CUSTODIAL AGREEMENT
This Custodial Agreement (this "Custodial Agreement"), dated as of April
22, 1998, is entered into by and among Henry Company, a California
corporation ("Buyer"), the Sellers (as defined in the Agreement referred to
in the Recital A below) of Monsey Products Co., a Pennsylvania corporation
("Company"), Edward P. Mooney, as Sellers' representative (the
"Representative") and PNC Bank, National Association, as custodian (the
"Custodian").
RECITALS:
A. Buyer and the Sellers have entered into that certain Stock Purchase
Agreement dated February 22, 1998 (the "Agreement"); and
B. Pursuant to the Agreement, Buyer will acquire all of the stock of
the Company; and
C. Pursuant to the Agreement, Buyer and the Sellers have agreed that,
at a closing held thereunder (the "Closing"), Buyer will cause to be
deposited into a custodial account (the "Account") Two Million Dollars
($2,000,000) to secure the indemnification provided for Sellers
(collectively, the "Indemnitee") as specified in Section 10 of the Agreement
and each claim thereunder (a "Claim"); and
D. It is a condition to the consummation of the transactions
contemplated by the Agreement that at or prior to the Closing, this Custodial
Agreement be entered into by the parties hereto; and
E. A copy of the Agreement has been delivered to the Custodian, and
the Custodian is willing to act as Custodian hereunder. It is understood
that the Custodian is not a party to the Agreement and will execute its
duties in accordance with the Custodial Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and
valuable consideration, the parties hereto agree as follows:
TERMS AND CONDITIONS
1. ESCROW. At the Closing, Buyer shall cause to be delivered to the
Custodian an aggregate of Two Million Dollars ($2,000,000) (the "Assets").
The Custodian hereby acknowledges receipt of the Assets and agrees to hold
the same in escrow pursuant to the terms of this Custodial Agreement. The
Custodian shall open an account for the benefit of the Sellers, to be
entitled the Henry Co./Monsey Products Custodial A/C (the "Account"), into
which the Assets shall be deposited. The Custodian shall hold the Assets,
not as an agent of any
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of the Sellers, but rather as a pledgeholder with respect to the pledge of
the Assets pursuant to this Custodial Agreement.
The Custodian will hold the Assets in the name of the Custodian or
in the name of its nominee, or, as to securities eligible or to be held by
the Depository Trust Company or other depository, in the name of its nominee.
2. CLAIMS AND DISTRIBUTIONS.
a. The Assets held in the Account and pledged to the
Indemnitee shall serve to secure the indemnification provided for in Section
10.2 of the Agreement. There shall be no indemnity hereunder with respect to
any notice of claim (a "Notice of Claim") delivered by Buyer to the
Representative more than two (2) years from and after the date of the
Closing. Any Notice of Claim shall be deemed effective only when delivered
to both the Representative and the Custodian.
b. Any Notice of Claim filed by Buyer to Custodian and
Representative shall specify in reasonable detail the facts and circumstances
of the claim; the basis on which the Sellers are believed to have liability
therefor; and the estimated amount of loss alleged to have been suffered or
liability incurred by Buyer as a result thereof. Such estimates of loss or
liability (while not binding on Buyer) shall be prepared by Buyer on a
reasoned basis consistent with the facts and circumstances out of which the
claim arose.
c. If the Custodian is furnished by the Indemnitee with a
Notice of Claim against the Sellers, and no notice of objection to such claim
(a "Notice of Objection") is furnished by the Representative to the Custodian
and Buyer within thirty (30) days of the date of receipt of the Notice of
Claim by the Custodian (which the Custodian may assume to be the same as the
date of receipt of the Notice of Claim by the Representative), the Claim will
be deemed to be non-disputed (the "Non-Disputed Claims");
d. If the Custodian is furnished by Representative with a
Notice of Objection within thirty (30) days of the date of receipt of the
Notice of Claim by the Custodian, the Claim will be deemed disputed (the
"Disputed Claim");
e. Assets may be released from the Account as follows:
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(1) On the first anniversary date of the Closing, the
Custodian shall release from the Account and deliver to the Representative
One Million Dollars ($1,000,000), less the amount of any unresolved Notices
of Claim and less the Assets that have been applied by the Custodian to the
satisfaction of Claims to date.
(2) On the second anniversary date of the Closing, the
Custodian shall release from the Account and shall deliver to the
Representative all of the Assets held hereunder, less the amount of any
unresolved Notices of Claim and less the Assets that have been applied by
Custodian to the satisfaction of claims, and such Assets shall thereupon
cease to be subject to the Pledge and this Custodial Agreement.
(3) As to Non-Disputed Claims, the Custodian shall distribute
to Buyer the amount of the Claim.
(4) As to Disputed Claims resolved by Buyer and
Representative, the Custodian shall, upon receipt of joint written
instructions which appear on their face to be executed by the
Representative and Buyer, distribute the Assets in accordance with such
instructions.
(5) As to Disputed or non-resolved Claims, the Custodian shall,
upon receipt of a document which appears on its face to be a written order
from an arbitrator declaring that the Assets are to be distributed, or upon
receipt of a document which appears on its face to be a written court order
or judgment declaring that the Assets are to be distributed, distribute the
Assets in accordance with such order or judgment.
(6) Upon receipt of written instructions from the Buyer
certifying that (i) Buyer has suffered Damages in respect of Taxes for
which it is to be indemnified under the Agreement, and (ii) that such Taxes
are due or otherwise payable as a result of a decision to pay the Taxes and
sue for refund, accompanied by a copy of a Notice of Deficiency from the
Internal Revenue Service or a notice of proposed assessment from any state
taxing agency requiring payment of taxes with respect to a period on or
prior to the date of this Agreement (a "Tax Statement"), the Custodian
shall distribute to Buyer the amount specified in the Tax Statement.
In the event a controversy arises between the Representative and
Buyer under this Agreement with respect to the distribution of the Assets under
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this Agreement, the Custodian shall not be required to resolve such
controversy or take any action but shall be entitled to await resolution of
the controversy by joint written instructions from the Representative and
Buyer. In the event the Sellers' Representative and Buyer are unable to
resolve such controversy, the Custodian shall have the right to join the
Sellers, the Representative and Buyer in an action for interpleader to
resolve such controversy.
3. SERVICES; INVESTMENT OF ASSETS. The Custodian is hereby authorized
to perform the following services in connection with the Assets in the
Account:
a. So long as the Assets are held by the Custodian, they shall be
invested by the Custodian as specifically directed in writing by (i)
Representative, in obligations of or guaranteed by the United States of
America or any state or local subdivision thereof to the extent such
obligation is insured, in commercial paper obligations rated A-1 or P-1 or
better by Moody's Investors Service, Inc. or Standard & Poor's Ratings
Service, respectively, or in certificates of deposit, bank repurchase
agreements or banker's acceptances of commercial banks with capital exceeding
$500,000,000 (Five Hundred Million Dollars), or (ii) as otherwise directed by
Representative or his designee with the prior written consent of Buyer, which
consent shall not be unreasonably withhold, conditioned or delayed. Absent
written direction, the Assets will be invested in the Provident Institutional
T-Fund Dollar Shares Portfolio, a AAAm-rated fund. Neither the Custodian,
Buyer nor the Representative shall be liable or responsible for any loss
resulting from any investment or reinvestment made pursuant to this Section 3.
The Assets shall be increased from time to time by any and all interest
accrued and paid thereon (after payment of expenses incurred in connection
with the investment, reinvestment or sale thereof) pursuant to this Section 3.
b. On a monthly basis until the termination of this Agreement,
the Custodian shall deliver to Buyer and the Representative a report
outlining (i) the principal amount of the Account as of such date and the
interest earned thereon during the preceding monthly period and (ii) a copy
of or a description of each notice pursuant to which payments from the
Account have been made, and a description of all other payments made from
this Account, during the preceding one-year period, and all pending notices
as of such date;
c. All interest earned pursuant to this Section 3 shall be deemed
as income of the Sellers and not the Account or Buyer for federal, state and
local income tax purposes, and the Sellers shall pay any federal, state and
local income taxes attributable to such income. Prior to April 15, 1999 and
April 15, 2000, as the case may be, the Custodian shall distribute to each of
the Sellers its
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proportionate share of any interest or other earnings on the Account earned
during the prior taxable year.
4. THE REPRESENTATIVE.
a. For so long as this Custodial Agreement is in effect, with
regard to any claims for indemnification, the Sellers shall act through the
Representative, who shall be deemed authorized to act on behalf of all of the
Sellers in the manner set forth in this paragraph 5. As used herein, the
term "Representative" shall include the plural when more than one
Representative has been appointed to act herein by the Sellers. The Sellers
have appointed Edward P. Mooney as their initial Representative.
b. A Representative may resign at any time effective upon giving
written notice to each of the parties hereto. In the event of the
resignation, refusal or inability to act of any Representative, the Sellers
who owned a majority of the shares of the Company's Common Stock before the
Closing may by written election appoint any number of successor
Representatives and shall so appoint a successor if the Representative in
question was the only Representative in office. The Representative shall
promptly notify Buyer and the Custodian in writing of the resignation of any
Representative and of the appointment of any successor Representative.
c. The Custodian may rely conclusively upon any written
instruction or action of the Representative. The Custodian may rely
conclusively on the authority of a Representative designated herein or by the
Sellers, as herein provided, until the Custodian receives a written
instruction naming one or more other or additional Representatives to succeed
to that position in the place of or in addition to any other Representative,
which instruction shall be signed by Sellers who owned a majority of the
Company common stock before the Merger.
d. The Representative may take any action which it deems
appropriate to take with respect to any Notice of Claim received by it
hereunder.
e. The Representative may at any time and without regard to
whether or not proceedings for the resolution or determination thereof have
commenced, agree upon, resolve, send Notices of Objection, settle, or
compromise any claim against Assets held hereunder, whether or not specified
in a Notice of Claim, in the sole and absolute discretion of the
Representative.
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f. The Representative may, in its sole and absolute discretion,
pursue, elect not to pursue, or terminate the pursuit of any claim or issue
involving the Assets held hereunder, whether or not evidenced by a Notice of
Claim, including the conduct of arbitration of and litigation of third party
claims, as provided herein and in the Agreement.
g. Under no circumstances shall the Representative be liable to
any Seller for any act it may take in its capacity as Representative, or for
the failure to take any action, or for the actions of any other
Representative or shareholder, or for any damage, loss or expense suffered or
incurred resulting from the exercise of the Representative's sole and
absolute discretion in acting hereunder, except only for acts of gross
negligence or willful misconduct.
h. The Representative shall be and hereby is authorized to retain
counsel, accountants, or other professional assistants to assist in
determining the validity of claims or in otherwise acting hereunder as a
Representative.
i. The Representative shall not be liable for any expense
incurred on behalf of the Sellers or any of them in protesting, analyzing,
resisting, arbitrating, litigating, negotiating with respect to, or defending
any claim made against the Assets, or for any amounts otherwise expended in
acting hereunder.
j. On demand by the Representative, each Seller shall contribute
all sums demanded to pay the fees and expense incurred by the Representative
on behalf of the Sellers in acting hereunder.
k. The Representative shall keep the Sellers reasonably informed
of actions taken by it in acting hereunder.
l. This Agreement shall be binding on and shall inure to the
benefit of the heirs, legatees, personal representatives, successors and
assigns of the respective Sellers.
5. CONCERNING THE CUSTODIAN.
a. Under no circumstances shall the Custodian be liable to Buyer,
the Representative or any Seller for any act it may take in its capacity as
Custodian, or for the failure to take any action, or for any error of
judgment, or for any damage, loss or expenses suffered or incurred resulting
therefrom or in acting hereunder, except only for acts of gross negligence or
willful misconduct.
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b. Buyer hereby agrees to indemnify and hold the Custodian
harmless in respect of any and all losses, costs, expenses, liabilities,
judgments, assessments, penalties, damages, deficiencies, suits, actions,
proceedings, or demands, and reasonable attorneys' fees and expenses incident
thereto resulting from any action or refusal to act by the Custodian taken in
accordance with the instructions of Buyer. The Custodian shall promptly
notify Buyer of any asserted liability for which the Custodian would be
entitled to indemnification by Buyer, and Buyer and its legal representatives
shall have, at Buyer's election, a right to compromise or defend any such
matter involving asserted liability, through counsel of its own choosing, at
its expense; provided, however, that Buyer shall indemnify the Custodian
against any damage resulting from the failure to pay any claims on all such
litigation pending. In the event Buyer undertakes to compromise and defend
any such liability, Buyer shall notify the Custodian in writing promptly of
its intention to do so, and the Custodian shall cooperate with Buyer and its
counsel in the compromising of or the defending against any such liabilities
or claims, at the expense of Buyer. The indemnification shall survive the
resignation or termination of the Custodian.
c. The Sellers, jointly and severally, hereby agree to indemnify
and hold the Custodian harmless in respect of any and all losses, costs,
expenses, liabilities, judgments, assessments, penalties, damages,
deficiencies, suits, actions, proceedings or demands, and reasonable
attorneys' fees and expenses incident thereto resulting from any action or
refusal to act by the Custodian in accordance with the instructions of any
Seller or Representative. The Custodian shall promptly notify the
Representative of any asserted liability for which the Custodian would be
entitled to indemnification by the Sellers, and the Sellers and their legal
representatives shall have, at the election of the Representative, a right to
compromise or defend any such matter involving asserted liability, through
counsel of their own choosing, at their expense; provided, however, that the
Sellers shall indemnify the Custodian against any damage resulting from the
failure to pay any claims on all such litigation pending. In the event the
Sellers undertake to compromise or defend any such liability, the
Representative shall notify the Custodian in writing promptly of their
intention to do so, and the Custodian shall cooperate with the Sellers and
their counsel in the compromising of or the defending against any such
liabilities or claims, at the expense of the Sellers. The indemnification
shall survive the resignation or termination of the Custodian.
d. The Escrow Agent may resign at any time by giving thirty (30)
days written notice of such resignation to Buyer and Representative. If no
successor Escrow Agent has been named at the expiration of the thirty (30) day
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period, the Escrow Agent shall have no further obligation hereunder except to
hold the Escrow Fund as a depository. Upon notification by Buyer of the
appointment of the successor, the Escrow Agent shall promptly deliver the
Escrow Fund and all materials in its possession relating to the Escrow Fund
to such successor, and the duties of the resigning Escrow Agent shall
thereupon in all respects terminate, and it shall be released and discharged
from all further obligations hereunder.
Similarly, the Escrow Agent may be discharged from its duties
as Escrow Agent under this Agreement upon thirty (30) days written notice
from Buyer and Representative and upon payment of any and all fees due to
Escrow Agent. In such event, the Escrow Agent shall be entitled to rely on
instructions from Buyer as to the disposition and delivery of the Escrow Fund.
6. FEES OF THE CUSTODIAN. The fees and expenses of the Custodian,
including counsel fees, for acting hereunder shall be paid by Sellers and
Buyer, as set forth thereto in Exhibit A. The Custodian shall have a lien on
the Assets to secure payment of fees and expenses.
7. MISCELLANEOUS.
a. SUCCESSORS. This Agreement shall be binding upon and shall
inure to the benefit of the parties herein and their respective heirs,
executors, successors and assigns.
b. INTEGRATION, ETC. This Custodial Agreement and the Agreement
shall supersede all previous negotiations, commitments and writings with
respect to the subject matter hereof or thereof. This Custodial Agreement
may not be released, discharged, abandoned, changed or modified in any
manner, except by an instrument in writing signed on behalf of each of the
parties hereto by their duly authorized officers or representatives. The
failure of any party hereto to enforce at any time any provision of this
Custodial Agreement shall in no way be construed to be a waiver of such
provision, nor in any way to affect the validity of this Custodial Agreement
or any part thereof or the right of any party thereafter to enforce each and
every such provision. No waiver of any breach of this Custodial Agreement
shall be held to be a waiver of any other or subsequent breach.
c. NOTICES. All notices, objections and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed as provided herein by first class mail,
registered and return receipt requested, addressed to:
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If to Buyer:
Warner W. Henry
HENRY GROUP OF COMPANIES
2911 Slauson Avenue
Huntington Park, California 90255
If to Representative:
Edward P. Mooney
MONSEY PRODUCTS COMPANY (dba MONSEY BAKOR)
Cold Stream Road
Kimberton, Pennsylvania 19442
If to Custodian:
PNC Bank, National Association
1600 Market Street, 30th Floor
Philadelphia, PA 19103
Attention: Corporate Trust Department
Fax: (215) 585-8872
d. DEFINED TERMS. The capitalized terms used herein without
definition which are defined in the Agreement shall have the respective
meanings as defined.
e. CAPTIONS. The captions appearing in this Custodial Agreement
are inserted only as a matter of convenience and as a reference and in no way
define, limit or describe the scope or intent of this Custodial Agreement or
any of the provisions hereof.
f. GOVERNING LAW. This Custodial Agreement shall be construed
and the rights of the parties hereafter shall be governed by the laws of the
State of Delaware.
g. COUNTERPARTS. This Custodial Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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h. DISTRIBUTION BY CONSENT. Any other provision of this
Custodial Agreement to the contrary notwithstanding, the Custodian shall
distribute any assets held in Escrow in such manner at such time or times as
Buyer and the Representative may, in writing, jointly direct.
i. SECURITY AGREEMENT. This Custodial Agreement shall constitute
a Security Agreement within the meaning of Division 9 of the Delaware Uniform
Commercial Code.
j. TERMINATION. This Custodial Agreement shall terminate when
all Assets have ceased to be subject to this Custodial Agreement. Upon
termination of this Custodian Agreement, and upon the delivery of all or a
portion of the Assets held by the Custodian, in accordance with the terms
hereof, the Custodian shall be relieved of any and all further obligations
hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth herein.
BUYER SELLER
/s/ Henry Company
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a California corporation a Delaware Corporation
By: /s/ Richard B. Gordinier /s/ Joseph Mooney, Jr.
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Joseph T. Mooney, Jr.
/s/ E. P. Mooney
---------------------------
Edward P. Mooney
*
---------------------------
James F. Stewart
*
---------------------------
Larry A. Karasiuk
*
---------------------------
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Joseph T. Mooney III
*
---------------------------
Charles J. Mooney
*
---------------------------
Stephen E. Mooney
*
---------------------------
James E. Mooney
*
---------------------------
Lisa M. Brock
*
---------------------------
Patricia A. Dever
*
---------------------------
Edward P. Mooney, Jr.
*
---------------------------
Susan S. Bruce
*
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Michael J. Mooney
*
---------------------------
Maureen Mooney
*
---------------------------
Luke A. Mooney
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Canadian Venture Capital
By: *
---------------------------
*
---------------------------
Kathleen A. Stewart
*
---------------------------
James R. M. Stewart
*
---------------------------
Mark J. C. Stewart
*
---------------------------
Barbara Karasiuk
*
---------------------------
Yves Pare
*
---------------------------
Lionel Borenstein
*
---------------------------
Manfred Sassner
Waywell Management
BY: *
------------------------
*
---------------------------
Robert S. Zalkowitz
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___________________________
as attorney in fact
___________________________
as attorney in fact
PNC BANK, NATIONAL ASSOCIATION
By: ____________________________
Title: ____________________________
EXHIBIT A
FEES OF THE CUSTODIAN
To cover the acceptance of the appointment; the review and negotiation of the
Custodial Agreement; establishment of the Custody Agreement on the corporate
trust system; receipt of materials required to be filed with the Custodian;
and communication with the working party.
$2,500.00
(Payable upon the Closing Date and in advance of the Annual Anniversary Date)
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