1028215--10/14/2008--KMG_CHEMICALS

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Risks Relating to Our Business The industries in which we operate are competitive. This competition may prevent us from raising prices at the same pace as our costs increase, making it difficult for us to maintain existing business and win new business. We may experience a reduced demand for our wood preserving chemicals if the demand for the wood products on which those chemicals are used decreases, which may adversely affect our business, results of operations, cash flow and financial condition. The industries that we compete in are subject to economic downturns. A significant portion of our revenue and operating income from our electronic chemicals segments are concentrated in a small number of customers. If we are unable to identify, fund and execute new acquisitions, we will not be able to execute a key element of our business strategy. We may experience increased costs and production delays if suppliers fail to deliver materials or if prices increase for raw materials and other goods and services that we purchase from third parties. Increases in the price of our primary raw materials for our wood preserving chemicals business may decrease our profitability and adversely affect our liquidity, cash flow, financial condition and results of operations. We are dependent on a limited number of suppliers for cosolvent, creosote and several of our animal health pesticides, the loss of any one of which could have a material adverse effect on our financial condition and results of operations. Our profitability could be adversely affected by high petroleum prices. Our ability to make payments on our debt will be contingent on our future operating performance, which will depend on a number of factors that are outside of our control. Restrictions in our debt agreements could limit our growth and our ability to respond to changing conditions. We have recently completed a major acquisition, and may continue to pursue new acquisitions or joint ventures, and any such transaction could result in operating or management problems that adversely affect operating results. We remain subject to the ongoing risks of successfully integrating and managing the acquisitions and joint ventures that have been completed. If our products are not re-registered by the EPA or are re-registered subject to new restrictions, our ability to sell our products may be curtailed or significantly limited. Our products may be rendered obsolete or less attractive by changes in industry requirements or by supply-chain driven pressures to shift to environmentally preferable alternatives. We may be unable to identify liabilities associated with the properties that may be acquired or obtain protection from sellers against them. We are dependent upon many critical systems and processes, many of which are dependent upon hardware that is concentrated in a limited number of locations. If a catastrophe were to occur at one or more of those locations, it could have a material adverse effect on our business. Weather may impact adversely our ability to conduct business. The distribution and sale of our products is subject to prior governmental approvals and thereafter ongoing governmental regulation. The Registration Evaluation and Authorization of Chemicals ( REACH ) legislation may affect our ability to manufacture and sell certain products in the European Union. We are subject to extensive environmental laws and regulations and may incur costs that have a material adverse effect on our financial condition as a result of violations of or liabilities under environmental laws and regulations. Our use of hazardous materials exposes us to potential liabilities. Our business success depends significantly on the reliability and sufficiency of our manufacturing facilities. Our business is subject to many operational risks for which we may not be adequately insured. Our business may be adversely affected by cyclical and seasonal effects. We depend on our senior management team and the loss of any member could adversely affect our operations. If we are unable to successfully negotiate with the labor unions representing our employees, we may experience a material work stoppage. We are subject to possible risk of terrorist attacks which could adversely affect our business. We are subject to risks inherent in foreign operations, including changes in social, political and economic conditions.

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1028215--10/14/2008--KMG_CHEMICALS_INC