exv10w1



 








Exhibit 10.1




 





SEVENTH AMENDED AND RESTATED LOAN AGREEMENT




between




NATURAL GAS SERVICES GROUP, INC.




and




WESTERN NATIONAL BANK




Dated as of October 15, 2006

 





 









 








SEVENTH AMENDED AND RESTATED LOAN AGREEMENT




     This Seventh Amended and Restated Loan Agreement, dated as of October 15, 2006, 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 Sixth Amended
and Restated Loan Agreement, dated as of January 3, 2006 (said Sixth Amended and Restated Loan
Agreement 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 as of May 1, 2005, and further modified as of March 24, 2006, and further
modified as of August 28, 2006; (ii) that certain Term Promissory Note dated January 3, 2005, in
the original principal amount of $8,000,000.00, as modified as of May 1, 2005, and further modified
as of March 24, 2006, and further modified as of August 28, 2006; (iii) that certain Revolving Line
of Credit Promissory Note dated January 3, 2005, in the original principal amount of $2,000,000.00,
as modified as of May 1, 2005, and further modified as of March 24, 2006, and further modified as
of August 28, 2006; and (iv) that certain Advancing Line of Credit Promissory Note dated November
3, 2003, in the original principal amount of $10,000,000.00, as modified as of December 15, 2004,
and further modified as of May 1, 2005, and further modified as of March 24, 2006, and further
modified as of August 28, 2006; and



     WHEREAS, the Borrower has requested that the Lender (i) consolidate and refinance the
outstanding balances of the $10,000,000.00 Multiple Advance Term Note, and $8,000,000.00 Term
Promissory Note, and the Advancing Line of Credit Promissory Note in the form of a $16,891,105.87
Multiple Advance Term Note; and (ii) increase the principal amount of the existing Revolving Line
of Credit Promissory Note to $40,000,000.00 and renew, extend and modify the Note pursuant to this
Seventh Amended and Restated 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:



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ARTICLE I

Definitions




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



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



     “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 Seventh Amended and Restated Loan Agreement, as amended,
restated, supplemented or otherwise modified from time to time.



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



     “Borrowing Base” means at any date the amount set forth in line N in the Gross Assets
Available for Borrowing Base Calculation, as determined pursuant to and in accordance with Section
2.3 and Exhibit D 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



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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 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.



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



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



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



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



     “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.



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     “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 C hereto, as
amended by First Amendment to Real Estate Mortgage dated September 26, 2005, in the form of
Exhibit C-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, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting property.



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



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



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



     “Multiple Advance Term Promissory Note” means the $16,891,205.87 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.



     “Note” or “Notes” means the individual or collective reference, as the context
may require, to the Multiple Advance Term Promissory Note and the Revolving Line of Credit
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



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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 $40,000,000.00 Revolving Line of
Credit Promissory Note described in Section 2.1(b) 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.



     “Subsequent Advance” means any disbursement to or on behalf of Borrower after the
initial Advance under the Multiple Advance Term Promissory 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



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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.



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



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



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



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



ARTICLE II

Amount and Terms of Loans; Subordination




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



          (a) $16,891,105.87 Multiple Advance Term Note. Contemporaneously with the execution
and delivery hereof, Borrower shall execute and deliver to the Lender the promissory note in the
form of Exhibit A hereto in the original principal amount of $16,891,105.87, which Note
represents the consolidation and refinancing, but not extinguishment, of the unpaid balances due on
(i) the $10,000,000.00 Multiple Advance Term Promissory Note dated March 14, 2005, and all
modifications thereof; (ii) the $8,000,000.00 Term Promissory Note dated January 3, 2005, and all
modifications thereof; and (iii) the $10,000,000.00 Advancing Line of Credit Promissory Note dated
November 3, 2003, and all modifications thereof. 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, request one or
more Advances and borrow (without the

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ability to reborrow amounts paid under this Note) under this Note; provided, however, the
cumulative aggregate principal amount of all Advances under this Note shall never exceed
$16,891,105.87. 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) Revolving Line of Credit Loan. Contemporaneously with the execution and delivery
hereof, Borrower shall execute and deliver to the Lender the promissory note in the form of
Exhibit B hereto, in the original principal amount of $40,000,000.00, 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,
as renewed, extended and modified as of January 3, 2005, and modified as of May 1, 2005, and
renewed, extended and modified as of January 3, 2006, and further modified as of March 24, 2006,
and further modified as of August 28, 2006. The outstanding principal balance of said Note on the
date of this Agreement is $293,525.56. 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) $40,000,000.00 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.




     2.2 Procedure For Borrowings. (a) At the time of the initial Advance under the
Multiple Advance Term Promissory Note or the Revolving Line of Credit Promissory Note, as the case
may be, the conditions set forth in Section 3.1 of this Agreement shall have been satisfied and,
with respect to each Subsequent Advance under the Multiple Advance Term Promissory Note or the
Revolving Line of Credit Promissory Note, the conditions set forth in Section 3.2 hereof shall have
been satisfied at the time of each such Subsequent Advance. At the time of each request for a



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Subsequent Advance under the Multiple Advance Term Promissory Note or the Revolving Line of Credit
Promissory Note, the Borrower shall simultaneously furnish to the Lender a written notice of
borrowing (dated as of the date of the request for such Subsequent Advance and otherwise being in
substantially the form attached hereto as Exhibit E) 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 Multiple Advance Term Promissory Note or the Revolving Line of Credit
Promissory Note must be in the minimum amount of $50,000.00 or the unadvanced portion of the Note
under which the Subsequent Advance has been requested, whichever is less. Assuming the
satisfaction of the conditions set forth in this Section 2.2, requests for Subsequent Advances
under the Multiple Advance Term Note or the Revolving Line of Credit Promissory Note will be funded
on the same Business Day that Lender receives Borrower’s request for each such Subsequent Advance;
provided that Borrower’s request is received by the Lender prior to 12:00 noon on the date
of any such request.



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




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



          (a) Initial Borrowing Base. The initial Borrowing Base shall be $32,000,000.00 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 D, which shall be dated
as of the end of each such month.



               (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, 



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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 the Revolving Line of Credit Promissory Note
shall at any time exceed the Borrowing Base at such time, the Lender shall so notify the Borrower,
and the Borrower shall, within fifteen (15) Business Days after such notification, 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.




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



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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 and the Multiple
Advance Term Promissory Note, applied upon installments of most remote maturity; and (iv) to the
remaining Obligations.



     2.7 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 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:




               (1) this Agreement;



               (2) the Notes;



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



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



               (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 H, 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 I;



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



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



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               (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 K 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 appropriate certificates as to
such


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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 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) $40,000,000.00 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 Multiple Advance Term Promissory Note
requested by Borrower to be made on any date, the cumulative aggregate principal amount of all
Advances under the Multiple Advance Term Promissory Note shall not exceed $16,891,205.87.




          (e) 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.




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          (f) 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 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



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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 July 31, 2006, and Screw Compression Systems, Inc., for the period
ended July 31, 2006, 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 July 31, 2006, with respect to Borrower, and during the period from July 31,
2006, with regard to Guarantor, to and including the date hereof, no change has occurred in the
condition, financial or otherwise, of the Borrower and Guarantor, taken as a whole, which could
reasonably be expected to result in a Material Adverse Effect, and there has been no sale, transfer
or other disposition by the Borrower or Guarantor since 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 Debt or other material liabilities, direct or indirect, absolute or contingent,
which is, in the aggregate, material to the Borrower and its Subsidiaries and not shown in the
financial statements referred to in Section 4.5 hereof.



-17-









 




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 Multiple Advance Term
Promissory Note, for construction of natural gas compressors; and




          (b) with respect to loans made pursuant to and evidenced by the Revolving Line of Credit
Promissory Note, for general working capital purposes, construction of natural gas compressors, and
potential acquisitions.




     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



-18-









 







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.



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



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



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



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     4.20 Environmental Matters.



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




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




          (c) The Borrower and its Subsidiaries have not transported or arranged for the transportation
(directly or indirectly) of any Hazardous Substance to any location which is listed or proposed for
listing under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund

-20-









 








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




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




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




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



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



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



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



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



ARTICLE V

Affirmative Covenants




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



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



          (a) as soon as available, but in any event not later than 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 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;




-22-









 








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




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




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




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




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




          (i) within forty-five (45) days after the end of each month, the 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 P, which shall be signed by the chief executive officer or
principal financial officer of the Borrower;




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




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




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



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



     5.4 Maintenance of Insurance. Maintain with financially sound and reputable insurers,
insurance with respect to its properties and business against such liabilities, casualties, risks
and contingencies and in such types and amounts as is customarily carried by companies engaged in
the same or similar businesses and similarly situated. From time to time, upon request by Lender,
the Borrower will furnish Lender with copies of certificates, binders and policies necessary to
give Lender reasonable



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



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



     5.6 Indemnification. Indemnify, save and hold harmless the Lender and its Affiliates,
directors, officers, agents, attorneys and employees (collectively, the “Indemnitees”) from
and against: (a) any and all claims, demands, actions or causes of action that are asserted against
any Indemnitee by any person (other than the Borrower) if the claim, demand, action or cause of
action directly or indirectly relates to a claim, demand, action or cause of action that such
person asserts or may assert against the Borrower, any Affiliate of the Borrower or any officer,
director or shareholder of the Borrower; (b) any and all claims, demands, actions or causes of
action that are asserted against any Indemnitee by any person (other than the Borrower) if the
claim, demand, action or cause of action arises out of or relates to the loans made by Lender to
the Borrower under the Notes and this Agreement, the use or contemplated use of proceeds of such
loans or the relationship of the Borrower and the Lender under this Agreement; (c) any
administrative or investigative proceeding by any Governmental Authority arising out of or related
to a claim, demand, action or cause of action described in clauses (a) or (b) above; and (d) any
and all liabilities, losses, costs or expenses (including reasonable attorneys’ fees and
disbursements) that any Indemnitee suffers or incurs as a result of any of the foregoing;
provided, that no Indemnitee shall be entitled to indemnification for any liability, loss,
cost or expense caused by its own gross



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negligence or willful misconduct. If any claim, demand, action or cause of action is asserted
against any Indemnitee and such Indemnitee intends to claim indemnification from the Borrower under
this Section 5.6, such Indemnitee shall promptly notify the Borrower, but the failure to so
promptly notify the Borrower shall not affect the obligations of the Borrower under this Section
5.6 unless such failure materially prejudices the Borrower’s right to participate, or the
Borrower’s rights, if any, in the contest of such claim, demand, action or cause of action, as
hereinafter provided. Each Indemnitee may, and if requested by the Borrower in writing shall, in
good faith contest the validity, applicability and amount of such claim, demand, action or cause of
action with counsel selected by such Indemnitee and reasonably acceptable to the Borrower, and
shall permit the Borrower to participate in such contest. Any Indemnitee that proposes to settle
or compromise any claim or proceeding for which the Borrower may be liable for payment of indemnity
hereunder shall give the Borrower written notice of the terms of such proposed settlement or
compromise reasonably in advance of settling or compromising such claim or proceeding and shall
obtain the Borrower’s prior written consent, which consent shall not be unreasonably withheld. In
connection with any claim, demand, action or cause of action covered by this Section 5.6 against
more than one Indemnitee, all such Indemnitees shall be represented by the same legal counsel
selected by the Indemnitees and reasonably acceptable to the Borrower; provided, that if
such legal counsel determines in good faith and advises the Borrower in writing that representing
all such Indemnitees would or could result in a conflict of interest under legal requirements or
ethical principles applicable to such legal counsel or that a defense or counterclaim is available
to an Indemnitee that is not available to all such Indemnitees, then to the extent reasonably
necessary to avoid such a conflict of interest or to permit unqualified assertion of such a defense
or counterclaim, each Indemnitee shall be entitled to separate representation by legal counsel
selected by that Indemnitee and reasonably acceptable to the Borrower. Any obligation or liability
of the Borrower to any Indemnitee under this Section 5.6 shall survive the expiration or
termination of this Agreement and the repayment of the Loans and the payment of all other
Obligations owing to the Lender for the statute of limitations period applicable to such claim or
contest.



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



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



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



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



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



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



ARTICLE VI

Negative Covenants




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



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     6.1 Financial Covenants.



          (a) Consolidated Current Ratio. Permit the Consolidated Current Ratio, as defined
herein and calculated pursuant to Exhibit L hereto, to be less than 1.4 to 1.0 as of
November 30, 2006, and as of the end of each month thereafter.




          (b) Consolidated Tangible Net Worth. Permit the Consolidated Tangible Net Worth, as
defined herein and calculated pursuant to Exhibit M hereto, to be less than $70,000,000.00
as of November 30, 2006, 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 N hereto, to be less than 1.50 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 O hereof, to be more than 2.0 to 1.00 as of November 30,
2006, 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




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          (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.



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



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



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



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



          (a) Bank Liens;




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




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




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




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




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




          (g) Liens permitted by the other Loan Papers.




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



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



     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




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




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



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



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




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




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



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



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



     6.18 Mergers or Acquisitions. Enter into any merger or acquisition without the prior
written consent of the Lender.



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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 thirty (30) days after the earlier of (i) the
Borrower becoming aware of such default or (ii) the Lender giving notice thereof to the Borrower;




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




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




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





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




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




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




          (i) the occurrence of a Change of Control;




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




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




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or notice of acceleration of maturity, or any other notice of default of any kind, all of which are
hereby expressly waived by the Borrower, and (ii) terminate the lending obligations, if any, of
Lender hereunder unless and until Lender shall reinstate same in writing.




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



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



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



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



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



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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: Stephen C. Taylor

Facsimile Number for Notice: (432) 563-5567





     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



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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).




          (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



-36-









 




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 applicable law. Notwithstanding
anything to the contrary contained herein or in any of the other Loan Papers, it is not the
intention of the Lender to accelerate the maturity of any interest that has not accrued at the time
of such acceleration or to collect unearned interest at the time of such acceleration.



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



     8.7 Non-Waiver. No Advance hereunder shall constitute a waiver of the
representations, warranties, conditions or agreements of Borrower or of any of the



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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 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



-38-









 




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.



     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



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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/ Stephen C. Taylor
 	 
	 	 	Stephen C. Taylor, Director 	 
	 	 	 	 
	 
	 	LENDER:





WESTERN NATIONAL BANK

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



-40-









 








EXHIBIT “A”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK





 









 








MULTIPLE ADVANCE TERM PROMISSORY NOTE




			
	$16,891,105.87
	 	October 15, 2006






     FOR VALUE RECEIVED, in the manner, on the dates and in the amounts herein stipulated, NATURAL
GAS SERVICES GROUP, INC., a Colorado corporation (the “Borrower”), hereby promises and
agrees to pay to the order of WESTERN NATIONAL BANK, a national banking association (the
“Lender”), in Midland, Midland County, Texas, the principal sum of SIXTEEN MILLION EIGHT
HUNDRED NINETY-ONE THOUSAND ONE HUNDRED FIVE AND 87/100 DOLLARS ($16,891,105.87) (the “Total
Principal Amount”), or such amount less than the Total Principal Amount which is outstanding
from time to time if the total amount outstanding under this Promissory Note (this “Note”)
is less than the Total Principal Amount, together with interest at the rate of Seven and one-half
percent (7.50%) per annum on such portion of the Total Principal Amount which has been advanced to
Borrower from the date advanced until paid as hereinafter provided. Interest on the indebtedness
evidenced by this Note shall be calculated on the basis of a three hundred sixty (360) day year.



     This Note is given in renewal, extension and modification, but not in extinguishment, of that
certain $10,000,000.00 Multiple Advance Term Promissory Note dated March 14, 2005, as modified
effective March 24, 2006, and further modified effective August 28, 2006, and is the $10,000,000.00
Multiple Advance Term Promissory Note referred to in the Fourth Amended and Restated dated March
14, 2005, by and between the Borrower, the Guarantor, and the Lender (the “Prior Loan
Agreement”). This Note is made pursuant to that certain Seventh Amended and Restated Loan
Agreement, as the same may be amended, supplemented or otherwise modified from time to time, the
“Loan Agreement”), by and among Borrower, the Guarantor, and the Lender, and is subject to
the terms and conditions thereof. Reference is made to the Loan Agreement for provisions for the
disbursement of funds hereunder and for a further statement of the rights, remedies, powers,
privileges, benefits, duties and obligations of Borrower, Guarantor and Lender under the Loan
Agreement and this Note. Terms used herein which are defined in the Loan Agreement shall have such
defined meanings unless otherwise defined herein. The holder of this Note shall be entitled to the
benefits of the Loan Agreement.



     Subject to the terms hereof and of the Loan Agreement, from the date of this Note until
maturity, the Lender will make Advances and Subsequent Advances under this Note in accordance with
the provisions of the Loan Agreement. The aggregate principal amount of all such Advances as may
be made by the Lender to the Borrower under this Note shall never exceed Sixteen Million Eight
Hundred Ninety-One Thousand One Hundred Five and 87/100 Dollars ($16,891,105.87).



     The principal of this Note shall be due and payable in (a) fifty-nine (59) consecutive monthly
installments which shall each be in an amount of $281,500.00, with the first such installment being
due and payable on November 1, 2006, and a like installment being due and payable on the first
(1st) day of each succeeding month, to and including September 1, 2011, and (b) one
final installment in an amount equal to all remaining unpaid principal and accrued and unpaid
interest on this Note shall be due and payable on October 1, 2011. Interest computed on



1









 




the unpaid balance of this Note, shall be due and payable monthly as it accrues, on the same dates
as, but in addition to, each installment of principal. All payments and prepayments shall be
applied first to accrued and unpaid interest, and the balance to principal. Partial prepayments of
principal shall be applied to the installments of principal thereof in the inverse order of their
maturity. All of the past due principal and accrued interest hereunder shall, at the option of
Lender, bear interest from maturity (stated or by acceleration) until paid at a rate per annum
equal to the Highest Lawful Rate. The interest rate on this Note is a fixed rate until maturity.
Any adjustment downward as a result or otherwise is subject to an adjustment fee.




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



     Time is of the essence of this Note. Upon the occurrence of any one or more of the Events of
Default specified in the Loan Agreement (after expiration of any applicable notice and cure
periods), all amounts then remaining unpaid on (a) this Note and (b) the Revolving Line of Credit
Promissory Note dated October 15, 2006, from Borrower to Lender in the original principal amount of
$40,000,000.00, shall become, or may be declared to be, immediately due and payable, all as
provided therein.



     Upon the occurrence and during the continuance of any Event of Default, or if Borrower or
Guarantor become insolvent, however evidenced, Lender is hereby authorized at any time and from
time to time, without prior notice to Borrower or Guarantor, to setoff and apply any and all
deposits (general or special, time or demand, provisional or final) at any time held or other
indebtedness at any time owing by Lender to or for the credit or the account of Borrower or
Guarantor against any and all of the Obligations, irrespective of whether or not Lender shall have
made any demand under the Loan Agreement or this Note and although such Obligations may be
unmatured. Lender agrees promptly to notify Borrower or Guarantor 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 paragraph are in addition to other rights
and remedies (including, without limitation, other rights of setoff) which Lender may have.



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



2









 





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



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



     THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE PREEMPTED BY APPLICABLE FEDERAL LAWS. THIS
NOTE HAS BEEN ENTERED INTO IN MIDLAND COUNTY, TEXAS, AND IT SHALL BE PERFORMABLE FOR ALL PURPOSES
IN MIDLAND COUNTY, TEXAS. COURTS WITHIN THE STATE OF TEXAS SHALL HAVE JURISDICTION OVER ANY AND
ALL DISPUTES BETWEEN BORROWER AND LENDER, WHETHER AT LAW OR IN EQUITY, AND VENUE IN ANY SUCH
DISPUTE, WHETHER IN FEDERAL OR STATE COURTS, SHALL BE LAID IN MIDLAND COUNTY, TEXAS. BORROWER
HEREBY CONSENTS TO PERSONAL



3









 




JURISDICTION IN MIDLAND COUNTY, TEXAS AND WAIVES ANY RIGHTS IT MAY HAVE TO BE SUED ELSEWHERE.




     BORROWER AND THE HOLDER OF THIS NOTE (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG BORROWER AND SUCH HOLDER ARISING
OUT OF OR IN ANY WAY RELATED TO THIS NOTE, AND OTHER LOAN DOCUMENT OR ANY RELATIONSHIP BETWEEN
HOLDER AND BORROWER RELATED TO THE LOAN EVIDENCED BY THE LOAN DOCUMENTS. THIS PROVISION IS A
MATERIAL INDUCEMENT TO THE HOLDER OF THIS NOTE TO PROVIDE THE FINANCING DESCRIBED HEREIN AND IN THE
OTHER LOAN DOCUMENTS.



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



	 	 	 	 	 
	 	NATURAL GAS SERVICES GROUP, INC.

 	 
	 	By:  	 	 
	 	 	Stephen C. Taylor, President 	 
	 




4









 








EXHIBIT “B”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK





 









 





REVOLVING LINE OF CREDIT PROMISSORY NOTE




			
	 	 	 
	$40,000,000.00
	 	October 15, 2006
	 	 	 





     FOR VALUE RECEIVED, in the manner, on the dates and in the amounts herein stipulated, NATURAL
GAS SERVICES GROUP, INC., a Colorado corporation (“Borrower”), hereby promises and agrees
to pay to the order of WESTERN NATIONAL BANK, a national banking association (“Lender”), in
Midland, Midland County, Texas, the principal sum of FORTY MILLION AND NO/100 DOLLARS
($40,000,000.00) (the “Total Principal Amount”), or such amount less than the Total
Principal Amount which is outstanding from time to time if the total amount outstanding under this
Promissory Note (this “Note”) is less than the Total Principal Amount, together with
interest at the rate of Seven and one-half percent (7.50%) per annum on such portion of the Total
Principal Amount which has been advanced to Borrower from the date advanced until paid as
hereinafter provided. Interest on the indebtedness evidenced by this Note shall be calculated on
the basis of a three hundred sixty (360) day year.



     This Note is given in renewal, extension and modification, but not in extinguishment, of that
certain Revolving Line of Credit Promissory Note dated January 3, 2006, in the original principal
amount of $2,000,000.00, as modified effective March 24, 2006, and further modified on August 28,
2006, which note was given in renewal, extension and modification, but not in extinguishment, of
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 May 1, 2005, which note was given in
renewal, extension and modification, but not extinguishment, of that certain Revolving Line of
Credit Promissory Note, dated May 28, 2004, in the original principal amount of $750,000.00, which
note was given in renewal, extension and modification, but not in extinguishment, of that certain
Revolving Line of Credit Promissory Note dated March 26, 2003, as modified effective March 15,
2004, by and between Borrower and Lender, and is the Revolving Line of Credit Promissory Note
referred to in the Second Amended and Restated Loan Agreement, dated as of November 3, 2003, as
subsequently amended and restated from time to time (the “Prior Loan Agreements”). This Note is
made pursuant to that certain Seventh Amended and Restated Loan Agreement, as the same may be
amended, supplemented or otherwise modified from time to time (the “Loan Agreement”), by
and among Borrower, the Guarantor, and the Lender, and is subject to the terms and conditions
thereof. Reference is made to the Loan Agreement for provisions for the disbursement of funds
hereunder and for a further statement of the rights, remedies, powers, privileges, benefits, duties
and obligations of Borrower and Lender under the Loan Agreement and this Note. Terms used herein
which are defined in the Loan Agreement shall have such defined meanings unless otherwise defined
herein. The holder of this Note shall be entitled to the benefits of the Loan Agreement.



     Advances and Subsequent Advances under this Note shall be made in accordance with the
provisions of the Loan Agreement. Subject to the terms hereof and of the Loan Agreement, Borrower
may borrow, repay and reborrow at any time and from time to time under this Note; provided,
however, that the principal sum outstanding hereunder at any one time shall never exceed the lesser
of (i) $40,000,000.00 or (ii) the amount available for advance under this Note calculated in
accordance with the terms of the Loan Agreement.



1









 





     Interest on the outstanding principal balance of this Note shall be due and payable monthly on
the first (1stth) day of each month, commencing November 1, 2006. The then outstanding
principal balance of this Note and all accrued and unpaid interest shall be due and payable on
October 1, 2008. All of the past due principal and accrued interest hereunder shall, at the option
of Lender, bear interest from maturity (stated or by acceleration) until paid at a rate per annum
equal to the Highest Lawful Rate. The interest rate on this Note is a fixed rate until maturity.
Any adjustment downward as a result of Borrower’s request or otherwise is subject to an adjustment
fee.



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



     Time is of the essence of this Note. Upon the occurrence of any one or more of the Events of
Default specified in the Loan Agreement (after expiration of any applicable notice and cure
periods), all amounts then remaining unpaid on (a) this Note and (b) the Multiple Advance Term Note
dated October 15, 2006, from Borrower to Lender in the original principal amount of $16,891,105.87,
shall become, or may be declared to be, immediately due and payable, all as provided therein.



     Upon the occurrence and during the continuance of any Event of Default, or if Borrower or
Guarantor become insolvent, however evidenced, Lender is hereby authorized at any time and from
time to time, without prior notice to Borrower or Guarantor, to setoff and apply any and all
deposits (general or special, time or demand, provisional or final) at any time held or other
indebtedness at any time owing by Lender to or for the credit or the account of Borrower or
Guarantor against any and all of the Obligations, irrespective of whether or not Lender shall have
made any demand under the Loan Agreement or this Note and although such Obligations may be
unmatured. Lender agrees promptly to notify Borrower or Guarantor 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 paragraph are in addition to other rights
and remedies (including, without limitation, other rights of setoff) which Lender may have.



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



2









 




(or to maintain perfection of) any lien on or security interest in any such security, in each case
in whole or in part, with or without notice, before or after maturity.




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



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



     THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE PREEMPTED BY APPLICABLE FEDERAL LAWS. THIS
NOTE HAS BEEN ENTERED INTO IN MIDLAND COUNTY, TEXAS, AND IT SHALL BE PERFORMABLE FOR ALL PURPOSES
IN MIDLAND COUNTY, TEXAS. COURTS WITHIN THE STATE OF TEXAS SHALL HAVE JURISDICTION OVER ANY AND
ALL DISPUTES BETWEEN BORROWER AND LENDER, WHETHER AT LAW OR IN EQUITY, AND VENUE IN ANY SUCH



3









 







DISPUTE, WHETHER IN FEDERAL OR STATE COURTS, SHALL BE LAID IN MIDLAND COUNTY, TEXAS. BORROWER
HEREBY CONSENTS TO PERSONAL JURISDICTION IN MIDLAND COUNTY, TEXAS AND WAIVES ANY RIGHTS IT MAY HAVE
TO BE SUED ELSEWHERE.



     BORROWER AND THE HOLDER OF THIS NOTE (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG BORROWER AND SUCH HOLDER ARISING
OUT OF OR IN ANY WAY RELATED TO THIS NOTE, AND OTHER LOAN DOCUMENT OR ANY RELATIONSHIP BETWEEN
HOLDER AND BORROWER RELATED TO THE LOAN EVIDENCED BY THE LOAN DOCUMENTS. THIS PROVISION IS A
MATERIAL INDUCEMENT TO THE HOLDER OF THIS NOTE TO PROVIDE THE FINANCING DESCRIBED HEREIN AND IN THE
OTHER LOAN DOCUMENTS.



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



	 	 	 	 	 	 	 
	 	 	NATURAL GAS SERVICES GROUP, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 	 	 	 	    Stephen C. Taylor, President	 	 







4









 








EXHIBIT “C”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK





 









 








REAL ESTATE MORTGAGE

WITH POWER OF SALE




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


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




SEE LEGAL DESCRIPTION ON ATTACHED EXHIBIT “A”



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



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



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





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




 









 











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




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




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




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




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





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




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




 









 







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



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



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



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



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



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

 









 








action may be taken to foreclose this Mortgage or to exercise rights under the Power of Sale
Mortgage Foreclosure Act, the Mortgagor agrees to pay the Mortgagee’s reasonable attorneys’ fees
incurred in taking such action.



If there is a foreclosure of this Mortgage other than by Power of Sale, Mortgagor waives
appraisement of the Mortgaged Property, unless Mortgagee seeks an appraisal. Appraisal shall be at
the sole option of the Mortgagee, to be declared when the petition to foreclose is filed or when
judgment is taken.



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



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



Effective as of January 3, 2005.




	 	 	 	 	 	 	 
	 	 	MORTGAGOR:	 	 
	 
	 	 	 	 	 	 
	 	 	Screw Compression Systems, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

     Paul D. Hensley, President
	 	 
	 
	 	 	 	 	 	 
	 	 	MORTGAGEE:	 	 
	 
	 	 	 	 	 	 
	 	 	Western National Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

     Scott A. Lovett
	 	 
	 

	 	 	 	     Executive Vice President	 	 






 









 






STATE OF OKLAHOMA



COUNTY OF ROGERS




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



	 	 	 	 	 
	 

	 	 

Notary Public, State of Oklahoma
	 	 






STATE OF TEXAS



COUNTY OF MIDLAND




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



	 	 	 	 	 
	 

	 	 

Notary Public, State of Texas
	 	 






 









 






EXHIBIT “A”

To

Real Estate Mortgage with Power of Sale





			
	Grantor:	 	Screw Compression Systems, Inc.

5725 Bird Creek Ave.

Catoosa, OK 74015






			
	Lender:	 	Western National Bank

508 W. Wall, Suite 1100

Midland, TX 79701





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



Description of Property:




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



	 	 	 
	Property Address:

	 	 5725 Bird Creek Avenue, Catoosa, OK 74015






	 	 	 	 	 	 	 
	 	 	GRANTOR:	 	 
	 
	 	 	 	 	 	 
	 	 	Screw Compression Systems, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

          Paul D. Hensley, President
	 	 
	 
	 	 	 	 	 	 
	 	 	LENDER:	 	 
	 
	 	 	 	 	 	 
	 	 	Western National Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

          Scott A. Lovett
	 	 
	 

	 	 	 	          Executive Vice President	 	 







 









 








EXHIBIT “C-1”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK





 









 








FIRST AMENDMENT TO

REAL ESTATE MORTGAGE

WITH POWER OF SALE




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


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




SEE LEGAL DESCRIPTION ON ATTACHED EXHIBIT “A”




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


The Mortgage was evidenced by that certain Real Estate Mortgage With Power of Sale dated January 3,
2005, recorded in Book 1661, page 528, Rogers County, State of Oklahoma (the “Real Estate
Mortgage”) which was given to secure the obligations of Mortgagor as defined therein (the “Debt”),
including, without limitation, payment of the following described note executed pursuant to that
certain Third Amended and Restated Loan Agreement dated January 3, 2005, by and between Natural Gas
Services Group, Inc., as Borrower (the “Borrower”), Mortgagor, as Guarantor, and Mortgagee:





Term Promissory Note dated January 3, 2005, executed by Mortgagor and payable
to the order of Mortgage in the original principal sum of $1,415, 836.00, as
modified effective May 1, 2005 (the “Note”); and



1









 





     WHEREAS, Mortgagee is the holder and owner of the Note; and




     WHEREAS, Mortgagee hereby acknowledges payment of the Note and releases its lien insofar and
only insofar as to the Note; and



     WHEREAS, pursuant to the Third Amended and Restated Loan Agreement dated January 3, 2005, by
and between Borrower, Mortgagor and Mortgagee, Mortgagee issued to Borrower those certain Letters
of Credit dated January 3, 2005, in the aggregate sum of $2,000,000.00 (the “Letters of Credit”);
and



     WHEREAS, pursuant to the Fifth Amended and Restated Loan Agreement dated September 26, 2005,
Mortgagor has agreed to guarantee the Letters of Credit and to pledge the Mortgaged Property to
secure the Letters of Credit; and



     WHEREAS, Mortgagor and Mortgagee agree to amend the Real Estate Mortgage to secure as part of
the Debt the Letters of Credit, in addition to all other sums secured as part of the Debt, and to
delete the Note as part of the Debt secured by the Real Estate Mortgage.



     NOW, THEREFORE, for sufficient consideration, the receipt of which is hereby acknowledged, the
undersigned do hereby amend the Real Estate Mortgage to secure as part of the Letters of Credit, in
addition to all other sums secured as part of the Debt, and to delete the Note as part of the Debt
secured by the Real Estate Mortgage.



     The undersigned ratify and confirm the Real Estate Mortgage, as herein amended, for all
purposes.



     Effective as of September 26, 2005.



	 	 	 	 	 	 	 
	 	 	MORTGAGOR:	 	 
	 
	 	 	 	 	 	 
	 	 	Screw Compression Systems, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

          Paul D. Hensley, President
	 	 
	 
	 	 	 	 	 	 
	 	 	MORTGAGEE:	 	 
	 
	 	 	 	 	 	 
	 	 	Western National Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

          Scott A. Lovett
	 	 
	 

	 	 	 	          Executive Vice President	 	 







2









 








	 	 	 
	STATE OF OKLAHOMA

	 	§
	 

	 	§
	COUNTY OF ROGERS

	 	§






     The foregoing instrument was acknowledged before me on the                      day of
September, 2005, by Paul D. Hensley, President of Screw Compression Systems, Inc., a Texas
corporation, on behalf of said corporation.



	 	 	 	 	 
	 

	 	 

Notary Public, State of Oklahoma
	 	 






	 	 	 
	STATE OF TEXAS

	 	§
	 

	 	§
	COUNTY OF MIDLAND

	 	§






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



	 	 	 	 	 
	 

	 	 

Notary Public, State of Texas
	 	 






3









 






EXHIBIT “A”

To

First Amendment to Real Estate Mortgage

With Power of Sale





			
	Mortgagor:	 	Screw Compression Systems, Inc.

5725 Bird Creek Ave.

Catoosa, OK 74015







			
	Mortgagee:	 	Western National Bank

508 W. Wall, Suite 1100

Midland, TX 79701





     This Exhibit attaches to and it and the provisions described below become a permanent part of
that certain First Amendment to Real Estate Mortgage with Power of Sale effective as of September
26, 2005, between the above referenced Mortgagor and Mortgagee.



Description of Property:



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



	 	 	 
	Property Address:

	 	 5725 Bird Creek Avenue, Catoosa, OK 74015






	 	 	 	 	 	 	 
	 	 	MORTGAGOR:	 	 
	 
	 	 	 	 	 	 
	 	 	Screw Compression Systems, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

          Paul D. Hensley, President
	 	 
	 
	 	 	 	 	 	 
	 	 	MORTGAGEE:	 	 
	 
	 	 	 	 	 	 
	 	 	Western National Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

          Scott A. Lovett
	 	 
	 

	 	 	 	          Executive Vice President	 	 







4









 








EXHIBIT “D”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK





 









 








GROSS ASSETS AVAILABLE FOR BORROWING BASE CALCULATION




FOR THE MONTH ENDED ___, 200___




Borrowing Base Calculation:




	 	 	 	 	 	 	 
	A.	 	Trade Accounts Receivable of Borrower
and Guarantor(1)
	 	$	                    	 
	 	 	 
	 	 	 	 
	B.	 	Less Trade Accounts Receivable of Borrower
and Guarantor over 90 days
	 	$	                    	 
	 
	C.	 	Net Allowable Accounts Receivable
of Borrower and Guarantor (A-B)
	 	$	                    	 
	 
	D.	 	Lease Receivable(2)
	 	$	                    	 
	 	 	 
	 	 	 	 
	E.	 	Total Accounts Receivable
of Borrower and Guarantor (C+D)
	 	$	                    	 
	 	 	 
	 	 	 	 
	F.	 	Discounted Receivables of
Borrower and Guarantor (E x 75%)
	 	$	                    	 
	 	 	 
	 	 	 	 
	G.	 	Leased equipment at NBV
	 	$	                    	 
	 	 	 
	 	 	 	 
	H.	 	Discounted equipment (G x 70%)
	 	$	                    	 
	 	 	 
	 	 	 	 
	I.	 	Work in Process
	 	$	                    	 
	 	 	 
	 	 	 	 
	J.	 	Discounted Work in Process (I x 50%)
	 	$	                    	 
	 	 	 
	 	 	 	 
	K.	 	Inventory of Borrower and Guarantor(3)
	 	$	                    	 
	 
	L.	 	Total Inventory of Borrower and Guarantor (I+J)
	 	$	                    	 
	 
	M.	 	Discounted Inventory of Borrower
and Guarantor (K x 50%)
	 	$	                    	 
	 	 	 
	 	 	 	 
	N.	 	Borrowing Base (F+H+M)
	 	$	                    	 
	 	 	 
	 	 	 	 
	O.	 	Less
Principal Balance of Multiple Advance Term Promissory Note
	 	$	(                    	)
	 
	P.	 	Less Principal Balance of the Revolving
Line of Credit Promissory Note
	 	$	(                    	)
	 	 	 
	 	 	 	 
	Q.	 	Borrowing Base Excess or Deficit (Q-R)
	 	$	                    	 








 




			
	(1)	 	For purposes of the Borrowing Base calculation pursuant hereto and the Seventh Amended and
Restated Loan Agreement to which this Report is delivered, “Trade Accounts Receivable” means
the face amount (less maximum discounts, credits and allowances that may be taken by or
granted to account debtors in connection therewith) of Borrower’s and Guarantor’s trade
accounts receivable, all as determined in accordance with generally accepted accounting
principles.
	 
	(2)	 	Includes, without limitation, leases of equipment to third parties and classified as
sales-type leases or operating leases.






 










 






	(3)	 	“Inventory” means all inventory, wherever located, in which the Borrower has any right,
title or interest, including, without limitation, all goods and other personal property owned
by the Borrower or Guarantor which are held for sale or lease or are furnished or are to be
furnished under a contract of service or which constitute raw materials, work in process or
materials used or consumed or to be used or consumed in the business of the Borrower or
Guarantor, or in the processing, packaging or shipping of the same, and all finished goods,
including, but not limited to all inventory classified as such on a consolidated balance sheet
of Borrower or Guarantor.
	 
	(4)	 	Subject to the limitation of Section 2.1 of the Seventh Amended and Restated Loan Agreement.





Dated:                                         




	 	 	 	 	 	 	 
	Prepared by:	 	 	 	 
	 

	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 
	 	 	 	 	 
	Title:
	 	 	 	 	 	 
	 	 	 	 	 





 









 





EXHIBIT “E”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK




 









 





NOTICE OF BORROWING




Western National Bank

508 W. Wall, Suite 1100

Midland, Texas 79701




Attention: Scott A. Lovett



Gentlemen:




     Pursuant to the provisions of Section 2.2 of the Seventh Amended and Restated Loan Agreement
(the “Loan Agreement”), dated September 15, 2006, by and among you, the undersigned and the
guarantor thereto, this letter confirms to you that (i) the undersigned has requested a Subsequent
Advance in the amount of $                     to be made under the [Multiple
Advance Term Promissory Note] [Revolving Line of Credit Promissory Note] and (ii) there is not in
existence any Event of Default at the date set forth below.



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



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



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




	 	 	 	 	 	 	 	 	 
	 	 	NATURAL GAS SERVICES GROUP, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 	 	 





 









 





EXHIBIT “F”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK




 









 





STOCK PLEDGE AGREEMENT




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



W I T N E S S E T H




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



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



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



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




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




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




 









 






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




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




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




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



     2. Pledge; Grant of Security Interest. The Pledgor hereby delivers to the Lender all
the Pledged Stock and hereby grants to the Lender, a first and prior security interest and Bank
Lien in the Collateral, as collateral security for the prompt and complete payment and performance
when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.



     3. Stock Powers. Concurrently with the delivery to the Lender of each certificate
representing one or more shares of Pledged Stock to the Lender, the



2









 







Pledgor shall deliver an undated stock power covering such certificate, duly executed in blank by
the Pledgor with, if the Lender so requests, signature guaranteed.



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




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




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




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




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




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



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




     (a) If the Pledgor shall, as a result of its ownership of the Pledged Stock, become
entitled to receive or shall receive any stock or other security, whether certificated or
uncertificated (including, without limitation, any certificate representing a stock dividend
or a distribution in connection with any reclassification, increase or reduction of capital
or any certificate issued in connection with any reorganization), option or rights, whether
in addition to, in substitution of, as a conversion of, or in exchange for any shares of the
Pledged Stock, or otherwise in respect



3









 




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





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




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



4









 






instrument or chattel paper, such note, instrument or chattel paper shall be immediately
delivered to the Lender, duly endorsed in a manner satisfactory to the Lender, to be held as
Collateral pursuant to this Stock Pledge Agreement.




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




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



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



     7. Rights of the Lender. (a) If an Event of Default shall occur and be continuing
and the Lender shall give notice of its intent to exercise such rights to the Pledgor, (i) the
Lender shall have the right to receive any and all cash dividends paid in respect of the Pledged
Stock and make application thereof to the Obligations in such order as the Lender may determine and
(ii) all shares of



5









 







the Pledged Stock shall be registered in the name of the Lender or its nominee, and the Lender or
its nominee may thereafter exercise (A) all voting, corporate and other rights pertaining to such
shares of the Pledged Stock at any meeting of shareholders of the Issuer or otherwise and (B) any
and all right of conversion, exchange, subscription and any other rights, privileges or options
pertaining to such shares of the Pledged Stock as if it were the absolute owner thereof (including,
without limitation, the right to exchange at its discretion any and all of the Pledged Stock upon
the merger, conversion, consolidation, reorganization, recapitalization or other fundamental change
in the corporate structure of the Issuer, or upon the exercise by the Pledgor or the Lender of any
rights, privilege or option pertaining to such shares of the Pledged Stock, and in connection
therewith, the right to deposit and deliver any and all of the Pledged Stock with any committee,
depositary, transfer agent, registrar or other designated agency upon such terms and conditions as
it may determine).



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



     8. Remedies. If an Event of Default shall occur and be continuing, the Lender may
exercise, in addition to all other rights and remedies granted in this Stock Pledge Agreement and
in any other instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the Code. Without limiting the generality of the
foregoing, the Lender, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind to or upon the Pledgor, the Issuer or any other person (all and
each of which demands, defenses, advertisements and notices are hereby waived) may in such
circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may forthwith sell, assign, give option or options to purchase or otherwise dispose
of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, in the over-the-counter market, at any
exchange, broker’s board or office of the Lender or elsewhere upon such terms and conditions as
Lender may deem advisable and at such prices as Lender may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. The Lender shall



6









 







have the right upon any such public sale or sales, and, to the extent permitted by law, upon any
such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in the Pledgor, which right or equity is hereby waived or
released. The Lender shall apply any Proceeds from time to time held by it and the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred in respect thereof or incidental to the care
or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of
the Lender hereunder, including, without limitation, reasonable attorneys’ fees and disbursements
of counsel to the Lender, to the payment in whole or in part of the Obligations, in such order as
the Lender may elect, and only after such application and after the payment by the Lender of any
other amount required by any provision of law, including, without limitation, Section 9.615(a)(3)
of the Code, need the Lender account for the surplus, if any, to the Pledgor. To the extent
permitted by applicable law, the Pledgor waives all claims, damages and demands it may acquire
against the Lender arising out of the exercise by it of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral is required by law and may not be waived, such
notice shall be deemed reasonable and proper if given at least 10 days before such sale or other
disposition.



     9. Private Sales. (a) If the Lender exercises its right to sell any or all of the
Pledged Stock pursuant to paragraph 8 hereof, the Pledgor recognizes that the Lender may be unable
to effect a public sale of any or all the Pledged Stock, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended (the “Securities Act”), and applicable
state securities laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree, among other things, to
acquire such securities for their own account for investment and not with a view to the
distribution or resale thereof. The Pledgor acknowledges and agrees that any such private sale may
result in prices and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. The Lender shall be under no obligation to delay a sale
of any of the Pledged Stock for the period of time necessary to permit the Issuer to register such
securities for public sale under the Securities Act, or under applicable state securities laws,
even if the Issuer would agree to do so.



     (b) The Pledgor further agrees to use its best efforts to do or cause to be done all such
other acts as may be necessary to make such sale or sales of all or any portion of the Pledged
Stock pursuant to this paragraph 9 valid and binding and in compliance with any and all other
applicable Requirements of



7









 







Law. The Pledgor further agrees that a breach of any of the covenants contained in this paragraph
9 will cause irreparable injury to the Lender, that the Lender has no adequate remedy at law in
respect of such breach and, as a consequence, that each and every covenant contained in this
paragraph 9 shall be specifically enforceable against the Pledgor, and the Pledgor hereby waives
and agrees not to assert any defenses against an action for specific performance of such covenants,
except for a defense that no Event of Default has occurred under the Loan Agreement.



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



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



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



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



     14. No Waiver; Cumulative Remedies. The Lender shall not by any act (except by a
written instrument pursuant to paragraph 15 hereof) be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Event of Default under the Loan Agreement or in any breach
of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of the Lender, any rights, powers or privileges hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Lender of any right or



8









 







remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which
the Lender would otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights
or remedies provided by law.



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



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



     16. Notices. Notices by the Lender to the Pledgor or the Issuer may be given by mail,
by telegraph or by facsimile transmission, addressed or transmitted to the appropriate party at the
Pledgor’s address set forth in the Loan Agreement and shall be effective (a) in the case of mail,
three days after deposit in the postal system, postage pre-paid, (b) in the case of facsimile
notices, when sent and (c) in the case of telegraphic notice, when delivered to the telegraph
company. The Pledgor and the Issuer may change their respective addresses and transmission numbers
by written notice to the Lender.



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



9









 





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



	 	 	 	 	 
	 	NATURAL GAS SERVICES GROUP, INC.

 	 
	 	By:  	 	 
	 	 	Wallace C. Sparkman, President 	 
	 	 	 	 
	 
	 	WESTERN NATIONAL BANK

 	 
	 	By:  	 	 
	 	 	Scott A. Lovett, Executive 	 
	 	 	Vice President 	 
	 




10









 





ANNEX I




ACKNOWLEDGMENT AND CONSENT




     The Issuer referred to in the foregoing Stock Pledge Agreement hereby (i) consents to the
pledge of the Pledged Stock and waives any and all restrictions applicable thereto, (ii)
acknowledges receipt of a copy of the Stock Pledge Agreement and (iii) agrees to be bound thereby
and to comply with the terms thereof insofar as such terms are applicable to it. The Issuer agrees
to notify the Lender promptly in writing of the occurrence of any of the events described in
paragraph 5(a) of the Stock Pledge Agreement.



	 	 	 	 	 
	 	SCREW COMPRESSION SYSTEMS, INC.

 	 
	 	By:  	 	 
	 	 	Paul D. Hensley, President 	 
	 	 	 	 
	 




 









 





SCHEDULE I

TO

STOCK PLEDGE AGREEMENT




DESCRIPTION OF PLEDGED STOCK




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








 




			
	*	 	Common unless otherwise indicated





 









 





EXHIBIT “G”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK




 









 





SECURITY AGREEMENT




     THIS SECURITY AGREEMENT (“Security Agreement”), dated as of  October 15,
2006, is made by NATURAL GAS SERVICES GROUP, INC., a Colorado corporation, with its principal
offices at 2911 S. CR 1260, Midland, Texas 79706 in favor of WESTERN NATIONAL BANK, a national
banking association with banking quarters at 508 West Wall, Suite 1100, Midland, Texas 79701.



     WHEREAS, Natural Gas Services Group, Inc. and Western National Bank executed that certain
Seventh Amended and Restated Loan Agreement, dated October 15, 2006, (said Seventh Amended and
Restated Loan Agreement, together with all amendments and supplements thereto, is herein called the
“Loan Agreement”), pursuant to which Western National Bank agreed, subject to certain terms
and conditions therein stated, to make loans to Natural Gas Services Group, Inc., as evidenced by
the following notes from Natural Gas Services Group, Inc. to Western National Bank: (i) Multiple
Advance Term Promissory Note dated October 15, 2006, in the original principal amount of
$16,891,105.87; and (ii) Revolving Line of Credit Promissory Note dated October 15, 2006, in the
original principal amount of $40,000,000.00 (collectively, “the Notes”), and as provided in the
Loan Agreement;



     WHEREAS, Natural Gas Services Group, Inc. has previously executed and delivered to Western
National Bank that certain Security Agreement, dated as of March 26, 2003, as amended and restated
in that certain Security Agreement dated as of November 3, 2003, and further amended and restated
in that certain Security Agreement dated as of January 3, 2005, and further amended and restated in
that certain Security Agreement dated as of March 14, 2005, and further amended and restated in
that certain Security Agreement dated as of September 26, 2005 and further amended and restated in
that certain Security Agreement dated as of January 3, 2006 (the “Prior Security Agreement”); and



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



 









 







Agreement, and Natural Gas Services Group, Inc. has agreed to make and deliver this Security
Agreement.



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



SECTION 1. DEFINITIONS




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



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



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



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



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



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



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



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



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



3









 







indirect, fixed, contingent, liquidated, unliquidated, joint, several, or joint and several or
were, prior to acquisition thereof by Lender, owed to some other person.



     (i) “Proceeds” means all “proceeds” as such term is defined in Section 9.102(a)(65) of
the UCC and, in any event, shall mean and include, but not be limited to, the following at any time
whatsoever arising or receivable: (i) whatever is received upon any collection, exchange, sale or
other disposition of any of the Collateral, and any property into which any of the Collateral is
converted, whether cash or non-cash proceeds, (ii) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Debtor from time to time with respect to any of the
Collateral, and (iii) any and all payments (in any form whatsoever) made or due and payable to
Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental body, authority, bureau or
agency (or any person acting under color of Governmental Authority).



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



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



SECTION 2. GRANT OF SECURITY INTEREST




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




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




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





SECTION 3. DEBTOR’S REPRESENTATIONS AND WARRANTIES




     The Debtor hereby represents and warrants that:



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



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



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



5









 







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



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



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



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



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



6









 







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



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



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



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



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



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



7









 





SECTION 4. DEBTOR’S COVENANTS




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



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



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



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



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



8









 







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



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



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



9









 





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



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



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



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



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



10









 





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



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



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



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



     (p) Maintenance of Insurance. The Debtor will maintain, with financially sound and
reputable companies, insurance policies (i) insuring the Equipment and Inventory against loss by
fire, explosion, theft and such other casualties as may be reasonably satisfactory to the Secured
Party and (ii) insuring the Debtor and the Secured Party against liability for personal injury and
property damage relating to such Equipment and Inventory, such policies to be in such form and
amounts and having such coverage as may be reasonably satisfactory to the Secured Party, with
losses payable to the Debtor and the Secured Party as its interests may appear. All such insurance
shall (i) provide that no cancellation, material reduction in amount or material change in coverage
thereof shall be effective until at least thirty (30) days after



11









 







receipt by the Secured Party of written notice thereof, (ii) name the Secured Party as insured
party, and (iii) be reasonably satisfactory in all other respects to the Secured Party. The Debtor
shall deliver to the Secured Party a report of a reputable insurance broker or agent with respect
to such insurance during a month specified by the Secured Party in its discretion in each calendar
year and such supplemental reports with respect thereto as the Secured Party may from time to time
reasonably request.



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



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



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



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




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



12









 





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




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




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




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




     (3) upon the occurrence and during the continuance of any Event of Default, (a) to
direct any party liable for any payment under any of the Collateral to make payment of any
and all moneys due or to become due thereunder directly to the Secured Party or as the
Secured Party shall direct; (b) to ask for or demand, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to become due at any time
in respect of or arising out of any Collateral; (c) to sign and indorse any invoices,



13









 






freight or express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in connection with any of
the Collateral; (d) to commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the Collateral or any thereof and
to enforce any other right in respect of any Collateral; (e) to defend any suit, action or
proceeding brought against the Debtor with respect to any Collateral; (f) to settle,
compromise or adjust any suit, action or proceeding described in the preceding clause and,
in connection therewith, to give such discharges or releases as the Secured Party may deem
appropriate; and (g) generally, to sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and completely as though
the Secured Party were the absolute owner thereof for all purposes, and to do, at the
Secured Party’s option and the Debtor’s expense, at any time, or from time to time, all acts
and things which the Secured Party deems necessary to protect, preserve or realize upon the
Collateral and the Bank Liens of the Secured Party thereon and to effect the intent of this
Security Agreement, all as fully and effectively as the Debtor might do.




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



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



SECTION 7. PROCEEDS




     In addition to the rights of the Secured Party specified in Section 9 with respect to payments
of Accounts, it is agreed that if an Event of Default shall occur and be continuing (i) all
Proceeds received by the Debtor consisting of cash, checks and other near-cash items shall be held
by the Debtor, in trust for the Secured Party, segregated from other funds of the Debtor, and
shall, forthwith upon receipt by the Debtor, be turned over to the Secured Party in the exact form
received by the Debtor (duly indorsed by the Debtor to the Secured Party), and (ii) any and all
such Proceeds received by the Secured Party (whether from the Debtor or



14









 







otherwise) may, in the sole discretion of the Secured Party, be held by the Secured Party for the
Secured Party as collateral security for, and/or then or at any time thereafter may be applied by
the Secured Party against, the Obligations (whether matured or unmatured), such application to be
in such order as the Secured Party shall elect. Any balance of such Proceeds remaining after the
Obligations shall have been paid in full shall be paid over to the Debtor or to whomsoever may be
lawfully entitled to receive the same.



SECTION 8. EVENTS OF DEFAULT




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




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




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




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



15









 






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




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




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




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




     (i) the occurrence of a Change of Control;




     (j) final judgment or judgments shall be entered against Debtor or any of its
Subsidiaries involving in the aggregate a liability (not paid or fully covered by
insurance or



16









 






not otherwise covered by indemnity agreements acceptable to Secured Party in its
sole discretion) of $100,000.00 or more, and such judgment or judgments shall not
have been vacated, discharged, stayed or bonded pending appeal within 60 days from
the entry thereof; or




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



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




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



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



     (c) Collections on Accounts and Contracts. The Secured Party hereby authorizes the
Debtor to collect the Accounts and Contracts, subject to the Secured Party’s direction and control,
and the Secured Party may curtail or terminate said authority at any time. If required by the
Secured Party at any time, any payments of Accounts and Contracts, when collected by the Debtor,
shall be forthwith (and, in any event, within two Business Days) deposited by the Debtor in the
exact form received, duly indorsed by the Debtor to the Secured Party if required, in a special
collateral account maintained by the Secured Party, subject to withdrawal by the Secured Party for
the account of the Secured Party only, as provided in this Security Agreement, and, until so turned
over,



17









 







shall be held by the Debtor in trust for the Secured Party, segregated from other funds of the
Debtor. All Proceeds while held by the Secured Party (or by the Debtor in trust for the Secured
Party) shall continue to be collateral security for all of the Obligations and shall not constitute
payment thereof until applied as provided in this Security Agreement. At such intervals as may be
agreed upon by the Debtor and the Secured Party, or, if an Event of Default shall have occurred and
be continuing, at any time at the Secured Party’s election, the Secured Party shall apply all or
any part of the funds on deposit in said special collateral account on account of the Obligations
in such order as the Secured Party may elect, and any part of such funds which the Secured Party
elects not so to apply and deems not required as collateral security for the Obligations shall be
paid over from time to time by the Secured Party to the Debtor or to whomsoever may be lawfully
entitled to receive the same. At the Secured Party’s request, the Debtor shall deliver to the
Secured Party all original and other documents evidencing, and relating to, the agreements and
transactions which gave rise to the Accounts and Contracts, including, without limitation, all
original orders, invoices and shipping receipts.



     (d) Remedies; Acceleration of Maturity of Obligations; Repossession and Sale of
Collateral. At any time after an Event of Default occurs and is continuing, Secured Party may
declare every Obligation to be immediately due and payable and may exercise, in addition to all
other rights and remedies granted to it in this Security Agreement, the Loan Agreement and in any
of the other Loan Papers securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the UCC. Without limiting the generality of the foregoing, the
Secured Party, without demand of performance or other demand, presentment, protest, advertisement
or notice of any kind (except any notice required by law referred to below) to or upon the Debtor
or any other person (all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to
do any of the foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker’s board or office of the Secured Party or elsewhere upon such terms and conditions
as Secured Party may deem advisable and at such prices as Secured Party may deem best, for cash or
on credit or for future delivery without assumption of any credit risk. The Secured Party shall
have the right upon any such public sale or sales, and, to the extent permitted by law, upon any
such private sale or sales, to purchase



18









 







the whole or any part of the Collateral so sold, free of any right or equity of redemption in the
Debtor, which right or equity is hereby waived or released. The Debtor further agrees, at the
Secured Party’s request, to assemble the Collateral and make it available to the Secured Party at
places which the Secured Party shall reasonably select, whether at the Debtor’s premises or
elsewhere. The Secured Party shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of
every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in
any way relating to the Collateral or the rights of the Secured Party hereunder, including, without
limitation, reasonable attorneys’ fees and disbursements, to the payment in whole or in part of the
Obligations, in such order as the Secured Party may elect, and only after such application and
after the payment by the Secured Party of any other amount required by any provision of law, need
the Secured Party account for the surplus, if any, to the Debtor. To the extent permitted by
applicable law, the Debtor waives all claims, damages and demands it may acquire against the
Secured Party arising out of the exercise by it of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least ten (10) days before such sale or other disposition.
The Debtor shall remain liable for any deficiency if the proceeds of any sale or other disposition
of the Collateral are insufficient to pay the Obligations and the fees and disbursements of any
attorneys employed by the Secured Party to collect such deficiency.



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



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




     (a) Limitations on Secured Party’s Obligations Under Accounts and Contracts. The
Secured Party shall not have any obligation or liability under any Account (or any agreement giving
rise thereto) or Contract by reason of or arising out of this Security Agreement or the receipt by
the Secured Party of any payment relating to such Account or Contract pursuant hereto, nor shall
the Secured Party be obligated in any manner to perform any of the obligations of the Debtor
thereof under



19









 







or pursuant to any Account (or any agreement giving rise thereto) or under or pursuant to any
Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any
payment received by it or as to the sufficiency of any performance by any party under any Account
(or any agreement giving rise thereto) or under any Contract, to present or file any claim, to take
any action to enforce any performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.



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



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



SECTION 11. GENERAL PROVISIONS




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



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



20









 





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



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



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



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



     (g) GOVERNING LAW. THE LAW GOVERNING THIS SECURED TRANSACTION SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF TEXAS; PROVIDED,



21









 







HOWEVER, THAT THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ANY OF THE COLLATERAL SITUATED IN
ANY OTHER STATE MAY BE GOVERNED BY THE LAWS OF SUCH OTHER STATE.



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



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



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



     SECTION 12. AMENDMENT AND RESTATEMENT.



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




22










 





     EXECUTED as of the date first above written.



	 	 	 	 	 	 	 	 	 
	 	 	SECURED PARTY	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	WESTERN NATIONAL BANK
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

Scott A. Lovett, Executive Vice President
	 	 






	 	 	 	 	 	 	 	 	 
	 	 	DEBTOR	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	NATURAL GAS SERVICES GROUP, INC.
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

Stephen C. Taylor, President
	 	 






23









 





EXHIBIT “A”

TO SECURITY AGREEMENT




LOCATION OF COLLATERAL



2911 S. CR 1260

Midland, Texas 79706




 









 








EXHIBIT “H”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK




 









 





NATURAL GAS SERVICES GROUP, INC.




OFFICER’S CERTIFICATE




     I, Stephen C. Taylor, the duly elected and acting President of Natural Gas Services Group,
Inc., a Colorado corporation (the “Company”), hereby certify for and on behalf of the
Company as follows in connection with the consummation of the transactions contemplated by that
certain Seventh Amended and Restated Loan Agreement dated as of October 15, 2006 (the “Loan
Agreement”), among the Company, Western National Bank, and Screw Compression Systems, Inc.:



     (1) Exhibit 1 attached hereto contains true and correct copies of Certificates of
Existence and Good Standing of the Company.



     (2) Exhibit 2 attached hereto contains true and correct copies of resolutions duly
adopted by the Board of Directors of the Company and such resolutions are in full force and effect
on the date hereof, and such resolutions have not been rescinded or modified in any respect.



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



     (4) Exhibit 4 attached hereto contains true, complete and correct copies of the bylaws
of the Company, as the same may have been amended from time to time.



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



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



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



     IN WITNESS WHEREOF, I have hereunto set my hand as of October 15, 2006.



	 	 	 	 	 
	 

	 	 

Stephen C. Taylor, President
	 	 






 









 





Exhibit 1




CERTIFICATES




 









 





Exhibit 2




BORROWING RESOLUTIONS




RESOLUTIONS ADOPTED BY

UNANIMOUS WRITTEN CONSENT

OF THE BOARD OF DIRECTORS

OF NATURAL GAS SERVICES GROUP, INC.




     WHEREAS, Natural Gas Services Group, Inc. (the “Company”), Screw Compression Systems,
as Guarantor (“SCS”), and Western National Bank, Midland, Texas (the “Lender”) are
parties to that certain Sixth Amended and Restated Loan Agreement dated as of January 3, 2006,
(the “Loan Agreement”), providing for the loans to the Company and the other matters
described therein; and



     WHEREAS, the Company proposes to consolidate and refinance and increase its indebtedness to
the Lender for the purposes of providing funds for general working capital and potential
acquisitions, and, in connection therewith, to amend, restate and otherwise modify or supplement
the Loan Agreement;



     WHEREAS, the proposed loan to the Company will be evidenced by the renewal and extension and
increase in the principal amount of the Revolving Line of Credit Promissory Note to $40,000,000.00,
and by the consolidation and refinancing of the existing term loans of the Company in the form of a
Multiple Advance Term Note in the principal amount of $16,891,105.87 (the “Notes”) upon and
containing terms to be negotiated and agreed upon by Lender and this Company;



     WHEREAS, the Company and the Lender have agreed to the contemplated transaction, and to
evidence same, the Company has agreed to execute and deliver to Lender that certain Seventh Amended
and Restated Loan Agreement, the Notes, and such other related loan documents as Lender deems
necessary.



     NOW, THEREFORE, BE IT RESOLVED, that this Company be, and it hereby is, authorized and
empowered to enter into the contemplated transaction described herein; and



     FURTHER RESOLVED, that the Seventh Amended and Restated Loan Agreement, the Notes, and
related loan documents submitted to this Board of Directors be, and they hereby are, approved in
all respects; and



     RESOLVED FURTHER, that Stephen C. Taylor, the President of this Company, be, and he hereby is,
authorized, empowered and directed, for and on behalf of this Company, to negotiate the terms of
and to execute (together with, if required, any Vice President, Secretary or Assistant Secretary of
the Company) and deliver to the Lender the Seventh Amended and Restated Loan Agreement, the Notes,
and all such other documents and agreements required to evidence the contemplated transaction, for
and on behalf of the Company, together with such



 









 




changes and additional terms and conditions therein as he shall approve, as conclusively evidenced
by his execution and delivery thereof, and take all such further and other action in connection
with the resolutions hereinabove adopted as he deems necessary, advisable or proper to effectuate
the intent and purposes of these resolutions;




     RESOLVED FURTHER, that any and all action heretofore taken by Stephen C. Taylor, the President
of this Company, or any other officer or director of this Company within the terms of the foregoing
recitations and resolutions be, and they hereby are, ratified and confirmed as the act and deed of
this Company.



     FURTHER RESOLVED, that this Unanimous Written Consent of the Directors of the Company may be
executed in any number of multiple counterparts, all of which together shall constitute one and the
same instrument.



     DATED effective October 15, 2006.



	 	 	 	 	 
	 

	 	 

     Wallace Sellers
	 	 
	 
	 	 	 	 
	 

	 	 

     Charles Curtis
	 	 
	 
	 	 	 	 
	 

	 	 

     Gene A. Strasheim
	 	 
	 
	 	 	 	 
	 

	 	 

     Wallace Sparkman
	 	 
	 
	 	 	 	 
	 

	 	 

     Richard L. Yadon
	 	 
	 
	 	 	 	 
	 

	 	 

     Paul D. Hensley
	 	 
	 
	 	 	 	 
	 

	 	 

     William F. Hughes
	 	 






 









 





Exhibit 3




ARTICLES OF INCORPORATION




 









 





Exhibit 4




BYLAWS




 









 





EXHIBIT “I”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK




 









 





GUARANTY AGREEMENT




     This GUARANTY AGREEMENT (this “Guaranty”), dated as of October 15, 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
Seventh Amended and Restated Loan Agreement, dated as of October 15, 2006 (said Seventh 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 October 15,
2006, in the original principal amount of $16,891,105.87; and (ii) Revolving Line of Credit
Promissory Note dated October 15, 2006, in the original principal amount of $40,000,000.00
(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



2









 






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



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



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



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



     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,



3









 




notice of acceleration of the maturity, or any other notice whatsoever, pay in lawful money of the
United States of America, the amount due on the Guaranteed Debt to Lender at Lender’s address as
set forth herein. Such demand(s) may be made at any time coincident with or after the time for
payment of all or part of the Guaranteed Debt, and may be made from time to time with respect to
the same or different items of Guaranteed Debt. Such demand shall be deemed made, given and
received in accordance with the notice provisions hereof.




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



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



4









 




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. Guarantor acknowledges its obligation to pay all
attorneys’ fees incurred by Lender in defending avoidance actions brought against lender to recover
any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Debt.



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



5









 




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.



6









 





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



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



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



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



7









 




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




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



     2.9 Unenforceability. The fact that any collateral, security, security interest or
lien contemplated or intended to be given, created or granted as security for the repayment of the
Guaranteed Debt, or any part thereof, shall not be properly perfected or created, or shall prove to
be unenforceable or subordinate to any other security interest or lien, it being recognized and
agreed by 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.



8









 





     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 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



9









 




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.



     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



10









 




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



11









 




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 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.



12









 





ARTICLE 5




AFFIRMATIVE COVENANTS




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




ARTICLE 6




MISCELLANEOUS




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



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


Guarantor



Screw Compression Systems, Inc.

5725 Bird Creek Avenue

Catoosa, Oklahoma 74015



Attention: Stephen C. Taylor, President




13









 







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 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



14









 




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 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



15









 




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.



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



	 	 	 	 	 	 	 
	 	 	SCREW COMPRESSION SYSTEMS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

  Stephen C. Taylor, Director
	 	 
	 
	 	 	 	 	 	 
	 	 	WESTERN NATIONAL BANK	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

  Scott A. Lovett, Executive
	 	 
	 

	 	 	 	     Vice President	 	 







16










 





EXHIBIT “J”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK




 









 





SECURITY AGREEMENT




     THIS SECURITY AGREEMENT (“Security Agreement”), dated as of  October 15,
2006, is made by SCREW COMPRESSION SYSTEMS, INC., a Texas corporation, with its principal offices
at 5725 Bird Creek Avenue, Catoosa, OK 74015-3008, in favor of WESTERN NATIONAL BANK, a national
banking association with banking quarters at 508 West Wall, Suite 1100, Midland, Texas 79701.



     WHEREAS, Natural Gas Services Group, Inc. and Western National Bank executed that certain
Seventh Amended and Restated Loan Agreement, dated as of October 15, 2006, (said Seventh Amended
and Restated Loan Agreement, together with all amendments and supplements thereto, is herein called
the “Loan Agreement”), pursuant to which Western National Bank agreed, subject to certain
terms and conditions therein stated, to make loans to Natural Gas Services Group, Inc. as evidenced
by the following notes from Natural Gas Services Group, Inc. to Western National Bank: (i)
Multiple Advance Term Promissory Note dated October 15, 2006, in the original principal amount of
$16,891,105.87; and (ii) Revolving Line of Credit Promissory Note dated October 15, 2006, in the
original principal amount of $40,000,000.00 (collectively, “the Notes”), and as provided in the
Loan Agreement; and



     WHEREAS, Screw Compression Systems, Inc. has agreed to grant to Western National Bank a
security interest in the collateral described herein to secure those certain Letters of Credit
dated January 3, 2005 from Western National Bank to Natural Gas Services Group, Inc., in the
aggregate principal amount of $2,000,000.00 as defined in the Loan Agreement, in addition to the
other Obligations of Natural Gas Services Group, Inc. to Western National Bank; and



     WHEREAS, Screw Compression Systems, Inc. has previously executed and delivered to Western
National Bank that certain Security Agreement dated as of January 3, 2005, as amended and restated
in that certain Security Agreement dated as of March 14, 2005, and further amended and restated in
that certain Security Agreement dated as of September 26, 2005 and further amended and restated in
that certain Security Agreement dated as of January 3, 2006 (the “Prior Security Agreement”); and



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



 









 





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



SECTION 1. DEFINITIONS




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



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



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



2









 





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



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



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



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



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



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



3









 







are direct, indirect, fixed, contingent, liquidated, unliquidated, joint, several, or joint and
several or were, prior to acquisition thereof by Lender, owed to some other person.



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



     (j) “Proceeds” means all “proceeds” as such term is defined in Section 9.102(a)(65) of
the UCC and, in any event, shall mean and include, but not be limited to, the following at any time
whatsoever arising or receivable: (i) whatever is received upon any collection, exchange, sale or
other disposition of any of the Collateral, and any property into which any of the Collateral is
converted, whether cash or non-cash proceeds, (ii) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Pledgor from time to time with respect to any of the
Collateral, and (iii) any and all payments (in any form whatsoever) made or due and payable to
Pledgor from time to time in connection with any requisition, confiscation, condemnation, seizure
or forfeiture of all or any part of the Collateral by any governmental body, authority, bureau or
agency (or any person acting under color of Governmental Authority).



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



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



SECTION 2. GRANT OF SECURITY INTEREST




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




	 	(i)	 	all Accounts;
	 
	 	(ii)	 	all Contracts;





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





SECTION 3. PLEDGOR’S REPRESENTATIONS AND WARRANTIES




     The Pledgor hereby represents and warrants that:



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



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



5









 





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



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



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



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



     (g) Consents. No consent of any party (other than the Pledgor) to any Contract or any
obligor in respect of any Account is required, or purports to be required, in connection with the
execution, delivery and performance of this Security Agreement. Each Account and each Contract is
in full force and effect and constitutes a valid and legally enforceable obligation of the obligor
in respect thereof or parties thereto, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor’s
rights generally. No consent or authorization of, filing with or other act by or in respect of any
Governmental Authority is required in connection with the execution, delivery, performance,
validity or enforceability of any of the Accounts or Contracts by any party thereto other than
those which have been duly obtained, made or performed, are in full force and effect and do not
subject the scope of any such Account or Contract to any material adverse limitation, either
specific or general



6









 







in nature. Neither the Pledgor nor (to the best knowledge of the Pledgor) any other party to any
Account or Contract is in default or is likely to become in default in the performance or
observance of any of the terms thereof. The Pledgor has fully performed all its obligations under
each Contract. The right, title and interest of the Pledgor in, to and under each Account or
Contract are not subject to any defense, offset, counterclaim, or claim which would materially
adversely affect the value of such Account or Contract as Collateral, nor have any of the foregoing
been asserted or alleged against the Pledgor as to any of the foregoing. Upon request by Secured
Party, the Pledgor will deliver to the Secured Party a complete and correct copy of each Contract,
including all amendments, supplements and other modifications thereto. No account payable to the
Pledgor under or in connection with any Account or Contract is evidenced by any Instrument which
has not been delivered to the Secured Party.



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



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



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



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



7









 







connection with the execution, delivery, performance, validity or enforceability of this Security
Agreement.



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



SECTION 4. PLEDGOR’S COVENANTS




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



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



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



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



8









 







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



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



     (e) Maintenance of Records. The Pledgor will keep and maintain at its own cost and
expense satisfactory and complete records of the Collateral, including, without limitation, a
record of all payments received and all credits granted with respect to the Accounts and Contracts.
The Pledgor will mark its books and records pertaining to the Collateral to evidence this Security
Agreement and the security interests



9









 







granted hereby. For the further security of the Secured Party, the Secured Party shall have a
security interest in all of the Pledgor’s books and records pertaining to the Collateral, and the
Pledgor shall turn over any such books and records to the Secured Party or to its representatives
during normal business hours at the request of the Secured Party.



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



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



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



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



10









 





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



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



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



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



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



     (o) Maintenance of Insurance. The Pledgor will maintain, with financially sound and
reputable companies, insurance policies (i) insuring the Equipment and Inventory against loss by
fire, explosion, theft and such other casualties as may be reasonably satisfactory to the



11









 







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



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



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



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




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





     If the Pledgor fails to perform or comply with any of the agreements contained herein and the
Secured Party, as provided for by the terms of



12









 







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




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





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




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




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



13









 






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




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



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



14









 





SECTION 7. PROCEEDS




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



SECTION 8. EVENTS OF DEFAULT




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




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




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



15









 






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




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




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




     (f) the failure of Pledgor 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, filing of suit or notice of breach by
any lender, lessor, creditor or other party



16









 







to any Material Agreement to which Pledgor is a party, or to which its properties or
assets are subject;




     (h) the occurrence of a Material Adverse Effect with respect to Pledgor;




     (i) the occurrence of a Change of Control;




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



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



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




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



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



17









 





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



     (d) Remedies; Acceleration of Maturity of Obligations; Repossession and Sale of
Collateral. At any time after an Event of Default occurs and is continuing, Secured Party may
declare every Obligation to be immediately due and payable and may exercise, in addition to all
other rights and remedies granted to it in this Security Agreement, the Loan Agreement and in any
of the other Loan Papers securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the UCC. Without limiting the generality of the foregoing, the
Secured Party, without demand of performance or other demand, presentment, protest, advertisement
or notice of any kind (except any notice required by law referred to below) to or upon the Pledgor
or any other person (all and each of which demands,



18









 







defenses, advertisements and notices are hereby waived), may in such circumstances forthwith
collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more
parcels at public or private sale or sales, at any exchange, broker’s board or office of the
Secured Party or elsewhere upon such terms and conditions as Secured Party may deem advisable and
at such prices as Secured Party may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Secured Party shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of redemption in the
Pledgor, which right or equity is hereby waived or released. The Pledgor further agrees, at the
Secured Party’s request, to assemble the Collateral and make it available to the Secured Party at
places which the Secured Party shall reasonably select, whether at the Pledgor’s premises or
elsewhere. The Secured Party shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of
every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in
any way relating to the Collateral or the rights of the Secured Party hereunder, including, without
limitation, reasonable attorneys’ fees and disbursements, to the payment in whole or in part of the
Obligations, in such order as the Secured Party may elect, and only after such application and
after the payment by the Secured Party of any other amount required by any provision of law, need
the Secured Party account for the surplus, if any, to the Pledgor. To the extent permitted by
applicable law, the Pledgor waives all claims, damages and demands it may acquire against the
Secured Party arising out of the exercise by it of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least ten (10) days before such sale or other disposition.
The Pledgor shall remain liable for any deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay the Obligations and the fees and
disbursements of any attorneys employed by the Secured Party to collect such deficiency.



     (e) Right of Setoff. In addition to the security interest and Lien herein described,
Pledgor expressly recognizes and grants Secured Party upon the occurrence of an Event of Default
the right of setoff with respect to any money, checks, certificates of deposit or instruments
deposited with Secured Party, whether in general or special deposits,



19









 







which right may be exercised concurrently with or separately from any and all other rights of
Secured Party against Pledgor.



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




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



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



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



20









 





SECTION 11. GENERAL PROVISIONS




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



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



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



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



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



     (f) No Waiver; Cumulative Remedies. The Secured Party shall not by any act (except by
a written instrument pursuant to Section 11(e) hereof), delay, indulgence, omission or otherwise be
deemed to have



21









 







waived any right or remedy hereunder or to have acquiesced in any Event of Default or in any breach
of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of the Secured Party, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Secured Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Secured Party would otherwise have on any
future occasion. The rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any rights or remedies provided by law.



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



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



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



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



22









 







notice to the Secured Party, and the Secured Party may change its address and transmission number
by written notice to the Pledgor.



     EXECUTED as of the date first above written.



	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	SECURED PARTY	 	 
	 
	 	 	 	 	 	 
	 	 	WESTERN NATIONAL BANK	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	     Scott A. Lovett	 	 
	 

	 	 	 	     Executive Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	PLEDGOR	 	 
	 
	 	 	 	 	 	 
	 	 	SCREW COMPRESSION SYSTEMS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	     Stephen C. Taylor, President	 	 






23









 





EXHIBIT “A”

TO SECURITY AGREEMENT




LOCATION OF COLLATERAL




5725 Bird Creek Avenue

Catoosa, OK 74015





 









 





EXHIBIT “K”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK




 









 





SCREW COMPRESSION SYSTEMS, INC.




OFFICER’S CERTIFICATE




     I, Stephen C. Taylor, the duly elected and acting President of Screw Compression Systems,
Inc., a Texas corporation (the “Company”), hereby certify for and on behalf of the Company
as follows in connection with the consummation of the transactions contemplated by that certain
Seventh Amended and Restated Loan Agreement dated as of October 15, 2006 (the “Loan
Agreement”), among the Company, Natural Gas Services Group, Inc., and Western National Bank:



     (1) Exhibit 1 attached hereto contains true and correct copies of Certificates of
Existence and Good Standing of the Company.



     (2) Exhibit 2 attached hereto contains true and correct copies of resolutions duly
adopted by the Board of Directors of the Company and such resolutions are in full force and effect
on the date hereof, and such resolutions have not been rescinded or modified in any respect.



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



     (4) Exhibit 4 attached hereto contains true, complete and correct copies of the bylaws
of the Company, as the same may have been amended from time to time.



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



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



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



     IN WITNESS WHEREOF, I have hereunto set my hand as of October 15, 2006.




   
                                                                 
            

Stephen C. Taylor, President




 









 





Exhibit 1




CERTIFICATES




 









 





Exhibit 2




BORROWING RESOLUTIONS




RESOLUTIONS ADOPTED BY

UNANIMOUS WRITTEN CONSENT

OF THE BOARD OF DIRECTORS

OF SCREW COMPRESSION SYSTEMS, INC.




     WHEREAS, Screw Compression Systems, Inc. (the “Company”) as Guarantor, Natural Gas
Services Group, Inc. (the “Parent Company”) and Western National Bank, Midland, Texas (the
“Lender”), entered into that certain Sixth Amended and Restated Loan Agreement dated as of
January 3, 2006 (the “Loan Agreement”), providing for loans to the Parent Company; and



     WHEREAS, the Parent Company proposes to borrow from the Lender an additional amount for the
purpose of providing funds for general working capital purposes and potential acquisitions; and



     WHEREAS, the proposed additional loan to the Parent Company, along with the Parent Company’s
existing indebtedness, as consolidated and refinanced, will be evidenced by the renewal, extension
and increase in the principal amount of the Revolving Line of Credit Promissory Note of the Parent
Company to $40,000,000.00 and the issuance of a Multiple Advance Term Promissory Note in the
original principal amount of $16,891,105.87 (the “Notes”), upon and containing terms to be
negotiated and agreed upon by Lender and the Parent Company, copies of which have been submitted to
and reviewed by the Directors of SCS; and



     WHEREAS, in addition to the collateral support previously provided by the Parent Company to
the Lender to secure the payment and performance of the Parent Company’s current obligations and
indebtedness to the Lender under the Loan Agreement, it is anticipated that payment of the Note and
the performance of the Parent Company’s obligations under the Loan Agreement, as said Loan
Agreement may be amended, restated or otherwise modified or supplemented, will be required to be
secured and collateralized by, among other things, all or substantially all of the assets, revenues
and properties owned by SCS (the “Collateral”), and that the Collateral will be required to
be subjected to first and prior liens and security interests in favor of the Lender pursuant to
such credit support documents and other agreements as may be required by the Lender and agreed to
by the Parent Company (collectively, the “Security Documents”); and



     WHEREAS, the terms and conditions of the proposed loan are described and contained in the
Seventh Amended and Restated Loan Agreement, copies of which have been submitted to and reviewed by
the Directors of SCS; and



 









 





     WHEREAS, the Company, the Parent Company and the Lender have agreed to the contemplated
transaction; and



     WHEREAS, the Company has agreed to execute and deliver to Lender that certain Seventh Amended
and Restated Loan Agreement and such other related loan documents as Lender deems necessary.



     NOW, THEREFORE, BE IT RESOLVED, that the Company be, and it hereby is, authorized and
empowered to enter into the contemplated transaction described herein; and



     FURTHER RESOLVED, that the Seventh Amended and Restated Loan Agreement and related loan
documents submitted and reviewed by this Board of Directors are hereby found to be in the best
interests of the Company and said agreements and related loan documents be, and they hereby are,
approved in all respects;



     FURTHER RESOLVED, that Stephen C. Taylor, the President of the Company, be, and he hereby is,
authorized, empowered and directed to execute (together with, if required, any Vice President,
Secretary or Assistant Secretary of the Company) and deliver to the Lender the Seventh Amended and
Restated Loan Agreement and any related documents required to evidence the contemplated
transaction, if any, for and on behalf of the Company, together with such changes and additional
terms and conditions therein as he shall approve, as conclusively evidenced by his execution and
delivery thereof, and take all such further and other action in connection with the resolutions
hereinabove adopted as he deems necessary, advisable or proper to effectuate the intent and
purposes of these resolutions;



     FURTHER RESOLVED, that any and all action heretofore taken by Stephen C. Taylor, the President
of the Company, or any other officer or Director of the Company, within the terms of the foregoing
resolutions be, and they hereby are, ratified and confirmed as the act and deed of this Company;
and



     FURTHER RESOLVED, that this Unanimous Written Consent of the Directors of this Company may be
executed in any number of multiple counterparts, all of which together shall constitute one and the
same instrument.



     DATED effective October 15, 2006.



                                                                  
              

          Stephen C. Taylor




                                                                  
              

          Paul D. Hensley




  
                                                                  
            

          Wallace Sparkman




 









 





Exhibit 3




ARTICLES OF INCORPORATION




 









 





Exhibit 4




BYLAWS




 









 





EXHIBIT “L”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK




 









 





Consolidated Current Ratio Calculation




	 	 	 	 
	1. Sum of current assets and restricted
cash of Borrower and its consolidated
Subsidiaries
	 	$	 
	 
	 	 
	 
	 	 	 
	2. Sum of current liabilities of
Borrower and its consolidated
Subsidiaries
	 	$	 
	 
	 	 
	 
	 	 	 
	Current Ratio
	 	 	1 ÷ 2
	 
	 	 





 









 





EXHIBIT “M”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK




 









 





Consolidated Tangible Net Worth Calculation




	 	 	 	 
	1. Sum of (a) all amounts included under stockholders’
equity on consolidated balance sheet of Borrower and its
Subsidiaries and (b) the Subordinated Notes
	 	$	 
	 
	 	 
	 
	 	 	 
	2. Sum of aggregate book value of Borrower’s and its
Subsidiaries Consolidated Intangible Assets
	 	$	 
	 
	 	 
	 
	 	 	 
	3. Consolidated Tangible Net Worth
	 	$	1 - 2
	 
	 	 





 









 





EXHIBIT “N”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK




 









 





Debt Service Ratio




(A) Consolidated Cash Flow:




	 	 	 	 	 
	(1) Sum of consolidated pre-tax net income (or loss), less
actual taxes paid, from continuing operations of the Borrower
and its Subsidiaries (excluding extraordinary income but
including extraordinary expenses)
	 	$	 	 
	 
	 	 
	 
	 	 	 	 
	(2) Sum of depreciation, depletion, amortization and interest
expenses deducted in determining consolidated net income (or
loss) of the Borrower and its Subsidiaries
	 	$	 	 
	 
	 	 
	 
	 	 	 	 
	(3) Consolidated Cash Flow
	 	$	(1) + 	(2)
	 
	 	 





(B) Consolidated Fixed Charges:




	 	 	 	 	 
	(1) Sum of aggregate principal amount of all Debt of the
Borrower and its Subsidiaries paid or due and payable
	 	$	 	 
	 
	 	 
	 
	 	 	 	 
	(2) All interest, including imputed interest in connection
with Financing Leases, paid or accrued by the Borrower and
its Subsidiaries
	 	$	 	 
	 
	 	 
	 
	 	 	 	 
	(3) Consolidated Fixed Charges
	 	$	(1) + 	(2)
	 
	 	 
	 
	 	 	 	 
	Debt Service Ratio
	 	 	(A)(3) ÷ B	(3)
	 
	 	 





 









 





EXHIBIT “O”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK




 









 





Ratio of Consolidated Debt to

Consolidated Tangible Net Worth




	 	 	 	 	 
	1. Sum of all Debt (excluding Subordinated Notes) of the
Borrower and its Subsidiaries
	 	$	 	 
	 
	 	 
	 
	 	 	 	 
	2. Consolidated Tangible Net Worth
	 	$	 	 
	 
	 	 
	 
	 	 	 	 
	Ratio of Consolidated Debt to
Consolidated Tangible Net Worth
	 	 	(1) ÷ 	(2)
	 
	 	 





 









 





EXHIBIT “P”




TO




LOAN AGREEMENT




BETWEEN




NATURAL GAS SERVICES GROUP, INC.




AND




WESTERN NATIONAL BANK




 









 





COMPLIANCE CERTIFICATE




     Certification. Reference is made to that certain Seventh Amended and Restated Loan
Agreement, dated September 15, 2006, by and among Natural Gas Services Group, Inc. (the
“Borrower”), the Guarantor party thereto and Western National Bank (the “Lender”)
(the “Loan Agreement”). Pursuant to the provisions of the Loan Agreement, the undersigned
chief executive officer or principal financial officer of Borrower hereby certifies and represents
to Lender that, except as set forth below: (i) there exists no Event of Default under the Loan
Agreement or any of the other Loan Papers, (ii) there exists no set of circumstances or event
which, with lapse of time or notice or both, would constitute an Event of Default under the Loan
Agreement or the other Loan Papers, and (iii) during the period covered by this certificate, all of
the terms and provisions of the Loan Agreement and the other Loan Papers have been fully performed
and complied with.



     Exceptions to the above certification. (State “none” if applicable, or list and
specify any exceptions and the actions taken or proposed to be taken to remedy or correct same.)



     Period covered: For the month ended                     , 200___.



     Capitalized terms used but not defined herein shall have the respective meanings ascribed
thereto in the Loan Agreement.



     Dated:                     , 200___.



                                                                 
               

(Chief Executive Officer or Principal

     Financial Officer of Borrower)