Exhibit 10.7


 


THIRD AMENDMENT TO TERM LOAN AGREEMENT


 


THIS THIRD AMENDMENT TO TERM LOAN AGREEMENT
(this “Amendment” or “Third Amendment to Loan Agreement”) 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 8th day of June, 2004.


 


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, and by that certain Second
Amendment to Term Loan Agreement dated as of December 5, 2003 (as so
amended and as hereby amended, the “Loan Agreement”), whereby Borrower became
indebted to Bank for a Term Loan in the original principal amount of
$6,000,000.00 and thereafter amended to a principal amount of $5,050,000.00 and
a Term Loan No. 2 in the principal amount of $6,000,000.00; and


 


WHEREAS, the
Borrower and the Bank have agreed for Bank to loan an additional sum of
$2,954,000.00 to Borrower, with such additional sum to be consolidated with the
current outstanding principal balance of the Term Loan No. 2 and evidenced by
the Term Note No. 2; and


 


WHEREAS, the
Borrower has repaid a portion of the Term Loan No. 2, and the parties
acknowledge that the current outstanding balance of the Term Loan No. 2 is
$5,646,000.00; 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 thereto the following new definitions as additional
defined terms:


 


“Initial
Term Loan No. 2 Advance” means the initial sum of Six Million and No/100
Dollars ($6,000,000.00) loaned by the Bank to the Borrower pursuant to
Section 2A. of the Loan Agreement, as set forth in the Second Amendment to
Term Loan Agreement between Borrower and Bank dated as of December 5,
2003, and evidenced by the Term Note No. 2.


 


“Additional
Term Loan No. 2 Advance” means the additional sum of Two Million Nine
Hundred Fifty-Four Thousand and No/100 Dollars ($2,954,000.00) being made
available by the Bank to the Borrower pursuant to the Third Amendment to Term
Loan Agreement between Borrower and Bank dated as of June 8, 2004, and
which is being included as a part of the Term Loan No. 2.


 
















 


(b)                                 Section 1.1 is
hereby amended by deleting the definitions of “Loan Fee” and “Term Loan No. 2”,
each as defined therein, in their entirety and substituting the following new
definitions in lieu thereof:


 


“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 the
Borrower to the Bank 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 between Borrower and Bank dated
as of December 30, 2002, 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 between Borrower and Bank dated as of December 5, 2003, and a
fee of $21,000.00 payable by the Borrower to the Bank concurrently with the
execution of the Third Amendment to Term Loan Agreement between Borrower and
Bank dated as of June 8, 2004.


 


“Term Loan No. 2”
means the aggregate principal amount of $8,600,000.00 loaned by Bank to
Borrower pursuant to Section 2A. 1 of this Agreement.


 


(c)                                  All other capitalized
terms used herein shall have the respective meanings assigned thereto in the
Loan Agreement, unless otherwise specifically defined herein.


 


2.                                       Section 2A.
of the Loan Agreement is hereby amended by deleting Section 2A.1 thereof
in its entirety and substituting the following new Section 2A.1 in lieu
thereof:


 


2A.1                       General Terms. 
Subject to the terms hereof, the Bank will lend the Borrower, on a term
basis, the aggregate principal amount of Eight Million Six Hundred Thousand and
No/100 Dollars ($8,600,000.00), which amount represents the sum of:  (a) the Initial Term Loan No. 2 Advance
heretofore loaned by Bank to Borrower and on which there is an outstanding
principal balance of $5,646,000.00, plus (b) the Additional Term Loan No. 2
Advance of $2,954,000.00. 
Notwithstanding anything contained in this Agreement to the contrary,
the Additional Term Loan No. 2 Advance will be disbursed by Bank pursuant to
the provisions of Section 2A.2 as of the effective date of the Third
Amendment to Term Loan Agreement between Borrower and Bank.


 


3.                                       Section 2A.
of the Loan Agreement is hereby amended by deleting Section 2A.7 thereof
in its entirety and substituting the following new Section 2A.7 in lieu
thereof:


 


2A.7                       Use of Proceeds of Term Loan No. 2.  The
proceeds of the Term Loan No. 2 shall be used by the Borrower as follows:  (a) the Initial Term Loan No. 2 Advance 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., and (b) the Additional Term Loan No. 2 Advance shall be used by the
Borrower solely to provide financing for the purchase of the registrations and
customer list of Trenton Sales, Inc. and related closing costs and fees, and
any balance shall be used for working capital purposes.


 


4.                                       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:


 


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(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) $4,000,000.00 as of July 31, 2004; (b)
$7,500,000.00 as of July 31, 2005; and (c) $11,000,000.00 as of
July 31, 2006, 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) 4.0 to 1.0 as
of July 31, 2004; (b) 2.5 to 1.0 as of July 31, 2005; and (c) 1.5 to
1.0 as of July 31, 2006, and at all times thereafter.


 


(4)                                  A
Coverage Ratio of not greater than: (a) 2.7 to 1.0 as of July 31, 2004;
(b) 1.75 to 1.0 as of July 31, 2005; and (c) 1.5 to 1.0 as of
July 31, 2006, and at all times thereafter; said Coverage Ratio to be
measured quarterly based on a rolling four-quarter basis.


 


5.                                       Section 7.1
of the Loan Agreement is hereby amended by deleting Subsections (N) and (O)
thereof in their entirety with no substitution being made therefor.


 


6.                                       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.


 


7.                                       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
$21,000.00 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)                                 Amendment to Term
Note No. 2.  The Bank shall have
received a First Amendment to Term Note No. 2, duly executed and delivered by
the Borrower.


 


(c)                                  Amendment to term
Loan No. 2 Guaranty.  The Bank shall
have received a First Amendment to Term Loan No. 2 Guaranty, duly executed and
delivered by the Guarantor.


 


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(d)                                 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.


 


8.                                       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.


 


9.                                       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 the registrations and customer list of Trenton Sales,
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.


 


10.                                 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.


 


11.                                 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


 


4
















 


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/ John V. Sobchak

  	
   

  
	
   

  	
  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 Third 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 7th day of June, 2004.


 


	
   

  	
   

  	
  (SEAL)

  
	
   

  	
  Notary Public

  
	
   

  	
  My Commission Expires:

  	
   

  
				



 


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  BANK:

  
	
   

  	
   

  
	
   

  	
  SOUTHTRUST BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Alan Drennen

  
	
   

  	
  Its:

  	
   

  
	
   

  	
   

  
	
  STATE OF
  ALABAMA          )

  	
   

  
	
  COUNTY OF
  JEFFERSON    )

  	
   

  



 


I, the undersigned, a Notary Public in and
for said County in said State, hereby certify that
                                                       ,
whose name as                                                     
of SouthTrust Bank, an Alabama banking corporation, is signed to the foregoing
Third 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 8th day of June, 2004.


 


	
   

  	
   

  	
  (SEAL)

  
	
   

  	
  Notary Public

  
	
   

  	
  My Commission Expires:

  	
   

  
				



 


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  GUARANTOR:

  
	
   

  	
   

  
	
   

  	
  KMG CHEMICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John V. Sobchak

  	
   

  
	
   

  	
  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 Third 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 7th day of June, 2004.


 


	
   

  	
   

  	
  (SEAL)

  
	
   

  	
  Notary Public

  
	
   

  	
  My Commission Expires:

  	
   

  
				



 


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