporate Controller                            |  | August 24, 2001
|/s/JOSEPH T. MOONEY JR.Joseph T. Mooney Jr. |  | Vice Chairman of the Board                      |  | August 24, 2001
|/s/FREDERICK H. MUHSFrederick H. Muhs       |  | Director                                        |  | August 24, 2001

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HENRY COMPANY  INDEX TO EXHIBITS

|Exhibit Number |   | Description                                                                                                                                                                                                       
|-------------- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            | * | Certificate of Amendment and Restatement of Articles of Incorporation of Henry Company                                                                                                                            
|3.2            | * | Bylaws of Henry Company                                                                                                                                                                                           
|4.1            | * | Indenture dated as of April 22, 1998 between the Company, each of the guarantors named therein and U.S. Trust Company of California, N.A., as Trustee, including forms of Senior Notes                            
|4.2            | * | Registration Rights Agreement dated as of April 22, 1998 by and among the Company, each of the Guarantors named therein and BT Alex.Brown Incorporated as Initial Purchaser                                       
|10.1           | * | Amended and Restated Financing and Security Agreement dated April 22, 1998, by and between Henry Company and Monsey Products Co., Kimberton Enterprises, Inc. Monsey Products of Arizona LLC and Nationsbank,
N.A.
|10.1A          |   | Amended Credit Facility dated August 2001.                                                                                                                                                                        
|10.2           | * | Administrative Services Agreement, dated as of January 1, 1998, between Henry Company and Central Coast Wine Company dba The Henry Wine Group                                                                     
|10.3           | * | Lease, dated September 5, 1996, between Warner Wheeler Henry Living Trust and Henry Family Trust B and Henry Company                                                                                              
|10.4           | * | Ground Lease, dated April 30, 1976, (as extended on December 11, 1996) between The Warner W. Henry Family Trust, the Declaration of Trust for Dorothy H. Floyd and The W.W. Henry Company.                        
|10.5           | * | Machinery Lease, dated August 1, 1958 and Amendment to Machinery Lease, dated August 1, 1968, between Warner White Henry and The W.W. Henry Company                                                               
|10.6           | * | Lease, dated February 27, 1992, between Alamo Development Company and Henry Company                                                                                                                               
|10.7           | * | Lease Agreement and Addendum to Lease Agreement dated December 23, 1994, by and between Seaboard Supply Co. and Monsey Products Co.                                                                               
|10.8           | * | Warrant Agreement between Henry Company and the Warner W. Henry Living Trust dated as of October 1, 1997                                                                                                          
|10.9           | * | Convertible Preferred Stock Purchase Agreement between Henry Company and Joseph T. Mooney, Jr. dated as of April 22, 1998                                                                                         
|10.10          | * | Stock Purchase Agreement between Henry Company and Frederick Muhs dated as of April 22, 1998                                                                                                                      
|10.11          | * | Henry Company Executive Deferral Plan                                                                                                                                                                             
|10.12          | * | Employment and Incentive Agreement between Henry Company, Henry II, Warner Development Company of Texas and Richard B. Gordinier, dated September 30, 1992                                                        
|10.13          | * | Amendment No. 1 to Employment and Incentive Agreement between Henry Company, Henry II, Warner Development Company of Texas and Richard B. Gordinier, dated October 16, 1997                                       
|21.1           |   | Subsidiaries of the Registrant                                                                                                                                                                                    

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