exv10w2



 






Exhibit 10.2




 






FIFTH AMENDED AND RESTATED LOAN AGREEMENT




between




NATURAL GAS SERVICES GROUP, INC.




and




WESTERN NATIONAL BANK




Dated as of September 26, 2005




 





 









 












FIFTH AMENDED AND RESTATED LOAN AGREEMENT




     This Fifth Amended and Restated Loan Agreement, dated as of September 26, 2005, made and
entered into by and among Natural Gas Services Group, Inc., a Colorado corporation (the
“Borrower”), and Screw Compression Systems, Inc., a Texas corporation (the
“Guarantor”), and Western National Bank, a national banking association (the
“Lender”).



Recitals




     WHEREAS, the Borrower, the Guarantor, and the Lender are parties to that certain Fourth
Amended and Restated Loan Agreement, dated as of March 14, 2005, as amended effective May 1, 2005
(said Fourth Amended and Restated Loan Agreement, as amended, being referred to herein as 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 $10,000,000.00 Multiple Advance Term Promissory Note dated March 14,
2005, as modified effective as of May 1, 2005; (ii) that certain $1,500,000.00 Multiple Advance
Term Promissory Note dated March 14, 2005, as modified effective as of May l, 2005; (iii) that
certain Term Promissory Note dated January 3, 2005, in the original principal amount of
$8,000,000.00, as modified effective as of May 1, 2005; (iv) that certain Revolving Line of Credit
Promissory Note dated January 3, 2005, in the original principal amount of $2,000,000.00, as
modified effective as of May 1, 2005; (v) that certain Term Promissory Note, dated November 3,
2003, in the original principal amount of $7,521,109.00, as modified effective as of January 3,
2005, and further modified effective as of May I, 2005; and (vi) that certain Advancing Line of
Credit Promissory Note, dated November 3, 2003, in the original principal amount of $10,000,000.00,
as modified effective as of December 15, 2004, and further modified effective as of May 1, 2005.



     WHEREAS, Guarantor is now indebted to Lender as evidenced by that certain Term Promissory Note
dated January 3, 2005, in the original principal amount of $1,415,836.00, as modified effective as
of May 1, 2005 (“the Oklahoma Term Promissory Note”).



     WHEREAS, the Borrower has requested that the Lender restructure its credit facilities in the
following manner:



     (a) Lender shall release Borrower’s $2,000,000.00 certificate of deposit securing those
certain Letters of Credit dated January 3, 2005, issued by Lender to Borrower in the aggregate
original principal amount of $2,000,000.00, securing Borrower’s performance under the SCS Notes;



     (b) Borrower shall use the funds made available by releasing the $2,000,000.00 certificate of
deposit to pay the outstanding balance of the Oklahoma Term Promissory Note from Guarantor to
Lender;



 









 





     (c) Guarantor shall guarantee such Letters of Credit and shall pledge the Mortgaged Property
located in Rogers County, Oklahoma, and described in that certain Real Estate Mortgage with Power
of Sale dated January 3, 2005, from Guarantor to Lender and filed in Book 1661, page 528, Rogers
County, State of Oklahoma, to secure such Letters of Credit, in addition to Borrower’s existing
debt under the Loan Agreement; and



     WHEREAS, Lender 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:



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 $10,000,000.00 Advancing Line of Credit Promissory Note
described in Section 2.1 (g) 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 Fifth 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.



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     “ Borrowing Base” means at any date the amount set forth in line M in the Gross Assets
Available for Borrowing Base Calculation, as determined pursuant to and in accordance with Section
2.3 and Exhibit H of this Agreement at such date.



     “ 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 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 and
restricted cash 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



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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 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



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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.



     “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.



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



     “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 dated January 3, 2005,
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. The Letters of Credit are
secured by Real Estate Mortgage dated January 3, 2005, in the form of Exhibit G hereto, as
amended by First Amendment to Real Estate Mortgage dated September 26, 2005, in the form of
Exhibit G-1 hereto and recorded in Rogers County, Oklahoma.



     “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,



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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.



     “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.



     “Multiple Advance Term Promissory Notes” means, collectively, the $10,000,000.00
Multiple Advance Term Promissory Note and the $1,500,000.00 Multiple Advance Term Promissory Note.



     “$10.000.000.00 Multiple Advance Term Promissory Note” means the Multiple Advance 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.



     “$1.500.000.00 Multiple Advance Term Promissory Note” means the Multiple Advance 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.



     “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 57,521,109.00 Term
Promissory Note, the $8,000,000.00 Term Promissory Note, the $10,000,000.00



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Multiple Advance Term Promissory Note and the $1,500,000.00 Multiple Advance 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.



     “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 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 $2,000,000.00 Revolving 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.



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



     “SCS Notes” means the promissory notes, dated January 3, 2005, 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.



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     “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 $1,443,886.00 outstanding as of November 30, 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 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.



     “Term Promissory Notes” means, collectively, the $8,000,000.00 Term Promissory Note
and the $7,521,109.00 Term Promissory Note.



     “$1,415,836.00 Oklahoma Term Promissory Note” means the Term Promissory Note from
Guarantor to Lender dated January 3, 2005, in the original principal amount of $1,415,836.00, the
outstanding balance of which shall be paid by Borrower to Lender pursuant to this Fifth Amended and
Restated Loan Agreement.



     “$8,000,000.00 Term Promissory Note” means the Term Promissory Note described in
Section 2.1 (c) 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 (f) 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.



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     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) $10.000.000.00 Multiple Advance Term Note. Pursuant to the Prior Loan Agreement,
the Borrower executed and delivered to the Lender the promissory note in the form of Exhibit
A hereto in the original principal amount of $10,000,000.00, as modified as of May l, 2005, as
evidenced by the Modification Agreement in the form of Exhibit A-1 hereto. Subject to and
upon the terms and conditions of this Agreement and this Note, the Borrower may, at any time and
from time to time during the period commencing on the date of this Note and ending at the close of
business on March 14, 2006, request one or more Advances and borrow (without the ability to
reborrow amounts paid under this Note) under this Note; provided, however, and notwithstanding the
face amount of this Note, without the prior written consent of Lender in its sole discretion, the
cumulative aggregate principal amount of all Advances under this Note shall never exceed the lesser
of (i) $10,000,000.00 or (ii) the amount available for Advance under this Note, the Advance Note,
the $1,500,000.00 Multiple Advance Term Promissory Notes, and Revolving Line of Credit Promissory
Note as determined in accordance with and set forth in line O in the Gross Assets Available for
Borrowing Base Calculation. This 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 said note. Principal and interest on this Note shall be payable in the
manner and on the dates specified therein. This 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.




          (b) $1,500,000.00 Multiple Advance Term Note. Pursuant to the Prior Loan Agreement,
the Borrower executed and delivered to the Lender the promissory note in the form of Exhibit
B hereto in the original principal amount of $1,500,000.00, as modified as of May 1, 2005, as
evidenced by the Modification Agreement in the form of Exhibit B-1 hereto. Subject to and
upon the terms and conditions of this Agreement and the this Note, the Borrower may, at any time
and from time to time during the period commencing on the date of this Note and ending at the close
of business on March 14, 2006, request one or more Advances and borrow (without the ability to
reborrow amounts paid under this Note) under this Note; provided, however, and notwithstanding the
face amount of this Note, without the prior written consent of Lender in its




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sole discretion, the cumulative aggregate principal amount of all Advances under this Note shall never exceed the lesser
of (i) $1,500,000.00 or (ii) the amount available for Advance under this Note, the Advance Note,
the $10,000,000.00 Multiple Advance Term Promissory Notes, and Revolving Line of Credit Promissory
Note as determined in accordance with and set forth in line O in the Gross Assets Available for
Borrowing Base Calculation. This 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 said note. Principal and
interest on this Note shall be payable in the manner and on the dates specified therein. This 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.




          (c) $8,000,000.00 Term Loan. Pursuant to the Prior Loan Agreement, Borrower executed
and delivered to the Lender the promissory note in the form of Exhibit C hereto in the
original principal amount of $8,000,000.00, as modified as of May 1, 2005, as evidenced by
Modification Agreement in the form of Exhibit C-1 hereto. 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 said Note.
Principal and interest on the Term Promissory Note shall be payable in the manner and on the dates
specified therein.




          (d) Revolving Line of Credit Loan. Pursuant to the Prior Loan Agreement, the Borrower
executed and delivered to the Lender the promissory note in the form of Exhibit D 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 note was modified as of
May 1, 2005, as evidenced by Modification Agreement in the form of Exhibit D-I hereto. The
outstanding principal balance of said Note on the date of this Agreement is $300,000.00. 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 Gross Assets
Available for Borrowing Base Calculation. 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 said note. Principal
and interest on the Revolving Line of Credit Promissory Note shall be payable in the manner and on
the dates specified therein.




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          (e) $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 E hereto in the
original principal amount of $7,521,109.00, in renewal, extension, rearrangement and consolidation
of the Borrower’s then existing indebtedness to Lender. The note was modified as of January 3,
2005, as evidenced by the Modification Agreement in the form of Exhibit E-1 hereto, and
further modified as of May 1, 2005, as evidenced by the Second Modification Agreement in the form of Exhibit E-2 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.




          (f) Advancing Line of Credit Loan. Pursuant to the Second Amended and Restated Loan
Agreement dated November 3, 2003, Borrower executed and delivered to the Lender the promissory note
in the form of Exhibit F hereto in the original principal amount of $10,000,000.00 (“the
Advance Note”), which note was renewed and modified by the Modification Agreement dated December
15, 2004, in the form of Exhibit F-1 hereto, and further modified as of May 1, 2005, as
evidenced by the Second Modification Agreement in the form of Exhibit F-2 hereto. The
outstanding principal balance of said Note is $8,399,996.94 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 sum
of the amounts available for Advance under the Advance Note, the Multiple Advance Term Promissory
Notes, and Revolving Line of Credit Promissory Note as determined in accordance with and set forth
in line O in the Gross Assets Available for Borrowing Base Calculation. 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 said 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, the Multiple Advance Term Promissory Notes, 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, the Multiple Advance
Term Promissory Notes, 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, the Multiple Advance Term
Promissory Notes, or the Revolving Line



11









 




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 1) confirming (i) the Note under 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, the Multiple Advance Term Promissory Notes, 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, the Multiple Advance Term Notes, 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 $23,020,142.00 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 calculation (the “Gross Assets Available for
Borrowing Base Calculation”) in the form attached hereto as Exhibit H, which shall be dated
as of the end of each such month.



12









 





               (ii) Within fifteen (15) days after it receives each borrowing base calculation, 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 calculation 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 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 calculation 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 calculation 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 (I5) 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 $10,000,000.00 Multiple
Advance Term Promissory Note, the $1,500,000.00 Multiple Advance Term Promissory Note, the
$7,521,109.00 Term Promissory Note, and the $8,000,000.00 Term Promissory Note, in that order, in
an aggregate amount equal to the remaining unpaid excess amount.




13









 








     2.5 Payment Procedure. Each payment or prepayment on the Notes must be made at the
principal office of Lender in funds which arc 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 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 Revolving Line of Credit Promissory Note, Advance Note, the
the $10,000,000.00 Multiple Advance Term Promissory Note, the $1,500,000.00 Multiple Advance Term
Promissory Note, the $7,521,109.00 Term Promissory Note, and the $8,000,000.00 Term Promissory
Note, 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 make Advances under the
Advance Note, the $10,000,000.00 Multiple Advance Term Promissory Note, the $1,500,000.00 Multiple
Advance Term Promissory 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:




14









 









     (1) this Agreement;




     (2) the Notes;




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




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




     (5) 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;




     (6) 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;
and




     (7) 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;



15









 






     (3) Real Estate Mortgage on the Oklahoma property in substantially the form
attached hereto as Exhibit G, and First Amendment to Real Estate Mortgage in
substantially the form attached hereto as Exhibit G-1;




     (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




     (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




16









 







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, the $10,000,000.00 Multiple Advance Term Promissory
Note, the $1,500,000.00 Multiple Advance Term Promissory 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:



          (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 Gross Assets
Available for Borrowing Base Calculation.




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




17









 








          (g) Each request for an Advance under the $10,000,000.00 Multiple Advance Term Promissory Note
shall have been received by Lender prior to March 14, 2006.




          (h) After giving effect to the Advances under the $1,500,000.00 Multiple Advance Term
Promissory Note requested by Borrower to be made on any date, the cumulative aggregate principal
amount of all Advances under the $1,500,000.00 Multiple Advance Term Promissory Note shall not
exceed $1,500,000.00.




          (i) Each request for an Advance under the $1,500,000.00 Multiple Advance
Term Promissory Note shall have been received by Lender prior to $1,500,000.00.




          (j) 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.




          (k) The Lender shall have received all Gross Assets Available for Borrowing Base Calculations
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.



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



18









 




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 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 November 30, 2004, and Screw Compression Systems, Inc. for the
period ended November 30, 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 November 30, 2004 with respect to Borrower, and during
the period from November 30, 2004, with regard to Guarantor, to and including the date hereof, no
change has occurred in the



19









 




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 January 3, 2005,
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 Debtor other material liabilities, director 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.



     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 $10,000,000.00 Multiple
Advance Term Promissory Note, for construction of natural gas compressors;




20









 








          (b) with respect to loans made pursuant to and evidenced by the $1,500,000.00 Multiple Advance
Term Promissory Note, for the refinancing and consolidation of the existing debt under the
Revolving Line of Credit Note and various vehicle purchase notes, and to provide funds for
additional vehicle purchases;




          (c) 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;




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




          (e) 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




          (f) 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.



     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.



21









 





     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.



     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




22









 







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, 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



23









 




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.



     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
(1) 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 ninety (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 consolidating
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




24









 







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;




          (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;




25









 








          (i) within forty-five (45) days after the end of each month, the Gross Assets Available for
Borrowing Base Calculation 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 T, which shall be signed by the chief executive officer or
principal financial officer of the Borrower;




          (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




          (1) 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.



26









 





     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 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 (2D/o) 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



27









 




result of any 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 lndemnitee 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 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



28









 




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:



     6.1 Financial Covenants.



          (a) Consolidated Current Ratio. Permit the Consolidated Current Ratio, as defined
herein and calculated pursuant to Exhibit P hereto, to be less than 1.4 to 1.0 as of
February 28, 2005, and as of the end of each month thereafter.




29









 








          (b) Consolidated Tangible Net Worth. Permit the Consolidated Tangible Net Worth, as
defined herein and calculated pursuant to Exhibit hereto, to be less than $14,500,000.00 as of
November 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 R 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 S hereof, to be more than 3.0 to 1.00 as of November 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;



          (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.



30









 





     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 US 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 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.




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     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, $.O1 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.



     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



32









 




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.



     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;




33









 








          (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 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,





34









 







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.




          (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.



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     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 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	 	 
	 
	 	 	 	 





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	 	or	 	 
	 
	 	 	 	 
	 

	 	LENDER:	 	 
	 
	 	 	 	 
	 

	 	Western National Bank	 	 
	 

	 	508 W. Wall, Suite 1100	 	 
	 

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




37









 








          (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).



     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



38









 




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 Severabilitv. 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 unenforeeability 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 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



39









 




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
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.



40









 





     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.



     EXECUTED EFFECTIVE as of the date first above written.



	 	 	 	 	 
	 	BORROWER:



NATURAL GAS SERVICES GROUP, INC.

 	 
	 	By:  	/s/ Stephen C. Taylor
 	 
	 	 	Stephen C. Taylor, President 	 
	 	 	 	 
	 



	 	 	 	 	 
	 	GUARANTOR:



Screw Compression Systems, Inc.

 	 
	 	By:  	/s/ Paul D. Hensley
 	 
	 	 	Paul D. Hensley, President 	 
	 	 	 	 



41









 






	 	 	 	 	 



	 	 	 	 	 
	 	LENDER:





WESTERN NATIONAL BANK

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




42