SECURITY AGREEMENT
(Borrower)

THIS SECURITY AGREEMENT (as it may be amended or modified from time to time, the
"Agreement") is entered into as of December ____, 2010 by and between NATURAL
GAS SERVICES GROUP, INC., a Colorado corporation (the "Debtor"), and JPMORGAN
CHASE BANK, N.A., a national banking association (the "Secured Party").

PRELIMINARY STATEMENT

Debtor and Secured Party are entering into a Credit Agreement of even date
herewith (as it may be amended or modified from time to time, the "Credit
Agreement").  Debtor is entering into this Agreement in order to induce Secured
Party to enter into and extend credit to Debtor under the Credit Agreement.

ACCORDINGLY, Debtor and Secured Party, hereby agree as follows:

ARTICLE I
 
DEFINITIONS
 
1.1 Terms Defined in Credit Agreement.  All capitalized terms used herein and
not otherwise defined shall have the meanings assigned to such terms in the
Credit Agreement.
 
1.2 Terms Defined in UCC.  Terms defined in the UCC which are not otherwise
defined in this Agreement are used herein as defined in the UCC.
 
1.3 Definitions of Certain Terms Used Herein.  As used in this Agreement, in
addition to the terms defined in the Preliminary Statement, the following terms
shall have the following meanings:
 
"Accounts" shall have the meaning set forth in Article 9 of the UCC.

"Article" means a numbered article of this Agreement, unless another document is
specifically referenced.

"Chattel Paper" shall have the meaning set forth in Article 9 of the UCC.

"Collateral" shall have the meaning set forth in Article II.

"Collateral Access Agreement" means any landlord subordination or other
agreement, in form and substance satisfactory to Secured Party, between Secured
Party and any third party (including any licensor, bailee, consignee, customs
broker, or other similar Person) in possession of any Collateral or any landlord
of any Obligor for any real property where any Collateral is located, as such
landlord subordination or other agreement may be amended, restated, or otherwise
modified from time to time.

"Collateral Report" means any certificate (including any Borrowing Base
Certificate), report or other document delivered by Debtor to Secured Party with
respect to the Collateral pursuant to any Credit Document.

"Control" shall have the meaning set forth in Article 8 or, if applicable, in
Section 9-104, 9-105, 9-106 or 9-107 of Article 9 of the UCC.

 
 

--------------------------------------------------------------------------------

 
"Default" means any event or condition which constitutes an Event of Default or
which upon notice, lapse of time or both would, unless cured or waived, become
an Event of Default.

"Documents" shall have the meaning set forth in Article 9 of the UCC.

"Equipment Inventory" means the specific rental compressor Inventory of Debtor
identified in Exhibit D attached hereto, together with any and all accessions
thereto and any and all leases or other Chattel Paper covering any portion of
such specific rental compressor Inventory.

"Event of Default" means an event described in Section 5.1.

"Exhibit" refers to a specific exhibit to this Agreement, unless another
document is specifically referenced.

"General Intangibles" shall have the meaning set forth in Article 9 of the UCC.

"General Inventory" means any Inventory (excluding specific rental compressor
Inventory of Debtor identified in Exhibit D attached hereto and all other
compressors held by Debtor for lease to third parties and any and all accessions
thereto), now or hereafter owned by Debtor.

"Instruments" shall have the meaning set forth in Article 9 of the UCC.

"Inventory" shall have the meaning set forth in Article 9 of the UCC.

"Section" means a numbered section of this Agreement, unless another document is
specifically referenced.

"UCC" means the Uniform Commercial Code, as in effect from time to time, of the
State of Texas or of any other state the laws of which are required as a result
thereof to be applied in connection with the attachment, perfection or priority
of, or remedies with respect to, Secured Party's Lien on any Collateral.

The foregoing definitions shall be equally applicable to both the singular and
plural forms of the defined terms.

ARTICLE II
 
GRANT OF SECURITY INTEREST
 
2.1           In order to secure the prompt and complete payment and performance
of the Obligations, Debtor hereby pledges, collaterally assigns and grants to
Secured Party, a security interest in all of its right, title and interest in,
to and under all of the following described personal property, whether now owned
by or owing to, or hereafter acquired by or arising in favor of Debtor,
regardless of where located (all of which will be collectively referred to as
the "Collateral"):

(i) all Accounts;
 
(ii) all General Inventory;
 
(iii) the specific rental compressor Inventory of Debtor identified in Exhibit D
attached hereto, together with any and all accessions thereto and any and all
leases or other Chattel Paper covering any portion of such specific rental
compressor Inventory;
 
(iv) all leases and other Chattel Paper covering all or any portion of any
rental compressor Inventory of Debtor (including any specific rental compressor
Inventory of Debtor identified in Exhibit D attached hereto), including without
limitation, all rights to payments now or hereafter due and owing thereunder;
and
 
 
 

--------------------------------------------------------------------------------

 
(v) all accessions to, substitutions for and replacements, proceeds, insurance
proceeds and products of the foregoing, together with all books and records,
customer lists, credit files, computer files, programs, printouts and other
computer materials and records related thereto and any Chattel Paper or General
Intangibles at any time evidencing or relating to any of the foregoing.
 
2.2           The Obligations secured hereby include (a) interest and other
obligations of any Obligor accruing or arising after (i) commencement of any
case under any bankruptcy or similar laws by or against Debtor or any other
Obligor or (ii) the obligations of any Obligor shall cease to exist by operation
of law or for any other reason (it being the intention of Secured Party to not
reinstate the liability of any discharged Obligor, but only to confirm that the
discharge of any Obligor from liability for the Obligations shall not effect all
remaining Obligors' liability for interest and other obligations accruing or
arising with respect to the Obligations after any such discharged Obligor has
been released from liability for all or any portion of the Obligations), and (b)
all reasonable attorneys' fees and any other reasonable expenses incurred by
Secured Party in enforcing any of the Credit Documents.

ARTICLE III
 
REPRESENTATIONS AND WARRANTIES
 
Debtor represents and warrants to Secured Party that:

3.1 Title, Perfection and Priority.  Debtor has good and valid rights in the
Collateral and title to the Collateral with respect to which it has purported to
grant a security interest hereunder, free and clear of all Liens except for
Liens permitted under Section 4.1(e), and has full power and authority to grant
to Secured Party the security interest in such Collateral pursuant hereto.  When
financing statement(s) have been filed in the appropriate office against Debtor
in the location listed on Exhibit C, Secured Party will have a fully perfected
first priority security interest in that Collateral in which a security interest
may be perfected by filing a financing statement, subject only to Liens
permitted under Section 4.1(e).
 
3.2 Type and Jurisdiction of Organization, Organizational and Identification
Numbers.  The type of entity of Debtor, its state of organization, the
organizational number issued to it by its state of organization and its federal
employer identification number are set forth on Exhibit A.
 
3.3 Collateral Locations.  All of Debtor's locations where Collateral is located
are listed on Exhibit B. All of said locations are owned by Debtor except for
locations (i) which are leased by Debtor as lessee and designated in Exhibit B
as leased, and (ii) at which Inventory is held in a public warehouse or is
otherwise held by a bailee or on consignment as designated as such in Exhibit B.
 
3.4 Accounts.
 
(a) The names of the obligors, amounts owing, due dates and other information
with respect to the Accounts and Chattel Paper relating thereto are and will be
correctly stated in all records of Debtor relating thereto and in all invoices
and Collateral Reports with respect thereto furnished to Secured Party by Debtor
from time to time.  As of the time when each Account or each item of Chattel
Paper relating thereto arises, Debtor shall be deemed to have represented and
warranted that such Account or Chattel Paper, as the case may be, and all
records relating thereto, are genuine and in all respects what they purport to
be.
 
(b) With respect to Accounts, except as specifically disclosed on the most
recent Collateral Report, (i) all Accounts are Eligible Accounts; (ii) all
Accounts represent bona fide sales of General Inventory, lease payment under
bona fide leases of Equipment Inventory or rendering of services to account
debtors in the ordinary course of Debtor’s business and are not evidenced by a
judgment, Instrument or Chattel Paper; (iii) except for setoffs, claims or
disputes that customarily occur during the normal course of Debtor’s business
and which will be disclosed on the next Collateral Report to be provided by
Debtor to Secured Party, there are no setoffs, claims or disputes existing or
asserted with respect thereto and Debtor has not made any agreement with any
account debtor for any extension of time for the payment thereof, any compromise
or settlement for less than the full amount thereof, any release of any account
debtor from liability therefor, or any deduction therefrom except a discount or
allowance allowed by Debtor in the ordinary course of its business for prompt
payment and disclosed to Secured Party; (iv) to Debtor’s knowledge, there are no
facts, events or occurrences which in any way impair the validity or
enforceability thereof or could reasonably be expected to reduce the amount
payable thereunder as shown on Debtor’s books and records and any invoices,
statements and Collateral Reports with respect thereto, including without
limitation, any actual knowledge that any account debtor is unable generally to
pay its debts as they become due; and (v) Debtor has not received any notice of
proceedings or actions which are threatened or pending against any account
debtor which might result in any adverse change in such account debtor’s
financial condition.
 
 
 

--------------------------------------------------------------------------------

 
(c) In addition, with respect to all Accounts, the amounts shown on all
invoices, statements and Collateral Reports with respect thereto are bona-fide
amounts owing to Debtor as indicated thereon and are not in any way contingent.
 
3.5 General Inventory.  With respect to any General Inventory scheduled or
listed on the most recent Collateral Report, (a) such General Inventory (other
than General Inventory in transit) is located at one of Debtor’s locations set
forth on Exhibit B, (b) no General Inventory (other than General Inventory in
transit) is now, or shall at any time or times hereafter be stored at any other
location except as permitted by Section 4.1(g), (c) Debtor has good,
indefeasible and merchantable title to such General Inventory and such General
Inventory is not subject to any Lien or security interest or document whatsoever
except for the Lien granted to Secured Party and except for other Liens
permitted under the Credit Agreement, (d) except as specifically disclosed in
the most recent Collateral Report, such General Inventory is Eligible General
Inventory of good and merchantable quality, free from any defects, (e) such
General Inventory is not subject to any copyright, license, patent, trademark,
royalty or trade name agreements with any third parties which would require any
consent of any third party upon sale or disposition of that General Inventory or
the payment of any monies to any third party upon such sale or other
disposition, and (f) the sale or other disposition of such General Inventory by
Secured Party following an Event of Default shall not require the consent of any
Person and shall not constitute a breach or default under any contract or
agreement to which Debtor is a party or to which such property is subject.
 
3.6 Equipment Inventory.  With respect to any Equipment Inventory scheduled or
listed on the most recent Collateral Report, (a) to the extent such Equipment
Inventory is not in the possession of the third-party lessee pursuant to the
terms of any lease covering the same, such Equipment Inventory (other than
Equipment Inventory in transit) is located at one of Debtor’s locations set
forth on Exhibit B, (b) no Equipment Inventory (other than Equipment Inventory
in transit) is now, or shall at any time or times hereafter be stored at any
other location except as permitted by Section 4.1(g) or except such Equipment
Inventory that is in the possession of the third-party lessee pursuant to the
terms of a lease covering the same, (c) Debtor has good, indefeasible and
merchantable title to such Equipment Inventory, subject to the rights of any
lessee pursuant to the terms of any lease covering the same, and such Equipment
Inventory is not subject to any Lien or security interest or document whatsoever
except for the Lien granted to Secured Party and except for other Liens
permitted under the Credit Agreement, (d) except as specifically disclosed in
the most recent Collateral Report, such Equipment Inventory is Eligible
Equipment Inventory of good and merchantable quality, free from any defects, (e)
such Equipment Inventory is not subject to any copyright, license, patent,
trademark, royalty or trade name agreements with any third parties which would
require any consent of any third party upon sale or disposition of that
Equipment Inventory or the payment of any monies to any third party upon such
sale or other disposition, and (f) the sale or other disposition of such
Equipment Inventory by Secured Party following an Event of Default shall not
require the consent of any Person and shall not constitute a breach or default
under any contract or agreement to which Debtor is a party or to which such
property is subject
 
3.7 No Financing Statements, Security Agreements.  No financing statement or
security agreement describing all or any portion of the Collateral which has not
lapsed or been terminated naming Debtor as debtor has been filed or is of record
in any jurisdiction except (a) for financing statements or security agreements
naming Secured Party as the secured party, and (b) as permitted by the Credit
Agreement and Section 4.1(e) hereof.
 
ARTICLE IV
 
COVENANTS
 
From the date of this Agreement, and thereafter until this Agreement is
terminated, Debtor agrees that:

4.1 General.
 
(a) Collateral Records.  Debtor will maintain complete and accurate books and
records with respect to the Collateral.
 
(b) Authorization to File Financing Statements; Ratification.  To the extent
permitted by law, Debtor hereby authorizes Secured Party to file, and if
requested will deliver to Secured Party, all financing statements and other
documents and take such other actions as may from time to time be reasonably
requested by Secured Party in order to maintain a first priority perfected
security interest in the Collateral, and, if applicable in order to maintain a
first priority perfected security interest, Control of, the Collateral.  Debtor
also ratifies its authorization for Secured Party to have filed in any UCC
jurisdiction any initial financing statements or amendments thereto if filed
prior to the date hereof.
 
(c) Further Assurances.  Debtor agrees to take any and all actions reasonably
necessary to defend title to the Collateral against all persons and to defend
the security interest of Secured Party in the Collateral and the priority
thereof against any Lien not expressly permitted hereunder or under the Credit
Agreement.
 
(d) Disposition of Collateral.  Debtor will not sell, lease or otherwise dispose
of the Collateral except (i) in the ordinary course of Debtor’s business and
(ii) other dispositions permitted pursuant to the Credit Agreement.
 
 
 

--------------------------------------------------------------------------------

 
(e) Liens.  Debtor will not create, incur, or suffer to exist any Lien on the
Collateral except (i) the security interest created by this Agreement, and (ii)
other Liens permitted under the terms of the Credit Agreement.
 
(f) Other Financing Statements.  Debtor will not authorize the filing of any
financing statement (other than by Secured Party) covering all or any portion of
the Collateral, except as permitted by Section 4.1(e). Debtor acknowledges that
it is not authorized to file any financing statement or amendment or termination
statement with respect to any financing statement filed in connection with this
Agreement without the prior written consent of Secured Party, subject to
Debtor's rights under Section 9-509(d)(2) of the UCC.
 
(g) Locations.  Other than any Inventory in transit and any Equipment Inventory
in the possession of a third-party lessee pursuant to the terms of a lease
covering the same, Debtor will not (i) maintain any Collateral at any location
other than those locations listed on Exhibit B or otherwise change, or add to,
such locations without providing Secured Party with not less than fifteen (15)
days prior written notice and unless Debtor has obtained a Collateral Access
Agreement for each such newly leased location (it being understood that absent
further agreement of Secured Party, any Collateral located at any leased
location for which no Collateral Access Agreement is obtained may not be
included within Eligible Inventory for purposes hereof), or (ii) change its
principal place of business or chief executive office from the location
identified on Exhibit A except as permitted by the Credit
Agreement.  Notwithstanding the foregoing requirement that a Collateral Access
Agreement is required to have been fully executed and delivered to Secured Party
with respect to any location leased by Debtor prior to any Collateral located at
such leased location being permitted to be included within Eligible Inventory,
Secured Party hereby agrees that Debtor shall have sixty (60) days after the
date of this Agreement to secure and furnish such Collateral Access Agreements
to Secured Party before any Collateral located at any leased location for which
no such Collateral Access Agreement has been received will be excluded from
Eligible Inventory due to the failure of Secured Party to have received a
Collateral Access Agreement for such leased location.
 
4.2 Accounts.
 
(a) Certain Agreements on Accounts.  Debtor will not make or agree to make any
discount, credit, rebate or other reduction in the original amount owing on an
Account or accept in satisfaction of an Account less than the original amount
thereof, except that if no Event of Default then exists, Debtor may reduce the
amount of Accounts in accordance with its present policies and in the ordinary
course of business.
 
(b) Collection of Accounts.  Except as otherwise provided in this Agreement,
Debtor will collect and enforce, at Debtor's sole expense, all amounts due or
hereafter due to Debtor under all Accounts.
 
(c) Delivery of Invoices.  During the existence of an Event of Default, Debtor
will deliver to Secured Party immediately upon its request duplicate invoices
with respect to each Account bearing such language of assignment as Secured
Party shall specify.
 
(d) Disclosure of Counterclaims on Accounts.  If during the existence of an
Event of Default (i) any discount, credit or agreement to make a rebate or to
otherwise reduce the amount owing on an Account exists or (ii) if, to the
knowledge of Debtor, any dispute, setoff, claim, counterclaim or defense exists
or has been asserted or threatened with respect to an Account, and if such
discount, credit, agreement, dispute, setoff, claim, counterclaim or defense is
not otherwise shown on the most recent Collateral Report previously delivered to
Secured Party and reduces or could reasonably be expected to reduce the
collectability of the applicable Account by an amount in excess of $25,000,
Debtor will promptly disclose such fact to Secured Party in writing.  During the
existence of an Event of Default, Debtor shall send Secured Party a copy of each
credit memorandum (other than credit memoranda with respect to applications of
customer advances or deposits issued in the ordinary course) in excess of
$50,000 as soon as issued, and Debtor shall promptly report each credit memo and
each of the facts required to be disclosed to Secured Party in accordance with
this Section 4.2(d) on the Borrowing Base Certificates submitted by it.
 
4.3 Inventory.
 
(a) Maintenance of Inventory.  Debtor will do all things reasonably necessary to
maintain, preserve, protect and keep the General Inventory in saleable condition
and the Equipment Inventory in good repair and working condition, except for
damaged or defective Inventory arising in the ordinary course of such Debtor’s
business and except for ordinary wear and tear in respect of the Equipment
Inventory.
 
(b) Returned General Inventory.  During the existence of an Event of Default, if
an account debtor returns any General Inventory to Debtor, then Debtor shall
promptly determine the reason for such return and shall issue a credit
memorandum to such account debtor in the appropriate amount.  Debtor shall
immediately report to Secured Party any return involving an amount in excess of
$50,000.  Each such report shall indicate the reasons for the returns and the
locations and condition of the returned General Inventory.  All returned General
Inventory shall be subject to Secured Party's Liens thereon.  Whenever any
General Inventory is returned, the related Account shall be deemed excluded from
Eligible Accounts to the extent of the amount owing by the account debtor with
respect to such returned General Inventory and such returned General Inventory
shall not be Eligible General Inventory.
 
(c) Returned Equipment Inventory.  During the existence of an Event of Default,
if any lessee of any Equipment Inventory returns any Equipment Inventory to
Debtor alleging a defect with respect to the same, then Debtor shall immediately
report to Secured Party any such return.  Each such report shall indicate the
reasons for the returns and the location and condition of the returned Equipment
Inventory.  Whenever any Equipment Inventory is returned, such Equipment
Inventory shall be deemed excluded from Eligible Equipment Inventory unless and
until Debtor furnishes Secured Party with reasonably sufficient evidence to
confirm that the applicable alleged defect has been cured or does not actually
exist.
 
 
 

--------------------------------------------------------------------------------

 
4.4 Delivery of Instruments and Chattel Paper. Debtor will (a) deliver to
Secured Party immediately upon execution of this Agreement the originals of all
Instruments constituting Collateral (if any then exist), (b) hold in trust for
Secured Party upon receipt and immediately thereafter deliver to Secured Party
any and all Instruments constituting Collateral hereafter acquired by Debtor,
(c) upon Secured Party's request, deliver to Secured Party (and thereafter hold
in trust for Secured Party upon receipt and immediately deliver to Secured
Party) the originals of any Chattel Paper evidencing or constituting Collateral
and (d) upon Secured Party's request, deliver to Secured Party a duly executed
amendment to this Agreement pursuant to which Debtor will pledge such additional
Equipment Inventory hereafter identified and designated by Debtor as additional
“Equipment Inventory” for purposes hereof in accordance with the requirements of
Section 5.11 or any other applicable provision of the Credit Agreement;
provided, however, that notwithstanding the foregoing, Instruments held by
Debtor need not be delivered to be held in trust by Secured Party to the extent
that the value of all such Instruments then held by Debtor does not exceed
$25,000 in the aggregate.
 
4.5 Registration and Certificate of Title Requirements.  To the extent that
Secured Party reasonably determines that any portion of the Inventory of Debtor
constituting Collateral hereunder is required to be registered with any
applicable Governmental Authority so as to obtain a certificate of title for
such Inventory in accordance with any applicable Legal Requirement, Debtor
hereby agrees that upon the written request of Secured Party, Debtor shall
promptly cause the registration of such Inventory with such applicable
Governmental Authority to occur and cause Secured Party’s Lien against such
Inventory to be properly reflected on the applicable certificate(s) of title
issued by such applicable Governmental Authority for such Inventory.
 
4.6 Collateral Access Agreements.  Debtor shall use commercially reasonable
efforts to obtain a Collateral Access Agreement from the lessor of each leased
property, mortgagee of owned property or bailee or consignee with respect to any
warehouse, processor or converter facility or other location where any
Collateral is stored or located, which agreement or letter shall provide access
rights, contain a waiver or subordination of all Liens or claims that the
landlord, mortgagee, bailee or consignee may assert against the Collateral at
that location, and shall otherwise be reasonably satisfactory in form and
substance to Secured Party. With respect to such locations or warehouse space
now or hereafter leased by Debtor, if Secured Party has not received a
Collateral Access Agreement, at the option of Secured Party, any Inventory at
that location shall be excluded from the Borrowing Base or subject to such rent
reserves against the Borrowing Base as may be established by Secured Party in
its discretion.  After the date hereof, no real property or warehouse space
shall be leased by Debtor, unless and until a satisfactory Collateral Access
Agreement shall first have been obtained with respect to such location and if it
has not been obtained, then at the option of Secured Party, any Inventory at
that location shall be excluded from the Borrowing Base or subject to such rent
reserves against the Borrowing Base as may be established by Secured Party in
its discretion. Debtor shall timely and fully pay and perform its obligations
under all leases and other agreements with respect to each leased location or
third party warehouse where any Collateral is or may be located.
 
4.7 No Interference.  Debtor agrees that it will not interfere with any right,
power and remedy of Secured Party provided for in this Agreement or now or
hereafter existing at law or in equity or by statute or otherwise, or the
exercise or beginning of the exercise by Secured Party of any one or more of
such rights, powers or remedies.
 
4.8 Insurance.

(a) In the event any Collateral is located in any area owned and/or operated by
Debtor that has been designated by the Federal Emergency Management Agency as a
"Special Flood Hazard Area", Debtor shall purchase and maintain flood insurance
on such Collateral (including any personal property which is located on any real
property leased by the applicable Obligor within a "Special Flood Hazard
Area").  The amount of all insurance required by this Section shall at a minimum
comply with applicable law, including the Flood Disaster Protection Act of 1973,
as amended.
 
(b) All insurance policies required under the Credit Agreement or any other
Credit Document shall name Secured Party as an additional insured or as loss
payee, as applicable, and shall contain loss payable clauses or mortgagee
clauses, through endorsements in form and substance satisfactory to Secured
Party, which provide that: (i) all proceeds thereunder with respect to any
Collateral shall be payable to Secured Party; (ii) no such insurance shall be
affected by any act or neglect of the insured or owner of the property described
in such policy; and (iii) such policy and loss payable or mortgagee clauses may
be canceled, amended, or terminated only upon at least thirty (30) days prior
written notice given to Secured Party.
 
(c) All premiums on any insurance required by the Credit Agreement or any other
Credit Document shall be paid when due by Debtor, and Debtor agrees to furnish
due proof of payment of the premiums for all such insurance to Secured Party
promptly after each such payment is made and in any case at least fifteen (15)
days before payment becomes delinquent.  If Debtor fails to obtain any insurance
as required by the Credit Agreement or any other Credit Document, Secured Party
may obtain such insurance at Debtor's expense.  By purchasing such insurance,
Secured Party shall not be deemed to have waived any Default arising from
Debtor's failure to maintain such insurance or pay any premiums therefor, and
Secured Party shall have no obligation to cause Debtor or anyone else to be
named as an insured, to cause Debtor's or anyone else's interests to be insured
or protected or to inform Debtor or anyone else that his or its interests are
uninsured or underinsured.
 
(d) In connection with Secured Party’s right to obtain coverage to protect
Secured Party’s interest in the Collateral, the following notice is hereby given
to Debtor in accordance with the requirements of Section 307.052 of the Texas
Finance Code:
 
 
 

--------------------------------------------------------------------------------

 
NOTICE:
 
 
(i)
DEBTOR IS REQUIRED TO: (i) KEEP THE COLLATERAL INSURED AGAINST DAMAGE FOR THE
FULL REPLACEMENT COST THEREOF; (ii) PURCHASE THE INSURANCE FROM AN INSURER THAT
IS AUTHORIZED TO DO BUSINESS IN THE STATE OF TEXAS OR AN ELIGIBLE SURPLUS LINES
INSURER; AND (iii) NAME SECURED PARTY AS THE PERSON TO BE PAID UNDER THE POLICY
IN THE EVENT OF LOSS;

 
(ii)
DEBTOR MUST, IF REQUIRED BY SECURED PARTY, DELIVER TO SECURED PARTY A COPY OF
THE POLICY AND PROOF OF THE PAYMENT OF PREMIUMS; AND

 
(iii)
IF DEBTOR FAILS TO MEET ANY REQUIREMENT LISTED IN CLAUSE (i) OR (ii) ABOVE,
SECURED PARTY MAY OBTAIN COLLATERAL PROTECTION INSURANCE ON BEHALF OF DEBTOR AT
DEBTOR’S EXPENSE.

(e) Debtor hereby assigns to Secured Party the exclusive right to collect any
and all monies that may become payable under any insurance policies covering any
part of the Collateral, or any risk to or about the Collateral.  Except as
provided below in Sections 4.8(f) and (g), all proceeds of insurance which was
paid for by Debtor or by anyone other than Secured Party and which proceeds are
actually received by Secured Party before foreclosure shall be applied in
payment of the Obligations or, at the option of Secured Party, shall be paid to
Debtor or to such other person as is legally entitled to them.
 
(f) Promptly upon obtaining knowledge thereof, Debtor shall notify Secured Party
of any casualty to the Collateral after the date hereof which exceeds $50,000,
and Debtor shall pursue claims for payment related to such casualty.  Upon the
receipt by Debtor or Secured Party of any insurance proceeds from insurance
policies required to be maintained pursuant to this Agreement or any other
Credit Document on account of (1) each separate loss, damage or injury to any
Collateral after the date hereof in excess of $100,000 if no Default or Event of
Default shall have occurred which is continuing or (2) any separate loss, damage
or injury to any Collateral (regardless of the amount of loss, damage or injury)
if a Default or Event of Default shall have occurred which is continuing, such
insurance proceeds shall be promptly delivered and turned over to Secured Party
(if the same have not been previously received by Secured Party), and except as
otherwise specified below, such insurance proceeds shall be promptly applied by
Secured Party in payment of the Obligations (such order and manner of
application to be at the discretion of Secured Party).  With respect to such net
insurance proceeds, Debtor may elect, by written notice delivered to Secured
Party, not later than the thirtieth (30th) day after receipt of such net
proceeds by Secured Party or Debtor, to utilize and apply all or a portion of
such net proceeds for the purpose of replacing, repairing or restoring the
relevant Collateral, and in such event, any required application of such net
proceeds against the Obligations in accordance with the preceding sentence shall
be reduced dollar for dollar by the amount of such election by Debtor.  Such an
election by Debtor shall not be effective, however, unless (1) at the time of
such election and subsequent usage no Default or Event of Default shall have
occurred which is continuing, (2) Debtor shall have certified to Secured Party
that the net proceeds of the insurance adjustment for such loss, damage or
injury to Collateral, together with other funds available to Debtor, shall be
sufficient to complete such contemplated replacement, repair or restoration in
accordance with all applicable laws, regulations and ordinances, and (3) if the
amount of the net proceeds in question exceeds $50,000 and is payable with
respect to loss, damage or injury to Inventory, Debtor shall have obtained the
written consent of Secured Party to such use and application of such insurance
proceeds.
 
(g) In the event of a valid election by Debtor under Section 4.8(f) above to
utilize all or a portion of insurance proceeds in excess of $100,000 to replace,
repair or restore the relevant Collateral, Debtor shall place into an account
under Secured Party's control (the "Insurance Proceeds Account") the amount of
net insurance proceeds to be utilized for such contemplated replacement, repair
or restoration, pursuant to agreements in form, scope and substance reasonably
satisfactory to Secured Party (including a pledge of such Insurance Proceeds
Account as additional security for the Obligations).  Amounts deposited in the
Insurance Proceeds Account shall continue to be held by Secured Party without
payment of interest to Debtor.  The Insurance Proceeds Account shall be
available to Debtor solely for the replacement, repair or restoration of the
Collateral suffering the applicable injury, loss or damage; provided, however,
that at any time that a Default or Event of Default shall occur and be
continuing, the balance of the Insurance Proceeds Account, together with all
earnings thereon, may be immediately applied by Secured Party to repay the
Obligations in such order as Secured Party shall elect in its
discretion.  Secured Party shall be entitled to require proof, as a condition to
Debtor making any withdrawal from the Insurance Proceeds Account, that the
amount of such withdrawal is being applied for the purposes permitted
hereunder.  Additionally, any proceeds of the Insurance Proceeds Account may be
made available and advanced by Secured Party directly to Debtor, or directly to
suppliers, manufacturers, contractors and other persons entitled to payment in
accordance with and subject to reasonable conditions to disbursements as Secured
Party may impose to assure that such replacement, repair or restoration of the
relevant Collateral is paid for and performed and that no Liens arise by reason
thereof.
 
(h) [Notwithstanding the foregoing property insurance requirements or any other
property insurance requirement set forth in any other Credit Document, so long
as Debtor continues to maintain in all material respects the existing
self-insurance program currently maintained by Debtor as of the date of this
Agreement for property insurance coverage in lieu of third-party property
insurance coverage, Debtor shall be deemed to have complied with all applicable
property insurance requirements set forth in this Agreement or in any other
Credit Document.]
 
 
 

--------------------------------------------------------------------------------

 
ARTICLE V                                
 
EVENTS OF DEFAULT AND REMEDIES
 
5.1 Events of Default.  The occurrence of any Event of Default under the Credit
Agreement shall constitute an Event of Default hereunder.
 
5.2 Remedies.
 
(a) Upon the occurrence of an Event of Default that is continuing, Secured Party
may exercise any or all of the following rights and remedies:
 
(i) those rights and remedies provided in this Agreement, the Credit Agreement,
or any other Credit Document; provided that, this Section 5.2(a) shall not be
understood to limit any rights or remedies available to Secured Party prior to
an Event of Default;
 
(ii) those rights and remedies available to a secured party under the UCC or
under any other applicable law (including, without limitation, any law governing
the exercise of a bank's right of setoff or bankers' lien) when a debtor is in
default under a security agreement;
 
(iii) give notice of sole control or any other instruction under any control
agreement, if any, with any financial institution or securities intermediary and
take any action therein with respect to such Collateral;
 
(iv) without notice (except as specifically provided in Section 7.1 or elsewhere
herein), demand or advertisement of any kind to Debtor or any other Person,
enter any of the premises of Debtor, whether leased or owned by Debtor, where
any Collateral is located (through self-help and without judicial process, and
Debtor hereby irrevocably authorizes Secured Party to enter any such premises
during the existence of any Event of Default and to show any landlord or other
third party this provision to the extent necessary to confirm to such landlord
or other third party Secured Party’s right of entry) to collect, receive,
assemble, process, appropriate, sell, lease, assign, grant an option or options
to purchase or otherwise dispose of, deliver, or realize upon, the Collateral or
any part thereof in one or more parcels at public or private sale or sales
(which sales may be adjourned or continued from time to time with or without
notice and may take place at Debtor's premises or elsewhere), for cash, on
credit or for future delivery without assumption of any credit risk, and upon
such other terms as Secured Party may deem commercially reasonable; and
 
(v) concurrently with written notice to Debtor, transfer and register in its
name or in the name of its nominee the whole or any part of the pledged
Collateral, to exchange certificates or instruments representing or evidencing
pledged Collateral for certificates or instruments of smaller or larger
denominations, to exercise the voting and all other rights as a holder with
respect thereto, to collect and receive all cash dividends, interest, principal
and other distributions made thereon and to otherwise act with respect to the
pledged Collateral as though Secured Party was the outright owner thereof.
 
(b) Secured Party may comply with any applicable state or federal law
requirements in connection with a disposition of the Collateral and compliance
will not be considered to adversely affect the commercial reasonableness of any
sale of the Collateral.
 
(c) Secured Party shall have the right upon any such public sale or sales and,
to the extent permitted by law, upon any such private sale or sales, to purchase
for the benefit of Secured Party, the whole or any part of the Collateral so
sold, free of any right of equity redemption, which equity redemption Debtor
hereby expressly releases.
 
(d) Until Secured Party is able to effect a sale, lease, or other disposition of
Collateral, Secured Party shall have the right to hold or use Collateral, or any
part thereof, to the extent that it deems appropriate for the purpose of
preserving Collateral or its value or for any other purpose deemed appropriate
by Secured Party. Secured Party may, if it so elects, seek the appointment of a
receiver or keeper to take possession of Collateral and to enforce any of
Secured Party's remedies, with respect to such appointment without prior notice
or hearing as to such appointment.
 
(e) Notwithstanding the foregoing, Secured Party shall not be required to (i)
make any demand upon, or pursue or exhaust any of their rights or remedies
against, Debtor, any other obligor, guarantor, pledgor or any other Person with
respect to the payment of the Obligations or to pursue or exhaust any of their
rights or remedies with respect to any Collateral therefor or any direct or
indirect guarantee thereof, (ii) marshal the Collateral or any guarantee of the
Obligations or to resort to the Collateral or any such guarantee in any
particular order, or (iii) effect a public sale of any Collateral.
 
 
 

--------------------------------------------------------------------------------

 
(f) Debtor recognizes that Secured Party may be unable to effect a public sale
of any or all the pledged Collateral and may be compelled to resort to one or
more private sales thereof in accordance with clause (a) above.  Debtor also
acknowledges that any private sale may result in prices and other terms less
favorable to the seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall not
be deemed to have been made in a commercially unreasonable manner solely by
virtue of such sale being private.  Secured Party shall be under no obligation
to delay a sale of any of the pledged Collateral for the period of time
necessary to permit Debtor or the issuer of the pledged Collateral to register
such securities for public sale under the Securities Act of 1933, as amended, or
under applicable state securities laws, even if Debtor and the issuer would
agree to do so.
 
5.3 Debtor's Obligations Upon Event of Default.  Upon the request of Secured
Party after the occurrence of an Event of Default that is continuing, Debtor
will:
 
(a) assemble and make available to Secured Party the Collateral and all books
and records relating thereto at Debtor's premises at a time or times convenient
to Secured Party;
 
(b) permit Secured Party, by Secured Party's representatives and agents, to
enter, occupy and use  any premises where all or any part of the Collateral, or
the books and records relating thereto, or both, are located, to take possession
of all or any part of the Collateral or the books and records relating thereto,
or both, to remove all or any part of the Collateral or the books and records
relating thereto, or both, and to conduct sales of the Collateral, without any
obligation to pay Debtor for such use and occupancy; and
 
(c) at its own expense, cause the independent certified public accountants then
engaged by each Debtor to prepare and deliver to Secured Party, at any time, and
from time to time, promptly upon Secured Party’s request, the following reports:
(i) a reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial
balances; and (iv) a test verification of such Accounts.
 
ARTICLE VI
 
ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY
 
6.1 Account Verification.  Secured Party may, at any time, in Secured Party's
own name, in the name of a nominee of Secured Party, or, in the name of Debtor,
communicate (by mail, telephone, facsimile or otherwise) with the Account
Debtors of Debtor, parties to contracts with Debtor and obligors in respect of
Instruments of Debtor to verify with such Persons, to Secured Party's
satisfaction, the existence, amount, terms of, and any other matter relating to,
Accounts, Instruments or Chattel Paper constituting Collateral hereunder.
 
6.2 Authorization for Secured Party to Take Certain Action.
 
(a) Debtor irrevocably appoints Secured Party as its attorney in fact and
authorizes Secured Party at any time and from time to time if an Event of
Default has occurred and is continuing (i) to apply the proceeds of any
Collateral received by Secured Party to the Obligations in the order determined
by Secured Party, (ii) to demand payment or enforce payment of any and all
Accounts in the name of Secured Party or Debtor and to endorse any and all
checks, drafts, and other instruments for the payment of money relating to the
applicable Accounts, (iii) to sign Debtor's name on any invoice or bill of
lading relating to any and all Accounts, drafts against any account debtor of
Debtor, assignments and verifications of any and all Accounts, (iv) to exercise
all of Debtor's rights and remedies with respect to the collection of any and
all Accounts and any other Collateral, (v) to settle, adjust, compromise, extend
or renew any and all Accounts, (vi) to settle, adjust or compromise any legal
proceedings brought to collect any and all Accounts, (vii) to prepare, file and
sign Debtor's name on a proof of claim in bankruptcy or similar document against
any account debtor of Debtor, (viii) to prepare, file and sign Debtor's name on
any notice of Lien, assignment or satisfaction of Lien or similar document in
connection with any and all Accounts, and (ix) to change the address for
delivery of mail addressed to Debtor to such address as Secured Party may
designate and to receive, open and dispose of all mail addressed to
Debtor.  Debtor agrees to reimburse Secured Party on demand for any payment made
or any expense incurred by Secured Party in connection with any of the foregoing
provisions of this Section 6.2(a); provided that, this authorization shall not
relieve Debtor of any of its obligations under this Agreement or under any other
Credit Document.
 
(b) All acts of said attorney or designee are hereby ratified and approved. The
powers conferred on Secured Party under this Section 6.2 are solely to protect
Secured Party's interests in the Collateral and shall not impose any duty upon
Secured Party to exercise any such powers.
 
6.3 Limitation of Duty.  NOTWITHSTANDING ANYTHING CONTAINED HEREIN, NEITHER
SECURED PARTY NOR ANY OF ITS RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL HAVE ANY DUTY TO EXERCISE ANY RIGHT
OR POWER GRANTED HEREUNDER OR OTHERWISE OR TO PRESERVE THE SAME AND SHALL NOT BE
LIABLE FOR ANY FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO, EXCEPT IN RESPECT
OF DAMAGES ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED
THAT, IN NO EVENT SHALL THEY BE LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR
CONSEQUENTIAL DAMAGES.
 
 
 

--------------------------------------------------------------------------------

 
ARTICLE VII
 
GENERAL PROVISIONS
 
7.1 Waivers.  Debtor hereby waives notice of the time and place of any public
sale or the time after which any private sale or other disposition of all or any
part of the Collateral may be made.  To the extent such notice may not be waived
under applicable law, any notice made shall be deemed reasonable if sent to
Debtor, addressed as set forth in Section 7.17, at least ten days prior to (i)
the date of any such public sale or (ii) the time after which any such private
sale or other disposition may be made.  To the maximum extent permitted by
applicable law, Debtor waives all claims, damages, and demands against Secured
Party arising out of the repossession, retention or sale of the Collateral,
except such as arise solely out of the gross negligence or willful misconduct of
Secured Party as finally determined by a court of competent jurisdiction. To the
extent it may lawfully do so, Debtor absolutely and irrevocably waives and
relinquishes the benefit and advantage of, and covenants not to assert against
Secured Party, any valuation, stay, appraisal, extension, moratorium, redemption
or similar laws and any and all rights or defenses it may have as a surety now
or hereafter existing which, but for this provision, might be applicable to the
sale of any Collateral made under the judgment, order or decree of any court, or
privately under the power of sale conferred by this Agreement, or
otherwise.  Except as otherwise specifically provided herein, Debtor hereby
waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Agreement or
any Collateral.
 
7.2 Limitation on Secured Party's Duty with Respect to the Collateral.  Secured
Party shall have no obligation to clean-up or otherwise prepare the Collateral
for sale. Secured Party shall use reasonable care with respect to the Collateral
in its possession or under its control.  Secured Party shall not have any other
duty as to any Collateral in its possession or control or in the possession or
control of any agent or nominee of Secured Party, or any income thereon or as to
the preservation of rights against prior parties or any other rights pertaining
thereto. To the extent that applicable law imposes duties on Secured Party to
exercise remedies in a commercially reasonable manner, Debtor acknowledges and
agrees that it is commercially reasonable for Secured Party (i) to fail to incur
expenses deemed significant by Secured Party to prepare Collateral for
disposition or otherwise to transform raw material or work in process into
finished goods or other finished products for disposition, (ii) to fail to
obtain third party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or third
party consents for the collection or disposition of Collateral to be collected
or disposed of, (iii) to fail to exercise collection remedies against Account
Debtors or other Persons obligated on Collateral or to remove Liens on or any
adverse claims against Collateral, (iv) to exercise collection remedies against
Account Debtors and other Persons obligated on Collateral directly or through
the use of collection agencies and other collection specialists, (v) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other Persons, whether or not in the same business as Debtor, for
expressions of interest in acquiring all or any portion of such Collateral,
(vii) to hire one or more professional auctioneers to assist in the disposition
of Collateral, whether or not the Collateral is of a specialized nature, (viii)
to dispose of Collateral by utilizing internet sites that provide for the
auction of assets of the types included in the Collateral or that have the
reasonable capacity of doing so, or that match buyers and sellers of assets,
(ix) to dispose of assets in wholesale rather than retail markets, (x) to
disclaim disposition warranties, such as title, possession or quiet enjoyment,
(xi) to purchase insurance or credit enhancements to insure Secured Party
against risks of loss, collection or disposition of Collateral or to provide to
Secured Party a guaranteed return from the collection or disposition of
Collateral, or (xii) to the extent deemed appropriate by Secured Party, to
obtain the services of other brokers, investment bankers, consultants and other
professionals to assist Secured Party in the collection or disposition of any of
the Collateral.  Debtor acknowledges that the purpose of this Section 7.2 is to
provide non-exhaustive indications of what actions or omissions by Secured Party
would  be commercially reasonable in Secured Party's exercise of remedies
against the Collateral and that other actions or omissions by Secured Party
shall not be deemed commercially unreasonable solely on account of not being
indicated in this Section 7.2.  Without limitation upon the foregoing, nothing
contained in this Section 7.2 shall be construed to grant any rights to Debtor
or to impose any duties on Secured Party that would not have been granted or
imposed by this Agreement or by applicable law in the absence of this Section
7.2.
 
7.3 Compromises and Collection of Collateral.  Debtor and Secured Party
recognize that setoffs, counterclaims, defenses and other claims may be asserted
by obligors with respect to certain of the Accounts, that certain of the
Accounts may be or become uncollectible in whole or in part and that the expense
and probability of success in litigating a disputed Account may exceed the
amount that reasonably may be expected to be recovered with respect to an
Account.  In view of the foregoing, Debtor agrees that Secured Party may at any
time and from time to time, if an Event of Default has occurred and is
continuing, compromise with the obligor on any Account, accept in full payment
of any Account such amount as Secured Party in its sole discretion shall
determine, or abandon any Account, and any such action by Secured Party shall be
commercially reasonable so long as Secured Party acts in good faith based on
information known to it at the time it takes any such action.
 
7.4 Secured Party Performance of Debtor Obligations.  Without having any
obligation to do so, Secured Party may perform or pay any obligation which
Debtor has agreed to perform or pay in this Agreement and Debtor shall reimburse
Secured Party for any amounts paid by Secured Party pursuant to this Section
7.4.  Debtor's obligation to reimburse Secured Party pursuant to the preceding
sentence shall be an Obligation payable on demand.
 
7.5 No Waiver; Amendments; Cumulative Remedies. No delay or omission of Secured
Party to exercise any right or remedy granted under this Agreement shall impair
such right or remedy or be construed to be a waiver of any Default or an
acquiescence therein, and any single or partial exercise of any such right or
remedy shall not preclude any other or further exercise thereof or the exercise
of any other right or remedy. No waiver, amendment or other variation of the
terms, conditions or provisions of this Agreement whatsoever shall be valid
unless in writing signed by Secured Party and then only to the extent in such
writing specifically set forth.  All rights and remedies contained in this
Agreement or by law afforded shall be cumulative and all shall be available to
Secured Party until the Obligations have been paid in full.
 
7.6 Limitation by Law; Severability of Provisions.  All rights, remedies and
powers provided in this Agreement may be exercised only to the extent that the
exercise thereof does not violate any applicable provision of law, and all the
provisions of this Agreement are intended to be subject to all applicable
mandatory provisions of law that may be controlling and to be limited to the
extent necessary so that they shall not render this Agreement invalid,
unenforceable or not entitled to be recorded or registered, in whole or in
part.  Any provision in any this Agreement that is held to be inoperative,
unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be
inoperative, unenforceable, or invalid without affecting the remaining
provisions in that jurisdiction or the operation, enforceability, or validity of
that provision in any other jurisdiction, and to this end the provisions of this
Agreement are declared to be severable.
 
 
 

--------------------------------------------------------------------------------

 
7.7 Reinstatement.  This Agreement shall remain in full force and effect and
continue to be effective should any petition be filed by or against Debtor for
liquidation or reorganization, should Debtor become insolvent or make an
assignment for the benefit of any creditor or creditors or should a receiver or
trustee be appointed for all or any significant part of Debtor’s assets, and
shall continue to be effective or be reinstated, as the case may be, if at any
time payment and performance of the Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Obligations, whether as a "voidable
preference," "fraudulent conveyance," or otherwise, all as though such payment
or performance had not been made.  In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
 
7.8 Benefit of Agreement.  The terms and provisions of this Agreement shall be
binding upon and inure to the benefit of Debtor, Secured Party and their
respective successors and assigns (including all persons who become bound as a
debtor to this Agreement), except that Debtor shall not have the right to assign
its rights or delegate its obligations under this Agreement or any interest
herein, without the prior written consent of Secured Party.  No sales of
participations, assignments, transfers, or other dispositions of any agreement
governing the Obligations or any portion thereof or interest therein shall in
any manner impair the Lien granted to Secured Party hereunder.
 
7.9 Survival of Representations.  All representations and warranties of Debtor
contained in this Agreement shall survive the execution and delivery of this
Agreement.
 
7.10 Taxes and Expenses.  Any taxes (excluding generally applicable income,
franchise or similar taxes of Secured Party, which shall be paid by Secured
Party) payable or ruled payable by Federal or State authority in respect of this
Agreement shall be paid by Debtor, together with interest and penalties, if
any.  Debtor shall reimburse Secured Party for any and all out-of-pocket
expenses and internal charges (including reasonable attorneys', auditors' and
accountants' fees and reasonable time charges of attorneys, paralegals, auditors
and accountants who may be employees of Secured Party) paid or incurred by
Secured Party in connection with the preparation, execution, delivery,
administration, collection and enforcement of this Agreement and in the audit,
analysis, administration, collection, preservation or sale of the Collateral
(including the expenses and charges associated with any periodic or special
audit of the Collateral as provided in the Credit Agreement).  Any and all costs
and expenses incurred by Debtor in the performance of actions required pursuant
to the terms hereof shall be borne solely by Debtor.
 
7.11 Headings.  The title of and section headings in this Agreement are for
convenience of reference only, and shall not govern the interpretation of any of
the terms and provisions of this Agreement.
 
7.12 Termination.  This Agreement shall continue in effect (notwithstanding the
fact that from time to time there may be no Obligations outstanding) until (i)
the Credit Agreement has terminated pursuant to its express terms and (ii) all
of the Obligations have been indefeasibly paid and performed in full (other than
contingent indemnification and reimbursement obligations and similar obligations
which may survive payment in full) and no commitments of Secured Party which
would give rise to any Obligations are outstanding.
 
7.13 Entire Agreement.  This Agreement and the Credit Agreement embody the
entire agreement and understanding between Debtor and Secured Party relating to
the Collateral and supersedes all prior agreements and understandings between
Debtor and Secured Party relating to the Collateral.
 
7.14 Governing Law; Venue. This Agreement is performable in Travis County,
Texas.  Any legal proceeding in respect of this Agreement (other than any sale
or other disposition of any of the Collateral in accordance with the terms of
the UCC) shall be brought exclusively in the district courts of Travis County,
Texas or the United States District Court for the Western District of Texas,
Austin Division (collectively, the "Specified Courts"), to the exclusion of all
other venues. Debtor and Secured Party irrevocably submit to the exclusive
jurisdiction of such state and federal courts of the State of Texas.  Debtor and
Secured Party hereby irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement brought
in any Specified Court, and hereby further irrevoca­bly waives any claims that
any such suit, action or proceeding brought in any such court has been brought
in an inconvenient forum.  Debtor and Secured Party further irrevocably consents
to the service of process out of any of the Specified Courts in any such suit,
action or proceeding by the delivery of copies thereof by certified mail, return
receipt requested, postage prepaid, to the applicable party.   Debtor and
Secured Party hereby agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.  THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE
STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.

7.15 Indemnity.  Debtor hereby agrees to indemnify Secured Party, and its
successors, assigns, agents and employees, from and against any and all
liabilities, damages, penalties, suits, costs, and expenses of any kind and
nature (including interest, penalties, attorneys’ fees and amounts paid in
settlement) imposed on, incurred by or asserted against Secured Party, or its
successors, assigns, agents and employees, in any way relating to or arising out
of this Agreement, or the manufacture, purchase, acceptance, rejection,
ownership, delivery, lease, possession, use, operation, condition, sale, return
or other disposition of any Collateral (including, without limitation, latent
and other defects, whether or not discoverable by Secured Party or Debtor),
REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF SECURED
PARTY OR ITS SUCCESSORS, ASSIGNS, AGENTS AND EMPLOYEES (except that such
indemnity shall not be paid to Secured Party or its successors, assigns, agents
and employees to the extent, but only to the extent, that such loss, etc.
results from the gross negligence or willful misconduct of such parties).
 
7.16 Counterparts.  This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Agreement by signing any such
counterpart
 
7.17 Sending Notices.  Any notice required or permitted to be given under this
Agreement shall be given in accordance with the notice provisions of Section
8.08 of the Credit Agreement.
 
 
 

--------------------------------------------------------------------------------

 
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE §26.02

     THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS EXECUTED BY ANY OBLIGOR AND
SECURED PARTY OR BY ANY OBLIGOR IN FAVOR OF SECURED PARTY SUBSTANTIALLY
CONCURRENTLY HEREWITH CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE
FINAL AGREEMENT BETWEEN OBLIGORS AND SECURED PARTY AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF OBLIGORS
AND SECURED PARTY.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN OBLIGORS AND
SECURED PARTY.

[Signature Page(s) Follow]

IN WITNESS WHEREOF, Debtor and Secured Party have executed this Agreement as of
the date first above written.

DEBTOR:

NATURAL GAS SERVICES GROUP, INC.,
a Colorado corporation

By: /s/ Stephen C. Taylor
Stephen C. Taylor, Chief Executive Officer

SECURED PARTY:

JPMORGAN CHASE BANK, N.A.

By: /s/ Brenda Pollard
Name: Brenda Pollard
Title: Vice President

 
 
 

--------------------------------------------------------------------------------