Exhibit 10.32

 

SECOND AMENDMENT TO TERM LOAN AGREEMENT

 

THIS SECOND AMENDMENT TO TERM LOAN AGREEMENT (this “Amendment”) is entered into
by and between KMG-BERNUTH, INC., a Delaware corporation (hereinafter referred
to as “Borrower”) and SOUTHTRUST BANK, an Alabama banking corporation, successor
by conversion to SouthTrust Bank, National Association (hereinafter referred to
as “Bank”) as of the 5th day of December, 2003.

 

W I T N E S S E T H:

 

WHEREAS, Borrower and Bank are parties to that certain Term Loan Agreement dated
as of June 26, 1998, as amended by that certain First Amendment to Term Loan
Agreement dated as of December 30, 2002 (as so amended and as hereby amended,
the “Loan Agreement”), whereby Borrower became indebted to Bank for a term loan
(the “Term Loan”) made by Bank to Borrower in the original principal amount of
$6,000,000.00 and thereafter amended to a principal amount of $5,050,000.00; and

 

WHEREAS, Borrower’s payment and performance obligations in connection with the
Term Loan are evidenced by that certain Term Note dated as of June 26, 1998, as
amended by that certain First Amendment to Term Note dated as of January 8,
2002, and as amended and restated by that certain Amended and Restated
Promissory Note dated as of December 30, 2002 (together with any and all
amendments thereto, the “Term Note”); and

 

WHEREAS, Borrower has requested that the Bank make available to Borrower an
additional sum of up to Six Million and No/100 Dollars ($6,000,000.00) on a term
loan basis as a second term loan, and the Bank is willing to do so upon the
terms and subject to the conditions hereinafter set forth; and

 

WHEREAS, Borrower and the Bank have agreed as to certain amendments of the Loan
Agreement, which amendments are specifically set forth below.

 

NOW, THEREFORE, in consideration of the sum of One and No/100 Dollar ($1.00) and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereby agree as follows:

 

1.                                       SECTION 1.1 OF THE LOAN AGREEMENT IS
HEREBY AMENDED AS FOLLOWS:

 

(A)                                  SECTION 1.1 IS HEREBY AMENDED TO ADD THE
FOLLOWING DEFINITIONS AS DEFINED TERMS:

 

“Compliance Certificate” means the Compliance Certificate in the form of Exhibit
“E” hereto, to be furnished by the Borrower to the Bank pursuant to
Section 6.1(B)(3) hereof.

 

“Coverage Ratio” means, for any period, the ratio of (i) the principal amount of
all bank debt and capitalized lease obligations (excluding any prepayments or
principal at maturity) of Borrower and Guarantor as of the end of the applicable
period, to (ii) the sum of EBITDA for the Borrower and Guarantor for the
preceding four (4) fiscal quarters.

 

“EBITDA” means, for any period, the income (or deficit) from all operations of
the Borrower before any deduction for the following items during such period: 
(i) the interest charges paid or accrued (including imputed interest on lease

 

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(capital or operating) obligations, but excluding amortization of debt discount
and expense), (ii) Income Taxes, and (iii) any amounts in respect of
depreciation and amortization.

 

“Income Taxes” means any income, profit, franchise, corporate, capital stock or
other tax based upon or measured by the income of Borrower, including any
liability for income taxes of direct or indirect individual owners of Borrower
or direct or indirect entity members of Borrower because of pass through of
income taxes to the individual owners.

 

“Term Loan Guaranty” means the Guaranty of Payment, dated as of June 26, 1998,
executed by the Guarantor in favor of the Bank, guaranteeing the payment and
performance to the Bank of the Borrower’s obligations hereunder relating to the
Term Loan, as amended or modified from time to time.

 

“Term Loan No. 2” means the aggregate unpaid principal balance from time to time
of the loan made to the Borrower pursuant to Section 2A.1 of this Agreement.

 

“Term Loan No. 2 Guaranty” means the Guaranty of Payment, dated as of
December 5, 2003, executed by the Guarantor in favor of the Bank, guaranteeing
the payment and performance to the Bank of the Borrower’s obligations hereunder
relating to the Term Loan No. 2, as amended or modified from time to time.

 

“Term Note No. 2” means the promissory note, in substantially the form of
Exhibit “D” to this Agreement, dated as of December 5, 2003, made by the
Borrower to evidence the Borrower’s obligation to repay the Term Loan No. 2 and
the interest thereon, and includes any amendment to or modification of such note
and any promissory note given in extension or renewal of, or in substitution
for, such note.

 

“Term Rate No. 2” is defined in Section 2A.4(A) of this Agreement.

 

(B)                                 SECTION 1.1 IS HEREBY AMENDED BY DELETING
THE DEFINITIONS OF “GUARANTY”, “LOAN”, “LOAN DOCUMENTS”, “LOAN FEE”, “NOTE”,
“OBLIGATIONS”, “PARTICIPANT”, AND “SECURITY AGREEMENT”, EACH AS DEFINED THEREIN,
IN THEIR ENTIRETY AND SUBSTITUTING THE FOLLOWING NEW DEFINITIONS IN LIEU
THEREOF:

 

“Guaranty” means, singularly and collectively, the Term Loan Guaranty and the
Term Loan No. 2 Guaranty.

 

“Loan” means, singularly and collectively, the Term Loan and the Term Loan No.
2.

 

“Loan Fee” means any and all loan fees at any time charged by the Bank to the
Borrower in connection with the Loan, including, without limitation, a fee of
$10,000.00 paid by Borrower to paid concurrently with the execution of this
Agreement, a fee of $19,100.00 paid by the Borrower to the Bank concurrently
with the execution of the First Amendment to Term Loan Agreement, and a fee of
$45,000.00 payable by the Borrower to the Bank concurrently with the execution
of the Second Amendment to Term Loan Agreement.

 

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“Loan Documents” means this Agreement, each Note, each Security Agreement, each
Guaranty, and any and all other agreements, documents and instruments of any
kind executed or delivered in connection with, or evidencing, securing,
guaranteeing or relating to, any Loan, whether heretofore, simultaneously
herewith or hereafter delivered, together with any and all extensions,
revisions, modifications or amendments at any time made to any of the foregoing.

 

“Note” means, singularly and collectively, the Term Note and the Term Note No.
2.

 

“Obligations” means the obligations of Borrower:

 

(A)                              To pay the principal of and interest on each
Note in accordance with the respective terms thereof and to satisfy all of
Borrower’s other liabilities to the Bank, whether hereunder or otherwise,
whether now existing or hereafter incurred, matured or unmatured, direct or
contingent, joint or several, including any and all extensions, modifications,
and renewals thereof and substitutions therefor;

 

(B)                                To repay to the Bank all amounts advanced by
the Bank hereunder, under any of the other Loan Documents or otherwise on behalf
of the Borrower, including, but without limitation, advances for principal or
interest payments to prior secured parties,  mortgagees, or lienors, or for
taxes, levies, insurance, rent, or repairs to or maintenance or storage of, any
of the Collateral; and

 

(C)                                To reimburse the Bank, on demand, for all of
the Bank’s expenses and costs, including the reasonable fees and expenses of its
counsel, in connection with the preparation, administration, amendment,
modification, or enforcement of this Agreement and the documents required
hereunder, including, without limitation, any proceeding brought or threatened
to enforce payment of any of the obligations referred to in the foregoing
paragraphs (A) and (B).

 

“Participant” means any bank, financial institution, Affiliate of the Bank, or
other entity which purchases an interest in any Note from the Bank.

 

“Security Agreement” means, singularly and collectively, each and every document
and instrument heretofore, simultaneously herewith, or hereafter executed or
delivered by Borrower in favor of Bank, granting Bank a security interest in any
property or collateral of Borrower in order to secure Borrower’s payment of any
indebtedness owed to Bank or performance of any obligations owed to Bank,
whether under any Note or any of the other Loan Documents, including, but not
limited to, that certain Security Agreement executed by Borrower in favor of
Bank dated as of December 30, 2002, as amended by that certain First Amendment
to Security Agreement dated as of December 5, 2003, that certain Purchase Money
Security Agreement executed by Borrower in favor of Bank dated as of June 26,
1998, and that certain Security Agreement executed by Borrower in favor of Bank
dated as of August 1, 1996, together with any and all modifications or
amendments at any time made to any of said documents or instruments.

 

(C)                                  ALL OTHER CAPITALIZED TERMS USED HEREIN
SHALL HAVE THE RESPECTIVE MEANINGS ASSIGNED THERETO IN THE LOAN AGREEMENT,
UNLESS OTHERWISE SPECIFICALLY DEFINED HEREIN.

 

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2.                                       THE LOAN AGREEMENT IS HEREBY AMENDED BY
ADDING THE FOLLOWING AS A NEW ARTICLE II(A) THERETO:

 

ARTICLE II(A).

 

2A.                             THE TERM LOAN NO. 2

 

2A.1                       General Terms.  Subject to the terms hereof, the Bank
will lend the Borrower the principal sum of Six Million and No/100 Dollars
($6,000,000.00) on a term basis.

 

2A.2                       Disbursement of the Term Loan No. 2.  The Bank will
credit the proceeds of the Term Loan No. 2 to the principal deposit account of
the Borrower with the Bank, or in such other manner as the Borrower and the Bank
may agree.

 

2A.3                       The Term Note No. 2.  The Borrower’s obligation to
repay the Term Loan No. 2 shall be evidenced by the Term Note No. 2.

 

2A.4                       Term Loan No. 2 Interest Rate and Payment of
Interest.

 

(A)                              Interest on the Term Loan No. 2 shall be
calculated and paid at such rate(s) and on such date(s) as provided in the Term
Note No. 2 (the rate of interest as may from time to time be accruing under the
Term Note No. 2 being herein referred to as the “Term Rate No. 2”).

 

(B)                                If, at any time, the Term Rate No. 2 shall be
deemed by any competent court of law, governmental agency or tribunal to exceed
the maximum rate of interest permitted by any applicable laws, then, for such
time as the Term Rate No. 2 would be deemed excessive, its application shall be
suspended and there shall be charged instead the maximum rate of interest
permissible under such Laws, and any excess interest actually collected by the
Bank shall be credited as a partial prepayment of principal.

 

2A.5                       Payments of Principal.  Borrower shall make to Bank
such payments of principal on the Term Loan No. 2 as are required by the terms
of the Term Note No. 2.

 

2A.6                       Payment to the Bank.  All sums payable to the Bank
hereunder shall be paid directly to the Bank in United States Dollars and in
immediately available funds at the place payment is due.  If the Bank shall send
the Borrower statements of amounts due hereunder, such statements shall be
considered correct and conclusively binding on the Borrower unless the Borrower
notifies the Bank to the contrary within ninety (90) days of its receipt of any
statement which it deems to be incorrect.

 

2A.7                       Use of Proceeds of Term Loan No. 2.  The proceeds of
the Term Loan No. 2 shall be used by the Borrower solely to provide financing
for the purchase of the assets of the pentachlorophenol business owned by Wood
Protection Products, Inc.

 

3.                                       ARTICLE III OF THE LOAN AGREEMENT IS
HEREBY AMENDED BY DELETING SECTIONS 3.2 THEREOF IN ITS ENTIRETY AND SUBSTITUTING
THE FOLLOWING NEW SECTION 3.2 IN LIEU THEREOF:

 

3.2                                 Certain Events.  At the time of disbursement
of each Loan:

 

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(A)                              No Event of Default shall have occurred and be
continuing, and no event shall have occurred and be continuing that, with the
giving of notice or passage or time or both, would be an Event of Default;

 

(B)                                No material adverse change shall have
occurred in the financial condition of the Borrower since the date of this
Agreement;

 

(C)                                All of the Loan Documents shall have remained
in full force and effect;

 

(D)                               The Borrower shall have paid any Loan Fee then
due and payable.

 

4.                                       ARTICLE III OF THE LOAN AGREEMENT IS
HEREBY AMENDED BY DELETING SECTIONS 3.3 THEREOF IN ITS ENTIRETY AND SUBSTITUTING
THE FOLLOWING NEW SECTION 3.3 IN LIEU THEREOF:

 

3.3                                 Legal Matters.  At the time of disbursement
of each Loan, all legal matters incidental thereto shall be satisfactory to
Sirote & Permutt, P.C., counsel to the Bank.

 

5.                                       ARTICLE V OF THE LOAN AGREEMENT IS
HEREBY AMENDED BY DELETING SECTION 5.8 THEREOF IN ITS ENTIRETY AND SUBSTITUTING
THE FOLLOWING NEW SECTION 5.8 IN LIEU THEREOF:

 

5.8                                 Environmental Matters.  Neither any property
of the Borrower nor Borrower is in violation of or subject to any existing,
pending or threatened investigation or inquiry by any governmental authority or
any remedial obligations under any applicable laws, rules or regulations
pertaining to health or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (“CERCLA”), the Resource Conservation and Recovery Act of 1976, as
amended (“RCRA”), and the Superfund Amendments and Reauthorization Act of 1986,
as amended (“SARA”), or any other federal, state, local or municipal laws,
statutes, regulations, rules or ordinances imposing liability or establishing
standards of conduct for protection of human health and the environment, and
there are no facts, conditions or circumstances known to Borrower which could
result in any such investigation or inquiry if such facts, conditions and
circumstances, if any, were fully disclosed to the applicable governmental
authority, and Borrower will promptly notify Bank if Borrower becomes aware of
any such facts, conditions or circumstances or any such investigation or
inquiry; Borrower has obtained any and all permits, licenses, or similar
authorizations necessary to construct, repair, occupy, operate or use any
buildings, improvements, fixtures or equipment in connection with any of
Borrower’s property constructed or to be constructed by reason of any
environmental laws, statutes, ordinances, rules or regulations and is in full
compliance with the terms and conditions of such permits, licenses, or similar
authorizations; no oil, toxic or hazardous substances, or toxic or hazardous
wastes have been used, stored, generated or otherwise handled at any of
Borrower’s property except in quantities customary and necessary for the
intended use of such property, including but not limited to cleaning supplies,
insecticides, paints, paint removers, toner for copiers, etc., provided the use,
storing or handling of such amounts is in compliance with all applicable
federal, state, local or municipal laws, statutes, regulations, rules or
ordinances imposing liability or establishing standards of conduct for
protection of human health and the environment; and no oil, toxic or hazardous
substances, toxic or hazardous wastes, or solid wastes have

 

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been disposed of or released on any of Borrower’s property, and Borrower
covenants and agrees that it will not cause there to be, and will use its best
efforts to prevent, any violation of CERCLA, RCRA and/or SARA and any other
federal, state, local or municipal laws, statutes, regulations, rules or
ordinances imposing liability or establishing standards of conduct for
protection of human health and the environment in connection with the ownership
and/or use of any of Borrower’s property by the Borrower or any tenant of any of
Borrower’s property, including any violation arising from the disposal or
release of oil, toxic or hazardous substances, toxic or hazardous wastes, or
solid wastes on any such property (the terms “hazardous substance,” “hazardous
waste,” and “release” shall have the meanings specified in CERCLA, and the terms
“solid waste” and “disposal”, “dispose” or “disposed” shall have the meanings
specified in RCRA, except that if such acts are amended to broaden the meanings
thereof, the broader meaning shall apply herein).  Borrower hereby further
covenants and agrees that it will take all reasonable steps necessary to avoid
liability under CERCLA, including (1) taking reasonable steps to stop and
prevent any future continuing releases of pollutants which would subject the
Borrower or others associated with any of Borrower’s property to CERCLA
liability, (2) granting access for and fully cooperating with the performance of
environmental response actions by others on or about any of Borrower’s property,
and (3) complying with any applicable use restrictions imposed upon any of
Borrower’s property due to environmental conditions.  Notwithstanding anything
to the contrary herein, Borrower shall indemnify, defend and hold Bank harmless
from and against any fines, charges, claims, demands, penalties, liability
(including strict liability), damages, losses, expenses (including, without
limitation, legal expenses, consultant fees and laboratory fees), fees, attorney
fees and costs incurred by Bank in the event the Borrower or any of Borrower’s
property (whether or not due to any fault of Borrower) is hereafter determined
to be in violation of any environmental laws, statutes, ordinances, rules or
regulations applicable thereto (excluding, however, any conditions caused by
materials placed on any of Borrower’s property following foreclosure or
acceptance by Bank of a deed in lieu of foreclosure), and this indemnity shall
survive any foreclosure or deed in lieu of foreclosure and repayment of the
Loan.

 

6.                                       SECTION 6.1 OF THE LOAN AGREEMENT IS
HEREBY AMENDED BY DELETING SUBSECTION (A) THEREOF IN ITS ENTIRETY AND
SUBSTITUTING THE FOLLOWING NEW SUBSECTION (A) IN LIEU THEREOF:

 

(A)                              The Borrower will use the proceeds of the Term
Loan only for the purposes set forth in Section 2.7, will use the proceeds of
Term Loan No. 2 only for the purposes set forth in Section 2A.7, and will
furnish the Bank such evidence as it may reasonably require with respect to such
uses.

 

7.                                       SECTION 6.1 OF THE LOAN AGREEMENT IS
HEREBY AMENDED BY DELETING SUBSECTION (B) THEREOF IN ITS ENTIRETY AND
SUBSTITUTING THE FOLLOWING NEW SUBSECTION (B) IN LIEU THEREOF:

 

(B)                                The Borrower will furnish, or cause to be
furnished, the Bank:

 

(1)                                  Within forty-five (45) days after the close
of each calendar month (a) an income statement of the Borrower for such period
and (b) a balance sheet of the Borrower as of the end of such period, adjusted
to U.S. Dollars, all in reasonable detail with Bank having full access to all
supporting schedules and comments, subject to year-end audit adjustments, and
certified by the Borrower’s president or principal financial officer to have
been prepared in accordance with Generally

 

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Accepted Accounting Principles consistently applied by the Borrower, except for
any inconsistencies explained in such certificate;

 

(2)                                  Within one hundred twenty (120) days after
the close of each fiscal year (a) a statement of Stockholders’ Equity and a
statement of cash flows of the Borrower for such fiscal year, (b) an income
statement of the Borrower for such fiscal year, and (c) a balance sheet of the
Borrower as of the end of such fiscal year; adjusted to U. S. Dollars, all in
reasonable detail, including all supporting schedules and comments; and
certified by the Borrower’s president or principal financial officer to have
been prepared in accordance with Generally Accepted Accounting Principles
consistently applied by the Borrower, except for any inconsistencies explained
in such certificate;

 

(3)                                  Contemporaneously with each monthly and
year-end financial report required by the foregoing paragraphs, a Compliance
Certificate of the principal financial officer of the Borrower stating that, to
the best of his knowledge, the Borrower has observed and performed each and
every undertaking contained in this Agreement and is not at the time in default
in the observance or performance of any of the terms and conditions hereof or,
if the Borrower shall be so in default, specifying all such defaults and events
of which he may have knowledge;

 

(4)                                  Monthly, within forty-five (45) days after
the end of the prior month, and at such other times as the Bank may request, a
Collateral Report (as required by, and as defined in, the Revolving Loan
Agreement) for the immediately preceding month, certified to be correct by the
president or controller of the Borrower.

 

(5)                                  Within forty-five (45) days after the close
of each calendar month (a) a consolidated income statement of the Guarantor such
period and (b) a consolidated balance sheet of the Guarantor as of the end of
such period, adjusted to U.S. Dollars, all in reasonable detail with Bank having
full access to all supporting schedules and comments, subject to year-end audit
adjustments, and certified by the Guarantor’s president or principal financial
officer to have been prepared in accordance with Generally Accepted Accounting
Principles consistently applied by the Guarantor, except for any inconsistencies
explained in such certificate;

 

(6)                                  Within one hundred twenty (120) days after
the close of each fiscal year (a) a consolidated statement of Stockholders’
Equity and a consolidated statement of cash flows of the Guarantor for such
fiscal year, (b) a consolidated income statement of the Guarantor for such
fiscal year, and (c) a consolidated balance sheet of the Guarantor as of the end
of such fiscal year; adjusted to U. S. Dollars, all in reasonable detail,
including all supporting schedules and comments; the statements and balance
sheets to be audited by an independent certified public accountant selected by
the

 

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Guarantor and acceptable to the Bank, and certified by such accountants to have
been prepared in accordance with Generally Accepted Accounting Principles
consistently applied by the Guarantor, except for any inconsistencies explained
in such certificate; the Bank shall have the right, from time to time, to
discuss the Guarantor’s affairs directly with the Guarantor’s independent
certified public accountant after notice to the Guarantor and opportunity of the
Guarantor to be present at any such discussions;

 

(7)                                  Promptly after sending or making available
or filing of the same, copies of all reports, proxy statements and financial
statements that the Borrower or Guarantor sends or makes available to its
stockholders and all registration statements and reports that the Borrower or
Guarantor files with the Securities and Exchange Commission or any successor
Person, including, without limitation, the delivery to Bank of all Form 10-Qs
within sixty (60) days of the end of each fiscal quarter and all Form 10-Ks
within one hundred twenty (120) days of the end of each fiscal year.

 

8.                                       SECTION 6.1 OF THE LOAN AGREEMENT IS
HEREBY AMENDED BY DELETING SUBSECTION (F) THEREOF IN ITS ENTIRETY AND
SUBSTITUTING THE FOLLOWING NEW SUBSECTION (F) IN LIEU THEREOF:

 

(F)                                 The Borrower will maintain during the term
of this Agreement (determined on a consolidated basis with the Guarantor):

 

(1)                                  Tangible Net Worth of, at minimum: (a)
$8,700,000.00 as of July 31, 2004; (b) $11,000,000.00 as of July 31, 2005; (c)
$15,000,000.00 as of July 31, 2006; and (d) $17,000,000.00 as of July 31, 2007,
and at all times thereafter.

 

(2)                                  A Fixed Charge Coverage of not less than
1.25 to 1.0 as of April 30, 2004, and at any time thereafter; such Fixed Charge
Coverage to be measured quarterly based on a rolling four-quarter basis.

 

(3)                                  A ratio of Liabilities to Tangible Net
Worth of not more than: (a) 2.0 to 1.0 as of July 31, 2004; (b) 1.65 to 1.0 as
of July 31, 2005; and (c) 1.25 to 1.0 as of July 31, 2006, and at all times
thereafter.

 

(4)                                  A Coverage Ratio of not greater than: (a)
2.25 to 1.0 as of July 31, 2004; (b) 1.75 to 1.0 as of October 31, 2004, and
through July 31, 2005; and (c) 1.5 to 1.0 as of October 31, 2005, and at all
times thereafter; said Coverage Ratio to be measured quarterly based on a
rolling four-quarter basis.

 

9.                                       SECTION 7.1 OF THE LOAN AGREEMENT IS
HEREBY AMENDED BY DELETING SUBSECTION (A) THEREOF IN ITS ENTIRETY AND
SUBSTITUTING THE FOLLOWING NEW SUBSECTION (A) IN LIEU THEREOF:

 

(A)                              The Borrower shall fail to pay any installment
of principal or interest or fee payable hereunder or under any Note within ten
(10) days of the due date thereof.

 

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10.                                 SECTION 7.1 OF THE LOAN AGREEMENT IS HEREBY
AMENDED BY DELETING SUBSECTION (J) THEREOF IN ITS ENTIRETY AND SUBSTITUTING THE
FOLLOWING NEW SUBSECTION (J) IN LIEU THEREOF:

 

(J)                                   The validity or enforceability of this
Agreement, any Note, or any of the other Loan Documents shall be contested by
the Borrower or the Guarantor and/or Borrower or Guarantor shall deny that such
party has any or further liability or obligation hereunder or thereunder.

 

11.                                 SECTION 7.1 OF THE LOAN AGREEMENT IS HEREBY
AMENDED BY ADDING THERETO THE FOLLOWING NEW SUBSECTIONS (N) AND (O) AS
ADDITIONAL EVENTS OF DEFAULT:

 

(N)                               If all tangible assets purchased from Wood
Protection Products, Inc. are not located or, in the case of motor vehicles,
principally garaged, at Borrower’s place of business in Tuscaloosa, Alabama, by
March 31, 2004.

 

(O)                               If all title vehicles are not re-titled in
Borrower’s name in the State of Alabama with the Bank’s lien noted thereon by
March 31, 2004.

 

12.                                 ARTICLE VIII OF THE LOAN AGREEMENT IS HEREBY
AMENDED BY DELETING SECTION 8.4 THEREOF IN ITS ENTIRETY AND SUBSTITUTING THE
FOLLOWING NEW SECTION 8.4 IN LIEU THEREOF:

 

8.4                                 Enforcement and Waiver by the Bank.  The
Bank shall have the right at all times to enforce the provisions of this
Agreement, each Note, and each of the other Loan Documents in strict accordance
with the terms hereof and thereof, notwithstanding any conduct or custom on the
part of the Bank in refraining from so doing at any time or times.  The failure
of the Bank at any time or times to enforce its rights under such provisions,
strictly in accordance with the same, shall not be construed as having created a
custom in any way or manner contrary to specific provisions of this Agreement or
as having in any way or manner modified or waived the same.  All rights and
remedies of the Bank are cumulative and concurrent and the exercise of one right
or remedy shall not be deemed a waiver or release of any other right or remedy.

 

13.                                 ARTICLE VIII OF THE LOAN AGREEMENT IS HEREBY
AMENDED BY DELETING SECTION 8.5 THEREOF IN ITS ENTIRETY AND SUBSTITUTING THE
FOLLOWING NEW SECTION 8.5 IN LIEU THEREOF:

 

8.5                                 Expenses of the Bank.  The Borrower will, on
demand, reimburse the Bank for all expenses, including the fees and expenses of
legal counsel for the Bank, incurred in connection with the preparation,
administration, amendment, modification or enforcement of this Agreement and the
other Loan Documents and the collection or attempted collection of any Loan and
any Note.

 

14.                                 SECTION 8.10 OF THE LOAN AGREEMENT IS HEREBY
AMENDED BY DELETING SUBSECTION (B) THEREOF IN ITS ENTIRETY AND SUBSTITUTING THE
FOLLOWING NEW SUBSECTION (B) IN LIEU THEREOF:

 

(B)                               THE BORROWER AND THE BANK HEREBY:

 

(1)                                 IRREVOCABLY AND UNCONDITIONALLY WAIVE THE
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING OR COUNTERCLAIM OF ANY TYPE
AS TO ANY MATTER ARISING DIRECTLY OR INDIRECTLY OUT OF OR WITH RESPECT TO

 

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THIS AGREEMENT, ANY NOTE, ANY OF THE OTHER LOAN DOCUMENTS OR ANY OTHER DOCUMENT
EXECUTED IN CONNECTION HEREWITH OR THEREWITH; AND

 

(2)                                 AGREE THAT EITHER OF THEM MAY FILE A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND
BARGAINED FOR AGREEMENT BETWEEN THE PARTIES IRREVOCABLY TO WAIVE TRIAL BY JURY,
AND THAT ANY DISPUTE OR CONTROVERSY OF ANY KIND WHATSOEVER BETWEEN THEM SHALL
INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT
A JURY.

 

15.                                 ARTICLE VIII OF THE LOAN AGREEMENT IS HEREBY
AMENDED BY DELETING SECTION 8.13 THEREOF IN ITS ENTIRETY AND SUBSTITUTING THE
FOLLOWING NEW SECTION 8.13 IN LIEU THEREOF:

 

8.13                           Severability.  If any provision of this
Agreement, any Note, or any of the other Loan Documents shall be held invalid
under any applicable Laws, such invalidity shall not affect any other provision
of this Agreement or such other instrument or agreement that can be given effect
without the invalid provision, and, to this end, the provisions hereof are
severable.

 

16.                                 THE LOAN AGREEMENT IS HEREBY AMENDED BY
ADDING AS EXHIBIT “D” THERETO THE ATTACHED EXHIBIT “D”, WHICH PROVIDES THE FORM
OF THE TERM NOTE NO. 2.

 

17.                                 THE LOAN AGREEMENT IS HEREBY AMENDED BY
ADDING AS EXHIBIT “E” THERETO THE ATTACHED EXHIBIT “E”, WHICH PROVIDES THE FORM
OF THE COMPLIANCE CERTIFICATE.

 

18.                                 BORROWER REPRESENTS AND WARRANTS TO THE BANK
THAT AS OF THE DATE HEREOF:  (A) ALL REPRESENTATIONS AND WARRANTIES GIVEN BY THE
BORROWER IN ARTICLE V OF THE LOAN AGREEMENT ARE TRUE AND CORRECT, EXCEPT TO THE
EXTENT AFFECTED BY THIS AMENDMENT; AND (B) THE BORROWER IS IN FULL COMPLIANCE
WITH ALL OF THE COVENANTS OF THE BORROWER CONTAINED IN ARTICLE VI OF THE LOAN
AGREEMENT, EXCEPT TO THE EXTENT AFFECTED BY THIS AMENDMENT.  THE BORROWER
FURTHER REPRESENTS THAT THE BORROWER HAS FULL POWER AND AUTHORITY TO ENTER INTO
THIS AMENDMENT AND TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY, AND THE
BORROWER AGREES TO PAY DIRECTLY, OR REIMBURSE THE BANK FOR, ALL REASONABLE
EXPENSES, INCLUDING THE REASONABLE FEES AND EXPENSES OF LEGAL COUNSEL, INCURRED
IN CONNECTION WITH THE PREPARATION OF THE DOCUMENTATION TO EVIDENCE THIS
AMENDMENT AND ANY DOCUMENTS EXECUTED IN CONNECTION HEREWITH.

 

19.                                 EXCEPT AS MAY BE MODIFIED OR WAIVED BY THE
BANK, IN ITS SOLE DISCRETION, THE EFFECTIVENESS OF THIS AMENDMENT SHALL BE
SUBJECT TO FULL AND COMPLETE SATISFACTION OF THE FOLLOWING CONDITIONS:

 

(A)                                  PAYMENT OF FEES AND EXPENSES.  BANK SHALL
HAVE RECEIVED FROM BORROWER PAYMENT OF THE ADDITIONAL LOAN FEE IN THE AMOUNT OF
$45,000.00 AND ALL OTHER FEES AND EXPENSES REQUIRED BY THE LOAN AGREEMENT, AS
FURTHER AMENDED BY THIS AMENDMENT, AND ANY OF THE OTHER LOAN DOCUMENTS THEN DUE.

 

(B)                                 TERM NOTE NO. 2.  THE BANK SHALL HAVE
RECEIVED THE TERM NOTE NO. 2, DULY EXECUTED AND DELIVERED BY THE BORROWER.

 

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(C)                                  BORROWER’S RESOLUTIONS.  THE BANK SHALL
HAVE RECEIVED FROM BORROWER RESOLUTIONS OF THE BORROWER’S BOARD OF DIRECTORS, IN
A FORM SATISFACTORY TO BANK, AUTHORIZING THE BORROWER TO ENTER INTO THE
TRANSACTIONS CONTEMPLATED BY THIS AMENDMENT.

 

(D)                                 TERM LOAN NO. 2 GUARANTY.  THE BANK SHALL
HAVE RECEIVED THE TERM LOAN NO. 2 GUARANTY, IN A FORM SATISFACTORY TO BANK, DULY
EXECUTED AND DELIVERED BY THE GUARANTOR.

 

20.                                 EXCEPT AS EXPRESSLY MODIFIED BY THIS
AMENDMENT, THE PARTIES AGREE THAT:

 

(A)                                  IN ALL OTHER RESPECTS, ALL THE TERMS,
CONDITIONS, OBLIGATIONS AND PROVISIONS OF THE LOAN AGREEMENT SHALL BE UNCHANGED
AND REMAIN THE SAME AND IN FULL FORCE AND EFFECT, AND ALL TERMS OF THE LOAN
AGREEMENT, AS HEREIN MODIFIED, ARE EXPRESSLY RATIFIED AND CONFIRMED IN ALL
RESPECTS; AND

 

(B)                                 IN THE EVENT THAT THERE SHALL BE ANY
CONFLICT BETWEEN THE TERMS OF THIS AMENDMENT AND ANY OF THE TERMS OF ANY OF THE
OTHER LOAN DOCUMENTS NOT AMENDED CONCURRENTLY HEREWITH, THE TERMS AND PROVISIONS
OF THIS AMENDMENT SHALL GOVERN AND EACH OF SUCH OTHER LOAN DOCUMENTS ARE DEEMED
AUTOMATICALLY AMENDED AND MODIFIED WITHOUT ANY FURTHER ACTION UPON THE EXECUTION
AND DELIVERY OF THIS AMENDMENT.

 

(C)                                  IN THE EVENT THAT THERE SHALL BE ANY
CONFLICT BETWEEN THE AMENDMENTS CONTAINED IN PARAGRAPHS 6 AND 7 OF THIS
AMENDMENT WITH ANY OF THE TERMS OF THE REVOLVING LOAN AGREEMENT, THE TERMS AND
PROVISIONS OF PARAGRAPHS 6 AND 7 OF THIS AMENDMENT SHALL GOVERN AND THE
REVOLVING LOAN AGREEMENT IS HEREBY AUTOMATICALLY AMENDED AND MODIFIED WITHOUT
ANY FURTHER ACTION UPON THE EXECUTION AND DELIVERY OF THIS AMENDMENT.

 

21.                                 BORROWER HEREBY ACKNOWLEDGES THAT THE
PREPARATION, NEGOTIATION, EXECUTION AND DELIVERY OF THIS AMENDMENT HAVE BEEN
COMPLETED ON AN EXPEDITED BASIS, IN ORDER TO ACCOMMODATE BORROWER’S PURCHASE OF
CERTAIN ASSETS FROM WOOD PROTECTION PRODUCTS, INC. IN A TIMELY FASHION. 
BORROWER AGREES TO UNDERTAKE ANY ADDITIONAL ACTION, TO EXECUTE AND DELIVER TO
BANK ANY ADDITIONAL DOCUMENT AND TO COOPERATE FULLY WITH BANK AS MAY BE
REASONABLY REQUIRED TO ADDRESS AND RESOLVE, TO BANK’S SOLE SATISFACTION, ANY
ISSUE OR CONCERN OF BANK.

 

22.                                 THE UNDERSIGNED KMG CHEMICALS, INC. (THE
“GUARANTOR”), EXECUTES THIS AMENDMENT TO EXPRESSLY EVIDENCE ITS ASSENT TO ALL
THE TERMS OF THIS AMENDMENT, AND TO FURTHER ACKNOWLEDGE AND AGREE THAT THE
GUARANTY OF PAYMENT DATED AS OF JUNE 26, 1998 (THE “GUARANTY”), DELIVERED BY IT
TO THE BANK REMAINS IN FULL FORCE AND EFFECT AND THAT THE “OBLIGATIONS” OF THE
GUARANTOR AS THE “GUARANTOR” UNDER THE GUARANTY SHALL INCLUDE, WITHOUT
LIMITATION, ALL OBLIGATIONS OF THE BORROWER UNDER THE LOAN AGREEMENT, AS AMENDED
BY THIS AMENDMENT.

 

23.                                 THIS AMENDMENT MAY BE EXECUTED IN SEVERAL
COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED AN ORIGINAL, AND ALL OF SUCH
COUNTERPARTS TOGETHER SHALL CONSTITUTE ONE AND THE SAME INSTRUMENT.  SIGNATURE
AND ACKNOWLEDGMENT PAGES, IF ANY, MAY BE DETACHED FROM THE COUNTERPARTS AND
ATTACHED TO A SINGLE COPY OF THIS DOCUMENT TO PHYSICALLY FORM ONE DOCUMENT.

 

SIGNATURES FOLLOW ON SEPARATE PAGES

 

11

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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their respective duly authorized officers effective as of the day
and year first above written.

 

 

BORROWER:

 

 

 

 

 

KMG-BERNUTH, INC.

 

 

 

 

 

 

 

 

By:

 /s/

 

 

Its:

Vice President and Chief Financial Officer

 

 

 

STATE OF TEXAS

)

 

 

COUNTY OF HARRIS

)

 

 

 

I, the undersigned, a Notary Public in and for said County in said State, hereby
certify that John V. Sobchak, whose name as Vice President and Chief Financial
Officer of KMG-Bernuth, Inc., a Delaware corporation, is signed to the foregoing
Second Amendment to Term Loan Agreement, and who is known to me, acknowledged
before me on this day that, being informed of the contents of said instrument,
he, as such officer and with full authority, executed the same voluntarily for
and as the act of said corporation.

 

Given under my hand and official seal this the 5th day of December, 2003.

 

 

  /s/

(SEAL)

 

Notary Public

 

 

My Commission Expires:

 

 

 

 

12

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BANK:

 

 

 

SOUTHTRUST BANK

 

 

 

 

 

By:

 /s/

 

 

Its:

Group Vice President

 

 

 

 

 

 

STATE OF ALABAMA

)

 

 

COUNTY OF JEFFERSON

)

 

 

 

I, the undersigned, a Notary Public in and for said County in said State, hereby
certify that Alan T. Drennen, III, whose name as Group Vice President of
SouthTrust Bank, an Alabama banking corporation, is signed to the foregoing
Second Amendment to Term Loan Agreement, and who is known to me, acknowledged
before me on this day that, being informed of the contents of said instrument,
he, as such officer and with full authority, executed the same voluntarily for
and as the act of said banking corporation.

 

Given under my hand and official seal this the 5th day of December, 2003.

 

 

  /s/

(SEAL)

 

Notary Public

 

 

My Commission Expires:

 

 

 

 

13

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GUARANTOR:

 

 

 

KMG CHEMICALS, INC.

 

 

 

By:

 /s/

 

 

Its:

Vice President and Chief Financial Officer

 

 

STATE OF TEXAS

)

 

COUNTY OF HARRIS

)

 

 

I, the undersigned, a Notary Public in and for said County in said State, hereby
certify that John V. Sobchak, whose name as Vice President and Chief Financial
Officer of KMG Chemicals, Inc., a Texas corporation, is signed to the foregoing
Second Amendment to Term Loan Agreement, and who is known to me, acknowledged
before me on this day that, being informed of the contents of said instrument,
he, as such officer and with full authority, executed the same voluntarily for
and as the act of said corporation.

 

Given under my hand and official seal this the 5th day of December, 2003.

 

 

 

  /s/

(SEAL)

 

Notary Public

 

 

My Commission Expires:

 

 

 

 

14

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