Document:

Exhibit
10.1

 

SOVEREIGN BANK LOAN NO. 17003864

 

AMENDED
AND RESTATED LOAN AND SECURITY AGREEMENT

 

THIS
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (as amended, modified or restated from
time to time, this “Agreement”)
dated as of SEPTEMBER 16, 2009 (the
“Closing Date”), will serve to set
forth the terms of the Credit Facility by and between SOVEREIGN
BANK, a Texas state bank (together with its successors and assigns, “Lender”) and TGC INDUSTRIES, INC., a Texas corporation (“Debtor”).

 

RECITALS

 

WHEREAS, Lender and Debtor entered into that certain (1) BUSINESS LOAN AGREEMENT dated as of SEPTEMBER 16, 2008, pursuant to which Lender agreed to make
a credit facility available to Debtor on the terms and conditions set forth
therein (as amended, modified and restated from time to time, the “Original Loan Agreement”), and (2) COMMERCIAL SECURITY AGREEMENT dated as of SEPTEMBER 16, 2008 (as amended, modified
and restated from time to time, the “Original Security
Agreement,” and together with the Original Loan Agreement, the “Original Agreements”, and together
with the other agreements, notes, instruments and documents evidencing,
securing, governing, guaranteeing or pertaining thereto, the “Original Loan Documents”); and

 

WHEREAS, the parties hereto desire to amend the
Original Loan Agreement and the Original Security Agreement as hereinafter
provided and have agreed for purposes of clarity and ease of administration, to
amend the Original Loan Agreement and the Original Security Agreement and then
restate and supersede such agreements in their entirety by means of this
Agreement; and

 

NOW THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:

 

1.                                       Definitions. 
As used in this Agreement, all exhibits, appendices and schedules
hereto, and in any other Loan Documents made or delivered pursuant to this
Agreement, the following terms will have the meanings given such terms in this Section 1
or in the provisions, sections or recitals herein:

 

(a)                                  “Affiliate”
means, with respect to a specified Person, another Person that directly or
indirectly through one or more intermediaries, Controls or is Controlled by or
is under common Control with the Person specified.

 

(b)                                 “Business Day” means any day other than a Saturday,
Sunday, or any other day on which the Federal Reserve Bank of Dallas, Texas, is
closed.

 

(c)                                  “Code”
means the Uniform Commercial Code as the same may, from time to time, be
enacted and in effect in the State of Texas; provided, that to the extent that
the Code is used to define any term herein or in any Loan Document and such
term is defined differently in different articles or divisions of the Code, the
definition of such term contained in Article 9 shall govern; provided
further, that in the event that, by reason of mandatory provisions of law, any
or all of the attachment, perfection or priority of, or remedies with respect
to, Lender’s lien on any Collateral is governed by the Uniform Commercial Code
as enacted and in effect in a jurisdiction other than the State of Texas, the
term “Code” shall mean the
Uniform Commercial Code as enacted and in effect in such other jurisdiction
solely for purposes of the provisions thereof relating to such attachment,
perfection, priority or remedies and for purposes of definitions related to
such provisions.

 

(d)                                 “Collateral”
means:

 

(i)                                     All present and future accounts now owned
or hereafter acquired; and

 

(ii)                                  All books, records, data, plans, manuals,
computer software, computer tapes, computer systems, computer disks, computer
programs, source codes and object codes containing any 

 

1

 

information, pertaining directly or indirectly to the Collateral and
all rights to retrieve data and other information pertaining directly or
indirectly to the Collateral from third parties.

 

The term “Collateral,” as used herein, shall
also include all SUPPORTING OBLIGATIONS, PRODUCTS
and PROCEEDS of all of the foregoing
(including without limitation, insurance payable by reason of loss or damage to
the foregoing property).

 

(e)                                  “Constituent
Documents” means (i) in the case of a corporation, its
articles or certificate of incorporation and bylaws; (ii) in the case of a
general partnership, its partnership agreement; (iii) in the case of a
limited partnership, its certificate of limited partnership and partnership
agreement; (iv) in the case of a trust, its trust agreement; (v) in
the case of a joint venture, its joint venture agreement; (vi) in the case
of a limited liability company, its articles of organization and operating
agreement or regulations; and (vii) in the case of any other entity, its
organizational and governance documents and agreements.

 

(f)                                    “Control”
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of a Person, whether through the
ability to exercise voting power, by contract or otherwise.  “Controlling”
and “Controlled” have
meanings correlative thereto.

 

(g)                                 “Debt”
means as to any Person at any time (without duplication) all items of indebtedness,
obligation or liability of a Person, whether mature or unmatured, liquidated or
unliquidated, direct or indirect, absolute or contingent, joint or several,
that should be classified as liabilities in accordance with GAAP.

 

(h)                                 “GAAP” means generally accepted accounting
principles, applied on a consistent basis, as set forth in Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting Standards Board and/or
their respective successors and which are applicable in the circumstances as of
the date in question.  Accounting
principles are applied on a “consistent basis” when the accounting principles
applied in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.

 

(i)                                     “Governmental
Authority” means the government of the United States of America,
any other nation or any political subdivision thereof, whether state or local,
and any agency, authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administrative powers or functions of or pertaining to government.

 

(j)                                     “Indebtedness”
means (i) all indebtedness, obligations and liabilities of Debtor to
Lender of any kind or character, now existing or hereafter arising, now
existing or hereafter arising under the Note, this Agreement, the other Loan
Documents, (ii) all accrued but unpaid interest on any of the indebtedness
described in (i) above, (iii)  all costs and expenses incurred by
Lender in connection with the collection and administration of all or any part
of the indebtedness and obligations described in (i) and (ii) above
or the protection or preservation of, or realization upon, the collateral
securing all or any part of such indebtedness and obligations, including
without limitation all reasonable attorneys’ fees, and (iv) all renewals,
extensions, modifications and rearrangements of the indebtedness and obligations
described in (i), (ii), and (iii) above.

 

(k)                                  “Loan
Documents” means this Agreement, the Note and the other
agreements, instruments and documents evidencing, securing, governing,
guaranteeing or pertaining to the Loans.

 

(l)                                     “Loans”
means all advances under the Credit Facility as established pursuant to the
Loan Documents from time to time.

 

(m)                               “Material
Adverse Effect” means a material adverse effect on (i) the
business, assets, property, operations, condition (financial or otherwise), or
prospects, of Debtor, (ii) the ability of Debtor to pay or perform the
Indebtedness, (iii) any of the rights of or benefits available to Lender
under the Loan Documents, or (iv) the validity or enforceability of the
Loan Documents.

 

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(n)                                 “Note”
means that certain AMENDED AND RESTATED PROMISSORY NOTE of even date herewith in the principal amount of FIVE MILLION AND NO/100 DOLLARS
($5,000,000.00)
executed by Debtor and payable to the order of Lender (as such Note may be
amended, modified or restated from time to time).

 

(o)                                 “Permitted
Encumbrances” means the following encumbrances: (i) liens
for taxes, assessments or governmental charges or levies not yet due and
payable or liens for taxes, assessments or governmental charges or levies being
contested in good faith and by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP; (ii)  liens in
existence on the Closing Date which are listed, and the property subject
thereto described, on Schedule 1(o), without giving effect to any
extensions or renewals thereof; (iii) liens arising from judgments,
decrees, awards or attachments in circumstances not constituting an Event of
Default; and (iv) liens in favor of Lender.

 

(p)                                 “Person”
means any individual, corporation, limited liability company, business trust,
association, company, partnership, joint venture, Governmental Authority, or
other entity, and shall include such Person’s heirs, administrators, personal
representatives, executors, successors and assigns.

 

All
words and phrases used herein shall have the meaning specified in the Code
except to the extent such meaning is inconsistent with this Agreement. All
definitions contained in this Agreement are equally applicable to the singular
and plural forms of the terms defined. 
The words “hereof”, “herein”, and “hereunder” and words of similar
import referring to this Agreement refer to this Agreement as a whole and not
to any particular provision of this Agreement. 
Any accounting term used in the Loan Documents shall have, unless
otherwise specifically provided therein, the meaning customarily given such
term in accordance with GAAP, and all financial computations thereunder shall
be computed, unless otherwise specifically provided therein, in accordance with
GAAP consistently applied; provided, that all financial covenants and
calculations in the Loan Documents shall be made in accordance with GAAP as in
effect on the Closing Date unless Debtor and Lender shall otherwise specifically
agree in writing.  That certain items or
computations are explicitly modified by the phrase “in accordance with GAAP”
shall in no way be construed to limit the foregoing.

 

2.                                       Credit Facility.

 

(a)                                  Establishment of Credit
Facility.  Subject
to the terms and conditions set forth in this Agreement and the other Loan
Documents, Lender hereby agrees to lend to Debtor an aggregate sum not to
exceed the lesser of (i) an
amount equal to the Borrowing Base, or (ii) FIVE MILLION AND NO/100 DOLLARS
($5,000,000.00)
(the “Credit Facility”),
on a revolving basis from time to time during the period commencing on the date
hereof and continuing until: (i) the acceleration of the Indebtedness
pursuant to the terms of the Loan Documents; (ii) SEPTEMBER 16, 2010; or (iii) such other date as may be
established by a written instrument between Debtor and Lender from time to time
(the “Revolving Credit Maturity Date”).  If at any time the sum of the aggregate
principal amount of Loans outstanding hereunder exceeds lesser of the Credit Facility or the
Borrowing Base, such amounts shall be deemed an “Overadvance.” 
Debtor shall immediately repay the amount of such Overadvance plus all accrued and unpaid interest
thereon upon written demand from Lender. 
Notwithstanding anything contained herein to the contrary, an
Overadvance shall be considered a Loan and shall bear interest at the Rate as
set forth in the Note and be secured by this Agreement.  Subject to the terms and conditions hereof,
Debtor may borrow, repay and reborrow funds under the Credit Facility.

 

(b)                                 Certain Defined Terms
Relating to the Credit Facility.  With respect
to Loans under Credit Facility, the following terms shall have the following
meanings:

 

(i)                                     “Borrowing Base”
means a sum equal to up to: EIGHTY PERCENT (80.00%) of the amount of Debtor’s Eligible Accounts,
provided, however, Lender shall have the right to create and adjust eligibility
standards and related reserves from time to time in its reasonable credit
judgment with respect to Debtor’s Eligible Accounts.

 

(ii)                                  “Eligible Accounts”
means, at any time, all accounts receivable of Debtor, created in the ordinary
course of business that are acceptable to the Lender in its sole discretion and
satisfy the following conditions:

 

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(1)                                  The account complies with all applicable
laws, rules, and regulations;

 

(2)                                  The account has not been outstanding for
more than NINETY (90) days past
the original date of invoice;

 

(3)                                  The account does not represent a
commission and the account was created under an enforceable contract in
connection with (A) the sale of goods by Debtor in the ordinary course of
business and such sale has been consummated and such goods have been shipped
and delivered and received by the account debtor, or (B) the performance
of services by Debtor in the ordinary course of business and such account was
created in accordance with the terms of the contract between Debtor and the
account debtor and accepted by the account debtor;

 

(4)                                  The account does not arise from the sale
of any good that is on a bill-and-hold, guaranteed sale, sale-or-return, sale
on approval, consignment, or any other repurchase or return basis;

 

(5)                                  Debtor has good and indefeasible title to
the account and the account is not subject to any lien except liens in favor of
the Lender;

 

(6)                                  The account does not arise out of a
contract with or order from, an account debtor that, by its terms, prohibits or
makes void or unenforceable the grant of a security interest by Debtor to the
Lender in and to such account;

 

(7)                                  The account is not subject to any setoff,
counterclaim, defense, dispute, recoupment, or adjustment other than normal
discounts for prompt payment;

 

(8)                                  The account debtor is not insolvent or
the subject of any bankruptcy or insolvency proceeding and has not made an
assignment for the benefit of creditors, suspended normal business operations,
dissolved, liquidated, terminated its existence, ceased to pay its debts as
they become due, or suffered a receiver or trustee to be appointed for any of
its assets or affairs;

 

(9)                                  The account is not evidenced by chattel
paper or an instrument;

 

(10)                            No default exists under the account by
any party thereto;

 

(11)                            The account debtor has not returned or
refused to retain, or otherwise notified Debtor of any dispute concerning, or
claimed nonconformity of, any of the goods from the sale of which the account
arose;

 

(12)                            The account is not owed by an Affiliate,
employee, officer, director or equity holder of Debtor;

 

(13)                            The account is payable in U.S. Dollars by
the account debtor;

 

(14)                            The account shall be ineligible if the
account debtor is domiciled in any country other than the United States of
America;

 

(15)                            The account shall be ineligible if the
account debtor is the United States of America or any department, agency, or
instrumentality thereof, and the Federal Assignment of Claims Act of 1940, as
amended, shall not have been complied with;

 

(16)                            The account is otherwise acceptable in
the sole discretion of the Lender.

 

The amount of the
Eligible Accounts owed by an account debtor to Debtor shall be reduced by the
amount of all “contra accounts” and other obligations owed by Debtor to such
account debtor.  In the event that
Lender, at any time in its reasonable discretion, determines that the dollar
amount of Eligible Accounts collectable by Debtor is reduced or diluted as a
result of discounts or rebates granted by Debtor, returned, 

 

4

 

rejected or
disputed goods or services, or such other reasons or factors as Lender deems
applicable, Lender may reduce or otherwise modify the percentage of Eligible
Accounts included within Borrowing Base, and/or reduce the dollar amount of
Debtor’s Eligible Accounts by an amount determined by Lender in its reasonable
discretion.

 

(c)                                  Funding. 
Lender reserves the right to require not less than ONE (1) Business Day prior notice of
each Loan under the Credit Facility, specifying the aggregate amount of such
Loan together with any documentation relating thereto as Lender may reasonably
request; including, but not limited to, a Borrowing Base report.  Debtor shall give Lender notice of each Loan
under the Credit Facility by no later than 1:00 p.m. (Dallas, Texas time)
on the date provided herein.  Lender at
its option may accept telephonic requests for such Loan, provided that such
acceptance shall not constitute a waiver of Lender’s right to require delivery
of a written request in connection with subsequent Loans.  Lender shall have no liability to Debtor for
any loss or damage suffered by Debtor as a result of Lender’s honoring of any
requests, execution of any instructions, authorizations or agreements or
reliance on any reports communicated to it telephonically, by facsimile or
electronically and purporting to have been sent to Lender by Debtor and Lender
shall have no duty to verify the origin of any such communication or the
identity or authority of the Person sending it. 
Subject to the terms and conditions of this Agreement, each Loan under
this section shall be made available to Debtor by depositing the same, in
immediately available funds, in an account of Debtor designated by Debtor or by
paying the proceeds of such Loan to a third party designated by Debtor.

 

(d)                                 Use of Proceeds. 
The Loans under the Credit Facility shall be used by Debtor solely for
business operations.

 

3.                                       Note, Rate and
Computation of Interest.  The Credit
Facility shall be evidenced by the Note. 
The principal of and interest on the Note shall be due and payable in
accordance with the respective terms and conditions set forth in the Note and
in this Agreement.

 

4.                                       Collateral.

 

(a)                                  Grant of Security
Interest.  As collateral security for the prompt payment
in full when due (whether at stated maturity, by acceleration or otherwise) of
the Indebtedness, Debtor hereby pledges to and grants Lender, a security
interest in, all of Debtor’s right, title and interest in the Collateral,
whether now owned by Debtor or hereafter acquired and whether now existing or
hereafter coming into existence.

 

(b)                                 Additional Documents. 
To secure full and complete payment and performance of the Indebtedness,
Debtor shall execute and deliver or cause to be executed and delivered all of
the Loan Documents reasonably required by Lender covering the Collateral.  Debtor shall execute and cause to be executed
such further documents and instruments, as Lender, in its reasonable
discretion, deems necessary or desirable to create, evidence, preserve, and
perfect its liens and security interests in the Collateral.  In the event any of the Loan Documents
evidencing or securing the Indebtedness misrepresents or inaccurately reflects
the correct terms and/or provisions of the Indebtedness, Debtor shall upon
request by Lender and in order to correct such mistake, execute such new documents
or initial corrected, original documents as Lender may deem necessary to remedy
said errors or mistakes.  Debtor shall
execute such other documents as Lender shall deem reasonably necessary to
correct any defects or deficiencies in the Loan Documents.  Debtor’s failure to execute such documents as
requested shall constitute an Event of Default under this Agreement.

 

(c)                                  Setoff. 
If an Event of Default shall have occurred and be continuing, Lender
shall have the right to set off and apply against the Indebtedness in such
manner as Lender may determine, at any time and without notice to Debtor, any
and all deposits (general or special, time or demand, provisional or final) or
other sums at any time credited by or owing from Lender to Debtor whether or not
the Indebtedness is then due.  Debtor
hereby grants to Lender as lien and security interest in all deposit accounts
of Debtor with Lender.   The rights and
remedies of Lender hereunder are in addition to any other rights and remedies
(including, without limitation, other rights of setoff) which Lender may have.

 

(d)                                 Satisfaction of
Indebtedness.  Until the Indebtedness has been indefeasibly
paid and fully satisfied (other than contingent indemnification obligations to
the extent no unsatisfied claim has been 

 

5

 

asserted)
and the commitments of Lender under the Credit Facility have been terminated,
Lender shall be entitled to retain the security interests in the Collateral
granted under the Loan Documents and the ability to exercise all rights and
remedies available to Lender under the Loan Documents and applicable laws.

 

5.                                       Conditions Precedent.

 

(a)                                  Initial Loan. 
The obligation of Lender to make the initial Loan under the Credit
Facility, is subject to the condition precedent that Lender shall have received
on or before the day of such Loan all of the following, each dated (unless
otherwise indicated) as of the Closing Date, in form and substance satisfactory
to Lender:

 

(i)                                     Resolutions. 
Resolutions of the governing body of Debtor certified by an authorized
officer or representative of Lender which authorize the execution, delivery,
and performance of the Loan Documents that Lender is a party to;

 

(ii)                                  Incumbency Certificate. 
A certificate of incumbency certified by an authorized officer or
representative of Debtor certifying the names of the individuals or other
Persons authorized to sign the Loan Documents to which Debtor that is not a
natural Person is to be a party (including the certificates contemplated
herein) together with specimen signatures of such Persons;

 

(iii)                               Constituent Documents. 
The Constituent Documents of Debtor that is not a natural Person
certified to Lender as being true and correct as of the date of this Agreement;

 

(iv)                              Loan Documents. 
The Loan Documents executed by Debtor;

 

(v)                                 Fees and Expenses. 
Evidence that the costs and expenses of Lender (including reasonable
attorneys’ fees) and all fees owing to Lender, shall have been paid in full by
Debtor;

 

(vi)                              Other Matters. 
Such other documents and agreements as may be required by Lender in its
reasonable discretion.

 

(b)                                 All Loans. 
The obligation of Lender to make any Loan shall be subject to the
following additional conditions precedent:

 

(i)                                             Request for Loan. 
Lender shall have received in accordance with this Agreement, a request
for a Loan in form and content satisfactory to Lender in its reasonable
discretion dated as of the date of request and executed by an authorized
officer of Debtor;

 

(ii)                                          No Event of Default, Etc. 
No Event of Default, event which with the passage of time and/or notice
would be an Event of Default, or event which would reasonably be expected to
have a Material Adverse Effect shall have occurred and be continuing, or would
result from or after giving effect to such Loan;  and

 

(iii)                                       Representations and
Warranties.  All of the representations and warranties
contained in the Loan Documents shall be true and correct in material respects
on and as of the date of such Loan with the same force and effect as if such
representations and warranties had been made on and as of such date.

 

6.                                       Representations and
Warranties.  Debtor hereby represents and warrants, and
upon each request for a Loan represents and warrants to Lender as follows:

 

(a)                                  Existence. 
Debtor (i) is duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its organization; (ii) has
all requisite power and authority to own its assets and carry on its business
as now being or as proposed to be conducted; and (iii) is qualified to do
business in all jurisdictions in which the nature of its business makes such
qualification necessary and where failure to so qualify would have a Material
Adverse Effect.  Debtor has the power and
authority to execute, deliver, and 

 

6

 

perform
its obligations under the Loan Documents to which it is or may become a
party.  The federal tax identification
number and state organizational number for Debtor are set forth below:

 

	
  Federal Tax Identification Number

  	
   

  	
  State Filing Number

  
	
  74-2095844

  	
   

  	
  0051318400

  

 

(b)                                 Binding Obligations. 
The execution, delivery, and performance of the Loan Documents by Debtor
have been duly authorized by all necessary action by Debtor, and constitute
legal, valid and binding obligations of Debtor, enforceable in accordance with
their respective terms, except as limited by bankruptcy, insolvency or similar
laws of general application relating to the enforcement of creditors’ rights
and except to the extent specific remedies may generally be limited by
equitable principles.

 

(c)                                  No Consent. 
The execution, delivery and performance of the Loan Documents, and the
consummation of the transactions contemplated thereby, do not (i) conflict
with, result in a violation of, or constitute a default under (1) any
provision of the Constituent Documents (if any) or other instrument binding
upon Debtor,  (2) any law,
governmental regulation, court decree or order applicable to Debtor, or (3) any
contractual obligation, agreement, judgment, license, order or permit
applicable to or binding upon Debtor, (ii) require the consent, approval
or authorization of any third party, or (iii) result in or require the
creation of any lien, charge or encumbrance upon any property of Debtor except
as may be expressly contemplated in the Loan Documents.

 

(d)                                 Financial Condition. 
Each financial statement of Debtor supplied to Lender truly discloses
and fairly presents such Person’s financial condition as of the date of each
such statement.  There has been no
material adverse change in such financial condition or results of operations of
Debtor subsequent to the date of the most recent financial statement supplied
to Lender.

 

(e)                                  Operation of Business. 
Debtor possesses all contracts, licenses, permits, franchises, patents,
copyrights, trademarks, and tradenames, or rights thereto, necessary to conduct
its businesses substantially as now conducted and as presently proposed to be
conducted, and Debtor and is not in violation of any valid rights of others with
respect to any of the foregoing, except any violations that would not
reasonably be expected to have a Material Adverse Effect.

 

(f)                                    Litigation and Judgments. 
There is no action, suit, investigation, or proceeding before or by any
Governmental Authority or arbitrator pending, or to the knowledge of Debtor,
threatened against or affecting Debtor that would, if adversely determined,
have a Material Adverse Effect.  There
are no outstanding judgments against Debtor.

 

(g)                                 Rights in Properties;
Liens.  Debtor has good title to or valid leasehold
interests in its properties and assets, including the properties and assets
reflected in the financial statements provided to Lender, and none of the
Collateral is subject to any lien, except Permitted Encumbrances.

 

(h)                                 Disclosure. 
No statement, information, report, representation, or warranty made by
Debtor in the Loan Documents or furnished to Lender in connection with the Loan
Documents or any of the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements herein or therein not misleading.  There is no fact known to Debtor which would
reasonably be expected to have a Material Adverse Effect that has not been
disclosed in writing to Lender.

 

(i)                                     Agreements. 
Debtor is not a party to any indenture, loan, or credit agreement, or to
any lease or other agreement or instrument, or subject to any charter or
corporate or other organizational restriction which would reasonably be expected
to have a Material Adverse Effect. 
Debtor is not in default in any material respect in the performance,
observance, or fulfillment of any of the obligations, covenants, or conditions
contained in any agreement or instrument material to its business.

 

7

 

(j)                                     Compliance with Laws. 
Debtor is not in violation of any law, rule, regulation, order, or
decree of any Governmental Authority or arbitrator, the violation of which
would reasonably be expected to have a Material Adverse Effect.

 

(k)                                  Taxes; Governmental
Charges.  Debtor has filed all federal, state and local
tax reports and returns required by any law or regulation to be filed by it and
has either duly paid all taxes, duties and charges indicated due on the basis
of such returns and reports, or made adequate provision for the payment
thereof, and the assessment of any material amount of additional taxes in
excess of those paid and reported is not reasonably expected.

 

(l)                                     Security Interest. 
Debtor has and will have at all times full right, power and authority to
grant a security interest in the Collateral to Lender in the manner provided
herein, free and clear of any lien, security interest or other charge or
encumbrance other than for the Permitted Encumbrances.  This Agreement creates a legal, valid and
binding first priority security interest (subject to Permitted Encumbrances) in
favor of Lender in the Collateral securing the Indebtedness.

 

(m)                               Location. 
Debtor’s chief executive office and the office where the records
concerning the Collateral are kept are at its address set forth on the
signature page hereof.

 

(n)                                 Solvency. 
On the Closing Date and on the date of each Loan, Debtor will be and
after giving effect to the requested Loan, will be, solvent.

 

7.                                       Covenants. 
Until all Indebtedness of Debtor under the Loan Documents is
indefeasibly paid or performed, and Lender has no further commitment to lend
under the Credit Facility, Debtor agrees and covenants as follows:

 

(a)                                  Payment of Obligations.  Debtor
will pay its obligations, including tax liabilities, that, if not paid, could
become a lien on any of its property, before the same shall become delinquent
or in default, except where (i) the validity or amount thereof is being
contested in good faith by appropriate proceedings, and (ii) Debtor has
set aside on its books adequate reserves with respect thereto in accordance
with GAAP.

 

(b)                                 Maintenance and Conduct
of Business.  Debtor will (i) keep, maintain and
preserve all property (tangible and intangible) material to the conduct of its
business in good working order and condition, ordinary wear and tear excepted, (ii) do
or cause to be done all things necessary to preserve, renew and keep in full
force and effect its legal existence and the rights, licenses, permits,
privileges, agreements and franchises material to the conduct of its business,
and (iii) engage in an efficient and economical manner in a business of
the same general type and within Debtor’s powers under Constituent Documents.

 

(c)                                  Books and Records;
Inspection Rights.  Debtor will keep proper books
of record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities.  Debtor will permit any representatives designated
by Lender, upon reasonable prior notice, to visit and inspect its properties,
to examine and make extracts from its books and records, and to discuss its
affairs, finances and condition with its officers and independent accountants,
all at such reasonable times and as often as reasonably requested.

 

(d)                                 Insurance. 
Debtor will maintain insurance, including but not limited to, fire
insurance, comprehensive property damage, public liability, worker’s
compensation, business interruption and other insurance deemed reasonably
necessary.  Debtor will, at its own
expense, maintain insurance with respect to all Collateral in such amounts,
against such risks, in such form and with such insurers, as shall be
satisfactory to Lender from time to time. 
Each policy of insurance maintained by Debtor shall (i) name Debtor
and Lender as insured parties thereunder (without any representation or
warranty by or obligation upon Lender) as their interests may appear, (ii) contain
the agreement by the insurer that any loss thereunder shall be payable to
Lender notwithstanding any action, inaction or breach of representation or
warranty by Debtor, (iii) provide that there shall be no recourse against
Lender for payment of premiums or other amounts with respect thereto, and (iv) provide
prior written notice of cancellation or of lapse shall be given to Lender by
the insurer in accordance with the insurer’s commercial practices as adopted
from time 

 

8

 

to
time.  Debtor will deliver to Lender
original or duplicate policies of such insurance.  Debtor will also, at the request of Lender,
duly execute and deliver instruments of assignment of such insurance policies
and cause the respective insurers to acknowledge notice of such assignment. All
insurance payments in respect of loss of or damage to any Collateral shall be
paid to Lender and applied by Lender in accordance with the Loan Documents,
provided, however, that so long as no Event of Default or event which with
notice and/or the passage of time would be an Event of Default exists, Debtor
may use such insurance payments for the repair or replacement of such lost or
damaged property.

 

(e)                                  Compliance with Laws. 
Debtor will comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to it or its property, except where the
failure to do so, individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect.

 

(f)                                    Compliance with
Agreements.  Debtor will comply, in all material respects
with all material agreements, contracts, and instruments binding on it or
affecting its properties or business.

 

(g)                                 Notice of Indebtedness. 
Debtor will promptly inform Lender of the creation, incurrence or
assumption by Debtor of any actual or contingent liabilities not permitted
under this Agreement.

 

(h)                                 Notices of Material
Events.  Debtor will furnish to Lender prompt written
notice of the following:

 

(i)                                     the occurrence of any Event of Default;

 

(ii)                                  the filing or commencement of any action,
suit or proceeding by or before any arbitrator or Governmental Authority
against or affecting Debtor thereof that, if adversely determined, would
reasonably be expected to result in a Material Adverse Effect;

 

(iii)                               any and all material adverse changes in
Debtor’s condition and all claims made against Debtor that would materially
affect the financial condition of Debtor.

 

Each notice
delivered under this Section shall be accompanied by a statement of an
executive officer of Debtor setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.

 

(i)                                     Ownership and Liens. 
Debtor will maintain good and indefeasible title to the Collateral free
and clear of all liens, security interests, encumbrances or adverse claims,
except for Permitted Encumbrances. 
Debtor will cause any financing statement or other security instrument
with respect to the Collateral to be terminated, except for Permitted
Encumbrances.  Debtor will defend at its
expense Lender’s right, title and security interest in and to the Collateral
against the claims of any third party.

 

(j)                                     Accounts. 
Debtor will, except as otherwise provided herein, collect, at Debtor’s
own expense, all amounts due or to become due under each of the accounts.  In connection with such collections, Debtor
may and, at Lender’s direction, will take such action not otherwise forbidden
herein as Debtor or Lender may deem reasonably necessary or advisable to
enforce collection or performance of each of the accounts.  Debtor will also duly perform and cause to be
performed all of its material obligations with respect to the goods or
services, the sale or lease or rendition of which gave rise or will give rise
to each account.  Debtor also covenants
and agrees to take any action and/or execute any documents that Lender may
reasonably request in order to comply with law relating to the assignment of
the accounts.

 

(k)                                  Fundamental Change. 
Debtor will not (i) make any material change in the nature of its
business as carried on as of the date hereof, (ii) liquidate, merge or
consolidate with or into any other Person, or (iii) make a change in
organizational structure or the jurisdiction in which it is organized, unless
it has provided Lender with THIRTY (30) days
prior written notice.

 

(l)                                     Loans. 
Debtor will not make loans or guarantee any obligation of any other
Person or entity other (i) than loans or advances to employees of Debtor
not to exceed FIFTY THOUSAND AND 

 

9

 

NO/100 DOLLARS ($50,000.00) in the aggregate outstanding at any
time, including such loans and advances outstanding on the Closing Date, (ii) accounts
receivable for sales of inventory and other products and services provided by Debtor
to its respective customers in the ordinary course of business of Debtor, and (iii) bridge
loans (not to exceed a term of ONE (1) year)
to Persons who are an acquisition candidate of Debtor not to exceed in the
aggregate FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($500,000.00).

 

(m)                               Transactions With
Affiliates.  Debtor will not enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or
the rendering of any service, with any Affiliate of Debtor, except in the
ordinary course of and pursuant to the reasonable requirements of Debtor’s
business (upon prior written notice to Lender) and upon fair and reasonable
terms no less favorable to Debtor than would be obtained in a comparable arm’s-length
transaction with a Person or entity not an Affiliate of Debtor.

 

(n)                                 Transfer or Encumbrance. 
Debtor will not (i) sell, assign (by operation of law or
otherwise), transfer, exchange, lease or otherwise dispose of any of the
Collateral, or (ii) grant a lien or security interest in or execute, file
or record any financing statement or other security instrument with respect to
the Collateral other than the Permitted Encumbrances.

 

(o)                                 Impairment of Security
Interest.  Debtor will not take any action that would in
any manner impair the enforceability of Lender’s security interest in any
Collateral.

 

(p)                                 Compromise of Collateral. 
Debtor will not adjust, settle, compromise, amend or modify any
Collateral, except an adjustment, settlement, compromise, amendment or
modification in good faith and in the ordinary course of business; provided,
however, this exception shall terminate following written notice from
Lender upon the occurrence and during the continuation of an Event of
Default.  Debtor shall provide to Lender
such information concerning (i) any adjustment, settlement, compromise,
amendment or modification of any Collateral, and (ii) any claim asserted
by any account debtor for credit, allowance, adjustment, dispute, setoff or
counterclaim, as Lender may reasonably request from time to time.

 

8.                                       Financial Covenants. 
Until all Indebtedness of Debtor under the Loan Documents is
indefeasibly paid or satisfied and Lender has no further commitment to lend
under the Credit Facility, Debtor agrees and covenants that it will, unless
Lender shall otherwise consent in writing:

 

(a)                                  Liabilities/Tangible Net
Worth.  Debtor will maintain a ratio of (i) total
liabilities (as determined by GAAP) minus Subordinated Debt, to (ii) Tangible
Net Worth plus Subordinated Debt of not greater than 1.25 to 1.00 (as of
the end of each calendar quarter).  As
soon as available and in any event within FORTY-FIVE (45) days of the end of each calendar quarter, Debtor shall provide Lender
with a certificate of compliance together with such supporting information as
Lender may reasonable require.  “Subordinated
Debt” means any indebtedness owing by Debtor which has been
subordinated by written agreement to all indebtedness now or hereafter owing by
Debtor to Lender, such agreement to be in form and substance acceptable to
Lender.  Tangible Net Worth” means, as of any date, Debtor’s
total asset excluding all intangible assets, less total liabilities
excluding any Subordinated Debt.

 

(b)                                 Debt Service Coverage
Ratio. Debtor
shall maintain a Debt Service Coverage Ratio of not less than 2.00 to 1.00 (as
of the end of each calendar quarter).  As
soon as available and in any event within FORTY-FIVE (45) days of the end of each calendar quarter, Debtor shall provide Lender
with a certificate of compliance together with such supporting information as
Lender may reasonable require.  “Debt Service Coverage Ratio” means, for any period, the ratio of
Debtor’s earnings before interest, taxes, depreciation and amortization expense
(EBITDA), for the last four quarters divided by total capital lease obligations
plus notes payable, including accrued interest expense due within one year on
the Credit Facility.

 

9.                                       Reporting Requirements. 
Until all Indebtedness of Debtor under the Loan Documents is
indefeasibly paid and satisfied, and Lender has no further commitment to lend
under the Credit Facility, Debtor agrees and covenants that it will furnish or
cause to be furnished the following:

 

10

 

(a)                                  Quarterly Financial
Statements.  As soon as available, and in any event within
FORTY-FIVE (45) days after the end
of each calendar quarter, financial statements to include a balance sheet,
income statement and cash flow statement of Debtor, as of the end of such
calendar quarter all in form and substance and in reasonable detail
satisfactory to Lender and duly certified (subject to year-end review
adjustments) by an appropriate officer of Debtor (i) as being true and
correct in all material aspects to the best of such officer’s knowledge
(subject to year end adjustments), and (ii) as having been prepared in
accordance with GAAP.

 

(b)                                 Annual Financial
Statements.  As soon as available and in any event within NINETY (90) days after the end of each
fiscal year, a financial statement to include a balance sheet, income statement
and cash flow statement of Debtor, as of the end of such fiscal year, audited
by independent certified public accountants of recognized standing satisfactory
to the Lender.

 

(c)                                  Notice of Default and
Events of Default.  As soon as possible and in any
event within FIVE (5) Business
Days after the occurrence of each Event of Default, a written notice setting
forth the details of such Event of Default and the action which is proposed to
be taken by Debtor with respect thereto.

 

(d)                                 Accounts
Receivable Aging.  As soon as
available, and in any event within TWENTY (20)  days after the end of each
calendar month, an account receivable aging, classifying Debtor’s accounts
receivable in categories of 0-30, 31-60, 61-90 and over 90 days from date of
invoice, and in such form and detail as Lender shall require, certified by the
chief financial officer of Debtor.

 

(e)                                  Borrowing Base. 
As soon as available and in any event within TWENTY (20) days after the end of each calendar month or more
often as may be required by Lender, a Borrowing Base report in form and content
satisfactory to Lender in its reasonable discretion.

 

(f)                                    General Information. 
Debtor shall promptly deliver such other information concerning Debtor
as Lender may request.

 

10.                                 Rights of Lender. 
Lender shall have the rights contained in this Section at all times
that this Agreement is effective.

 

(a)                                  Financing Statements. 
Debtor hereby authorizes Lender to file, without the signature of
Debtor, one or more financing or continuation statements, and amendments
thereto, relating to the Collateral. 
Debtor hereby irrevocably authorizes Lender at any time and from time to
time to file in any Code jurisdiction any initial financing statements and
amendments thereto that (i) indicate the Collateral (1) as all assets
of Debtor or words of similar effect; regardless of whether any particular
asset comprised in the Collateral falls within the scope of Article 9 of
the Code, or (2) as being of an equal or lesser scope or with greater
detail, and (ii) contain any other information required by Article 9
of the Code for the sufficiency or filing office acceptance of any financing
statement or amendment.

 

(b)                                 Power of Attorney. 
Debtor hereby irrevocably appoints Lender as Debtor’s attorney-in-fact,
such power of attorney being coupled with an interest, with full authority in
the place and stead of Debtor and in the name of Debtor or otherwise, from time
to time following the occurrence and during the continuation of an Event of
Default in Lender’s reasonable discretion, to take any action and to execute
any instrument which Lender may deem necessary or appropriate to accomplish the
purposes of this Agreement.

 

(c)                                  Performance by Lender. 
If Debtor fails to perform any agreement or obligation provided for in
any Loan Document, Lender may itself perform, or cause performance of, such
agreement or obligation, and the expenses of Lender incurred in connection
therewith shall be a part of the Indebtedness, secured by the Collateral and
payable by Debtor on demand.

 

(d)                                 Debtor’s Receipt of
Proceeds.  Upon the occurrence and during the
continuation of an Event of Default, all amounts and proceeds (including
instruments and writings) received by Debtor in respect of the Collateral shall
be received in trust for the benefit of Lender hereunder and, upon the written 

 

11

 

request
of Lender, shall be segregated from other property of Debtor and shall be
forthwith delivered to Lender in the same form as so received (with any
necessary endorsement) and applied to the Indebtedness in accordance with the
Loan Documents.

 

(e)                                  Notification of Account
Debtors.  Lender may at its reasonable discretion from
time to time during the continuation of an Event of Default notify any or all
obligors under any accounts (i) of Lender’s security interest in such
accounts and direct such obligors to make payment of all amounts due or to
become due to Debtor thereunder directly to Lender, and (ii) to verify the
accounts with such obligors.  Lender
shall have the right, at the expense of Debtor, to enforce collection of any
such accounts and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as Debtor.

 

11.                                 Events of Default. 
Each of the following shall constitute an “Event of
Default” under this Agreement:

 

(a)                                  Payment Default. 
The failure, refusal or neglect of Debtor to pay when due any part of
the principal of, or interest on the Indebtedness owing to Lender by Debtor
from time to time and such failure, refusal or neglect shall continue
unremedied for a period of TEN (10) Days
from the date such payment is due.

 

(b)                                 Performance or Warranty
Default.  The failure of Debtor to timely and properly
observe, keep or perform any covenant, agreement, warranty or condition
required herein or in any of the other Loan Documents other than with respect
to a payment default as set forth in Section 11(a), which is not
cured within FIVE (5) Business
Days following written notice from Lender to Debtor; provided, that (i) if
such default cannot be cured within FIVE (5) Business
Days, (ii) Debtor has, within such period, taken such actions as deemed
reasonably necessary and appropriate by Lender to cure such default, and (iii) Debtor
shall continue to diligently pursue such actions, such cure period shall be
extended for a period of THIRTY (30)
days.

 

(c)                                  Representations. 
Any representation contained herein or in any of the other Loan
Documents made by Debtor is false or misleading in any material respect.

 

(d)                                 Default Under Other
Indebtedness.  The occurrence of any event which results in
the acceleration of the maturity of any indebtedness for borrowed money in an
aggregate principal amount in excess of TWO
HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($250,000.00) owing by
Debtor to any third party under any agreement or understanding.

 

(e)                                  Insolvency. 
If Debtor (i) becomes insolvent, or makes a transfer in fraud of
creditors, or makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts as they become due; (ii) generally
is not paying its debts as such debts become due; (iii) has a receiver,
trustee or custodian appointed for, or take possession of, all or substantially
all of its assets, either in a proceeding brought by it or in a proceeding
brought against it and such appointment is not discharged or such possession is
not terminated within SIXTY (60)
days after the effective date thereof or it consents to or acquiesces in such
appointment or possession; (iv) files a petition for relief under the
United States Bankruptcy Code or any other present or future federal or state
insolvency, Bankruptcy or similar laws (all of the foregoing hereinafter
collectively called “Applicable
Bankruptcy Law”) or an involuntary petition for relief is filed
against it under any Applicable Bankruptcy Law and such involuntary petition is
not dismissed within SIXTY (60)
days after the filing thereof, or an order for relief naming it is entered
under any Applicable Bankruptcy Law, or any composition, rearrangement,
extension, reorganization or other relief of debtors now or hereafter existing
is requested or consented to by it; or (v) fails to have discharged within
a period of SIXTY (60) days any
attachment, sequestration or similar writ levied upon any property of it.

 

(f)                                    Judgment. 
The entry of any judgment against Debtor or the issuance or entry of any
attachments or other liens against any of the property of Debtor for an amount
in excess of TWO  HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($250,000.00) (individually or in the 

 

12

 

aggregate)
if uninsured, undischarged, unbonded or undismissed on the date on which such
judgment could be executed upon.

 

(g)                                 Action Against
Collateral.  The Collateral or any portion thereof is
taken on execution or other process of law in any action.

 

(h)                                 Action of Lien Holder. 
The holder of any lien or security interest the Collateral (without
hereby implying the consent of Lender to the existence or creation of any such
lien or security interest on the Collateral), declares a default thereunder or
institutes foreclosure or other proceedings for the enforcement of its remedies
thereunder.

 

(i)                                     Material Adverse Effect. 
Any event shall have occurred or is continuing which shall have had a
Material Adverse Effect.

 

(j)                                     Loan Documents. 
The Loan Documents shall at any time after their execution and delivery
and for any reason cease (i) to create a valid and perfected first
priority security interest (subject to Permitted Encumbrances) in and to the
Collateral; or (ii) to be in full force and effect or shall be declared
null and void.  The validity of
enforceability the Loan Documents shall be contested by Debtor or any other
Person party thereto or Debtor shall deny it has any further liability or
obligation under the Loan Documents.

 

Nothing
contained in this Agreement shall be construed to limit the events of default
enumerated in any of the other Loan Documents and all such events of default
shall be cumulative.

 

12.                                 Remedies and Related
Rights.  If an Event of Default shall have occurred,
and without limiting any other rights and remedies provided herein, under any
of the Loan Documents or otherwise available to Lender, Lender may exercise one
or more of the rights and remedies provided in this Section.

 

(a)                                  Remedies. 
Upon the occurrence of any one or more of the foregoing Events of
Default, (i) the entire unpaid balance of principal of the Note, together
with all accrued but unpaid interest thereon, and all other Indebtedness owing
to Lender by Debtor at such time shall, at the option of Lender, become
immediately due and payable without further notice, demand, presentation,
notice of dishonor, notice of intent to accelerate, notice of acceleration,
protest or notice of protest of any kind, all of which are expressly waived by
Debtor, and (ii) Lender may, at its option, cease further advances under
the Note and this Agreement; provided, however, concurrently and
automatically with the occurrence of an Event of Default under Subsection 11(e) further
advances under the Loan Documents shall automatically cease, the Indebtedness
at such time shall, without any action by Lender, become due and payable,
without further notice, demand, presentation, notice of dishonor, notice of
acceleration, notice of intent to accelerate, protest or notice of protest of
any kind, all of which are expressly waived by Debtor.  All rights and remedies of Lender set forth
in this Agreement and in any of the other Loan Documents may also be exercised
by Lender, at its option to be exercised in its sole discretion, upon the
occurrence of an Event of Default, and not in substitution or diminution of any
rights now or hereafter held by Lender under the terms of any other agreement.

 

(b)                                 Other Remedies. 
Lender may from time to time at its discretion, without limitation and
without notice except as expressly provided in any of the Loan Documents:

 

(i)                                     Exercise in respect of the Collateral all
the rights and remedies of a secured party under the Code (whether or not the
Code applies to the affected Collateral);

 

(ii)                                  Require Debtor to, and Debtor hereby
agrees that it will at its expense and upon request of Lender, assemble the
Collateral as directed by Lender and make it available to Lender at a place to
be designated by Lender which is reasonably convenient to both parties;

 

(iii)                               Reduce its claim to judgment or foreclose or otherwise
enforce, in whole or in part, the security interest granted hereunder by any
available judicial procedure;

 

13

 

(iv)                              Sell or otherwise dispose of, at its
office, on the premises of Debtor or elsewhere, the Collateral, as a unit or in
parcels, by public or private proceedings, and by way of one or more contracts
(it being agreed that the sale or other disposition of any part of the
Collateral shall not exhaust Lender’s power of sale, but sales or other
dispositions may be made from time to time until all of the Collateral has been
sold or disposed of or until the Indebtedness has been paid and performed in
full), and at any such sale or other disposition it shall not be necessary to
exhibit any of the Collateral;

 

(v)                                 Buy the Collateral, or any portion
thereof, at any public sale;

 

(vi)                              Buy the Collateral, or any portion
thereof, at any private sale if the Collateral is of a type customarily sold in
a recognized market or is of a type which is the subject of widely distributed
standard price quotations;

 

(vii)                           Apply for the appointment of a receiver for the
Collateral, and Debtor hereby consents to any such appointment; and

 

(viii)                        At its option, retain the Collateral in satisfaction
of the Indebtedness whenever the circumstances are such that Lender is entitled
to do so under the Code or otherwise.

 

Debtor agrees that in the
event Debtor is entitled to receive any notice under the Code, as it exists in
the state governing any such notice, of the sale or other disposition of any
Collateral, reasonable notice shall be deemed given when such notice is
deposited in a depository receptacle under the care and custody of the United
States Postal Service, postage prepaid, at Debtor’s address set forth on the
signature page hereof, TEN (10) days
prior to the date of any public sale, or after which a private sale, of any of
such Collateral is to be held.  Lender
shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given.  Lender may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.

 

(c)                                  Application of Proceeds. 
If any Event of Default shall have occurred, Lender may at its
discretion apply or use any cash held by Lender as Collateral, and any cash
proceeds received by Lender in respect of any sale or other disposition of,
collection from, or other realization upon, all or any part of the Collateral
as follows in such order and manner as Lender may elect:

 

(i)                                     to the repayment or reimbursement of the
reasonable costs and expenses (including, without limitation, reasonable
attorneys’ fees and expenses) incurred by Lender in connection with (1) the
administration of the Loan Documents, (2) the custody, preservation, use
or operation of, or the sale of, collection from, or other realization upon,
the Collateral, and (3) the exercise or enforcement of any of the rights
and remedies of Lender hereunder;

 

(ii)                                  to the payment or other satisfaction of
any liens and other encumbrances upon the Collateral;

 

(iii)                               to the satisfaction of the Indebtedness;

 

(iv)                              by holding such cash and proceeds as
Collateral;

 

(v)                                 to the payment of any other amounts
required by applicable law; and

 

(vi)                              by delivery to Debtor or any other party
lawfully entitled to receive such cash or proceeds whether by direction of a
court of competent jurisdiction or otherwise.

 

(d)                                 License. 
Lender is hereby granted a license or other right to use, following the
occurrence and during the continuance of an Event of Default, without charge,
Debtor’s labels, patents, copyrights, rights of use of any name, trade secrets,
trade names, trademarks, service marks, customer lists and advertising matter,
or any property of a similar nature, as it pertains to the Collateral, in
completing 

 

14

 

production
of, advertising for sale, and selling any Collateral, and, following the
occurrence and during the continuance of an Event of Default, Debtor’s rights
under all licenses and all franchise agreements shall inure to Lender’s
benefit.  In addition, Debtor hereby
irrevocably agrees that Lender may, following the occurrence and during the
continuance of an Event of Default, sell any of Debtor’s inventory directly to
any Person, including without limitation Persons who have previously purchased
Debtor’s inventory from Debtor and in connection with any such sale or other
enforcement of Lender’s rights under this Agreement, may sell inventory which
bears any trademark owned by or licensed to Debtor and any inventory that is
covered by any copyright owned by or licensed to Debtor and Lender may finish
any work in process and affix any trademark owned by or licensed to Debtor and
sell such inventory as provided herein.

 

(e)                                  Deficiency. 
In the event that the proceeds of any sale of, collection from, or other
realization upon, all or any part of the Collateral by Lender are insufficient
to pay all amounts to which Lender is legally entitled, Debtor (unless otherwise
provided) shall be liable for the deficiency, together with interest thereon as
provided in the Loan Documents.

 

(f)                                    Non-Judicial Remedies. 
In granting to Lender the power to enforce its rights hereunder without
prior judicial process or judicial hearing, Debtor expressly waives, renounces
and knowingly relinquishes any legal right which might otherwise require Lender
to enforce its rights by judicial process. 
Debtor recognizes and concedes that non-judicial remedies are consistent
with the usage of trade, are responsive to commercial necessity and are the
result of a bargain at arm’s length. 
Nothing herein is intended to prevent Lender or Debtor from resorting to
judicial process at either party’s option.

 

(g)                                 No Waiver; Cumulative
Remedies.  No failure on the part of Lender to exercise
and no delay in exercising, and no course of dealing with respect to, any
right, power, or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power, or
privilege under this Agreement preclude any other or further exercise thereof
or the exercise of any other right, power, or privilege. The rights and
remedies provided for in this Agreement and the other Loan Documents are
cumulative and not exclusive of any rights and remedies provided by law.

 

(h)                                 Equitable Relief. 
Debtor recognizes that in the event Debtor fails to pay, perform,
observe, or discharge any or all of the Indebtedness, any remedy at law may
prove to be inadequate relief to Lender. 
Debtor therefore agrees that Lender, if Lender so requests, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.

 

13.                                 Indemnity. 
Debtor hereby indemnifies and agrees to hold harmless Lender, and its
officers, directors, employees, agents and representatives (each an “Indemnified Person”) from and
against any and all liabilities, obligations, claims, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature (collectively, the “Claims”)
which may be imposed on, incurred by, or asserted against, any Indemnified
Person arising in connection with the Loan Documents, the Indebtedness or the
Collateral (including without limitation, the enforcement of the Loan Documents
and the defense of any Indemnified Person’s actions and/or inactions in
connection with the Loan Documents).  WITHOUT LIMITATION, THE FOREGOING INDEMNITIES SHALL
APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO ANY CLAIMS WHICH IN WHOLE OR
IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH AND/OR ANY
OTHER INDEMNIFIED PERSON,  EXCEPT
TO THE LIMITED EXTENT THE CLAIMS AGAINST AN INDEMNIFIED PERSON ARE PROXIMATELY
CAUSED BY SUCH INDEMNIFIED PERSON’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.  If Debtor or any third party ever alleges
such gross negligence or willful misconduct by any Indemnified Person, the
indemnification provided for in this Section shall nonetheless be paid
upon demand, subject to later adjustment or reimbursement, until such time as (a) a
court of competent jurisdiction enters a final judgment as to the extent and
effect of the alleged gross negligence or willful misconduct, or (b) Lender
has expressly agrees in writing with Debtor that such Claim is proximately
caused by such Indemnified Person’s gross negligence or willful
misconduct.  The indemnification provided
for in this Section shall survive the termination of this Agreement and
shall extend and continue to benefit each individual or entity that is or has
at any time been an Indemnified Person hereunder.

 

14.                                 Limitation of Liability. 
Neither the Lender nor any officer, director, employee, attorney, or
agent of the Lender shall have any liability with respect to, and Debtor hereby
waives, releases, and agrees not to sue any of them upon, any claim for any
special, indirect, incidental, or consequential damages suffered or incurred by

 

15

 

Debtor in connection with, arising out of, or in any way related to,
this Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or any of the other Loan Documents.  Debtor hereby waives, releases, and agrees
not to sue the Lender or any of the Lender’s Affiliates, officers, directors,
employees, attorneys, or agents for punitive damages in respect of any claim in
connection with, arising out of, or in any way related to, this Agreement or
any of the other Loan Documents, or any of the transactions contemplated by
this Agreement or any of the other Loan Documents.

 

15.                                 No Duty. 
All attorneys, accountants, appraisers, and other professional Persons
and consultants retained by Lender shall have the right to act exclusively in
the interest of Lender and shall have no duty of disclosure, duty of loyalty,
duty of care, or other duty or obligation of any type or nature whatsoever to
Debtor or any of Debtor’s equity holders or any other Person.

 

16.                                 Lender Not Fiduciary. 
The relationship between Debtor and Lender is solely that of debtor and
creditor, and Lender has no fiduciary or other special relationship with
Debtor, and no term or condition of any of the Loan Documents shall be
construed so as to deem the relationship between Debtor and Lender to be other
than that of debtor and creditor.

 

17.                                 Waiver and Agreement. 
Neither the failure nor any delay on the part of Lender to exercise any
right, power or privilege herein or under any of the other Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of such
right, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  No waiver of any provision in this Agreement
or in any of the other Loan Documents and no departure by Debtor therefrom
shall be effective unless the same shall be in writing and signed by Lender,
and then shall be effective only in the specific instance and for the purpose
for which given and to the extent specified in such writing.  No modification or amendment to this
Agreement or to any of the other Loan Documents shall be valid or effective
unless the same is signed by the party against whom it is sought to be
enforced.

 

18.                                 Benefits. 
This Agreement shall be binding upon and inure to the benefit of Lender
and Debtor, and their respective successors and assigns, provided, however,
that Debtor may not, without the prior written consent of Lender, assign any
rights, powers, duties or obligations under this Agreement or any of the other
Loan Documents.

 

19.                                 Notices. 
All notices, requests, demands or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and given
by (a) personal delivery, (b) expedited delivery service with proof
of delivery, or (c) United States mail, postage prepaid, registered or
certified mail, return receipt requested, sent to the intended addressee at the
address set forth on the signature page hereof and shall be deemed to have
been received either, in the case of personal delivery, as of the time of
personal delivery, in the case of expedited delivery service, as of the time of
the expedited delivery and in the manner provided herein, or in the case of
mail, upon the THIRD (3rd) day after deposit in a depository
receptacle under the care and custody of the United States Postal Service.  Any party shall have the right to change its
address for notice hereunder to any other location within the continental
United States by notice to the other party of such new address.

 

20.                                 Construction; Venue;
Service of Process.  The Loan Documents have been
executed and delivered in the State of Texas, shall be governed by and
construed in accordance with the laws of the State of Texas, and shall be
performable by the parties hereto in the county in Texas where Lender’s address
set forth on the signature page hereof is located (the “Venue Site”).  Any action or proceeding against Debtor under
or in connection with any of the Loan Documents may be brought in any state or
federal court within the Venue Site. 
Debtor hereby irrevocably (a) submits to the nonexclusive
jurisdiction of such courts, and (b) waives any objection it may now or
hereafter have as to the venue of any such action or proceeding brought in any
such court or that any such court is an inconvenient forum.  Debtor agrees that service of process upon it
may be made by certified or registered mail, return receipt requested, at its
address specified or determined in accordance with the provisions this
Agreement.  Nothing in any of the other
Loan Documents shall affect the right of Lender to serve process in any other
manner permitted by law or shall limit the right of Lender to bring any action
or proceeding against Debtor or with respect to any of its property in courts
in other jurisdictions.  Any action or
proceeding by Debtor against Lender shall be brought only in a court located in
the Venue Site.

 

16

 

21.                                 Invalid Provisions. 
If any provision of the Loan Documents are held to be illegal, invalid
or unenforceable under present or future laws, such provision shall be fully
severable and the remaining provisions of the Loan Documents shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance.

 

22.                                 Expenses. 
Debtor shall pay all reasonable costs and expenses (including, without
limitation, reasonable attorneys’ fees) in connection with (a) the
drafting and execution of the Loan Documents and the transactions contemplated
therein, (b) any action required in the course of administration of the
indebtedness and obligations evidenced by the Loan Documents, and (c) any
action in the enforcement of Lender’s rights upon the occurrence of an Event of
Default.

 

23.                                 Participation of the
Loans.  Debtor agrees that Lender may, at its option,
sell interests in the Loans and its rights under this Agreement to a financial
institution or institutions and, in connection with each such sale, Lender may
disclose any financial and other information available to Lender concerning
Debtor to each perspective purchaser subject to obtaining a confidentiality
agreement with each prospective purchaser prior to disclosing Debtor’s
confidential information.

 

24.                                 Conflicts. 
Except as otherwise expressly provided in the Note, in the event any
term or provision of this Agreement is inconsistent with or conflicts with any
provision of the other Loan Documents, the terms and provisions contained in
this Agreement shall be controlling.

 

25.                                 Counterparts. 
The Loan Documents may be separately executed in any number of
counterparts, each of which shall be an original, but all of which, taken
together, shall be deemed to constitute one and the same instrument.

 

26.                                 Survival. 
All representations and warranties made in the Loan Documents or in any
document, statement, or certificate furnished in connection with this Agreement
shall survive the execution and delivery of the Loan Documents, and no
investigation by Lender or any closing shall affect the representations and
warranties or the right of Lender to rely upon them.

 

27.                                 Certain Acknowledgements. 
Debtor hereby acknowledges and agrees that there are no defenses,
counterclaims, offsets, cross-complaints, claims or demands of any kind or
nature whatsoever to or against Lender or the terms and provisions of or the
obligations of Debtor under the Original Loan Agreements and the other
agreements, instruments and documents evidencing, securing, governing,
guaranteeing or pertaining thereto, and that Debtor has no right to seek affirmative
relief or damages of any kind or nature from Lender.  To the extent any such defenses,
counterclaims, offsets, cross-complaints, claims, demands or rights exist,
Debtor hereby waives, and hereby knowingly and voluntarily releases and forever
discharges Lender and its predecessors, officers, directors, agents, attorneys,
employees, successors and assigns, from all possible claims, demands, actions,
causes of action, defenses, counterclaims, offsets, cross-complaints, damages,
costs, expenses and liabilities whatsoever, whether known or unknown, such
waiver and release being with full knowledge and understanding of the
circumstances and effects of such waiver and release and after having consulted
legal counsel with respect thereto.

 

28.                                 Waiver of Right to Trial by Jury.  THE PARTIES
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM THAT RELATES TO OR ARISES OUT OF THE
LOAN DOCUMENTS OR THE ACTS OR FAILURE TO ACT OF OR BY LENDER IN THE ENFORCEMENT
OF ANY OF THE TERMS OR PROVISIONS OF THE LOAN DOCUMENTS.

 

29.                                 Patriot Act Notice. 
Lender hereby notifies Debtor that pursuant to the requirements of Section 326
of the USA Patriot Act of 2001, 31 U.S.C. § 5318 (the “Act”),
that Lender is required to obtain, verify and record information that
identifies Debtor, which information includes the name and address of Debtor
and other information that will allow such Lender to identify Debtor in
accordance with the Act.

 

30.                                 Disclosure Relating to
Collateral Protection Insurance.  As of the
date of this disclosure, Debtor and Lender have or shall have consummated a
transaction pursuant to which Lender has agreed to make Loans to Debtor.  Debtor has pledged Collateral to secure the
Indebtedness in accordance with the Loan Documents.  

 

17

 

This notice relates to Debtor’s obligations with
respect to insuring the Collateral against damage.  To this end, Debtor must do the following:

 

(a)                                  Keep the Collateral insured against
damage in the amount equal to the Indebtedness or as otherwise required by the
Loan Documents;

 

(b)                                 Purchase the insurance from an insurer
that is authorized to do business in Texas or an eligible surplus lines
insurer;

 

(c)                                  Name Lender the person to be paid under
the policy in the event of loss; and

 

(d)                                 Deliver to Lender a copy of the policy
and proof of the payment of premiums.

 

Lender may obtain collateral protection insurance on behalf of Debtor
at Debtor’s expense if Debtor fails to meet any of the foregoing requirements.

 

31.                                 Amendment
and Restatement.  On the Closing
Date, the Original Agreements shall be amended and restated in its entirety by
this Agreement.  This Agreement is not in
any way intended to constitute a novation of the obligations and liabilities
existing under the Original Agreements or evidence payment of all or any
portion of such obligations and liabilities. 
The terms and conditions of this Agreement and Lender’s rights and
remedies under this Agreement and the other Loan Documents shall apply to all
of the Indebtedness incurred under the Original Agreements.  Debtor reaffirms the liens granted pursuant
to the Loan Documents (as such term is defined in the Original Loan Agreement,
the “Original Loan Documents”)
to Lender, which liens shall continue in full force and effect during the term
of this Agreement and any renewals thereof and shall continue to secure the
Indebtedness.  On and after the Closing
Date, (a) all references to any Original Agreement in the Original Loan
Documents (other than this Agreement) shall be deemed to refer to such Original
Agreement, as amended and restated hereby, (b) all references to any
section (or subsection) of any Original Agreement in any Original Loan Document
(but not herein) shall be amended to become, mutatis
mutandis, references to the corresponding provisions of this
Agreement and (c) except as the context otherwise provides, on or after
the Closing Date, all references to this Agreement herein (including for
purposes of indemnification and reimbursement of fees) shall be deemed to be
references to the Original Agreements, as amended and restated hereby.

 

32.                                 Notice of Final
Agreement.  It is the intention of Debtor and Lender that
the following NOTICE OF FINAL AGREEMENT
be incorporated by reference into each of the Loan Documents (as the same may
be amended, modified or restated from time to time).  Debtor and Lender warrant and represent that
the entire agreement made and existing by or among Debtor and Lender with
respect to the Loans is and shall be contained within the Loan Documents, and
that no agreements or promises exist or shall exist by or among, Debtor and
Lender that are not reflected in the Loan Documents.

 

NOTICE OF FINAL AGREEMENT

 

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

 

REMAINDER
OF PAGE LEFT INTENTIONALLY BLANK

 

18

 

AGREED as of the date first written above.

 

	
  LENDER:

  	
   

  	
  ADDRESS:

  
	
   

  	
   

  	
   

  
	
  SOVEREIGN BANK

  	
   

  	
  6060 Sherry Lane

  
	
   

  	
   

  	
  Dallas, TX 75225

  
	
  By:

  	
  /s/ Stephanie
  Baird Velasquez

  	
   

  	
   

  
	
  Name:

  	
  Stephanie Baird
  Velasquez

  	
   

  	
   

  
	
  Title:

  	
  Area President

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  With
  copies of notices to:

  	
   

  	
  Gardere Wynne
  Sewell LLP

  
	
   

  	
   

  	
  1601 Elm Street,
  Suite 3000

  
	
   

  	
   

  	
  Dallas, TX 75201-4761

  
	
   

  	
   

  	
  Attention:  Steven S. Camp

  
	
   

  	
   

  	
   

  
	
  DEBTOR:

  	
   

  	
  ADDRESS:

  
	
   

  	
   

  	
   

  
	
  TGC INDUSTRIES,
  INC.

  	
   

  	
  101 E. Park
  Blvd., Suite 955

  
	
   

  	
   

  	
  Plano, TX 75074

  
	
  By:

  	
  /s/ Wayne
  Whitener

  	
   

  	
   

  
	
  Name:

  	
  Wayne Whitener

  	
   

  	
   

  
	
  Title:

  	
  President & CEO

  	
   

  	
   

  

 

19

 

SCHEDULE 1(t)

 

TO

 

LOAN AND
SECURITY AGREEMENT

 

Existing Liens

 

20Exhibit 10.2

 

SOVEREIGN BANK —
LOAN NO. 17003864

 

AMENDED AND RESTATED

PROMISSORY NOTE

 

	
  $5,000,000.00

  	
   

  	
  SEPTEMBER
  16, 2009

  

 

FOR VALUE RECEIVED, TGC INDUSTRIES,
INC., a Texas corporation (“Debtor”)
unconditionally promises to pay to the order of SOVEREIGN BANK,
a Texas state bank (together with its successors and assigns, “Lender”), without setoff, at its
offices at 6060 Sherry Lane, Dallas (Dallas County), TX 75225, or at such other
place as may be designated by Lender, the principal amount of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00), or so much
thereof as may be advanced from time to time in immediately available funds,
together with interest computed daily on the outstanding principal balance
hereunder, at an annual interest rate (the “Rate”), and
in accordance with the payment schedule, indicated below.  This AMENDED
AND RESTATED PROMISSORY NOTE
(this “Note”) is executed pursuant to and
evidences the Loans funded and to be funded by Lender under the Revolving
Credit Facility pursuant to that certain AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT between
Debtor and Lender dated as of even date herewith (as the same may be amended,
supplemented, renewed or extended from time to time, the “Loan
Agreement”) to which reference is made for a statement of the
collateral, rights and obligations of Debtor and Lender in relation thereto;
but neither this reference to the Loan Agreement nor any provision thereof
shall affect or impair the absolute and unconditional obligation of Debtor to
pay unpaid principal of and interest on this Note when due.  Capitalized terms not otherwise defined
herein shall have the same meanings as in the Loan Agreement.

 

1.             Rate.  The Rate shall be  the LESSER
of: (a) the MAXIMUM RATE, or (b) the
GREATER of (i) the PRIME RATE, or (ii) FIVE PERCENT (5.00%).  The
term “Prime Rate” means a variable rate of
interest per annum equal to the
prime rate as published from time to time in the “Bonds, Rates &
Yields” table of The Wall Street Journal.  If such prime rate, as so quoted, is split between
two or more different interest rates, then the Prime Rate shall be the highest
of such interest rates.  If the prime
rate is no longer published in the “Bonds, Rates & Yields”
table of The Wall Street Journal,
then the Prime Rate shall be (i) the rate of interest per annum
established from time to time by Lender and designated as its base or prime
rate, which may not necessarily be the lowest rate charged by Lender and is set
by Lender in its sole discretion, or (ii) if Lender does not publish or
announce a base or prime rate, or does so infrequently or sporadically, then
the Prime Rate shall be determined by reference to another base rate, prime
rate, or similar lending rate index, generally accepted on a national basis, as
selected by Lender in its sole and absolute discretion.  Notwithstanding any provision of this
Note or any other agreement or commitment between Debtor and Lender, whether
written or oral, express or implied, Lender shall never be entitled to charge,
receive, or collect, nor shall amounts received hereunder be credited so that
Lender shall be paid, as interest a sum greater than interest at the Maximum
Rate.  It is the intention of the parties
that this Note, and all instruments securing the payment of this Note or
executed or delivered in connection therewith, shall comply with applicable
law.  If Lender ever contracts for,
charges, receives or collects anything of value which is deemed to be interest
under applicable law, and if the occurrence of any circumstance or contingency,
whether acceleration of maturity of this Note, prepayment of this Note, delay
in advancing proceeds of this Note, or any other event, should cause such
interest to exceed the maximum lawful amount, any amount which exceeds interest
at the Maximum Rate shall be applied to the reduction of the unpaid principal
balance of this Note or any other indebtedness owed to Lender by Debtor, and if
this Note and such other indebtedness are paid in full, any remaining excess
shall be paid to Debtor.  In determining
whether the interest exceeds interest at the Maximum Rate, the total amount of
interest shall be spread, prorated and amortized throughout the entire term of
this Note until its payment in full.  The
term “Maximum Rate” as used in this Note
means the maximum nonusurious rate of interest per annum permitted by whichever
of applicable United States federal law or Texas law permits the higher
interest rate, including to the extent permitted by applicable law, any
amendments thereof hereafter or any new law hereafter coming into effect to the
extent a higher Maximum Rate is permitted thereby.  If at any time the Rate shall exceed the
Maximum Rate, the Rate shall be automatically limited to the Maximum Rate until
the total amount of interest accrued hereunder equals the amount of interest
which would have accrued if there had been no limitation to the Maximum
Rate.  To the extent, if any, that
Chapter 303 of the Texas Finance Code, as amended, (the “Act”)
is relevant to Lender for purposes of determining the Maximum Rate, the parties
elect to determine the Maximum Rate under the Act pursuant to the “weekly
ceiling” from time to time in effect, as referred to and defined in
§303.001-303.016 of the Act; subject, 

 

1

 

however, to any right Lender subsequently may have under applicable law
to change the method of determining the Maximum Rate.

 

2.             Accrual
Method.    Interest on the Indebtedness
evidenced by this Note shall be computed on the basis of a THREE HUNDRED SIXTY (360) day year and
shall accrue on the actual number of days elapsed for any whole or partial
month in which interest is being calculated. 
In computing the number of days during which interest accrues, the day
on which funds are initially advanced shall be included regardless of the time
of day such advance is made, and the day on which funds are repaid shall be
included unless repayment is credited prior to the close of business on the
Business Day received as provided herein.

 

3.             Rate
Change Date.  The Rate will change unless
otherwise provided each time and as of the date that the Prime Rate changes.

 

4.             Payment Schedule.
 Except
as expressly provided herein to the contrary, all payments on this Note shall
be applied in the following order of priority: (a) the payment or
reimbursement of any expenses, costs or obligations (other than the outstanding
principal balance hereof and interest hereon) for which either Debtor shall be
obligated or Lender shall be entitled pursuant to the provisions of this Note
or the other Loan Documents, (b) the payment of accrued but unpaid
interest hereon, and (c) the payment of all or any portion of the
principal balance hereof then outstanding hereunder, in the direct order of
maturity.  If an Event of Default exists
under any of the other Loan Documents, then Lender may, at the sole option of
Lender, apply any such payments, at any time and from time to time, to any of
the items specified in clauses (a), (b) or (c) above without
regard to the order of priority otherwise specified herein and any application
to the outstanding principal balance hereof may be made in either direct or
inverse order of maturity.  If any
payment of principal or interest on this Note shall become due on a day other than
a Business Day, such payment shall be made on the next succeeding Business Day
and such extension of time shall be included in computing interest in
connection with such payment.  The
outstanding principal balance of this Note, plus accrued and unpaid
interest thereon shall be due and payable on the earlier of (i) the
acceleration of the Indebtedness pursuant to the terms of the Loan Documents; (ii) SEPTEMBER 16, 2010; or (iii) such other date as may
be established by a written instrument between Debtor and Lender, from time to
time (the “Maturity Date”).  Accrued and unpaid interest on the
outstanding principal balance of this Note shall be due and payable monthly
commencing on OCTOBER
16, 2009 and continuing on the SAME
day of each calendar month thereafter (or if no such corresponding date, on the
LAST date of such calendar month)
and on the Maturity Date.  Debtor may
borrow, repay and reborrow hereunder at any time, up to a maximum aggregate
amount outstanding at any one time equal to the principal amount of this Note,
provided that Debtor is not in default under any provision of this Note, any
other documents executed in connection with this Note, or any other Loan
Documents now or hereafter executed in connection with any other obligation of
Debtor to Lender, and provided that the borrowings hereunder do not exceed any
borrowing base or other limitation on borrowings by Debtor.  Lender shall incur no liability for its
refusal to advance funds based upon its determination that any conditions of
such further advances have not been met. 
Lender’s records of the amounts borrowed from time to time and accrued
and unpaid interest on such sum shall be conclusive proof thereof absent
manifest error.  Lender and Debtor
expressly agree that Chapter 346 (“Chapter 346”)
of the Texas Finance Code shall not apply to this Note or to any advances under
this Note and that neither this Note or any such advances shall be governed by
or subject to the provisions of Chapter 346 in any manner whatsoever.

 

5.             Delinquency
Charge.  To
the extent permitted by law, a delinquency charge will be imposed in an amount
not to exceed FIVE PERCENT (5.00%)
of any payment that is more than TEN (10) days
late.

 

6.             Waivers,
Consents and Covenants.  Debtor, any endorser or guarantor hereof, or
any other party hereto (individually an “Obligor”
and collectively “Obligors”)
and each of them jointly and severally: (a) waives presentment, demand,
protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice required to be given under the law (except
notices that cannot lawfully be waived) to any Obligor in connection with the
delivery, acceptance, performance, default or enforcement of this Note, any
endorsement or guaranty of this Note, or any other documents executed in
connection with this Note or any other Loan Documents now or hereafter executed
in connection with any obligation of Debtor to Lender; and (b) agrees to
pay, on demand, all costs and expenses of collection or defense of this Note or
of any endorsement or guaranty hereof and/or the enforcement or defense of
Lender’s rights with respect to, or the administration, supervision,
preservation, or protection of, or realization upon, any property securing
payment hereof, including, without limitation, reasonable attorneys’ fees,
including fees related to any suit, mediation or arbitration 

 

2

 

proceeding, out of court payment agreement, trial, appeal, bankruptcy
proceedings or other proceeding, in such amount as may be determined reasonable
by any arbitrator or court, whichever is applicable.  Each Obligor other than Debtor (a) consents
to all delays, extensions, renewals or other modifications of this Note or the
Loan Documents, or waivers of any term hereof or of the Loan Documents, or
release or discharge by Lender of any of Obligors, or release, substitution or
exchange of any security for the payment hereof, or the failure to act on the
part of Lender, or any indulgence shown by Lender (without notice to or further
assent from any of Obligors); and (b) agrees that no such action, failure
to act or failure to exercise any right or remedy by Lender shall in any way
affect or impair the obligations of any Obligors or be construed as a waiver by
Lender of, or otherwise affect, any of Lender’s rights under this Note, under
any endorsement or guaranty of this Note or under any of the Loan Documents.

 

7.             Prepayments.  Prepayments may be made in whole or in part
at any time in whole or in part without premium or penalty.

 

8.             Remedies
Upon Default. 
Whenever there is an Event of Default under the Loan Documents (a) the
entire balance outstanding hereunder and all other obligations of any Obligor
to Lender (however acquired or evidenced) shall, at the option of Lender,
become immediately due and payable and any obligation of Lender to permit
further borrowing under this Note shall immediately cease and terminate, and/or
(b) to the extent permitted by law, the Rate of interest on the unpaid
principal shall be increased at Lender’s discretion up to the Maximum Rate, or
if none, FIFTEEN PERCENT (15.00%)
per annum (the “Default Rate”).  The provisions herein for a Default Rate
shall not be deemed to extend the time for any payment hereunder or to
constitute a “grace period” giving Obligors a right to cure any default.  At Lender’s option, any accrued and unpaid
interest, fees or charges may, for purposes of computing and accruing interest
on a daily basis after the due date of this Note or any installment thereof, be
deemed to be a part of the principal balance, and interest shall accrue on a
daily compounded basis after such date at the Default Rate provided in this
Note until the entire outstanding balance of principal and interest is paid in
full.  Upon an Event of Default, Lender
is hereby authorized at any time, at its option and without notice or demand,
to set off and charge against any deposit accounts of any Obligor (as well as
any money, instruments, securities, documents, chattel paper, credits, claims,
demands, income and any other property, rights and interests of any Obligor),
which at any time shall come into the possession or custody or under the
control of Lender or any of its agents, affiliates or correspondents, any and all
obligations due hereunder.  Additionally,
Lender shall have all rights and remedies available under each of the Loan
Documents, as well as all rights and remedies available at law or in equity.

 

9.             Waiver.  The failure at any time of Lender to exercise
any of its options or any other rights hereunder shall not constitute a waiver
thereof, nor shall it be a bar to the exercise of any of its options or rights
at a later date.  All rights and remedies
of Lender shall be cumulative and may be pursued singly, successively or
together, at the option of Lender.  The
acceptance by Lender of any partial payment shall not constitute a waiver of
any default or of any of Lender’s rights under this Note.  No waiver of any of its rights hereunder, and
no modification or amendment of this Note, shall be deemed to be made by Lender
unless the same shall be in writing, duly signed on behalf of Lender; each such
waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of Lender or the obligations of Obligors to
Lender in any other respect at any other time.

 

10.          Applicable
Law, Venue and Jurisdiction.  Debtor agrees that this Note shall be deemed
to have been made in the State of Texas and shall be governed by, and construed
in accordance with, the laws of the State of Texas and is performable in Dallas
(Dallas County), Texas indicated at the beginning of this Note.  In any litigation in connection with or to
enforce this Note or any endorsement or guaranty of this Note or any Loan
Documents, Obligors, and each of them, irrevocably consent to and confer
personal jurisdiction on the courts of the State of Texas or the United States
courts located within Dallas (Dallas County), Texas.  Nothing contained herein shall, however, prevent
Lender from bringing any action or exercising any rights within any other state
or jurisdiction or from obtaining personal jurisdiction by any other means
available under applicable law.

 

11.          Partial
Invalidity. 
The unenforceability or invalidity of any provision of this Note shall
not affect the enforceability or validity of any other provision herein and the
invalidity or unenforceability of any provision of this Note or of the Loan
Documents to any person or circumstance shall not affect the enforceability or
validity of such provision as it may apply to other persons or circumstances.

 

3

 

12.          Binding
Effect. 
This Note shall be binding upon and inure to the benefit of Debtor,
Obligors and Lender and their respective successors, assigns, heirs and
personal representatives, provided, however, that no obligations of Debtor or
Obligors hereunder can be assigned without prior written consent of Lender.

 

13.          Controlling
Document. 
To the extent that this Note conflicts with or is in any way
incompatible with any other document related specifically to the loan evidenced
by this Note, this Note shall control over any other such document, and if this
Note does not address an issue, then each other such document shall control to
the extent that it deals most specifically with an issue.

 

14.          Commercial
Purpose.  DEBTOR REPRESENTS TO LENDER THAT THE PROCEEDS OF THIS
LOAN ARE TO BE USED PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL
PURPOSES.  DEBTOR ACKNOWLEDGES HAVING
READ AND UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS AND CONDITIONS OF
THIS NOTE.

 

15.          Collection.   If this Note is placed in the hands of an
attorney for collection, or if it is collected through any legal proceeding at
law or in equity or in bankruptcy, receivership or other court proceedings,
Debtor agrees to pay all costs of collection, including, but not limited to,
court costs and reasonable attorneys’ fees.

 

16.          Notice
of Balloon Payment.  At maturity (whether by acceleration or otherwise),
Debtor must repay the entire principal balance of this Note and unpaid interest
then due.  Lender is under no obligation
to refinance the outstanding principal balance of this Note (if any) at that
time.  Debtor will, therefore, be
required to make payment out of other assets Debtor may own; or Debtor will
have to find a lender willing to lend Debtor the money at prevailing market
rates, which may be higher than the interest rate on the outstanding principal
balance of this Note.  If Obligors have
guaranteed payment of this Note, Obligors may be required to perform under such
guaranty.

 

17.          AMENDMENT
AND RESTATEMENT.  THIS NOTE IS
EXECUTED AND DELIVERED BY DEBTOR TO AMEND AND RESTATE IN ITS ENTIRETY THAT
CERTAIN PROMISSORY NOTE DATED AS OF SEPTEMBER 16, 2008 IN THE ORIGINAL
NOTATIONAL AMOUNT OF FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) EXECUTED
AND DELIVERED BY DEBTOR, AND PAYABLE TO THE ORDER OF LENDER; WHICH PROMISSORY
NOTE AMENDED AND RESTATED IN ITS ENTIRETY THAT CERTAIN PROMISSORY NOTE DATED AS
OF SEPTEMBER 16, 2007 IN THE ORIGINAL NOTATIONAL AMOUNT OF FIVE MILLION AND
NO/100 DOLLARS ($5,000,000.00) EXECUTED AND DELIVERED BY DEBTOR, AND PAYABLE TO
THE ORDER OF LENDER; WHICH PROMISSORY NOTE AMENDED AND RESTATED IN ITS ENTIRETY
THAT CERTAIN PROMISSORY NOTE DATED AS OF SEPTEMBER 16, 2006 IN THE ORIGINAL
NOTATIONAL AMOUNT OF FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) EXECUTED
AND DELIVERED BY DEBTOR, AND PAYABLE TO THE ORDER OF LENDER; WHICH PROMISSORY
NOTE AMENDED AND RESTATED IN ITS ENTIRETY THAT CERTAIN PROMISSORY NOTE DATED AS
OF SEPTEMBER 16, 2005 IN THE ORIGINAL NOTATIONAL AMOUNT OF THREE MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($3,500,000.00) EXECUTED AND DELIVERED BY
DEBTOR, AND PAYABLE TO THE ORDER OF LENDER; WHICH PROMISSORY NOTE AMENDED AND
RESTATED IN ITS ENTIRETY THAT CERTAIN PROMISSORY NOTE DATED AS OF APRIL 26,
2005 IN THE ORIGINAL NOTATIONAL AMOUNT OF FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($500,000.00) EXECUTED AND DELIVERED BY DEBTOR, AND PAYABLE TO THE
ORDER OF LENDER (SUCH PROMISSORY NOTES, BEING COLLECTIVELY REFERRED TO AS, THE “ORIGINAL NOTE”).  NEITHER THE EXECUTION NOR DELIVERY OF THIS
NOTE OR THE AMENDMENT AND RESTATEMENT OF THE ORIGINAL NOTE CONSTITUTES A
NOVATION OR PAYMENT OF ANY PART OF THE INDEBTEDNESS EVIDENCED BY THE
ORIGINAL NOTE.  FURTHER, DEBTOR AGREES
THAT THIS NOTE SHALL IN NO WAY AFFECT OR IMPAIR THE LIENS AND/OR SECURITY
INTERESTS SECURING REPAYMENT OF THE ORIGINAL NOTE, WHICH LIENS AND/OR SECURITY
INTERESTS DEBTOR ACKNOWLEDGES TO BE VALID AND SUBSISTING, AND DEBTOR
SPECIFICALLY AGREES THAT THE LIENS SECURING THE ORIGINAL NOTE SHALL NOT IN ANY
MANNER BE RELEASED OR WAIVED BUT SHALL INSTEAD BE AND REMAIN IN FULL FORCE AND
EFFECT TO SECURE REPAYMENT OF THE INDEBTEDNESS.

 

4

 

18.          WAIVER
OF JURY TRIAL. 
DEBTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, OR
COUNTERCLAIM THAT RELATES TO OR ARISES OUT OF THIS NOTE OR ANY OF THE LOAN
DOCUMENTS OR THE ACTS OR FAILURE TO ACT OF OR BY LENDER IN THE ENFORCEMENT OF
ANY OF THE TERMS OR PROVISIONS OF THIS NOTE OR THE OTHER LOAN DOCUMENTS.

 

NOTICE OF FINAL AGREEMENT

 

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

 

REMAINDER OF PAGE LEFT
INTENTIONALLY BLANK

 

5

 

EXECUTED as of the date first written above.

 

	
  DEBTOR:

  	
   

  	
  ADDRESS:

  
	
   

  	
   

  	
   

  
	
  TGC INDUSTRIES, INC.

  	
   

  	
  101 E. Park Blvd.,
  Suite 955

  
	
   

  	
   

  	
  Plano, TX 75074

  
	
  By:

  	
  /s/ Wayne Whitener

  	
   

  	
   

  
	
  Name:

  	
  Wayne Whitener

  	
   

  	
   

  
	
  Title:

  	
  President & CEO

  	
   

  	
   

  

 

6

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