exv10w4



 






Exhibit 10.4




GUARANTY AGREEMENT




          This GUARANTY AGREEMENT (this “Guaranty”), dated as of January 3, 2006, is made by
SCREW COMPRESSION SYSTEMS, INC. (“Guarantor”), a Texas corporation and a wholly owned
subsidiary of Natural Gas Services Group, Inc, for the benefit of WESTERN NATIONAL BANK, a national
banking association (“Lender”).




WITNESSETH:




          WHEREAS, Lender and Natural Gas Services Group, Inc. (the “Borrower”), a Colorado
corporation, and Screw Compression Systems, Inc., as Guarantor, have entered into that certain
Sixth Amended and Restated Loan Agreement, dated as of January 3, 2006 (said Sixth Amended and
Restated Loan Agreement, as the same may hereafter be amended, restated or otherwise modified from
time to time, the “Loan Agreement”), pursuant to which Borrower is indebted to Lender,
evidenced by the following notes: (i) Multiple Advance Term Promissory Note dated March 14, 2005,
in the original principal amount of $10,000,000.00, as modified by Modification Agreement dated May
1, 2005; (ii) Term Promissory Note dated January 3, 2005, in the original principal amount of
$8,000,000.00, as modified by Modification Agreement dated May 1, 2005; (iii) Revolving Line of
Credit Promissory Note dated November 21, 2005, in the original principal amount of $10,000,000.00;
and (iv) Advance Note dated November 3, 2003, in the original principal amount of $10,000,000.00,
as modified in Modification Agreement dated December 15, 2004, and further modified in Second
Modification Agreement dated May 1, 2005 (collectively, and together with all renewals,
refinancings, modifications, increases and extensions thereof, the “Notes”), and may from
time to time be further indebted to Lender with respect to loans (the “Loans”) made by the
Lender to the Borrower which are further evidenced, secured or governed by other instruments and
security documents executed in connection with the Loans (collectively, the “Security
Documents”); and




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




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




          NOW, THEREFORE, as a material inducement to Lender to enter into the Loan Agreement and make
Loans to Borrower thereunder, and to extend such additional credit as Lender may from time to time
agree to extend thereunder, and for other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:




 









 








ARTICLE 1

NATURE AND SCOPE OF GUARANTY




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




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




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




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




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




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




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




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




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




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




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




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




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          1.7 Waivers. Guarantor agrees to the provisions of the Loan Agreement and the Security
Documents, and hereby waives (a) all rights of Guarantor under Rule 31, Texas Rules of Civil
Procedure, or Chapter 34 of the Texas Business and Commerce Code, or Section 17.001 of the Texas
Civil Practice and Remedies Code; (b) to the extent Guarantor is subject to the Texas Revised
Partnership Act (“TRPA”), compliance by Lender with Section 3.05(d) of TRPA and (c) notice
of (i) any loans or advances made by Lender to Borrower, (ii) acceptance of this Guaranty, (iii)
any amendment or extension of the Notes, the Loan Agreement or of any other Security Documents,
(iv) the execution and delivery by Borrower and Lender of any other loan or credit agreement or of
Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan
Agreement, the. Security Documents or in connection with the Collateral (as defined in
the Loan Agreement or Security Documents), (v) the occurrence of any breach by Borrower or Event of
Default (as defined in the Loan Agreement), (vi) Lender’s transfer or disposition of the Guaranteed
Debt, or any part thereof, (vii) sale or foreclosure (or posting or advertising for sale or
foreclosure) of any collateral for the Guaranteed Debt, (viii) protest, proof of non-payment or
default by Borrower, or (ix) any other action at any time taken or omitted by Lender, and,
generally, all demands and notices of every kind in connection with this Guaranty, the Loan
Agreement, the Security Documents, or any other documents or agreements evidencing, securing or
relating to any of the Guaranteed Debt and the obligations hereby guaranteed.




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




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




          1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything
to the contrary contained in this Guaranty, from and after the date hereof until payment to Lender
in full of the Guaranteed Debt, Guarantor shall not, and shall not attempt to, enforce, collect or
exercise any rights Guarantor may now or hereafter have under any agreement, at law or in equity
(including, without limitation, any law subrogating the Guarantor to the rights of Lender) to
assert any claim against or seek contribution, indemnification or any other form of reimbursement
from Borrower or any




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other party liable for payment of any or all of the Guaranteed Debt for any payment made by
Guarantor under or in connection with this Guaranty or otherwise. After payment to Lender in full
of the Guaranteed Debt, Lender shall not contest the subrogation of Guarantor to the rights of
Lender under the Security Documents, it being expressly agreed that Guarantor’s rights under such
subrogation shall be and remain subordinate and inferior to the rights of Lender under the Security
Documents until and unless all amounts due Lender by Borrower under the Security Documents shall be
paid in full.




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




ARTICLE 2

EVENTS AND CIRCUMSTANCES NOT REDUCING

OR DISCHARGING GUARANTOR’S OBLIGATIONS




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




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



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




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




          2.4 Invalidity of Guaranteed Debt. The invalidity, illegality or unenforceability of
all or any part of the Guaranteed Debt, or any document or agreement executed in connection with
the Guaranteed Debt, for any reason whatsoever, including, without limitation, the fact that (i)
the Guaranteed Debt, or any part thereof, exceeds the amount permitted by law, (ii) the act of
creating the Guaranteed Debt or any part thereof is ultra vires, (iii) the officers or
representatives executing the Notes, the Loan Agreement or the





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other Security Documents or otherwise creating the Guaranteed Debt acted in excess of their
authority, (iv) the Guaranteed Debt violates applicable usury laws, (v) the Borrower has valid
defenses, claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed
Debt wholly or partially uncollectible from Borrower, (vi) the creation, performance or repayment
of the Guaranteed Debt (or the execution, delivery and performance of any document or instrument
representing part of the Guaranteed Debt or executed in connection with the Guaranteed Debt, or
given to secure the repayment of the Guaranteed Debt) is illegal, uncollectible or unenforceable,
or (vii) the Notes, the Loan Agreement or any of the other Security Documents have been forged or
otherwise are irregular or not genuine or authentic, it being agreed that Guarantor shall remain
liable hereon regardless of whether Borrower or any other person be found not liable on the
Guaranteed Debt or any part thereof for any reason.




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




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




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




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




          2.9 Unenforceability. The fact that any collateral, security, security interest or
lien contemplated or intended to be given, created or granted as security for the repayment





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




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




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




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




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




ARTICLE 3

REPRESENTATIONS AND WARRANTIES




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




          3.1 Benefit. Guarantor is the owner of a direct or indirect interest in Borrower, or
has received, or will receive, direct or indirect benefit from the making of this Guaranty with
respect to the Guaranteed Debt. The loans to Natural Gas Services Group, Inc. and its Subsidiaries
and any additional loans to them are for the direct benefit of each of Natural Gas Services Group,
Inc. and its Subsidiaries, including Guarantor. Natural Gas Services





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Group, Inc. and its Subsidiaries are engaged as an integrated group in the manufacturing, leasing
and sale of natural gas compressors and related equipment, systems and services for the oil and gas
industry, and any benefits to Natural Gas Services Group, Inc. or any of its Subsidiaries are a
benefit to all of them, both directly or indirectly, inasmuch as the successful operation and
condition of Natural Gas Services Group, Inc. and its Subsidiaries is dependent upon the continued
successful performance of the functions of the integrated group as a whole.




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




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




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




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




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





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




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




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




ARTICLE 4

SUBORDINATION OF CERTAIN INDEBTEDNESS




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




          4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy, reorganization,
arrangement, debtor’s relief, or other insolvency proceedings involving Guarantor as debtor, Lender
shall have the right to prove its claim in any such proceeding so as to establish its rights
hereunder and receive directly from the receiver, trustee or other court custodian dividends and
payments which would otherwise be payable upon Guarantor’s Claims. Guarantor hereby assigns such
dividends and payments to Lender. Should Lender receive, for application upon the Guaranteed Debt,
any such dividend or payment which is otherwise payable to Guarantor, and which, as between
Borrower and Guarantor, shall constitute a credit upon the Guarantor’s Claims, then upon payment to
Lender in full of the Guaranteed Debt, Guarantor shall become subrogated to the rights of





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Lender to the extent that such payments to Lender on the Guarantor’s Claims have contributed toward
the liquidation of the Guaranteed Debt, and such subrogation shall be with respect to the
proportion of the Guaranteed Debt which would have been unpaid if Lender had not received dividends
or payments upon the Guarantor’s Claims.




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




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




ARTICLE 5

AFFIRMATIVE COVENANTS




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




ARTICLE 6

MISCELLANEOUS




          6.1 Waiver. No failure to exercise, and no delay in exercising, on the part of Lender,
any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any other right. The
rights of Lender hereunder shall be in addition to all other rights provided by law. No
modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall
be effective unless in writing and no such consent or waiver shall extend beyond the particular
case and purpose involved. No notice or demand given




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in any case shall constitute a waiver of the right to take other action in the same, similar or
other instances without such notice or demand.




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


Guarantor



Screw Compression Systems, Inc.

5725 Bird Creek Avenue

Catoosa, Oklahoma 74015

Attention: Paul D. Hensley, President



Lender



Western National Bank

508 West Wall, Suite 1100

Midland, Texas 79701

Attention: Scott A. Lovett




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




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





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other jurisdictions. Any action or proceeding by Guarantor against Lender shall be brought only in
a court located in Midland County, Texas.




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




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




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




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




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




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




          6.10 Rights and Remedies. If Guarantor becomes liable for any indebtedness
owing by Borrower to Lender, by endorsement or otherwise, other than under this
Guaranty, such liability shall not be in any manner impaired or affected hereby and the





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rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever
have against Guarantor. The exercise by Lender of any right or remedy hereunder or under any other
instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any
other right or remedy.




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




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




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




	 	 	 	 	 
	 	SCREW COMPRESSION SYSTEMS, INC.

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



	 	 	 	 	 
	 	WESTERN NATIONAL BANK

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

Vice President 	 
	 




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