Exhibit 10.1

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THIRD AMENDED AND RESTATED LOAN AGREEMENT

between

NATURAL GAS SERVICES GROUP, INC.

and

WESTERN NATIONAL BANK

Dated as of January 3, 2005

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THIRD AMENDED AND RESTATED LOAN AGREEMENT

     This Third Amended and Restated Loan Agreement, dated as of January 3,
2005, made and entered into by and among Natural Gas Services Group, Inc., a
Colorado corporation (the “Borrower”), and Screw Compression Systems, Inc. (the
“Guarantor”), and Western National Bank, a national banking association (the
“Lender”).

Recitals

     WHEREAS, the Borrower and the Lender are parties to that certain Second
Amended and Restated Loan Agreement, dated as of November 3, 2003, as amended by
the First Modification dated effective as of December 15, 2004, (said Second
Amended and Restated Loan Agreement, the “Prior Loan Agreement”);

     WHEREAS, pursuant to the Prior Loan Agreement, the Borrower is now indebted
to the Lender as evidenced by (i) that certain Revolving Line of Credit
Promissory Note, dated March 26, 2003, in the original principal amount of
$750,000.00, as renewed and extended on May 28, 2004, (ii) that certain Term
Promissory Note, dated November 3, 2003, in the original principal amount of
$7,521,109.00, and (iii) that certain Advance Term Note, dated November 3, 2003,
in the original principal amount of $10,000,000.00, as and modified by documents
dated effective as of December 15, 2004, which notes were given in renewal,
extension, rearrangement and consolidation of Borrower’s indebtedness and
additional funds made available to Borrower, the outstanding balances of which
comprise a portion of Borrower’s indebtedness.

     WHEREAS, the Borrower has requested that the Lender (i) make additional
loans to the Borrower, evidenced by the $8,000,000.00 Term Promissory Note, and
the Oklahoma Term Promissory Note; and (ii) maintain, increase, and continue the
Borrower’s revolving line of credit facility pursuant to the Revolving Line of
Credit Promissory Note and this Third Amended and Restated Loan Agreement; and

     WHEREAS, the Bank is agreeable to the Borrower’s requests but only upon and
subject to the terms and provisions which are hereinafter specified.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:

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ARTICLE I
Definitions

     1.1 Defined Terms. In addition to the terms defined in the preamble and
elsewhere in this Agreement, the following terms shall have the following
meanings:

     “Advance” means any loan disbursement to or on behalf of Borrower under any
of the Loan Papers, including, without limitation, all amounts initially
advanced under the Notes and all Subsequent Advances.

     “Advance Note” means the Advancing Line of Credit Promissory Note described
in Section 2.1(e) hereof, as the same may be renewed, extended, increased or
otherwise modified from time to time.

     “Affiliate” means, as to any person, (a) any other person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with, such person or (b) any person who is a
director, officer or partner (i) of such person, (ii) of any Subsidiary of such
person or (iii) of any person described in the preceding clause (a). For
purposes of this definition, “control” of a person means the power, directly or
indirectly, either to (i) vote 10% or more of the securities having ordinary
voting power for the election of directors of such person or (ii) direct or
cause the direction of the management and policies of such person whether by
contract or otherwise.

     “Agreement” means this Third Amended and Restated Loan Agreement, as
amended, restated, supplemented or otherwise modified from time to time.

     “Bank Liens” means Liens in favor of the Lender, securing all or any
portion of the Obligations, including, but not limited to, Rights in any
Collateral created in favor of the Lender, whether by mortgage, pledge,
hypothecation, assignment, transfer or other granting or creation of Liens.

     “Borrowing Base” means at any date the amount set forth in line M in the
Borrowing Base Report, as determined pursuant to and in accordance with
Section 2.3 and Exhibit D of this Agreement at such date.

     “Borrowing Base Report” shall have the meaning given to such term as set
forth in Section 2.3(b) of this Agreement.

     “Business Day” means every day on which Lender is open for banking
business.

     “Change of Control” means the occurrence after the date of this Agreement
of any circumstance or event in which (i) a person shall cause or bring about
(through solicitation of proxies or otherwise) the removal or resignation of a
majority of the members of the

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Board of Directors of the Borrower serving in such capacity on the date of this
Agreement or a person causes or brings about (through solicitation of proxies or
otherwise) an increase in the size of the existing Board of Directors of the
Borrower such that the existing members of the Board of Directors thereafter
represent a minority of the total number of persons comprising the entire Board;
or (ii) a person, including a “group” as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, becomes the beneficial owner of shares of any
class of stock of the Borrower having thirty percent (30%) or more of the total
number of votes that may be cast for the election of directors of the Borrower.

     “Collateral” means any and all property, tangible or intangible, now
existing or hereafter acquired, mortgaged, pledged, assigned or otherwise
encumbered by the Borrower, the Subsidiaries or any other person to or for the
benefit of the Lender pursuant to any of the Loan Papers now or hereafter
executed and delivered by the Borrower or any of its Subsidiaries or any other
person to secure the payment and performance of the Notes and obligations of the
Borrower hereunder or under any of the other Loan Papers, as any such Loan Paper
may be amended, supplemented or otherwise modified from time to time.

     “Consolidated Cash Flow” means, with respect to any period of calculation
thereof, the sum of (i) the consolidated pre-tax net income (or loss), less
actual taxes paid, from continuing operations of the Borrower and its
Subsidiaries during such period (excluding extraordinary income but including
extraordinary expenses), plus (ii) depreciation, depletion, amortization and
interest expenses deducted in determining consolidated net income (or loss) of
the Borrower and its Subsidiaries during such period, all determined on a
consolidated basis.

     “Consolidated Current Ratio” means the ratio of (i) the sum of the current
assets of the Borrower and its Subsidiaries to (ii) the sum of the current
liabilities of the Borrower and its Subsidiaries, all determined on a
consolidated basis.

     “Consolidated Debt” means at a particular date the total Debt of the
Borrower and its Subsidiaries, determined on a consolidated basis.

     “Consolidated Fixed Charges” means, with respect to any period of
calculation thereof, the sum of (a) the aggregate principal amount of all Debt
of the Borrower and its Subsidiaries paid or due and payable during such period
plus (b) all interest, including, without limitation, imputed interest in
connection with Financing Leases, paid or accrued by the Borrower and its
Subsidiaries during such period; provided, however, that any principal amount of
Debt and any interest payable in one fiscal period and paid in another shall not
be twice included in Consolidated Fixed Charges.

     “Consolidated Intangible Assets” means those assets of the Borrower and its
Subsidiaries, determined on a consolidated basis, that would be classified as
intangible assets in accordance with generally accepted accounting principles,
but in any event

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including, without limitation, (i) deferred assets, other than prepaid insurance
and prepaid taxes; (ii) patents, copyrights, trademarks, tradenames, franchises,
goodwill, experimental expenses and other similar assets which would be
classified as intangible assets on a balance sheet of such person, prepared in
accordance with generally accepted accounting principles; (iii) unamortized debt
discount and expense, and unamortized organization and reorganization expense;
and (iv) assets located, and notes and receivables due from obligors domiciled,
outside of the United States.

     “Consolidated Tangible Net Worth” means at a particular date (i) the sum of
(a) all amounts which would be included under stockholders’ equity, on a
consolidated balance sheet of the Borrower and its Subsidiaries and (b) the
outstanding principal amount of the Subordinated Notes, less (ii) the sum of the
aggregate book value of Consolidated Intangible Assets, all determined on a
consolidated basis.

     “Contractual Obligation” means, as to any person, any provision of any
security issued by such person or of any agreement, instrument or other
undertaking to which such person is a party or by which it or any of its
property is bound.

     “Debt” means, for the Borrower and any Subsidiary, at any particular date,
and without duplication, the sum at such date of (i) all indebtedness of such
person for borrowed money or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices) for which such
person is liable, contingently or otherwise, as obligor, guarantor or otherwise,
or in respect of which such person otherwise assures a creditor against loss;
(ii) all obligations of such person under leases which shall have been, or
should have been, in accordance with generally accepted accounting principles,
recorded as capital leases in respect of which such person is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in respect of
which obligations such person otherwise assures a creditor against loss,
(iii) unfunded vested benefits under each ERISA Plan; (iv) all indebtedness and
other liabilities secured by any Lien on any property owned by such person even
though such person has not assumed or otherwise become liable for payment
thereof; (v) all obligations of such person in respect of letters of credit,
acceptances or similar obligations issued or created for the account of such
person; and (vi) indebtedness of such person evidenced by a bond, debenture,
note or similar instrument, excluding, however, the Subordinated Notes.

     “Environmental Complaint” means any complaint, request for information,
summons, order, demand, citation, notice or other written communication from any
person or Governmental Authority with respect to the existence or alleged
existence of a violation of any Requirement of Law or liability resulting from
any air emission, water discharge, noise emission, asbestos, Hazardous Substance
or any other environmental, health or safety matter at, upon, under or within
any of the property owned, operated or used by the Borrower or any of its
Subsidiaries.

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     “ERISA Plan” shall have the meaning given to such term as set forth in
Section 4.15 of this Agreement.

     “Event of Default” shall have the meaning given to such term as set forth
in Section 7.1 of this Agreement.

     “Financing Lease” means any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
generally accepted accounting principles to be capitalized on a balance sheet of
the lessee.

     “Governmental Authority” means any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.

     “Hazardous Substance” shall have the meaning given to such term as set
forth in Section 4.20 of this Agreement.

     “Highest Lawful Rate” means the maximum rate of interest (or, if the
context so requires, an amount calculated at such rate) which Lender is allowed
to contract for, charge, take, reserve or receive under applicable law after
taking into account, to the extent required by applicable law, any and all
relevant payments or charges under the Loan Papers.

     “Letters of Credit” means those certain Letters of Credit of even date
herewith, issued by Lender to Borrower in the aggregate original principal
amount of $2,000,000.00, which Letters of Credit secure Borrower’s performance
under the SCS Notes.

     “Lien” means any interest in property securing an obligation owed to, or a
claim by, a person other than the owner of the property, whether such interest
is based on the common law, statute or contract, including, but not limited to,
a lien or security interest arising from any mortgage, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, or preference, priority or other
security agreement (including, without limitation, any conditional sale or other
title retention agreement or trust receipt or a lease, consignment or bailment
for security purposes). The term “Lien” shall also include reservations,
exceptions, encroachments, easements, rights of way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
property.

     “Loan Papers” means (i) this Agreement, (ii) the Notes and (iii) any and
all notes, mortgages, deeds of trust, security agreements, pledge agreements,
financing statements, guaranties, and other agreements, documents, certificates,
letters and instruments ever delivered or executed pursuant to, or in connection
with, this Agreement, whether existing on the date hereof or thereafter created,
as any of the same may hereafter be amended, supplemented, extended or restated.

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     “Material Adverse Effect” means any set of circumstances or events which
(i) has, will or could reasonably be expected to have any material adverse
effect upon the validity or enforceability of this Agreement or any of the other
Loan Papers or the Rights or remedies of the Lender hereunder or thereunder;
(ii) is or could reasonably be expected to be material and adverse to the
financial condition, business, operations, property or prospects of the Borrower
or any of its Subsidiaries; (iii) will or could reasonably be expected to impair
the ability of the Borrower or any of its Subsidiaries to perform its respective
obligations under the terms and conditions of any of the Loan Papers to which it
is a party; or (iv) will or could reasonably be expected to cause an Event of
Default.

     “Material Agreement” of any person means any material written or oral
agreement, contract, commitment, arrangement or understanding to which such
person is a party, by which such person is directly or, to such person’s
knowledge, indirectly bound, or to which any asset of such person may be
subject, which is not cancelable by such person upon 30 days or less notice
without liability for further payment other than nominal penalties, excluding,
however, such agreements, contracts, commitments, arrangements or understandings
pursuant to which the subject matter thereof does not exceed $50,000.00 in the
aggregate.

     “Note” or “Notes” means the individual or collective reference, as the
context may require, to the Advance Note, Revolving Line of Credit Promissory
Note, the $7,521,109.00 Term Promissory Note, the $8,000,000.00 Term Promissory
Note and the Oklahoma Term Promissory Note.

     “Obligations” means the unpaid principal of and interest on the Notes and
all other present and future indebtedness, obligations and liabilities of the
Borrower and any of its Subsidiaries to the Lender, and all renewals,
rearrangements and extensions thereof, or any part thereof, now or hereafter
owed to Lender by the Borrower or any of its Subsidiaries, whether arising from,
by virtue of, or pursuant to any Loan Paper, or otherwise, together with all
interest accruing thereon and all costs, expenses and attorneys’ fees incurred
in the enforcement or collection thereof, and whether such indebtedness,
obligations and liabilities are direct, indirect, fixed, contingent, liquidated,
unliquidated, joint, several, or joint and several or were, prior to acquisition
thereof by Lender, owed to some other person.

     “Oklahoma Term Promissory Note” means the Term Promissory Note described in
Section 2.1(b) hereof, as the same may be renewed, extended, increased or
otherwise modified from time to time.

     “Prime Rate” means that variable rate of interest per annum published in
the Money Rates section of The Wall Street Journal as its “prime rate”. If the
Money Rates section of The Wall Street Journal does not have a rate designated
by it as its “prime rate,” then the “Prime Rate” shall be deemed to be the
variable rate of interest per annum which is the general reference rate
designated by the Lender as its “reference rate”, “base rate” or other

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similar rate and which is comparable to the “Prime Rate” as described above. The
Prime Rate is used by Lender as a general reference rate of interest, taking
into account such factors as Lender may deem appropriate, it being understood
that it is not necessarily the lowest or best rate actually charged to any
customer and that Lender may make various commercial or other loans at rates of
interest having no relationship to such rate.

     “Relevant Environmental Law” means any and all foreign, federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health, wildlife or the
environment, as now or may at any time hereafter be in effect.

     “Requirement of Law” means, as to any person, the certificate and articles
of incorporation and bylaws, articles of organization, regulations or other
organizational or governing documents of such person, and any law, treaty, rule
or regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such person or any of its
property or to which such person or any of its property is subject.

     “Revolving Line of Credit Promissory Note” means the Revolving Line of
Credit Promissory Note described in Section 2.1(c) hereof, as the same may be
renewed, extended, increased or otherwise modified from time to time.

     “Rights” means rights, remedies, powers, privileges and benefits.

     “SCS Notes” means the promissory notes, dated of even date herewith, issued
by the Borrowers to Paul D. Hensley, Jim Hazlett and Tony Vohjesus, in
connection with the Borrower’s purchase from such individuals of all of the
outstanding capital stock of Guarantor.

     “Subsequent Advance” means any disbursement to or on behalf of Borrower
after the initial Advance under the Advance Note or the Revolving Line of Credit
Promissory Note pursuant to the provisions of Section 2.1 and Section 2.2
hereof.

     “Subordinated Notes” means the Series A 10% Subordinated Notes due
December 31, 2006 in the aggregate outstanding principal amount of $1,409,343.00
outstanding as of July 31, 2004, issued by NGE Leasing, Inc., a former
Subsidiary of the Borrower which has now merged with Borrower.

     “Subsidiary” means, as to the Borrower or any other designated person, a
corporation, partnership, limited liability company or other entity of which
shares of stock or other ownership interests having ordinary voting power (other
than stock or such other

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ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors, managers or other
governing body of such corporation, partnership, limited liability company or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly, through one or more intermediaries, or both,
by the Borrower or such other designated person.

     “$8,000,000.00 Term Promissory Note” means the Term Promissory Note
described in Section 2.1(a) hereof, as the same may be renewed, extended,
increased or otherwise modified from time to time.

     “$7,521,109.00 Term Promissory Note” means the Term Promissory Note
described in Section 2.1(d) hereof, as the same may be renewed, extended,
increased or otherwise modified from time to time.

     1.2 Accounting Principles. Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement or any other Loan Paper, such determination,
consolidation or computation shall be made in accordance with generally accepted
accounting principles consistently applied, except where such principles are
inconsistent with the requirements or definitions of this Agreement.

     1.3 Directly or Indirectly. When any provision in this Agreement refers to
action to be taken by any person, or which such person is prohibited from
taking, such provision shall be applicable where the action in question is taken
directly or indirectly.

     1.4 Plural and Singular Forms. The definitions given to terms defined
herein shall be equally applicable to both the singular and plural forms of such
terms.

     1.5 References. The words “hereof”, “herein” and “hereunder” and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and section,
subsection, schedule and exhibit references are to this Agreement unless
otherwise specified.

ARTICLE II
Amount and Terms of Loans; Subordination

     2.1 The Loans. Subject to and upon the terms and conditions and relying on
the representations and warranties contained in this Agreement, Lender agrees to
make loans to the Borrower as follows:

          (a) $8,000,000.00 Term Loan - Contemporaneously with the execution and
delivery hereof, the Borrower shall execute and deliver to the Lender the
promissory note

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in the form of Exhibit A hereto in the original principal amount of
$8,000,000.00. The Term Promissory Note shall mature on the date stated therein
and shall bear interest on the unpaid principal amount thereof from time to time
outstanding at the applicable interest rate per annum as provided in the Term
Promissory Note. Principal and interest on the Term Promissory Note shall be
payable in the manner and on the dates specified therein.

          (b) Oklahoma Term Loan - Contemporaneously with the execution and
delivery hereof, the Guarantor shall execute and deliver to the Lender the
promissory note in the form of Exhibit B hereto in the original principal amount
of $1,415,836.00, secured by Real Estate Mortgage in the form of Exhibit F
hereto. The Oklahoma Term Promissory Note shall mature on the date stated
therein and shall bear interest on the unpaid principal amount thereof from time
to time outstanding at the applicable interest rate per annum as provided in the
Oklahoma Term Promissory Note. Principal and interest on the Oklahoma Term
Promissory Note shall be payable in the manner and on the dates specified
therein. The Oklahoma Term Promissory Note shall be guaranteed by Borrower, as
evidenced by the Guaranty Agreement in the form of Exhibit K hereto.

          (c) Revolving Loans. Contemporaneously with the execution and delivery
hereof, the Borrower shall execute and deliver to the Lender the Revolving Line
of Credit Promissory Note in the form of Exhibit C hereto, in the original
principal amount of $2,000,000.00, which note is given in renewal and extension,
but not in extinguishment of the outstanding balance of that certain Revolving
Line of Credit Note dated May 28, 2004, in the original principal amount of
$750,000.00. The oustanding principal balance of said Note on the date of this
Agreement is $521,461.42. All amounts outstanding under the Revolving Line of
Credit Promissory Note on the date of this Agreement shall be deemed to be
Advances made under and pursuant to this Agreement, and the Revolving Line of
Credit Promissory Note is and shall remain in full force and effect in
accordance with the terms thereof, subject in all respects to the terms of this
Agreement and the other Loan Papers. Subject to and upon the terms and
conditions of this Agreement and the Revolving Line of Credit Promissory Note,
the Borrower may request one or more Advances and borrow, prepay and reborrow at
any time and from time to time under the Revolving Line of Credit Promissory
Note; provided, however, the aggregate principal amount of all Advances
outstanding at any one time under the Revolving Line of Credit Promissory Note
shall never exceed the lesser of (i) $2,000,000.00 or (ii) the amount available
for Advance under the Revolving Line of Credit Promissory Note as determined in
accordance with and as set forth in line Q in the Borrowing Base Report. The
Revolving Line of Credit Promissory Note shall mature on the date stated therein
and shall bear interest on the unpaid principal amount thereof from time to time
outstanding at the applicable interest rate per annum as provided in the
Revolving Line of Credit Promissory Note. Principal and interest on the
Revolving Line of Credit Promissory Note shall be payable in the manner and on
the dates specified therein.

          (d) $7,521,109.00 Term Loan - Pursuant to the Prior Loan Agreement,
Borrower executed and delivered to the Lender the promissory note in the form of
Exhibit D hereto in the original principal amount of $7,521,109.00, in renewal,
extension,

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rearrangement and consolidation of the Borrower’s then existing indebtedness to
Lender. Contemporaneously with the execution and delivery of the documents
contemplated by this Loan Agreement, Borrower shall reduce the principal of the
$7,521,109.00 Term Loan by $3,000,000.00, and the payment provisions of said
note shall be modified as evidenced by the Modification Agreement in the form of
Exhibit D-1 hereto. The $7,521,109.00 Term Promissory Note shall mature on the
date stated therein and shall bear interest on the unpaid principal amount
thereof from time to time outstanding at the applicable interest rate per annum
as provided in said note. Principal and interest on the $7,521,109.00 Term
Promissory Note shall be payable in the manner and on the dates specified
therein.

          (e) Advance Type Term Loans. Pursuant to the Prior Loan Agreement,
Borrower executed and delivered to the Lender the promissory note in the form of
Exhibit E hereto in the original principal amount of $10,000,000.00, which note
was renewed and modified by the Modification Agreement dated December 15, 2004,
in the form of Exhibit E-1 hereto. The outstanding principal balance of said
Note is $7,000,000.00 as of the date of this Loan Agreement. Subject to and upon
the terms and conditions of this Agreement and the Advance Note, the Borrower
may, at any time and from time to time during the period commencing on the date
of the Advance Note and ending at the close of business on December 14, 2005,
request one or more Advances and borrow (without the ability to reborrow amounts
paid under the Advance Note) under the Advance Note; provided, however, and
notwithstanding the face amount of the Advance Note, without the prior written
consent of Lender in its sole discretion the cumulative aggregate principal
amount of all Advances under the Advance Note shall never exceed the lesser of
(i) $10,000,000.00 or (ii) the amount available for Advance under the Advance
Note and Revolving Line of Credit Promissory Note as determined in accordance
with and set forth in line Q in the Borrowing Base Report. The Advance Note
shall mature as provided therein and shall bear interest on the unpaid principal
amount thereof from time to time outstanding at the applicable interest rate per
annum as provided in the Advance Note. Principal and interest on the Advance
Note shall be payable in the manner and on the dates specified therein. The
Advance Note, including the loans evidenced thereby, is a multiple advance term
loan facility and shall not be construed as a revolving line of credit as
reborrowings are not permitted.

     2.2 Procedure For Borrowings. (a) At the time of the initial Advance under
the Advance Note or the Revolving Line of Credit Promissory Note, as the case
may be, the conditions set forth in Section 3.1 of this Agreement shall have
been satisfied and, with respect to each Subsequent Advance under the Advance
Note or the Revolving Line of Credit Promissory Note, the conditions set forth
in Section 3.2 hereof shall have been satisfied at the time of each such
Subsequent Advance. At the time of each request for a Subsequent Advance under
the Advance Note or the Revolving Line of Credit Promissory Note, the Borrower
shall simultaneously furnish to the Lender a written notice of borrowing (dated
as of the date of the request for such Subsequent Advance and otherwise being in
substantially the form attached hereto as Exhibit H) confirming (i) the Note
under

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which the Subsequent Advance has been requested, (ii) the amount of the
requested Subsequent Advance, and (iii) the absence of any Event of Default at
the date of such request. Each request for a Subsequent Advance under the
Advance Note or the Revolving Line of Credit Promissory Note must be in the
minimum amount of $50,000.00 or the unadvanced portion of the Note under which
the Subsequent Advance has been requested, whichever is less. Assuming the
satisfaction of the conditions set forth in this Section 2.2, requests for
Subsequent Advances under the Advance Note or the Revolving Line of Credit
Promissory Note will be funded on the same Business Day that Lender receives
Borrower’s request for each such Subsequent Advance; provided that Borrower’s
request is received by the Lender prior to 12:00 noon on the date of any such
request.

          (b) The Lender shall maintain in accordance with its usual practice
one or more accounts or other records evidencing the Obligations of the Borrower
to the Lender resulting from each loan made by the Lender from time to time
under the Notes, including the amounts of principal and interest payable and
paid to the Lender from time to time under this Agreement and each respective
Note. The entries made in such accounts or records of the Lender shall be prima
facie evidence of the existence and amounts of the Obligations of the Borrower
and its Subsidiaries therein recorded; provided, however, that the failure of
the Lender to maintain any such accounts or records, or any error therein, shall
not in any manner affect the absolute and unconditional obligation of the
Borrower to repay (with applicable interest) all loans made to the Borrower in
accordance with the terms of this Agreement and the Notes.

     2.3 Borrowing Base. The Borrowing Base shall be determined as follows:

          (a) Initial Borrowing Base. The initial Borrowing Base shall be
$20,888,199.00 during the period from the date hereof to the date on which the
Borrower receives notice of the first redetermination of the Borrowing Base by
the Lender pursuant to Section 2.3(b) and thereafter the amount of the Borrowing
Base shall be the Borrowing Base most recently determined pursuant to
Section 2.3(b).

          (b) Redeterminations of the Borrowing Base.

               (i) No later than forty-five (45) days after the end of each
month, the Borrower shall, at its own expense, furnish to the Bank a borrowing
base report (the “Borrowing Base Report”) in the form attached hereto as
Exhibit G, which shall be dated as of the end of each such month.

               (ii) Within fifteen (15) days after it receives each Borrowing
Base Report, the Lender may in its sole discretion, but shall not be obligated
to, redetermine the Borrowing Base, and shall notify the Borrower of the new
Borrowing Base, if any; provided, however, if the Lender does not so notify the
Borrower of a new Borrowing Base within such 15-day period, then the Borrowing
Base set forth in the Borrowing Base Report furnished to the Lender by the
Borrower pursuant to Section 2.3(b)(i) shall be deemed to be the redetermined
Borrowing Base until a new Borrowing Base is redetermined by the

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Lender and notice of such new Borrowing Base is given by the Lender to the
Borrower. Each redetermination of the Borrowing Base shall be made by the Lender
in the exercise of its sole discretion in accordance with the then current
standards and practices of the Lender for similar loans, taking into account
such factors as the Lender may deem appropriate, including, without limitation,
the nature and extent of the Borrower’s interest in the accounts and leases
receivable and inventory upon which the Borrowing Base is then redetermined. The
Lender may in its sole discretion discount the value of any property included in
the redetermination of the Borrowing Base as set forth in a Borrowing Base
Report by the same factors utilized by it in discounting the value of comparable
borrowing base assets in comparable transactions for comparable borrowers.

               (iii) Each delivery by the Borrower to the Lender of a Borrowing
Base Report shall be deemed to constitute a representation and warranty by the
Borrower to the Lender that the Borrower and its Subsidiaries have good and
marketable title to the Collateral owned by each of them and described therein,
and that such Collateral is not subject to any Lien other than Bank Liens and
Liens permitted by Section 6.8.

     2.4 Optional and Mandatory Prepayments. (a) The Borrower may at any time
and from time to time prepay any one or all of the Notes, in whole or in part,
without premium or penalty, upon prior or simultaneous irrevocable notice to the
Lender, specifying the Note to be prepaid, the date and the amount of
prepayment. If any such notice is given, the amount specified in such notice
shall be due and payable on the date specified therein. Partial prepayments
shall be in an aggregate principal amount of $20,000.00 or a whole multiple
thereof, or shall equal the aggregate outstanding balance of the Note being
prepaid.

          (b) If the aggregate unpaid principal amount of all Notes shall at any
time exceed the Borrowing Base at such time, the Lender shall so notify the
Borrower, and the Borrower shall, within fifteen (15) Business Days after such
notification, first prepay the principal of the Revolving Line of Credit
Promissory Note in an aggregate amount at least equal to such excess, together
with accrued interest on the amount prepaid to the date of such prepayment and,
to the extent such excess is not eliminated by the prepayment of the Revolving
Line of Credit Promissory Note, the Borrower shall next prepay the principal of
the Advance Note, the $7,521,109.00 Term Promissory Note, the $8,000,000.00 Term
Promissory Note, and the Oklahoma Term Promissory Note, in that order, in an
aggregate amount equal to the remaining unpaid excess amount.

     2.5 Payment Procedure. Each payment or prepayment on the Notes must be made
at the principal office of Lender in funds which are or will be available for
immediate use by Lender on or before 12:00 noon Midland, Texas time on the day
such payment is due or such prepayment is made. In any case where a payment of
principal of, or interest on, the Notes is due on a day which is not a Business
Day, the Borrower shall be entitled to

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delay such payment until the next succeeding Business Day, but interest shall
continue to accrue until the payment is in fact made.

     2.6 Order of Application. Except as otherwise provided in the Loan Papers,
all payments and prepayments on the Obligations, including proceeds from the
exercise of any Rights of Lender under the Loan Papers, shall be applied to the
Obligations in the following order: (i) first, to reasonable expenses for which
Lender shall not have been reimbursed under the Loan Papers and then to all
amounts to which Lender is entitled to indemnification under the Loan Papers;
(ii) to the accrued interest on the Note being paid or prepaid; (iii) to the
principal of the Note being paid or prepaid and, with regard to the Advance Note
and the Term Promissory Notes, applied upon installments of most remote
maturity; and (iv) to the remaining Obligations.

     2.8 Subordination of Subordinated Notes. Subject to Section 6.15 hereof,
the indebtedness of NGE Leasing, Inc. evidenced by the Subordinated Notes and
any guarantee thereof by the Borrower and any and all renewals, extensions,
refundings and modifications (but not increases) thereto are hereby subordinated
and subject in right of payment and in all other respects to the prior payment
in full of (a) all Debt of the Borrower and any Subsidiary to the Lender,
(b) any other indebtedness, liability or obligation, contingent or otherwise, of
Borrower or any Subsidiary or Guarantor to Lender, and any guaranty, endorsement
or other contingent obligation in respect thereof, whether outstanding on the
date hereof or hereafter created, incurred or assumed, and (c) modifications,
renewals, extensions, increases, rearrangements and refundings of any such
indebtedness, liabilities or obligations owed to the Lender.

ARTICLE III
Conditions Precedent

     3.1 Conditions to Initial Advance. The obligation of Lender to renew and
extend and increase the Borrower’s Debt to Lender pursuant to the Term
Promissory Notes and to make Advances under the Advance Note and the Revolving
Line of Credit Promissory Note is subject to the satisfaction and fulfillment of
each of the following conditions precedent which shall have occurred on or
before the date hereof, or simultaneously with the closing of the transactions
contemplated by this Agreement, unless compliance therewith shall have been
waived in writing by Lender:

          (a) There shall have been duly executed, where appropriate, and
delivered by the Borrower to Lender (and/or any other requisite party thereto)
the following:

     (1) this Agreement;

     (2) the Notes;

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     (3) Stock Pledge Agreements covering the capital stock of Screw Compression
Systems, Inc., being in substantially the form attached hereto as Exhibit I;

     (4) the Security Agreement in substantially the form attached hereto as
Exhibit J;

     (5) the Guaranty Agreement in substantially the form attached hereto as
Exhibit K;

     (6) a certificate of account status (good standing) and a certificate of
existence for Borrower in the jurisdiction under the laws of which Borrower is
organized and in each jurisdiction wherein Borrower’s operations, transaction of
business or ownership of property make qualification as a foreign corporation
necessary;

     (7) an Officer’s Certificate in substantially the form attached hereto as
Exhibit L, which shall contain the names and signatures of the officers of the
Borrower authorized to execute Loan Papers and which shall certify to the truth,
correctness and completeness of the following exhibits attached thereto: (A) a
copy of resolutions duly adopted by the Board of Directors of the Borrower and
in full force and effect at the time this Agreement is entered into, covering
the matters described in subparagraph (d) below of this Section 3.1, (B) a copy
of the charter documents of Borrower and all amendments thereto, certified by
the appropriate official of Borrower’s state of organization, and (C) a copy of
the bylaws of Borrower, and certifying as to such other matters as Lender may
reasonably require;

     (8) receipt, review and acceptance of an appraisal of fixed assets of Screw
Compression Systems, Inc. with minimum value equal to the net book value;

     (9) receipt, review, and acceptance of complete audited financial
statements on Screw Compression Systems, Inc. for the fiscal year ending
December 31, 2003;

     (10) receipt, review and acceptance of a Phase I environmental, Phase II,
if necessary, and remediation, if necessary, of the real estate property being
refinanced;

     (11) receipt, review and acceptance of a site appraisal of the real estate
property being refinanced;

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     (12) receipt, review and acceptance of the purchase contract for Screw
Compression Systems, Inc. (which will include non compete clauses, etc.); and

     (13) receipt, review and acceptance of all releases or assignments of
liens; and

     (14) such other documents or instruments as Lender may reasonably require.

          (b) There shall have been executed, where appropriate, and delivered
by the Guarantor (and/or any other requisite party thereto) the following, all
of which shall be in form and substance satisfactory to Lender and its counsel:

     (1) Guaranty Agreement in substantially the form attached hereto as
Exhibit M;

     (2) Security Agreement in substantially the form attached hereto as
Exhibit N;

     (3) Real Estate Mortgage on the Oklahoma property in substantially the form
attached hereto as Exhibit F.

     (4) a certificate of account status (good standing) and a certificate of
existence for each Subsidiary in the jurisdiction under the laws of which each
Subsidiary is organized and in each jurisdiction wherein its operations,
transaction of business or ownership of property made qualification as a foreign
entity necessary;

     (5) an Officer’s Certificate of the Guarantor in substantially the form
attached hereto as Exhibit O, which shall contain the names and signatures of
the officers of the Guarantor authorized to execute Loan Papers and which shall
certify to the truth, correctness and completeness of the following exhibits
attached thereto: (A) a copy of resolutions duly adopted by the Board of
Directors of the Guarantor and in full force and effect at the time this
Agreement is entered into, covering the matters described in subparagraph
(e) below of this Section 3.1, (B) a copy of the charter or other organizational
documents of the Guarantor and all amendments thereto, certified by the
appropriate official of the Guarantor’s state of organization, and (C) a copy of
the bylaws of the Guarantor, and certifying as to such other matters as Lender
may reasonably require; and

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     (6) such other documents or instruments as Lender may reasonably require.

          (c) All requirements of notice to perfect each Bank Lien shall have
been accomplished or arrangements made therefor to the satisfaction of Lender
and its counsel;

          (d) The Borrower shall have approved the execution, delivery and
performance of the Loan Papers to which it is a party by resolutions
satisfactory to Lender and its counsel, authorizing (i) the execution, delivery
and performance of this Agreement, the Notes and the other Loan Papers to which
the Borrower is a party, (ii) the borrowings contemplated hereunder and
(iii) the granting by it of the pledge and security interests pursuant to the
Loan Papers to which the Borrower is a party and appropriate certificates as to
such actions, showing the parties authorized to execute the Loan Papers and all
items required herein, shall have been delivered to the Lender;

          (e) The board of directors of the Guarantor shall have approved the
execution, delivery and performance of the Loan Papers to which it is a party by
resolutions satisfactory to Lender and its counsel, authorizing (i) the
execution, delivery and performance of the Loan Papers to which it is a party,
(ii) acknowledging the benefits and consideration to such Guarantor from the
borrowings contemplated hereunder and (iii) authorizing the granting by it of
the pledge and security interests pursuant to the Loan Papers to which it is a
party and appropriate certificates as to such actions, showing the parties
authorized to execute such Loan papers and all items required herein, shall have
been delivered to Lender;

          (f) There shall exist no Event of Default hereunder, nor shall any
events or circumstances have occurred, and not theretofore been cured, which
with notice or lapse of time or both, would constitute an Event of Default
hereunder;

          (g) The representations and warranties of the Borrower contained in
Article IV shall be true and correct in all material respects;

          (h) No suit, action or other proceeding by a third party or a
Governmental Authority shall be pending or threatened which relates to this
Agreement or the transactions contemplated hereby; and

     3.2 Conditions to Subsequent Advances. The obligation of the Lender to make
any Subsequent Advance under the Advance Note and the Revolving Line of Credit
Promissory Note requested to be made by the Borrower on any date is subject to
the satisfaction of the following conditions precedent:

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          (a) Each of the representations and warranties made by the Borrower in
or pursuant to the Loan Papers shall be true and correct in all material
respects on and as of such date as if made on and as of such date.

          (b) No Event of Default shall have occurred and be continuing on such
date or after giving effect to the Subsequent Advance requested to be made on
such date.

          (c) Notwithstanding Section 2.4(b), after giving effect to the
Advances under the Revolving Line of Credit Promissory Note requested by
Borrower to be made on any date, the aggregate principal amount of the Revolving
Line of Credit Promissory Note then outstanding shall not exceed the lesser of
(i) $2,000,000.00 or (ii) the amount available for Advance under the Revolving
Line of Credit Note, as determined in accordance with and as set forth in line Q
of the Borrowing Base Report.

          (d) After giving effect to the Advances under the Advance Note
requested by Borrower to be made on any date, the cumulative aggregate principal
amount of all Advances under the Advance Note shall not exceed $10,000,000.00.

          (e) Each request for an Advance under the Advance Note shall have been
received by Lender prior to December 14, 2005.

          (f) No litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority shall be pending or, to the knowledge of
the Borrower, threatened by or against the Borrower or the Lender with respect
to this Agreement or any of the other Loan Papers or the transactions
contemplated by this Agreement or any of the other Loan Papers.

          (g) The Lender shall have received all Borrowing Base Reports required
to be delivered by Borrower pursuant to Section 2.3(b)(i).

     Each borrowing by the Borrower hereunder shall constitute a representation
and warranty by the Borrower as of the date thereof that the conditions
contained in this Section 3.2 have been satisfied.

     3.3 Corporate Proceedings and Documents. In addition to the conditions
precedent set forth in Section 3.1 and Section 3.2, all corporate and other
proceedings, and all documents, instruments and other legal matters in
connection with the transactions contemplated by this Agreement and the other
Loan Papers shall be satisfactory in form, substance and date to the Lender, and
Lender shall have received such other documents and legal opinions in respect of
any aspect or consequence of the transactions contemplated hereby or thereby as
it shall reasonably request.

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ARTICLE IV
Representations and Warranties

     As a material inducement to Lender to enter into this Agreement, the
Borrower hereby represents and warrants to the Lender that:

     4.1 Organization, Existence and Good Standing; Compliance With Law. The
Borrower and each of its Subsidiaries (a) is duly organized, validly existing
and in good standing under the laws of its state of organization, (b) is duly
qualified, in good standing and authorized to do business in each jurisdiction
where the character of its operations, transaction of business or ownership of
property makes such qualification necessary, except where the absence of
qualification, good standing or authorization would not have a Material Adverse
Effect and (c) is in compliance with all Requirements of Law, except to the
extent that the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.

     4.2 Authorization. Each of the Borrower and its Subsidiaries has the
corporate power and authority, and the legal right, to make, deliver and perform
the Loan Papers to which it is a party and, in the case of the Borrower, to
borrow hereunder, and in the case of the Subsidiaries, to guarantee the
obligations of the Borrower hereunder, and each of the Borrower and its
Subsidiaries has taken all necessary corporate action to authorize the
borrowings and other transactions on the terms and conditions of each Loan Paper
to which it is a party, the grant of the Bank Liens on the Collateral pursuant
to the Loan Papers to which it is a party and the execution, delivery and
performance of the Loan Papers to which it is a party.

     4.3 Enforceable Obligations. This Agreement and each of the other Loan
Papers to which the Borrower or any of its Subsidiaries is a party have been
duly executed and delivered on behalf of the Borrower or its Subsidiaries, as
the case may be. This Agreement constitutes and the other Loan Papers to which
the Borrower or any of its Subsidiaries is a party, when executed and delivered
will constitute, a legal, valid and binding obligation of the Borrower and any
of its Subsidiaries, as the case may be, enforceable against the Borrower and
any of its Subsidiaries, as the case may be, in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, fraudulent transfer or
similar laws affecting the enforcement of creditors’ rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).

     4.4 No Conflicts or Consents. The execution, delivery and performance of
this Agreement, the Notes and the other Loan Papers, the borrowings hereunder
and the use of the proceeds thereof will not violate any Requirement of Law or
Contractual Obligation of the Borrower or any of its Subsidiaries and will not
result in, or require, the creation or

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imposition of any Lien on any of its or their respective properties, assets or
revenues pursuant to any such Requirement of Law or Contractual Obligation,
except as contemplated by the Loan Papers. No consent or authorization of,
filing with or other act by or in respect of, any Governmental Authority or any
other person is required in connection with the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this Agreement,
the Notes or the other Loan Papers.

     4.5 Financial Statements. The unaudited consolidated financial statements
of Natural Gas Services Group, Inc., dated September 30, 2004, and Screw
Compression Systems, Inc. for the period ended August 31, 2004, which have been
delivered to Lender, are complete and correct as they relate to the Borrower and
Guarantor, have been prepared in accordance with generally accepted accounting
principles, consistently applied, and present fairly the unaudited consolidated
financial condition and results of operations of the Borrower and Guarantor, as
of the dates and for the periods stated (subject only to normal year-end
adjustments with respect to such unaudited interim statements). During the
period from September 30, 2004 with respect to Borrower, and during the period
from August 31, 2004, with regard to Guarantor, to and including the date
hereof, no change has occurred in the condition, financial or otherwise, of the
Borrower and Guarantor, taken as a whole, which could reasonably be expected to
result in a Material Adverse Effect, and there has been no sale, transfer or
other disposition by the Borrower or Guarantor since June 30, 2004, of any
material part of its business or property and no purchase or other acquisition
of any business or property material in relation to the consolidated condition,
financial or otherwise, of the Borrower and Guarantor.

     4.6 Other Obligations. As of the date hereof, neither Borrower nor any
Subsidiary has any outstanding Debt or other material liabilities, direct or
indirect, absolute or contingent, which is, in the aggregate, material to the
Borrower and its Subsidiaries and not shown in the financial statements referred
to in Section 4.5 hereof. Borrower is not aware of any fact, circumstance, act,
condition or development which will have or which threatens to have any Material
Adverse Effect.

     4.7 Investments, Advances and Guaranties. At the date of this Agreement,
Borrower has not made investments in, advances to or guaranties of the
obligations of any person, except as reflected in the financial statements
referred to in Section 4.5 hereof.

     4.8 Litigation. There is no litigation, legal, administrative or arbitral
proceeding, investigation or other action of any nature pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower which
involves the possibility of any judgment or liability not fully covered by
indemnity agreements or insurance, and which would have a Material Adverse
Effect.

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     4.9 No Burdensome Restrictions. No unusual or unduly burdensome
restriction, restraint or hazard exists under or by reason of any Contractual
Obligation or, to the best of Borrower’s knowledge, any Requirement of Law.

     4.10 Taxes. All tax returns required to be filed by the Borrower and its
Subsidiaries with all Governmental Authorities have been filed, and all taxes,
assessments, fees and other governmental charges imposed upon Borrower and its
Subsidiaries or upon any of their respective property, income or franchises
which are due and payable, have been paid (other than any the amount or validity
of which are currently being contested in good faith by appropriate proceedings
and with respect to which reserves in conformity with generally accepted
accounting principles have been provided on the consolidated financial
statements of the Borrower); and no tax Lien has been filed and, to the
knowledge of Borrower, no claim is being asserted with respect to any such tax,
fee or other charge.

     4.11 Purpose of Loan. The proceeds of the loans made pursuant to
Section 2.1 and evidenced by the Notes have been or will be used by the Borrower
for the following purposes:

          (a) with respect to loans made pursuant to and evidenced by the
$8,000,000.00 Term Promissory Note, for the acquisition of all of the
outstanding capital stock of Guarantor;

          (b) with respect to loans made pursuant to and evidenced by the
Oklahoma Term Promissory Note, for the refinancing of Screw Compression Systems,
Inc.’s existing real estate debt;

          (c) with respect to loans made pursuant to and evidenced by the
Revolving Line of Credit Promissory Note, for general working capital purposes;

          (d) with respect to loans made pursuant to and evidenced by the
$7,521,109.00 Term Promissory Note for the renewal, extension, rearrangement and
consolidation of the Term Loan described in the Prior Loan Agreement; and

          (e) with respect to loans made pursuant to and evidenced by the
Advance Note, for the construction of natural gas compressors.

     4.12 Title to Properties; Liens. Each of the Borrower and its Subsidiaries
have good record and defensible title to, or a valid leasehold interest in, all
its real property, and good title to all its other properties and, except for
Liens of the type permitted under Section 6.8 of this Agreement, there are no
Liens on any properties or assets of the Borrower or any of its Subsidiaries.

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     4.13 Insurance. The Borrower and its Subsidiaries maintain with financially
sound and reputable insurance companies insurance in at least such amounts and
against at least such risks (but including in any event public liability) as are
usually insured against in the same general area by companies engaged in the
same or a similar business and such insurance is otherwise in compliance with
the Loan Papers.

     4.14 No Default. Neither the Borrower nor any of its Subsidiaries is in
default under or with respect to any of its Contractual Obligations in any
respect, other than defaults which could not have a Material Adverse Effect. No
Event of Default has occurred and is continuing.

     4.15 ERISA Plans. Borrower does not have any plans subject to the Employee
Retirement Income Security Act of 1974, as amended (“ERISA Plan”).

     4.16 Principal Business Office and Location of Records. The Borrower’s
principal place of business and chief executive offices are located at 2911 S.
CR 1260, Midland, Texas 79706, and the records of the Borrower and each of its
Subsidiaries concerning its ownership of assets, business and operations are
located at such address.

     4.17 Licenses, Permits and Franchises, etc. The Borrower and each of its
Subsidiaries owns, or is licensed to use, all permits, know-how, processes,
technology, franchises, patents, patent rights, trade names, trademarks,
trademark rights and copyrights which are necessary or required for the
ownership or operation of its properties and the conduct of its business.
Borrower is not aware of any fact or condition that might cause any of such
rights not to be renewed in due course.

     4.18 Subsidiaries. The following constitute all the Subsidiaries of the
Borrower at the date hereof: Screw Compression Systems, Inc., which is a
Subsidiary wholly owned by the Borrower.

     4.19 No Material Omissions or Misstatements. No information, exhibit or
report furnished to Lender by the Borrower in connection with the negotiation of
this Agreement contains any material misstatement of fact or omits to state a
material fact or any fact necessary to make the statements contained therein not
misleading. Without limiting the generality of the foregoing, there are no
material facts relating to the Loan Papers, the Collateral or the financial
condition, assets, liabilities, results of operations or business of the
Borrower or any of its Subsidiaries which could, collectively or individually,
have a Material Adverse Effect and which have not been disclosed in writing to
Lender as an exhibit to this Agreement or in the financial statements of the
Borrower referred to in Section 4.5 of this Agreement.

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     4.20 Environmental Matters.

          (a) No Environmental Complaint has been issued or filed, no penalty
has been assessed and, to the knowledge of Borrower, no investigation or review
is pending or threatened by any Governmental Authority or other person (i) with
respect to any alleged violation of any law, ordinance, rule, regulation or
order of any Governmental Authority in connection with the property, operations
or conduct of the business of the Borrower or any of its Subsidiaries, or
(ii) with respect to any alleged failure to have any permit, certificate,
license, approval, requisition or authorization required in connection with the
property, operations or conduct of the business of the Borrower or any of its
Subsidiaries or (iii) with respect to any generation, treatment, storage,
recycling, transportation or disposal or release, all as defined in 42 USC §
9601(22) (“Release”) (other than Releases in compliance with Relevant
Environmental Laws or permits issued thereunder), of any toxic, caustic or
otherwise hazardous substance, including petroleum, its derivatives, by-products
and other hydrocarbons, solid waste, contaminants, polychlorinated biphenyls,
paint containing lead, urea, formaldehyde, foam insulation, and discharge of
sewage or effluent, whether or not regulated under federal, state or local
environmental statutes, ordinances, rules, regulations or orders (“Hazardous
Substance”) generated by the operations or business, or located at any property,
of the Borrower or any of its Subsidiaries.

          (b) Except in substantial compliance with Relevant Environmental Laws
and permits issued thereunder (i) neither the Borrower nor its Subsidiaries, nor
the businesses conducted by the Borrower and its Subsidiaries, have placed,
held, located or disposed of any Hazardous Substance on, under or at any
property now or previously owned or leased by the Borrower or any of its
Subsidiaries, and none of such properties has been used (by the Borrower or any
of its Subsidiaries) as a dump site or storage (whether permanent or temporary)
site for any Hazardous Substance; (ii) no polychlorinated biphenyls, urea or
formaldehyde is or has been present at any property now or previously owned or
leased by the Borrower or any of its Subsidiaries; (iii) no asbestos is or has
been present at any property now or previously owned or leased by the Borrower
or any of its Subsidiaries; (iv) there are no underground storage tanks which
have been used to store or have contained any Hazardous Substance, active or
abandoned, at any property now or previously owned or leased by the Borrower or
any of its Subsidiaries; (v) no Hazardous Substance has been released at, on or
under any property previously owned or leased by the Borrower or any of its
Subsidiaries; and (vi) no Hazardous Substance has been released or is present,
in a reportable or threshold quantity, where such a quantity has been
established by statute, ordinance, rule, regulation or order, at, on or under
any property now or previously owned by the Borrower or any of its Subsidiaries.

          (c) The Borrower and its Subsidiaries have not transported or arranged
for the transportation (directly or indirectly) of any Hazardous Substance to
any location which is listed or proposed for listing under the Comprehensive
Environmental Response,

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Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986 (“CERCLA”), the Comprehensive Environmental
Response, Compensation and Liability Information System (“CERCLIS”) or on any
similar state list or which is the subject of federal, state or local
enforcement actions or other investigations.

          (d) There are no environmental Liens on any property owned or leased
by the Borrower or any of its Subsidiaries, and no actions by any Governmental
Authority have been taken or are in the process of being taken which could
subject any of such properties to such Liens.

          (e) Prior to the date hereof, the Borrower has provided to Lender all
environmental investigations, studies, audits, tests, reviews or other analyses
conducted by or which are in the possession of the Borrower or any of its
Subsidiaries in relation to any property or facility now or previously owned or
leased by the Borrower or any of its Subsidiaries.

     4.21 Investment Company Act. Neither the Borrower nor any of its
Subsidiaries is an “investment company” or a company “controlled” by an
“investment company”, within the meaning of the Investment Company Act of 1940,
as amended.

     4.22 Public Utility Holding Company Act. The Borrower is not a “holding
company”, or a “subsidiary company” of a “holding company”, or an “affiliate” of
a “holding company” or of a “subsidiary company” of a “holding company”, or a
“public utility” within the meaning of the Public Utility Holding Company Act of
1935, as amended.

     4.23 Federal Regulations. No part of the proceeds of any loan will be used
for “purchasing” or “carrying” any “margin stock” within the respective meanings
of each of the quoted terms under Regulation G or Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time hereafter
in effect. If requested by the Bank, the Borrower will furnish to the Bank a
statement to the foregoing effect in conformity with the requirements of FR
Form G-1 or FR Form U-1 referred to in said Regulation G or Regulation U, as the
case may be.

     4.24 Casualties: Taking of Properties. Since the dates of the financial
statements of the Borrower and its Subsidiaries delivered to the Lender as
described in Section 4.5, neither the business nor the assets or properties of
the Borrower or any Subsidiary have been affected (to the extent it is
reasonably likely to cause a Material Adverse Effect), as a result of any fire,
explosion, earthquake, flood, drought, windstorm, accident, strike or other
labor disturbance, embargo, requisition or taking of property or cancellation of
contracts, permits or concessions by and domestic or foreign government or any
agency thereof, riot, activities of armed forces or acts of God or of any public
enemy.

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     4.25 Not A Utility. Neither the Borrower nor any of its Subsidiaries is an
entity engaged in the State of Texas in the (i) generation, transmission or
distribution and sale of electric power; (ii) transportation, distribution and
sale through a local distribution system of natural or other gas for domestic,
commercial, industrial or other use; (iii) provision of telephone or telegraph
service to others; (iv) production, transmission or distribution and sale of
steam or water; (v) operation of a railroad; or (vii) provision of sewer service
to others.

ARTICLE V
Affirmative Covenants

     As a material inducement to Lender to enter into this Agreement, the
Borrower hereby covenants and agrees that from the date hereof until payment in
full of the Obligations, the Borrower shall and shall cause each of its
Subsidiaries to:

     5.1 Financial Statements and Other Information. Promptly furnish to Lender
copies of (i) such information regarding its business and affairs and financial
condition as Lender may reasonably request, and (ii) without request, the
following:

          (a) as soon as available, but in any event not later than 90 days
after the end of each fiscal year of the Borrower, a copy of the audited
consolidated balance sheet of the Borrower and its consolidated Subsidiaries as
at the end of such year and the related audited consolidated statements of
income and changes in cash flows for such year, setting forth in each case in
comparative form the figures for the previous year, reported on without a “going
concern” or like qualification or exception, or qualification arising out of the
scope of the audit, by Hein + Associates LLP or other independent certified
public accounting firm of recognized standing acceptable to the Lender;

          (b) as soon as available, but in any event not later than forty-five
(45) days after the end of each month, the unaudited consolidated balance sheet
of the Borrower and its consolidated Subsidiaries as at the end of such month
and the related unaudited consolidated statements of income and changes in cash
flows of the Borrower and its consolidated Subsidiaries for such month and for
the period from the beginning of the most recent fiscal year to the end of such
month, certified by the chief financial officer of the Borrower (subject to
normal year-end audit adjustments);

          (c) as soon as available, but in any event not later than forty-five
(45) days after the end of each month, calculations of the Consolidated Current
Ratio, Consolidated Tangible Net Worth, Debt Service Ratio and Consolidated Debt
to Consolidated Tangible Net Worth Ratio of the Borrower for the periods
required as set forth in Section 6.1 of this Agreement;

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          (d) as soon as available, but in any event not later than forty-five
(45) days after the end of each month, a list of all accounts payable and
accounts receivable of the Borrower and its consolidated Subsidiaries, and an
aging of such accounts on the basis of 30-60-90 and over 90 days from date of
invoice;

          (e) promptly upon their becoming available, but in any event not later
than five (5) days after the same are sent, copies of all financial statements,
reports, notices and proxy statements sent or made available generally by the
Borrower to its shareholders, of all regular and periodic reports and all
private placement memorandums and all registration statements and prospectuses,
if any, filed by the Borrower with any securities exchange or with the
Securities and Exchange Commission; and all press releases and other statements
made available generally by the Borrower to the public concerning material
developments in the business of the Borrower;

          (f) immediately after becoming aware of the existence of, or any
material change in the status of, any Environmental Complaint or any litigation
which could have a Material Adverse Effect if determined adversely against the
Borrower or any of its Subsidiaries, a written communication to Lender of such
matter;

          (g) immediately upon becoming aware of an Event of Default or the
existence of any condition or event which constitutes, or with notice or lapse
of time, or both, would constitute an Event of Default, a verbal notification to
Lender specifying the nature and period of existence thereof and what action the
Borrower is taking or proposes to take with respect thereto and, immediately
thereafter, a written confirmation to Lender of such matters;

          (h) immediately after becoming aware that any person has given notice
or taken any action with respect to a claimed default under any indenture,
mortgage, deed of trust, promissory note, loan agreement, note agreement, joint
venture agreement or any other Material Agreement or other undertaking to which
the Borrower or any Subsidiary is a party, a verbal notification to Lender
specifying the notice given or action taken by such person and the nature of the
claimed default and what action the Borrower is taking or proposes to take with
respect thereto and, immediately thereafter, a written communication to Lender
of such matters;

          (i) within forty-five (45) days after the end of each month, the
Borrowing Base Report required by Section 2.3(b)(i) of this Agreement;

          (j) within forty-five (45) days after the end of each month, a
compliance certificate in the form attached hereto as Exhibit P, which shall be
signed by the chief executive officer or principal financial officer of the
Borrower;

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          (k) as soon as available, but in any event not later than forty-five
(45) days after the end of each calendar quarter, a report, in detail reasonably
satisfactory to Lender, (i) setting forth, by owner, the unit number, serial
number or other identifying number of each gas compressor owned by the Borrower
and its Subsidiaries, (ii) stating whether or not each compressor identified in
the report has been leased or rented to any person and, if so, a brief
description of the lease, including, without limitation, the date of the lease
and the name of the lessee, (iii) describing the specific location of each gas
compressor, (iv) attaching copies of any compressor lease or rental agreement
entered into during the prior month and (v) including such other information as
Lender shall reasonably require; and

          (l) notify Lender of the cancellation of leases in excess of
$500,000.00 in the aggregate in a twelve (12) month period.

     5.2 Taxes; Other Claims. Pay and discharge all taxes, assessments and
governmental charges or levies imposed upon the Borrower and its Subsidiaries,
or upon or in respect of all or any part of the income, property or business of
the Borrower and its Subsidiaries, all trade accounts payable in accordance with
usual and customary business terms, and all claims for work, labor or materials,
which, if unpaid, might become a Lien or charge upon any or all of the property
of the Borrower or any of its Subsidiaries; provided, however, the Borrower and
its Subsidiaries shall not be required to pay any such tax, assessment, charge,
levy, account payable or claim if (i) the validity, applicability or amount
thereof is currently being contested in good faith by appropriate actions or
proceedings diligently conducted which will prevent the forfeiture or sale of
any property of the Borrower and its Subsidiaries or any material interference
with the use thereof by the Borrower or its Subsidiaries, and (ii) the Borrower
shall have set aside on its consolidated financial statements reserves therefor
deemed adequate under generally accepted accounting principles.

     5.3 Compliance and Maintenance. (i) Maintain its corporate existence,
rights and franchises; (ii) observe and comply with all Requirements of Law,
including, without limitation, Relevant Environmental Laws; and (iii) maintain
the Collateral and all other equipment, properties and assets (and any
properties, equipment and assets leased by or consigned to it or held under
title retention or conditional sales contracts) in good and workable condition
at all times and make all repairs, replacements, additions, betterments and
improvements to its properties, equipment and assets as are needful and proper
so that the business carried on in connection therewith may be conducted
properly and efficiently at all times.

     5.4 Maintenance of Insurance. Maintain with financially sound and reputable
insurers, insurance with respect to its properties and business against such
liabilities, casualties, risks and contingencies and in such types and amounts
as is customarily carried by companies engaged in the same or similar businesses
and similarly situated. From time

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to time, upon request by Lender, the Borrower will furnish Lender with copies of
certificates, binders and policies necessary to give Lender reasonable assurance
of the existence of such coverage. Borrower agrees to promptly notify Lender of
any termination or other material change in Borrower’s insurance coverage and,
if requested by Lender, to provide Lender with all information about the renewal
of each policy at least 15 days prior to the expiration thereof. In the case of
any fire, accident or other casualty causing loss or damage to any property of
Borrower, the proceeds of such policies in excess of $50,000.00 shall, at
Borrower’s option, be used to (i) replace the lost or damaged property with
similar property having a value at least equivalent to the lost or damaged
property, or (ii) prepay the Notes to the extent of such proceeds.

     5.5 Reimbursement of Fees and Expenses. Pay all reasonable fees and
expenses incurred by Lender and its designated representatives in connection
with this Agreement, all renewals hereof, the other Loan Papers or other
transactions pursuant hereto or to the other Loan Papers, whether the services
provided hereunder or thereunder are provided directly by Lender or by a third
party selected by Lender, as well as all costs of filing and recordation, all
reasonable legal and accounting fees, all costs associated with enforcing any of
Lender’s Rights under the Loan Papers, including, without limitation, costs of
repossessing, storing, transporting, preserving and insuring any Collateral that
Borrower or any of its Subsidiaries may pledge to Lender, all court costs
associated with enforcing or defending Lender’s Rights against the Borrower, its
Subsidiaries or any third party challenging said Rights and any other cost or
expense incurred by Lender or its designated representatives in connection
herewith or with the other Loan Papers, together with interest at a rate per
annum two percent (2%) above the Prime Rate on each such amount commencing on
the date notice of such expenditure is given to the Borrower by Lender until the
date it is repaid to Lender.

     5.6 Indemnification. Indemnify, save and hold harmless the Lender and its
Affiliates, directors, officers, agents, attorneys and employees (collectively,
the “Indemnitees”) from and against: (a) any and all claims, demands, actions or
causes of action that are asserted against any Indemnitee by any person (other
than the Borrower) if the claim, demand, action or cause of action directly or
indirectly relates to a claim, demand, action or cause of action that such
person asserts or may assert against the Borrower, any Affiliate of the Borrower
or any officer, director or shareholder of the Borrower; (b) any and all claims,
demands, actions or causes of action that are asserted against any Indemnitee by
any person (other than the Borrower) if the claim, demand, action or cause of
action arises out of or relates to the loans made by Lender to the Borrower
under the Notes and this Agreement, the use or contemplated use of proceeds of
such loans or the relationship of the Borrower and the Lender under this
Agreement; (c) any administrative or investigative proceeding by any
Governmental Authority arising out of or related to a claim, demand, action or
cause of action described in clauses (a) or (b) above; and (d) any and all
liabilities, losses, costs or expenses (including reasonable attorneys’ fees and
disbursements) that any Indemnitee suffers or incurs as a result of any

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of the foregoing; provided, that no Indemnitee shall be entitled to
indemnification for any liability, loss, cost or expense caused by its own gross
negligence or willful misconduct. If any claim, demand, action or cause of
action is asserted against any Indemnitee and such Indemnitee intends to claim
indemnification from the Borrower under this Section 5.6, such Indemnitee shall
promptly notify the Borrower, but the failure to so promptly notify the Borrower
shall not affect the obligations of the Borrower under this Section 5.6 unless
such failure materially prejudices the Borrower’s right to participate, or the
Borrower’s rights, if any, in the contest of such claim, demand, action or cause
of action, as hereinafter provided. Each Indemnitee may, and if requested by the
Borrower in writing shall, in good faith contest the validity, applicability and
amount of such claim, demand, action or cause of action with counsel selected by
such Indemnitee and reasonably acceptable to the Borrower, and shall permit the
Borrower to participate in such contest. Any Indemnitee that proposes to settle
or compromise any claim or proceeding for which the Borrower may be liable for
payment of indemnity hereunder shall give the Borrower written notice of the
terms of such proposed settlement or compromise reasonably in advance of
settling or compromising such claim or proceeding and shall obtain the
Borrower’s prior written consent, which consent shall not be unreasonably
withheld. In connection with any claim, demand, action or cause of action
covered by this Section 5.6 against more than one Indemnitee, all such
Indemnitees shall be represented by the same legal counsel selected by the
Indemnitees and reasonably acceptable to the Borrower; provided, that if such
legal counsel determines in good faith and advises the Borrower in writing that
representing all such Indemnitees would or could result in a conflict of
interest under legal requirements or ethical principles applicable to such legal
counsel or that a defense or counterclaim is available to an Indemnitee that is
not available to all such Indemnitees, then to the extent reasonably necessary
to avoid such a conflict of interest or to permit unqualified assertion of such
a defense or counterclaim, each Indemnitee shall be entitled to separate
representation by legal counsel selected by that Indemnitee and reasonably
acceptable to the Borrower. Any obligation or liability of the Borrower to any
Indemnitee under this Section 5.6 shall survive the expiration or termination of
this Agreement and the repayment of the Loans and the payment of all other
Obligations owing to the Lender for the statute of limitations period applicable
to such claim or contest.

     5.7 Further Assurances. Use its best efforts to cure any defects in the
execution and delivery of any of the Loan Papers to which it is a party and in
any other instrument or document referred to or mentioned herein, and
immediately execute and deliver to Lender, upon Lender’s request, all such other
and further instruments as may be required or desired by Lender from time to
time in compliance with or accomplishment of the covenants and agreements of the
Borrower made herein and in the other Loan Papers.

     5.8 Inspection and Visitation. Permit any officer, employee, agent or
representative of Lender to visit and inspect any of the properties and assets
of the Borrower and its Subsidiaries, examine all of its books, records and
accounts, and take copies and extracts therefrom, all at such reasonable times
and during normal business

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hours as Lender may request and, further, the Borrower shall allow and does
hereby grant Lender the right to contact any employees, associates, Affiliates,
officers, accountants and auditors of Borrower and its Subsidiaries as Lender
may desire, and upon the occurrence and during the continuance of an Event of
Default, Lender shall have the right to contact the customers of Borrower and
its Subsidiaries.

     5.9 Compliance With Laws. Comply with all Requirements of Law, the
violation of which could have a Material Adverse Effect.

     5.10 Accounts and Records. Keep books of record and account in which full,
true and correct entries will be made of all dealings or transactions in
relation to its business and activities, in accordance with generally accepted
accounting principles consistently applied, except only for changes in
accounting principles or practices with which the Borrower’s independent public
accountants concur.

     5.11 Environmental Complaints. Promptly give notice to Lender (a) of any
Environmental Complaint affecting the Borrower or any of its Subsidiaries, any
property owned, operated or used by the Borrower or any of its Subsidiaries, or
any part thereof or the operations of the Borrower or any of its Subsidiaries,
or any other person on or in connection with such property or any part thereof
(including receipt by the Borrower or any of its Subsidiaries of any notice of
(i) the happening of any event involving the use, spill, release, leak, seepage,
discharge or clean-up of any Hazardous Substance or (ii) any complaint, order,
citation or notice with regard to air emissions, water discharges, or any other
environmental, health or safety matter affecting the Borrower or any of its
Subsidiaries from any person or entity (including without limitation the United
States Environmental Protection Agency)), and (b) of any notice from any person
of (i) any violation or alleged violation of any Relevant Environmental Law
relating to any such property or any part thereof or any activity at any time
conducted on any such property, (ii) the occurrence of any release, spill or
discharge in a quantity that is reportable under any Relevant Environmental Law
or (iii) the commencement of any clean-up pursuant to or in accordance with any
Relevant Environmental Law of any Hazardous Substance on or about any such
property or any part thereof.

ARTICLE VI
Negative Covenants

     As a material inducement to Lender to enter into this Agreement, the
Borrower covenants and agrees that from the date hereof until payment in full of
the Obligations, the Borrower shall not, and (except with respect to
Section 6.1) shall not permit any of its Subsidiaries to, directly or
indirectly:

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     6.1 Financial Covenants.

          (a) Consolidated Current Ratio. Permit the Consolidated Current Ratio,
as defined herein and calculated pursuant to Exhibit Q hereto, to be less than
1.5 to 1.0 as of September 30, 2004, and as of the end of each month thereafter.

          (b) Consolidated Tangible Net Worth. Permit the Consolidated Tangible
Net Worth, as defined herein and calculated pursuant to Exhibit R hereto, to be
less than $14,500,000.00 as of September 30, 2004, and as of the end of each
month thereafter.

          (c) Debt Service Ratio. Permit the ratio of (i) Consolidated Cash Flow
to (ii) Consolidated Fixed Charges, as such terms are defined herein and as
calculated pursuant to Exhibit S hereto, to be less than 1.25 to 1.00 as of the
end of each fiscal quarter of the Borrower.

          (d) Consolidated Debt to Consolidated Tangible Net Worth Ratio. Permit
the ratio of (i) Consolidated Debt to (ii) Consolidated Tangible Net Worth, as
such terms are defined herein and calculated pursuant to Exhibit T hereof, to be
more than 2.7 to 1.00 as of September 30, 2004 and as of the end of each month
thereafter.

     6.2 Debt. Create, assume, incur or have outstanding any Debt, except:

          (a) Debt of the Borrower and its Subsidiaries to the Lender;

          (b) Debt existing on the date of this Agreement which is set forth in
the financial statements referred to in Section 4.5 of this Agreement, but not
any increases thereof;

          (c) obligations for the payment of rent or hire of property under
leases or lease agreements which would not cause the aggregate amount of all
payments made by the Borrower and its Subsidiaries pursuant to such leases or
lease agreements to exceed $200,000.00 in the aggregate during any calendar
year;

          (d) additional Debt of the Borrower and its Subsidiaries not to exceed
$100,000.00 in the aggregate principal amount at any one time outstanding,
without the prior written consent of Lender; and

          (e) the SCS Notes.

     6.3 ERISA Compliance. (a) Engage in any “prohibited transaction” as such
term is defined in Section 4975 of the Internal Revenue Code of 1986, as
amended;

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          (b) incur any “accumulated funding deficiency” as such term is defined
in Section 302 of ERISA; or

          (c) terminate any such plan in a manner which could result in the
imposition of a Lien on the property of Borrower or any Subsidiary pursuant to
Section 4068 of ERISA.

     6.4 Amendment of Organizational Documents. Amend or otherwise modify its
articles of incorporation, regulations, articles of organization or otherwise
change its corporate or limited liability company structure in any manner,
except as required by Section 5.12 hereof.

     6.5 Fiscal Year. Permit its fiscal year to end on a day other than the last
day of December of each year.

     6.6 Nature of Business. Make any significant or substantial change in the
nature of its business as being conducted on the date of this Agreement.

     6.7 Disposition of Collateral. Sell, transfer, lease, exchange, alienate or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or any part of the Collateral, except as permitted by Section 6.12, without
the prior written consent of Lender.

     6.8 Liens. Create, incur, assume or permit to exist any Lien upon any of
its properties, assets or revenues, whether now owned or hereafter acquired, or
agree to do any of the foregoing, except:

          (a) Bank Liens;

          (b) Liens to secure payments of workmen’s compensation, unemployment
insurance, old age pensions or other social security;

          (c) deposits or pledges to secure performance of bids, tenders,
contracts (other than contracts for the payment of money), leases, public or
statutory obligations, surety or appeal bonds, or other deposits or pledges for
purposes of like general nature in the ordinary course of business;

          (d) Liens for taxes, assessments or other governmental charges or
levies which are not delinquent or which are in good faith being contested by
appropriate proceedings; provided, however, this exception shall not allow any
Lien imposed by the U.S. Government for failure to pay income, payroll, FICA or
similar taxes, other than any such Lien where (i) the validity, applicability or
amount thereof is being contested in good faith by appropriate proceedings which
will prevent the forfeiture or sale of any property

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of the Borrower or any Subsidiary or any material interference with the use
thereof by the Borrower or any Subsidiary, and (ii) the Borrower shall have set
aside on its books reserves appropriate within generally accepted accounting
principles with respect thereto;

          (e) vendors’, operators’, materialmen’s, mechanics’, carriers’,
workmen’s, repairmen’s or other like Liens arising by operation of law in the
ordinary course of business and securing obligations less than 90 days from the
date of invoice, and on which no suit to foreclose has been filed, or which are
in good faith being contested by appropriate proceedings;

          (f) Liens created by or resulting from any litigation or legal
proceeding which is being contested in good faith by appropriate proceedings;
and

          (g) Liens permitted by the other Loan Papers.

     6.9 Dividends, Redemptions and Other Payments. Declare or pay any dividends
(except dividends payable solely in its own capital stock) on, or redeem,
retire, purchase or otherwise acquire for value, any shares of any class of its
respective shares of capital stock, now or hereafter outstanding, or return any
capital to its shareholders, or make any other distribution in respect thereof,
whether in cash or property or in obligations of the Borrower or any Subsidiary
without the prior written consent of Lender, except that: (a) Borrower’s
Subsidiaries may declare, pay or make dividends or distributions to Borrower;
(b) Borrower may declare and pay cash dividends on its outstanding shares of 10%
Convertible Series A Preferred Stock, $.01 par value per share, if: (i) there is
not in existence, at the time of the dividend payment to be made, an “Event of
Default” as defined in Section 7.1 of this Agreement; and (ii) the dividend
payment to be made would not cause or result in the occurrence of an Event of
Default; and (c) Borrower may make the payments required under the SCS Notes.

     6.10 Limitation on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of (whether in one transaction or in a series of related
transactions), all or substantially all of its property, business or assets
(whether now owned or hereafter acquired), or make any material change in its
present method of conducting business, except as required by Section 5.12
hereof.

     6.11 Transactions with Affiliates. Enter into any transaction (including,
but not limited to, the sale or exchange of property or the rendering of
services) with any of its Affiliates, other than in the ordinary course of
business and upon terms no less favorable than could be obtained in an
arm’s-length transaction with a person that was not an Affiliate.

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     6.12 Disposition of Assets. Sell, convey, transfer, lease, exchange,
alienate or otherwise dispose of any of its respective property or assets,
except, to the extent not otherwise prohibited under the other Loan Papers:

          (a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value; and

          (b) inventory and equipment which is sold or leased in the ordinary
course of business.

     6.13 Limitation on Negative Pledge Clauses. Enter into with any person any
agreement, other than (a) this Agreement and (b) the other Loan Papers, which
prohibits or limits the ability of the Borrower or any of its Subsidiaries to
create, incur, assume or suffer to exist any Lien upon any of its property,
assets or revenues, whether now owned or hereafter acquired.

     6.14 Terms of Other Agreements. Become a party to any agreement (or any
amendment, supplement, extension or other modification thereto or thereof)
which, in any manner (i) violates, conflicts with or creates a breach of any of
the terms or provisions of this Agreement or any of the other Loan Papers,
(ii) provides for the granting or conveyance to any person other than Lender of
Liens on or affecting the Collateral, or (iii) restricts the Borrower’s or any
of its Subsidiaries (a) rights of ownership, possession or operation of all or
any part of the Collateral or (b) rights or ability to direct the use or
disposition of all or any part of the Collateral or (c) which requires the
consent of any person (other than Lender) to use or dispose of any of the
Collateral for any purpose or to act or refrain from acting with respect
thereto.

     6.15 Subordinated Notes. Make any payment of principal or interest on the
Subordinated Notes, unless:

     (i) there is not in existence, at the time of the principal or interest
payment to be made, an “Event of Default” as defined in Section 7.1 of this
Agreement; and

     (ii) the principal or interest payment to be made would not cause or result
in the occurrence of an Event of Default as defined in Section 7.1 of this
Agreement.

     6.16 Amendment of Compressor Leases. Amend or otherwise modify in any
material respect any lease or rental agreement covering any of the Borrower’s or
Subsidiaries’ gas compressors without the approval of Lender; provided, however,
it shall not be a violation of this Section 6.16 if upon expiration of a lease
or rental agreement by its own terms Borrower enters into a new lease or rental
agreement with the same lessee.

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     6.17 Use of Loan Proceeds. Use the proceeds of any Advance for any purpose
other than as described in Section 4.11 hereof.

ARTICLE VII
Default and Remedies

     7.1 Events of Default. If any one or more of the following shall occur and
shall not have been remedied in the period, if any, provided for, an “Event of
Default” shall be deemed to have occurred hereunder and with respect to all of
the Obligations, unless waived in writing by Lender:

          (a) default shall be made in the payment when due of any installment
of principal or interest on the Notes or any other Obligations;

          (b) any representation or warranty made by the Borrower herein or in
any of the other Loan Papers or in any certificate, document or financial or
other statement furnished to Lender under or in connection with this Agreement
or any other Loan Paper shall be or shall prove to have been incorrect or untrue
or misleading in any material respect on or as of the date made or deemed made
and shall continue unremedied for a period of 30 days after the earlier of
(i) the Borrower becoming aware of such default or (ii) the Lender giving notice
thereof to the Borrower;

          (c) default shall be made by the Borrower or any Subsidiary in the due
performance or observance of any covenant, condition or agreement contained in
any of the Loan Papers to which it is a party and such default shall continue
unremedied for a period of thirty (30) days after the earlier of (i) Borrower
becoming aware of such default or (ii) the Lender giving notice thereof to the
Borrower;

          (d) Borrower or any Subsidiary shall (i) apply for or consent to the
appointment of a receiver, trustee or liquidator of itself or of all or a
substantial part of its assets; (ii) be unable, or admit in writing its
inability, or fail to confirm its ability (when requested to do so by Lender) to
pay its debts as they become due; (iii) make a general assignment for the
benefit of creditors; (iv) be adjudicated a bankrupt or insolvent or file a
voluntary petition in bankruptcy; (v) file a petition or an answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy or insolvency law; (vi) file an answer admitting the material
allegations of, or consent to, or default in answering, a petition filed against
it in any bankruptcy, reorganization or insolvency proceedings; or (vii) take
any action for the purpose of effecting any of the foregoing;

          (e) an order, judgment or decree shall be entered by any court of
competent jurisdiction approving a petition seeking reorganization of the
Borrower or any of its Subsidiaries or appointing a receiver, trustee or
liquidator of the Borrower or any of

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its Subsidiaries or of all or a substantial part of its assets, and such order,
judgment or decree shall continue unstayed in effect for any period of thirty
(30) consecutive days;

          (f) the failure of the Borrower or any of its Subsidiaries to have
discharged within a period of thirty (30) days after the commencement thereof
any attachment, sequestration or similar proceeding against any of its
properties or assets having a value of $100,000.00 or more;

          (g) any acceleration, notice of default, default, filing of suit or
notice of breach by any lender, lessor, creditor or other party to any Material
Agreement to which the Borrower or any of its Subsidiaries is a party, or to
which its properties or assets are subject;

          (h) the occurrence of a Material Adverse Effect with respect to
Borrower or any of its Subsidiaries;

          (i) the occurrence of a Change of Control;

          (j) final judgment or judgments shall be entered against the Borrower
or any of its Subsidiaries involving in the aggregate a liability (not paid or
fully covered by insurance or not otherwise covered by indemnity agreements
acceptable to Lender in its sole discretion) of $100,000.00 or more, and such
judgment or judgments shall not have been vacated, discharged, stayed or bonded
pending appeal within sixty (60) days from the entry thereof; or

          (k) if, at any time, the then existing President of the Borrower or
the then existing Chief Executive Officer (if there shall be one) of the
Borrower ceases, for any reason, to hold such office and a replacement for such
officer acceptable to Lender is not appointed within 120 days thereafter.

     7.2 Remedies.

          (a) Upon the occurrence of any Event of Default described in
Section 7.1(d) or Section 7.1(e) hereof, the lending obligations (including the
obligations to make Advances under Section 2.1 hereof), if any, of Lender
hereunder shall immediately terminate, and the entire principal amount of all
Obligations then outstanding together with interest then accrued and unpaid
thereon shall become immediately due and payable, all without demand and
presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of intention to accelerate maturity or notice of
acceleration of maturity, or any other notice of default of any kind, all of
which are hereby expressly waived by the Borrower.

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          (b) Upon the occurrence and at any time during the continuance of any
other Event of Default specified in Section 7.1 hereof, Lender may, by written
notice to the Borrower, (i) declare the entire principal amount of all
Obligations then outstanding, together with interest then accrued and unpaid
thereon, to be immediately due and payable without demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
notice of intention to accelerate maturity or notice of acceleration of
maturity, or any other notice of default of any kind, all of which are hereby
expressly waived by the Borrower, and (ii) terminate the lending obligations, if
any, of Lender hereunder unless and until Lender shall reinstate same in
writing.

     7.3 Right of Setoff. Upon the occurrence and during the continuance of any
Event of Default, or if the Borrower becomes insolvent, however evidenced,
Lender is hereby authorized at any time and from time to time, without prior
notice to Borrower (any such notice being expressly waived by the Borrower), to
setoff and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by Lender to or for the credit or the account of Borrower against any and all of
the Obligations, irrespective of whether or not Lender shall have made any
demand under this Agreement or the Notes and although such Obligations may be
unmatured. Lender agrees promptly to notify Borrower after any such setoff and
application, provided that the failure to give such notice shall not affect the
validity of such setoff and application. The rights of Lender under this
Section 7.3 are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which Lender may have.

     7.4 Delegation of Duties and Rights. Lender may perform any of its duties
or exercise any of its Rights under the Loan Papers by or through its officers,
directors, employees, attorneys, agents or other representatives.

     7.5 Lender Not in Control. None of the covenants or other provisions
contained in this Agreement or the other Loan Papers shall, or shall be deemed
to, give Lender the Right to exercise control over the affairs or management of
the Borrower.

     7.6 Waivers by Lender. The acceptance by Lender at any time and from time
to time of part payment on the Obligations shall not be deemed to be a waiver of
any Event of Default then existing. No waiver by Lender of any Event of Default
shall be deemed to be a waiver of any other then-existing or subsequent Event of
Default. No delay or omission by Lender in exercising any Right under this
Agreement or any of the other Loan Papers shall impair such Right or be
construed as a waiver thereof or any acquiescence therein.

     7.7 Cumulative Rights. All Rights available to Lender under this Agreement
and the other Loan Papers are cumulative of, and in addition to, all other
Rights available to

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Lender at law or in equity. The exercise or partial exercise of any such Right
shall not preclude the exercise of any other Right under the Loan Papers or
otherwise.

     7.8 Expenditures by Lender. All court costs, reasonable attorneys’ fees,
other costs of collection, and other sums spent by Lender pursuant to the
exercise of any Right provided herein shall be payable to Lender on demand,
shall become part of the Obligations, and shall bear interest at a rate per
annum two percent (2%) above the Prime Rate on each such amount commencing on
the date notice of such claims, judgments, costs, charges or attorneys’ fees is
given to Borrower by Lender until the date paid by Borrower.

ARTICLE VIII
Miscellaneous

     8.1 Survival of Representations and Warranties. All representations and
warranties of the Borrower made herein, in the other Loan Papers to which it is
a party and in any document, certificate or statement delivered pursuant hereto
or in connection herewith shall survive the execution and delivery of this
Agreement and the Notes.

     8.2 Communications. Unless specifically otherwise provided, whenever any
Loan Paper requires or permits any consent, approval, notice, request, or demand
from one party to another, such communication must be in writing (which may be
by cable, telex, telecopy, fax or other similar means of remote facsimile
transmission) to be effective and shall be deemed to have been given on the day
actually delivered or, if mailed, on the third day (or if such third day is not
a Business Day, then on the next succeeding Business Day) after it is enclosed
in an envelope, addressed to the party to be notified at the address stated
below, properly stamped, sealed, and deposited in the appropriate official
postal service. Until changed by notice pursuant hereto, the address of each
party for purposes of this Agreement is as follows:

BORROWER:

Natural Gas Services Group, Inc.
2911 S. CR 1260
Midland, Texas 79706
Attn. Earl Wait
Facsimile Number for Notice: (432) 563-5567
          or

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LENDER:

Western National Bank
500 W. Wall, Suite 100
Midland, Texas 79701
Attn: Scott A. Lovett
Facsimile Number for Notice: (432) 570-9567

8.3 Successors and Assigns.

          (a) All covenants and agreements contained by or on behalf of the
Borrowers in this Agreement, the Notes and the other Loan Papers shall bind its
respective successors and assigns and shall inure to the benefit of the Bank and
its successors and assigns. The Borrowers shall not, however, have the right to
assign any of its respective rights hereunder or any interest herein without the
prior written consent of Lender and Lender shall not be obligated to make any
Loan hereunder to any Person other than the Borrowers.

          (b) Lender may sell, without the consent of the Borrowers or the
Guarantor, a participation interest to any financial institution or
institutions, and such financial institution or institutions may further sell a
participation interest (undivided or divided) in, the Loan made to the Borrowers
hereunder and the Lender’s rights and benefits under this Agreement, the Notes
and the other Loan Papers and to the extent of that participation, such
participant or participants shall have, without limitation, the same rights and
benefits against the Borrower as it or they would have had if participation of
such participant or participants were the Lender making the loans to the
Borrowers hereunder, provided, however, that (i) the Lender’s obligations under
this Agreement shall remain unmodified and fully effective and enforceable
against the Lender, (ii) the Lender shall remain the holder of the Notes for all
purposes of this Agreement, and (iii) the Borrower shall continue to deal solely
and directly with the Lender in connection with the Lender’s rights and
obligations under this Agreement.

          (c) Lender may, without the consent of the Borrower or the Guarantor,
assign to one or more banks or other persons all or a portion of the Lender’s
rights and obligations under this Agreement (including, without limitation, all
or a portion of the indebtedness owing to it from the Borrower and the Notes and
the other Loan Papers held by it). Upon any such assignment, from and after the
effective date specified in such assignment (i) the assignee thereunder shall be
a party hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such assignment, have the rights and obligations
of the Bank hereunder, and (ii) the Lender assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it pursuant
to such assignment, relinquish its rights and be released from its obligations
under this Agreement (and, in the case of an assignment covering all of the
remaining portion of the

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Lender’s rights and obligations under this Agreement, the Lender shall cease to
be a party hereto).

     (d) Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Agreement disclose to the
assignee or participant or proposed assignee or participant, any information
relating to the Borrower or the Guarantor.

     8.4 Governing Law. THIS AGREEMENT AND THE OTHER LOAN PAPERS SHALL BE DEEMED
TO BE CONTRACTS MADE UNDER, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, AND
GOVERNED BY, THE LAWS OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT THE RIGHTS
PROVIDED IN ANY LOAN PAPER WITH REFERENCE TO PROPERTIES COVERED THEREBY THAT ARE
SITUATED IN OTHER STATES MAY BE GOVERNED BY THE LAWS OF SUCH OTHER STATES, AND
PROVIDED, FURTHER, THAT THE LAWS PERTAINING TO THE ALLOWABLE RATES OF INTEREST
MAY, FROM TIME TO TIME, BE GOVERNED BY THE LAWS OF THE UNITED STATES OF AMERICA.

     8.5 Usury Savings Clause. It is the intention of the parties hereto that
Lender shall conform strictly to usury laws applicable to it. Accordingly, if
the transactions contemplated hereby would be usurious as to Lender under laws
applicable to it (including the laws of the United States of America and the
State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to Lender notwithstanding the other provisions hereof), then, in that
event, notwithstanding anything to the contrary in the Notes, this Agreement or
any other Loan Paper or other agreement entered into in connection with or as
security for the Notes, (i) the aggregate of all consideration which is
contracted for, taken, reserved, charged or received by Lender under the Notes,
this Agreement or any other Loan Paper or agreement entered into in connection
with or as security for the Notes shall under no circumstances exceed the
maximum amount allowed by such applicable law, and any excess shall be credited
by Lender on the principal amount of the Obligations to Lender (or, to the
extent that the principal amount of the Obligations shall have been or would
thereby be paid in full, refunded by Lender to the Borrower); and (ii) in the
event that the maturity of the Notes is accelerated by reason of an Event of
Default under this Agreement or otherwise, or in the event of any prepayment,
then such consideration that constitutes interest under law applicable to Lender
may never include more than the maximum amount allowed by such applicable law,
and excess interest, if any, provided for in the Notes, this Agreement or
otherwise shall be cancelled automatically by Lender as of the date of such
acceleration of prepayment and, if theretofore paid, shall be credited by Lender
on the principal amount of the Obligations (or, to the extent that the principal
amount of such Obligations shall have been or would thereby be paid in full,
refunded by Lender to the Borrower).

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     To the extent that Texas Finance Code Section 303.002 is relevant to Lender
for the purposes of determining the Highest Lawful Rate, the applicable rate
ceiling under such provisions shall be determined by the indicated (weekly) rate
ceiling from time to time in effect, subject to Lender’s right subsequently to
change such method in accordance with applicable law. Notwithstanding anything
to the contrary contained herein or in any of the other Loan Papers, it is not
the intention of the Lender to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned interest at
the time of such acceleration.

     8.6 Severability. If one or more of the provisions contained herein or in
the Notes or any of the other Loan Papers shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, the
Notes or any of the other Loan Papers.

     8.7 Non-Waiver. No Advance hereunder shall constitute a waiver of the
representations, warranties, conditions or agreements of Borrower or of any of
the conditions of Lender’s obligations to make further Advances. If Borrower is
unable to satisfy any such representation, warranty, condition or agreement, no
such Advance shall have the effect of precluding Lender from thereafter
declaring such inability to be an Event of Default as hereinabove provided.

     8.8 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts, each of which
shall be deemed to be an original, but all of which taken together shall
constitute one and the same instrument.

     8.9 Amendments and Waivers. Neither this Agreement, the Notes nor any of
the other Loan Papers may be amended or waived orally, but only by an instrument
in writing signed by Borrower and Lender (and/or any other person which is a
party to the Loan Paper being amended or waived).

     8.10 Terms and Headings. Terms used herein but not defined shall have the
meanings accorded them under generally accepted accounting principles, or the
Texas Uniform Commercial Code, as appropriate. All headings used herein are for
convenience and reference purposes only and shall not affect the substance of
this Agreement.

     8.11 Conflicts. If there is ever a conflict between any of the terms,
conditions, representations, warranties or covenants contained in this Agreement
and the terms, conditions, representations, warranties or covenants in any of
the other Loan Papers executed by the Borrower, the provisions of this Agreement
shall govern and control; provided, however, the fact that any term, condition,
representation, warranty or covenant

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contained in such other Loan Paper is not contained herein shall not be, or be
deemed to be, a conflict.

     8.12 Environmental Indemnity. Borrower hereby agrees to defend, indemnify,
pay and hold Lender and its officers, directors, employees and agents (each, an
“Indemnitee”) harmless from and against, and shall reimburse each Indemnitee
for, any and all loss, claim, liability, damages, injunctive relief, penalty,
judgment, suit, obligation, injury to persons, property or natural resources,
cost, expense or disbursement of any kind or nature whatsoever including,
without limitation, attorneys’ fees and costs attributable to any action or
cause of action (whether or not each Indemnitee shall be designated a party
thereto), arising, directly or indirectly, in whole or in part, out of the
release or presence, or alleged release or alleged presence, or any Hazardous
Substance, at, on, or under, surrounding or in connection with any of the real
property owned or leased by Borrower (“Premises”), or any portion thereof,
whether foreseeable or unforeseeable, regardless of the source of such release
and regardless of when such release occurred or such presence is discovered. The
foregoing indemnity includes, without limitation, all cost in law or in equity
of removal, remediation of any kind and disposal of any such Hazardous
Substance, all costs of determining whether the Premises are in compliance, and
causing the Premises to be in compliance, with all Requirements of Law relating
to Hazardous Substances, all costs associated with claims for damages to
persons, property or natural resources, and each Indemnitee’s consultants’ fees
(including attorneys’ fees and costs) and court costs. The obligations of
Borrower under this indemnity shall survive the repayment of the Notes and shall
be independent of the obligations of Borrower to the Indemnitees in connection
with the Notes. The rights of each Indemnitee under this indemnity shall be in
addition to any other rights and remedies of such Indemnitee under any guaranty
or any document or instrument now or hereafter executed in connection with this
Agreement, the Notes, the Loan Papers or at law or in equity.

     8.13 Renewal, Extension or Rearrangement. All provisions of this Agreement
and any of the other Loan Papers relating to the Notes or any other Obligations
shall apply with equal force and effect to each and all promissory notes
hereafter executed which in whole or in part represent a renewal, extension for
any period, increase or rearrangement of any part of the Obligations originally
represented by the Notes or any part of such other Obligations.

     8.14 Direct Benefit. The loans hereunder and any additional loans are for
the direct benefit of each of the Borrower and its Subsidiaries and the loans
hereunder will be used by them for general working capital purposes. The
Borrower and its Subsidiaries are engaged as an integrated group in the
manufacturing, leasing and financing of industrial equipment and systems for the
oil and gas industry and other industries, and any benefits to the Borrower or
any of its

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Subsidiaries are a benefit to all of them, both directly or indirectly, inasmuch
as the successful operation and condition of the Borrower and its Subsidiaries
is dependent upon the continued successful performance of the functions of the
integrated group as a whole.

     8.15 Waivers. No course of dealing on the part of the Lender, its officers,
employees, consultants or agents, nor any failure or delay by the Lender with
respect to exercising any right, power or privilege of the Lender under this
Agreement, the Notes or any other Loan paper shall operate as a waiver thereof,
except as otherwise provided in Section 8.9 hereof.

     8.16 Cumulative Rights. Rights and remedies of the Lender under this
Agreement, the Notes and the other Loan Papers shall be cumulative, and the
exercise or partial exercise of any such right or remedy shall not preclude the
exercise of any other right or remedy.

     8.17 Governmental Regulation. Anything contained herein to the contrary
notwithstanding, the Lender shall not be obligated to extend credit to the
Borrower in an amount in violation of any limitation or prohibition provided by
any applicable statute or regulation.

     8.18 Exhibits. The exhibits, annexes and schedules attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for the purposes stated herein, except that in the event of any
conflict between any of the provisions of such exhibits, annexes and schedules
and the provisions of this Agreement, the provisions of this Agreement shall
prevail. All capitalized terms used in such exhibits, annexes and schedules, but
not defined therein, shall have the same meanings as given to such terms in this
Agreement.

     THIS AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT THE ENTIRE AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.

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     EXECUTED EFFECTIVE as of the date first above written.

            BORROWER:

NATURAL GAS SERVICES GROUP, INC.
      By:         /s/ Wallace C. Sparkman               Wallace C. Sparkman,
President             

            GUARANTOR:

Screw Compression Systems, Inc.
      By:         /s/ Paul D. Hensley               Paul D. Hensley, President 
           

            LENDER:

WESTERN NATIONAL BANK
      By:         /s/ Scott A. Lovett               Scott A. Lovett, Executive 
            Vice President     

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EXHIBIT “A”

TERM PROMISSORY NOTE

     
$8,000,000.00
  January 3, 2005

     FOR VALUE RECEIVED, in the manner, on the dates and in the amounts herein
stipulated, NATURAL GAS SERVICES GROUP, INC., a Colorado corporation (the
“Borrower”), hereby promises and agrees to pay to the order of WESTERN NATIONAL
BANK, a national banking association (the “Lender”), in Midland, Midland County,
Texas, the principal sum of EIGHT MILLION AND NO/100 DOLLARS ($8,000,000.00) in
lawful money of the United States of America, which shall be legal tender in
payment of all debts and dues, public and private, at the time of payment,
together with interest on the unpaid principal amount hereof from time to time
outstanding until maturity at a rate per annum which shall from day to day be
equal to the lesser of (a) a rate per annum (the “Established Rate”) equal to
the greater of (i) one percent (1.00%) over the Prime Rate in effect from day to
day, or (ii) six percent (6%), or (b) the Highest Lawful Rate, in each case
calculated on the basis of actual days elapsed, but computed as if each calendar
year consisted of 360 days. Each change in the rate of interest charged under
this Term Promissory Note (this “Note”) shall, subject to the terms hereof,
become effective, without notice to Borrower, upon the effective date of each
change in the Established Rate or the Highest Lawful Rate, as the case may be.
Notwithstanding the foregoing, if at any time the Established Rate exceeds the
Highest Lawful Rate, the rate of interest on this Note shall be limited to the
Highest Lawful Rate, but any subsequent reductions in the Established Rate shall
not reduce the rate of interest hereon below the Highest Lawful Rate until the
total amount of interest accrued hereon approximately equals the amount of
interest which would have accrued hereon if the Established Rate had at all
times been in effect. In the event that at maturity (stated or by acceleration),
or at final payment of this Note, the total amount of interest paid or accrued
hereon is less than the amount of interest which would have accrued if the
Established Rate had at all times been in effect, then, at such time and to the
extent permitted by applicable laws, Borrower shall pay to Lender an amount
equal to the difference between (a) the lesser of the amount of interest which
would have accrued if the Established Rate had at all times been in effect or
the amount of interest which would have accrued if the Highest Lawful Rate had
at all times been in effect, and (b) the amount of interest actually paid or
accrued on this Note. Interest calculations may be made ten days prior to any
interest installment due date under this Note, in which event, if there is an
adjustment in the interest rate in accordance with the terms hereof during such
ten-day period, then Borrower shall subsequently, on demand, pay to Lender any
underpayment, or Lender shall pay to Borrower, any overpayment, as the case may
be, as a result of any adjustment during such ten-day period.

     This Note is the $8,000,000.00 Term Promissory Note referred to in the
Third Amended and Restated Loan Agreement, dated as of January 3, 2005 (said
Third Amended and Restated Loan Agreement, as the same may be amended,

 

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supplemented or otherwise modified from time to time, the “Loan Agreement”), by
and among Borrower, the Guarantor thereto and the Lender, and is subject to the
terms and conditions thereof. Reference is made to the Loan Agreement for
provisions for the disbursement of funds hereunder and for a further statement
of the rights, remedies, powers, privileges, benefits, duties and obligations of
Borrower, Guarantor and Lender under the Loan Agreement and this Note. Terms
used herein which are defined in the Loan Agreement shall have such defined
meanings unless otherwise defined herein. The holder of this Note shall be
entitled to the benefits of the Loan Agreement.

     The principal of this Note shall be due and payable (a) in eighty-four
consecutive monthly installments of $95,238.00 each, with the first such
installment being due and payable on February 1, 2005, and a like installment
being due and payable on the first (1st) day of each succeeding month to and
including December 1, 2011; and (b) one final installment in an amount equal to
all remaining unpaid principal and accrued and unpaid interest on this Note
shall be due and payable on January 1, 2012. Interest, computed on the unpaid
balance of this Note, shall be due and payable as it accrues, on the same dates
as, but in addition to, the installments of principal. All payments and
prepayments shall be applied first to accrued and unpaid interest, and the
balance to principal. Partial prepayments of principal shall be applied to the
installments of principal thereof in the inverse order of their maturity. All of
the past due principal and accrued interest hereunder shall, at the option of
Lender, bear interest from maturity (stated or by acceleration) until paid at a
rate per annum equal to the Highest Lawful Rate.

     This Note is secured as provided in the Loan Agreement and in the other
Loan Papers, to which reference is hereby made for a description of the
properties and assets in which a lien and security interest has been granted,
the nature and extent of the security, the terms and conditions upon which the
liens and security interests were granted and the rights of the holder of this
Note with respect thereto.

     Time is of the essence of this Note. Upon the occurrence of any one or more
of the Events of Default specified in the Loan Agreement (after expiration of
any applicable notice and cure periods), all amounts then remaining unpaid on
(a) this Note, (b) the Promissory Term Note of even date herewith from Screw
Compression Systems, Inc., to Lender in the original principal amount of
$1,415,836.00; (c) the Revolving Line of Credit Note of even date herewith from
Borrower to Lender in the original principal amount of $2,000,000.00; (d) the
Term Promissory Note dated November 3, 2003, from Borrower to Lender in the
original principal amount of $7,512,109.00 as modified by that certain
Modification Agreement dated of even date herewith; and (e) the Advance Term
Promissory Note dated November 3, 2003, from Borrower to Lender in the original
principal mount of $10,000,000.00 as modified by that certain Modification
Agreement, dated effective as of December 15, 2004, shall become, or may be
declared to be, immediately due and payable, all as provided therein.

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     Borrower and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of protest, notice
of dishonor, notice of intent to accelerate and notice of acceleration), demand,
presentment for payment, protest, diligence in collecting or bringing suit and
the filing of suit for the purpose of fixing liability, and consent that the
time of payment hereof may be extended and re-extended from time to time without
notice to them or any of them, and each agrees that his, her or its liability on
or with respect to this Note shall not be affected, diminished or impaired by
any (a) release of any security at any time existing for this Note,
(b) substitution for any security at any time existing for this Note, or
(c) failure to perfect (or to maintain perfection of) any lien on or security
interest in any such security, in each case in whole or in part, with or without
notice, before or after maturity.

     It is the intention of Borrower and Lender that Lender shall conform
strictly to usury laws applicable to it. Accordingly, if the transactions
contemplated by the Loan Agreement and this Note would be usurious as to Lender
under laws applicable to it (including the laws of the United States of America
and the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to Lender notwithstanding the other provisions of the Loan Agreement
and this Note), then, in that event, notwithstanding anything to the contrary in
this Note, the Loan Agreement or any other Loan Paper or other agreement entered
into in connection with or as security for this Note, (i) the aggregate of all
consideration which is contracted for, taken, reserved, charged or received by
Lender under this Note, the Loan Agreement or any other Loan Paper or agreement
entered into in connection with or as security for this Note shall under no
circumstances exceed the maximum amount allowed by such applicable law, and any
excess shall be credited by Lender on the principal amount of the Obligations to
Lender (or, to the extent that the principal amount of the Obligations shall
have been or would thereby be paid in full, refunded by Lender to the Borrower);
and (ii) in the event that the maturity of this Note is accelerated by reason of
an Event of Default under the Loan Agreement or otherwise, or in the event of
any prepayment, then such consideration that constitutes interest under law
applicable to Lender may never include more than the maximum amount allowed by
such applicable law, and excess interest, if any, provided for in this Note, the
Loan Agreement or otherwise shall be cancelled automatically by Lender as of the
date of such acceleration or prepayment and, if theretofore paid, shall be
credited by Lender on the principal amount of the Obligations (or, to the extent
that the principal amount of such Obligations shall have been or would thereby
be paid in full, refunded by Lender to the Borrower).

- 3 -

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     To the extent that Texas Finance Code Section 303.002 is relevant to Lender
for the purposes of determining the Highest Lawful Rate, the applicable rate
ceiling under such provisions shall be determined by the indicated (weekly) rate
ceiling from time to time in effect, subject to Lender’s right subsequently to
change such method in accordance with applicable law. Notwithstanding anything
to the contrary contained herein or in any of the other Loan Papers, it is not
the intention of the Lender to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned interest at
the time of such acceleration.

     This Note is performable and payable in the County of Midland, State of
Texas, and shall be construed in accordance with, and governed by, the laws of
the State of Texas; provided, however, that the laws pertaining to allowable
rates of interest may, from time to time, be governed by the laws of the United
States of America.

              NATURAL GAS SERVICES GROUP, INC.
 
       

  By:    

     

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           Wallace C. Sparkman, President

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EXHIBIT “B”

TERM PROMISSORY NOTE

     
$1,415,836.00
  January 3, 2005

     FOR VALUE RECEIVED, in the manner, on the dates and in the amounts herein
stipulated, SCREW COMPRESSION SYSTEMS, INC., a Texas corporation (the
“Borrower”), hereby promises and agrees to pay to the order of WESTERN NATIONAL
BANK, a national banking association (the “Lender”), in Midland, Midland County,
Texas, the principal sum of ONE MILLION FOUR HUNDRED FIFTEEN THOUSAND EIGHT
HUNDRED THIRTY-SIX AND NO/100 DOLLARS ($1,415,836.00) in lawful money of the
United States of America, which shall be legal tender in payment of all debts
and dues, public and private, at the time of payment, together with interest on
the unpaid principal amount hereof from time to time outstanding until maturity
at a rate per annum which shall from day to day be equal to the lesser of (a) a
rate per annum (the “Established Rate”) equal to the greater of (i) one percent
(1.00%) over the Prime Rate in effect from day to day, or (ii) six percent (6%),
or (b) the Highest Lawful Rate, in each case calculated on the basis of actual
days elapsed, but computed as if each calendar year consisted of 360 days. Each
change in the rate of interest charged under this Term Promissory Note (this
“Note”) shall, subject to the terms hereof, become effective, without notice to
Borrower, upon the effective date of each change in the Established Rate or the
Highest Lawful Rate, as the case may be. Notwithstanding the foregoing, if at
any time the Established Rate exceeds the Highest Lawful Rate, the rate of
interest on this Note shall be limited to the Highest Lawful Rate, but any
subsequent reductions in the Established Rate shall not reduce the rate of
interest hereon below the Highest Lawful Rate until the total amount of interest
accrued hereon approximately equals the amount of interest which would have
accrued hereon if the Established Rate had at all times been in effect. In the
event that at maturity (stated or by acceleration), or at final payment of this
Note, the total amount of interest paid or accrued hereon is less than the
amount of interest which would have accrued if the Established Rate had at all
times been in effect, then, at such time and to the extent permitted by
applicable laws, Borrower shall pay to Lender an amount equal to the difference
between (a) the lesser of the amount of interest which would have accrued if the
Established Rate had at all times been in effect or the amount of interest which
would have accrued if the Highest Lawful Rate had at all times been in effect,
and (b) the amount of interest actually paid or accrued on this Note. Interest
calculations may be made ten days prior to any interest installment due date
under this Note, in which event, if there is an adjustment in the interest rate
in accordance with the terms hereof during such ten-day period, then Borrower
shall subsequently, on demand, pay to Lender any underpayment, or Lender shall
pay to Borrower, any overpayment, as the case may be, as a result of any
adjustment during such ten-day period.

     This Note is the Oklahoma Term Promissory Note referred to in the Third
Amended and Restated Loan Agreement, dated as of January 3, 2005 (said Third
Amended and Restated Loan Agreement, as the same may be amended, supplemented or
otherwise modified from time to time, the “Loan Agreement”), by and among Screw
Compression Systems, Inc., as Guarantor thereunder, Natural Gas Services Group,
Inc., as Borrower thereunder, and the Lender, and is subject to the

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terms and conditions thereof. Reference is made to the Loan Agreement for
provisions for the disbursement of funds hereunder and for a further statement
of the rights, remedies, powers, privileges, benefits, duties and obligations of
Borrower, Guarantor and Lender under the Loan Agreement and this Note. Terms
used herein which are defined in the Loan Agreement shall have such defined
meanings unless otherwise defined herein. The holder of this Note shall be
entitled to the benefits of the Loan Agreement.

     The principal of this Note shall be due and payable (a) in sixty
(60) consecutive monthly installments of $7,866.00 each, with the first such
installment being due and payable on February 1, 2005, and a like installment
being due and payable on the first (1st) day of each succeeding month to and
including December 1, 2009; and (b) one final installment in an amount equal to
all remaining unpaid principal and accrued and unpaid interest on this Note
shall be due and payable on January 1, 2010. Interest, computed on the unpaid
balance of this Note, shall be due and payable as it accrues, on the same dates
as, but in addition to, the installments of principal. All payments and
prepayments shall be applied first to accrued and unpaid interest, and the
balance to principal. Partial prepayments of principal shall be applied to the
installments of principal thereof in the inverse order of their maturity. All of
the past due principal and accrued interest hereunder shall, at the option of
Lender, bear interest from maturity (stated or by acceleration) until paid at a
rate per annum equal to the Highest Lawful Rate.

     This Note is secured as provided in the Loan Agreement and in the other
Loan Papers, to which reference is hereby made for a description of the
properties and assets in which a lien and security interest has been granted,
the nature and extent of the security, the terms and conditions upon which the
liens and security interests were granted and the rights of the holder of this
Note with respect thereto.

     Time is of the essence of this Note. Upon the occurrence of any one or more
of the Events of Default specified in the Loan Agreement (after expiration of
any applicable notice and cure periods), all amounts then remaining unpaid on
(a) this Note, (b) the Term Promissory Note of even date herewith from Natural
Gas Services Group, Inc. (“NGSG”), to Lender in the original principal amount of
$8,000,000.00; (c) the Revolving Line of Credit Note of even date herewith from
NGSG to Lender in the original principal amount of $2,000,000.00; (d) the Term
Promissory Note dated November 3, 2003, from NGSG to Lender in the original
principal amount of $7,512,109.00 as modified by that certain Modification
Agreement dated of even date herewith; and (e) the Advance Term Promissory Note
dated November 3, 2003, from NGSG to Lender in the original principal amount of
$10,000,000.00 as modified by that certain Modification Agreement, dated
effective December 15, 2004, shall become, or may be declared to be, immediately
due and payable, all as provided therein.

     Borrower and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of protest, notice
of dishonor, notice of intent to accelerate and notice of acceleration), demand,
presentment for payment, protest, diligence in collecting or bringing suit and
the filing of suit for the purpose of fixing liability, and consent that the
time of payment hereof may be extended and re-extended from time to time without
notice to them or any of them, and each agrees that his, her or

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its liability on or with respect to this Note shall not be affected, diminished
or impaired by any (a) release of any security at any time existing for this
Note, (b) substitution for any security at any time existing for this Note, or
(c) failure to perfect (or to maintain perfection of) any lien on or security
interest in any such security, in each case in whole or in part, with or without
notice, before or after maturity.

     It is the intention of Borrower and Lender that Lender shall conform
strictly to usury laws applicable to it. Accordingly, if the transactions
contemplated by the Loan Agreement and this Note would be usurious as to Lender
under laws applicable to it (including the laws of the United States of America
and the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to Lender notwithstanding the other provisions of the Loan Agreement
and this Note), then, in that event, notwithstanding anything to the contrary in
this Note, the Loan Agreement or any other Loan Paper or other agreement entered
into in connection with or as security for this Note, (i) the aggregate of all
consideration which is contracted for, taken, reserved, charged or received by
Lender under this Note, the Loan Agreement or any other Loan Paper or agreement
entered into in connection with or as security for this Note shall under no
circumstances exceed the maximum amount allowed by such applicable law, and any
excess shall be credited by Lender on the principal amount of the Obligations to
Lender (or, to the extent that the principal amount of the Obligations shall
have been or would thereby be paid in full, refunded by Lender to the Borrower);
and (ii) in the event that the maturity of this Note is accelerated by reason of
an Event of Default under the Loan Agreement or otherwise, or in the event of
any prepayment, then such consideration that constitutes interest under law
applicable to Lender may never include more than the maximum amount allowed by
such applicable law, and excess interest, if any, provided for in this Note, the
Loan Agreement or otherwise shall be cancelled automatically by Lender as of the
date of such acceleration or prepayment and, if theretofore paid, shall be
credited by Lender on the principal amount of the Obligations (or, to the extent
that the principal amount of such Obligations shall have been or would thereby
be paid in full, refunded by Lender to the Borrower).

     To the extent that Texas Finance Code Section 303.002 is relevant to Lender
for the purposes of determining the Highest Lawful Rate, the applicable rate
ceiling under such provisions shall be determined by the indicated (weekly) rate
ceiling from time to time in effect, subject to Lender’s right subsequently to
change such method in accordance with applicable law. Notwithstanding anything
to the contrary contained herein or in any of the other Loan Papers, it is not
the intention of the Lender to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned interest at
the time of such acceleration.

3

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     This Note is performable and payable in the County of Midland, State of
Texas, and shall be construed in accordance with, and governed by, the laws of
the State of Texas; provided, however, that the laws pertaining to allowable
rates of interest may, from time to time, be governed by the laws of the United
States of America.

              SCREW COMPRESSION SYSTEMS, INC.
 
       

  By:    

     

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

           Paul D. Hensley, President

4

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EXHIBIT “C”

REVOLVING LINE OF CREDIT PROMISSORY NOTE

     
$2,000,000.00
  January 3, 2005

     FOR VALUE RECEIVED, in the manner, on the dates and in the amounts herein
stipulated, NATURAL GAS SERVICES GROUP, INC., a Colorado corporation
(“Borrower”), hereby promises and agrees to pay to the order of WESTERN NATIONAL
BANK, a national banking association (“Lender”), in Midland, Midland County,
Texas, the principal sum of TWO MILLION AND NO/100 DOLLARS ($2,000,000.00) or,
if less, the aggregate unpaid principal amount outstanding hereunder from time
to time, in lawful money of the United States of America, which shall be legal
tender in payment of all debts and dues, public and private, at the time of
payment, together with interest on the unpaid principal amount hereof from time
to time outstanding until maturity at a rate per annum which shall from day to
day be equal to the lesser of (a) a rate per annum (the “Established Rate”)
equal to the greater of (i) one percent (1.00%) over the Prime Rate in effect
from day to day, or (ii) six percent (6%), calculated on the basis of actual
days elapsed, but computed as if each calendar year consisted of 360 days or
(b) the Highest Lawful Rate. Each change in the rate of interest charged under
this Revolving Line of Credit Promissory Note (this “Note”) shall, subject to
the terms hereof, become effective, without notice to Borrower, upon the
effective date of each change in the Prime Rate or the Highest Lawful Rate, as
the case may be. Notwithstanding the foregoing, if at any time the Established
Rate exceeds the Highest Lawful Rate, the rate of interest on this Note shall be
limited to the Highest Lawful Rate, but any subsequent reductions in the
Established Rate shall not reduce the rate of interest hereon below the Highest
Lawful Rate until the total amount of interest accrued hereon approximately
equals the amount of interest which would have accrued hereon if the Established
Rate had at all times been in effect. In the event that at maturity (stated or
by acceleration), or at final payment of this Note, the total amount of interest
paid or accrued hereon is less than the amount of interest which would have
accrued if the Established Rate had at all times been in effect, then, at such
time and to the extent permitted by applicable laws, Borrower shall pay to
Lender an amount equal to the difference between (a) the lesser of the amount of
interest which would have accrued if the Established Rate had at all times been
in effect or the amount of interest which would have accrued if the Highest
Lawful Rate had at all times been in effect, and (b) the amount of interest
actually paid or accrued on this Note. Interest calculations may be made ten
(10) days prior to any interest installment due date under this Note, in which
event, if there is an adjustment in the interest rate in accordance with the
terms hereof during such ten-day period, then Borrower shall subsequently, on
demand, pay to Lender any underpayment, or Lender shall pay to Borrower, any
overpayment, as the case may be, as a result of any adjustment during such
ten-day period.

     This Note is given in renewal, extension and modification, but not in
extinguishment or novation, of that certain Revolving Line of Credit Promissory
Note, dated May 28, 2004, in the original principal amount of $750,000.00, which
Note was given in renewal, extension and modification, but not in extinguishment
or novation, of that certain Revolving Line of Credit Promissory Note dated
March 26, 2003, as modified by that certain Modification of Promissory

 

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Note, dated March 15, 2004, by and between Borrower and Lender, and is the
Revolving Line of Credit Promissory Note referred to in the Second Amended and
Restated Loan Agreement, dated as of November 3, 2003 (the “Prior Loan
Agreement”). This Note is made pursuant to that certain Third Amended and
Restated Loan Agreement, as the same may be amended, supplemented or otherwise
modified from time to time (the “Loan Agreement”), by and among Borrower, the
Guarantors parties thereto and the Lender, and is subject to the terms and
conditions thereof. Reference is made to the Loan Agreement for provisions for
the disbursement of funds hereunder and for a further statement of the rights,
remedies, powers, privileges, benefits, duties and obligations of Borrower and
Lender under the Loan Agreement and this Note. Terms used herein which are
defined in the Loan Agreement shall have such defined meanings unless otherwise
defined herein. The holder of this Note shall be entitled to the benefits of the
Loan Agreement.

     Advances and Subsequent Advances under this Note shall be made in
accordance with the provisions of the Loan Agreement. Subject to the terms
hereof and of the Loan Agreement, Borrower may borrow, repay and reborrow at any
time and from time to time under this Note; provided, however, that the
principal sum outstanding hereunder at any one time shall never exceed the
lesser of (i) $2,000,000.00 or (ii) the Borrowing Base then in effect.

     Interest on the outstanding principal balance of this Note shall be due and
payable monthly on the first (1stth) day of each month, commencing February 1,
2005. The then outstanding principal balance of this Note and all accrued and
unpaid interest shall be due and payable on January 1, 2006. All of the past due
principal and accrued interest hereunder shall, at the option of Lender, bear
interest from maturity (stated or by acceleration) until paid at a rate per
annum equal to the Highest Lawful Rate.

     This Note is secured as provided in the Loan Agreement and in the other
Loan Papers, to which reference is hereby made for a description of the
properties and assets in which a lien and security interest has been granted,
the nature and extent of the security, the terms and conditions upon which the
liens and security interests were granted and the rights of the holder of this
Note with respect thereto.

     Time is of the essence of this Note. Upon the occurrence of any one or more
of the Events of Default specified in the Loan Agreement (after expiration of
any applicable notice and cure periods), all amounts then remaining unpaid on
(a) this Note, (b) the Term Promissory Note of even date herewith from Screw
Compression Systems, Inc., to Lender in the original principal amount of
$1,415,836.00; (c) the Term Promissory Note of even date herewith from Borrower
to Lender in the original principal amount of $8,000,000.00; (d) the Term
Promissory Note dated November 3, 2003, from Borrower to Lender in the original
principal amount of $7,512,109.00 as modified by that certain Modification
Agreement, dated of even date herewith; and (e) the Advance Term Promissory Note
dated November 3, 2003, from Borrower to Lender in the original principal amount
of $10,000,000.00 as modified by that certain Modification Agreement, dated
effective December 15, 2004, shall become, or may be declared to be, immediately
due and payable, all as provided therein.

2

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

 

     Borrower and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of protest, notice
of dishonor, notice of intent to accelerate and notice of acceleration), demand,
presentment for payment, protest, diligence in collecting or bringing suit and
the filing of suit for the purpose of fixing liability, and consent that the
time of payment hereof may be extended and re-extended from time to time without
notice to them or any of them, and each agrees that his, her or its liability on
or with respect to this Note shall not be affected, diminished or impaired by
any (a) release of any security at any time existing for this Note,
(b) substitution for any security at any time existing for this Note, or
(c) failure to perfect (or to maintain perfection of) any lien on or security
interest in any such security, in each case in whole or in part, with or without
notice, before or after maturity.

     It is the intention of Borrower and Lender that Lender shall conform
strictly to usury laws applicable to it. Accordingly, if the transactions
contemplated by the Loan Agreement and this Note would be usurious as to Lender
under laws applicable to it (including the laws of the United States of America
and the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to Lender notwithstanding the other provisions of the Loan Agreement
and this Note), then, in that event, notwithstanding anything to the contrary in
this Note, the Loan Agreement or any other Loan Paper or other agreement entered
into in connection with or as security for this Note, (i) the aggregate of all
consideration which is contracted for, taken, reserved, charged or received by
Lender under this Note, the Loan Agreement or any other Loan Paper or agreement
entered into in connection with or as security for this Note shall under no
circumstances exceed the maximum amount allowed by such applicable law, and any
excess shall be credited by Lender on the principal amount of the Obligations to
Lender (or, to the extent that the principal amount of the Obligations shall
have been or would thereby be paid in full, refunded by Lender to the Borrower);
and (ii) in the event that the maturity of this Note is accelerated by reason of
an Event of Default under the Loan Agreement or otherwise, or in the event of
any prepayment, then such consideration that constitutes interest under law
applicable to Lender may never include more than the maximum amount allowed by
such applicable law, and excess interest, if any, provided for in this Note, the
Loan Agreement or otherwise shall be cancelled automatically by Lender as of the
date of such acceleration or prepayment and, if theretofore paid, shall be
credited by Lender on the principal amount of the Obligations (or, to the extent
that the principal amount of such Obligations shall have been or would thereby
be paid in full, refunded by Lender to the Borrower).

     To the extent that Texas Finance Code Section 303.002 is relevant to Lender
for the purposes of determining the Highest Lawful Rate, the applicable rate
ceiling under such provisions shall be determined by the indicated (weekly) rate
ceiling from time to time in effect, subject to Lender’s right subsequently to
change such method in accordance with applicable law. Notwithstanding anything
to the contrary contained herein or in any of the other Loan Papers, it is not
the intention of the Lender to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned interest at
the time of such acceleration.

3

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     This Note is performable and payable in the County of Midland, State of
Texas, and shall be construed in accordance with, and governed by, the laws of
the State of Texas; provided, however, that the laws pertaining to allowable
rates of interest may, from time to time, be governed by the laws of the United
States of America.

     THIS NOTE, THE LOAN AGREEMENT, AND THE OTHER LOAN PAPERS REPRESENT THE
ENTIRE AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE
ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.

              NATURAL GAS SERVICES GROUP, INC.
 
       

  By:    

     

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            Wallace C. Sparkman, President

4

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EXHIBIT “D”

TERM PROMISSORY NOTE

     
$7,521,109.00
  November 3, 2003

     FOR VALUE RECEIVED, in the manner, on the dates and in the amounts herein
stipulated, NATURAL GAS SERVICES GROUP, INC., a Colorado corporation (the
“Borrower”), hereby promises and agrees to pay to the order of WESTERN NATIONAL
BANK, a national banking association (the “Lender”), in Midland, Midland County,
Texas, the principal sum of SEVEN MILLION FIVE HUNDRED TWENTY-ONE THOUSAND ONE
HUNDRED NINE AND NO/100 DOLLARS ($7,521,109.00) in lawful money of the United
States of America, which shall be legal tender in payment of all debts and dues,
public and private, at the time of payment, together with interest on the unpaid
principal amount hereof from time to time outstanding until maturity at a rate
per annum which shall from day to day be equal to the lesser of (a) a rate per
annum (the “Established Rate”) equal to the greater of (i) one percent (1.00%)
over the Prime Rate in effect from day to day, or (ii) five and one-fourth
percent (5.25%), or (b) the Highest Lawful Rate, in each case calculated on the
basis of actual days elapsed, but computed as if each calendar year consisted of
360 days. Each change in the rate of interest charged under this Term Promissory
Note (this “Note”) shall, subject to the terms hereof, become effective, without
notice to Borrower, upon the effective date of each change in the Established
Rate or the Highest Lawful Rate, as the case may be. Notwithstanding the
foregoing, if at any time the Established Rate exceeds the Highest Lawful Rate,
the rate of interest on this Note shall be limited to the Highest Lawful Rate,
but any subsequent reductions in the Established Rate shall not reduce the rate
of interest hereon below the Highest Lawful Rate until the total amount of
interest accrued hereon approximately equals the amount of interest which would
have accrued hereon if the Established Rate had at all times been in effect. In
the event that at maturity (stated or by acceleration), or at final payment of
this Note, the total amount of interest paid or accrued hereon is less than the
amount of interest which would have accrued if the Established Rate had at all
times been in effect, then, at such time and to the extent permitted by
applicable laws, Borrower shall pay to Lender an amount equal to the difference
between (a) the lesser of the amount of interest which would have accrued if the
Established Rate had at all times been in effect or the amount of interest which
would have accrued if the Highest Lawful Rate had at all times been in effect,
and (b) the amount of interest actually paid or accrued on this Note. Interest
calculations may be made ten days prior to any interest installment due date
under this Note, in which event, if there is an adjustment in the interest rate
in accordance with the terms hereof during such ten-day period, then Borrower
shall subsequently, on demand, pay to Lender any underpayment, or Lender shall
pay to Borrower, any overpayment, as the case may be, as a result of any
adjustment during such ten-day period.

     This Note is the Term Promissory Note referred to in the Second Amended and
Restated Loan Agreement, dated as of November 3, 2003, (said Second Amended and
Restated Loan Agreement, as the same may be amended, supplemented or otherwise
modified from time to

1

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time, the “Loan Agreement”), by and among Borrower, the Guarantors parties
thereto and the Lender, and is subject to the terms and conditions thereof.
Reference is made to the Loan Agreement for provisions for the disbursement of
funds hereunder and for a further statement of the rights, remedies, powers,
privileges, benefits, duties and obligations of Borrower, Guarantors and Lender
under the Loan Agreement and this Note. Terms used herein which are defined in
the Loan Agreement shall have such defined meanings unless otherwise defined
herein. The holder of this Note shall be entitled to the benefits of the Loan
Agreement.

     The principal of this Note shall be due and payable (a) in forty-six
consecutive monthly installments of $170,801.00 each, with the first such
installment being due and payable on December 15, 2003, and a like installment
being due and payable on the fifteenth day of each succeeding month to and
including August 15, 2007; and (b) one final installment in an amount equal to
all remaining unpaid principal and accrued and unpaid interest on this Note
shall be due and payable on September 15, 2007. Interest, computed on the unpaid
balance of this Note, shall be due and payable as it accrues, on the same dates
as, but in addition to, the installments of principal. All payments and
prepayments shall be applied first to accrued and unpaid interest, and the
balance to principal. Partial prepayments of principal shall be applied to the
installments of principal thereof in the inverse order of their maturity. All of
the past due principal and accrued interest hereunder shall, at the option of
Lender, bear interest from maturity (stated or by acceleration) until paid at a
rate per annum equal to the Highest Lawful Rate.

     This Note is secured as provided in the Loan Agreement and in the other
Loan Papers, to which reference is hereby made for a description of the
properties and assets in which a lien and security interest has been granted,
the nature and extent of the security, the terms and conditions upon which the
liens and security interests were granted and the rights of the holder of this
Note with respect thereto.

     Time is of the essence of this Note. Upon the occurrence of any one or more
of the Events of Default specified in the Loan Agreement, all amounts then
remaining unpaid on this Note shall become, or may be declared to be,
immediately due and payable, all as provided therein.

     Borrower and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of protest, notice
of dishonor, notice of intent to accelerate and notice of acceleration), demand,
presentment for payment, protest, diligence in collecting or bringing suit and
the filing of suit for the purpose of fixing liability, and consent that the
time of payment hereof may be extended and re-extended from time to time without
notice to them or any of them, and each agrees that his, her or its liability on
or with respect to this Note shall not be affected, diminished or impaired by
any (a) release of any security at any time existing for this Note,
(b) substitution for any security at any time existing for this Note, or
(c) failure to perfect (or to maintain perfection of) any lien on or security
interest in any such security, in each case in whole or in part, with or without
notice, before or after maturity.

2

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     It is the intention of Borrower and Lender that Lender shall conform
strictly to usury laws applicable to it. Accordingly, if the transactions
contemplated by the Loan Agreement and this Note would be usurious as to Lender
under laws applicable to it (including the laws of the United States of America
and the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to Lender notwithstanding the other provisions of the Loan Agreement
and this Note), then, in that event, notwithstanding anything to the contrary in
this Note, the Loan Agreement or any other Loan Paper or other agreement entered
into in connection with or as security for this Note, (i) the aggregate of all
consideration which is contracted for, taken, reserved, charged or received by
Lender under this Note, the Loan Agreement or any other Loan Paper or agreement
entered into in connection with or as security for this Note shall under no
circumstances exceed the maximum amount allowed by such applicable law, and any
excess shall be credited by Lender on the principal amount of the Obligations to
Lender (or, to the extent that the principal amount of the Obligations shall
have been or would thereby be paid in full, refunded by Lender to the Borrower);
and (ii) in the event that the maturity of this Note is accelerated by reason of
an Event of Default under the Loan Agreement or otherwise, or in the event of
any prepayment, then such consideration that constitutes interest under law
applicable to Lender may never include more than the maximum amount allowed by
such applicable law, and excess interest, if any, provided for in this Note, the
Loan Agreement or otherwise shall be cancelled automatically by Lender as of the
date of such acceleration or prepayment and, if theretofore paid, shall be
credited by Lender on the principal amount of the Obligations (or, to the extent
that the principal amount of such Obligations shall have been or would thereby
be paid in full, refunded by Lender to the Borrower).

     To the extent that Texas Finance Code Section 303.002 is relevant to Lender
for the purposes of determining the Highest Lawful Rate, the applicable rate
ceiling under such provisions shall be determined by the indicated (weekly) rate
ceiling from time to time in effect, subject to Lender’s right subsequently to
change such method in accordance with applicable law. Notwithstanding anything
to the contrary contained herein or in any of the other Loan Papers, it is not
the intention of the Lender to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned interest at
the time of such acceleration.

     This Note is performable and payable in the County of Midland, State of
Texas, and shall be construed in accordance with, and governed by, the laws of
the State of Texas; provided, however, that the laws pertaining to allowable
rates of interest may, from time to time, be governed by the laws of the United
States of America.

              NATURAL GAS SERVICES GROUP, INC.
 
       

  By:    

     

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

           Wayne L. Vinson, President

3

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

 

EXHIBIT “D-1”

MODIFICATION AGREEMENT

This Modification Agreement (“Modification Agreement”) is effective as of
January 3, 2005. The parties to the Modification Agreement are Natural Gas
Services Group, Inc. (“Borrower”) and Western National Bank (“Lender”).

RECITALS

On November 3, 2003, Borrower executed and delivered to Lender that certain Term
Promissory Note in the original principal sum of $7,521,109.00, bearing interest
at the rate stated therein, with a stated final maturity date of September 15,
2007, pursuant to that certain Second Amended and Restated Loan Agreement dated
November 3, 2003, as modified by that certain first Modification dated effective
as of December 15, 2004 (the “Prior Loan Agreement”). All liens, security
interests and assignments securing the Note are collectively called the “Liens”.
Terms defined in the Note or the Loan Agreement and not otherwise defined herein
shall have the same meanings here as in those documents.

Contemporaneously with the execution and delivery by Borrower to Lender of that
certain Third Amended and Restated Loan Agreement of even date herewith between
Borrower, Screw Compression Systems, Inc., the Guarantor thereunder, and Lender,
as the same may hereafter be amended, restated or otherwise modified from time
to time (the “Loan Agreement”), Borrower agreed to make a principal payment to
Lender on this Note in the amount of $3,000,000.00, and Borrower and Lender
agreed to enter into this Modification Agreement to modify the payment
provisions of this Note, to provide for cross-default of this Note and the other
Notes under the Loan Agreement described as (a) the Term Promissory Note of even
date herewith from Borrower to Lender in the original principal amount of
$8,000,000.00; (b) the Promissory Term Note of even date herewith from Screw
Compression Systems, Inc., to Lender in the original principal amount of
$1,415,836.00; (c) the Revolving Line of Credit Note of even date herewith from
Borrower to Lender in the original principal amount of $2,000,000.00; and
(d) the Advance Term Promissory Note dated November 3, 2003, from Borrower to
Lender in the original principal amount of $10,000,000.00 as modified by that
certain Modification Agreement dated effective as of December 15, 2004
(collectively, the “Notes”), and to ratify the Liens.

AGREEMENT

1. Modification of Payment Provisions of the Note. In lieu of the following
provisions which were contained in the Note:

     “The principal of this Note shall be due and payable (a) in forty-six
consecutive monthly installments of $170,801.00 each, with the first such
installment being due and payable on December 15, 2003, and a like installment
being due and payable on the fifteenth day of each succeeding month to and
including August 15, 2007; and (b) one final installment in an amount equal to
all remaining

1

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

 

unpaid principal and accrued and unpaid interest on this Note shall be due and
payable on September 15, 2007. Interest, computed on the unpaid balance of this
Note, shall be due and payable as it accrues, on the same dates as, but in
addition to, the installments of principal. All payments and prepayments shall
be applied first to accrued and unpaid interest, and the balance to principal.
Partial prepayments of principal shall be applied to the installments of
principal thereof in the inverse order of their maturity. All of the past due
principal and accrued interest hereunder shall, at the option of Lender, bear
interest from maturity (stated or by acceleration) until paid at a rate per
annum equal to the Highest Lawful Rate”,

such provisions of the Note are changed to read in their entirety as follows:

     “The principal of this Note shall be due and payable in forty-six
(46) consecutive monthly installments beginning December 15, 2003, as follows:

  (a)   The first (1st) through twelfth (12th) monthly installments shall be in
the amount of $170,801.00 each, beginning on December 15, 2003, and continuing
on the fifteenth (15th) day of each month thereafter through November 15, 2004;
    (b)   The thirteenth (13th) through the forty-fifth (45th) monthly
installments shall be in the amount of $78,142.00 each, beginning on December
15, 2004, and continuing on the fifteenth (15th) day of each month thereafter;
and     (c)   the forty-sixth (46th) and final installment shall be in an amount
equal to all remaining unpaid principal and accrued and unpaid interest on this
Note shall be due and payable on September 15, 2007. Interest, computed on the
unpaid balance of this Note, shall be due and payable as it accrues, on the same
dates as, but in addition to, the installments of principal. All payments and
prepayments shall be applied first to accrued and unpaid interest, and the
balance to principal. Partial prepayments of principal shall be applied to the
installments of principal thereof in the inverse order of their maturity. All of
the past due principal and accrued interest hereunder shall, at the option of
Lender, bear interest from maturity (stated or by acceleration) until paid at a
rate per annum equal to the Highest Lawful Rate.”

2. Cross-Default of Notes. Upon the occurrence of any one or more of the Events
of Default specified in the Loan Agreement (after expiration of any applicable
notice and cure periods), all amounts then remaining unpaid on (a) this Note,
(b) the Promissory Term Note of even date herewith from Borrower to Lender in
the original principal amount of $8,000,000.00; (c) the Promissory Term Note of
even date herewith from Screw Compression Systems, Inc., to Lender in the
original principal amount of $1,415,836.00; (d) the Revolving Line of Credit
Note of even date herewith from Borrower to Lender in the original principal
amount of $2,000,000.00; and (e) the Advance Term Promissory Note dated
November 3, 2003, from Borrower to Lender in the original principal amount of
$10,000,000.00 as modified by that certain Modification Agreement dated
effective as of December 15, 2004, shall become, or may be declared to be,
immediately due and payable, all as provided therein.

2

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

 

3. Ratification of Liens. Borrower and Lender further agree that all Liens
securing the Notes shall continue and carry forward until the Notes and all
indebtedness evidenced thereby, as well as all other indebtedness or obligations
secured by Liens, are paid in full. Borrower further agrees that such Liens are
hereby ratified and affirmed as valid and subsisting against the collateral
described therein, and that this Modification Agreement shall in no manner
vitiate, affect or impair the Notes or the Liens (except as expressly modified
in this Modification Agreement) and that such Liens shall not in any manner be
waived, released, altered or modified.

4. Miscellaneous.

  (a)   As modified hereby, the provisions of the Note and the Liens shall
continue in full force and effect, and Borrower acknowledges and affirms its
liability to Lender thereunder. In the event of an inconsistency between this
Modification Agreement and the terms of the Note or of the Liens, this
Modification Agreement shall govern.     (b)   Borrower hereby agrees to pay all
costs and expenses incurred by Lender in connection with the execution and
administration of this Modification Agreement.     (c)   Any default by Borrower
in the performance of his obligations herein contained shall constitute a
default under the Note and the Liens and shall allow Lender to exercise any or
all of its remedies set forth in such Note and Liens or at law or in equity.    
(d)   Lender does not, by its execution of this Modification Agreement, waive
any rights it may have against any person not a party hereto.     (e)   All
terms, provisions, covenants, agreements, and conditions of the Note and the
Liens are unchanged, except as provided herein. Borrower agrees that this
Modification Agreement and all of the covenants and agreements contained herein
shall be binding upon Borrower and shall inure to the benefit of Lender and each
of their respective heirs, executors, legal representatives, successors, and
permitted assigns.

THIS MODIFICATION AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.

3

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

 

              Borrower:
 
            Natural Gas Services Group, Inc.
 
       

  By:    

     

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

           Wallace C. Sparkman, President
 
       

  Lender   :
 
            Western National Bank
 
       

  By:    

     

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

           Scott A. Lovett, Executive Vice President

4

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

 

     
STATE OF TEXAS
  §

  §
COUNTY OF MIDLAND
  §

     This instrument was acknowledged before me on January ___, 2005, by Wallace
C. Sparkman, President of Natural Gas Services Group, Inc., a Colorado
corporation, on behalf of said corporation.

     

 

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

  Notary Public, State of Texas

     
STATE OF TEXAS
  §

  §
COUNTY OF MIDLAND
  §

     This instrument was acknowledged before me on January ___, 2005, by Scott
A. Lovett, Executive Vice President of Western National Bank, a national banking
association, on behalf of said association.

     

 

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

  Notary Public, State of Texas

5

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

 

EXHIBIT “E”

ADVANCING LINE OF CREDIT PROMISSORY NOTE

     
$10,000,000.00
  November 3, 2003

     FOR VALUE RECEIVED, in the manner, on the dates and in the amounts herein
stipulated, NATURAL GAS SERVICES GROUP, INC., a Colorado corporation (the
“Borrower”), hereby promises and agrees to pay to the order of WESTERN NATIONAL
BANK, a national banking association (the “Lender”), in Midland, Midland County,
Texas, the principal sum of TEN MILLION and NO/100 Dollars ($10,000,000.00 ) or,
if less, the aggregate unpaid principal amount outstanding hereunder from time
to time, in lawful money of the United States of America, which shall be legal
tender in payment of all debts and dues, public and private, at the time of
payment, together with interest on the unpaid principal amount hereof from time
to time outstanding until maturity at a rate per annum which shall from day to
day be equal to the lesser of (a) a rate per annum (the “Established Rate”)
equal to the greater of (i) one percent (1%) over the Prime Rate in effect from
day to day, or (ii) five and one-fourth percent (5.25%), or (b) the Highest
Lawful Rate, in each case calculated on the basis of actual days elapsed, but
computed as if each calendar year consisted of 360 days. Each change in the rate
of interest charged under this Advancing Line of Credit Promissory Note (this
“Note”) shall, subject to the terms hereof, become effective, without notice to
Borrower, upon the effective date of each change in the Established Rate or the
Highest Lawful Rate, as the case may be. Notwithstanding the foregoing, if at
any time the Established Rate exceeds the Highest Lawful Rate, the rate of
interest on this Note shall be limited to the Highest Lawful Rate, but any
subsequent reductions in the Established Rate shall not reduce the rate of
interest hereon below the Highest Lawful Rate until the total amount of interest
accrued hereon approximately equals the amount of interest which would have
accrued hereon if the Established Rate had at all times been in effect. In the
event that at maturity (stated or by acceleration), or at final payment of this
Note, the total amount of interest paid or accrued hereon is less than the
amount of interest which would have accrued if the Established Rate had at all
times been in effect, then, at such time and to the extent permitted by
applicable laws, Borrower shall pay to Lender an amount equal to the difference
between (a) the lesser of the amount of interest which would have accrued if the
Established Rate had at all times been in effect or the amount of interest which
would have

 

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

 

accrued if the Highest Lawful Rate had at all times been in effect, and (b) the
amount of interest actually paid or accrued on this Note. Interest calculations
may be made ten days prior to any interest installment due date under this Note,
in which event, if there is an adjustment in the interest rate in accordance
with the terms hereof during such ten-day period, then Borrower shall
subsequently, on demand, pay to Lender any underpayment, or Lender shall pay to
Borrower, any overpayment, as the case may be, as a result of any adjustment
during such ten-day period.

     This Note is the “Advance Note” referred to in the Second Amended and
Restated Loan Agreement, dated as of November 3, 2003 (said Second Amended and
Restated Loan Agreement, as the same may be amended, supplemented or otherwise
modified from time to time, the “Loan Agreement”), by and among Borrower, the
Guarantors parties thereto and the Lender, and is subject to the terms and
conditions thereof. Reference is made to the Loan Agreement for provisions for
the disbursement of funds hereunder and for a further statement of the rights,
remedies, powers, privileges, benefits, duties and obligations of Borrower,
Guarantors and Lender under the Loan Agreement and this Note. Terms used herein
which are defined in the Loan Agreement shall have such defined meanings unless
otherwise defined herein. The holder of this Note shall be entitled to the
benefits of the Loan Agreement.

     Subject to the terms hereof and of the Loan Agreement, the Lender will make
Advances and Subsequent Advances under this Note in accordance with the
provisions of the Loan Agreement.

     Interest only on this Note shall be due and payable on the fifteenth day of
each month, commencing on December 15, 2003 and continuing on the fifteenth day
of each succeeding month, to and including November 15, 2004. The principal of
this Note shall be due and payable in (a) fifty-nine consecutive monthly
installments which shall each be in an amount equal to 1/60th of the outstanding
principal balance of this Note on December 15, 2004, with the first such
installment being due and payable on December 15, 2004, and a like installment
being due and payable on the fifteenth day of each succeeding month to and
including October 15, 2009; and (b) one final installment in an amount equal to
all remaining unpaid principal and accrued and unpaid interest on this Note
shall be due and payable on November 15, 2009. Interest, computed on the unpaid
balance of this Note, shall be due and payable monthly as it accrues, on the
same dates as, but in addition to each installment of principal. All payments
and prepayment shall be applied first to accrued and unpaid

2

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

 

interest, and the balance to principal. All of the past due principal and
accrued interest hereunder shall, at the option of Lender, bear interest from
maturity (stated or by acceleration) until paid at a rate per annum equal to the
Highest Lawful Rate.

     This Note is secured as provided in the Loan Agreement and in the other
Loan Papers, to which reference is hereby made for a description of the
properties and assets in which a lien and security interest has been granted,
the nature and extent of the security, the terms and conditions upon which the
liens and security interest were granted and the rights of the holder of this
Note with respect thereto.

     Time is of the essence of this Note. Upon the occurrence of any one or more
of the Events of Default specified in the Loan Agreement, all amounts then
remaining unpaid on this Note shall become, or may be declared to be,
immediately due and payable, all as provided therein.

     Borrower and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of protest, notice
of dishonor, notice of intent to accelerate and notice of acceleration), demand,
presentment for payment, protest, diligence in collecting or bringing suit and
the filing of suit for the purpose of fixing liability, and consent that the
time of payment hereof may be extended and re-extended from time to time without
notice to them or any of them, and each agrees that his, her or its liability on
or with respect to this Note shall not be affected, diminished or impaired by
any (a) release of any security at any time existing for this Note,
(b) substitution for any security at any time existing for this Note, or
(c) failure to perfect (or to maintain perfection of) any lien on or security
interest in any such security, in each case in whole or in part, with or without
notice, before or after maturity.

     It is the intention of Borrower and Lender that Lender shall conform
strictly to usury laws applicable to it. Accordingly, if the transactions
contemplated by the Loan Agreement and this Note would be usurious as to Lender
under laws applicable to it (including the laws of the United States of America
and the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to Lender notwithstanding the other provisions of the Loan Agreement
and this Note), then, in that event, notwithstanding anything to the contrary in
this Note, the Loan Agreement or any other Loan Paper or other agreement entered
into in connection with or as security for this Note, (i) the aggregate of all

3

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

 

consideration which is contracted for, taken, reserved, charged or received by
Lender under this Note, the Loan Agreement or any other Loan Paper or agreement
entered into in connection with or as security for this Note shall under no
circumstances exceed the maximum amount allowed by such applicable law, and any
excess shall be credited by Lender on the principal amount of the Obligations to
Lender (or, to the extent that the principal amount of the Obligations shall
have been or would thereby be paid in full, refunded by Lender to the Borrower);
and (ii) in the event that the maturity of this Note is accelerated by reason of
an Event of Default under the Loan Agreement or otherwise, or in the event of
any prepayment, then such consideration that constitutes interest under law
applicable to Lender may never include more than the maximum amount allowed by
such applicable law, and excess interest, if any, provided for in this Note, the
Loan Agreement or otherwise shall be cancelled automatically by Lender as of the
date of such acceleration or prepayment and, if theretofore paid, shall be
credited by Lender on the principal amount of the Obligations (or, to the extent
that the principal amount of such Obligations shall have been or would thereby
be paid in full, refunded by Lender to the Borrower).

     To the extent that Texas Finance Code Section 303.002 is relevant to Lender
for the purpose of determining the Highest Lawful Rate, the applicable rate
ceiling under such provisions shall be determined by the indicated (weekly) rate
ceiling from time to time in effect, subject to Lender’s right subsequently to
change such method in accordance with applicable law. Notwithstanding anything
to the contrary contained herein or in any of the other Loan Papers, it is not
the intention of the Lender to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned interest at
the time of such acceleration.

     This Note is performable and payable in the County of Midland, State of
Texas, and shall be construed in accordance with, and governed by, the laws of
the State of Texas; provided, however, that the laws pertaining to allowable
rates of interest may, from time to time, be governed by the laws of the United
States of America.

NATURAL GAS SERVICES GROUP, INC.

4

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

 

                  By:           Wayne L.Vinson, President             

5

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

 

EXHIBIT “E-1”

MODIFICATION AGREEMENT

This Modification Agreement (“Modification Agreement”) is effective as of
December 15, 2004. The parties to the Modification Agreement are Natural Gas
Services Group, Inc. (“Borrower”) and Western National Bank (“Lender”).

RECITALS

On November 3, 2003, Borrower executed and delivered to Lender that certain
Advancing Line of Credit Promissory Note in the original principal sum of
$10,000,000.00, bearing interest at the rate stated therein, with a stated final
maturity date of November 15, 2009 (the “Note”), pursuant to that certain Second
Amended and Restated Loan Agreement dated November 3, 2003 (the “ Loan
Agreement”). All liens, security interests and assignments securing the Note are
collectively called the “Liens”. Terms defined in the Note or the Loan Agreement
and not otherwise defined herein shall have the same meanings here as in those
documents.

Contemporaneously with the execution and delivery by Borrower to Lender of that
certain First Modification to Second Amended and Restated Loan Agreement of even
date herewith between Borrower and Lender, (the “First Modification”), Borrower
and Lender agreed (a) to increase the Borrowing Base of said Note from
$7,000,00.00 to $10,000,000.00, (b) extend the period for Borrower to request
advances under the Note from November 3, 2004, to December 14, 2005, (c) modify
the provisions relating to the amortization of advances between the date hereof
and an December 14, 2005, and (d) to make other related changes to the Loan
Agreement to incorporate such agreement and substitution.

Further, Borrower and Lender agreed to enter into this Modification Agreement to
modify the interest provisions of the Note to provide for an increase in the
interest floor from five and one-fourth percent (5.25%) to six percent (6%), and
to ratify the Liens.

AGREEMENT

1. Modification of Interest Provisions of the Note. In lieu of the following
provisions which were contained in the first paragraph of Note:

     “...at a rate per annum which shall from day to day be equal to the lesser
of (a) a rate per annum (the “Established Rate”) equal to the greater of (i) one
percent (1%) over the Prime Rate in effect from day to day, or (ii) five and
one-fourth percent (5.25%), or (b) the Highest Lawful Rate, in each case
calculated on the basis of actual days elapsed, but computed as if each calendar
year consisted of 360 days.”

such provisions of the Note are changed to read in their entirety as follows:

1

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

 

     “...at a rate per annum which shall from day to day be equal to the lesser
of (a) a rate per annum (the “Established Rate”) equal to the greater of (i) one
percent (1%) over the Prime Rate in effect from day to day, or (ii) six percent
(6.0%), or (b) the Highest Lawful Rate, in each case calculated on the basis of
actual days elapsed, but computed as if each calendar year consisted of
360 days.”

2. Modification of Payment Provisions of the Note. In lieu of the following
provision which was contained in the fourth (4th) paragraph of the Note:

     “The principal of this Note shall be due and payable in (a) fifty-nine
consecutive monthly installments which shall each be in an amount equal to
1/60th of the outstanding principal balance of this Note on December 15, 2004,
with the first such installment being due and payable on December 15, 2004, and
a like installment being due and payable on the fifteenth day of each succeeding
month to and including October 15, 2009; and (b) one final installment in an
amount equal to all remaining unpaid principal and accrued and unpaid interest
on this Note shall be due and payable on November 15, 2009. Interest, computed
on the unpaid balance of this Note, shall be due and payable monthly as it
accrues, on the same dates as, but in addition to each installment of
principal.”

such provision of the Note is changed to read as follows:

          “The principal of this Note shall be due and payable as follows:

  (a)   with respect to the principal balance outstanding under this Note on
December 15, 2004, in fifty-nine (59) consecutive monthly installments of
$116,666.67, with the first (1st) such installment being due and payable on
December 5, 2004 and a like installment being due and payable on the 15th day of
each succeeding month to and including October 15, 2009; plus     (b)   1/60th
of the sum of all advances made by Lender under this note after December 15,
2004 and prior to March 31, 2005 and a like installment being due and payable on
the 15th day of each succeeding month to and including October 15, 2009; plus  
  (c)   1/60th of the sum of all advances made by Lender under this note after
April 1, 2005 and prior to June 30, 2005, and a like installment being due and
payable on the 15th day of each succeeding month to and including October 15,
2009; plus     (d)   1/60th of the sum of all advances made by Lender under this
note after July 1, 2005 and prior to September 30, 2005 and a like installment

2

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

 

      being due and payable on the 15th day of each succeeding month to and
including October 15, 2009; plus     (e)   1/60th of the sum of all advances
made by Lender under this note after October 1, 2005 and prior to December 15,
2005 and a like installment being due and payable on the 15th day of each
succeeding month to and including October 15, 2009; plus     (f)   one final
installment in an amount equal to all remaining unpaid principal and accrued and
unpaid interest on the Note shall be due and payable on November 15, 2009.

Interest, computed on the unpaid balance of the Note, shall be due and payable
monthly as it accrues, on the same dates as, but in addition to each installment
of principal.”

3. Ratification of Liens. Borrower and Lender further agree that all Liens
securing the Note shall continue and carry forward until the Note and all
indebtedness evidenced thereby is paid in full. Borrower further agrees that
such liens are hereby ratified and affirmed as valid and subsisting against the
collateral described therein, and that this Modification Agreement shall in no
manner vitiate, affect or impair the Note or the Liens (except as expressly
modified in this Modification Agreement) and that such Liens shall not in any
manner be waived, released, altered or modified.

4. Miscellaneous.

  (a)   As modified hereby, the provisions of the Note and the Liens shall
continue in full force and effect, and Borrower acknowledges and affirms its
liability to Lender thereunder. In the event of an inconsistency between this
Modification Agreement and the terms of the Note or of the Liens, this
Modification Agreement shall govern.     (b)   Borrower hereby agrees to pay all
costs and expenses incurred by Lender in connection with the execution and
administration of this Modification Agreement.     (c)   Any default by Borrower
in the performance of his obligations herein contained shall constitute a
default under the Note and the Liens and shall allow Lender to exercise any or
all of its remedies set forth in such Note and Liens or at law or in equity.    
(d)   Lender does not, by its execution of this Modification Agreement, waive
any rights it may have against any person not a party hereto.     (e)   All
terms, provisions, covenants, agreements, and conditions of the Note and the
Liens are unchanged, except as provided herein. Borrower agrees that this
Modification Agreement and all of the covenants and agreements contained herein
shall be binding upon Borrower and shall inure to the benefit of Lender and each
of

3

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

 

      their respective heirs, executors, legal representatives, successors, and
permitted assigns.         THIS MODIFICATION AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

                  Borrower:
 
                Natural Gas Services Group, Inc.
 
           

  By:         

   

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

      Wallace C. Sparkman, President
 
                Lender:
 
                Western National Bank
 
           

  By:         

   

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

      Scott A. Lovett, Executive Vice President

4

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

 

     
STATE OF TEXAS
  §

  §
COUNTY OF MIDLAND
  §

     This instrument was acknowledged before me on December           , 2004, by
Wallace C. Sparkman, President of Natural Gas Services Group, Inc., a Colorado
corporation, on behalf of said corporation.

     

 

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

  Notary Public, State of Texas

     
STATE OF TEXAS
  §

  §
COUNTY OF MIDLAND
  §

     This instrument was acknowledged before me on December             , 2004,
by Scott A. Lovett, Executive Vice President of Western National Bank, a
national banking association, on behalf of said association.

     

 

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  Notary Public, State of Texas

5

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EXHIBIT “F”

REAL ESTATE MORTGAGE
WITH POWER OF SALE

     Effective as of the 3rd day of January, 2005, SCREW COMPRESSION SYSTEMS,
INC., a Texas corporation (called “Mortgagor,” whether one or more) mortgages to
WESTERN NATIONAL BANK, 508 West Wall, Suite 1100, Midland, Texas 79701 (called
“Mortgagee,” whether one or more and which term shall be construed to include
Mortgagee’s successors and assigns) the following described real estate and
premises located in Rogers County, State of Oklahoma:

MORTGAGOR’S LEASEHOLD INTEREST AS CREATED BY THE ASSIGNMENT OF LEASE BY AND
BETWEEN PATRICK J. MALLOY III,AS TRUSTEE OF THE BANKRUPTCY ESTATE OF KING
FINISHES & METAL -AKA- KING FINISHES & METAL FABRICATING, INC., AS ASSIGNOR, AND
SCREW COMPRESSION SYSTEMS, INC., AS ASSIGNEE, DATED SEPTEMBER 28, 2001, AND
FILED IN BOOK 1322, PAGE 598-600, IN ROGERS COUNTY, STATE OF OKLAHOMA, IN THE
FOLLOWING DESCRIBED REAL PROPERTY, HAVING A PROPERTY ADDRESS OF 5725 BIRD CREEK
AVENUE, CATOOSA, OKLAHOMA 74015:

SEE LEGAL DESCRIPTION ON ATTACHED EXHIBIT “A”

With, subject to the terms of the documents creating or evidencing the
Mortgagor’s leasehold estate, all the buildings and other improvements located
or constructed on the real estate, all fixtures, personal property used on or
in, and appurtenances to the real estate, and Mortgagor assigns and pledges all
rents, issues, profits and income derived from the above real estate
(collectively referred to as the “Mortgaged Property”). This Mortgage and
assignment of rents, issues, profits and income derived from the Mortgaged
Property creates a security interest in the Mortgaged Property and like kind
future property from the time the Mortgage and assignment is granted even though
enforcement of the assignment of rents, issues, profits and income may be
delayed until default.

Mortgage warrants the title to the Mortgaged Property, insofar as the
Mortgagor’s leasehold interest therein, unto Mortgagee, its successors and
assigns, against every person whomsoever lawfully claiming or to claim the same
or any part thereof by, through or under Mortgagee but not otherwise.

This Mortgage is given to secure the payment and performance of all of the
following (collectively, the “Debt”):

  (a)   The indebtedness evidenced by the following described promissory note
(the “Note,”, whether one or more) and any modifications, renewals or
substitutions of the Note:

 

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          (i) Term Promissory Note dated January 3, 2005, executed by Mortgagor
and payable to the order of Mortgagee in the original principal sum of
$1,415,836.00;

          (ii) Term Promissory Note dated January 3, 2005, executed by Debtor
and payable to the order of Mortgagee in the original principal sum of
$8,000,000.00;

          (iii) Revolving Line of Credit Note dated January 3, 2005, executed by
Debtor and payable to the order of Mortgagee in the original principal sum of
$2,000,000.00;

          (iv) Term Promissory Note dated November 3, 2003, executed by Debtor
and payable to the order of Mortgagee in the original principal sum of
$7,521,109.00 as modified by that certain Modification Agreement dated
January 3, 2005, with an outstanding principal balance of $______on the date
hereof; and

          (v) Advance Term Promissory Note dated November 3, 2003, executed by
Debtor and payable to the order of Mortgagee in the original principal sum of
$10,000,000.00 as modified by that certain Modification Agreement dated
effective as of December 15, 2004, with an outstanding principal balance of
$______on the date hereof;

  (b)   All sums advanced or paid by Mortgagee on account of the failure of the
Mortgagor to comply with the terms or covenants of this Mortgage or other
documents signed by the Mortgagor;     (c)   All future loans and advances and
all future renewals of loans which Mortgagee may make to Mortgagor or to the
Debtor identified in the Note, if different from Mortgagor (the “Debtor”); and
all other debts, obligations and liabilities of every kind and character of
Mortgagor or Debtor now existing, whether or not explicitly referred to, or
arising in the future in favor of Mortgagee, whether direct or indirect,
absolute or contingent, or originally payable to Mortgagee or any other person;
and any renewals or extensions; provided, however, if the Mortgaged Property
includes Mortgagor’s principal dwelling or is otherwise a 1 to 4 family dwelling
the Mortgaged Property will not secure any future loan, advance, debt,
obligation or liability taken or incurred principally for a personal, family or
household purpose.

Mortgagor further agrees, subject to the terms of the documents creating or
evidencing the Mortgagor’s leasehold estate, (a) to pay and discharge all taxes
and assessments on the Mortgaged Property before they become delinquent; (b) to
keep all the Mortgaged Property and improvements insured and under policies
which are acceptable to, and for the benefit of, the Mortgagee; (c) to cure all
title defects or clouds on or claims against Mortgagor’s leasehold title which
may arise or be discovered; (d) to keep all the Mortgaged Property in good
condition and repair and to repair or replace any damaged or destroyed Mortgaged
Property; and (e) to discharge any levies, liens, attachments, or other claims
which may be asserted against the Mortgaged Property. Mortgagor also agrees with
respect to the Mortgaged Property to comply with all environmental laws and
regulations now in force or later promulgated and to disclose to Mortgagee at
all times information regarding the environmental status of the Mortgaged

2

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Property. Mortgagor grants Mortgagee the right to acquire additional
environmental information regarding the Mortgaged Property. Mortgagor also
grants Mortgagee or its agents a license to enter onto the Mortgaged Property
and inspect it for any reason and further agrees to indemnify the Mortgagee for
any liability associated with the Mortgaged Property. The discovery of
undisclosed environmental hazards on the Mortgaged Property may, at option of
Mortgagee, be considered an Event of Default under this Mortgage. In the event
of the failure of the Mortgagor to fulfill the agreements of this paragraph, the
Mortgagee may purchase insurance or pay taxes, assessments or other liens and
appropriate sums to protect the Mortgaged Property, and shall have a lien
secured by this Mortgage and assignment for the amount of those sums with
interest on those amounts at the maximum rate of interest on any part of the
Debt secured by this Mortgage and assignment.

If the Mortgaged Property is Mortgagor’s homestead and one of the Mortgagors is
the spouse of another Mortgagor or the Borrower identified in the Note but is
not obligated under the Note, and is only signing this Mortgage to satisfy the
requirements of Title 16 Okla. Stat. § 4 (which requires a spouse to sign a
mortgage on homestead property), then such Mortgagor is not obligated under the
provisions of the immediately preceding paragraph and is only signing this
Mortgage to convey his or her interest in the Mortgaged Property.

If Mortgagee is required to give Mortgagor notice, notice mailed or delivered at
least five (5) days before action is taken will be considered reasonable.

Mortgagor confers on Mortgagee or its attorney or agent the power to sell the
Mortgaged Property and the interests of all persons in it in the manner provided
in the Oklahoma Power of Sale Mortgage Foreclosure Act (Title 46 Okla. Stat. §
40 et seq.). On the occurrence of an Event of Default (as described in this
Mortgage), Mortgagee may, at its option, accelerate payment of the Debt so that
all the Debt shall be immediately due and payable and pay either exercise the
Power of Sale or foreclose this Mortgage in a judicial foreclosure. The
following are considered “Events of Default”: (a) any default in payment of the
Debt or performance under the Note; (b) Mortgagor fails to perform any covenant
or agreement contained in this Mortgage or in any other indebtedness, obligation
or agreement of the Mortgagor to Mortgagee or to another within five (5) days
after Mortgagor’s receipt of written notice of such failure; or (c) Mortgagor
sells, conveys, transfers, hypothecates, or in any other manner ceases to be the
owner or in possession of all or any portion of or interest in the Mortgaged
Property, except as agreed to by Mortgagee in writing or as permitted under
applicable law.

Subject to the provisions of the Oklahoma Power of Sale Mortgage Foreclosure
Act, Mortgagee may accelerate payment of the Debt for the reasons stated in this
Mortgage without notice to, or demand on, Mortgagor.

The Mortgagor irrevocably appoints the Mortgagee its lawful attorney in fact,
with Power of Attorney in its name and stead to collect any income, rents,
issues and profits arising from or accruing at any time that are due under each
and all of the leases, contracts and agreements, written or verbal, now existing
or existing in the future with reference to the Mortgaged Property, with the
same rights and powers and subject to the same immunities, exoneration of
liability and rights of recourse and indemnity as the Mortgagor would have. As
often as any

3

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action may be taken to foreclose this Mortgage or to exercise rights under the
Power of Sale Mortgage Foreclosure Act, the Mortgagor agrees to pay the
Mortgagee’s reasonable attorneys’ fees incurred in taking such action.
If there is a foreclosure of this Mortgage other than by Power of Sale,
Mortgagor waives appraisement of the Mortgaged Property, unless Mortgagee seeks
an appraisal. Appraisal shall be at the sole option of the Mortgagee, to be
declared when the petition to foreclose is filed or when judgment is taken.

Mortgagor understands and agrees that on Mortgagor’s default, a court may grant
specific performance of Mortgagor’s agreements in this Mortgage, and Mortgagee
will have the right to take possession of the Mortgaged Property by appointing a
receiver in accordance with Title 12 Okla. Stat. §1551.2(c) which authorizes
appointment when a condition of a mortgage has not been performed and the
mortgage provides for appointment of a receiver. The court may also appoint a
receiver upon other grounds as specified in Title 12 Okla. Stat. §1551.

“A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT
IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR UNDER THIS MORTGAGE.”

Effective as of January 3, 2005.

              MORTGAGOR:
 
            Screw Compression Systems, Inc.
 
       

  By:    

   

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          Paul D. Hensley, President
 
            MORTGAGEE:
 
            Western National Bank
 
       

  By:    

   

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

          Scott A. Lovett

          Executive Vice President

4

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STATE OF OKLAHOMA

COUNTY OF ROGERS

     The foregoing instrument was acknowledged before me on this ____day of
December, 2004 by Paul D. Hensley, President of Screw Compression Systems, Inc.,
a Texas corporation, on behalf of said corporation.

     

 

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  Notary Public, State of Oklahoma

STATE OF TEXAS

COUNTY OF MIDLAND

     The foregoing instrument was acknowledged before me on this ____day of
January, 2005, by Scott A. Lovett, Executive Vice President of Western National
Bank, a national banking association, on behalf of said association.

     

 

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

  Notary Public, State of Texas

5

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EXHIBIT “A”
To
Real Estate Mortgage with Power of Sale

     
Grantor:
  Screw Compression Systems, Inc.

  5725 Bird Creek Ave.

  Catoosa, OK 74015
 
   
Lender:
  Western National Bank

  508 W. Wall, Suite 1100

  Midland, TX 79701

     This Exhibit attaches to and it and the provisions described below, become
a permanent part of that certain Real Estate Mortgage with Power of Sale
effective as of January 3, 2005, between the above referenced Grantor and
Lender.

Description of Property:

A tract of land that is a part of the Southwest Quarter (SW/4) of Section Five
(5) and the Southeast Quarter (SE/4) of Section Six (6), Township Twenty
(20) North, Range Fifteen (15) East, Rogers County, State of Oklahoma, said
tract of land being more particularly described as follows, to-wit: Starting at
the Southwest corner of said Section Five(5); thence due North for 1179.56 feet;
thence due East for 126.34 feet to the “Point of Beginning” of said tract of
land; thence North 36 Degrees 59’ 43” West for 570.42 feet; thence North 53
degrees 00’ 17” East for 481.39 feet; thence South 36 degrees 59’ 43” East for
570.42 feet; thence South 53 degrees 00’ 17” West for 481.39 feet to the “Point
of Beginning” of said tract of land.

Property Address: 5725 Bird Creek Avenue, Catoosa, OK 74015

              GRANTOR:
 
            Screw Compression Systems, Inc.
 
       

  By:    

   

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           Paul D. Hensley, President
 
            LENDER:
 
            Western National Bank
 
       

  By:    

   

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           Scott A. Lovett

           Executive Vice President

 

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EXHIBIT “G”

BORROWING BASE REPORT
FOR THE MONTH ENDED
                    , 200     

Borrowing Base Calculation:

         
A.
  Trade Accounts Receivable of Borrower    

  and Guarantor(1)   $                    
 
       
B.
  Less Trade Accounts Receivable of Borrower    

  and Guarantor over 90 days   $                    
 
       
C.
  Net Allowable Accounts Receivable    

  of Borrower and Guarantor (A-B)   $                    
 
       
D.
  Lease Receivable(2)   $                    
 
       
E.
  Total Accounts Receivable    

  of Borrower and Guarantor (C+D)   $                    
 
       
F.
  Discounted Receivables of    

  Borrower and Guarantor (E x 75%)   $                    
 
       
G.
  Leased equipment at NBV   $                    
 
       
H.
  Discounted equipment (G x 70%)   $                    
 
       
I.
  Work in Process   $                    
 
       
J.
  Inventory of Borrower and Guarantor(3)   $                    
 
       
K.
  Total Inventory of Borrower and Guarantor (I+J)   $                    
 
       
L.
  Discounted Inventory of Borrower    

  and Guarantor (K x 50%)   $                    
 
       
M.
  Borrowing Base (F+H+L)   $                    
 
       
N.
  Less Principal Balance of Term    

  Promissory Notes   $(                    )
 
       
O.
  Amount Available for Advance Under    

  the Advance Note and Revolving Line    

  of Credit Promissory Note(4)   $                    
 
       
P.
  Less Maximum Permitted Advances    

  under the Advance Note   $(10,000,000.00)
 
       
Q.
  Amount Available for Advance under    

  Revolving Line of Credit Promissory Note(4)   $                    
 
       
R.
  Less Principal Balance of the Revolving    

  Line of Credit Promissory Note   $(                    )
 
       
S.
  Borrowing Base Excess or Deficit (Q-R)    

       Excess   $                    

       (Deficit)   $(                    )

 

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(1)   For purposes of the Borrowing Base calculation pursuant hereto and the
Third Amended and Restated Loan Agreement to which this Report is delivered,
“Trade Accounts Receivable” means the face amount (less maximum discounts,
credits and allowances that may be taken by or granted to account debtors in
connection therewith) of Borrower’s and Guarantor’s trade accounts receivable,
all as determined in accordance with generally accepted accounting principles.

(2)   Includes, without limitation, leases of equipment to third parties and
classified as sales-type leases or operating leases.

(3)   “Inventory” means all inventory, wherever located, in which the Borrower
has any right, title or interest, including, without limitation, all goods and
other personal property owned by the Borrower or Guarantor which are held for
sale or lease or are furnished or are to be furnished under a contract of
service or which constitute raw materials, work in process or materials used or
consumed or to be used or consumed in the business of the Borrower or Guarantor,
or in the processing, packaging or shipping of the same, and all finished goods,
including, but not limited to all inventory classified as such on a consolidated
balance sheet of Borrower or Guarantor.

(4)  Subject to the limitation of Section 2.1 of the Third Amended and Restated
Loan Agreement.

Dated:                                        

Prepared
by:                                                                      
Name:                                                                                
Title:                                                                                  

2

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3

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EXHIBIT “H”

NOTICE OF BORROWING

Western National Bank
508 W. Wall, Suite 1100
Midland, Texas 79701

Attention: Scott A. Lovett

Gentlemen:

     Pursuant to the provisions of Section 2.2 of the Third Amended and Restated
Loan Agreement (the “Loan Agreement”), dated as of January 3, 2005, by and among
you, the undersigned and the guarantor thereto, this letter confirms to you that
(i) the undersigned has requested a Subsequent Advance in the amount of
$           to be made under the [Advance Note] [Revolving Line of Credit
Promissory Note] and (ii) there is not in existence any Event of Default at the
date set forth below.

     Immediately following the Subsequent Advance requested herein, the
outstanding principal balance of the [Advance Note] [Revolving Line of Credit
Promissory Note] is $                              .

     Capitalized terms used herein and which are defined in the Loan Agreement
have the same meanings as given to such terms in the Loan Agreement.

Dated: [Insert date on which request for Subsequent Advance is made]

              NATURAL GAS SERVICES GROUP, INC.
 
       

  By:  
                                                                              

      Name:                                                                    

     
Title:                                                                      

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EXHIBIT “I”

STOCK PLEDGE AGREEMENT

     THIS STOCK PLEDGE AGREEMENT, dated as of January 3, 2005, is made by and
between NATURAL GAS SERVICES GROUP, INC., a Colorado corporation (the
“Pledgor”), and WESTERN NATIONAL BANK, a national banking association (the
“Lender”).

W I T N E S S E T H

     WHEREAS, pursuant to that certain Third Amended and Restated Loan
Agreement, dated as of January 3, 2005, between the Pledgor and the Lender (said
Third Amended and Restated Loan Agreement, as the same may hereafter be amended,
supplemented or otherwise modified from time to time, the “Loan Agreement”), the
Lender has agreed to make loans to the Pledgor upon the terms and subject to the
conditions set forth therein, to be evidenced by the Notes (as defined in the
Loan Agreement) issued by the Pledgor thereunder; the Pledgor is the legal and
beneficial owner of the shares of Pledged Stock (as hereinafter defined) issued
by Screw Compression Systems, Inc., a corporation organized under the laws of
Texas (the “Issuer”); and it is a condition precedent to the obligation of the
Lender to make loans to the Pledgor under the Loan Agreement that the Pledgor
shall have executed and delivered this Stock Pledge Agreement to the Lender; and

     WHEREAS, Lender has conditioned its obligations under the Loan Agreement
upon the execution and delivery by Pledgor of this Stock Pledge Agreement, and
Pledgor has agreed to make and deliver this Stock Pledge Agreement.

     NOW, THEREFORE, in consideration of the premises and to induce the Lender
to enter into the Loan Agreement and to make loans to Pledgor under the Loan
Agreement, the Pledgor hereby agrees with the Lender, as follows:

     1.      Defined Terms. Unless otherwise defined herein, terms which are
defined in the Loan Agreement and used herein are so used as so defined, and the
following terms shall have the following meanings:

     “Code” means the Uniform Commercial Code from time to time in effect in the
State of Texas.

     “Collateral” means the Pledged Stock and all Proceeds from the

 

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Pledged Stock.

     “Obligations” means the unpaid principal of and interest on the Notes
(including, without limitation, interest accruing after the maturity of the
loans and interest on or after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Pledgor, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) and all other present and future indebtedness,
obligations and liabilities of the Pledgor and any of its Subsidiaries to the
Lender, and all renewals, rearrangements and extensions thereof, or any part
thereof, now or hereafter owed to Lender by the Pledgor or any of its
Subsidiaries arising from, by virtue of, or pursuant to any Loan Paper, or
otherwise, together with all interest accruing thereon and all costs, expenses
and attorneys’ fees incurred in the enforcement or collection thereof, whether
such indebtedness, obligations and liabilities are direct, indirect, fixed,
contingent, liquidated, unliquidated, joint, several, or joint and several or
were, prior to acquisition thereof by Lender, owed to some other person.

     “Stock Pledge Agreement” means this Stock Pledge Agreement, as amended,
supplemented or otherwise modified from time to time.

     “Pledged Stock” means the shares of capital stock of the Issuer listed on
Schedule I hereto, together with all rights to receive from time to time
Pledgor’s share of profits, income, surplus, compensation, return of capital,
distributions, dividends and other reimbursements and payments from the Issuer
(including, without limitation, specific properties of the Issuer upon
dissolution, merger or otherwise) and all stock certificates, options or rights
of any nature whatsoever that may be issued or granted by the Issuer to the
Pledgor while this Stock Pledge Agreement is in effect, and all Proceeds of the
foregoing.

     “Proceeds” means all “proceeds” as such term is defined in
Section 9.102(a)(65) of the Code and, in any event, shall include, without
limitation, all dividends or other income from the Pledged Stock, collections
thereon or distributions with respect thereto.

     2.      Pledge; Grant of Security Interest. The Pledgor hereby delivers to
the Lender all the Pledged Stock and hereby grants to the Lender, a first and
prior security interest and Bank Lien in the Collateral, as collateral security
for the prompt and complete payment and performance

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when due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations.

     3.      Stock Powers. Concurrently with the delivery to the Lender of each
certificate representing one or more shares of Pledged Stock to the Lender, the
Pledgor shall deliver an undated stock power covering such certificate, duly
executed in blank by the Pledgor with, if the Lender so requests, signature
guaranteed.

     4.      Representations and Warranties. The Pledgor represents and warrants
that:

(a)      the shares of Pledged Stock listed on Schedule I constitute all the
issued and outstanding shares of all classes of capital stock of the Issuer;

(b)      all the shares of the Pledged Stock have been duly and validly issued
and are fully paid and nonassessable;

(c)      the Pledgor is the record and beneficial owner of, and has good and
marketable title to, the Pledged Stock listed on Schedule I, free of any and all
Liens or options in favor of, or claims of, any other person, except the Bank
Lien created by this Stock Pledge Agreement;

(d)      upon delivery to the Lender of the stock certificates evidencing the
Pledged Stock, the Lien granted pursuant to this Stock Pledge Agreement will
constitute a valid, perfected first priority Bank Lien on the Collateral,
enforceable as such against all creditors of the Pledgor and any person
purporting to purchase any Collateral from the Pledgor; and

(e)      with respect to the Pledged Stock, the Pledgor has obtained from the
Issuer and has delivered to the Lender an Acknowledgment and Consent,
substantially in the form attached hereto as Annex I, executed by the Issuer.

     5.      Covenants. The Pledgor covenants and agrees with the Lender that,
from and after the date of this Stock Pledge Agreement until the Obligations are
paid in full:

(a)      If the Pledgor shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock or other security,
whether certificated or uncertificated (including, without

-3-

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limitation, any certificate representing a stock dividend or a distribution in
connection with any reclassification, increase or reduction of capital or any
certificate issued in connection with any reorganization), option or rights,
whether in addition to, in substitution of, as a conversion of, or in exchange
for any shares of the Pledged Stock, or otherwise in respect thereof, the
Pledgor shall accept the same as the agent of the Lender, and deliver the same
forthwith to the Lender in the exact form received, duly indorsed by the Pledgor
to the Lender, if required, together with an undated stock power covering such
certificate duly executed in blank by the Pledgor and with, if the Lender so
requests, signature guaranteed, to be held by the Lender, subject to the terms
hereof, as additional collateral security for the Obligations. Any sums paid
upon or in respect of the Pledged Stock upon the liquidation or dissolution of
the Issuer shall be paid over to the Lender to be held by it hereunder as
additional collateral security for the Obligations, and in case any distribution
of capital shall be made on or in respect of the Pledged Stock or any property
shall be distributed upon or with respect to the Pledged Stock pursuant to the
recapitalization or reclassification of the capital of the Issuer, or pursuant
to the reorganization thereof, the property so distributed shall be delivered to
the Lender to be held by it hereunder as additional collateral security for the
Obligations. If any sums of money or property so paid or distributed in respect
of the Pledged Stock shall be received by the Pledgor, the Pledgor shall, until
such money or property is paid or delivered to the Lender, hold such money or
property in trust for the Lender, segregated from other funds of the Pledgor, as
additional collateral security for the Obligations.

(b)      Without the prior written consent of the Lender, the Pledgor will not
(i) vote to enable, or take any other action to permit, the Issuer to issue any
stock or other equity securities of any nature or to issue any other securities
convertible into or granting the right to purchase or exchange for any stock or
other equity securities of any nature of the Issuer, (ii) sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option with respect
to, the Collateral, or (iii) create, incur or permit to exist any Lien or option
in favor of, or any claim of any person with respect to, any of the Collateral,
or any interest therein, except for the Bank Lien provided for by this Stock
Pledge Agreement. The Pledgor will defend the right, title and interest of the
Lender in and to the Collateral against the claims and demands of all persons
whomsoever.

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(c)      At any time and from time to time, upon the written request of the
Lender, and at the sole expense of the Pledgor, the Pledgor will promptly and
duly execute and deliver such further instruments and documents and take such
further actions as the Lender may reasonably request for the purposes of
obtaining or preserving the full benefits of this Stock Pledge Agreement and of
the rights and powers herein granted. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
promissory note, other instrument or chattel paper, such note, instrument or
chattel paper shall be immediately delivered to the Lender, duly endorsed in a
manner satisfactory to the Lender, to be held as Collateral pursuant to this
Stock Pledge Agreement.

(d)      The Pledgor agrees to pay, and to save the Lender harmless from, any
and all liabilities with respect to, or resulting from any delay in paying, any
and all stamps, excise, sales or other taxes which may be payable or determined
to be payable with respect to any of the Collateral or in connection with any of
the transactions contemplated by this Stock Pledge Agreement.

(e)      The Lender shall have the right, without the consent or joinder of the
Pledgor, to execute and file with any governmental authority such financing
statements, financing statement amendments and continuation statements as may,
in the sole discretion of the Lender, be necessary or advisable to maintain,
perfect or otherwise evidence the Bank Lien of the Lender in and to any of the
Pledged Stock. The Pledgor hereby expressly authorizes the Lender to file any
such financing statement without the signature of the Pledgor to the extent
permitted by applicable law. A carbon, photographic or other reproduction of
this Pledge Agreement shall be sufficient as a financing statement for filing in
any jurisdiction. In addition, and without limiting the foregoing, this Pledge
Agreement may be attached to and made a part of any financing statement filed by
the Lender.

     6.      Cash Dividends; Voting Rights; Interest and Principal Payments.
Unless an Event of Default shall have occurred and be continuing and the Lender
shall have given notice to the Pledgor of the Lender’s intent to exercise its
corresponding rights pursuant to paragraph 7 below, the Pledgor shall be
permitted to receive all cash dividends paid in the normal course of business of
the Issuer, to the extent permitted in the Loan Agreement, in respect of the
Pledged Stock and to exercise all voting and corporate rights with respect to
the Pledged Stock, provided, however, that no vote shall be cast or corporate
right exercised or other

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action taken which would be inconsistent with or result in any violation of any
provision of the Loan Agreement, the Notes or this Stock Pledge Agreement.

     7.      Rights of the Lender. (a) If an Event of Default shall occur and be
continuing and the Lender shall give notice of its intent to exercise such
rights to the Pledgor, (i) the Lender shall have the right to receive any and
all cash dividends paid in respect of the Pledged Stock and make application
thereof to the Obligations in such order as the Lender may determine and
(ii) all shares of the Pledged Stock shall be registered in the name of the
Lender or its nominee, and the Lender or its nominee may thereafter exercise
(A) all voting, corporate and other rights pertaining to such shares of the
Pledged Stock at any meeting of shareholders of the Issuer or otherwise and
(B) any and all right of conversion, exchange, subscription and any other
rights, privileges or options pertaining to such shares of the Pledged Stock as
if it were the absolute owner thereof (including, without limitation, the right
to exchange at its discretion any and all of the Pledged Stock upon the merger,
conversion, consolidation, reorganization, recapitalization or other fundamental
change in the corporate structure of the Issuer, or upon the exercise by the
Pledgor or the Lender of any rights, privilege or option pertaining to such
shares of the Pledged Stock, and in connection therewith, the right to deposit
and deliver any and all of the Pledged Stock with any committee, depositary,
transfer agent, registrar or other designated agency upon such terms and
conditions as it may determine).

     (b)      The rights of the Lender hereunder shall not be conditioned or
contingent upon the pursuit by the Lender of any right or remedy against the
Issuer, any Guarantor or any other person which may be or become liable in
respect of all or any part of the Obligations or against any collateral security
or guarantee therefor or right of offset with respect thereto. Lender shall not
be liable for any failure to demand, collect or realize upon all or any part of
the Collateral or for any delay in doing so, nor shall the Lender be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Pledgor or any other person or to take any other action whatsoever with
regard to the Collateral or any part thereof.

     8.      Remedies. If an Event of Default shall occur and be continuing, the
Lender may exercise, in addition to all other rights and remedies granted in
this Stock Pledge Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the Code. Without limiting the generality of the foregoing, the
Lender, without

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demand of performance or other demand, presentment, protest, advertisement or
notice of any kind to or upon the Pledgor, the Issuer or any other person (all
and each of which demands, defenses, advertisements and notices are hereby
waived) may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase or otherwise dispose of and deliver
the Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels at public or private sale or sales, in the over-the-counter
market, at any exchange, broker’s board or office of the Lender or elsewhere
upon such terms and conditions as Lender may deem advisable and at such prices
as Lender may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Lender 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 the whole or any part of the Collateral so sold, free
of any right or equity of redemption in the Pledgor, which right or equity is
hereby waived or released. The Lender shall apply any Proceeds from time to time
held by it and the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred in respect thereof or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral or
the rights of the Lender hereunder, including, without limitation, reasonable
attorneys’ fees and disbursements of counsel to the Lender, to the payment in
whole or in part of the Obligations, in such order as the Lender may elect, and
only after such application and after the payment by the Lender of any other
amount required by any provision of law, including, without limitation, Section
9.615(a)(3) of the Code, need the Lender account for the surplus, if any, to the
Pledgor. To the extent permitted by applicable law, the Pledgor waives all
claims, damages and demands it may acquire against the Lender arising out of the
exercise by it of any rights hereunder. If any notice of a proposed sale or
other disposition of Collateral is required by law and may not be waived, such
notice shall be deemed reasonable and proper if given at least 10 days before
such sale or other disposition.

     9.      Private Sales. (a) If the Lender exercises its right to sell any or
all of the Pledged Stock pursuant to paragraph 8 hereof, the Pledgor recognizes
that the Lender may be unable to effect a public sale of any or all the Pledged
Stock, by reason of certain prohibitions contained in the Securities Act of
1933, as amended (the “Securities Act”), and applicable state securities laws or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obliged to agree, among other
things, to acquire such securities for

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their own account for investment and not with a view to the distribution or
resale thereof. The Pledgor acknowledges and agrees that any such private sale
may result in prices and other terms less favorable than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner. The Lender shall be under no obligation to delay a sale of any of the
Pledged Stock for the period of time necessary to permit the Issuer to register
such securities for public sale under the Securities Act, or under applicable
state securities laws, even if the Issuer would agree to do so.

     (b)      The Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Pledged Stock pursuant to this paragraph 9 valid and
binding and in compliance with any and all other applicable Requirements of Law.
The Pledgor further agrees that a breach of any of the covenants contained in
this paragraph 9 will cause irreparable injury to the Lender, that the Lender
has no adequate remedy at law in respect of such breach and, as a consequence,
that each and every covenant contained in this paragraph 9 shall be specifically
enforceable against the Pledgor, and the Pledgor hereby waives and agrees not to
assert any defenses against an action for specific performance of such
covenants, except for a defense that no Event of Default has occurred under the
Loan Agreement.

     10.      Limitation on Duties Regarding Collateral. The Lender’s sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9.207 of the Code or otherwise,
shall be to deal with it in the same manner as the Lender deals with similar
securities and property for its own account. Neither the Lender nor any of its
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon any of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of the Pledgor or otherwise.

     11.      Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.

     12.      Severability. Any provision of this Stock Pledge Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and

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any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.

     13.      Paragraph Headings. The paragraph headings used in this Stock
Pledge Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.

     14.      No Waiver; Cumulative Remedies. The Lender shall not by any act
(except by a written instrument pursuant to paragraph 15 hereof) be deemed to
have waived any right or remedy hereunder or to have acquiesced in any Event of
Default under the Loan Agreement or in any breach of any of the terms and
conditions hereof. No failure to exercise, nor any delay in exercising, on the
part of the Lender, any rights, powers or privileges hereunder shall operate as
a waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Lender would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any other rights or remedies provided
by law.

     15.      Waivers and Amendments; Successors and Assigns; Governing Law.
None of the terms or provisions of this Stock Pledge Agreement may be amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgor and the Lender, provided that any provision of this Stock Pledge
Agreement may be waived by the Lender in a letter or agreement executed by the
Lender or by telex or facsimile transmission from the Lender. This Stock Pledge
Agreement shall be binding upon the permitted successors and assigns of the
Pledgor and shall inure to the benefit of the Lender and its successors and
assigns.

     THIS STOCK PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

     16.      Notices. Notices by the Lender to the Pledgor or the Issuer may be
given by mail, by telegraph or by facsimile transmission, addressed or
transmitted to the appropriate party at the Pledgor’s address set forth in the
Loan Agreement and shall be effective (a) in the case of mail, three days after
deposit in the postal system, postage pre-paid, (b)

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in the case of facsimile notices, when sent and (c) in the case of telegraphic
notice, when delivered to the telegraph company. The Pledgor and the Issuer may
change their respective addresses and transmission numbers by written notice to
the Lender.

     17.      Irrevocable Authorization and Instruction to Issuer. The Pledgor
hereby authorizes and instructs the Issuer to comply with any instruction
received by it from the Lender in writing that (a) states that an Event of
Default has occurred and (b) is otherwise in accordance with the terms of this
Stock Pledge Agreement, without any other or further instructions from the
Pledgor, and the Pledgor agrees that the Issuer shall be fully protected in so
complying.

     IN WITNESS WHEREOF, the undersigned has caused this Stock Pledge Agreement
to be duly executed and delivered as of the date first above written.

            NATURAL GAS SERVICES GROUP, INC.
      By:           Wallace C. Sparkman, President             

            WESTERN NATIONAL BANK
      By:           Scott A. Lovett, Executive        Vice President     

ANNEX I

ACKNOWLEDGMENT AND CONSENT

     The Issuer referred to in the foregoing Stock Pledge Agreement hereby
(i) consents to the pledge of the Pledged Stock and waives any and all
restrictions applicable thereto, (ii) acknowledges receipt of a copy of the
Stock Pledge Agreement and (iii) agrees to be bound thereby and to comply with
the terms thereof insofar as such terms are applicable to it. The Issuer agrees
to notify the Lender promptly in writing of the

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occurrence of any of the events described in paragraph 5(a) of the Stock Pledge
Agreement.

            SCREW COMPRESSION SYSTEMS, INC.
      By:           Paul D. Hensley, President             

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SCHEDULE I
TO
STOCK PLEDGE AGREEMENT

DESCRIPTION OF PLEDGED STOCK

                                      Stock             Class of     Certificate
    No. of   Issuer   Stock*     No.     Shares  
 
                       
Screw Compression Systems, Inc.
            1       70,000  
 
                       
Screw Compression Systems, Inc.
            2       10,000  
 
                       
Screw Compression Systems, Inc.
            3       20,000  
 
                     
 
                       
 
                    100,000  

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*   Common unless otherwise indicated

 

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For Value Received, Natural Gas Services Group, Inc., a Colorado corporation,
does hereby sell, assign and transfer unto              Seventy Thousand
(70,000) shares of Common Stock, $.10 par value, of Screw Compression Systems,
Inc., a Texas corporation, standing in the name of the undersigned on the books
of said corporation, represented by Certificate No. 1 herewith, and does hereby
irrevocably constitute and appoint             my attorney-in-fact to transfer
the said stock on the books of the within named corporation with full power of
substitution in the premises.

Dated January 3, 2005

            Natural Gas Services Group, Inc.

 
      By:   _____________________________         Wallace C. Sparkman       
President     

In the presence of

_____________________________

 

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For Value Received, Natural Gas Services Group, Inc., a Colorado corporation,
does hereby sell, assign and transfer unto _________________ Ten Thousand
(10,000) shares of Common Stock, $.10 par value, of Screw Compression Systems,
Inc., a Texas corporation, standing in the name of the undersigned on the books
of said corporation, represented by Certificate No. 2 herewith, and does hereby
irrevocably constitute and appoint __________________ my attorney-in-fact to
transfer the said stock on the books of the within named corporation with full
power of substitution in the premises.

Dated January 3, 2005

            Natural Gas Services Group, Inc.

 
      By:   _____________________________         Wallace C. Sparkman       
President     

In the presence of

_____________________________

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For Value Received, Natural Gas Services Group, Inc., a Colorado corporation,
does hereby sell, assign and transfer unto ____________________ Twenty Thousand
(20,000) shares of Common Stock, $.10 par value, of Screw Compression Systems,
Inc., a Texas corporation, standing in the name of the undersigned on the books
of said corporation, represented by Certificate No. 3 herewith, and does hereby
irrevocably constitute and appoint __________________ my attorney-in-fact to
transfer the said stock on the books of the within named corporation with full
power of substitution in the premises.

Dated January 3, 2005

            Natural Gas Services Group, Inc.

 
      By:   _____________________________         Wallace C. Sparkman       
President     

In the presence of

_____________________________

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EXHIBIT “J”

SECURITY AGREEMENT

     THIS SECURITY AGREEMENT (“Security Agreement”), dated as of January 3.
2005, is made by NATURAL GAS SERVICES GROUP, INC., a Colorado corporation, with
its principal offices at 2911 S. CR 1260, Midland, Texas 79706 in favor of
WESTERN NATIONAL BANK, a national banking association with banking quarters at
500 West Wall, Suite 100, Midland, Texas 79701.

     WHEREAS, Natural Gas Services Group, Inc. and Western National Bank
executed that certain Third Amended and Restated Loan Agreement, dated as of
January 3, 2005 (said Third Amended and Restated Loan Agreement, together with
all amendments and supplements thereto, is herein called the “Loan Agreement”),
pursuant to which Western National Bank agreed, subject to certain terms and
conditions therein stated, to make loans to Natural Gas Services Group, Inc. as
provided in the Loan Agreement;

     WHEREAS, Natural Gas Services Group, Inc. has previously executed and
delivered to Western National Bank that certain Security Agreement, dated as of
March 26, 2003, as amended and restated in that certain Security Agreement dated
as of November 3, 2003 (the “Prior Security Agreement”); and

     WHEREAS, the parties hereto desire to amend and restate the Prior Security
Agreement as provided herein, and Western National Bank has conditioned its
obligations under the Loan Agreement upon the execution and delivery by Natural
Gas Services Group, Inc. of this Security Agreement, and Natural Gas Services
Group, Inc. has agreed to make and deliver this Security Agreement.

     NOW, THEREFORE, (i) in compliance with the terms and conditions of the Loan
Agreement, (ii) for and in consideration of the premises and the agreements
herein contained, and (iii) for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Natural Gas Services
Group, Inc. and Western National Bank agree as follows:

 

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SECTION 1. DEFINITIONS

     Unless otherwise defined herein, terms which are defined in the Loan
Agreement and used herein are so used as so defined; and the following terms
shall have the following meanings:

     (a) “Accounts” means all accounts receivable, leases receivable, book
debts, notes, drafts, instruments, documents, acceptances and other forms of
obligations now owned or hereafter received or acquired by or belonging or owing
to Debtor (including under any trade names, styles or divisions thereof) whether
arising out of goods sold or leased by it or services rendered by it or from any
other transaction, whether or not the same involves the sale of goods or
performance of services by Debtor (including, without limitation, any such
obligation which would be characterized as an account, general intangible or
chattel paper under the UCC) and all of Debtor’s rights in, to and under all
purchase orders now owned or hereafter received or acquired by it for goods or
services, and all of Debtor’s rights to any goods represented by any of the
foregoing (including returned or repossessed goods and unpaid seller’s rights)
and all moneys due or to become due to Debtor under all contracts for the sale
of goods and/or the performance of services by it (whether or not yet earned by
performance) or in connection with any other transaction, now in existence or
hereafter arising, including, without limitation, the right to receive the
proceeds of said purchase orders and contracts, and all collateral security and
guarantees of any kind given by any person with respect to any of the foregoing.

     (b) “Contracts” means the contracts between any person and Debtor, as the
same may from time to time be amended, supplemented or otherwise modified,
including, without limitation, (i) all rights of Debtor to receive moneys due
and to become due to it thereunder or in connection therewith, (ii) all rights
of Debtor to damages arising out of, or from, breach or default in respect
thereof and (iii) all rights of Debtor to perform and to exercise all remedies
thereunder.

     (c) “Debtor” is Natural Gas Services Group, Inc., a Colorado corporation,
and its permitted successors and assigns.

     (d) “Documents” has the meaning assigned in Section 9.102(a)(30) of the
UCC.

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     (e) “Equipment” means all machinery, equipment and gas compressors, now
owned or hereafter acquired by Debtor, or in which Debtor now has or hereafter
may acquire any right, title or interest and any and all additions,
substitutions and replacements thereof, wherever located, together with all
attachments, components, parts, equipment and accessories installed therein or
affixed thereto, including, but not limited to, all equipment as defined in
Section 9.102(a) (33) of the UCC.

     (f) “Instrument” has the meaning assigned in Section 9.102(a)(47) of the
UCC.

     (g) “Inventory” means all inventory, wherever located, now owned or
hereafter acquired by the Debtor or in which the Debtor now has or hereafter may
acquire any right, title or interest, including, without limitation, all goods
and other personal property now or hereafter owned by the Debtor which are held
for sale or lease or are furnished or are to be furnished under a contract of
service or which constitute raw materials, work in process or materials used or
consumed or to be used or consumed in the business of the Debtor, or in the
processing, packaging or shipping of the same, and all finished goods,
including, but not limited to, all inventory as defined in Section 9.102(a)(48)
of the UCC.

     (h) “Obligations” means the unpaid principal of and interest on the Notes
(including, without limitation, interest accruing after the maturity of the
loans and interest on or after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Debtor, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) and all other present and future indebtedness,
obligations and liabilities of the Debtor and any of its Subsidiaries to the
Secured Party, and all renewals, rearrangements and extensions thereof, or any
part thereof, now or hereafter owed to Secured Party by the Debtor or any of its
Subsidiaries arising from, by virtue of, or pursuant to any Loan Paper, or
otherwise, together with all interest accruing thereon and all costs, expenses
and attorneys’ fees incurred in the enforcement or collection thereof, whether
such indebtedness, obligations and liabilities are direct, indirect, fixed,
contingent, liquidated, unliquidated, joint, several, or joint and several or
were, prior to acquisition thereof by Lender, owed to some other person.

     (i) “Proceeds” means all “proceeds” as such term is defined in
Section 9.102(a)(65) of the UCC and, in any event, shall mean and include, but
not be limited to, the following at any time whatsoever

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arising or receivable: (i) whatever is received upon any collection, exchange,
sale or other disposition of any of the Collateral, and any property into which
any of the Collateral is converted, whether cash or non-cash proceeds, (ii) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable to
Debtor from time to time with respect to any of the Collateral, and (iii) any
and all payments (in any form whatsoever) made or due and payable to Debtor from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any governmental
body, authority, bureau or agency (or any person acting under color of
Governmental Authority).

     (j) “Secured Party” is Western National Bank, a national banking
association, and its successors and assigns.

     (k) “UCC” means the Uniform Commercial Code as from time to time in effect
in the State of Texas.

SECTION 2. GRANT OF SECURITY INTEREST

     As collateral security for the prompt and complete payment and performance
when due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations, the Debtor hereby grants to the Secured Party a security interest
and Bank Lien in all of the following property now owned or at any time
hereafter acquired by the Debtor or in which the Debtor now has or at any time
in the future may acquire any right, title or interest (collectively, the
“Collateral”):

  (i)   all Accounts;     (ii)   all Contracts;     (iii)   all Documents;    
(iv)   all Equipment;     (v)   all Instruments;     (vi)   all Inventory; and

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  (vii)   all Proceeds and all present and future increases, combinations,
reclassifications, improvements and products of, accessions, attachments, and
other additions to, and substitutes and replacements for all or any part of the
foregoing.

SECTION 3. DEBTOR’S REPRESENTATIONS AND WARRANTIES

     The Debtor hereby represents and warrants that:

     (a) Title; No Other Liens. Except for the Bank Lien granted to the Secured
Party for the benefit of the Secured Party pursuant to this Security Agreement
and the other Liens permitted to exist on the Collateral pursuant to the Loan
Agreement, the Debtor owns each item of the Collateral free and clear of any and
all Liens or claims of others. No security agreement, financing statement or
other public notice with respect to all or any part of the Collateral is on file
or of record in any public office, except (i) such as may have been filed in
favor of the Secured Party, for the benefit of the Secured Party, pursuant to
this Security Agreement or any other Loan Paper, and (ii) such as may have been
filed by third parties to perfect Liens permitted by the Loan Agreement.

     (b) Perfected First Priority Liens. The Bank Liens granted pursuant to this
Security Agreement constitute perfected Liens on the Collateral in favor of the
Secured Party, which are prior to all other Liens on the Collateral created by
the Debtor and in existence on the date hereof and which are enforceable as such
against all creditors of and purchasers from the Debtor and against any owner or
purchaser of the real property where any of the Collateral is located and any
present or future creditor obtaining a Lien on such real property.

     (c) Accounts. The amount represented by the Debtor to the Secured Party
from time to time as owing by each account debtor or by all account debtors in
respect of the Accounts will at such time be the correct amount actually owing
by such account debtor or debtors thereunder. No amount payable to the Debtor
under or in connection with any Account is evidenced by any Instrument which has
not been delivered to the Secured Party. Debtor’s Accounts arose in the ordinary
course of Debtor’s business from the performance of services that Debtor has
fully and satisfactorily performed or from the sale or lease of goods

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in which Debtor had sole and complete ownership. No such Account is subject to
counterclaim or defense (other than discount for prompt payment as shown on the
invoices).

     (d) Use and Protection of Collateral. The Collateral will be used for
business purposes only and certain of the Collateral is of a type normally used
in more than one state.

     (e) Debtor’s Address and Location of Collateral. Debtor’s chief executive
office/chief place of business is located at 2911 S. CR 1260, Midland, Texas
79706. The Collateral will remain in Debtor’s possession or control at all times
(at Debtor’s risk of loss) and will be kept at the locations described on
Exhibit A hereto or at such other locations disclosed to Secured Party as
required by the Loan Agreement.

     (f) Governmental Obligors. None of the obligors on any Accounts, and none
of the parties to any Contracts, is a Governmental Authority.

     (g) Consents. No consent of any party (other than the Debtor) to any
Contract or any obligor in respect of any Account is required, or purports to be
required, in connection with the execution, delivery and performance of this
Security Agreement. Each Account and each Contract is in full force and effect
and constitutes a valid and legally enforceable obligation of the obligor in
respect thereof or parties thereto, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditor’s rights generally. No consent or authorization of,
filing with or other act by or in respect of any Governmental Authority is
required in connection with the execution, delivery, performance, validity or
enforceability of any of the Accounts or Contracts by any party thereto other
than those which have been duly obtained, made or performed, are in full force
and effect and do not subject the scope of any such Account or Contract to any
material adverse limitation, either specific or general in nature. Neither the
Debtor nor (to the best knowledge of the Debtor) any other party to any Account
or Contract is in default or is likely to become in default in the performance
or observance of any of the terms thereof. The Debtor has fully performed all
its obligations under each Contract. The right, title and interest of the Debtor
in, to and under each Account or Contract are not subject to any defense,
offset, counterclaim, or claim which would materially adversely affect the value
of such Account or Contract as Collateral, nor have any of the foregoing been
asserted or alleged against the Debtor as to any of the foregoing. Upon request
by Secured Party, the

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Debtor will deliver to the Secured Party a complete and correct copy of each
Contract, including all amendments, supplements and other modifications thereto.
No account payable to the Debtor under or in connection with any Account or
Contract is evidenced by any Instrument which has not been delivered to the
Secured Party.

     (h) Power and Authority; Authorization. The Debtor has the power and
authority and the legal right to execute and deliver, to perform its obligations
under, and to grant the Bank Liens on the Collateral pursuant to, this Security
Agreement and has taken all necessary corporate and other action to authorize
its execution, delivery and performance of, and grant of the Bank Liens on the
Collateral pursuant to, this Security Agreement.

     (i) Enforceability. This Security Agreement constitutes a legal, valid and
binding obligation of the Debtor enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally.

     (j) No Conflict. The execution, delivery and performance of this Security
Agreement will not violate or constitute a default under (i) any provision of
any agreement to which Debtor is a party or by which any of its assets may be
bound or subject to, or (ii) the articles of incorporation or by-laws of the
Debtor, and (iii) will not result in the creation or imposition of any Lien on
any of the properties or revenues of the Debtor except as contemplated hereby.

     (k) No Consents, etc. No consent or authorization of, filing with, or other
act by or in respect of, any arbitrator or Governmental Authority and no consent
of any other person (including, without limitation, any stockholder or creditor
or Affiliate of the Debtor), is required in connection with the execution,
delivery, performance, validity or enforceability of this Security Agreement.

     (l) No Litigation. No litigation, investigation or proceeding of or before
any arbitrator or Governmental Authority is pending or, to the knowledge of the
Debtor, threatened by or against the Debtor or against any of its properties or
revenues which could reasonably be expected to have a Material Adverse Effect.

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SECTION 4. DEBTOR’S COVENANTS

     The Debtor covenants and agrees with the Secured Party that, from and after
the date of this Security Agreement until the Obligations are paid in full:

     (a) Principal Obligations. Debtor shall pay the Obligations in accordance
with the terms thereof and shall otherwise perform all covenants and agreements
of Debtor contained in the Loan Agreement, this Security Agreement and in all
other Loan Papers.

     (b) Debtor Remains Liable under Accounts and Contracts. Anything herein to
the contrary notwithstanding, the Debtor shall remain liable under each of the
Accounts and Contracts to observe and perform all the conditions and obligations
to be observed and performed by it thereunder, all in accordance with the terms
of any agreements giving rise to each such Account or Contract in accordance
with and pursuant to the terms and provisions of each such Contract or agreement
giving rise to an Account.

     (c) Costs. Debtor shall pay Secured Party on demand every expense
(including reasonable attorney’s fees and other legal expenses) incurred or paid
by Secured Party in exercising or protecting its interests, rights, and remedies
under this Security Agreement, plus interest at a rate per annum 2% above the
Prime Rate on each such amount commencing on the date notice of such expenses is
given to Debtor by Secured Party until paid by Debtor.

     (d) Further Documentation; Pledge of Instruments. At any time and from time
to time, upon the written request of the Secured Party, and at the sole expense
of the Debtor, the Debtor will promptly and duly execute and deliver such
further instruments and documents and take such further action as the Secured
Party may reasonably request for the purpose of obtaining or preserving the full
benefits of the Loan Agreement and this Security Agreement and of the rights and
powers therein and herein granted, including, without limitation, the filing of
any financing or continuation statements under the Uniform Commercial Code in
effect in any jurisdiction with respect to the Bank Liens created hereby. The
Secured Party shall have the right, without the consent or joinder of the
Debtor, to execute and file with any governmental authority such financing
statements, financing statement amendments and continuation statements as may,
in the sole discretion of the Secured Party, be

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necessary or advisable to maintain, perfect or otherwise evidence the Bank Lien
of the Secured Party in and to any of the Collateral. In addition, and without
limiting the foregoing, this Pledge Agreement may be attached to and made a part
of any financing statement filed by the Secured Party. The Debtor also hereby
authorizes the Secured Party to file any such financing or continuation
statement without the signature of the Debtor to the extent permitted by
applicable law. A carbon, photographic or other reproduction of this Security
Agreement shall be sufficient as a financing statement for filing in any
jurisdiction. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any Instrument, such Instrument shall
be immediately delivered to the Secured Party, duly endorsed in a manner
satisfactory to the Secured Party, to be held as Collateral pursuant to this
Security Agreement.

     (e) Indemnification. The Debtor agrees to pay, and to save the Secured
Party harmless from, any and all liabilities, costs and expenses (including,
without limitation, legal fees and expenses) (i) with respect to, or resulting
from, any delay in paying, any and all excise, sales or other taxes which may be
payable or determined to be payable with respect to any of the Collateral,
(ii) with respect to, or resulting from, any delay in complying with any law
applicable to any of the Collateral or (iii) in connection with any of the
transactions contemplated by this Security Agreement. In any suit, proceeding or
action brought by the Secured Party under any Account or Contract for any sum
owing thereunder, or to enforce any provisions of any Account or Contract, the
Debtor will save, indemnify and keep the Secured Party harmless from and against
all expense, loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction or liability whatsoever of the account
debtor or obligor thereunder, arising out of a breach by the Debtor of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or
its successors from the Debtor.

     (f) Maintenance of Records. The Debtor will keep and maintain at its own
cost and expense satisfactory and complete records of the Collateral, including,
without limitation, a record of all payments received and all credits granted
with respect to the Accounts and Contracts. The Debtor will mark its books and
records pertaining to the Collateral to evidence this Security Agreement and the
security interests granted hereby. For the further security of the Secured
Party, the Secured Party shall have a security interest in all of the Debtor’s
books and records

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pertaining to the Collateral, and the Debtor shall turn over any such books and
records to the Secured Party or to its representatives during normal business
hours at the request of the Secured Party.

     (g) Right of Inspection. The Secured Party shall at all times have full and
free access during normal business hours to all the books, correspondence and
records of the Debtor, and the Secured Party and its representatives may examine
the same, take extracts therefrom and make photocopies thereof, and the Debtor
agrees to render to the Secured Party, at the Debtor’s cost and expense, such
clerical and other assistance as may be reasonably requested with regard
thereto. The Secured Party and its representatives shall at all times also have
the right to enter into and upon any premises where any of the Collateral is
located for the purpose of inspecting the same, observing its use or otherwise
protecting its interests therein.

     (h) Compliance with Laws, etc. The Debtor will comply in all material
respects with all Requirements of Law applicable to the Collateral or any part
thereof or to the operation of the Debtor’s businesses; provided, however, that
the Debtor may contest any Requirement of Law in any reasonable manner which
shall not, in the sole opinion of the Secured Party, adversely affect the
Secured Party’s rights or the priority of its Bank Liens on the Collateral.

     (i) Compliance with Terms of Contracts, etc. The Debtor will perform and
comply in all material respects with all its obligations under the Contracts and
all its other contractual obligations relating to the Collateral.

     (j) Payment of Obligations. The Debtor will pay promptly when due all
taxes, assessments and governmental charges or levies imposed upon the
Collateral or in respect of its income or profits therefrom, as well as all
claims of any kind (including, without limitation, claims for labor, materials
and supplies) against or with respect to the Collateral, except that no such
charge need be paid if (i) the validity thereof is being contested in good faith
by appropriate proceedings, (ii) such proceedings do not involve any material
danger of the sale, forfeiture or loss of any of the Collateral or any interest
therein and (iii) such charge is adequately reserved against on the Debtor’s
books in accordance with generally accepted accounting principles.

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     (k) Limitation of Liens on Collateral. The Debtor will not create, incur or
permit to exist, will defend the Collateral against, and will take such other
action as is necessary to remove, any Lien or claim on or to the Collateral,
other than the Bank Liens created hereby and other than as permitted pursuant to
the Loan Agreement, and will defend the right, title and interest of the Secured
Party in and to any of the Collateral against the claims and demands of all
persons whomsoever.

     (l) Limitations on Dispositions of Collateral. The Debtor will not sell,
transfer, lease or otherwise dispose of any of the Collateral, or attempt, offer
or contract to do so, except as expressly permitted in the Loan Agreement.

     (m) Limitations on Modifications, Waivers, Extensions of Contracts and
Agreements Giving Rise to Accounts. The Debtor will not (i) amend, modify,
terminate or waive any provision of any Contract or any agreement giving rise to
an Account in any manner which could reasonably be expected to materially
adversely affect the value of such Contract or Account as Collateral, (ii) fail
to exercise promptly and diligently each and every material right which it may
have under each Contract and each agreement giving rise to an Account (other
than any right of termination) or (iii) fail to deliver to the Secured Party a
copy of each material demand, notice or document received by it relating in any
way to any Contract or any agreement giving rise to an Account.

     (n) Limitations on Discounts, Compromises, Extensions of Accounts. Other
than in the ordinary course of business as generally conducted by the Debtor
over a period of time, the Debtor will not grant any extension of the time of
payment of any of the Accounts, compromise, compound or settle the same for less
than the full amount thereof, release, wholly or partially, any person liable
for the payment thereof, or allow any credit or discount whatsoever thereon.

     (o) Maintenance of Equipment. The Debtor will maintain each item of
Equipment in good operating condition, ordinary wear and tear and immaterial
impairments of value and damage by the elements excepted, and will provide all
maintenance, service and repairs necessary for such purpose.

     (p) Maintenance of Insurance. The Debtor will maintain, with financially
sound and reputable companies, insurance policies (i) insuring the Equipment and
Inventory against loss by fire, explosion, theft and

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such other casualties as may be reasonably satisfactory to the Secured Party and
(ii) insuring the Debtor and the Secured Party against liability for personal
injury and property damage relating to such Equipment and Inventory, such
policies to be in such form and amounts and having such coverage as may be
reasonably satisfactory to the Secured Party, with losses payable to the Debtor
and the Secured Party as its interests may appear. All such insurance shall
(i) provide that no cancellation, material reduction in amount or material
change in coverage thereof shall be effective until at least thirty (30) days
after receipt by the Secured Party of written notice thereof, (ii) name the
Secured Party as insured party, and (iii) be reasonably satisfactory in all
other respects to the Secured Party. The Debtor shall deliver to the Secured
Party a report of a reputable insurance broker or agent with respect to such
insurance during a month specified by the Secured Party in its discretion in
each calendar year and such supplemental reports with respect thereto as the
Secured Party may from time to time reasonably request.

     (q) Further Identification of Collateral. The Debtor will furnish to the
Secured Party from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Secured Party may reasonably request, all in reasonable
detail.

     (r) Notices. The Debtor will advise the Secured Party promptly, in
reasonable detail, at its address set forth in the Loan Agreement, (i) of any
Lien (other than Bank Liens created hereby or permitted under the Loan
Agreement) on, or claim asserted against, any of the Collateral and (ii) of the
occurrence of any other event which could reasonably be expected to have a
material adverse effect on the aggregate value of the Collateral or on the Bank
Liens created hereunder.

     (s) Changes in Locations, Name. etc. The Debtor will not (i) change the
location of its chief executive office/chief place of business from that
specified in Section 3 or (ii) change its name, identity or organizational
structure to such an extent that any financing statement filed by the Secured
Party in connection with this Security Agreement would become misleading.

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SECTION 5. PERFORMANCE BY SECURED PARTY OF DEBTOR’S AGREEMENTS

     If the Debtor fails to perform or comply with any of the agreements
contained herein and the Secured Party, as provided for by the terms of this
Security Agreement, shall itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the expenses of the Secured
Party incurred in connection with such performance or compliance, together with
interest thereon at a rate per annum 2% above the Prime Rate, shall be payable
by the Debtor to the Secured Party on demand and shall constitute Obligations
secured hereby.

SECTION 6. SECURED PARTY’S APPOINTMENT AS ATTORNEY-IN-FACT

     (a) Attorney-in-Fact. Debtor hereby irrevocably constitutes and appoints
the Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Debtor and in the name of the
Debtor or in its own name, from time to time in the Secured Party’s discretion,
for the purpose of carrying out the terms of this Security Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Security Agreement, and, without limiting the generality of the foregoing,
the Debtor hereby gives the Secured Party the power and right, on behalf of the
Debtor, without notice to or assent by the Debtor, to do the following:

     (1) in the case of any Account, at any time when the authority of the
Debtor to collect the Accounts has been curtailed or terminated pursuant to the
first sentence of Section 9(c) hereof, or in the case of any other Collateral,
at any time when any Event of Default shall have occurred and is continuing, in
the name of the Debtor or its own name, or otherwise, to take possession of and
indorse and collect any checks, drafts, notes, acceptances or other instruments
for the payment of moneys due under, or with respect to, any Collateral and to
file any claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Secured Party for the purpose of
collecting any

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and all such moneys due or with respect to such Collateral whenever payable;

     (2) to pay or discharge taxes and Liens levied or placed on or threatened
against the Collateral, to effect any repairs or any insurance called for by the
terms of this Security Agreement and to pay all or any part of the premiums
therefore and the costs thereof; and

     (3) upon the occurrence and during the continuance of any Event of Default,
(a) to direct any party liable for any payment under any of the Collateral to
make payment of any and all moneys due or to become due thereunder directly to
the Secured Party or as the Secured Party shall direct; (b) to ask for or
demand, collect, receive payment of and receipt for, any and all moneys, claims
and other amounts due or to become due at any time in respect of or arising out
of any Collateral; (c) to sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection with any
of the Collateral; (d) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any thereof and to enforce any other right in respect
of any Collateral; (e) to defend any suit, action or proceeding brought against
the Debtor with respect to any Collateral; (f) to settle, compromise or adjust
any suit, action or proceeding described in the preceding clause and, in
connection therewith, to give such discharges or releases as the Secured Party
may deem appropriate; and (g) generally, to sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Secured Party were the absolute owner thereof for
all purposes, and to do, at the Secured Party’s option and the Debtor’s expense,
at any time, or from time to time, all acts and things which the Secured Party
deems necessary to protect, preserve or realize upon the Collateral and the Bank
Liens of the Secured Party thereon and to effect the intent of this Security
Agreement, all as fully and effectively as the Debtor might do.

     The Debtor hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.

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     (b) Other Powers. The Debtor also authorizes the Secured Party, at any time
and from time to time, to execute, in connection with the sale provided for in
Sections 6(a) and 9(d), any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.

     SECTION 7. PROCEEDS

     In addition to the rights of the Secured Party specified in Section 9 with
respect to payments of Accounts, it is agreed that if an Event of Default shall
occur and be continuing (i) all Proceeds received by the Debtor consisting of
cash, checks and other near-cash items shall be held by the Debtor, in trust for
the Secured Party, segregated from other funds of the Debtor, and shall,
forthwith upon receipt by the Debtor, be turned over to the Secured Party in the
exact form received by the Debtor (duly indorsed by the Debtor to the Secured
Party), and (ii) any and all such Proceeds received by the Secured Party
(whether from the Debtor or otherwise) may, in the sole discretion of the
Secured Party, be held by the Secured Party for the Secured Party as collateral
security for, and/or then or at any time thereafter may be applied by the
Secured Party against, the Obligations (whether matured or unmatured), such
application to be in such order as the Secured Party shall elect. Any balance of
such Proceeds remaining after the Obligations shall have been paid in full shall
be paid over to the Debtor or to whomsoever may be lawfully entitled to receive
the same.

SECTION 8. EVENTS OF DEFAULT

     If any one or more of the following shall occur and shall not have been
remedied in the period, if any, provided for, an “Event of Default” shall be
deemed to have occurred hereunder and with respect to all of the Obligations,
unless waived in writing by Secured Party:

     (a) default shall be made by Debtor in the payment when due of any
installment of principal or interest on the Notes or any other Obligations;

     (b) any representation or warranty made by Debtor in this Security
Agreement, or by Debtor in the Loan Agreement or in any of the other Loan Papers
or in any certificate, document or financial or other statement furnished to
Secured

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Party under or in connection with this Security Agreement, the Loan Agreement or
any other Loan Paper shall be or shall prove to have been incorrect or untrue or
misleading in any material respect on or as of the date made or deemed made and
shall continue unremedied for a period of 30 days after the earlier of (i) the
Debtor becoming aware of such default or (ii) the Secured Party giving notice
thereof to the Debtor;

     (c) default shall be made by Debtor or any Subsidiary in the due
performance or observance of any covenant, condition or agreement contained in
this Security Agreement, or default shall be made by Debtor in the due
performance or observance of any covenant, condition or agreement contained in
the Loan Agreement or in any of the other Loan Papers and such default shall
continue unremedied for a period of 30 days after the earlier of (i) Debtor
becoming aware of such default or (ii) the Secured Party giving notice thereof
to the Debtor;

     (d) Debtor or any Subsidiary shall (i) apply for or consent to the
appointment of a receiver, trustee or liquidator of itself or of all or a
substantial part of its assets; (ii) be unable, or admit in writing its
inability, or fail to confirm its ability (when requested to do so by Secured
Party) to pay its debts as they become due; (iii) make a general assignment for
the benefit of creditors; (iv) be adjudicated a bankrupt or insolvent or file a
voluntary petition in bankruptcy; (v) file a petition or an answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy or insolvency law; (vi) file an answer admitting the material
allegations of, or consent to, or default in answering, a petition filed against
it in any bankruptcy, reorganization or insolvency proceedings; or (vii) take
any action for the purpose of effecting any of the foregoing;

     (e) an order, judgment or decree shall be entered by any court of competent
jurisdiction approving a petition seeking reorganization of Debtor or any of its
Subsidiaries or appointing a receiver, trustee or liquidator of Debtor or any of
its Subsidiaries or of all or a substantial part of its assets, and such order,
judgment or decree shall continue unstayed in effect for any period of 30
consecutive days;

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     (f) the failure of Debtor or any of its Subsidiaries to have discharged
within a period of 30 days after the commencement thereof any attachment,
sequestration or similar proceeding against any of its properties or assets
having a value of $100,000.00 or more;

     (g) any acceleration, notice of default, filing of suit or notice of breach
by any lender, lessor, creditor or other party to any Material Agreement to
which Debtor or any of its Subsidiaries is a party, or to which its properties
or assets are subject;

     (h) the occurrence of a Material Adverse Effect with respect to Debtor or
any of its Subsidiaries ;

     (i) the occurrence of a Change of Control;

     (j) final judgment or judgments shall be entered against Debtor or any of
its Subsidiaries involving in the aggregate a liability (not paid or fully
covered by insurance or not otherwise covered by indemnity agreements acceptable
to Secured Party in its sole discretion) of $100,000.00 or more, and such
judgment or judgments shall not have been vacated, discharged, stayed or bonded
pending appeal within 60 days from the entry thereof; or

     (k) the occurrence of any other Event of Default under the Loan Agreement.

SECTION 9. SECURED PARTY’S RIGHTS, REMEDIES AND POWERS

     (a) Analysis of Accounts. The Secured Party shall have the right to make
test verifications of the Accounts in any manner and through any medium that it
reasonably considers advisable, and the Debtor shall furnish all such assistance
and information as the Secured Party may require in connection therewith. At any
time and from time to time, upon the Secured Party’s request and at the expense
of the Debtor, the Debtor shall cause independent public accountants or others
satisfactory to the Secured Party to furnish to the Secured Party reports
showing reconciliations, aging and test verifications of, and trial balances
for, the Accounts.

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     (b) Notice to Account Debtors and Contracting Parties. At any time after an
Event of Default occurs and is continuing, upon the request of the Secured Party
at any time, the Debtor shall notify account debtors of the Accounts and parties
to the Contracts that the Accounts and the Contracts have been assigned to the
Secured Party and that payments in respect thereof shall be made directly to the
Secured Party. The Secured Party may in its own name or in the name of others
communicate with account debtors on the Accounts and parties to the Contracts to
verify with them to its satisfaction the existence, amount and terms of any
Accounts or Contracts.

     (c) Collections on Accounts and Contracts. The Secured Party hereby
authorizes the Debtor to collect the Accounts and Contracts, subject to the
Secured Party’s direction and control, and the Secured Party may curtail or
terminate said authority at any time. If required by the Secured Party at any
time, any payments of Accounts and Contracts, when collected by the Debtor,
shall be forthwith (and, in any event, within two Business Days) deposited by
the Debtor in the exact form received, duly indorsed by the Debtor to the
Secured Party if required, in a special collateral account maintained by the
Secured Party, subject to withdrawal by the Secured Party for the account of the
Secured Party only, as provided in this Security Agreement, and, until so turned
over, shall be held by the Debtor in trust for the Secured Party, segregated
from other funds of the Debtor. All Proceeds while held by the Secured Party (or
by the Debtor in trust for the Secured Party) shall continue to be collateral
security for all of the Obligations and shall not constitute payment thereof
until applied as provided in this Security Agreement. At such intervals as may
be agreed upon by the Debtor and the Secured Party, or, if an Event of Default
shall have occurred and be continuing, at any time at the Secured Party’s
election, the Secured Party shall apply all or any part of the funds on deposit
in said special collateral account on account of the Obligations in such order
as the Secured Party may elect, and any part of such funds which the Secured
Party elects not so to apply and deems not required as collateral security for
the Obligations shall be paid over from time to time by the Secured Party to the
Debtor or to whomsoever may be lawfully entitled to receive the same. At the
Secured Party’s request, the Debtor shall deliver to the Secured Party all
original and other documents evidencing, and relating to, the agreements and
transactions which gave rise to the Accounts and Contracts, including, without
limitation, all original orders, invoices and shipping receipts.

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     (d) Remedies; Acceleration of Maturity of Obligations; Repossession and
Sale of Collateral. At any time after an Event of Default occurs and is
continuing, Secured Party may declare every Obligation to be immediately due and
payable and may exercise, in addition to all other rights and remedies granted
to it in this Security Agreement, the Loan Agreement and in any of the other
Loan Papers securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the UCC. Without limiting the generality of
the foregoing, the Secured Party, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Debtor or any other person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker’s board or office of the Secured Party or elsewhere upon such
terms and conditions as Secured Party may deem advisable and at such prices as
Secured Party may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. The 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 the whole or any part of the
Collateral so sold, free of any right or equity of redemption in the Debtor,
which right or equity is hereby waived or released. The Debtor further agrees,
at the Secured Party’s request, to assemble the Collateral and make it available
to the Secured Party at places which the Secured Party shall reasonably select,
whether at the Debtor’s premises or elsewhere. The Secured Party shall apply the
net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the Secured
Party hereunder, including, without limitation, reasonable attorneys’ fees and
disbursements, to the payment in whole or in part of the Obligations, in such
order as the Secured Party may elect, and only after such application and after
the payment by the Secured Party of any other amount required by any provision
of law, need the Secured Party account for the surplus, if any, to the Debtor.
To the extent permitted by applicable law, the Debtor waives all claims, damages
and demands it may acquire against the Secured Party arising out of the exercise
by it of any

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rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least ten (10) days before such sale or other disposition.
The Debtor shall remain liable for any deficiency if the proceeds of any sale or
other disposition of the Collateral are insufficient to pay the Obligations and
the fees and disbursements of any attorneys employed by the Secured Party to
collect such deficiency.

     (e) Right of Setoff. In addition to the security interest and Lien herein
described, Debtor expressly recognizes and grants Secured Party upon the
occurrence of an Event of Default the right of setoff with respect to any money,
checks, certificates of deposit or instruments deposited with Secured Party,
whether in general or special deposits, which right may be exercised
concurrently with or separately from any and all other rights of Secured Party
against Debtor.

SECTION 10. LIMITATIONS ON SECURED PARTY’S DUTIES AND OBLIGATIONS

     (a) Limitations on Secured Party’s Obligations Under Accounts and
Contracts. The Secured Party shall not have any obligation or liability under
any Account (or any agreement giving rise thereto) or Contract by reason of or
arising out of this Security Agreement or the receipt by the Secured Party of
any payment relating to such Account or Contract pursuant hereto, nor shall the
Secured Party be obligated in any manner to perform any of the obligations of
the Debtor thereof under or pursuant to any Account (or any agreement giving
rise thereto) or under or pursuant to any Contract, to make any payment, to make
any inquiry as to the nature or the sufficiency of any payment received by it or
as to the sufficiency of any performance by any party under any Account (or any
agreement giving rise thereto) or under any Contract, to present or file any
claim, to take any action to enforce any performance or to collect the payment
of any amounts which may have been assigned to it or to which it may be entitled
at any time or times.

     (b) Limitation on Duties Regarding Preservation of Collateral. The Secured
Party’s sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9.207 of the UCC
or otherwise, shall be to deal with it in the same manner as the Secured Party
deals with similar property for its own account. Neither the Secured Party nor
any of its directors, officers,

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employees or agents shall be liable for failure to demand, collect or realize
upon all or any part of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Debtor or otherwise.

     (c) No Duty on the Part of Secured Party. The powers conferred on the
Secured Party under this Security Agreement are solely to protect the interests
of the Secured Party in the Collateral and shall not impose any duty upon the
Secured Party to exercise any such powers. The Secured Party shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Debtor or its officers,
directors, employees, stockholders or agents for any act or failure to act
hereunder, except for its own gross negligence or willful misconduct.

SECTION 11. GENERAL PROVISIONS

     (a) Powers Coupled with an Interest. All authorizations and agencies herein
contained with respect to the Collateral are irrevocable and powers coupled with
an interest.

     (b) Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

     (c) Additional Definitions. The term “Debtor” as used in this Security
Agreement is to be construed as singular or plural to correspond with the number
of persons executing this instrument as Debtor. The pronouns used in this
instrument are in the masculine gender but shall be construed as feminine or
neuter as occasion may require. “Secured Party” and “Debtor” as used in this
instrument include the heirs, executors or administrators, successors,
representatives, receivers, trustees, custodians, and assigns of those parties.

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     (d) Captions. The section and paragraph headings appearing in this
instrument were inserted for convenience only and are not to be given any
substantive meaning or significance in construing this Security Agreement.

     (e) Waivers and Amendments; Successors and Assigns. None of the terms or
provision of this Security Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Debtor and the
Secured Party, provided that any provision of this Security Agreement may be
waived by the Secured Party in a written letter or agreement executed by the
Secured Party or by telex or facsimile transmission from the Secured Party. This
Security Agreement shall be binding upon the permitted successors and assigns of
the Debtor and shall inure to the benefit of the Secured Party and its
successors and assigns.

     (f) No Waiver; Cumulative Remedies. The Secured Party shall not by any act
(except by a written instrument pursuant to Section 11(e) hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Event of Default or in any breach of any
of the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Secured Party, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Secured Party of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which the Secured Party
would otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law.

     (g) GOVERNING LAW. THE LAW GOVERNING THIS SECURED TRANSACTION SHALL BE
CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF TEXAS;
PROVIDED, HOWEVER, THAT THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ANY OF
THE COLLATERAL SITUATED IN ANY OTHER STATE MAY BE GOVERNED BY THE LAWS OF SUCH
OTHER STATE.

     (h) Renewal, Extension or Rearrangement. All provisions of this Security
Agreement and of any other Loan Paper relating to the Notes or other Obligations
shall apply with equal force and effect to each and all

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promissory notes hereafter executed which in whole or in part represent a
renewal, extension for any period, increase or rearrangement of any part of the
Obligations originally represented by the Notes or any part of such other
Obligations.

     (i) Assignment. Secured Party may from time to time assign this Security
Agreement, Secured Party’s rights under this Security Agreement, or all or any
of the Obligations. In any such case, the assignee will be entitled to all
rights, privileges, and remedies granted in this Security Agreement to Secured
Party, and Debtor will not assert against the assignee any claims or defenses
Debtor may have against Secured Party (except those granted in this Security
Agreement).

     (j) Notices. Notices hereunder may be given by mail, by telex or by
facsimile transmission, addressed or transmitted to the person to which it is
being given at such person’s address or transmission number set forth in the
Loan Agreement and shall be effective (a) in the case of mail, two days after
deposit in the postal system, first class postage pre-paid and (b) in the case
of telex or facsimile notices, when sent. The Debtor may change its address and
transmission number by written notice to the Secured Party, and the Secured
Party may change its address and transmission number by written notice to the
Debtor.

SECTION 12. AMENDMENT AND RESTATEMENT.

     This Security Agreement renews, extends, restates, amends and supplements
the Prior Security Agreement in its entirety, and all of the liens, rights,
powers, privileges, superior titles, estates and security interests existing by
virtue of the Prior Security Agreement are hereby renewed, extended, restated,
amended, consolidated and spread to be coextensive with the lien and security
interest hereof and to constitute a single lien and security interest, without
interruption or lapse, and the terms, provisions and conditions of such liens,
powers, privileges, superior titles, estates and security interests shall
hereafter be governed in all respects by this Security Agreement and any
amendments or supplements thereto.

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     EXECUTED as of the date first above written.

                  SECURED PARTY
 
                    WESTERN NATIONAL BANK
 
           

      By:    

         

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               Scott A. Lovett, Executive Vice

                     President
 
                DEBTOR
 
                    NATURAL GAS SERVICES GROUP, INC.
 
           

      By:    

         

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               Wallace C. Sparkman, President

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EXHIBIT “A”
TO SECURITY AGREEMENT

LOCATION OF COLLATERAL

2911 S. CR 1260
Midland, Texas 79706

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EXHIBIT “K”

GUARANTY AGREEMENT

     This GUARANTY AGREEMENT (this “Guaranty”), dated as of January 3, 2005, is
made by NATURAL GAS SERVICES GROUP, INC. (“Guarantor”), a Colorado corporation,
for the benefit of WESTERN NATIONAL BANK, a national banking association
(“Lender”).

W I T N E S S E T H:

     WHEREAS, Lender and Natural Gas Services Group, Inc., as Borrower
thereunder (referred to herein as “NGSG”) and Screw Compression Systems, Inc., a
Texas corporation, as Guarantor thereunder (referred to herein as “SCG”), have
entered into that certain Third Amended and Restated Loan Agreement, dated as of
January 3, 2005 (said Third Amended and Restated Loan Agreement, as the same may
hereafter be amended, restated or otherwise modified from time to time, the
“Loan Agreement”), pursuant to which SCS executed that certain Term Promissory
Note of even date therewith in the original principal amount of $1,415,836.00,
and NGSG executed (i) that certain Term Promissory Note of even date therewith
in the original principal amount of $8,000,000.00, and (ii) that certain
Revolving Line of Credit Promissory Note of even date therewith, in the original
principal amount of $2,000,000.00 (collectively, and together with all renewals,
refinancings, modifications, increases and extensions thereof, and all existing
Notes from NGSG to Lender, the “Notes”) under which NGSG and SCS have become
indebted, and may from time to time be further indebted, to Lender with respect
to loans (the “Loans”) made by the Lender to the NGSG and SCS which are further
evidenced, secured or governed by other instruments and security documents
executed in connection with the Loans (collectively, the “Security Documents”);
and

     WHEREAS, Lender is not willing to make the Loans, or otherwise extend
credit, to SCS unless NGSG guarantees payment to Lender of the Guaranteed Debt
(as herein defined) pursuant to the following terms; and

     WHEREAS, NGSG will directly benefit from Lender’s making the Loans to SCS.

     NOW, THEREFORE, as a material inducement to Lender to enter into the Loan
Agreement and make Loans to SCS thereunder, and to extend such additional credit
as Lender may from time to time agree to extend thereunder, and for other good
and valuable consideration, the receipt

 

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and legal sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:

ARTICLE 1

NATURE AND SCOPE OF GUARANTY

     1.1 Definition of Guaranteed Debt. As used herein, the term “Guaranteed
Debt” means all of the following:

     (a) all principal, interest, attorneys’ fees, liabilities for costs and
expenses and other indebtedness, obligations and liabilities of SCS to Lender at
any time created or arising in connection with the Loans, or any amendment
thereto or substitution therefore, including, but not limited to, all
indebtedness, obligations and liabilities of SCS to Lender arising under the
Notes, or under any renewals, modifications, increases and extensions of the
Notes, or under the Loan Agreement and the Security Documents;

     (b) all liabilities of SCS for future advances, extensions of credit or
other value at any time given or made by Lender to SCS arising under the Loan
Agreement and the Security Documents;

     (c) any and all other indebtedness, liabilities, obligations and duties of
every kind and character of SCS to Lender arising under the Loan Agreement and
the Security Documents, whether now or hereafter existing or arising, regardless
of whether such present or future indebtedness, liabilities, obligations or
duties be direct or indirect, related or unrelated, liquidated or unliquidated,
primary or secondary, joint, several, or joint and several, or fixed or
contingent;

     (d) any and all other indebtedness, liabilities, obligations and duties of
every kind and character of SCS to Lender, whether now or hereafter existing or
arising, regardless of whether such present or future indebtedness, liabilities,
obligations or duties be direct or indirect, related or unrelated, liquidated or
unliquidated, primary or secondary, joint, several, or joint and several, or
fixed or contingent;

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     (e) any and all post-petition interest and expenses (including attorneys’
fees) whether or not allowed under any bankruptcy, insolvency, or other similar
law; and

     (f) all costs, expenses and fees, including, but not limited to, court
costs and attorneys’ fees arising in connection with the collection of any or
all amounts, indebtedness, obligations and liabilities of SCS to Lender
described in items (a) through (e) of this Section 1.1.

     1.2 Guaranty of Obligation. NGSG hereby irrevocably and unconditionally
guarantees to Lender and its successors and assigns the payment and performance
of the Guaranteed Debt as and when the same shall be due and payable, whether by
lapse of time, by acceleration of maturity or otherwise. NGSG hereby irrevocably
and unconditionally covenants and agrees that NGSG is liable for the Guaranteed
Debt as a primary obligor.

     1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute,
continuing guaranty of payment and performance and not a guaranty of collection.
This Guaranty may not be revoked by NGSG and shall continue to be effective with
respect to any Guaranteed Debt arising or created after any attempted revocation
by NGSG and after (if NGSG is a natural person) NGSG’s death (in which event
this Guaranty shall be binding upon such NGSG’s estate and NGSG’s legal
representative and heirs). This Guaranty may be enforced by Lender and any
subsequent holder of the Guaranteed Debt and shall not be discharged by the
assignment or negotiation of all or part of the Guaranteed Debt.

     1.4 Guaranteed Debt Not Reduced by Offset. The Guaranteed Debt and the
liabilities and obligations of NGSG to Lender hereunder shall not be reduced,
discharged or released because or by reason of any existing or future offset,
claim or defense of SCS, or any other party, against Lender or against payment
of the Guaranteed Debt, whether such offset, claim or defense arises in
connection with the Guaranteed Debt (or the transactions creating the Guaranteed
Debt) or otherwise. Without limiting the foregoing or NGSG’s liability
hereunder, to the extent that Lender advances funds pursuant to the Notes and
does not receive payments or benefits thereon in the amounts and at the times
required or provided in the Notes, NGSG is absolutely liable to make such
payments to (and confer such benefits on) Lender on a timely basis.

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     1.5 Payment by NGSG. If all or any part of the Guaranteed Debt shall not be
punctually paid when due, whether at maturity or earlier by acceleration or
otherwise, NGSG shall, immediately upon demand by Lender, and without
presentment, protest, notice of protest, notice of non-payment, notice of
intention to accelerate the maturity, notice of acceleration of the maturity, or
any other notice whatsoever, pay in lawful money of the United States of
America, the amount due on the Guaranteed Debt to Lender at Lender’s address as
set forth herein. Such demand(s) may be made at any time coincident with or
after the time for payment of all or part of the Guaranteed Debt, and may be
made from time to time with respect to the same or different items of Guaranteed
Debt. Such demand shall be deemed made, given and received in accordance with
the notice provisions hereof.

     1.6 No Duty to Pursue Others. It shall not be necessary for Lender (and
NGSG hereby waives any rights which NGSG may have to require Lender), in order
to enforce such payment by NGSG, first to (i) institute suit or exhaust its
remedies against SCS or others liable on the Guaranteed Debt or any other
person, (ii) enforce Lender’s rights against any collateral which shall have
been given to secure the Guaranteed Debt, (iii) join SCS or any others liable on
the Guaranteed Debt in any action seeking to enforce this Guaranty, (iv) exhaust
any remedies available to Lender against any collateral which shall have been
given to secure the Guaranteed Debt, or (v) resort to any other means of
obtaining payment of the Guaranteed Debt. Lender shall not be required to
mitigate damages or take any other action to reduce, collect or enforce the
Guaranteed Debt.

     1.7 Waivers. NGSG agrees to the provisions of the Loan Agreement and the
Security Documents, and hereby waives (a) all rights of NGSG under Rule 31,
Texas Rules of Civil Procedure, or Chapter 34 of the Texas Business and Commerce
Code, or Section 17.001 of the Texas Civil Practice and Remedies Code; (b) to
the extent NGSG is subject to the Texas Revised Partnership Act (“TRPA”),
compliance by Lender with Section 3.05(d) of TRPA and (c) notice of (i) any
loans or advances made by Lender to SCS, (ii) acceptance of this Guaranty,
(iii) any amendment or extension of the Notes, the Loan Agreement or of any
other Security Documents, (iv) the execution and delivery by SCS and Lender of
any other loan or credit agreement or of SCS’s execution and delivery of any
promissory notes or other documents arising under the Loan Agreement, the
Security Documents or in connection with the Collateral (as defined in the Loan
Agreement or Security Documents), (v) the occurrence of any

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breach by SCS or Event of Default (as defined in the Loan Agreement),
(vi) Lender’s transfer or disposition of the Guaranteed Debt, or any part
thereof, (vii) sale or foreclosure (or posting or advertising for sale or
foreclosure) of any collateral for the Guaranteed Debt, (viii) protest, proof of
non-payment or default by SCS, or (ix) any other action at any time taken or
omitted by Lender, and, generally, all demands and notices of every kind in
connection with this Guaranty, the Loan Agreement, the Security Documents, or
any other documents or agreements evidencing, securing or relating to any of the
Guaranteed Debt and the obligations hereby guaranteed.

     1.8 Payment of Expenses. If NGSG breaches or fails to timely perform any
provisions of this Guaranty, NGSG shall, immediately upon demand by Lender, pay
Lender all costs and expenses (including court costs and reasonable attorneys’
fees) incurred by Lender in the enforcement hereof or the preservation of
Lender’s rights hereunder. The covenant contained in this Section 1.8 shall
survive the payment of the Guaranteed Debt.

     1.9 Effect of Bankruptcy. If, pursuant to any insolvency, bankruptcy,
reorganization, receivership or other debtor relief law, or any judgment, order
or decision thereunder, Lender must rescind or restore any payment, or any part
thereof, received by Lender in satisfaction of the Guaranteed Debt, as set forth
herein, any prior release or discharge from the terms of this Guaranty given to
NGSG by Lender shall be without effect, and this Guaranty shall remain in full
force and effect. It is the intention of SCS and NGSG that NGSG’s obligations
hereunder shall not be discharged except by NGSG’s performance of such
obligations and then only to the extent of such performance.

     1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding
anything to the contrary contained in this Guaranty, from and after the date
hereof until payment to Lender in full of the Guaranteed Debt, NGSG shall not,
and shall not attempt to, enforce, collect or exercise any rights NGSG may now
or hereafter have under any agreement, at law or in equity (including, without
limitation, any law subrogating the NGSG to the rights of Lender) to assert any
claim against or seek contribution, indemnification or any other form of
reimbursement from SCS or any other party liable for payment of any or all of
the Guaranteed Debt for any payment made by NGSG under or in connection with
this Guaranty or otherwise. After payment to Lender in full of the Guaranteed
Debt, Lender shall not contest the subrogation of NGSG to the

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rights of Lender under the Security Documents, it being expressly agreed that
NGSG’s rights under such subrogation shall be and remain subordinate and
inferior to the rights of Lender under the Security Documents until and unless
all amounts due Lender by SCS under the Security Documents shall be paid in
full.

     1.11 NGSG. The term “NGSG” as used herein shall include any new or
successor corporation, association, partnership (general or limited), joint
venture, trust or other individual or organization formed as a result of any
merger, conversion, consolidation, reorganization, amalgamation, sale, transfer
or gift of SCS or any interest in SCS.

     1.12 SCS. The term “SCS” as used herein shall include any new or successor
corporation, association, partnership (general or limited), joint venture, trust
or other individual or organization formed as a result of any merger,
conversion, consolidation, reorganization, amalgamation, sale, transfer or gift
of SCS or any interest in SCS.

ARTICLE 2

EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING NGSG’S OBLIGATIONS

     NGSG hereby consents and agrees to each of the following, and agrees that
NGSG’s obligations under this Guaranty shall not be released, diminished,
impaired, reduced or adversely affected by any of the following, and waives any
common law, equitable, statutory or other rights (including, without limitation,
rights to notice) which NGSG might otherwise have as a result of or in
connection with any of the following:

     2.1 Modifications. Any renewal, refinancing, extension, increase,
modification, alteration or rearrangement of all or any part of the Guaranteed
Debt, the Notes, the Loan Agreement, the Security Documents, or any other
document, instrument, contract or understanding between SCS and Lender, or any
other parties, pertaining to the Guaranteed Debt or any failure of Lender to
notify NGSG of any such action.

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     2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that
might be granted or given by Lender to SCS or NGSG.

     2.3 Condition of SCS or NGSG. The insolvency, bankruptcy, arrangement,
adjustment, composition, liquidation, disability, death, dissolution or lack of
power of SCS, NGSG or any other party at any time liable for the payment of all
or part of the Guaranteed Debt; or any changes in the owners, shareholders,
partners or members of SCS or NGSG; or any reorganization of SCS or NGSG.

     2.4 Invalidity of Guaranteed Debt. The invalidity, illegality or
unenforceability of all or any part of the Guaranteed Debt, or any document or
agreement executed in connection with the Guaranteed Debt, for any reason
whatsoever, including, without limitation, the fact that (i) the Guaranteed
Debt, or any part thereof, exceeds the amount permitted by law, (ii) the act of
creating the Guaranteed Debt or any part thereof is ultra vires, (iii) the
officers or representatives executing the Notes, the Loan Agreement or the other
Security Documents or otherwise creating the Guaranteed Debt acted in excess of
their authority, (iv) the Guaranteed Debt violates applicable usury laws,
(v) the SCS has valid defenses, claims or offsets (whether at law, in equity or
by agreement) which render the Guaranteed Debt wholly or partially uncollectible
from SCS, (vi) the creation, performance or repayment of the Guaranteed Debt (or
the execution, delivery and performance of any document or instrument
representing part of the Guaranteed Debt or executed in connection with the
Guaranteed Debt, or given to secure the repayment of the Guaranteed Debt) is
illegal, uncollectible or unenforceable, or (vii) the Notes, the Loan Agreement
or any of the other Security Documents have been forged or otherwise are
irregular or not genuine or authentic, it being agreed that NGSG shall remain
liable hereon regardless of whether SCS or any other person be found not liable
on the Guaranteed Debt or any part thereof for any reason.

     2.5 Release of Obligors. Any full or partial release of the liability of
SCS on the Guaranteed Debt, or any part thereof, or any other person or entity
now or hereafter liable, whether directly or indirectly, jointly, severally, or
jointly and severally, to pay, perform, guarantee or assure the payment of the
Guaranteed Debt, or any part thereof, it being recognized, acknowledged and
agreed by NGSG that NGSG may be required to pay the Guaranteed Debt without
assistance or support of any other party, and NGSG has not been induced to enter
into this Guaranty on the basis of a contemplation, belief, understanding or
agreement that

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other parties will be liable to pay or perform the Guaranteed Debt, or that
Lender will look to other parties to pay or perform the Guaranteed Debt.

     2.6 Other Collateral. The taking or accepting of any other security,
collateral or guaranty, or other assurance of payment, for all or any part of
the Guaranteed Debt.

     2.7 Release of Collateral. Any release, surrender, exchange, subordination,
deterioration, waste, loss or impairment (including, without limitation,
negligent, willful, unreasonable or unjustifiable impairment) of any collateral,
property or security, at any time existing in connection with, or assuring or
securing payment of, all or any part of the Guaranteed Debt.

     2.8 Care and Diligence. The failure of Lender or any other party to
exercise diligence or reasonable care in the preservation, protection,
enforcement, sale or other handling or treatment of all or any part of such
collateral, property or security, including, but not limited to, any neglect,
delay, omission, failure or refusal of Lender (i) to take or prosecute any
action for the collection of any of the Guaranteed Debt or (ii) to foreclose, or
initiate any action to foreclose, or, once commenced, prosecute to completion
any action to foreclose upon any security therefor, or (iii) to take or
prosecute any action in connection with any instrument or agreement evidencing
or securing all or any part of the Guaranteed Debt.

     2.9 Unenforceability. The fact that any collateral, security, security
interest or lien contemplated or intended to be given, created or granted as
security for the repayment of the Guaranteed Debt, or any part thereof, shall
not be properly perfected or created, or shall prove to be unenforceable or
subordinate to any other security interest or lien, it being recognized and
agreed by NGSG that it is not entering into this Guaranty in reliance on, or in
contemplation of the benefits of, the validity, enforceability, collectibility
or value of any of the collateral for the Guaranteed Debt.

     2.10 Offset. The Notes, the Guaranteed Debt and the liabilities and
obligations of NGSG to Lender hereunder shall not be reduced, discharged or
released because of or by reason of any existing or future right of offset,
claim or defense of SCS against Lender, or any other party, or against payment
of the Guaranteed Debt, whether such right of offset, claim or defense of SCS
against Lender, or any other party, or against payment of the Guaranteed Debt,
whether such right of offset, claim or

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defense arises in connection with the Guaranteed Debt (or the transactions
creating the Guaranteed Debt) or otherwise.

     2.11 Merger. The reorganization, conversion, merger, amalgamation or
consolidation of SCS into or with any other corporation or entity.

     2.12 Preference. Any payment by SCS to Lender is held to constitute a
preference under bankruptcy laws, or for any reason Lender is required to refund
such payment or pay such amount to SCS or someone else.

     2.13 Other Actions Taken or Omitted. Any other action taken or omitted to
be taken with respect to the Loan Agreement, the Security Documents, the
Guaranteed Debt, or the security and collateral therefor, whether or not such
action or omission prejudices NGSG or increases the likelihood that NGSG will be
required to pay the Guaranteed Debt pursuant to the terms hereof, it being the
unambiguous and unequivocal intention of NGSG that it shall be obligated to pay
the Guaranteed Debt when due, notwithstanding any occurrence, circumstance,
event, action, or omission whatsoever, whether contemplated or uncontemplated,
and whether or not otherwise or particularly described herein, which obligation
shall be deemed satisfied only upon the full and final payment and satisfaction
of the Guaranteed Debt.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

     As material inducements to Lender to enter into the Loan Agreement and the
Security Documents and extend credit to SCS, NGSG represents and warrants to
Lender as follows:

     3.1 Benefit. NGSG is the owner of a direct or indirect interest in SCS, or
has received, or will receive, direct or indirect benefit from the making of
this Guaranty with respect to the Guaranteed Debt. The loans to SCS and any
additional loans to it are for the direct benefit of SCS and its parent company,
NGSG. SCS and NGSG are engaged as an integrated group in the manufacturing,
leasing and sale of natural gas compressors and related equipment, systems and
services for the oil and gas industry, and any benefits to SCS or NGSG are a
benefit to both of them, both directly or indirectly, inasmuch as the successful
operation and condition

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of SCS and NGSG is dependent upon the continued successful performance of the
functions of the integrated group as a whole.

     3.2 Familiarity and Reliance. NGSG is familiar with, and has independently
reviewed books and records regarding, the financial condition of SCS and is
familiar with the value of any and all collateral intended to be created as
security for the payment of the Notes or Guaranteed Debt; provided, however,
NGSG is not relying on such financial condition or the collateral as an
inducement to enter into this Guaranty.

     3.3 No Representation by Lender. Neither Lender nor any other party has
made any representation, warranty or statement to NGSG in order to induce the
NGSG to execute this Guaranty.

     3.4 NGSG’s Financial Condition. As of the date hereof, and after giving
effect to this Guaranty and the contingent obligation evidenced hereby, NGSG is,
and will be, solvent, and has and will have assets which, fairly valued, exceed
NGSG’s obligations, liabilities (including contingent liabilities) and debts,
and has and will have property and assets sufficient to satisfy and repay NGSG’s
obligations and liabilities.

     3.5 Legality. All action on NGSG’s part requisite for the due execution,
delivery and performance of this Guaranty and the other Security Documents to
which NGSG is a party has been duly and effectively taken. The execution,
delivery and performance by NGSG of this Guaranty and the consummation of the
transactions contemplated hereunder do not, and will not, contravene or conflict
with any law, statute or regulation whatsoever to which NGSG is subject or
constitute a default (or an event which with notice or lapse of time or both
would constitute a default) under, or result in the breach of, any indenture,
mortgage, deed of trust, charge, lien, or any contract, agreement or other
instrument to which NGSG is a party or which may be applicable to NGSG. This
Guaranty is a legal and binding obligation of NGSG and is enforceable in
accordance with its terms, except as limited by bankruptcy, insolvency or other
laws of general application relating to the enforcement of creditors’ rights.

     3.6 Financial Statements. Each financial statement of NGSG delivered
heretofore, concurrently herewith or hereafter to Lender completely and
accurately discloses the financial condition of NGSG (including all contingent
liabilities) as of the date thereof and for the

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period covered thereby, and there has been no material adverse change in NGSG’s
financial condition subsequent to the date of the most recent financial
statement of NGSG delivered to Lender, except as disclosed therein.

     3.7 Litigation. NGSG is not involved in, nor is NGSG aware of the threat
of, any litigation, nor are there any outstanding or unpaid judgments against
NGSG and there is no litigation that could, collectively or individually, create
a material adverse change if determined adversely against NGSG.

     3.8 Taxes. All tax returns required to be filed by the NGSG with all
governmental authorities have been filed, and all taxes, assessments, fees and
other governmental charges upon NGSG or upon any of NGSG’s property, income or
franchises which are due and payable, have been paid (other than any the amount
or validity of which are currently being contested in good faith by appropriate
proceedings); and no tax lien has been filed and, to the knowledge of NGSG, no
claim is being asserted with respect to any such tax, fee or other charge.

     3.9 Survival. All representations and warranties made by NGSG herein shall
survive the execution hereof.

ARTICLE 4

SUBORDINATION OF CERTAIN INDEBTEDNESS

     4.1 Subordination of All NGSG Claims. As used herein, the term “NGSG’s
Claims” shall mean all debts and liabilities of SCS to NGSG, whether such debts
and liabilities now exist or are hereafter incurred or arise; or whether the
obligations of SCS thereon be direct, contingent, primary, secondary, several,
joint and several, or otherwise, and irrespective of whether such debts or
liabilities be evidenced by note, contract, open account, or otherwise, and
irrespective of the person or persons in whose favor such debts or liabilities
may, at their inception, have been, or may hereafter be created, or the manner
in which they have been or may hereafter be acquired by NGSG. The NGSG’s Claims
shall include, without limitation, all rights and claims of NGSG against SCS
(arising as a result of subrogation or otherwise) as a result of NGSG’s payment
of all or a portion of the Guaranteed Debt. Upon the occurrence

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of an Event of Default (as defined in the Loan Agreement) or the occurrence of
an event which would, with the giving of notice or the passage of time, or both,
constitute an Event of Default, NGSG shall not receive or collect, directly or
indirectly, from SCS or any other party any amount upon the NGSG’s Claims.

     4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy,
reorganization, arrangement, debtor’s relief, or other insolvency proceedings
involving NGSG as debtor, Lender shall have the right to prove its claim in any
such proceeding so as to establish its rights hereunder and receive directly
from the receiver, trustee or other court custodian dividends and payments which
would otherwise be payable upon NGSG’s Claims. NGSG hereby assigns such
dividends and payments to Lender. Should Lender receive, for application upon
the Guaranteed Debt, any such dividend or payment which is otherwise payable to
NGSG, and which, as between SCS and NGSG, shall constitute a credit upon the
NGSG’s Claims, then upon payment to Lender in full of the Guaranteed Debt, NGSG
shall become subrogated to the rights of Lender to the extent that such payments
to Lender on the NGSG’s Claims have contributed toward the liquidation of the
Guaranteed Debt, and such subrogation shall be with respect to the proportion of
the Guaranteed Debt which would have been unpaid if Lender had not received
dividends or payments upon the NGSG’s Claims.

     4.3 Payments Held in Trust. If, notwithstanding anything to the contrary in
this Guaranty, NGSG should receive any funds, payment, claim or distribution
which is prohibited by this Guaranty, NGSG agrees to hold in trust for Lender an
amount equal to the amount of all funds, payments, claims or distributions so
received, and agrees that it shall have absolutely no dominion over the amount
of such funds, payments, claims or distributions so received except to pay them
promptly to Lender, and NGSG covenants promptly to pay the same to Lender.

     4.4 Liens Subordinate. NGSG agrees that any liens, security interests,
judgment liens, charges or other encumbrances upon SCS’s assets securing payment
of the NGSG’s Claims shall be and shall remain inferior and subordinate to any
liens, security interests, judgment liens, charges or other encumbrances upon
SCS’s assets securing payment of the Guaranteed Debt, regardless of whether such
encumbrances in favor of NGSG or Lender presently exist or are hereafter created
or attach. Without the prior written consent of Lender, NGSG shall not (i)
exercise or enforce any creditor’s right it may have against SCS, or
(ii) foreclose,

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repossess, sequester or otherwise take steps or institute any action or
proceedings (judicial or otherwise, including without limitation the
commencement of, or joinder in, any liquidation, bankruptcy, rearrangement,
debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds
of trust, security interests, collateral rights, judgments or other encumbrances
on assets of SCS held by NGSG.

ARTICLE 5

AFFIRMATIVE COVENANTS

          5.1 Information. NGSG shall furnish such other and additional
information regarding the business activities and financial condition of NGSG as
Lender shall request from time to time.

ARTICLE 6

MISCELLANEOUS

     6.1 Waiver. No failure to exercise, and no delay in exercising, on the part
of Lender, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right. The rights of Lender hereunder shall
be in addition to all other rights provided by law. No modification or waiver of
any provision of this Guaranty, nor consent to departure therefrom, shall be
effective unless in writing and no such consent or waiver shall extend beyond
the particular case and purpose involved. No notice or demand given in any case
shall constitute a waiver of the right to take other action in the same, similar
or other instances without such notice or demand.

     6.2 Notices. Any notices or other communications required or permitted to
be given by this Guaranty must be given in writing and either (i) mailed by
prepaid certified or registered mail, return receipt requested, addressed to the
party at the address herein provided, (ii) by delivery to a third party
commercial delivery service with evidence of delivery to the office of the
addressee, or (iii) by personal delivery to the addressee. The addresses of the
parties hereto are as follows:

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NGSG

Natural Gas Services Group, Inc.
2911 S. CR 1260
Midland, Texas 79706
Attention: Wallace C. Sparkman, President

Lender

Western National Bank
508 West Wall, Suite 1100
Midland, Texas 79701
Attention: Scott A. Lovett

Any such notice or other communication shall be deemed to have been given
(whether actually received or not) on the day it is delivered to the U.S. Post
Office or third party delivery service as aforesaid or if delivered by other
means, then upon actual receipt by the addressee. Any party may change its
address for purposes of this Guaranty by giving notice of such change to the
other party pursuant to this Section.

     6.3 Governing Law. THIS GUARANTY IS EXECUTED AND DELIVERED AS AN INCIDENT
TO A LENDING TRANSACTION NEGOTIATED, CONSUMMATED, AND PERFORMABLE IN MIDLAND
COUNTY, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS. Any action or proceeding against NGSG under or in
connection with this Guaranty shall be brought in any state or federal court in
Midland County, Texas. NGSG hereby irrevocably (i) submits to the nonexclusive
jurisdiction of such courts, and (ii) waives any objection it may now or
hereafter have as to the venue of any such action or proceeding brought in such
court or that such court is an inconvenient forum. NGSG agrees that service of
process upon it may be made by certified or registered mail, return receipt
requested, at its address specified herein. Nothing herein shall affect the
right of Lender to serve process in any other matter permitted by law or shall
limit the right of Lender to bring any action or proceeding against NGSG or with
respect to any of NGSG’s property in courts in other jurisdictions. Any action
or proceeding by NGSG against Lender shall be brought only in a court located in
Midland County, Texas.

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6.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal,
invalid, or unenforceable under present or future laws effective during the term
of this Guaranty, such provision shall be fully severable and this Guaranty
shall be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part of this Guaranty, and the remaining
provisions of this Guaranty shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance from this Guaranty, unless such continued effectiveness of this
Guaranty, as modified, would be contrary to the basic understandings and
intentions of the parties as expressed herein.

     6.5 Amendments. This Guaranty may be amended only by an instrument in
writing executed by the party or an authorized representative of the party
against whom such amendment is sought to be enforced.

     6.6 Parties Bound; Assignment. This Guaranty shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives; provided, however, that NGSG may not, without
the prior written consent of Lender, assign any of its rights, powers, duties or
obligations hereunder.

     6.7 Headings. Section headings are for convenience of reference only and
shall in no way affect the interpretation of this Guaranty.

     6.8 Recitals. The recital and introductory paragraphs hereof are a part
hereof, form a basis for this Guaranty and shall be considered prima facie
evidence of the facts and documents referred to therein.

     6.9 Counterparts. To facilitate execution, this Guaranty may be executed in
as many counterparts as may be convenient or required. It shall not be necessary
that the signature or acknowledgment of, or on behalf of, each party, or that
the signature of all persons required to bind any party, or the acknowledgment
of such party, appear on each counterpart. All counterparts shall collectively
constitute a single instrument. It shall not be necessary in making proof of
this Guaranty to produce or account for more than a single counterpart
containing the respective signatures of, or on behalf of, and the respective
acknowledgments of, each of the parties hereto. Any signature or acknowledgment
page to any counterpart may be detached from such

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counterpart without impairing the legal effect of the signatures or
acknowledgments thereon and thereafter attached to another counterpart identical
thereto except having attached to it additional signature or acknowledgment
pages.

     6.10 Rights and Remedies. If NGSG becomes liable for any indebtedness owing
by SCS to Lender, by endorsement or otherwise, other than under this Guaranty,
such liability shall not be in any manner impaired or affected hereby and the
rights of Lender hereunder shall be cumulative of any and all other rights that
Lender may ever have against NGSG. The exercise by Lender of any right or remedy
hereunder or under any other instrument, or at law or in equity, shall not
preclude the concurrent or subsequent exercise of any other right or remedy.

     6.11 ENTIRETY. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF NGSG
AND LENDER WITH RESPECT TO NGSG’S GUARANTY OF THE GUARANTEED DEBT AND SUPERSEDES
ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS,
WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS
INTENDED BY NGSG AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF
THE GUARANTY, AND NO COURSE OF DEALING BETWEEN NGSG AND LENDER, NO COURSE OF
PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY
NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS
GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN NGSG AND LENDER.

     6.12 APPLICABLE LAW. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA. COURTS WITHIN THE STATE OF TEXAS SHALL HAVE
JURISDICTION OVER ANY AND ALL DISPUTES BETWEEN NGSG AND LENDER, WHETHER IN LAW
OR EQUITY, INCLUDING, BUT NOT LIMITED TO, ANY AND ALL DISPUTES ARISING OUT OF OR
RELATING TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT; AND VENUE IN ANY SUCH
DISPUTE, WHETHER IN FEDERAL OR STATE COURT, SHALL BE LAID IN MIDLAND COUNTY,
TEXAS.

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     DATED to be effective from and as of the day and year first above written.

              NATURAL GAS SERVICES GROUP, INC.
 
       

  By:    

     

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

           Wallace C. Sparkman, President
 
            WESTERN NATIONAL BANK
 
       

  By:    

     

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           Scott A. Lovett, Executive

           Vice President

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EXHIBIT “L”

NATURAL GAS SERVICES GROUP, INC.

OFFICER’S CERTIFICATE

     I, Scott Sparkman, the duly elected and acting Secretary of Natural Gas
Services Group, Inc., a Colorado corporation (the “Company”), hereby certify for
and on behalf of the Company as follows in connection with the consummation of
the transactions contemplated by that certain Third Amended and Restated Loan
Agreement, dated as of January 3, 2005 (the “Loan Agreement”), among the
Company, Western National Bank and the other guarantors parties thereto:

     (1) Exhibit 1 attached hereto contains true and correct copies of
resolutions duly adopted by the Board of Directors of the Company and such
resolutions are in full force and effect on the date hereof, and such
resolutions have not been rescinded or modified in any respect.

     (2) Exhibit 2 attached hereto contains true, complete and correct copies of
the articles of incorporation of the Company as the same may have been amended
from time to time.

     (3) Exhibit 3 attached hereto contains true, complete and correct copies of
the bylaws of the Company, as the same may have been amended from time to time.

     (4) There are no proceedings pending for the dissolution or liquidation of
the Company or threatening its corporate existence.

     (5) No suit, action or other proceeding by a third party or any
Governmental Authority (within the meaning of the Loan Agreement) is pending or
threatened which relates to the Loan Agreement or the transactions contemplated
thereby.

     (6) No Event of Default (within the meaning of the Loan Agreement) is in
existence at the date hereof.

     IN WITNESS WHEREOF, I have hereunto set my hand as of January
                    , 2005, effective as of January 3, 2005.

     

 

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  Scott Sparkman, Secretary

 

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CERTIFICATES

 

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Exhibit 1

BORROWING RESOLUTIONS

 

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Exhibit 2

ARTICLES OF INCORPORATION

 

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Exhibit 3

BYLAWS

 

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EXHIBIT “M”

GUARANTY AGREEMENT

     This GUARANTY AGREEMENT (this “Guaranty”), dated as of January 3, 2005, is
made by SCREW COMPRESSION SYSTEMS, INC. (“Guarantor”), a Texas corporation and a
wholly owned subsidiary of Natural Gas Services Group, Inc, for the benefit of
WESTERN NATIONAL BANK, a national banking association (“Lender”).

W I T N E S S E T H:

     WHEREAS, Lender and Natural Gas Services Group, Inc. (the “Borrower”), a
Colorado corporation, and Screw Compression Systems, Inc., as Guarantor, have
entered into that certain Third Amended and Restated Loan Agreement, dated as of
January 3, 2005 (said Third Amended and Restated Loan Agreement, as the same may
hereafter be amended, restated or otherwise modified from time to time, the
“Loan Agreement”), pursuant to which Borrower has executed (i) that certain Term
Promissory Note of even date therewith in the original principal amount of
$8,000,000.00, and (ii) that certain Revolving Line of Credit Promissory Note of
even date therewith in the original principal amount of $2,000,000.00, and
Guarantor executed that certain term Promissory Note of even date therewith in
the original principal amount of $1,415,836.00 (collectively, and together with
all renewals, refinancings, modifications, increases and extensions thereof, and
all existing Notes (the “Notes”) under which Borrower and Guarantor have become
indebted, and may from time to time be further indebted, to Lender with respect
to loans (the “Loans”) made by the Lender to the Borrower and Guarantor which
are further evidenced, secured or governed by other instruments and security
documents executed in connection with the Loans (collectively, the “Security
Documents”); and

     WHEREAS, Lender is not willing to make the Loans, or otherwise extend
credit, to Borrower unless Guarantor guarantees payment to Lender of the
Guaranteed Debt (as herein defined) pursuant to the following terms; and

     WHEREAS, Guarantor will directly benefit from Lender’s making the Loans to
Borrower.

     NOW, THEREFORE, as a material inducement to Lender to enter into the Loan
Agreement and make Loans to Borrower thereunder, and to extend such additional
credit as Lender may from time to time agree to

 

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extend thereunder, and for other good and valuable consideration, the receipt
and legal sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:

ARTICLE 1

NATURE AND SCOPE OF GUARANTY

     1.1 Definition of Guaranteed Debt. As used herein, the term “Guaranteed
Debt” means all of the following:

     (a) all principal, interest, attorneys’ fees, liabilities for costs and
expenses and other indebtedness, obligations and liabilities of Borrower to
Lender at any time created or arising in connection with the Loans, or any
amendment thereto or substitution therefore, including, but not limited to, all
indebtedness, obligations and liabilities of Borrower to Lender arising under
the Notes, or under any renewals, modifications, increases and extensions of the
Notes, or under the Loan Agreement and the Security Documents;

     (b) all liabilities of Borrower for future advances, extensions of credit
or other value at any time given or made by Lender to Borrower arising under the
Loan Agreement and the Security Documents;

     (c) any and all other indebtedness, liabilities, obligations and duties of
every kind and character of Borrower to Lender arising under the Loan Agreement
and the Security Documents, whether now or hereafter existing or arising,
regardless of whether such present or future indebtedness, liabilities,
obligations or duties be direct or indirect, related or unrelated, liquidated or
unliquidated, primary or secondary, joint, several, or joint and several, or
fixed or contingent;

     (d) any and all other indebtedness, liabilities, obligations and duties of
every kind and character of Borrower to Lender, whether now or hereafter
existing or arising, regardless of whether such present or future indebtedness,
liabilities, obligations or duties be direct or indirect, related or unrelated,
liquidated or unliquidated, primary or secondary, joint, several, or joint and
several, or fixed or contingent;

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     (e) any and all post-petition interest and expenses (including attorneys’
fees) whether or not allowed under any bankruptcy, insolvency, or other similar
law; and

     (f) all costs, expenses and fees, including, but not limited to, court
costs and attorneys’ fees arising in connection with the collection of any or
all amounts, indebtedness, obligations and liabilities of Borrower to Lender
described in items (a) through (e) of this Section 1.1.

     1.2 Guaranty of Obligation. Guarantor hereby irrevocably and
unconditionally guarantees to Lender and its successors and assigns the payment
and performance of the Guaranteed Debt as and when the same shall be due and
payable, whether by lapse of time, by acceleration of maturity or otherwise.
Guarantor hereby irrevocably and unconditionally covenants and agrees that
Guarantor is liable for the Guaranteed Debt as a primary obligor.

     1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute,
continuing guaranty of payment and performance and not a guaranty of collection.
This Guaranty may not be revoked by Guarantor and shall continue to be effective
with respect to any Guaranteed Debt arising or created after any attempted
revocation by Guarantor and after (if Guarantor is a natural person) Guarantor’s
death (in which event this Guaranty shall be binding upon such Guarantor’s
estate and Guarantor’s legal representative and heirs). This Guaranty may be
enforced by Lender and any subsequent holder of the Guaranteed Debt and shall
not be discharged by the assignment or negotiation of all or part of the
Guaranteed Debt.

     1.4 Guaranteed Debt Not Reduced by Offset. The Guaranteed Debt and the
liabilities and obligations of Guarantor to Lender hereunder shall not be
reduced, discharged or released because or by reason of any existing or future
offset, claim or defense of Borrower, or any other party, against Lender or
against payment of the Guaranteed Debt, whether such offset, claim or defense
arises in connection with the Guaranteed Debt (or the transactions creating the
Guaranteed Debt) or otherwise. Without limiting the foregoing or Guarantor’s
liability hereunder, to the extent that Lender advances funds pursuant to the
Notes and does not receive payments or benefits thereon in the amounts and at
the times required or provided in the Notes, Guarantor is absolutely liable to
make such payments to (and confer such benefits on) Lender on a timely basis.

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     1.5 Payment by Guarantor. If all or any part of the Guaranteed Debt shall
not be punctually paid when due, whether at maturity or earlier by acceleration
or otherwise, Guarantor shall, immediately upon demand by Lender, and without
presentment, protest, notice of protest, notice of non-payment, notice of
intention to accelerate the maturity, notice of acceleration of the maturity, or
any other notice whatsoever, pay in lawful money of the United States of
America, the amount due on the Guaranteed Debt to Lender at Lender’s address as
set forth herein. Such demand(s) may be made at any time coincident with or
after the time for payment of all or part of the Guaranteed Debt, and may be
made from time to time with respect to the same or different items of Guaranteed
Debt. Such demand shall be deemed made, given and received in accordance with
the notice provisions hereof.

     1.6 No Duty to Pursue Others. It shall not be necessary for Lender (and
Guarantor hereby waives any rights which Guarantor may have to require Lender),
in order to enforce such payment by Guarantor, first to (i) institute suit or
exhaust its remedies against Borrower or others liable on the Guaranteed Debt or
any other person, (ii) enforce Lender’s rights against any collateral which
shall have been given to secure the Guaranteed Debt, (iii) join Borrower or any
others liable on the Guaranteed Debt in any action seeking to enforce this
Guaranty, (iv) exhaust any remedies available to Lender against any collateral
which shall have been given to secure the Guaranteed Debt, or (v) resort to any
other means of obtaining payment of the Guaranteed Debt. Lender shall not be
required to mitigate damages or take any other action to reduce, collect or
enforce the Guaranteed Debt.

     1.7 Waivers. Guarantor agrees to the provisions of the Loan Agreement and
the Security Documents, and hereby waives (a) all rights of Guarantor under
Rule 31, Texas Rules of Civil Procedure, or Chapter 34 of the Texas Business and
Commerce Code, or Section 17.001 of the Texas Civil Practice and Remedies Code;
(b) to the extent Guarantor is subject to the Texas Revised Partnership Act
(“TRPA”), compliance by Lender with Section 3.05(d) of TRPA and (c) notice of
(i) any loans or advances made by Lender to Borrower, (ii) acceptance of this
Guaranty, (iii) any amendment or extension of the Notes, the Loan Agreement or
of any other Security Documents, (iv) the execution and delivery by Borrower and
Lender of any other loan or credit agreement or of Borrower’s execution and
delivery of any promissory notes or other documents arising under the Loan
Agreement, the Security Documents or in connection with the Collateral (as
defined in the Loan Agreement or Security Documents), (v) the occurrence of any
breach by Borrower or Event of Default (as defined in the Loan Agreement),
(vi) Lender’s transfer or disposition of the

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Guaranteed Debt, or any part thereof, (vii) sale or foreclosure (or posting or
advertising for sale or foreclosure) of any collateral for the Guaranteed Debt,
(viii) protest, proof of non-payment or default by Borrower, or (ix) any other
action at any time taken or omitted by Lender, and, generally, all demands and
notices of every kind in connection with this Guaranty, the Loan Agreement, the
Security Documents, or any other documents or agreements evidencing, securing or
relating to any of the Guaranteed Debt and the obligations hereby guaranteed.

     1.8 Payment of Expenses. If Guarantor breaches or fails to timely perform
any provisions of this Guaranty, Guarantor shall, immediately upon demand by
Lender, pay Lender all costs and expenses (including court costs and reasonable
attorneys’ fees) incurred by Lender in the enforcement hereof or the
preservation of Lender’s rights hereunder. The covenant contained in this
Section 1.8 shall survive the payment of the Guaranteed Debt.

     1.9 Effect of Bankruptcy. If, pursuant to any insolvency, bankruptcy,
reorganization, receivership or other debtor relief law, or any judgment, order
or decision thereunder, Lender must rescind or restore any payment, or any part
thereof, received by Lender in satisfaction of the Guaranteed Debt, as set forth
herein, any prior release or discharge from the terms of this Guaranty given to
Guarantor by Lender shall be without effect, and this Guaranty shall remain in
full force and effect. It is the intention of Borrower and Guarantor that
Guarantor’s obligations hereunder shall not be discharged except by Guarantor’s
performance of such obligations and then only to the extent of such performance.

     1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding
anything to the contrary contained in this Guaranty, from and after the date
hereof until payment to Lender in full of the Guaranteed Debt, Guarantor shall
not, and shall not attempt to, enforce, collect or exercise any rights Guarantor
may now or hereafter have under any agreement, at law or in equity (including,
without limitation, any law subrogating the Guarantor to the rights of Lender)
to assert any claim against or seek contribution, indemnification or any other
form of reimbursement from Borrower or any other party liable for payment of any
or all of the Guaranteed Debt for any payment made by Guarantor under or in
connection with this Guaranty or otherwise. After payment to Lender in full of
the Guaranteed Debt, Lender shall not contest the subrogation of Guarantor to
the rights of Lender under the Security Documents, it being expressly agreed
that Guarantor’s rights under such subrogation shall be and remain subordinate
and inferior to the rights of

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Lender under the Security Documents until and unless all amounts due Lender by
Borrower under the Security Documents shall be paid in full.

     1.11 Borrower. The term “Borrower” as used herein shall include any new or
successor corporation, association, partnership (general or limited), joint
venture, trust or other individual or organization formed as a result of any
merger, conversion, consolidation, reorganization, amalgamation, sale, transfer
or gift of Borrower or any interest in Borrower.

ARTICLE 2

EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTOR’S OBLIGATIONS

     Guarantor hereby consents and agrees to each of the following, and agrees
that Guarantor’s obligations under this Guaranty shall not be released,
diminished, impaired, reduced or adversely affected by any of the following, and
waives any common law, equitable, statutory or other rights (including, without
limitation, rights to notice) which Guarantor might otherwise have as a result
of or in connection with any of the following:

     2.1 Modifications. Any renewal, refinancing, extension, increase,
modification, alteration or rearrangement of all or any part of the Guaranteed
Debt, the Notes, the Loan Agreement, the Security Documents, or any other
document, instrument, contract or understanding between Borrower and Lender, or
any other parties, pertaining to the Guaranteed Debt or any failure of Lender to
notify Guarantor of any such action.

     2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that
might be granted or given by Lender to Borrower or Guarantor.

     2.3 Condition of Borrower or Guarantor. The insolvency, bankruptcy,
arrangement, adjustment, composition, liquidation, disability, death,
dissolution or lack of power of Borrower, Guarantor or any other party at any
time liable for the payment of all or part of the Guaranteed Debt; or any
changes in the owners, shareholders, partners or members of Borrower or
Guarantor; or any reorganization of Borrower or Guarantor.

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     2.4 Invalidity of Guaranteed Debt. The invalidity, illegality or
unenforceability of all or any part of the Guaranteed Debt, or any document or
agreement executed in connection with the Guaranteed Debt, for any reason
whatsoever, including, without limitation, the fact that (i) the Guaranteed
Debt, or any part thereof, exceeds the amount permitted by law, (ii) the act of
creating the Guaranteed Debt or any part thereof is ultra vires, (iii) the
officers or representatives executing the Notes, the Loan Agreement or the other
Security Documents or otherwise creating the Guaranteed Debt acted in excess of
their authority, (iv) the Guaranteed Debt violates applicable usury laws,
(v) the Borrower has valid defenses, claims or offsets (whether at law, in
equity or by agreement) which render the Guaranteed Debt wholly or partially
uncollectible from Borrower, (vi) the creation, performance or repayment of the
Guaranteed Debt (or the execution, delivery and performance of any document or
instrument representing part of the Guaranteed Debt or executed in connection
with the Guaranteed Debt, or given to secure the repayment of the Guaranteed
Debt) is illegal, uncollectible or unenforceable, or (vii) the Notes, the Loan
Agreement or any of the other Security Documents have been forged or otherwise
are irregular or not genuine or authentic, it being agreed that Guarantor shall
remain liable hereon regardless of whether Borrower or any other person be found
not liable on the Guaranteed Debt or any part thereof for any reason.

     2.5 Release of Obligors. Any full or partial release of the liability of
Borrower on the Guaranteed Debt, or any part thereof, or any other person or
entity now or hereafter liable, whether directly or indirectly, jointly,
severally, or jointly and severally, to pay, perform, guarantee or assure the
payment of the Guaranteed Debt, or any part thereof, it being recognized,
acknowledged and agreed by Guarantor that Guarantor may be required to pay the
Guaranteed Debt without assistance or support of any other party, and Guarantor
has not been induced to enter into this Guaranty on the basis of a
contemplation, belief, understanding or agreement that other parties will be
liable to pay or perform the Guaranteed Debt, or that Lender will look to other
parties to pay or perform the Guaranteed Debt.

     2.6 Other Collateral. The taking or accepting of any other security,
collateral or guaranty, or other assurance of payment, for all or any part of
the Guaranteed Debt.

     2.7 Release of Collateral. Any release, surrender, exchange, subordination,
deterioration, waste, loss or impairment (including, without limitation,
negligent, willful, unreasonable or unjustifiable impairment) of any collateral,
property or security, at any time existing in

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connection with, or assuring or securing payment of, all or any part of the
Guaranteed Debt.

     2.8 Care and Diligence. The failure of Lender or any other party to
exercise diligence or reasonable care in the preservation, protection,
enforcement, sale or other handling or treatment of all or any part of such
collateral, property or security, including, but not limited to, any neglect,
delay, omission, failure or refusal of Lender (i) to take or prosecute any
action for the collection of any of the Guaranteed Debt or (ii) to foreclose, or
initiate any action to foreclose, or, once commenced, prosecute to completion
any action to foreclose upon any security therefor, or (iii) to take or
prosecute any action in connection with any instrument or agreement evidencing
or securing all or any part of the Guaranteed Debt.

     2.9 Unenforceability. The fact that any collateral, security, security
interest or lien contemplated or intended to be given, created or granted as
security for the repayment of the Guaranteed Debt, or any part thereof, shall
not be properly perfected or created, or shall prove to be unenforceable or
subordinate to any other security interest or lien, it being recognized and
agreed by Guarantor that it is not entering into this Guaranty in reliance on,
or in contemplation of the benefits of, the validity, enforceability,
collectibility or value of any of the collateral for the Guaranteed Debt.

     2.10 Offset. The Notes, the Guaranteed Debt and the liabilities and
obligations of Guarantor to Lender hereunder shall not be reduced, discharged or
released because of or by reason of any existing or future right of offset,
claim or defense of Borrower against Lender, or any other party, or against
payment of the Guaranteed Debt, whether such right of offset, claim or defense
of Borrower against Lender, or any other party, or against payment of the
Guaranteed Debt, whether such right of offset, claim or defense arises in
connection with the Guaranteed Debt (or the transactions creating the Guaranteed
Debt) or otherwise.

     2.11 Merger. The reorganization, conversion, merger, amalgamation or
consolidation of Borrower into or with any other corporation or entity.

     2.12 Preference. Any payment by Borrower to Lender is held to constitute a
preference under bankruptcy laws, or for any reason Lender is required to refund
such payment or pay such amount to Borrower or someone else.

     2.13 Other Actions Taken or Omitted. Any other action taken or omitted to
be taken with respect to the Loan Agreement, the Security

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Documents, the Guaranteed Debt, or the security and collateral therefor, whether
or not such action or omission prejudices Guarantor or increases the likelihood
that Guarantor will be required to pay the Guaranteed Debt pursuant to the terms
hereof, it being the unambiguous and unequivocal intention of Guarantor that it
shall be obligated to pay the Guaranteed Debt when due, notwithstanding any
occurrence, circumstance, event, action, or omission whatsoever, whether
contemplated or uncontemplated, and whether or not otherwise or particularly
described herein, which obligation shall be deemed satisfied only upon the full
and final payment and satisfaction of the Guaranteed Debt.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

     As material inducements to Lender to enter into the Loan Agreement and the
Security Documents and extend credit to Borrower, Guarantor represents and
warrants to Lender as follows:

     3.1 Benefit. Guarantor is the owner of a direct or indirect interest in
Borrower, or has received, or will receive, direct or indirect benefit from the
making of this Guaranty with respect to the Guaranteed Debt. The loans to
Natural Gas Services Group, Inc. and its Subsidiaries and any additional loans
to them are for the direct benefit of each of Natural Gas Services Group, Inc.
and its Subsidiaries, including Guarantor. Natural Gas Services Group, Inc. and
its Subsidiaries are engaged as an integrated group in the manufacturing,
leasing and sale of natural gas compressors and related equipment, systems and
services for the oil and gas industry, and any benefits to Natural Gas Services
Group, Inc. or any of its Subsidiaries are a benefit to all of them, both
directly or indirectly, inasmuch as the successful operation and condition of
Natural Gas Services Group, Inc. and its Subsidiaries is dependent upon the
continued successful performance of the functions of the integrated group as a
whole.

     3.2 Familiarity and Reliance. Guarantor is familiar with, and has
independently reviewed books and records regarding, the financial condition of
the Borrower and is familiar with the value of any and all collateral intended
to be created as security for the payment of the Notes or Guaranteed Debt;
provided, however, Guarantor is not relying on such financial condition or the
collateral as an inducement to enter into this Guaranty.

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     3.3 No Representation by Lender. Neither Lender nor any other party has
made any representation, warranty or statement to Guarantor in order to induce
the Guarantor to execute this Guaranty.

     3.4 Guarantor’s Financial Condition. As of the date hereof, and after
giving effect to this Guaranty and the contingent obligation evidenced hereby,
Guarantor is, and will be, solvent, and has and will have assets which, fairly
valued, exceed Guarantor’s obligations, liabilities (including contingent
liabilities) and debts, and has and will have property and assets sufficient to
satisfy and repay Guarantor’s obligations and liabilities.

     3.5 Legality. All action on Guarantor’s part requisite for the due
execution, delivery and performance of this Guaranty and the other Security
Documents to which Guarantor is a party has been duly and effectively taken. The
execution, delivery and performance by Guarantor of this Guaranty and the
consummation of the transactions contemplated hereunder do not, and will not,
contravene or conflict with any law, statute or regulation whatsoever to which
Guarantor is subject or constitute a default (or an event which with notice or
lapse of time or both would constitute a default) under, or result in the breach
of, any indenture, mortgage, deed of trust, charge, lien, or any contract,
agreement or other instrument to which Guarantor is a party or which may be
applicable to Guarantor. This Guaranty is a legal and binding obligation of
Guarantor and is enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency or other laws of general application relating to the
enforcement of creditors’ rights.

     3.6 Financial Statements. Each financial statement of Guarantor delivered
heretofore, concurrently herewith or hereafter to Lender completely and
accurately discloses the financial condition of Guarantor (including all
contingent liabilities) as of the date thereof and for the period covered
thereby, and there has been no material adverse change in Guarantor’s financial
condition subsequent to the date of the most recent financial statement of
Guarantor delivered to Lender, except as disclosed therein.

     3.7 Litigation. Guarantor is not involved in, nor is Guarantor aware of the
threat of, any litigation, nor are there any outstanding or unpaid judgments
against Guarantor and there is no litigation that could, collectively or
individually, create a material adverse change if determined adversely against
Guarantor.

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     3.8 Taxes. All tax returns required to be filed by the Guarantor with all
governmental authorities have been filed, and all taxes, assessments, fees and
other governmental charges upon Guarantor or upon any of Guarantor’s property,
income or franchises which are due and payable, have been paid (other than any
the amount or validity of which are currently being contested in good faith by
appropriate proceedings); and no tax lien has been filed and, to the knowledge
of Guarantor, no claim is being asserted with respect to any such tax, fee or
other charge.

     3.9 Survival. All representations and warranties made by Guarantor herein
shall survive the execution hereof.

ARTICLE 4

SUBORDINATION OF CERTAIN INDEBTEDNESS

     4.1 Subordination of All Guarantor Claims. As used herein, the term
“Guarantor’s Claims” shall mean all debts and liabilities of Borrower to
Guarantor, whether such debts and liabilities now exist or are hereafter
incurred or arise; or whether the obligations of Borrower thereon be direct,
contingent, primary, secondary, several, joint and several, or otherwise, and
irrespective of whether such debts or liabilities be evidenced by note,
contract, open account, or otherwise, and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor. The Guarantor’s Claims shall include, without
limitation, all rights and claims of Guarantor against Borrower (arising as a
result of subrogation or otherwise) as a result of Guarantor’s payment of all or
a portion of the Guaranteed Debt. Upon the occurrence of an Event of Default (as
defined in the Loan Agreement) or the occurrence of an event which would, with
the giving of notice or the passage of time, or both, constitute an Event of
Default, Guarantor shall not receive or collect, directly or indirectly, from
Borrower or any other party any amount upon the Guarantor’s Claims.

     4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy,
reorganization, arrangement, debtor’s relief, or other insolvency proceedings
involving Guarantor as debtor, Lender shall have the right to prove its claim in
any such proceeding so as to establish its rights hereunder and receive directly
from the receiver, trustee or other court custodian dividends and payments which
would otherwise be

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payable upon Guarantor’s Claims. Guarantor hereby assigns such dividends and
payments to Lender. Should Lender receive, for application upon the Guaranteed
Debt, any such dividend or payment which is otherwise payable to Guarantor, and
which, as between Borrower and Guarantor, shall constitute a credit upon the
Guarantor’s Claims, then upon payment to Lender in full of the Guaranteed Debt,
Guarantor shall become subrogated to the rights of Lender to the extent that
such payments to Lender on the Guarantor’s Claims have contributed toward the
liquidation of the Guaranteed Debt, and such subrogation shall be with respect
to the proportion of the Guaranteed Debt which would have been unpaid if Lender
had not received dividends or payments upon the Guarantor’s Claims.

     4.3 Payments Held in Trust. If, notwithstanding anything to the contrary in
this Guaranty, Guarantor should receive any funds, payment, claim or
distribution which is prohibited by this Guaranty, Guarantor agrees to hold in
trust for Lender an amount equal to the amount of all funds, payments, claims or
distributions so received, and agrees that it shall have absolutely no dominion
over the amount of such funds, payments, claims or distributions so received
except to pay them promptly to Lender, and Guarantor covenants promptly to pay
the same to Lender.

     4.4 Liens Subordinate. Guarantor agrees that any liens, security interests,
judgment liens, charges or other encumbrances upon Borrower’s assets securing
payment of the Guarantor’s Claims shall be and shall remain inferior and
subordinate to any liens, security interests, judgment liens, charges or other
encumbrances upon Borrower’s assets securing payment of the Guaranteed Debt,
regardless of whether such encumbrances in favor of Guarantor or Lender
presently exist or are hereafter created or attach. Without the prior written
consent of Lender, Guarantor shall not (i) exercise or enforce any creditor’s
right it may have against Borrower, or (ii) foreclose, repossess, sequester or
otherwise take steps or institute any action or proceedings (judicial or
otherwise, including without limitation the commencement of, or joinder in, any
liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency
proceeding) to enforce any liens, mortgages, deeds of trust, security interests,
collateral rights, judgments or other encumbrances on assets of Borrower held by
Guarantor.

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ARTICLE 5

AFFIRMATIVE COVENANTS

          5.1 Information. Guarantor shall furnish such other and additional
information regarding the business activities and financial condition of
Guarantor as Lender shall request from time to time.

ARTICLE 6

MISCELLANEOUS

     6.1 Waiver. No failure to exercise, and no delay in exercising, on the part
of Lender, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right. The rights of Lender hereunder shall
be in addition to all other rights provided by law. No modification or waiver of
any provision of this Guaranty, nor consent to departure therefrom, shall be
effective unless in writing and no such consent or waiver shall extend beyond
the particular case and purpose involved. No notice or demand given in any case
shall constitute a waiver of the right to take other action in the same, similar
or other instances without such notice or demand.

     6.2 Notices. Any notices or other communications required or permitted to
be given by this Guaranty must be given in writing and either (i) mailed by
prepaid certified or registered mail, return receipt requested, addressed to the
party at the address herein provided, (ii) by delivery to a third party
commercial delivery service with evidence of delivery to the office of the
addressee, or (iii) by personal delivery to the addressee. The addresses of the
parties hereto are as follows:

Guarantor

Screw Compression Systems, Inc.
5725 Bird Creek Avenue
Catoosa, Oklahoma 74015
Attention: Paul D. Hensley, President

Lender

Western National Bank
508 West Wall, Suite 1100

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Midland, Texas 79701
Attention: Scott A. Lovett

Any such notice or other communication shall be deemed to have been given
(whether actually received or not) on the day it is delivered to the U.S. Post
Office or third party delivery service as aforesaid or if delivered by other
means, then upon actual receipt by the addressee. Any party may change its
address for purposes of this Guaranty by giving notice of such change to the
other party pursuant to this Section.

     6.3 Governing Law. THIS GUARANTY IS EXECUTED AND DELIVERED AS AN INCIDENT
TO A LENDING TRANSACTION NEGOTIATED, CONSUMMATED, AND PERFORMABLE IN MIDLAND
COUNTY, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS. Any action or proceeding against Guarantor under or
in connection with this Guaranty shall be brought in any state or federal court
in Midland County, Texas. Guarantor hereby irrevocably (i) submits to the
nonexclusive jurisdiction of such courts, and (ii) waives any objection it may
now or hereafter have as to the venue of any such action or proceeding brought
in such court or that such court is an inconvenient forum. Guarantor agrees that
service of process upon it may be made by certified or registered mail, return
receipt requested, at its address specified herein. Nothing herein shall affect
the right of Lender to serve process in any other matter permitted by law or
shall limit the right of Lender to bring any action or proceeding against
Guarantor or with respect to any of Guarantor’s property in courts in other
jurisdictions. Any action or proceeding by Guarantor against Lender shall be
brought only in a court located in Midland County, Texas.

     6.4 Invalid Provisions. If any provision of this Guaranty is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term of this Guaranty, such provision shall be fully severable and this
Guaranty shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Guaranty, and the
remaining provisions of this Guaranty shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Guaranty, unless such continued effectiveness of this
Guaranty, as modified, would be contrary to the basic understandings and
intentions of the parties as expressed herein.

     6.5 Amendments. This Guaranty may be amended only by an instrument in
writing executed by the party or an authorized

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representative of the party against whom such amendment is sought to be
enforced.

     6.6 Parties Bound; Assignment. This Guaranty shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives; provided, however, that Guarantor may not,
without the prior written consent of Lender, assign any of its rights, powers,
duties or obligations hereunder.

     6.7 Headings. Section headings are for convenience of reference only and
shall in no way affect the interpretation of this Guaranty.

     6.8 Recitals. The recital and introductory paragraphs hereof are a part
hereof, form a basis for this Guaranty and shall be considered prima facie
evidence of the facts and documents referred to therein.

     6.9 Counterparts. To facilitate execution, this Guaranty may be executed in
as many counterparts as may be convenient or required. It shall not be necessary
that the signature or acknowledgment of, or on behalf of, each party, or that
the signature of all persons required to bind any party, or the acknowledgment
of such party, appear on each counterpart. All counterparts shall collectively
constitute a single instrument. It shall not be necessary in making proof of
this Guaranty to produce or account for more than a single counterpart
containing the respective signatures of, or on behalf of, and the respective
acknowledgments of, each of the parties hereto. Any signature or acknowledgment
page to any counterpart may be detached from such counterpart without impairing
the legal effect of the signatures or acknowledgments thereon and thereafter
attached to another counterpart identical thereto except having attached to it
additional signature or acknowledgment pages.

     6.10 Rights and Remedies. If Guarantor becomes liable for any indebtedness
owing by Borrower to Lender, by endorsement or otherwise, other than under this
Guaranty, such liability shall not be in any manner impaired or affected hereby
and the rights of Lender hereunder shall be cumulative of any and all other
rights that Lender may ever have against Guarantor. The exercise by Lender of
any right or remedy hereunder or under any other instrument, or at law or in
equity, shall not preclude the concurrent or subsequent exercise of any other
right or remedy.

     6.11 ENTIRETY. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF
GUARANTOR AND LENDER WITH RESPECT TO

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GUARANTOR’S GUARANTY OF THE GUARANTEED DEBT AND SUPERSEDES ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR
ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY
GUARANTOR AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE
GUARANTY, AND NO COURSE OF DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF
PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY
NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS
GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LENDER.

     6.12 APPLICABLE LAW. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA. COURTS WITHIN THE STATE OF TEXAS SHALL HAVE
JURISDICTION OVER ANY AND ALL DISPUTES BETWEEN GUARANTOR AND LENDER, WHETHER IN
LAW OR EQUITY, INCLUDING, BUT NOT LIMITED TO, ANY AND ALL DISPUTES ARISING OUT
OF OR RELATING TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT; AND VENUE IN ANY
SUCH DISPUTE, WHETHER IN FEDERAL OR STATE COURT, SHALL BE LAID IN MIDLAND
COUNTY, TEXAS.

     DATED to be effective from and as of the day and year first above written.

              SCREW COMPRESSION SYSTEMS, INC.
 
       

  By:    

     

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     Paul D. Hensley, President
 
            WESTERN NATIONAL BANK
 
       

  By:    

     

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      Scott A. Lovett, Executive

           Vice President

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EXHIBIT “N”

SECURITY AGREEMENT

     THIS SECURITY AGREEMENT (“Security Agreement”), dated as of January 3,
2005, is made by SCREW COMPRESSION SYSTEMS, INC., a Texas corporation, with its
principal offices at 5725 Bird Creek Avenue, Catoosa, OK 74015-3008, in favor of
WESTERN NATIONAL BANK, a national banking association with banking quarters at
500 West Wall, Suite 100, Midland, Texas 79701.

     WHEREAS, Natural Gas Services Group, Inc. and Western National Bank
executed that certain Third Amended and Restated Loan Agreement, dated as of
January 3, 2005 (said Third Amended and Restated Loan Agreement, together with
all amendments and supplements thereto, is herein called the “Loan Agreement”),
pursuant to which Western National Bank agreed, subject to certain terms and
conditions therein stated, to make loans to Natural Gas Services Group, Inc. as
provided in the Loan Agreement;

     WHEREAS, Western National Bank has conditioned its obligations under the
Loan Agreement upon the execution and delivery by Screw Compression Systems,
Inc. of this Security Agreement, and Screw Compression Systems, Inc. has agreed
to make and deliver this Security Agreement.

     NOW, THEREFORE, (i) in compliance with the terms and conditions of the Loan
Agreement, (ii) for and in consideration of the premises and the agreements
herein contained, and (iii) for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Screw Compression
Systems, Inc. and Western National Bank agree as follows:

SECTION 1. DEFINITIONS

     Unless otherwise defined herein, terms which are defined in the Loan
Agreement and used herein are so used as so defined; and the following terms
shall have the following meanings:

     (a) “Accounts” means all accounts receivable, leases receivable, book
debts, notes, drafts, instruments, documents, acceptances and other forms of
obligations now owned or hereafter received or acquired by or

 

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belonging or owing to Pledgor (including under any trade names, styles or
divisions thereof) whether arising out of goods sold or leased by it or services
rendered by it or from any other transaction, whether or not the same involves
the sale of goods or performance of services by Pledgor (including, without
limitation, any such obligation which would be characterized as an account,
general intangible or chattel paper under the UCC) and all of Pledgor’s rights
in, to and under all purchase orders now owned or hereafter received or acquired
by it for goods or services, and all of Pledgor’s rights to any goods
represented by any of the foregoing (including returned or repossessed goods and
unpaid seller’s rights) and all moneys due or to become due to Pledgor under all
contracts for the sale of goods and/or the performance of services by it
(whether or not yet earned by performance) or in connection with any other
transaction, now in existence or hereafter arising, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by any
person with respect to any of the foregoing.

     (b) “Contracts” means the contracts between any person and Pledgor, as the
same may from time to time be amended, supplemented or otherwise modified,
including, without limitation, (i) all rights of Pledgor to receive moneys due
and to become due to it thereunder or in connection therewith, (ii) all rights
of Pledgor to damages arising out of, or from, breach or default in respect
thereof and (iii) all rights of Pledgor to perform and to exercise all remedies
thereunder.

     (c) “Debtor” is Natural Gas Services Group, Inc., a Colorado corporation,
and its permitted successors and assigns.

     (d) “Documents” has the meaning assigned in Section 9.102(a)(30) of the
UCC.

     (e) “Equipment” means all machinery, equipment and gas compressors, now
owned or hereafter acquired by Pledgor, or in which Pledgor now has or hereafter
may acquire any right, title or interest and any and all additions,
substitutions and replacements thereof, wherever located, together with all
attachments, components, parts, equipment and accessories installed therein or
affixed thereto, including, but not limited to, all equipment as defined in
Section 9.102(a)(33) of the UCC.

     (f) “Instrument” has the meaning assigned in Section 9.102(a)(47) of the
UCC.

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     (g) “Inventory” means all inventory, wherever located, now owned or
hereafter acquired by the Pledgor or in which the Pledgor now has or hereafter
may acquire any right, title or interest, including, without limitation, all
goods and other personal property now or hereafter owned by the Pledgor which
are held for sale or lease or are furnished or are to be furnished under a
contract of service or which constitute raw materials, work in process or
materials used or consumed or to be used or consumed in the business of the
Pledgor, or in the processing, packaging or shipping of the same, and all
finished goods, including, but not limited to, all inventory as defined in
Section 9.102(a)(48) of the UCC.

     (h) “Obligations” means the unpaid principal of and interest on the Notes
(including, without limitation, interest accruing after the maturity of the
loans and interest on or after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Pledgor, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) and all other present and future indebtedness,
obligations and liabilities of the Debtor and any of its Subsidiaries to the
Secured Party, and all renewals, rearrangements and extensions thereof, or any
part thereof, now or hereafter owed to Secured Party by the Debtor or any of its
Subsidiaries arising from, by virtue of, or pursuant to any Loan Paper, or
otherwise, together with all interest accruing thereon and all costs, expenses
and attorneys’ fees incurred in the enforcement or collection thereof, whether
such indebtedness, obligations and liabilities are direct, indirect, fixed,
contingent, liquidated, unliquidated, joint, several, or joint and several or
were, prior to acquisition thereof by Lender, owed to some other person.

     (i) “Pledgor” means Screw Compression Systems, Inc., and its permitted
successors and assigns.

     (j) “Proceeds” means all “proceeds” as such term is defined in Section
9.102(a)(65) of the UCC and, in any event, shall mean and include, but not be
limited to, the following at any time whatsoever arising or receivable:
(i) whatever is received upon any collection, exchange, sale or other
disposition of any of the Collateral, and any property into which any of the
Collateral is converted, whether cash or non-cash proceeds, (ii) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to Pledgor
from time to time with respect to any of the Collateral, and (iii) any and all
payments (in any form whatsoever) made or due and payable to Pledgor from time
to time in

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connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental body,
authority, bureau or agency (or any person acting under color of Governmental
Authority).

     (k) “Secured Party” is Western National Bank, a national banking
association, and its successors and assigns.

     (l) “UCC” means the Uniform Commercial Code as from time to time in effect
in the State of Texas.

SECTION 2. GRANT OF SECURITY INTEREST

     As collateral security for the prompt and complete payment and performance
when due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations, the Pledgor hereby grants to the Secured Party a security interest
and Bank Lien in all of the following property now owned or at any time
hereafter acquired by the Pledgor or in which the Pledgor now has or at any time
in the future may acquire any right, title or interest (collectively, the
“Collateral”):

  (i)   all Accounts;     (ii)   all Contracts;     (iii)   all Documents;    
(iv)   all Equipment;     (v)   all Instruments;     (vi)   all Inventory;    
(vii)   all Proceeds and all present and future increases, combinations,
reclassifications, improvements and products of, accessions, attachments, and
other additions to, and substitutes and replacements for all or any part of the
foregoing; and     (viii)   all Real Property.

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SECTION 3. PLEDGOR’S REPRESENTATIONS AND WARRANTIES

     The Pledgor hereby represents and warrants that:

     (a) Title; No Other Liens. Except for the Bank Lien granted to the Secured
Party for the benefit of the Secured Party pursuant to this Security Agreement
and the other Liens permitted to exist on the Collateral pursuant to the Loan
Agreement, the Pledgor owns each item of the Collateral free and clear of any
and all Liens or claims of others. No security agreement, financing statement or
other public notice with respect to all or any part of the Collateral is on file
or of record in any public office, except (i) such as may have been filed in
favor of the Secured Party, for the benefit of the Secured Party, pursuant to
this Security Agreement or any other Loan Paper, and (ii) such as may have been
filed by third parties to perfect Liens permitted by the Loan Agreement.

     (b) Perfected First Priority Liens. The Bank Liens granted pursuant to this
Security Agreement constitute perfected Liens on the Collateral in favor of the
Secured Party, which are prior to all other Liens on the Collateral created by
the Pledgor and in existence on the date hereof and which are enforceable as
such against all creditors of and purchasers from the Pledgor and against any
owner or purchaser of the real property where any of the Collateral is located
and any present or future creditor obtaining a Lien on such real property.

     (c) Accounts. The amount represented by the Pledgor to the Secured Party
from time to time as owing by each account debtor or by all account debtors in
respect of the Accounts will at such time be the correct amount actually owing
by such account debtor or debtors thereunder. No amount payable to the Pledgor
under or in connection with any Account is evidenced by any Instrument which has
not been delivered to the Secured Party. Pledgor’s Accounts arose in the
ordinary course of Pledgor’s business from the performance of services that
Pledgor has fully and satisfactorily performed or from the sale or lease of
goods in which Pledgor had sole and complete ownership. No such Account is
subject to counterclaim or defense (other than discount for prompt payment as
shown on the invoices).

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     (d) Use and Protection of Collateral. The Collateral will be used for
business purposes only and certain of the Collateral is of a type normally used
in more than one state.

     (e) Pledgor’s Address and Location of Collateral. Pledgor’s chief executive
office/chief place of business is located at 5725 Bird Creek Ave., Catoosa,
Oklahoma 74015. The Collateral will remain in Pledgor’s possession or control at
all times (at Pledgor’s risk of loss) and will be kept at the locations
described on Exhibit A hereto or at other locations disclosed to Secured Party
as required by the Loan Agreement.

     (f) Governmental Obligors. None of the obligors on any Accounts, and none
of the parties to any Contracts, is a Governmental Authority.

     (g) Consents. No consent of any party (other than the Pledgor) to any
Contract or any obligor in respect of any Account is required, or purports to be
required, in connection with the execution, delivery and performance of this
Security Agreement. Each Account and each Contract is in full force and effect
and constitutes a valid and legally enforceable obligation of the obligor in
respect thereof or parties thereto, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditor’s rights generally. No consent or authorization of,
filing with or other act by or in respect of any Governmental Authority is
required in connection with the execution, delivery, performance, validity or
enforceability of any of the Accounts or Contracts by any party thereto other
than those which have been duly obtained, made or performed, are in full force
and effect and do not subject the scope of any such Account or Contract to any
material adverse limitation, either specific or general in nature. Neither the
Pledgor nor (to the best knowledge of the Pledgor) any other party to any
Account or Contract is in default or is likely to become in default in the
performance or observance of any of the terms thereof. The Pledgor has fully
performed all its obligations under each Contract. The right, title and interest
of the Pledgor in, to and under each Account or Contract are not subject to any
defense, offset, counterclaim, or claim which would materially adversely affect
the value of such Account or Contract as Collateral, nor have any of the
foregoing been asserted or alleged against the Pledgor as to any of the
foregoing. Upon request by Secured Party, the Pledgor will deliver to the
Secured Party a complete and correct copy of each Contract, including all
amendments, supplements and other

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modifications thereto. No account payable to the Pledgor under or in connection
with any Account or Contract is evidenced by any Instrument which has not been
delivered to the Secured Party.

     (h) Power and Authority; Authorization. The Pledgor has the power and
authority and the legal right to execute and deliver, to perform its obligations
under, and to grant the Bank Liens on the Collateral pursuant to, this Security
Agreement and has taken all necessary corporate and other action to authorize
its execution, delivery and performance of, and grant of the Bank Liens on the
Collateral pursuant to, this Security Agreement.

     (i) Enforceability. This Security Agreement constitutes a legal, valid and
binding obligation of the Pledgor enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally.

     (j) No Conflict. The execution, delivery and performance of this Security
Agreement will not violate or constitute a default under (i) any provision of
any agreement to which Pledgor is a party or by which any of its assets may be
bound or subject to, or (ii) the articles of incorporation or bylaws of the
Pledgor, and (iii) will not result in the creation or imposition of any Lien on
any of the properties or revenues of the Pledgor except as contemplated hereby.

     (k) No Consents, etc. No consent or authorization of, filing with, or other
act by or in respect of, any arbitrator or Governmental Authority and no consent
of any other person (including, without limitation, any stockholder or creditor
or Affiliate of the Pledgor), is required in connection with the execution,
delivery, performance, validity or enforceability of this Security Agreement.

     (l) No Litigation. No litigation, investigation or proceeding of or before
any arbitrator or Governmental Authority is pending or, to the knowledge of the
Pledgor, threatened by or against the Pledgor or against any of its properties
or revenues which could reasonably be expected to have a Material Adverse
Effect.

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SECTION 4. PLEDGOR’S COVENANTS

     The Pledgor covenants and agrees with the Secured Party that, from and
after the date of this Security Agreement until the Obligations are paid in
full:

     (a) Pledgor Remains Liable under Accounts and Contracts. Anything herein to
the contrary notwithstanding, the Pledgor shall remain liable under each of the
Accounts and Contracts to observe and perform all the conditions and obligations
to be observed and performed by it thereunder, all in accordance with the terms
of any agreements giving rise to each such Account or Contract in accordance
with and pursuant to the terms and provisions of each such Contract or agreement
giving rise to an Account.

     (b) Costs. Pledgor shall pay Secured Party on demand every expense
(including reasonable attorney’s fees and other legal expenses) incurred or paid
by Secured Party in exercising or protecting its interests, rights, and remedies
under this Security Agreement, plus interest at a rate per annum 2% above the
Prime Rate on each such amount commencing on the date notice of such expenses is
given to Pledgor by Secured Party until paid by Pledgor.

     (c) Further Documentation; Pledge of Instruments. At any time and from time
to time, upon the written request of the Secured Party, and at the sole expense
of the Pledgor, the Pledgor will promptly and duly execute and deliver such
further instruments and documents and take such further action as the Secured
Party may reasonably request for the purpose of obtaining or preserving the full
benefits of the Loan Agreement and this Security Agreement and of the rights and
powers therein and herein granted, including, without limitation, the filing of
any financing or continuation statements under the Uniform Commercial Code in
effect in any jurisdiction with respect to the Bank Liens created hereby. The
Secured Party shall have the right, without the consent or joinder of the
Pledgor, to execute and file with any governmental authority such financing
statements, financing statement amendments and continuation statements as may,
in the sole discretion of the Secured Party, be necessary or advisable to
maintain, perfect or otherwise evidence the Bank Lien of the Secured Party in
and to any of the Collateral. In addition, and without limiting the foregoing,
this Pledge Agreement may be attached to and made a part of any financing
statement filed by the Secured Party. The Pledgor also hereby authorizes the
Secured Party to

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file any such financing or continuation statement without the signature of the
Pledgor to the extent permitted by applicable law. A carbon, photographic or
other reproduction of this Security Agreement shall be sufficient as a financing
statement for filing in any jurisdiction. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
Instrument, such Instrument shall be immediately delivered to the Secured Party,
duly endorsed in a manner satisfactory to the Secured Party, to be held as
Collateral pursuant to this Security Agreement.

     (d) Indemnification. The Pledgor agrees to pay, and to save the Secured
Party harmless from, any and all liabilities, costs and expenses (including,
without limitation, legal fees and expenses) (i) with respect to, or resulting
from, any delay in paying, any and all excise, sales or other taxes which may be
payable or determined to be payable with respect to any of the Collateral,
(ii) with respect to, or resulting from, any delay in complying with any law
applicable to any of the Collateral or (iii) in connection with any of the
transactions contemplated by this Security Agreement. In any suit, proceeding or
action brought by the Secured Party under any Account or Contract for any sum
owing thereunder, or to enforce any provisions of any Account or Contract, the
Pledgor will save, indemnify and keep the Secured Party harmless from and
against all expense, loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction or liability whatsoever of the account
debtor or obligor thereunder, arising out of a breach by the Pledgor of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or
its successors from the Pledgor.

     (e) Maintenance of Records. The Pledgor will keep and maintain at its own
cost and expense satisfactory and complete records of the Collateral, including,
without limitation, a record of all payments received and all credits granted
with respect to the Accounts and Contracts. The Pledgor will mark its books and
records pertaining to the Collateral to evidence this Security Agreement and the
security interests granted hereby. For the further security of the Secured
Party, the Secured Party shall have a security interest in all of the Pledgor’s
books and records pertaining to the Collateral, and the Pledgor shall turn over
any such books and records to the Secured Party or to its representatives during
normal business hours at the request of the Secured Party.

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     (f) Right of Inspection. The Secured Party shall at all times have full and
free access during normal business hours to all the books, correspondence and
records of the Pledgor, and the Secured Party and its representatives may
examine the same, take extracts therefrom and make photocopies thereof, and the
Pledgor agrees to render to the Secured Party, at the Pledgor’s cost and
expense, such clerical and other assistance as may be reasonably requested with
regard thereto. The Secured Party and its representatives shall at all times
also have the right to enter into and upon any premises where any of the
Collateral is located for the purpose of inspecting the same, observing its use
or otherwise protecting its interests therein.

     (g) Compliance with Laws, etc. The Pledgor will comply in all material
respects with all Requirements of Law applicable to the Collateral or any part
thereof or to the operation of the Pledgor’s businesses; provided, however, that
the Pledgor may contest any Requirement of Law in any reasonable manner which
shall not, in the sole opinion of the Secured Party, adversely affect the
Secured Party’s rights or the priority of its Bank Liens on the Collateral.

     (h) Compliance with Terms of Contracts, etc. The Pledgor will perform and
comply in all material respects with all its obligations under the Contracts and
all its other contractual obligations relating to the Collateral.

     (i) Payment of Obligations. The Pledgor will pay promptly when due all
taxes, assessments and governmental charges or levies imposed upon the
Collateral or in respect of its income or profits therefrom, as well as all
claims of any kind (including, without limitation, claims for labor, materials
and supplies) against or with respect to the Collateral, except that no such
charge need be paid if (i) the validity thereof is being contested in good faith
by appropriate proceedings, (ii) such proceedings do not involve any material
danger of the sale, forfeiture or loss of any of the Collateral or any interest
therein and (iii) such charge is adequately reserved against on the Pledgor’s
books in accordance with generally accepted accounting principles.

     (j) Limitation of Liens on Collateral. The Pledgor will not create, incur
or permit to exist, will defend the Collateral against, and will take such other
action as is necessary to remove, any Lien or claim on or to the Collateral,
other than the Bank Liens created hereby and other than

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as permitted pursuant to the Loan Agreement, and will defend the right, title
and interest of the Secured Party in and to any of the Collateral against the
claims and demands of all persons whomsoever.

     (k) Limitations on Dispositions of Collateral. The Pledgor will not sell,
transfer, lease or otherwise dispose of any of the Collateral, or attempt, offer
or contract to do so, except as expressly permitted in the Loan Agreement.

     (l) Limitations on Modifications, Waivers, Extensions of Contracts and
Agreements Giving Rise to Accounts. The Pledgor will not (i) amend, modify,
terminate or waive any provision of any Contract or any agreement giving rise to
an Account in any manner which could reasonably be expected to materially
adversely affect the value of such Contract or Account as Collateral, (ii) fail
to exercise promptly and diligently each and every material right which it may
have under each Contract and each agreement giving rise to an Account (other
than any right of termination) or (iii) fail to deliver to the Secured Party a
copy of each material demand, notice or document received by it relating in any
way to any Contract or any agreement giving rise to an Account.

     (m) Limitations on Discounts, Compromises, Extensions of Accounts. Other
than in the ordinary course of business as generally conducted by the Pledgor
over a period of time, the Pledgor will not grant any extension of the time of
payment of any of the Accounts, compromise, compound or settle the same for less
than the full amount thereof, release, wholly or partially, any person liable
for the payment thereof, or allow any credit or discount whatsoever thereon.

     (n) Maintenance of Equipment. The Pledgor will maintain each item of
Equipment in good operating condition, ordinary wear and tear and immaterial
impairments of value and damage by the elements excepted, and will provide all
maintenance, service and repairs necessary for such purpose.

     (o) Maintenance of Insurance. The Pledgor will maintain, with financially
sound and reputable companies, insurance policies (i) insuring the Equipment and
Inventory against loss by fire, explosion, theft and such other casualties as
may be reasonably satisfactory to the Secured Party and (ii) insuring the
Pledgor and the Secured Party against liability for personal injury and property
damage relating to such Equipment and

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Inventory, such policies to be in such form and amounts and having such coverage
as may be reasonably satisfactory to the Secured Party, with losses payable to
the Pledgor and the Secured Party as its interests may appear. All such
insurance shall (i) provide that no cancellation, material reduction in amount
or material change in coverage thereof shall be effective until at least 30 days
after receipt by the Secured Party of written notice thereof, (ii) name the
Secured Party as insured party, and (iii) be reasonably satisfactory in all
other respects to the Secured Party. The Pledgor shall deliver to the Secured
Party a report of a reputable insurance broker or agent with respect to such
insurance during a month specified by the Secured Party in its discretion in
each calendar year and such supplemental reports with respect thereto as the
Secured Party may from time to time reasonably request.

     (p) Further Identification of Collateral. The Pledgor will furnish to the
Secured Party from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Secured Party may reasonably request, all in reasonable
detail.

     (q) Notices. The Pledgor will advise the Secured Party promptly, in
reasonable detail, at its address set forth in the Loan Agreement, (i) of any
Lien (other than Bank Liens created hereby or permitted under the Loan
Agreement) on, or claim asserted against, any of the Collateral and (ii) of the
occurrence of any other event which could reasonably be expected to have a
material adverse effect on the aggregate value of the Collateral or on the Bank
Liens created hereunder.

     (r) Changes in Locations, Name. etc. The Pledgor will not (i) change the
location of its chief executive office/chief place of business from that
specified in Section 3 or (ii) change its name, identity or organizational
structure to such an extent that any financing statement filed by the Secured
Party in connection with this Security Agreement would become misleading.

SECTION 5. PERFORMANCE BY SECURED PARTY OF PLEDGOR’S AGREEMENTS

     If the Pledgor fails to perform or comply with any of the agreements
contained herein and the Secured Party, as provided for by the terms of this
Security Agreement, shall itself perform or comply, or otherwise cause

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performance or compliance, with such agreement, the expenses of the Secured
Party incurred in connection with such performance or compliance, together with
interest thereon at a rate per annum 2% above the Prime Rate, shall be payable
by the Pledgor to the Secured Party on demand and shall constitute Obligations
secured hereby.

SECTION 6. SECURED PARTY’S APPOINTMENT AS ATTORNEY-IN-FACT

     (a) Attorney-in-Fact. Pledgor hereby irrevocably constitutes and appoints
the Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Pledgor and in the name of the
Pledgor or in its own name, from time to time in the Secured Party’s discretion,
for the purpose of carrying out the terms of this Security Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Security Agreement, and, without limiting the generality of the foregoing,
the Pledgor hereby gives the Secured Party the power and right, on behalf of the
Pledgor, without notice to or assent by the Pledgor, to do the following:

     (1) in the case of any Account, at any time when the authority of the
Pledgor to collect the Accounts has been curtailed or terminated pursuant to the
first sentence of Section 9(c) hereof, or in the case of any other Collateral,
at any time when any Event of Default shall have occurred and is continuing, in
the name of the Pledgor or its own name, or otherwise, to take possession of and
indorse and collect any checks, drafts, notes, acceptances or other instruments
for the payment of moneys due under, or with respect to, any Collateral and to
file any claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Secured Party for the purpose of
collecting any and all such moneys due or with respect to such Collateral
whenever payable;

     (2) to pay or discharge taxes and Liens levied or placed on or threatened
against the Collateral, to effect any repairs or any insurance called for by the
terms of this Security Agreement and to pay all or any part of the premiums
therefore and the costs thereof; and

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     (3) upon the occurrence and during the continuance of any Event of Default,
(a) to direct any party liable for any payment under any of the Collateral to
make payment of any and all moneys due or to become due thereunder directly to
the Secured Party or as the Secured Party shall direct; (b) to ask for or
demand, collect, receive payment of and receipt for, any and all moneys, claims
and other amounts due or to become due at any time in respect of or arising out
of any Collateral; (c) to sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection with any
of the Collateral; (d) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any thereof and to enforce any other right in respect
of any Collateral; (e) to defend any suit, action or proceeding brought against
the Pledgor with respect to any Collateral; (f) to settle, compromise or adjust
any suit, action or proceeding described in the preceding clause and, in
connection therewith, to give such discharges or releases as the Secured Party
may deem appropriate; and (g) generally, to sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Secured Party were the absolute owner thereof for
all purposes, and to do, at the Secured Party’s option and the Pledgor’s
expense, at any time, or from time to time, all acts and things which the
Secured Party deems necessary to protect, preserve or realize upon the
Collateral and the Bank Liens of the Secured Party thereon and to effect the
intent of this Security Agreement, all as fully and effectively as the Pledgor
might do.

     The Pledgor hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.

     (b) Other Powers. The Pledgor also authorizes the Secured Party, at any
time and from time to time, to execute, in connection with the sale provided for
in Sections 6(a) and 9(d), any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.

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SECTION 7. PROCEEDS

     In addition to the rights of the Secured Party specified in Section 9 with
respect to payments of Accounts, it is agreed that if an Event of Default shall
occur and be continuing (i) all Proceeds received by the Pledgor consisting of
cash, checks and other near-cash items shall be held by the Pledgor, in trust
for the Secured Party, segregated from other funds of the Pledgor, and shall,
forthwith upon receipt by the Pledgor, be turned over to the Secured Party in
the exact form received by the Pledgor (duly indorsed by the Pledgor to the
Secured Party), and (ii) any and all such Proceeds received by the Secured Party
(whether from the Pledgor or otherwise) may, in the sole discretion of the
Secured Party, be held by the Secured Party for the Secured Party as collateral
security for, and/or then or at any time thereafter may be applied by the
Secured Party against, the Obligations (whether matured or unmatured), such
application to be in such order as the Secured Party shall elect. Any balance of
such Proceeds remaining after the Obligations shall have been paid in full shall
be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive
the same.

SECTION 8. EVENTS OF DEFAULT

     If any one or more of the following shall occur and shall not have been
remedied in the period, if any, provided for, an “Event of Default” shall be
deemed to have occurred hereunder and with respect to all of the Obligations,
unless waived in writing by Secured Party:

     (a) default shall be made by Debtor in the payment when due of any
installment of principal or interest on the Notes or any other Obligations;

     (b) any representation or warranty made by Pledgor in this Security
Agreement, or by Debtor in the Loan Agreement or in any of the other Loan Papers
or in any certificate, document or financial or other statement furnished to
Secured Party under or in connection with this Security Agreement, the Loan
Agreement or any other Loan Paper shall be or shall prove to have been incorrect
or untrue or misleading in any material respect on or as of the date made or
deemed made and shall continue unremedied for a period of 30 days after the
earlier of (i) the Pledgor becoming aware of such default or

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(ii) the Secured Party giving notice thereof to the Pledgor;

     (c) default shall be made by Pledgor in the due performance or observance
of any covenant, condition or agreement contained in this Security Agreement, or
default shall be made by Debtor in the due performance or observance of any
covenant, condition or agreement contained in the Loan Agreement or in any of
the other Loan Papers and such default shall continue unremedied for a period of
30 days after the earlier of (i) Pledgor becoming aware of such default or
(ii) the Secured Party giving notice thereof to the Pledgor;

     (d) Pledgor shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator of Pledgor or of all or a substantial part of
Pledgor’s assets; (ii) be unable, or admit in writing its inability, or fail to
confirm its ability (when requested to do so by Secured Party) to pay its debts
as they become due; (iii) make a general assignment for the benefit of
creditors; (iv) be adjudicated a bankrupt or insolvent or file a voluntary
petition in bankruptcy; (v) file a petition or an answer seeking reorganization
or an arrangement with creditors or to take advantage of any bankruptcy or
insolvency law; (vi) file an answer admitting the material allegations of, or
consent to, or default in answering, a petition filed against it in any
bankruptcy, reorganization or insolvency proceedings; or (vii) take any action
for the purpose of effecting any of the foregoing;

     (e) an order, judgment or decree shall be entered by any court of competent
jurisdiction approving a petition seeking reorganization of Pledgor or
appointing a receiver, trustee or liquidator of Pledgor or of all or a
substantial part of its assets, and such order, judgment or decree shall
continue unstayed in effect for any period of 30 consecutive days;

     (f) the failure of Pledgor to have discharged within a period of 30 days
after the commencement thereof any attachment, sequestration or similar
proceeding against any of its properties or assets having a value of $100,000.00
or more;

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     (g) any acceleration, notice of default, filing of suit or notice of breach
by any lender, lessor, creditor or other party to any Material Agreement to
which Pledgor is a party, or to which its properties or assets are subject;

     (h) the occurrence of a Material Adverse Effect with respect to Pledgor;

     (i) the occurrence of a Change of Control;

     (j) final judgment or judgments shall be entered against Pledgor involving
in the aggregate a liability (not paid or fully covered by insurance or not
otherwise covered by indemnity agreements acceptable to Lender in its sole
discretion) of $100,000.00 or more, and such judgment or judgments shall not
have been vacated, discharged, stayed or bonded pending appeal within 60 days
from the entry thereof; or

     (k) the occurrence of any other Event of Default under the Loan Agreement.

SECTION 9. SECURED PARTY’S RIGHTS, REMEDIES AND POWERS

     (a) Analysis of Accounts. The Secured Party shall have the right to make
test verifications of the Accounts in any manner and through any medium that it
reasonably considers advisable, and the Pledgor shall furnish all such
assistance and information as the Secured Party may require in connection
therewith. At any time and from time to time, upon the Secured Party’s request
and at the expense of the Pledgor, the Pledgor shall cause independent public
accountants or others satisfactory to the Secured Party to furnish to the
Secured Party reports showing reconciliations, aging and test verifications of,
and trial balances for, the Accounts.

     (b) Notice to Account Debtors and Contracting Parties. At any time after an
Event of Default occurs and is continuing, upon the request of the Secured Party
at any time, the Pledgor shall notify account debtors of the Accounts and
parties to the Contracts that the Accounts and the Contracts have been assigned
to the Secured Party and that payments in respect thereof shall be made directly
to the Secured Party. The Secured

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Party may in its own name or in the name of others communicate with account
debtors on the Accounts and parties to the Contracts to verify with them to its
satisfaction the existence, amount and terms of any Accounts or Contracts.

     (c) Collections on Accounts and Contracts. The Secured Party hereby
authorizes the Pledgor to collect the Accounts and Contracts, subject to the
Secured Party’s direction and control, and the Secured Party may curtail or
terminate said authority at any time. If required by the Secured Party at any
time, any payments of Accounts and Contracts, when collected by the Pledgor,
shall be forthwith (and, in any event, within two Business Days) deposited by
the Pledgor in the exact form received, duly indorsed by the Pledgor to the
Secured Party if required, in a special collateral account maintained by the
Secured Party, subject to withdrawal by the Secured Party for the account of the
Secured Party only, as provided in this Security Agreement, and, until so turned
over, shall be held by the Pledgor in trust for the Secured Party, segregated
from other funds of the Pledgor. All Proceeds while held by the Secured Party
(or by the Pledgor in trust for the Secured Party) shall continue to be
collateral security for all of the Obligations and shall not constitute payment
thereof until applied as provided in this Security Agreement. At such intervals
as may be agreed upon by the Pledgor and the Secured Party, or, if an Event of
Default shall have occurred and be continuing, at any time at the Secured
Party’s election, the Secured Party shall apply all or any part of the funds on
deposit in said special collateral account on account of the Obligations in such
order as the Secured Party may elect, and any part of such funds which the
Secured Party elects not so to apply and deems not required as collateral
security for the Obligations shall be paid over from time to time by the Secured
Party to the Pledgor or to whomsoever may be lawfully entitled to receive the
same. At the Secured Party’s request, the Pledgor shall deliver to the Secured
Party all original and other documents evidencing, and relating to, the
agreements and transactions which gave rise to the Accounts and Contracts,
including, without limitation, all original orders, invoices and shipping
receipts.

     (d) Remedies; Acceleration of Maturity of Obligations; Repossession and
Sale of Collateral. At any time after an Event of Default occurs and is
continuing, Secured Party may declare every Obligation to be immediately due and
payable and may exercise, in addition to all other rights and remedies granted
to it in this Security Agreement, the Loan Agreement and in any of the other
Loan Papers securing, evidencing or

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relating to the Obligations, all rights and remedies of a secured party under
the UCC. Without limiting the generality of the foregoing, the Secured Party,
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon the Pledgor or any other person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker’s
board or office of the Secured Party or elsewhere upon such terms and conditions
as Secured Party may deem advisable and at such prices as Secured Party may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk. The 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 the whole or any part of the Collateral so sold, free of any right
or equity of redemption in the Pledgor, which right or equity is hereby waived
or released. The Pledgor further agrees, at the Secured Party’s request, to
assemble the Collateral and make it available to the Secured Party at places
which the Secured Party shall reasonably select, whether at the Pledgor’s
premises or elsewhere. The Secured Party shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Secured Party hereunder,
including, without limitation, reasonable attorneys’ fees and disbursements, to
the payment in whole or in part of the Obligations, in such order as the Secured
Party may elect, and only after such application and after the payment by the
Secured Party of any other amount required by any provision of law, need the
Secured Party account for the surplus, if any, to the Pledgor. To the extent
permitted by applicable law, the Pledgor waives all claims, damages and demands
it may acquire against the Secured Party arising out of the exercise by it of
any rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least 10 days before such sale or other disposition. The
Pledgor shall remain liable for any deficiency if the proceeds of any sale or
other disposition of the Collateral are insufficient to pay the Obligations and
the fees and disbursements of any attorneys

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employed by the Secured Party to collect such deficiency.

     (e) Right of Setoff. In addition to the security interest and Lien herein
described, Pledgor expressly recognizes and grants Secured Party upon the
occurrence of an Event of Default the right of setoff with respect to any money,
checks, certificates of deposit or instruments deposited with Secured Party,
whether in general or special deposits, which right may be exercised
concurrently with or separately from any and all other rights of Secured Party
against Pledgor.

SECTION 10. LIMITATIONS ON SECURED PARTY’S DUTIES AND OBLIGATIONS

     (a) Limitations on Secured Party’s Obligations Under Accounts and
Contracts. The Secured Party shall not have any obligation or liability under
any Account (or any agreement giving rise thereto) or Contract by reason of or
arising out of this Security Agreement or the receipt by the Secured Party of
any payment relating to such Account or Contract pursuant hereto, nor shall the
Secured Party be obligated in any manner to perform any of the obligations of
the Pledgor thereof under or pursuant to any Account (or any agreement giving
rise thereto) or under or pursuant to any Contract, to make any payment, to make
any inquiry as to the nature or the sufficiency of any payment received by it or
as to the sufficiency of any performance by any party under any Account (or any
agreement giving rise thereto) or under any Contract, to present or file any
claim, to take any action to enforce any performance or to collect the payment
of any amounts which may have been assigned to it or to which it may be entitled
at any time or times.

     (b) Limitation on Duties Regarding Preservation of Collateral. The Secured
Party’s sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9.207 of the UCC
or otherwise, shall be to deal with it in the same manner as the Secured Party
deals with similar property for its own account. Neither the Secured Party nor
any of its directors, officers, employees or agents shall be liable for failure
to demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Pledgor or otherwise.

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     (c) No Duty on the Part of Secured Party. The powers conferred on the
Secured Party under this Security Agreement are solely to protect the interests
of the Secured Party in the Collateral and shall not impose any duty upon the
Secured Party to exercise any such powers. The Secured Party shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Pledgor or its officers,
directors, employees, stockholders or agents for any act or failure to act
hereunder, except for its own gross negligence or willful misconduct.

SECTION 11. GENERAL PROVISIONS

     (a) Powers Coupled with an Interest. All authorizations and agencies herein
contained with respect to the Collateral are irrevocable and powers coupled with
an interest.

     (b) Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

     (c) Additional Definitions. The term “Pledgor” as used in this Security
Agreement is to be construed as singular or plural to correspond with the number
of persons executing this instrument as Pledgor. The pronouns used in this
instrument are in the masculine gender but shall be construed as feminine or
neuter as occasion may require. “Secured Party”, “Pledgor” and “Debtor” as used
in this instrument include the heirs, executors or administrators, successors,
representatives, receivers, trustees, custodians, and assigns of those parties.

     (d) Captions. The section and paragraph headings appearing in this
instrument were inserted for convenience only and are not to be given any
substantive meaning or significance in construing this Security Agreement.

     (e) Waivers and Amendments; Successors and Assigns. None of the terms or
provision of this Security Agreement may be waived,

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amended, supplemented or otherwise modified except by a written instrument
executed by the Pledgor and the Secured Party, provided that any provision of
this Security Agreement may be waived by the Secured Party in a written letter
or agreement executed by the Secured Party or by telex or facsimile transmission
from the Secured Party. This Security Agreement shall be binding upon the
permitted successors and assigns of the Pledgor and shall inure to the benefit
of the Secured Party and its successors and assigns.

     (f) No Waiver; Cumulative Remedies. The Secured Party shall not by any act
(except by a written instrument pursuant to Section 11(e) hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Event of Default or in any breach of any
of the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Secured Party, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Secured Party of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which the Secured Party
would otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law.

     (g) GOVERNING LAW. THE LAW GOVERNING THIS SECURED TRANSACTION SHALL BE
CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF TEXAS;
PROVIDED, HOWEVER, THAT THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ANY OF
THE COLLATERAL SITUATED IN ANY OTHER STATE MAY BE GOVERNED BY THE LAWS OF SUCH
OTHER STATE.

     (h) Renewal, Extension or Rearrangement. All provisions of this Security
Agreement and of any other Loan Paper relating to the Notes or other Obligations
shall apply with equal force and effect to each and all promissory notes
hereafter executed which in whole or in part represent a renewal, extension for
any period, increase or rearrangement of any part of the Obligations originally
represented by the Notes or any part of such other Obligations.

     (i) Assignment. Secured Party may from time to time assign this Security
Agreement, Secured Party’s rights under this Security Agreement,

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or all or any of the Obligations. In any such case, the assignee will be
entitled to all rights, privileges, and remedies granted in this Security
Agreement to Secured Party, and Pledgor will not assert against the assignee any
claims or defenses Pledgor may have against Secured Party (except those granted
in this Security Agreement).

     (j) Notices. Notices hereunder may be given by mail, by telex or by
facsimile transmission, addressed or transmitted to the person to which it is
being given at such person’s address or transmission number set forth in the
Loan Agreement and shall be effective (a) in the case of mail, two days after
deposit in the postal system, first class postage pre-paid and (b) in the case
of telex or facsimile notices, when sent. The Pledgor may change its address and
transmission number by written notice to the Secured Party, and the Secured
Party may change its address and transmission number by written notice to the
Pledgor.

     EXECUTED as of the date first above written.

                  SECURED PARTY
 
                    WESTERN NATIONAL BANK
 
           

      By:    

         

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               Scott A. Lovett, Executive Vice

               President
 
                PLEDGOR
 
                    SCREW COMPRESSION SYSTEMS, INC.
 
           

      By:    

         

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               Paul Hensley, President

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EXHIBIT “A”
TO SECURITY AGREEMENT

LOCATIONS OF COLLATERAL

5725 Bird Creek Avenue
Catoosa, OK 74015

 

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EXHIBIT “O”

SCREW COMPRESSION SYSTEMS, INC.

OFFICER’S CERTIFICATE

     I, Paul D. Hensley, the duly elected and acting President of Screw
Compression Systems, Inc., a Texas corporation (the “Company”), hereby certify
for and on behalf of the Company as follows in connection with the consummation
of the transactions contemplated by that certain Third Amended and Restated Loan
Agreement, dated as of January 3, 2005 (the “Loan Agreement”), among the
Company, Natural Gas Services Group, Inc., and Western National Bank:

     (1) Exhibit 1 attached hereto contains true and correct copies of
resolutions duly adopted by the Board of Directors of the Company and such
resolutions are in full force and effect on the date hereof, and such
resolutions have not been rescinded or modified in any respect.

     (2) Exhibit 2 attached hereto contains true, complete and correct copies of
the articles of incorporation of the Company as the same may have been amended
from time to time.

     (3) Exhibit 3 attached hereto contains true, complete and correct copies of
the bylaws of the Company, as the same may have been amended from time to time.

     (4) There are no proceedings pending for the dissolution or liquidation of
the Company or threatening its corporate existence.

     (5) No suit, action or other proceeding by a third party or any
Governmental Authority (within the meaning of the Loan Agreement) is pending or
threatened which relates to the Loan Agreement or the transactions contemplated
thereby.

     (6) No Event of Default (within the meaning of the Loan Agreement) is in
existence at the date hereof.

     IN WITNESS WHEREOF, I have hereunto set my hand as of                     ,
effective as of January 3, 2005.

     

 

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  Paul D. Hensley, President

 

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CERTIFICATES

 

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Exhibit 1

BORROWING RESOLUTIONS

 

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Exhibit 2

ARTICLES OF INCORPORATION

 

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Exhibit 3

BYLAWS

 

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EXHIBIT “P”

COMPLIANCE CERTIFICATE

     Certification. Reference is made to that certain Third Amended and Restated
Loan Agreement, dated as of January 3, 2005, by and among Natural Gas Services
Group, Inc. (the “Borrower”), the Guarantor party thereto and Western National
Bank (the “Lender”) (the “Loan Agreement”). Pursuant to the provisions of the
Loan Agreement, the undersigned chief executive officer or principal financial
officer of Borrower hereby certifies and represents to Lender that, except as
set forth below: (i) there exists no Event of Default under the Loan Agreement
or any of the other Loan Papers, (ii) there exists no set of circumstances or
event which, with lapse of time or notice or both, would constitute an Event of
Default under the Loan Agreement or the other Loan Papers, and (iii) during the
period covered by this certificate, all of the terms and provisions of the Loan
Agreement and the other Loan Papers have been fully performed and complied with.

     Exceptions to the above certification. (State “none” if applicable, or list
and specify any exceptions and the actions taken or proposed to be taken to
remedy or correct same.)

     Period covered: For the month ended                     , 200     .

     Capitalized terms used but not defined herein shall have the respective
meanings ascribed thereto in the Loan Agreement.

     Dated:                     , 200     .

     

 

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  (Chief Executive Officer or Principal

       Financial Officer of Borrower)

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EXHIBIT “Q”

Consolidated Current Ratio Calculation

         
1.
  Sum of current assets of Borrower and its consolidated Subsidiaries   $  

       
 
       
2.
  Sum of current liabilities of Borrower and its consolidated Subsidiaries   $  

       
 
       

            Current Ratio   1 ÷ 2

       

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EXHIBIT “R”

Consolidated Tangible Net Worth Calculation

         
1.
  Sum of (a) all amounts included under stockholders’ equity on consolidated
balance sheet of Borrower and its Subsidiaries and (b) the Subordinated Notes  
$
 
       
2.
  Sum of aggregate book value of Borrower’s and its Subsidiaries Consolidated
Intangible Assets   $  

       
 
       
3.
  Consolidated Tangible Net Worth   $     1 - 2

       

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EXHIBIT “S”

Debt Service Ratio

                  (A)   Consolidated Cash Flow:    
 
               

    (1 )   Sum of consolidated pre-tax net income (or loss), less actual taxes
paid, from continuing operations of the Borrower and its Subsidiaries (excluding
extraordinary income but including extraordinary expenses)   $  

               
 
               

    (2 )   Sum of depreciation, depletion, amortization and interest expenses
deducted in determining consolidated net income (or loss) of the Borrower and
its Subsidiaries   $  

               
 
               

    (3 )   Consolidated Cash Flow   $     (1) + (2)

               
 
                (B)   Consolidated Fixed Charges:    
 
               

    (1 )   Sum of aggregate principal amount of all Debt of the Borrower and its
Subsidiaries paid or due and payable   $  

               
 
               

    (2 )   All interest, including imputed interest in connection with Financing
Leases, paid or accrued by the Borrower and its Subsidiaries   $  

               
 
               

    (3 )   Consolidated Fixed Charges   $     (1) + (2)

               
 
               

                    Debt Service Ratio   (A)(3)÷B(3)

               

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EXHIBIT “T”

Ratio of Consolidated Debt to
Consolidated Tangible Net Worth

         
1.
  Sum of all Debt (excluding Subordinated Notes) of the Borrower and its
Subsidiaries   $  

       
 
       
2.
  Consolidated Tangible Net Worth   $  

       
 
       

            Ratio of Consolidated Debt to Consolidated Tangible Net Worth   (1)
÷ (2)