Document:

exv10w3

 

Exhibit 10.3

GUARANTY AGREEMENT

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

W I T N E S S E T H:

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

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

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

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

 

 

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

ARTICLE 1

NATURE AND SCOPE OF GUARANTY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE 2

EVENTS AND CIRCUMSTANCES NOT REDUCING

OR DISCHARGING NGSG’S OBLIGATIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE 4

SUBORDINATION OF CERTAIN INDEBTEDNESS

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

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

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

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

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

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

ARTICLE 5

AFFIRMATIVE COVENANTS

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

ARTICLE 6

MISCELLANEOUS

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

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

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NGSG

Natural Gas Services Group, Inc.

2911 S. CR 1260

Midland, Texas 79706

Attention: Wallace C. Sparkman, President

Lender

Western National Bank

508 West Wall, Suite 1100

Midland, Texas 79701

Attention: Scott A. Lovett

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

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

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

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

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

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

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

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

- 15 -

 

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

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

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

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

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

	 	 	 	 	 
	 	 	NATURAL GAS SERVICES GROUP, INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Wallace C. Sparkman
	

	 	 	 	

	

	 	 	 	Wallace C. Sparkman, President
	 
	 	 	 	 
	 	 	WESTERN NATIONAL BANK
	 
	 	 	 	 
	

	 	By:
	 	/s/ Scott A. Lovett
	

	 	 	 	

	

	 	 	 	Scott A. Lovett, Executive

	

	 	 	 	Vice President

- 17 -exv10w4

 

Exhibit 10.4

GUARANTY AGREEMENT

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

W I T N E S S E T H:

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

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

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

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

 

 

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;

- 2 -

 

	 	(e)  	any and all post-petition interest and expenses (including attorneys’ fees)
whether or not allowed under any bankruptcy, insolvency, or other similar law; and
	 
	 	(f)  	all costs, expenses and fees, including, but not limited to, court costs and
attorneys’ fees arising in connection with the collection of any or all amounts,
indebtedness, obligations and liabilities of Borrower to Lender described in items (a)
through (e) of this Section 1.1.

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

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

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

- 3 -

 

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

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

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

- 4 -

 

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

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

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

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

- 5 -

 

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

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

ARTICLE 2

EVENTS AND CIRCUMSTANCES NOT REDUCING

OR DISCHARGING GUARANTOR’S OBLIGATIONS

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

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

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

     2.3 Condition of Borrower or Guarantor. The insolvency, bankruptcy,
arrangement, adjustment, composition, liquidation, disability, death, dissolution or lack of power
of Borrower, Guarantor or any other

- 6 -

 

party at any time liable for the payment of all or part of the
Guaranteed Debt; or any changes in the owners, shareholders, partners or members of Borrower or
Guarantor; or any reorganization of Borrower or Guarantor.

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

- 7 -

 

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

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

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

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

- 8 -

 

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

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

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

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

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

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

- 9 -

 

Services Group, Inc. and its Subsidiaries is dependent upon the continued successful
performance of the functions of the integrated group as a whole.

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

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

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

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

     3.6 Financial Statements. Each financial statement of Guarantor delivered
heretofore, concurrently herewith or hereafter to Lender

- 10 -

 

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

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

     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

- 11 -

 

of Guarantor against Borrower (arising as a result of
subrogation or otherwise) as a result of Guarantor’s payment of all or a portion of the Guaranteed
Debt. Upon the occurrence of an Event of Default (as defined in the Loan Agreement) or the
occurrence of an event which would, with the giving of notice or the passage of time, or both,
constitute an Event of Default, Guarantor shall not receive or collect, directly or indirectly,
from Borrower or any other party any amount upon the Guarantor’s Claims.

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

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

ARTICLE 5

AFFIRMATIVE COVENANTS

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

ARTICLE 6

MISCELLANEOUS

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

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a third party commercial delivery service with evidence of delivery to the office of the
addressee, or (iii) by personal delivery to the addressee. The addresses of the parties hereto are
as follows:

Guarantor

Screw Compression Systems, Inc.

5725 Bird Creek Avenue

Catoosa, Oklahoma 74015

Attention: Paul D. Hensley, President

Lender

Western National Bank

508 West Wall, Suite 1100

Midland, Texas 79701

Attention: Scott A. Lovett

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

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

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respect to any of
Guarantor’s property in courts in other jurisdictions. Any action or proceeding by Guarantor
against Lender shall be brought only in a court located in Midland County, Texas.

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

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

- 15 -

 

respective
signatures of, or on behalf of, and the respective acknowledgments of, each of the parties hereto.
Any signature or acknowledgment page to any counterpart may be detached from such counterpart
without impairing the legal effect of the signatures or acknowledgments thereon and thereafter
attached to another counterpart identical thereto except having attached to it additional signature
or acknowledgment pages.

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

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

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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:
	 	     /s/ Paul D. Hensley
	

	 	 	 	 
	

	 	 	 	     Paul D. Hensley, President
	 
	 	 	 	 
	 	 	WESTERN NATIONAL BANK
	 
	 	 	 	 
	

	 	By:
	 	          /s/ Scott A. Lovett
	

	 	 	 	 
	

	 	 	 	     Scott A. Lovett, Executive

	

	 	 	 	          Vice President

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