Exhibit 10.31


 


TERM NOTE NO. 2


 


	
  $6,000,000.00

  	
   

  	
  Date: 
  December 5, 2003

  



 


FOR VALUE RECEIVED,
the undersigned KMG-BERNUTH, INC.,
a Delaware corporation (hereinafter referred to as “Borrower”), promises to pay
to the order of SOUTHTRUST BANK,
an Alabama banking corporation (hereinafter, together with any holder of this
Note, the “Bank”), at its main office in the City of Birmingham, Alabama, or at
such other address as the Bank may from time to time designate in writing, the
principal sum of Six Million and No/100 Dollars ($6,000,000.00) or so much as
may be advanced hereunder, together with interest thereon and other agreed
charges as provided herein.


 


I.                                         DEFINITIONS:


 


As used in
this Note, the term:


 


(a)                                  “Business Day”
shall mean a day of the year, other than Saturday or Sunday, on which dealings
in United States dollars are carried on in the London interbank market and
banks are open for business in London and banks (including SouthTrust Bank) in
Birmingham, Alabama, and New York, New York are not required or authorized to
close.


 


(b)                                 “Default Rate”
shall mean a variable per annum rate of interest equal to the lesser of (i) two
percent (2%) in excess of the Interest Rate otherwise applicable hereunder, or
(ii) the maximum rate allowed by applicable law.


 


(c)                                  “Event of
Default” shall have the meaning attributed to said term in Section VIII of
this Note.


 


(d)                                 “Guarantor”
shall mean KMG Chemicals, Inc., a Texas corporation.


 


(e)                                  “Guaranty”
shall mean the “Term Loan No. 2 Guaranty” as defined in the Loan Agreement.


 


(f)                                    “Interest Rate”
shall mean the actual interest rate at which the outstanding principal amount
bears interest from time to time during the term of this Note.


 


(g)                                 “LIBOR Rate”
shall mean the applicable 30-Day LIBOR Rate, 60-Day LIBOR Rate, or 90-Day LIBOR
Rate from time to time in effect.


 


(h)                                 “LIBOR Rate
Commencement Date” shall mean, with respect to the initial LIBOR Rate Interest
Period, the date of this Note, and, with respect to each other LIBOR Rate
Interest Period, the Payment Due Date on which any respective LIBOR Rate
Interest Period shall commence.


 


(i)                                     “LIBOR Rate
Election Notice” shall mean a written (or oral if approved by Bank, in its sole
discretion) notice given to Bank by Borrower, no later than two (2) Business
Days prior to the


 

















 


commencement of any applicable LIBOR Rate Interest Period, providing
for Borrower’s exercise of a LIBOR Rate Election Option and specifying the
applicable 30-Day LIBOR Rate, 60-Day LIBOR Rate, or 90-Day LIBOR Rate being
elected by Borrower and the LIBOR Rate Commencement Date of the corresponding
LIBOR Rate Interest Period during which such 30-Day LIBOR Rate, 60-Day LIBOR
Rate, or 90-Day LIBOR Rate so elected shall be charged.


 


(j)                                     “LIBOR Rate
Election Option” shall mean any option of the Borrower as hereinafter set forth
in Paragraph (a) of Section III of this Note to elect for the outstanding
principal balance to bear interest at the 30-Day LIBOR Rate, 60-Day LIBOR Rate,
or 90-Day LIBOR Rate elected by Borrower in the applicable LIBOR Rate Election Notice
during the applicable LIBOR Rate Interest Period which corresponds with such
LIBOR Rate so elected.


 


(k)                                  “LIBOR Rate
Interest Period” shall mean any applicable 30-Day LIBOR Rate Interest Period,
60-Day LIBOR Rate Interest Period, or 90-Day LIBOR Rate Interest Period.


 


(l)                                     “Loan” shall
mean the loan from Bank to Borrower evidenced by this Note in a principal
amount not to exceed $6,000,000.00.


 


(m)                               “Loan
Agreement” shall mean that certain Term Loan Agreement between Borrower and
Bank dated as of June 26, 1998, together with any and all extensions,
revisions, modifications or amendments at any time made thereto.


 


(n)                                 “Loan
Documents” shall mean the Loan Agreement, this Note, each Security Agreement,
the Guaranty, each of the other “Loan Documents” as defined in the Loan
Agreement, and any other agreements, instruments or documents, now or hereafter
evidencing, securing or otherwise relating to the Loan, together with any and
all extensions, revisions, modifications or amendments heretofore,
simultaneously herewith or hereafter made to any of the foregoing.


 


(o)                                 “Margin” shall
mean, as of each Margin Determination Date, the applicable percentage as
determined based on the Pricing Matrix to be in effect during the Margin Period
commencing as of such Margin Determination Date.


 


(p)                                 “Margin
Determination Date” shall mean (i) in the case of the initial Margin
Determination Date, the date of this Note, (ii) in the case of the second
Margin Determination Date, the first (1st) day of October, 2004, and (iii) in
the case of each subsequent Margin Determination Date, the first (1st) day of
each month of January, April, July and October during the term of
this Note.


 


(q)                                 “Margin Period”
shall mean the period commencing as of each Margin Determination Date and
ending as of the calendar day immediately preceding the next following Margin
Determination Date.


 


(r)                                    “Maturity Date”
shall mean December 1, 2008.


 


(s)                                  “Payment Due
Date” shall mean the first (1st) day of each calendar month during the term of
this Note, commencing January 1, 2004, and the Maturity Date.


 


(t)                                    “Pricing
Matrix” shall mean the Pricing Matrix attached hereto as Exhibit A.


 


(u)                                 “Quarter” shall
mean any consecutive three (3) calendar month period of time ending the last
day of any month of October, January, April and July.


 


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(v)                                 “Regulation D”
shall mean Regulation D of the Board of Governors of the Federal Reserve System
from time to time in effect and shall include any successor or other regulation
or official interpretation of said Board of Governors relating to reserve
requirements applicable to member banks of the Federal Reserve System.


 


(w)                               “Reserve
Requirement” with respect to a LIBOR Rate Interest Period shall mean the
weighted average during the LIBOR Rate Interest Period of the maximum aggregate
reserve requirement (including all basic, supplemental, marginal and other
reserves and taking into account any transitional adjustments or other
scheduled changes in reserve requirements during the LIBOR Rate Interest
Period) which is imposed under Regulation D.


 


(x)                                   “Security
Agreement” shall have the meaning attributed to said term in the Loan
Agreement.


 


(y)                                 “30-Day LIBOR
Rate”, as applicable to each respective 30-Day LIBOR Rate Interest Period,
shall mean a per annum rate of interest equal to the sum of (i) the quotient
obtained (stated as an annual percentage rate rounded upward to the next higher
1/100th of 1%) by dividing (A) the thirty (30) day London Interbank Offered
Rate (“LIBOR”), as determined by Bank from Telerate, as provided by the Dow
Jones Telerate British Bankers Association (or such other source as Bank may
select if such source is not available or if such a rate index is not available
from Telerate), as of the LIBOR Rate Commencement Date of the applicable 30-Day
LIBOR Rate Interest Period, by (B) 1.00 minus any Reserve Requirement for the
30-Day LIBOR Rate Interest Period (expressed as a decimal), plus (ii) the
applicable Margin in effect for the Margin Period during which such 30-Day LIBOR
Rate Interest Period shall commence.


 


(z)                                   “30-Day LIBOR
Rate Interest Period” shall mean, in the case of Borrower’s election of a
30-Day LIBOR Rate, a period beginning on the applicable LIBOR Rate Commencement
Date on which the applicable 30-Day LIBOR Rate shall take effect and ending one
(1) calendar month thereafter.


 


(aa)                            “60-Day LIBOR
Rate”, as applicable to each respective 60-Day LIBOR Rate Interest Period,
shall mean a per annum rate of interest equal to the sum of (i) the quotient
obtained (stated as an annual percentage rate rounded upward to the next higher
1/100th of 1%) by dividing (A) the sixty (60) day London Interbank Offered Rate
(“LIBOR”), as determined by Bank from Telerate, as provided by the Dow Jones
Telerate British Bankers Association (or such other source as Bank may select
if such source is not available or if such a rate index is not available from
Telerate), as of the LIBOR Rate Commencement Date of the applicable 60-Day
LIBOR Rate Interest Period, by (B) 1.00 minus any Reserve Requirement for the
60-Day LIBOR Rate Interest Period (expressed as a decimal), plus (ii) the
applicable Margin in effect for the Margin Period during which such 60-Day
LIBOR Rate Interest Period shall commence.


 


(bb)                          “60-Day LIBOR
Rate Interest Period” shall mean, in the case of Borrower’s election of a
60-Day LIBOR Rate, a period beginning on the applicable LIBOR Rate Commencement
Date on which the applicable 60-Day LIBOR Rate shall take effect and ending two
(2) calendar months thereafter.


 


(cc)                            “90-Day LIBOR
Rate”, as applicable to each respective 90-Day LIBOR Rate Interest Period,
shall mean a per annum rate of interest equal to the sum of (i) the quotient
obtained (stated as an annual percentage rate rounded upward to the next higher
1/100th of 1%) by dividing (A) the ninety (90) day London Interbank Offered
Rate (“LIBOR”), as determined by Bank from Telerate, as provided by the Dow
Jones Telerate British Bankers Association (or such other source as Bank may
select if such source is not available or if such a rate index is not available
from Telerate), as of the LIBOR Rate Commencement Date of the applicable 90-Day
LIBOR Rate Interest Period, by (B) 1.00 minus any


 


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Reserve Requirement for the 90-Day LIBOR Rate Interest Period
(expressed as a decimal), plus (ii) the applicable Margin in effect for the
Margin Period during which such 90-Day LIBOR Rate Interest Period shall
commence.


 


(dd)                          “90-Day LIBOR
Rate Interest Period” shall mean, in the case of Borrower’s election of a
90-Day LIBOR Rate, a period beginning on the applicable LIBOR Rate Commencement
Date on which the applicable 90-Day LIBOR Rate shall take effect and ending
three (3) calendar months thereafter.


 


Except as otherwise specifically defined in this
Note, all capitalized words and phrases used in this Note shall be as defined
in the Loan Agreement unless the context clearly requires to the contrary or
except as may be otherwise indicated.


 


II.                                     SECURITY;
INCORPORATION BY REFERENCE OF OTHER DOCUMENTS:


 


This Note is the “Term Note No. 2” referred
to in, and entitled to the security of, the Loan Agreement, and proceeds of
which shall be advanced in accordance with, the applicable provisions of the
Loan Agreement relating to the “Term Loan No. 2” (as defined in the Loan
Agreement).  This Note is secured by
each Security Agreement and any other Loan Documents which provide security for
the Loan.  The Loan Agreement, each Security
Agreement and each of such other Loan Documents, and all terms and conditions
thereof, are hereby incorporated herein by this reference.  This Note is guaranteed by the Guaranty of
the Guarantor.


 


III.                                 INTEREST
ACCRUAL:


 


(a)                                  During the
entire term of this Note (unless interest shall be accruing at the Default Rate
pursuant to the terms hereof), the outstanding principal amount shall bear
interest at the applicable LIBOR Rate from time to time in effect as
hereinafter provided (and each time the LIBOR Rate shall change, the Interest
Rate shall change contemporaneously with such change in the LIBOR Rate), with
such LIBOR Rate to be determined and/or elected by Borrower for each respective
LIBOR Rate Interest Period as follows:


 


(1)                                  Concurrently
with the execution of this Note and from time to time during the term of this
Note, Borrower shall deliver to Bank, for receipt by Bank at least two (2)
Business Days prior to the commencement of the applicable 30-Day LIBOR Rate
Interest Period, 60-Day LIBOR Rate Interest Period, or 90-Day LIBOR Rate
Interest Period, a LIBOR Rate Election Notice providing for Borrower’s election
(a “LIBOR Rate Election Option”) for the outstanding principal balance to bear
interest at either the 30-Day LIBOR Rate, the 60-Day LIBOR Rate, or the 90-Day
LIBOR Rate, and specifying the LIBOR Rate Commencement Date of the
corresponding LIBOR Rate Interest Period during which such LIBOR Rate shall be
charged; provided, however, that:


 


(A)                              In the event
that Borrower does not timely and properly deliver to Bank a LIBOR Rate
Election Notice electing the applicable LIBOR Rate to be in effect as of the
date of this Note, then the Borrower shall be deemed to have elected the 30-Day
LIBOR Rate for the 30-Day LIBOR Rate Interest Period commencing on the date of
this Note;


 


(B)                                In the event
that, as of the expiration of any applicable LIBOR Rate Interest Period, the
Borrower shall not have timely and properly delivered to Bank a LIBOR Rate
Election Notice electing the applicable LIBOR Rate to be in effect for the
period following such expiration, then the Borrower shall be deemed to have
exercised a LIBOR Rate Election Option making the same election of the 30-Day
LIBOR Rate, 60-Day LIBOR Rate, or 90-Day LIBOR Rate, as applicable, which was
elected, or deemed to have been elected, for the then expiring LIBOR Rate
Interest


 


4

















 


Period, with such new election to be effective commencing immediately
upon the expiration of the expiring LIBOR Rate Interest Period and for the
LIBOR Rate Interest Period which corresponds with such LIBOR Rate so deemed to
have been elected and for each subsequent LIBOR Rate Interest Period for which
no new LIBOR Rate Election Notice is timely and properly given by Borrower to
Bank electing a different LIBOR Rate;


 


(C)                                No conversion
of the Interest Rate to any 30-Day LIBOR Rate, 60-Day LIBOR Rate, or 90-Day
LIBOR Rate elected in any LIBOR Rate Election Notice given by Borrower to Bank
shall be effective until the expiration of the then current LIBOR Rate Interest
Period;


 


(D)                               Except in the
case of the LIBOR Rate Interest Period commencing as of the date of this Note,
in no event may any LIBOR Rate Interest Period commence on any date other than
a Payment Due Date;


 


(E)                                 In no event may
any 60-Day LIBOR Rate or 90-Day LIBOR Rate be elected by Borrower at any time when
the corresponding LIBOR Rate Interest Period would extend beyond any applicable
Margin Determination Date or the Maturity Date of this Note; and


 


(F)                                 If any LIBOR
Rate Election Notice is not timely received or is otherwise not properly made,
such LIBOR Rate Election Notice, at Bank’s election, shall not be effective.


 


(2)                                  Notwithstanding
the fact that the Interest Rate pursuant to this Note shall be calculated based
upon Bank’s cost of funds in the Eurodollar market, Borrower agrees that Bank
shall not be required actually to obtain funds from such source at any time.


 


(b)                                 All interest
payable hereunder shall be calculated on the basis of a 360-day year by
multiplying the outstanding principal amount by the applicable per annum rate,
multiplying the product thereof by the actual number of days elapsed, and
dividing the product so obtained by 360.


 


(c)                                  During the term
of this Note, Borrower and Bank may from time to time enter into an interest
rate swap agreement, International Swap Dealers Association, Inc. (ISDA) Master
Agreement or other similar agreement or arrangement to hedge the risk of
variable interest rate volatility or fluctuations of interest rates (any such
agreement or arrangement as it may hereafter be renewed, extended,
supplemented, increased or modified and in effect from time to time being
herein referred to as an “Interest Rate Protection Agreement”).  All fees, penalties and other amounts due
from Borrower to Bank under any such Interest Rate Protection Agreement shall,
for all purposes of this Note, be considered as obligations of the Borrower to
the Bank under this Note, and, notwithstanding anything contained herein or in
any of the other Loan Documents to the contrary, all such fees, penalties and
other amounts due from Borrower to Bank under any such Interest Rate Protection
Agreement shall further be considered to be part of the indebtedness owing by
the Borrower to Bank hereunder and under each of the other Loan Documents and
the repayment of which shall be secured by each of the Loan Documents which
secure the Loan.


 


IV.                                PAYMENTS:


 


(a)                                  On the first
(1st) Payment Due Date following the date of this Note and on each successive
Payment Due Date thereafter until the entire indebtedness evidenced by this
Note is paid in full, Borrower shall pay to Bank all accrued and unpaid
interest on the outstanding principal balance.


 


(b)                                 In addition to
the monthly interest payments due under Paragraph (a) above, on the first (1st)
Payment Due Date following the date of this Note and on each successive Payment
Due Date


 


5

















 


thereafter until the entire indebtedness evidenced by this Note is paid
in full, Borrower shall also pay to Bank monthly installments of principal as
follows:


 


(1)                                  On the first
(1st) Payment Due Date following the date of this Note (viz., on
January 1, 2004) and on each of the next eleven (11) Payment Due Dates
thereafter (viz., until and through December 1, 2004), Borrower shall pay
to Bank monthly installments of principal of $59,000.00 each.


 


(2)                                  On the
thirteenth (13th) Payment Due Date following the date of this Note (viz., on
January 1, 2005) and on each of the next eleven (11) Payment Due Dates
thereafter (viz., until and through December 1, 2005), Borrower shall pay
to Bank monthly installments of principal of $63,000.00 each.


 


(3)                                  On the
twenty-fifth (25th) Payment Due Date following the date of this Note (viz., on
January 1, 2006) and on each of the next eleven (11) Payment Due Dates
thereafter (viz., until and through December 1, 2006), Borrower shall pay
to Bank monthly installments of principal of $67,000.00 each.


 


(4)                                  On the
thirty-seventh (37th) Payment Due Date following the date of this Note (viz.,
on January 1, 2007) and on each of the next eleven (11) Payment Due Dates thereafter
(viz., until and through December 1, 2007), Borrower shall pay to Bank
monthly installments of principal of $71,000.00 each.


 


(5)                                  On the
forty-ninth (49th) Payment Due Date following the date of this Note (viz., on
January 1, 2008) and on each of the next ten (10) Payment Due Dates
thereafter (viz., until and through November 1, 2008), Borrower shall pay
to Bank monthly installments of principal of $75,000.00 each.


 


(c)                                  On the Maturity
Date, the Borrower shall pay to Bank the then outstanding principal balance,
together with all accrued and unpaid interest thereon.


 


V.                                    APPLICATION
OF PAYMENTS:


 


All payments shall be applied first to the payment of any interest then
due and payable, then to any principal then due and payable, and then to any
late charges due from Borrower to Bank, and any balance shall be applied in
further reduction of principal.  The
principal and interest shall be payable in lawful money of the United States
which shall be legal tender for public and private debts at the time of payment.


 


VI.                                PREPAYMENTS:


 


During the entire term of this Note, Borrower
shall have the right to prepay all or any part of the principal sum represented
by this Note or the interest thereon at any time and from time to time without
premium or penalty except as may otherwise be provided in any Interest Rate
Protection Agreement as may from time to time be in effect; provided, however,
that, notwithstanding the foregoing, if any prepayment of principal, whether in
whole or in part, is made during the first twelve (12) months of the term of
this Note, then such prepayment shall accrue a note prepayment penalty, due
concurrently with the prepayment, of one percent (1%) of the principal amount
so prepaid.  All prepayments of
principal will be applied to installments coming due hereunder in their inverse
order of maturity, and no prepayment shall delay any monthly installment or
other payment coming due.  Amounts
prepaid may not be reborrowed.


 


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VII.                            LATE
PAYMENTS:


 


Borrower will pay to Bank a late charge equal
to five percent (5%) of any payment not received by Bank within ten (10) days
after the due date thereof.  Collection
or acceptance by Bank of such late charge shall not constitute a waiver of any
remedies of Bank provided herein.


 


VIII.                        EVENTS
OF DEFAULT; INTEREST ON DEFAULT; COLLECTION COSTS:


 


(a)                                  The principal
sum evidenced by this Note, together with accrued interest, shall become
immediately due and payable at the option of the Bank upon the occurrence of
any one or more of the following events (each of which events shall constitute
an “Event of Default” hereunder):  (i)
any failure to pay any installment of principal or interest or any other amount
due hereunder within ten (10) days of the date same comes due; or (ii) any
“Event of Default” under the terms of the Loan Agreement and/or any of the
other Loan Documents which is not cured within any applicable grace period set
forth therein.


 


(b)                                 Upon any Event
of Default, in addition to any late charge which may be due as provided for
hereinabove, Borrower agrees to pay interest to Bank at a rate equal to the
Default Rate from time to time accruing on the aggregate indebtedness
represented hereby, including accrued interest, until such aggregate
indebtedness is paid in full.  Borrower
will also pay to Bank, in addition to the amount due, all costs of collecting,
securing or attempting to collect or secure this Note, including without
limitation, court costs and attorneys’ fees, including attorneys’ fees on any
appeal by either Borrower or Bank.


 


IX.                                BORROWER’S
WAIVERS:


 


With respect to the amounts due pursuant to
this Note, Borrower waives the following:


 


(a)                                  All rights of
exemption of property from levy or sale under execution or other process for
the collection of debts under the Constitution or laws of the United States or
any state thereof;


 


(b)                                 Demand,
presentment, protest, notice of dishonor, notice of nonpayment, suit against
any party, diligence in collection, and all other requirements necessary to
enforce this Note; and


 


(c)                                  Any receipt for
or acknowledgment of any collateral now or hereafter given or deposited as
security for the obligations hereunder.


 


X.                                    WAIVER
OF JURY TRIAL:


 


BORROWER
HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF,
DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY
PERTAINING OR RELATING TO THIS NOTE, THE LOAN AGREEMENT, ANY OF THE OTHER LOAN
DOCUMENTS, OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION WITH THIS NOTE, OR (B) IN ANY WAY CONNECTED WITH OR
PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALING WITH RESPECT TO THIS
NOTE, THE LOAN AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH
OR IN CONNECTION WITH THE TRANSACTIONS RELATED THERETO OR CONTEMPLATED THEREBY
OR THE EXERCISE OF ANY RIGHTS AND REMEDIES THEREUNDER, IN ALL OF THE FOREGOING
CASES WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE.  BORROWER AGREES THAT
BANK MAY FILE A COPY OF THIS SECTION


 


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WITH ANY COURT AS WRITTEN EVIDENCE OF THE
KNOWING, VOLUNTARY AND BARGAINED AGREEMENT OF BORROWER WITH BANK IRREVOCABLY TO
WAIVE TRIAL BY JURY, AND THAT ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN
THEM SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT A JURY.  BORROWER HEREBY
CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF BANK, INCLUDING BANK’S COUNSEL,
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT BANK WOULD NOT, IN THE EVENT OF
SUCH DISPUTE OR CONTROVERSY, SEEK TO ENFORCE THE PROVISIONS OF THIS SECTION,
AND BORROWER ACKNOWLEDGES THAT BANK HAS, IN PART, BEEN INDUCED TO MAKE THE
EXTENSION OF CREDIT EVIDENCED BY THIS NOTE IN RELIANCE ON THE PROVISIONS OF
THIS SECTION.


 


XI.                                APPLICABLE
LAW AND CONSENT TO JURISDICTION:


 


This Note is being held by the Bank in the
State of Alabama, and the validity, interpretation, enforcement and effect of
this Note shall be governed by, and construed according to the laws of, the
State of Alabama.  By execution and
delivery of this Note, Borrower expressly and irrevocably assents and submits
to the personal jurisdiction of the state and federal courts presiding in and
over Jefferson County, Alabama, in any legal action or proceeding arising
under, out of, or in any manner relating to this Note or the extension of
credit evidenced hereby, and acknowledges that the negotiation, execution and
delivery of this Note constitute sufficient contacts with the State of Alabama
for purposes of independently conferring such jurisdiction.  The Borrower further agrees that the
exclusive venue of any such legal action or proceeding arising out of or in any
manner relating to this Note shall be in the state and/or federal courts
presiding in and over Jefferson County, Alabama, unless the Bank shall, at its
sole option, elect to bring or permit the maintenance of any such action in
another venue, and the Borrower hereby waives any and all rights under any
state or federal law to object to such venue on grounds of forum  non
conveniens or otherwise.


 


XII.                            NOTICES:


 


All notices provided for herein shall be
given personally, by mail, or by Federal Express or other similar national
overnight courier, and addressed to the appropriate party at the following
address, or such other single address as the party who is to receive such
notice may designate in writing:


 


	
  to Borrower:

  	
  KMG-Bernuth, Inc.

  
	
   

  	
  10611 Harwin, Suite 402

  
	
   

  	
  Houston, Texas 77036

  
	
   

  	
  ATTENTION: 
  Chief Financial Officer

  
	
   

  	
   

  
	
  to Bank:

  	
  SouthTrust Bank

  
	
   

  	
  420 North 20th Street (35203)

  
	
   

  	
  P. O. Box 2554

  
	
   

  	
  Birmingham, Alabama  35290

  
	
   

  	
  ATTENTION: 
  Middle Market Banking

  
	
   

  	
   

  
	
  with copy to:

  	
  Timothy D. Davis, Esq.

  
	
   

  	
  Sirote & Permutt, P.C.

  
	
   

  	
  2311 Highland Avenue South (35205)

  
	
   

  	
  P. O. Box 55727

  
	
   

  	
  Birmingham, Alabama  35255-5727

  



 


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Notice by mail shall be by registered or
certified mail.  All fees or expenses of
mail or overnight courier shall be paid by the sender.  Notice shall be deemed received at the
earlier of the time actually received or two (2) days following the time
deposited when sent by mail or overnight courier in the manner aforesaid.  Actual receipt of notice shall not be
required to effect notice hereunder.


 


XIII.                        MISCELLANEOUS:


 


(a)                                  In no event
shall the amount of interest due or payable hereunder exceed the maximum rate
of interest allowed by applicable law, and in the event such payment is
inadvertently paid by Borrower or inadvertently received by Bank, then such
excess sum shall be credited as a payment of principal, unless Bank elects to
have such excess sum refunded to Borrower forthwith, which refund Borrower
hereby agrees to accept.  It is the
express intent hereof that Borrower not pay and Bank not receive, directly or
indirectly, interest in excess of that which may be legally paid by Borrower
under applicable law.


 


(b)                                 Bank shall not
by any act, delay, omission, or otherwise be deemed to have waived any of its
rights or remedies under the Loan Documents, and no waiver of any kind shall be
valid unless in writing and signed by Bank.


 


(c)                                  All rights and
remedies of Bank under the terms of this Note and the other Loan Documents and
under applicable statutes or rules of law shall be cumulative, and may be
exercised successively or concurrently.


 


(d)                                 Borrower agrees
that there are no defenses, equities or setoffs with respect to the obligations
set forth herein.


 


(e)                                  This Note and
the obligations of Borrower hereunder shall be binding upon and enforceable
against Borrower and Borrower’s successors and assigns, and shall inure to the
benefit of Bank and its successors and assigns, including any subsequent holder
of this Note.


 


(f)                                    Any provisions
of this Note which may be unenforceable or invalid under any applicable law
shall be ineffective to the extent of such unenforceability or invalidity
without affecting the enforceability or validity of any other provision hereof.


 


(g)                                 Bank may, at
its option, release any collateral given to secure the indebtedness evidenced
hereby or release the Guarantor from the Guaranty, and no such release shall
impair the obligations to Bank of Borrower under this Note and the other Loan
Documents not expressly released by Bank.


 


(h)                                 Section headings
are inserted for convenience of reference only and shall be disregarded in the
interpretation of this Note.  The
provisions of this Note shall be construed without regard to the party
responsible for the drafting and preparation hereof.


 


(i)                                     Time is of the
essence of this Note and the performance of each of the covenants and
agreements contained herein.


 


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IN WITNESS WHEREOF,
Borrower has caused this instrument to be properly executed by its duly
authorized officer as of the day and year first above written.


 


	
   

  	
  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 instrument, 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/

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (OFFICIAL SEAL)

  	
  Notary Public

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  My Commission Expires:

  	
   

  



 


10

















 


EXHIBIT A


PRICING MATRIX


 


	
  Coverage Ratio

  (as defined in the Loan Agreement)

  	
   

  	
  Margin

  	
   

  
	
  < 1.75 to 1.0

  	
   

  	
  1.75%

  	
   

  
	
  > 1.75 to 1.0 but < 2.0 to 1.0

  	
   

  	
  2.00%

  	
   

  
	
  > 2.0 to 1.0

  	
   

  	
  2.25%

  	
   

  



 


 


The applicable Margin to be in effect for
each respective Margin Period will be determined by Bank on a quarterly basis
(based on a rolling four-quarter basis for any Margin Period commencing on or
after October 1, 2004) as of the Margin Determination Date on which the
applicable Margin Period commences based on the Borrower’s Coverage Ratio as of
the end of the Quarter immediately preceding the applicable Margin
Determination Date, as determined from the financial information provided by
Borrower to Bank pursuant to Section 6.1(B) of the Loan Agreement.  In the event the Borrower fails to provide
any of the financial information required by Section 6.1(B) of the Loan
Agreement as necessary for the Bank to determine the applicable Margin as of
any Margin Determination Date, the Margin which shall be in effect during the
Margin Period commencing as of the applicable Margin Determination Date shall
be 2.25%.


 


Notwithstanding anything contained herein to
the contrary, the Margin to be in effect as of the date of this Agreement and
until the second Margin Determination Date (i.e., up to and including
September 30, 2004) shall be 1.75%.


 


11