KMG AMERICA CORPORATION Nonqualified Stock Option Agreement Number of shares subject to Nonqualified Stock Option: _________

(a)

Expiration Date. This Option shall expire at 11:59 p.m. on the tenth annual anniversary of the Date of Grant (the “Expiration Date”). In no event shall the Expiration Date be later than 10 years from the Date of Grant.

(b)

Vesting and Exercise of Option. Except as provided herein, this Option shall become exercisable at the time or times set forth on Schedule A attached hereto. Once this Option has become exercisable in accordance with the preceding sentence, it shall continue to be exercisable until the earlier of the termination of the Participant’s rights hereunder as set forth on Schedule A attached hereto or until the Expiration Date. A partial exercise of this Option shall not affect the Participant’s right to exercise the Option with respect to the remaining shares, subject to the conditions of the Plan and this Agreement.

(c)

Method of Exercise and Payment for Shares. This Option shall be exercised by delivering written notice of exercise to the attention of the Company’s Secretary

(d)

Transferability. This Option generally is nontransferable. Generally, during the Participant’s lifetime, only the Participant may exercise this Option, except that notwithstanding the foregoing, this Option may be transferred by will or by the laws of descent and distribution, and during the Participant’s lifetime, may be transferred by the Participant to the Participant’s children, grandchildren, spouse, one or more trusts for the benefit of such family members or a partnership in which such family members are the only partners, which transferees comprise the class of transferees who may rely on a Form S-8 Registration Statement under the Securities Act of 1933 to sell shares issuable upon exercise of Options granted under the Plan. Any such transferee to whom this Option is transferred shall be bound by the same terms and conditions that govern this Option; provided, however, that the transferee may not transfer this Option except by will or the laws of descent and distribution. If this Option is transferred, the Option must be transferred in its entirety to the same person or persons or entity or entities. No right or interest of the Participant in this Option shall be liable for, or subject to, any lien, obligation or liability of the Participant.

(a)

Agrees to Terms of the Plan and Agreement. The Participant has received or has access to copies of the Company’s most recently filed Form 10-K, a summary of the Plan and the Plan. The Participant has read the Form 10-K, and has read and understands the terms of the summary of the Plan, the Plan and this Agreement, and agrees to be bound by their terms and conditions. The Participant acknowledges that there may be adverse tax consequences upon acquisition or disposition of the shares of Common Stock received upon exercise of this Option, and that Participant should consult a tax adviser prior to such acquisition or disposition.

(b)

Purchase for Own Account for Investment. The shares of Common Stock received upon exercise of this Option will be acquired for the Participant’s own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of such shares within the meaning of the Securities Act of 1933, as amended (the “Securities Act”). The Participant has no present intention of selling or otherwise disposing of all or any portion of such shares.

(c)

Access to Information. The Participant has had access to all information regarding the Company and its present and prospective business, assets, liabilities and financial condition that the Participant reasonably considers important in making a decision to acquire the shares of Common Stock and the Participant has had ample opportunity to ask questions of the Company’s representatives concerning such matters and this investment.

(d)

Understanding of Risks. The Participant is fully aware of: (i) the highly speculative nature of an investment in the Common Stock; (ii) the financial hazards involved in an investment in the Common Stock; (iii) the lack of liquidity of the Common Stock and the restrictions on transferability of the Common Stock (e.g., that the Participant may not be able to sell or dispose of the Common Stock or use it as collateral for loans); (iv) the qualifications and backgrounds of the management of the Company; and (v) the tax consequences of investment in the Common Stock. The Participant is capable of evaluating the merits and risks of this investment, has the ability to protect his own interests in this transaction and is financially capable of bearing a total loss of this investment.

(e)

No General Solicitation. At no time was the Participant presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the shares of Common Stock.

(f)

Compliance with Securities Laws. The shares of Common Stock received upon exercise of this Option have been registered with the Securities and Exchange Commission (“SEC”) under the Securities Act and, notwithstanding any other provision of this Agreement or the Plan to the contrary, the right to acquire any such shares is expressly conditioned upon compliance with the Securities Act and all applicable state securities laws. The Participant agrees to cooperate with the Company to ensure compliance with such laws.

(g)

No Transfer Unless Registered or Exempt. The Participant understands that he may not transfer any shares of Common Stock received upon exercise of this Option unless such shares are registered under the Securities Act or qualified under applicable state securities laws or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. The Participant understands that only the Company may file a registration statement with the SEC and that the Company is under no obligation to do so with respect to the shares. The Participant has also been advised that exemptions from registration and qualification may not be available or may not permit the Participant to transfer all or any of the shares of Common Stock in the amounts or at the times proposed by him.

If to the Company:

 KMG America Corporation

If to the Participant:

__________________________

__________________________

__________________________

(a)

solicit and/or hire any Person who is on the date the Participant’s employment by the Company or its Affiliate terminates for any reason (the “Date of Termination”), or has been within six months prior to the Date of Termination, an employee of the Company or its Affiliates;

(b)

solicit, induce or attempt to induce or hire any Person who is, at the Date of Termination, or has been within six months prior to the Date of Termination, an actual customer, client, business partner, or a prospective customer, client, business partner of the Company or its Affiliates; for the purpose or with the intent of (i) inducing or attempting to induce such Person to cease doing business with the Company or its Affiliates; (ii) enticing or attempting to entice such Person to do business with the Participant or any Affiliate of the Participant; or (iii) in any way interfering with the relationship between such Person and the Company or its Affiliates; or

(c)

solicit, induce or attempt to induce any Person who is or that is, at the time of the Date of Termination, or has been within six months prior to the Date of Termination, a supplier, licensee or consultant of, or provider of goods or services to the Company or its Affiliates, for the purpose or with the intent of (i) inducing or attempting to induce such Person to cease doing business with the Company or its Affiliates; or (ii) in any way interfering with the relationship between such Person and the Company or its Affiliates.

Name:

▇▇▇▇▇▇▇ ▇. ▇▇▇

Title:

Chairman, President and Chief Executive Officer

TO:

KMG America Corporation, Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Secretary

▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇

Type of
Option

(ISO/ NQSO)

Option
Grant
Date

Original Number
of Option Shares
Granted

Number of
Shares being
Exercised

Per
Share
Exercise
Price

Indicate Method of Payment

(Cashier’s Check, Certified Check, Money
Order or Cashless Exercise with

Check from Broker)

(Print Name)

Please insert social security or other identifying number of above registered holder of certificate (________________) and address

(Print Name)

Please insert social security or other identifying number of above registered holder of certificate (________________) and address

Option Holder Address:

Phone Number:

Date: _________, 20__

Option Holder Signature*

*The signature on the Notice of Exercise of Option must correspond to the name as written upon the face of the Option in every particular without alteration or enlargement or any change whatsoever. When signing on behalf of a corporation, partnership, trust or other entity, PLEASE indicate your position(s) and title(s) with such entity.