Document:

exv10w1

 

Exhibit 10.1

 

 

FOURTH AMENDED AND RESTATED LOAN AGREEMENT

between

NATURAL GAS SERVICES GROUP, INC.

and

WESTERN NATIONAL BANK

Dated as of March 14, 2005

 

 

 

 

FOURTH AMENDED AND RESTATED LOAN AGREEMENT

     This Fourth Amended and Restated Loan Agreement, dated as of March 14, 2005, made and entered
into by and among Natural Gas Services Group, Inc., a Colorado corporation (the
“Borrower”), and Screw Compression Systems, Inc., a Texas corporation (the
“Guarantor”), and Western National Bank, a national banking association (the
“Lender”).

Recitals

     WHEREAS, the Borrower, the Guarantor, and the Lender are parties to that certain Third Amended
and Restated Loan Agreement, dated as of January 3, 2005 (said Third Amended and Restated Loan
Agreement being referred to herein as the “Prior Loan Agreement”);

     WHEREAS, pursuant to the Prior Loan Agreement, the Borrower is now indebted to the Lender as
evidenced by (i) that certain Term Promissory Note dated January 3, 2005, in the original principal
amount of $8,000,000.00, (ii) that certain Revolving Line of Credit Promissory Note dated January
3, 2005, in the original principal amount of $2,000,000.00; (iii) that certain Term Promissory
Note, dated November 3, 2003, in the original principal amount of $7,521,109.00, and (v) that
certain Advancing Line of Credit Promissory Note, dated November 3, 2003, in the original principal
amount of $10,000,000.00, as modified by documents dated effective as of December 15, 2004.

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

     WHEREAS, the Borrower has requested that the Lender make additional loans to the Borrower,
evidenced by (i) a $10,000,000.00 Multiple Advance Term Promissory Note and (ii) a $1,500,000.00
Multiple Advance Term Promissory Note pursuant to this Fourth Amended and Restated Loan Agreement;
and

     WHEREAS, the Bank is agreeable to the Borrower’s requests but only upon and subject to the
terms and provisions which are hereinafter specified.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained,
the parties hereto hereby agree as follows:

ARTICLE I

Definitions

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

 

 

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

     “Advance Note” means the $10,000,000.00 Advancing Line of Credit Promissory Note
described in Section 2.1(g) hereof, as the same may be renewed, extended, increased or otherwise
modified from time to time.

     “Affiliate” means, as to any person, (a) any other person (other than a Subsidiary)
which, directly or indirectly, is in control of, is controlled by, or is under common control with,
such person or (b) any person who is a director, officer or partner (i) of such person, (ii) of any
Subsidiary of such person or (iii) of any person described in the preceding clause (a). For
purposes of this definition, “control” of a person means the power, directly or indirectly,
either to (i) vote 10% or more of the securities having ordinary voting power for the election of
directors of such person or (ii) direct or cause the direction of the management and policies of
such person whether by contract or otherwise.

     “Agreement” means this Fourth Amended and Restated Loan Agreement, as amended,
restated, supplemented or otherwise modified from time to time.

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

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

     “Business Day” means every day on which Lender is open for banking business.

     “Change of Control” means the occurrence after the date of this Agreement of any
circumstance or event in which (i) a person shall cause or bring about (through solicitation of
proxies or otherwise) the removal or resignation of a majority of the members of the Board of
Directors of the Borrower serving in such capacity on the date of this Agreement or a person causes
or brings about (through solicitation of proxies or otherwise) an increase in the size of the
existing Board of Directors of the Borrower such that the existing members of the Board of
Directors thereafter represent a minority of the total number of persons comprising the entire
Board; or (ii) a person, including a “group” as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, becomes the beneficial owner of shares of any class of stock of the Borrower
having thirty percent (30%) or more of the total number of votes that may be cast for the election
of directors of the Borrower.

     “Collateral” means any and all property, tangible or intangible, now existing or
hereafter acquired, mortgaged, pledged, assigned or otherwise encumbered by the Borrower, the
Subsidiaries or any other person to or for the benefit of the Lender pursuant to any of the Loan
Papers now or hereafter executed and delivered by the

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Borrower or any of its Subsidiaries or any other person to secure the payment and performance of
the Notes and obligations of the Borrower hereunder or under any of the other Loan Papers, as any
such Loan Paper may be amended, supplemented or otherwise modified from time to time.

     “Consolidated Cash Flow” means, with respect to any period of calculation thereof, the
sum of (i) the consolidated pre-tax net income (or loss), less actual taxes paid, from continuing
operations of the Borrower and its Subsidiaries during such period (excluding extraordinary income
but including extraordinary expenses), plus (ii) depreciation, depletion, amortization and interest
expenses deducted in determining consolidated net income (or loss) of the Borrower and its
Subsidiaries during such period, all determined on a consolidated basis.

     “Consolidated Current Ratio” means the ratio of (i) the sum of the current assets of
the Borrower and its Subsidiaries to (ii) the sum of the current liabilities of the Borrower and
its Subsidiaries, all determined on a consolidated basis.

     “Consolidated Debt” means at a particular date the total Debt of the Borrower and its
Subsidiaries, determined on a consolidated basis.

     “Consolidated Fixed Charges” means, with respect to any period of calculation thereof,
the sum of (a) the aggregate principal amount of all Debt of the Borrower and its Subsidiaries paid
or due and payable during such period plus (b) all interest, including, without limitation, imputed
interest in connection with Financing Leases, paid or accrued by the Borrower and its Subsidiaries
during such period; provided, however, that any principal amount of Debt and any interest
payable in one fiscal period and paid in another shall not be twice included in Consolidated Fixed
Charges.

     “Consolidated Intangible Assets” means those assets of the Borrower and its
Subsidiaries, determined on a consolidated basis, that would be classified as intangible assets in
accordance with generally accepted accounting principles, but in any event including, without
limitation, (i) deferred assets, other than prepaid insurance and prepaid taxes; (ii) patents,
copyrights, trademarks, tradenames, franchises, goodwill, experimental expenses and other similar
assets which would be classified as intangible assets on a balance sheet of such person, prepared
in accordance with generally accepted accounting principles; (iii) unamortized debt discount and
expense, and unamortized organization and reorganization expense; and (iv) assets located, and
notes and receivables due from obligors domiciled, outside of the United States.

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

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

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

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

     “ERISA Plan” shall have the meaning given to such term as set forth in Section 4.15 of
this Agreement.

     “Event of Default” shall have the meaning given to such term as set forth in Section
7.1 of this Agreement.

     “Financing Lease” means any lease of property, real or personal, the obligations of
the lessee in respect of which are required in accordance with generally accepted accounting
principles to be capitalized on a balance sheet of the lessee.

     “Governmental Authority” means any nation or government, any state or other political
subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.

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

     “Hazardous Substance” shall have the meaning given to such term as set forth in
Section 4.20 of this Agreement.

     “Highest Lawful Rate” means the maximum rate of interest (or, if the context so
requires, an amount calculated at such rate) which Lender is allowed to contract for,

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charge, take, reserve or receive under applicable law after taking into account, to the extent
required by applicable law, any and all relevant payments or charges under the Loan Papers.

     “Letters of Credit” means those certain Letters of Credit dated January 3, 2005,
issued by Lender to Borrower in the aggregate original principal amount of $2,000,000.00, which
Letters of Credit secure Borrower’s performance under the SCS Notes.

     “Lien” means any interest in property securing an obligation owed to, or a claim by, a
person other than the owner of the property, whether such interest is based on the common law,
statute or contract, including, but not limited to, a lien or security interest arising from any
mortgage, encumbrance, pledge, hypothecation, assignment, deposit arrangement, or preference,
priority or other security agreement (including, without limitation, any conditional sale or other
title retention agreement or trust receipt or a lease, consignment or bailment for security
purposes). The term “Lien” shall also include reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting property.

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

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

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

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

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     “$10,000,000.00 Multiple Advance Term Promissory Note” means the Multiple Advance Term
Promissory Note described in Section 2.1(a) hereof, as the same may be renewed, extended, increased
or otherwise modified from time to time.

     “$1,500,000.00 Multiple Advance Term Promissory Note” means the Multiple Advance Term
Promissory Note described in Section 2.1(b) hereof, as the same may be renewed, extended, increased
or otherwise modified from time to time.

     “Note” or “Notes” means the individual or collective reference, as the context
may require, to the Advance Note, Revolving Line of Credit Promissory Note, the $7,521,109.00 Term
Promissory Note, the $8,000,000.00 Term Promissory Note, the Oklahoma Term Promissory Note, the
$10,000,000.00 Multiple Advance Term Promissory Note and the $1,500,000.00 Multiple Advance Term
Promissory Note.

     “Obligations” means the unpaid principal of and interest on the Notes and all other
present and future indebtedness, obligations and liabilities of the Borrower and any of its
Subsidiaries to the Lender, and all renewals, rearrangements and extensions thereof, or any part
thereof, now or hereafter owed to Lender by the Borrower or any of its Subsidiaries, whether
arising from, by virtue of, or pursuant to any Loan Paper, or otherwise, together with all interest
accruing thereon and all costs, expenses and attorneys’ fees incurred in the enforcement or
collection thereof, and whether such indebtedness, obligations and liabilities are direct,
indirect, fixed, contingent, liquidated, unliquidated, joint, several, or joint and several or
were, prior to acquisition thereof by Lender, owed to some other person.

     “Prime Rate” means that variable rate of interest per annum published in the Money
Rates section of The Wall Street Journal as its “prime rate”. If the Money Rates section of The
Wall Street Journal does not have a rate designated by it as its “prime rate,” then the “Prime
Rate” shall be deemed to be the variable rate of interest per annum which is the general reference
rate designated by the Lender as its “reference rate”, “base rate” or other similar rate and which
is comparable to the “Prime Rate” as described above. The Prime Rate is used by Lender as a
general reference rate of interest, taking into account such factors as Lender may deem
appropriate, it being understood that it is not necessarily the lowest or best rate actually
charged to any customer and that Lender may make various commercial or other loans at rates of
interest having no relationship to such rate.

     “Relevant Environmental Law” means any and all foreign, federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of
any Governmental Authority or other Requirements of Law (including common law) regulating, relating
to or imposing liability or standards of conduct concerning protection of human health, wildlife or
the environment, as now or may at any time hereafter be in effect.

     “Requirement of Law” means, as to any person, the certificate and articles of
incorporation and bylaws, articles of organization, regulations or other organizational or
governing documents of such person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon
such person or any of its property or to which such person or any of its property is subject.

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     “Revolving Line of Credit Promissory Note” means the $2,000,000.00 Revolving Line of
Credit Promissory Note described in Section 2.1(e) hereof, as the same may be renewed, extended,
increased or otherwise modified from time to time.

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

     “SCS Notes” means the promissory notes, dated January 3, 2005, issued by the Borrowers
to Paul D. Hensley, Jim Hazlett and Tony Vohjesus, in connection with the Borrower’s purchase from
such individuals of all of the outstanding capital stock of Guarantor.

     “Subsequent Advance” means any disbursement to or on behalf of Borrower after the
initial Advance under the Advance Note or the Revolving Line of Credit Promissory Note pursuant to
the provisions of Section 2.1 and Section 2.2 hereof.

     “Subordinated Notes” means the Series A 10% Subordinated Notes due December 31, 2006
in the aggregate outstanding principal amount of $1,443,886.00 outstanding as of November 30, 2004,
issued by NGE Leasing, Inc., a former Subsidiary of the Borrower which has now merged with
Borrower.

     “Subsidiary” means, as to the Borrower or any other designated person, a corporation,
partnership, limited liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership interests having
such power only by reason of the happening of a contingency) to elect a majority of the board of
directors, managers or other governing body of such corporation, partnership, limited liability
company or other entity are at the time owned, or the management of which is otherwise controlled,
directly or indirectly, through one or more intermediaries, or both, by the Borrower or such other
designated person.

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

     “$1,415,836.00 Oklahoma Term Promissory Note” means the Term Promissory Note from
Guarantor to Lender (“the Oklahoma Term Promissory Note”) described in Section 2.1(d) hereof, as
the same may be renewed, extended, increased or otherwise modified from time to time.

     “$8,000,000.00 Term Promissory Note” means the Term Promissory Note described in
Section 2.1(c) hereof, as the same may be renewed, extended, increased or otherwise modified from
time to time.

     “$7,521,109.00 Term Promissory Note” means the Term Promissory Note described in
Section 2.1(f) hereof, as the same may be renewed, extended, increased or otherwise modified from
time to time.

     1.2 Accounting Principles. Where the character or amount of any asset or liability or
item of income or expense is required to be determined or any consolidation or other accounting
computation is required to be made for the

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purposes of this Agreement or any other Loan Paper, such determination, consolidation or
computation shall be made in accordance with generally accepted accounting principles consistently
applied, except where such principles are inconsistent with the requirements or definitions of this
Agreement.

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

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

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

ARTICLE II

Amount and Terms of Loans; Subordination

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

          (a) $10,000,000.00 Multiple Advance Term Note. Contemporaneously with the execution
and delivery hereof, the Borrower shall execute and deliver to the Lender the promissory note in
the form of Exhibit A hereto in the original principal amount of $10,000,000.00. Subject
to and upon the terms and conditions of this Agreement and this Note, the Borrower may, at any time
and from time to time during the period commencing on the date of this Note and ending at the close
of business on March 14, 2006, request one or more Advances and borrow (without the ability to
reborrow amounts paid under this Note) under this Note; provided, however, and notwithstanding the
face amount of this Note, without the prior written consent of Lender in its sole discretion, the
cumulative aggregate principal amount of all Advances under this Note shall never exceed the lesser
of (i) $10,000,000.00 or (ii) the amount available for Advance under this Note, the Advance Note,
the $1,500,000.00 Multiple Advance Term Promissory Notes, and Revolving Line of Credit Promissory
Note as determined in accordance with and set forth in line O in the Gross Assets Available for
Borrowing Base Calculation. This Note shall mature as provided therein and shall bear interest on
the unpaid principal amount thereof from time to time outstanding at the applicable interest rate
per annum as provided in said note. Principal and interest on this Note shall be payable in the
manner and on the dates specified therein. This Note, including the loans evidenced thereby, is a
multiple advance term loan facility and shall not be construed as a revolving line of credit as
reborrowings are not permitted.

          (b) $1,500,000.00 Multiple Advance Term Note. Contemporaneously with the execution and
delivery hereof, the Borrower shall execute and deliver to the

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Lender the promissory note in the form of Exhibit B hereto in the original principal amount
of $1,500,000.00. Subject to and upon the terms and conditions of this Agreement and the this
Note, the Borrower may, at any time and from time to time during the period commencing on the date
of this Note and ending at the close of business on March 14, 2006, request one or more Advances
and borrow (without the ability to reborrow amounts paid under this Note) under this Note;
provided, however, and notwithstanding the face amount of this Note, without the prior written
consent of Lender in its sole discretion, the cumulative aggregate principal amount of all Advances
under this Note shall never exceed the lesser of (i) $1,500,000.00 or (ii) the amount available for
Advance under this Note, the Advance Note, the $10,000,000.00 Multiple Advance Term Promissory
Notes, and Revolving Line of Credit Promissory Note as determined in accordance with and set forth
in line O in the Gross Assets Available for Borrowing Base Calculation. This Note shall mature as
provided therein and shall bear interest on the unpaid principal amount thereof from time to time
outstanding at the applicable interest rate per annum as provided in said note. Principal and
interest on this Note shall be payable in the manner and on the dates specified therein. This Note,
including the loans evidenced thereby, is a multiple advance term loan facility and shall not be
construed as a revolving line of credit as reborrowings are not permitted.

          (c) $8,000,000.00 Term Loan. Pursuant to the Prior Loan Agreement, Borrower executed
and delivered to the Lender the promissory note in the form of Exhibit C hereto in the
original principal amount of $8,000,000.00. The Term Promissory Note shall mature on the date
stated therein and shall bear interest on the unpaid principal amount thereof from time to time
outstanding at the applicable interest rate per annum as provided in said Note. Principal and
interest on the Term Promissory Note shall be payable in the manner and on the dates specified
therein.

          (d) Oklahoma Term Loan. Pursuant to the Prior Loan Agreement, the Guarantor executed
and delivered to the Lender the promissory note in the form of Exhibit D hereto in the
original principal amount of $1,415,836.00, secured by Real Estate Mortgage dated January 3, 2005,
in the form of Exhibit H hereto and recorded in Rogers County, Oklahoma. The Oklahoma Term
Promissory Note shall mature on the date stated therein and shall bear interest on the unpaid
principal amount thereof from time to time outstanding at the applicable interest rate per annum as
provided in said Note. Principal and interest on the Oklahoma Term Promissory Note shall be
payable in the manner and on the dates specified therein. The Oklahoma Term Promissory Note shall
be guaranteed by Borrower, as evidenced by the Guaranty Agreement in the form of Exhibit M
hereto.

          (e) Revolving Line of Credit Loan. Pursuant to the Prior Loan Agreement, the Borrower
executed and delivered to the Lender the promissory note in the form of Exhibit E hereto,
in the original principal amount of $2,000,000.00, which note is given in renewal and extension,
but not in extinguishment, of the outstanding balance of that certain Revolving Line of Credit Note
dated May 28, 2004, in the original principal amount of $750,000.00. The outstanding principal
balance of said Note on the date of this Agreement is $1,983,529.79. All amounts outstanding under
the Revolving Line of Credit Promissory Note on the date of this Agreement shall be deemed to be
Advances made under and pursuant to this Agreement, and the Revolving Line of Credit Promissory
Note is and shall remain in full force and effect in

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accordance with the terms thereof, subject in all respects to the terms of this Agreement and the
other Loan Papers. Subject to and upon the terms and conditions of this Agreement and the Revolving
Line of Credit Promissory Note, the Borrower may request one or more Advances and borrow, prepay
and reborrow at any time and from time to time under the Revolving Line of Credit Promissory Note;
provided, however, the aggregate principal amount of all Advances outstanding at any one
time under the Revolving Line of Credit Promissory Note shall never exceed the lesser of (i)
$2,000,000.00 or (ii) the amount available for Advance under the Revolving Line of Credit
Promissory Note as determined in accordance with and as set forth in line Q in the Gross Assets
Available for Borrowing Base Calculation. The Revolving Line of Credit Promissory Note shall mature
on the date stated therein and shall bear interest on the unpaid principal amount thereof from time
to time outstanding at the applicable interest rate per annum as provided in said note. Principal
and interest on the Revolving Line of Credit Promissory Note shall be payable in the manner and on
the dates specified therein.

          (f) $7,521,109.00 Term Loan. Pursuant to the Prior Loan Agreement, Borrower executed
and delivered to the Lender the promissory note in the form of Exhibit F hereto in the
original principal amount of $7,521,109.00, in renewal, extension, rearrangement and consolidation
of the Borrower’s then existing indebtedness to Lender. The payment provisions of said note were
modified as of January 3, 2005, as evidenced by the Modification Agreement in the form of
Exhibit F-1 hereto. The $7,521,109.00 Term Promissory Note shall mature on the date stated
therein and shall bear interest on the unpaid principal amount thereof from time to time
outstanding at the applicable interest rate per annum as provided in said note. Principal and
interest on the $7,521,109.00 Term Promissory Note shall be payable in the manner and on the dates
specified therein.

          (g) Advancing Line of Credit Loan. Pursuant to the Second Amended and Restated Loan
Agreement dated November 3, 2003, Borrower executed and delivered to the Lender the promissory note
in the form of Exhibit G hereto in the original principal amount of $10,000,000.00 (“the
Advance Note”), which note was renewed and modified by the Modification Agreement dated December
15, 2004, in the form of Exhibit G-1 hereto. The outstanding principal balance of said Note
is $6,652,379.00 as of the date of this Loan Agreement. Subject to and upon the terms and
conditions of this Agreement and the Advance Note, the Borrower may, at any time and from time to
time during the period commencing on the date of the Advance Note and ending at the close of
business on December 14, 2005, request one or more Advances and borrow (without the ability to
reborrow amounts paid under the Advance Note) under the Advance Note; provided, however, and
notwithstanding the face amount of the Advance Note, without the prior written consent of Lender in
its sole discretion, the cumulative aggregate principal amount of all Advances under the Advance
Note shall never exceed the lesser of (i) $10,000,000.00 or (ii) the sum of the amounts available
for Advance under the Advance Note, the Multiple Advance Term Promissory Notes, and Revolving Line
of Credit Promissory Note as determined in accordance with and set forth in line O in the Gross
Assets Available for Borrowing Base Calculation. The Advance Note shall mature as provided therein
and shall bear interest on the unpaid principal amount thereof from time to time outstanding at the
applicable interest rate per annum as provided in said note. Principal and interest on the Advance
Note shall be payable in the manner and on the dates specified therein.

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The Advance Note, including the loans evidenced thereby, is a multiple advance term loan facility
and shall not be construed as a revolving line of credit as reborrowings are not permitted.

     2.2 Procedure For Borrowings. (a) At the time of the initial Advance under the
Advance Note, the Multiple Advance Term Promissory Notes, or the Revolving Line of Credit
Promissory Note, as the case may be, the conditions set forth in Section 3.1 of this Agreement
shall have been satisfied and, with respect to each Subsequent Advance under the Advance Note, the
Multiple Advance Term Promissory Notes, or the Revolving Line of Credit Promissory Note, the
conditions set forth in Section 3.2 hereof shall have been satisfied at the time of each such
Subsequent Advance. At the time of each request for a Subsequent Advance under the Advance Note,
the Multiple Advance Term Promissory Notes, or the Revolving Line of Credit Promissory Note, the
Borrower shall simultaneously furnish to the Lender a written notice of borrowing (dated as of the
date of the request for such Subsequent Advance and otherwise being in substantially the form
attached hereto as Exhibit J) confirming (i) the Note under which the Subsequent Advance
has been requested, (ii) the amount of the requested Subsequent Advance, and (iii) the absence of
any Event of Default at the date of such request. Each request for a Subsequent Advance under the
Advance Note, the Multiple Advance Term Promissory Notes, or the Revolving Line of Credit
Promissory Note must be in the minimum amount of $50,000.00 or the unadvanced portion of the Note
under which the Subsequent Advance has been requested, whichever is less. Assuming the
satisfaction of the conditions set forth in this Section 2.2, requests for Subsequent Advances
under the Advance Note, the Multiple Advance Term Notes, or the Revolving Line of Credit Promissory
Note will be funded on the same Business Day that Lender receives Borrower’s request for each such
Subsequent Advance; provided that Borrower’s request is received by the Lender prior to
12:00 noon on the date of any such request.

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

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

          (a) Initial Borrowing Base. The initial Borrowing Base shall be $23,020,142.00 during
the period from the date hereof to the date on which the Borrower receives notice of the first
redetermination of the Borrowing Base by the Lender pursuant to Section 2.3(b) and thereafter the
amount of the Borrowing Base shall be the Borrowing Base most recently determined pursuant to
Section 2.3(b).

-11-

 

          (b) Redeterminations of the Borrowing Base.

               (i) No later than forty-five (45) days after the end of each month, the Borrower shall, at
its own expense, furnish to the Bank a borrowing base calculation (the “Gross Assets Available for
Borrowing Base Calculation”) in the form attached hereto as Exhibit I, which shall be dated
as of the end of each such month.

               (ii) Within fifteen (15) days after it receives each borrowing base calculation, the Lender
may in its sole discretion, but shall not be obligated to, redetermine the Borrowing Base, and
shall notify the Borrower of the new Borrowing Base, if any; provided, however, if the
Lender does not so notify the Borrower of a new Borrowing Base within such 15-day period, then the
Borrowing Base set forth in the borrowing base calculation furnished to the Lender by the Borrower
pursuant to Section 2.3(b)(i) shall be deemed to be the redetermined Borrowing Base until a new
Borrowing Base is redetermined by the Lender and notice of such new Borrowing Base is given by the
Lender to the Borrower. Each redetermination of the Borrowing Base shall be made by the Lender in
the exercise of its sole discretion in accordance with the then current standards and practices of
the Lender for similar loans, taking into account such factors as the Lender may deem appropriate,
including, without limitation, the nature and extent of the Borrower’s interest in the accounts and
leases receivable and inventory upon which the Borrowing Base is then redetermined. The Lender may
in its sole discretion discount the value of any property included in the redetermination of the
Borrowing Base as set forth in a borrowing base calculation by the same factors utilized by it in
discounting the value of comparable borrowing base assets in comparable transactions for comparable
borrowers.

               (iii) Each delivery by the Borrower to the Lender of a borrowing base calculation shall be
deemed to constitute a representation and warranty by the Borrower to the Lender that the Borrower
and its Subsidiaries have good and marketable title to the Collateral owned by each of them and
described therein, and that such Collateral is not subject to any Lien other than Bank Liens and
Liens permitted by Section 6.8.

     2.4 Optional and Mandatory Prepayments. (a) The Borrower may at any time and from
time to time prepay any one or all of the Notes, in whole or in part, without premium or penalty,
upon prior or simultaneous irrevocable notice to the Lender, specifying the Note to be prepaid, the
date and the amount of prepayment. If any such notice is given, the amount specified in such
notice shall be due and payable on the date specified therein. Partial prepayments shall be in an
aggregate principal amount of $20,000.00 or a whole multiple thereof, or shall equal the aggregate
outstanding balance of the Note being prepaid.

          (b) If the aggregate unpaid principal amount of all Note, except the Oklahoma Term Promissory
Note, s shall at any time exceed the Borrowing Base at such time, the Lender shall so notify the
Borrower, and the Borrower shall, within fifteen (15) Business Days after such notification, first
prepay the principal of the Revolving Line of Credit Promissory Note in an aggregate amount at
least equal to such excess, together with accrued interest on the amount prepaid to the date of
such prepayment and, to the extent such excess is not eliminated by the prepayment of the Revolving
Line of Credit Promissory Note, the Borrower shall next prepay the principal

12

 

of the Advance Note, the $10,000,000.00 Multiple Advance Term Promissory Note, the $1,500,000.00
Multiple Advance Term Promissory Note, the $7,521,109.00 Term Promissory Note, the $8,000,000.00
Term Promissory Note, and the Oklahoma Term Promissory Note, in that order, in an aggregate amount
equal to the remaining unpaid excess amount.

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

     2.6 Order of Application. Except as otherwise provided in the Loan Papers, all
payments and prepayments on the Obligations, including proceeds from the exercise of any Rights of
Lender under the Loan Papers, shall be applied to the Obligations in the following order: (i)
first, to reasonable expenses for which Lender shall not have been reimbursed under the Loan Papers
and then to all amounts to which Lender is entitled to indemnification under the Loan Papers; (ii)
to the accrued interest on the Note being paid or prepaid; (iii) to the principal of the Note being
paid or prepaid and, with regard to the Revolving Line of Credit Promissory Note, Advance Note,
the the $10,000,000.00 Multiple Advance Term Promissory Note, the $1,500,000.00 Multiple Advance
Term Promissory Note, the $7,521,109.00 Term Promissory Note, the $8,000,000.00 Term Promissory
Note, and the Oklahoma Term Promissory Note, applied upon installments of most remote maturity; and
(iv) to the remaining Obligations.

     2.8 Subordination of Subordinated Notes. Subject to Section 6.15 hereof, the
indebtedness of NGE Leasing, Inc. evidenced by the Subordinated Notes and any guarantee thereof by
the Borrower and any and all renewals, extensions, refundings and modifications (but not increases)
thereto are hereby subordinated and subject in right of payment and in all other respects to the
prior payment in full of (a) all Debt of the Borrower and any Subsidiary to the Lender, (b) any
other indebtedness, liability or obligation, contingent or otherwise, of Borrower or any Subsidiary
or Guarantor to Lender, and any guaranty, endorsement or other contingent obligation in respect
thereof, whether outstanding on the date hereof or hereafter created, incurred or assumed, and (c)
modifications, renewals, extensions, increases, rearrangements and refundings of any such
indebtedness, liabilities or obligations owed to the Lender.

ARTICLE III

Conditions Precedent

     3.1 Conditions to Initial Advance. The obligation of Lender to make Advances under
the Advance Note, the $10,000,000.00 Multiple Advance Term Promissory Note, the $1,500,000.00
Multiple Advance Term Promissory Note and the Revolving Line of Credit Promissory Note is subject
to the satisfaction and fulfillment of each of the following conditions precedent which shall have
occurred on or before the date hereof, or simultaneously with the closing of the transactions
contemplated

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by this Agreement, unless compliance therewith shall have been waived in writing by Lender:

          (a) There shall have been duly executed, where appropriate, and delivered by the Borrower to
Lender (and/or any other requisite party thereto) the following:

                    (1) this Agreement;

                    (2) the Notes;

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

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

                    (5) the Guaranty Agreement in substantially the form attached hereto as
Exhibit M;

                    (6) a certificate of account status (good standing) and a certificate
of existence for Borrower in the jurisdiction under the laws of which
Borrower is organized and in each jurisdiction wherein Borrower’s
operations, transaction of business or ownership of property make
qualification as a foreign corporation necessary;

                    (7) an Officer’s Certificate in substantially the form attached hereto
as Exhibit N, which shall contain the names and signatures of the
officers of the Borrower authorized to execute Loan Papers and which shall
certify to the truth, correctness and completeness of the following exhibits
attached thereto: (A) a copy of resolutions duly adopted by the Board of
Directors of the Borrower and in full force and effect at the time this
Agreement is entered into, covering the matters described in subparagraph
(d) below of this Section 3.1, (B) a copy of the charter documents of
Borrower and all amendments thereto, certified by the appropriate official
of Borrower’s state of organization, and (C) a copy of the bylaws of
Borrower, and certifying as to such other matters as Lender may reasonably
require; and

                    (8) such other documents or instruments as Lender may reasonably
require.

          (b) There shall have been executed, where appropriate, and delivered by the Guarantor (and/or
any other requisite party thereto) the following, all of which shall be in form and substance
satisfactory to Lender and its counsel:

                    (1) Guaranty Agreement in substantially the form attached hereto as
Exhibit O;

14

 

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

                    (3) Real Estate Mortgage on the Oklahoma property in substantially the
form attached hereto as Exhibit H.

                    (4) a certificate of account status (good standing) and a certificate
of existence for each Subsidiary in the jurisdiction under the laws of which
each Subsidiary is organized and in each jurisdiction wherein its
operations, transaction of business or ownership of property made
qualification as a foreign entity necessary;

                    (5) an Officer’s Certificate of the Guarantor in substantially the form
attached hereto as Exhibit Q which shall contain the names and
signatures of the officers of the Guarantor authorized to execute Loan
Papers and which shall certify to the truth, correctness and completeness of
the following exhibits attached thereto: (A) a copy of resolutions duly
adopted by the Board of Directors of the Guarantor and in full force and
effect at the time this Agreement is entered into, covering the matters
described in subparagraph (e) below of this Section 3.1, (B) a copy of the
charter or other organizational documents of the Guarantor and all
amendments thereto, certified by the appropriate official of the Guarantor’s
state of organization, and (C) a copy of the bylaws of the Guarantor, and
certifying as to such other matters as Lender may reasonably require; and

                    (6) such other documents or instruments as Lender may reasonably
require.

          (c) All requirements of notice to perfect each Bank Lien shall have been accomplished or
arrangements made therefor to the satisfaction of Lender and its counsel;

          (d) The Borrower shall have approved the execution, delivery and performance of the Loan
Papers to which it is a party by resolutions satisfactory to Lender and its counsel, authorizing
(i) the execution, delivery and performance of this Agreement, the Notes and the other Loan Papers
to which the Borrower is a party, (ii) the borrowings contemplated hereunder and (iii) the granting
by it of the pledge and security interests pursuant to the Loan Papers to which the Borrower is a
party and appropriate certificates as to such actions, showing the parties authorized to execute
the Loan Papers and all items required herein, shall have been delivered to the Lender;

          (e) The board of directors of the Guarantor shall have approved the execution, delivery and
performance of the Loan Papers to which it is a party by resolutions satisfactory to Lender and its
counsel, authorizing (i) the execution, delivery and performance of the Loan Papers to which it is
a party, (ii) acknowledging the benefits and consideration to such Guarantor from the borrowings
contemplated

-15-

 

hereunder and (iii) authorizing the granting by it of the pledge and security interests pursuant to
the Loan Papers to which it is a party and appropriate certificates as to such actions, showing the
parties authorized to execute such Loan papers and all items required herein, shall have been
delivered to Lender;

          (f) There shall exist no Event of Default hereunder, nor shall any events or circumstances
have occurred, and not theretofore been cured, which with notice or lapse of time or both, would
constitute an Event of Default hereunder;

          (g) The representations and warranties of the Borrower contained in Article IV shall be true
and correct in all material respects;

          (h) No suit, action or other proceeding by a third party or a Governmental Authority shall be
pending or threatened which relates to this Agreement or the transactions contemplated hereby; and

     3.2 Conditions to Subsequent Advances. The obligation of the Lender to make any
Subsequent Advance under the Advance Note, the $10,000,000.00 Multiple Advance Term Promissory
Note, the $1,500,000.00 Multiple Advance Term Promissory Note, and the Revolving Line of Credit
Promissory Note requested to be made by the Borrower on any date is subject to the satisfaction of
the following conditions precedent:

          (a) Each of the representations and warranties made by the Borrower in or pursuant to the Loan
Papers shall be true and correct in all material respects on and as of such date as if made on and
as of such date.

          (b) No Event of Default shall have occurred and be continuing on such date or after giving
effect to the Subsequent Advance requested to be made on such date.

          (c) Notwithstanding Section 2.4(b), after giving effect to the Advances under the Revolving
Line of Credit Promissory Note requested by Borrower to be made on any date, the aggregate
principal amount of the Revolving Line of Credit Promissory Note then outstanding shall not exceed
the lesser of (i) $2,000,000.00 or (ii) the amount available for Advance under the Revolving Line
of Credit Note, as determined in accordance with and as set forth in line Q of the Gross Assets
Available for Borrowing Base Calculation.

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

          (e) Each request for an Advance under the Advance Note shall have been received by Lender
prior to December 14, 2005.

          (f) After giving effect to the Advances under the $10,000,000.00 Multiple Advance Term
Promissory Note requested by Borrower to be made on any date, the cumulative aggregate principal
amount of all Advances under the

16

 

$10,000,000.00 Multiple Advance Term Promissory Note shall not exceed $10,000,000.00.

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

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

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

          (j) No litigation, investigation or proceeding of or before any arbitrator or Governmental
Authority shall be pending or, to the knowledge of the Borrower, threatened by or against the
Borrower or the Lender with respect to this Agreement or any of the other Loan Papers or the
transactions contemplated by this Agreement or any of the other Loan Papers.

          (k) The Lender shall have received all Gross Assets Available for Borrowing Base Calculations
required to be delivered by Borrower pursuant to Section 2.3(b)(i).

     Each borrowing by the Borrower hereunder shall constitute a representation and warranty by the
Borrower as of the date thereof that the conditions contained in this Section 3.2 have been
satisfied.

     3.3 Corporate Proceedings and Documents. In addition to the conditions precedent set
forth in Section 3.1 and Section 3.2, all corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions contemplated by this
Agreement and the other Loan Papers shall be satisfactory in form, substance and date to the
Lender, and Lender shall have received such other documents and legal opinions in respect of any
aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably
request.

ARTICLE IV

Representations and Warranties

     As a material inducement to Lender to enter into this Agreement, the Borrower hereby
represents and warrants to the Lender that:

     4.1 Organization, Existence and Good Standing; Compliance With Law. The Borrower and
each of its Subsidiaries (a) is duly organized, validly existing and in good standing under the
laws of its state of organization, (b) is duly qualified, in good

-17-

 

standing and authorized to do business in each jurisdiction where the character of its operations,
transaction of business or ownership of property makes such qualification necessary, except where
the absence of qualification, good standing or authorization would not have a Material Adverse
Effect and (c) is in compliance with all Requirements of Law, except to the extent that the failure
to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect.

     4.2 Authorization. Each of the Borrower and its Subsidiaries has the corporate power
and authority, and the legal right, to make, deliver and perform the Loan Papers to which it is a
party and, in the case of the Borrower, to borrow hereunder, and in the case of the Subsidiaries,
to guarantee the obligations of the Borrower hereunder, and each of the Borrower and its
Subsidiaries has taken all necessary corporate action to authorize the borrowings and other
transactions on the terms and conditions of each Loan Paper to which it is a party, the grant of
the Bank Liens on the Collateral pursuant to the Loan Papers to which it is a party and the
execution, delivery and performance of the Loan Papers to which it is a party.

     4.3 Enforceable Obligations. This Agreement and each of the other Loan Papers to
which the Borrower or any of its Subsidiaries is a party have been duly executed and delivered on
behalf of the Borrower or its Subsidiaries, as the case may be. This Agreement constitutes and the
other Loan Papers to which the Borrower or any of its Subsidiaries is a party, when executed and
delivered will constitute, a legal, valid and binding obligation of the Borrower and any of its
Subsidiaries, as the case may be, enforceable against the Borrower and any of its Subsidiaries, as
the case may be, in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, fraudulent
transfer or similar laws affecting the enforcement of creditors’ rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or at law).

     4.4 No Conflicts or Consents. The execution, delivery and performance of this
Agreement, the Notes and the other Loan Papers, the borrowings hereunder and the use of the
proceeds thereof will not violate any Requirement of Law or Contractual Obligation of the Borrower
or any of its Subsidiaries and will not result in, or require, the creation or imposition of any
Lien on any of its or their respective properties, assets or revenues pursuant to any such
Requirement of Law or Contractual Obligation, except as contemplated by the Loan Papers. No
consent or authorization of, filing with or other act by or in respect of, any Governmental
Authority or any other person is required in connection with the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this Agreement, the Notes or the
other Loan Papers.

     4.5 Financial Statements. The unaudited consolidated financial statements of Natural
Gas Services Group, Inc., dated November 30, 2004, and Screw Compression Systems, Inc. for the
period ended November 30, 2004, which have been delivered to Lender, are complete and correct as
they relate to the Borrower and Guarantor, have been prepared in accordance with generally accepted
accounting principles, consistently applied, and present fairly the unaudited consolidated
financial condition and results of operations of the Borrower and Guarantor, as of the dates and
for the periods stated (subject only to normal year-end adjustments with

18

 

respect to such unaudited interim statements). During the period from November 30, 2004 with
respect to Borrower, and during the period from November 30, 2004, with regard to Guarantor, to
and including the date hereof, no change has occurred in the condition, financial or otherwise, of
the Borrower and Guarantor, taken as a whole, which could reasonably be expected to result in a
Material Adverse Effect, and there has been no sale, transfer or other disposition by the Borrower
or Guarantor since January 3, 2005, of any material part of its business or property and no
purchase or other acquisition of any business or property material in relation to the consolidated
condition, financial or otherwise, of the Borrower and Guarantor.

     4.6 Other Obligations. As of the date hereof, neither Borrower nor any Subsidiary has
any outstanding Debt or other material liabilities, direct or indirect, absolute or contingent,
which is, in the aggregate, material to the Borrower and its Subsidiaries and not shown in the
financial statements referred to in Section 4.5 hereof. Borrower is not aware of any fact,
circumstance, act, condition or development which will have or which threatens to have any Material
Adverse Effect.

     4.7 Investments, Advances and Guaranties. At the date of this Agreement, Borrower has
not made investments in, advances to or guaranties of the obligations of any person, except as
reflected in the financial statements referred to in Section 4.5 hereof.

     4.8 Litigation. There is no litigation, legal, administrative or arbitral proceeding,
investigation or other action of any nature pending or, to the knowledge of the Borrower,
threatened against or affecting the Borrower which involves the possibility of any judgment or
liability not fully covered by indemnity agreements or insurance, and which would have a Material
Adverse Effect.

     4.9 No Burdensome Restrictions. No unusual or unduly burdensome restriction,
restraint or hazard exists under or by reason of any Contractual Obligation or, to the best of
Borrower’s knowledge, any Requirement of Law.

     4.10 Taxes. All tax returns required to be filed by the Borrower and its Subsidiaries
with all Governmental Authorities have been filed, and all taxes, assessments, fees and other
governmental charges imposed upon Borrower and its Subsidiaries or upon any of their respective
property, income or franchises which are due and payable, have been paid (other than any the amount
or validity of which are currently being contested in good faith by appropriate proceedings and
with respect to which reserves in conformity with generally accepted accounting principles have
been provided on the consolidated financial statements of the Borrower); and no tax Lien has been
filed and, to the knowledge of Borrower, no claim is being asserted with respect to any such tax,
fee or other charge.

     4.11 Purpose of Loan. The proceeds of the loans made pursuant to Section 2.1 and
evidenced by the Notes have been or will be used by the Borrower for the following purposes:

          (a) with respect to loans made pursuant to and evidenced by the $10,000,000.00 Multiple
Advance Term Promissory Note, for construction of natural gas compressors;

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

          (c) with respect to loans made pursuant to and evidenced by the $8,000,000.00 Term Promissory
Note, for the acquisition of all of the outstanding capital stock of Guarantor;

          (d) with respect to loans made pursuant to and evidenced by the Oklahoma Term Promissory Note,
for the refinancing of Screw Compression Systems, Inc.’s existing real estate debt;

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

          (f) with respect to loans made pursuant to and evidenced by the $7,521,109.00 Term Promissory
Note for the renewal, extension, rearrangement and consolidation of the Term Loan described in the
Prior Loan Agreement; and

          (g) with respect to loans made pursuant to and evidenced by the Advance Note, for the
construction of natural gas compressors.

     4.12 Title to Properties; Liens. Each of the Borrower and its Subsidiaries have good
record and defensible title to, or a valid leasehold interest in, all its real property, and good
title to all its other properties and, except for Liens of the type permitted under Section 6.8 of
this Agreement, there are no Liens on any properties or assets of the Borrower or any of its
Subsidiaries.

     4.13 Insurance. The Borrower and its Subsidiaries maintain with financially sound and
reputable insurance companies insurance in at least such amounts and against at least such risks
(but including in any event public liability) as are usually insured against in the same general
area by companies engaged in the same or a similar business and such insurance is otherwise in
compliance with the Loan Papers.

     4.14 No Default. Neither the Borrower nor any of its Subsidiaries is in default under
or with respect to any of its Contractual Obligations in any respect, other than defaults which
could not have a Material Adverse Effect. No Event of Default has occurred and is continuing.

     4.15 ERISA Plans. Borrower does not have any plans subject to the Employee Retirement
Income Security Act of 1974, as amended (“ERISA Plan”).

     4.16 Principal Business Office and Location of Records. The Borrower’s principal
place of business and chief executive offices are located at 2911 S. CR 1260, Midland, Texas 79706,
and the records of the Borrower and each of its Subsidiaries concerning its ownership of assets,
business and operations are located at such address.

20

 

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

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

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

     4.20 Environmental Matters.

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

          (b) Except in substantial compliance with Relevant Environmental Laws and permits issued
thereunder (i) neither the Borrower nor its Subsidiaries, nor the businesses conducted by the
Borrower and its Subsidiaries, have placed, held, located or disposed of any Hazardous Substance
on, under or at any property now or previously owned or leased by the Borrower or any of its
Subsidiaries, and none of such properties has been used (by the Borrower or any of its
Subsidiaries) as a dump site or storage (whether permanent or temporary) site for any Hazardous
Substance;

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(ii) no polychlorinated biphenyls, urea or formaldehyde is or has been present at any property now
or previously owned or leased by the Borrower or any of its Subsidiaries; (iii) no asbestos is or
has been present at any property now or previously owned or leased by the Borrower or any of its
Subsidiaries; (iv) there are no underground storage tanks which have been used to store or have
contained any Hazardous Substance, active or abandoned, at any property now or previously owned or
leased by the Borrower or any of its Subsidiaries; (v) no Hazardous Substance has been released at,
on or under any property previously owned or leased by the Borrower or any of its Subsidiaries; and
(vi) no Hazardous Substance has been released or is present, in a reportable or threshold quantity,
where such a quantity has been established by statute, ordinance, rule, regulation or order, at, on
or under any property now or previously owned by the Borrower or any of its Subsidiaries.

          (c) The Borrower and its Subsidiaries have not transported or arranged for the transportation
(directly or indirectly) of any Hazardous Substance to any location which is listed or proposed for
listing under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986 (“CERCLA”), the
Comprehensive Environmental Response, Compensation and Liability Information System
(“CERCLIS”) or on any similar state list or which is the subject of federal, state or local
enforcement actions or other investigations.

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

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

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

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

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

22

 

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

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

ARTICLE V

Affirmative Covenants

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

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

          (a) as soon as available, but in any event not later than ninety (90) days after the end of
each fiscal year of the Borrower, a copy of the audited consolidated balance sheet of the Borrower
and its consolidated Subsidiaries as at the end of such year and the related audited consolidating
statements of income and changes in cash flows for such year, setting forth in each case in
comparative form the figures for the previous year, reported on without a “going concern” or like
qualification or exception, or qualification arising out of the scope of the audit, by Hein +
Associates LLP or other independent certified public accounting firm of recognized standing
acceptable to the Lender;

          (b) as soon as available, but in any event not later than forty-five (45) days after the end
of each month, the unaudited consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such month and the related unaudited consolidated statements of
income and changes in cash flows of the Borrower and its consolidated Subsidiaries for such month
and for the period from the beginning of the most recent fiscal year to the end of such month,
certified by the chief financial officer of the Borrower (subject to normal year-end audit
adjustments);

          (c) as soon as available, but in any event not later than forty-five (45) days after the end
of each month, calculations of the Consolidated Current Ratio, Consolidated Tangible Net Worth,
Debt Service Ratio and Consolidated Debt to

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Consolidated Tangible Net Worth Ratio of the Borrower for the periods required as set forth in
Section 6.1 of this Agreement;

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

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

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

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

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

          (i) within forty-five (45) days after the end of each month, the Gross Assets Available for
Borrowing Base Calculation required by Section 2.3(b)(i) of this Agreement;

          (j) within forty-five (45) days after the end of each month, a compliance certificate in the
form attached hereto as Exhibit R, which shall be signed by the chief executive officer or
principal financial officer of the Borrower;

          (k) as soon as available, but in any event not later than forty-five (45) days after the end
of each calendar quarter, a report, in detail reasonably satisfactory to Lender, (i) setting forth,
by owner, the unit number, serial number or other

24

 

identifying number of each gas compressor owned by the Borrower and its Subsidiaries, (ii) stating
whether or not each compressor identified in the report has been leased or rented to any person
and, if so, a brief description of the lease, including, without limitation, the date of the lease
and the name of the lessee, (iii) describing the specific location of each gas compressor, (iv)
attaching copies of any compressor lease or rental agreement entered into during the prior month
and (v) including such other information as Lender shall reasonably require; and

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

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

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

     5.4 Maintenance of Insurance. Maintain with financially sound and reputable insurers,
insurance with respect to its properties and business against such liabilities, casualties, risks
and contingencies and in such types and amounts as is customarily carried by companies engaged in
the same or similar businesses and similarly situated. From time to time, upon request by Lender,
the Borrower will furnish Lender with copies of certificates, binders and policies necessary to
give Lender reasonable assurance of the existence of such coverage. Borrower agrees to promptly
notify Lender of any termination or other material change in Borrower’s insurance coverage and, if
requested by Lender, to provide Lender with all information about the renewal of each policy at
least 15 days prior to the expiration thereof. In the case of any fire, accident or other casualty
causing loss or damage to any property of Borrower, the proceeds of such policies in excess of
$50,000.00 shall, at Borrower’s option, be used to (i) replace the lost or damaged property with
similar property

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having a value at least equivalent to the lost or damaged property, or (ii) prepay the Notes to the
extent of such proceeds.

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

     5.6 Indemnification. Indemnify, save and hold harmless the Lender and its Affiliates,
directors, officers, agents, attorneys and employees (collectively, the “Indemnitees”) from
and against: (a) any and all claims, demands, actions or causes of action that are asserted against
any Indemnitee by any person (other than the Borrower) if the claim, demand, action or cause of
action directly or indirectly relates to a claim, demand, action or cause of action that such
person asserts or may assert against the Borrower, any Affiliate of the Borrower or any officer,
director or shareholder of the Borrower; (b) any and all claims, demands, actions or causes of
action that are asserted against any Indemnitee by any person (other than the Borrower) if the
claim, demand, action or cause of action arises out of or relates to the loans made by Lender to
the Borrower under the Notes and this Agreement, the use or contemplated use of proceeds of such
loans or the relationship of the Borrower and the Lender under this Agreement; (c) any
administrative or investigative proceeding by any Governmental Authority arising out of or related
to a claim, demand, action or cause of action described in clauses (a) or (b) above; and (d) any
and all liabilities, losses, costs or expenses (including reasonable attorneys’ fees and
disbursements) that any Indemnitee suffers or incurs as a result of any of the foregoing;
provided, that no Indemnitee shall be entitled to indemnification for any liability, loss,
cost or expense caused by its own gross negligence or willful misconduct. If any claim, demand,
action or cause of action is asserted against any Indemnitee and such Indemnitee intends to claim
indemnification from the Borrower under this Section 5.6, such Indemnitee shall promptly notify the
Borrower, but the failure to so promptly notify the Borrower shall not affect the obligations of
the Borrower under this Section 5.6 unless such failure materially prejudices the Borrower’s right
to participate, or the Borrower’s rights, if any, in the contest of such claim, demand, action or
cause of action, as hereinafter provided. Each Indemnitee may, and if requested by the Borrower in
writing shall, in good faith contest the validity, applicability and amount of such claim, demand,
action or cause of action with counsel selected by such Indemnitee and reasonably acceptable to the
Borrower, and shall permit the Borrower to participate in such contest. Any Indemnitee that

26

 

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

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

     5.8 Inspection and Visitation. Permit any officer, employee, agent or representative
of Lender to visit and inspect any of the properties and assets of the Borrower and its
Subsidiaries, examine all of its books, records and accounts, and take copies and extracts
therefrom, all at such reasonable times and during normal business hours as Lender may request and,
further, the Borrower shall allow and does hereby grant Lender the right to contact any employees,
associates, Affiliates, officers, accountants and auditors of Borrower and its Subsidiaries as
Lender may desire, and upon the occurrence and during the continuance of an Event of Default,
Lender shall have the right to contact the customers of Borrower and its Subsidiaries.

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

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

     5.11 Environmental Complaints. Promptly give notice to Lender (a) of any
Environmental Complaint affecting the Borrower or any of its Subsidiaries, any

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

ARTICLE VI

Negative Covenants

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

     6.1 Financial Covenants.

          (a) Consolidated Current Ratio. Permit the Consolidated Current Ratio, as defined
herein and calculated pursuant to Exhibit S hereto, to be less than 1.5 to 1.0 as of
November 30, 2004, and as of the end of each month thereafter.

          (b) Consolidated Tangible Net Worth. Permit the Consolidated Tangible Net Worth, as
defined herein and calculated pursuant to Exhibit T hereto, to be less than $14,500,000.00
as of November 30, 2004, and as of the end of each month thereafter.

          (c) Debt Service Ratio. Permit the ratio of (i) Consolidated Cash Flow to (ii)
Consolidated Fixed Charges, as such terms are defined herein and as calculated pursuant to
Exhibit U hereto, to be less than 1.25 to 1.00 as of the end of each fiscal quarter of the
Borrower.

          (d) Consolidated Debt to Consolidated Tangible Net Worth Ratio. Permit the ratio of
(i) Consolidated Debt to (ii) Consolidated Tangible Net Worth, as such terms are defined herein and
calculated pursuant to Exhibit V hereof, to be more than 3.0 to 1.00 as of November 30,
2004 and as of the end of each month thereafter.

     6.2 Debt. Create, assume, incur or have outstanding any Debt, except:

          (a) Debt of the Borrower and its Subsidiaries to the Lender;

28

 

          (b) Debt existing on the date of this Agreement which is set forth in the financial statements
referred to in Section 4.5 of this Agreement, but not any increases thereof;

          (c) obligations for the payment of rent or hire of property under leases or lease agreements
which would not cause the aggregate amount of all payments made by the Borrower and its
Subsidiaries pursuant to such leases or lease agreements to exceed $200,000.00 in the aggregate
during any calendar year;

          (d) additional Debt of the Borrower and its Subsidiaries not to exceed $100,000.00 in the
aggregate principal amount at any one time outstanding, without the prior written consent of
Lender; and

          (e) the SCS Notes.

     6.3 ERISA Compliance. (a) Engage in any “prohibited transaction” as such term is
defined in Section 4975 of the Internal Revenue Code of 1986, as amended;

          (b) incur any “accumulated funding deficiency” as such term is defined in Section 302 of
ERISA; or

          (c) terminate any such plan in a manner which could result in the imposition of a Lien on the
property of Borrower or any Subsidiary pursuant to Section 4068 of ERISA.

     6.4 Amendment of Organizational Documents. Amend or otherwise modify its articles of
incorporation, regulations, articles of organization or otherwise change its corporate or limited
liability company structure in any manner, except as required by Section 5.12 hereof.

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

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

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

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

          (a) Bank Liens;

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

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

          (d) Liens for taxes, assessments or other governmental charges or levies which are not
delinquent or which are in good faith being contested by appropriate proceedings; provided,
however, this exception shall not allow any Lien imposed by the U.S. Government for failure to
pay income, payroll, FICA or similar taxes, other than any such Lien where (i) the validity,
applicability or amount thereof is being contested in good faith by appropriate proceedings which
will prevent the forfeiture or sale of any property of the Borrower or any Subsidiary or any
material interference with the use thereof by the Borrower or any Subsidiary, and (ii) the Borrower
shall have set aside on its books reserves appropriate within generally accepted accounting
principles with respect thereto;

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

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

          (g) Liens permitted by the other Loan Papers.

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

     6.10 Limitation on Fundamental Changes. Enter into any merger, consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution),
or convey, sell, lease, assign, transfer or otherwise dispose of (whether in one transaction or in
a series of related transactions), all or substantially all of its property, business or assets
(whether now owned or hereafter acquired), or make any material change in its present method of
conducting business, except as required by Section 5.12 hereof.

30

 

     6.11 Transactions with Affiliates. Enter into any transaction (including, but not
limited to, the sale or exchange of property or the rendering of services) with any of its
Affiliates, other than in the ordinary course of business and upon terms no less favorable than
could be obtained in an arm’s-length transaction with a person that was not an Affiliate.

     6.12 Disposition of Assets. Sell, convey, transfer, lease, exchange, alienate or
otherwise dispose of any of its respective property or assets, except, to the extent not otherwise
prohibited under the other Loan Papers:

          (a) equipment which is worthless or obsolete or which is replaced by equipment of equal
suitability and value; and

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

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

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

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

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

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

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

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

ARTICLE VII

Default and Remedies

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

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

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

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

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

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

          (f) the failure of the Borrower or any of its Subsidiaries to have discharged within a period
of thirty (30) days after the commencement thereof any

32

 

attachment, sequestration or similar proceeding against any of its properties or assets having a
value of $100,000.00 or more;

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

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

          (i) the occurrence of a Change of Control;

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

          (k) if, at any time, the then existing President of the Borrower or the then existing Chief
Executive Officer (if there shall be one) of the Borrower ceases, for any reason, to hold such
office and a replacement for such officer acceptable to Lender is not appointed within 120 days
thereafter.

     7.2 Remedies.

          (a) Upon the occurrence of any Event of Default described in Section 7.1(d) or Section 7.1(e)
hereof, the lending obligations (including the obligations to make Advances under Section 2.1
hereof), if any, of Lender hereunder shall immediately terminate, and the entire principal amount
of all Obligations then outstanding together with interest then accrued and unpaid thereon shall
become immediately due and payable, all without demand and presentment for payment, notice of
nonpayment, protest, notice of protest, notice of dishonor, notice of intention to accelerate
maturity or notice of acceleration of maturity, or any other notice of default of any kind, all of
which are hereby expressly waived by the Borrower.

          (b) Upon the occurrence and at any time during the continuance of any other Event of Default
specified in Section 7.1 hereof, Lender may, by written notice to the Borrower, (i) declare the
entire principal amount of all Obligations then outstanding, together with interest then accrued
and unpaid thereon, to be immediately due and payable without demand and presentment for payment,
notice of nonpayment, protest, notice of protest, notice of dishonor, notice of intention to
accelerate maturity or notice of acceleration of maturity, or any other notice of default of any
kind, all of which are hereby expressly waived by the Borrower, and (ii) terminate the lending
obligations, if any, of Lender hereunder unless and until Lender shall reinstate same in writing.

     7.3 Right of Setoff. Upon the occurrence and during the continuance of any Event of
Default, or if the Borrower becomes insolvent, however evidenced, Lender is

-33-

 

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

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

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

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

     7.7 Cumulative Rights. All Rights available to Lender under this Agreement and the
other Loan Papers are cumulative of, and in addition to, all other Rights available to Lender at
law or in equity. The exercise or partial exercise of any such Right shall not preclude the
exercise of any other Right under the Loan Papers or otherwise.

     7.8 Expenditures by Lender. All court costs, reasonable attorneys’ fees, other costs
of collection, and other sums spent by Lender pursuant to the exercise of any Right provided herein
shall be payable to Lender on demand, shall become part of the Obligations, and shall bear interest
at a rate per annum two percent (2%) above the Prime Rate on each such amount commencing on the
date notice of such claims, judgments, costs, charges or attorneys’ fees is given to Borrower by
Lender until the date paid by Borrower.

ARTICLE VIII

Miscellaneous

     8.1 Survival of Representations and Warranties. All representations and warranties of
the Borrower made herein, in the other Loan Papers to which it is a party and in any document,
certificate or statement delivered pursuant hereto or in

34

 

connection herewith shall survive the execution and delivery of this Agreement and the Notes.

     8.2 Communications. Unless specifically otherwise provided, whenever any Loan Paper
requires or permits any consent, approval, notice, request, or demand from one party to another,
such communication must be in writing (which may be by cable, telex, telecopy, fax or other similar
means of remote facsimile transmission) to be effective and shall be deemed to have been given on
the day actually delivered or, if mailed, on the third day (or if such third day is not a Business
Day, then on the next succeeding Business Day) after it is enclosed in an envelope, addressed to
the party to be notified at the address stated below, properly stamped, sealed, and deposited in
the appropriate official postal service. Until changed by notice pursuant hereto, the address of
each party for purposes of this Agreement is as follows:

	 
	BORROWER:

	 

	Natural Gas Services Group, Inc.

	2911 S. CR 1260

	Midland, Texas 79706

	Attn. Earl Wait

	Facsimile Number for Notice: (432) 563-5567

	 

	          or

	 

	LENDER:

	 

	Western National Bank

	500 W. Wall, Suite 100

	Midland, Texas 79701

	Attn: Scott A. Lovett

	Facsimile Number for Notice: (432) 570-9567

     8.3 Successors and Assigns.

          (a) All covenants and agreements contained by or on behalf of the Borrowers in this Agreement,
the Notes and the other Loan Papers shall bind its respective successors and assigns and shall
inure to the benefit of the Bank and its successors and assigns. The Borrowers shall not, however,
have the right to assign any of its respective rights hereunder or any interest herein without the
prior written consent of Lender and Lender shall not be obligated to make any Loan hereunder to any
Person other than the Borrowers.

          (b) Lender may sell, without the consent of the Borrowers or the Guarantor, a participation
interest to any financial institution or institutions, and such financial institution or
institutions may further sell a participation interest (undivided or divided) in, the Loan made to
the Borrowers hereunder and the Lender’s rights and benefits under this Agreement, the Notes and
the other Loan Papers and to the extent of that participation, such participant or participants
shall have, without limitation, the same rights and benefits against the Borrower as it or they
would have had if participation of such participant or participants were the Lender making the

-35-

 

loans to the Borrowers hereunder, provided, however, that (i) the Lender’s obligations under this
Agreement shall remain unmodified and fully effective and enforceable against the Lender, (ii) the
Lender shall remain the holder of the Notes for all purposes of this Agreement, and (iii) the
Borrower shall continue to deal solely and directly with the Lender in connection with the Lender’s
rights and obligations under this Agreement.

          (c) Lender may, without the consent of the Borrower or the Guarantor, assign to one or more
banks or other persons all or a portion of the Lender’s rights and obligations under this Agreement
(including, without limitation, all or a portion of the indebtedness owing to it from the Borrower
and the Notes and the other Loan Papers held by it). Upon any such assignment, from and after the
effective date specified in such assignment (i) the assignee thereunder shall be a party hereto
and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such
assignment, have the rights and obligations of the Bank hereunder, and (ii) the Lender assignor
thereunder shall, to the extent that rights and obligations hereunder have been assigned by it
pursuant to such assignment, relinquish its rights and be released from its obligations under this
Agreement (and, in the case of an assignment covering all of the remaining portion of the Lender’s
rights and obligations under this Agreement, the Lender shall cease to be a party hereto).

          (d) Lender may, in connection with any assignment or participation or proposed assignment or
participation pursuant to this Agreement disclose to the assignee or participant or proposed
assignee or participant, any information relating to the Borrower or the Guarantor.

     8.4 Governing Law. THIS AGREEMENT AND THE OTHER LOAN PAPERS SHALL BE DEEMED TO BE
CONTRACTS MADE UNDER, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE
STATE OF TEXAS; PROVIDED, HOWEVER, THAT THE RIGHTS PROVIDED IN ANY LOAN PAPER WITH REFERENCE TO
PROPERTIES COVERED THEREBY THAT ARE SITUATED IN OTHER STATES MAY BE GOVERNED BY THE LAWS OF SUCH
OTHER STATES, AND PROVIDED, FURTHER, THAT THE LAWS PERTAINING TO THE ALLOWABLE RATES OF INTEREST
MAY, FROM TIME TO TIME, BE GOVERNED BY THE LAWS OF THE UNITED STATES OF AMERICA.

     8.5 Usury Savings Clause. It is the intention of the parties hereto that Lender shall
conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated
hereby would be usurious as to Lender under laws applicable to it (including the laws of the United
States of America and the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to Lender notwithstanding the other provisions hereof), then, in that event,
notwithstanding anything to the contrary in the Notes, this Agreement or any other Loan Paper or
other agreement entered into in connection with or as security for the Notes, (i) the aggregate of
all consideration which is contracted for, taken, reserved, charged or received by Lender under the
Notes, this Agreement or any other Loan Paper or agreement entered into in connection with or as
security for the Notes shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be credited by Lender on the principal amount of the
Obligations to

36

 

Lender (or, to the extent that the principal amount of the Obligations shall have been or would
thereby be paid in full, refunded by Lender to the Borrower); and (ii) in the event that the
maturity of the Notes is accelerated by reason of an Event of Default under this Agreement or
otherwise, or in the event of any prepayment, then such consideration that constitutes interest
under law applicable to Lender may never include more than the maximum amount allowed by such
applicable law, and excess interest, if any, provided for in the Notes, this Agreement or otherwise
shall be cancelled automatically by Lender as of the date of such acceleration of prepayment and,
if theretofore paid, shall be credited by Lender on the principal amount of the Obligations (or, to
the extent that the principal amount of such Obligations shall have been or would thereby be paid
in full, refunded by Lender to the Borrower).

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

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

     8.7 Non-Waiver. No Advance hereunder shall constitute a waiver of the
representations, warranties, conditions or agreements of Borrower or of any of the conditions of
Lender’s obligations to make further Advances. If Borrower is unable to satisfy any such
representation, warranty, condition or agreement, no such Advance shall have the effect of
precluding Lender from thereafter declaring such inability to be an Event of Default as hereinabove
provided.

     8.8 Counterparts. This Agreement may be executed by one or more of the parties to
this Agreement on any number of separate counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and the same instrument.

     8.9 Amendments and Waivers. Neither this Agreement, the Notes nor any of the other
Loan Papers may be amended or waived orally, but only by an instrument in writing signed by
Borrower and Lender (and/or any other person which is a party to the Loan Paper being amended or
waived).

     8.10 Terms and Headings. Terms used herein but not defined shall have the meanings
accorded them under generally accepted accounting principles, or the Texas Uniform Commercial Code,
as appropriate. All headings used herein are for convenience and reference purposes only and shall
not affect the substance of this Agreement.

-37-

 

     8.11 Conflicts. If there is ever a conflict between any of the terms, conditions,
representations, warranties or covenants contained in this Agreement and the terms, conditions,
representations, warranties or covenants in any of the other Loan Papers executed by the Borrower,
the provisions of this Agreement shall govern and control; provided, however, the fact that
any term, condition, representation, warranty or covenant contained in such other Loan Paper is not
contained herein shall not be, or be deemed to be, a conflict.

     8.12 Environmental Indemnity. Borrower hereby agrees to defend, indemnify, pay and
hold Lender and its officers, directors, employees and agents (each, an “Indemnitee”)
harmless from and against, and shall reimburse each Indemnitee for, any and all loss, claim,
liability, damages, injunctive relief, penalty, judgment, suit, obligation, injury to persons,
property or natural resources, cost, expense or disbursement of any kind or nature whatsoever
including, without limitation, attorneys’ fees and costs attributable to any action or cause of
action (whether or not each Indemnitee shall be designated a party thereto), arising, directly or
indirectly, in whole or in part, out of the release or presence, or alleged release or alleged
presence, or any Hazardous Substance, at, on, or under, surrounding or in connection with any of
the real property owned or leased by Borrower (“Premises”), or any portion thereof, whether
foreseeable or unforeseeable, regardless of the source of such release and regardless of when such
release occurred or such presence is discovered. The foregoing indemnity includes, without
limitation, all cost in law or in equity of removal, remediation of any kind and disposal of any
such Hazardous Substance, all costs of determining whether the Premises are in compliance, and
causing the Premises to be in compliance, with all Requirements of Law relating to Hazardous
Substances, all costs associated with claims for damages to persons, property or natural resources,
and each Indemnitee’s consultants’ fees (including attorneys’ fees and costs) and court costs. The
obligations of Borrower under this indemnity shall survive the repayment of the Notes and shall be
independent of the obligations of Borrower to the Indemnitees in connection with the Notes. The
rights of each Indemnitee under this indemnity shall be in addition to any other rights and
remedies of such Indemnitee under any guaranty or any document or instrument now or hereafter
executed in connection with this Agreement, the Notes, the Loan Papers or at law or in equity.

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

     8.14 Direct Benefit. The loans hereunder and any additional loans are for the direct
benefit of each of the Borrower and its Subsidiaries and the loans hereunder will be used by them
for general working capital purposes. The Borrower and its Subsidiaries are engaged as an
integrated group in the manufacturing, leasing and financing of industrial equipment and systems
for the oil and gas industry and other industries, and any benefits to the Borrower or any of its
Subsidiaries are a benefit to all of them, both directly or indirectly, inasmuch as the successful
operation and

38

 

condition of the Borrower and its Subsidiaries is dependent upon the continued successful
performance of the functions of the integrated group as a whole.

     8.15 Waivers. No course of dealing on the part of the Lender, its officers,
employees, consultants or agents, nor any failure or delay by the Lender with respect to exercising
any right, power or privilege of the Lender under this Agreement, the Notes or any other Loan paper
shall operate as a waiver thereof, except as otherwise provided in Section 8.9 hereof.

     8.16 Cumulative Rights. Rights and remedies of the Lender under this Agreement, the
Notes and the other Loan Papers shall be cumulative, and the exercise or partial exercise of any
such right or remedy shall not preclude the exercise of any other right or remedy.

     8.17 Governmental Regulation. Anything contained herein to the contrary
notwithstanding, the Lender shall not be obligated to extend credit to the Borrower in an amount in
violation of any limitation or prohibition provided by any applicable statute or regulation.

     8.18 Exhibits. The exhibits, annexes and schedules attached to this Agreement are
incorporated herein and shall be considered a part of this Agreement for the purposes stated
herein, except that in the event of any conflict between any of the provisions of such exhibits,
annexes and schedules and the provisions of this Agreement, the provisions of this Agreement shall
prevail. All capitalized terms used in such exhibits, annexes and schedules, but not defined
therein, shall have the same meanings as given to such terms in this Agreement.

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

     EXECUTED EFFECTIVE as of the date first above written.

	 	 	 	 	 	 	 	 	 
	 
	 	BORROWER:	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	NATURAL GAS SERVICES GROUP, INC.	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	By
	 	     /s/

Stephen C. Taylor	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	     Stephen C. Taylor, President	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	GUARANTOR:	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	Screw Compression Systems, Inc.	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	By:
	 	     /s/

Paul D. Hensley	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	     Paul D. Hensley, President	 	 	 	 

-39-

 

	 	 	 	 	 	 	 	 	 
	 
	 	LENDER:	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	WESTERN NATIONAL BANK	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	By:
	 	      /s/ Scott A. Lovett	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	     Scott A. Lovett, Executive	 	 	 	 
	 
	 	 	 	     Vice President	 	 	 	 

40

 

GROSS ASSETS AVAILABLE FOR BORROWING BASE CALCULATION

FOR THE MONTH ENDED                     , 200__

Borrowing Base Calculation:

	 	 	 	 	 
	A.

	 	Trade Accounts Receivable of Borrower
and Guarantor(1)
	 	$                    
	 
	 	 	 	 
	B.

	 	Less Trade Accounts Receivable of Borrower
and Guarantor over 90 days
	 	$                    
	 
	 	 	 	 
	C.

	 	Net Allowable Accounts Receivable
of Borrower and Guarantor (A-B)
	 	$                    
	 
	 	 	 	 
	D.

	 	Lease Receivable(2)
	 	$                    
	 
	 	 	 	 
	E.

	 	Total Accounts Receivable
of Borrower and Guarantor (C+D)
	 	$                    
	 
	 	 	 	 
	F.

	 	Discounted Receivables of
Borrower and Guarantor (E x 75%)
	 	$                    
	 
	 	 	 	 
	G.

	 	Leased equipment at NBV
	 	$                    
	 
	 	 	 	 
	H.

	 	Discounted equipment (G x 70%)
	 	$                    
	 
	 	 	 	 
	I.

	 	Work in Process
	 	$                    
	 
	 	 	 	 
	J.

	 	Inventory of Borrower and Guarantor(3)
	 	$                    
	 
	 	 	 	 
	K.

	 	Total Inventory of Borrower and Guarantor (I+J)
	 	$                    
	 
	 	 	 	 
	L.

	 	Discounted Inventory of Borrower
and Guarantor (K x 50%)
	 	$                    
	 
	 	 	 	 
	M.

	 	Borrowing Base (F+H+L)
	 	$                    
	 
	 	 	 	 
	N.

	 	Less Principal Balance of Term Promissory Notes
	 	$(                    )
	 
	 	 	 	 
	O.

	 	Amount Available for Advance Under the Advance
Note, Multiple Advance Term Promissory Notes and
Revolving Line of Credit Promissory Note(4
	 	$                    
	 
	 	 	 	 
	P.

	 	Less Maximum Permitted Advances under the
Advance Note and Multiple Advance Term
Promissory Notes
	 	$(                    )
	 
	 	 	 	 
	Q.

	 	Amount Available for Advance under
Revolving Line of Credit Promissory Note(4)
	 	$                    
	 
	 	 	 	 
	R.

	 	Less Principal Balance of the Revolving
Line of Credit Promissory Note
	 	$(                    )
	 
	 	 	 	 
	S.

	 	Borrowing Base Excess or Deficit (Q-R)
	 	$                    

 

 

	(1)  	For purposes of the Borrowing Base calculation pursuant hereto and the Fourth Amended and
Restated Loan Agreement to which this Report is delivered, “Trade Accounts Receivable” means
the face amount (less maximum discounts, credits and allowances that may be taken by or granted
to account debtors in connection therewith) of Borrower’s and Guarantor’s trade accounts
receivable, all as determined in accordance with generally accepted accounting principles.
	 
	(2)  	Includes, without limitation, leases of equipment to third parties and classified as
sales-type leases or operating leases.
	 
	(3)  	“Inventory” means all inventory, wherever located, in which the Borrower has any right, title
or interest, including, without limitation, all goods and other personal property owned by the
Borrower or Guarantor which are held for sale or lease or are furnished or are to be furnished
under a contract of service or which constitute raw materials, work in process or materials
used or consumed or to be used or consumed in the business of the Borrower or Guarantor, or in
the processing, packaging or shipping of the same, and all finished goods, including, but not
limited to all inventory classified as such on a consolidated balance sheet of Borrower or
Guarantor.
	 
	(4)  	Subject to the limitation of Section 2.1 of the Fourth Amended and Restated Loan Agreement.

	 	 	 	 	 	 	 
	Dated:
	 	 	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 	 	 
	Prepared by:	 	 	 	 
	 
	 	 	 	 	 
	Name:
	 	 	 	 	 	 
	 
	 	 	 
	Title:
	 	 	 	 	 	 
	 
	 	 	 

2

 

MULTIPLE ADVANCE TERM PROMISSORY NOTE

	 	 	 
	$1,500,000.00

	 	March 14, 2005

     FOR VALUE RECEIVED, in the manner, on the dates and in the amounts herein stipulated, NATURAL
GAS SERVICES GROUP, INC., a Colorado corporation (the “Borrower”), hereby promises and
agrees to pay to the order of WESTERN NATIONAL BANK, a national banking association (the
“Lender”), in Midland, Midland County, Texas, the principal sum of ONE MILLION FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS ($1,500,000.00) or, if less, the aggregate unpaid principal amount
outstanding hereunder, in lawful money of the United States of America, which shall be legal tender
in payment of all debts and dues, public and private, at the time of payment, together with
interest on the unpaid principal amount hereof from time to time outstanding until maturity at a
rate per annum which shall from day to day be equal to the lesser of (a) a rate per annum (the
“Established Rate”) equal to the greater of (i) one percent (1.00%) over the Prime Rate in
effect from day to day, or (ii) six and one-quarter percent (6.25%), or (b) the Highest Lawful
Rate, in each case calculated on the basis of actual days elapsed, but computed as if each calendar
year consisted of 360 days. Each change in the rate of interest charged under this Multiple
Advance Term Promissory Note (this “Note”) shall, subject to the terms hereof, become
effective, without notice to Borrower, upon the effective date of each change in the Established
Rate or the Highest Lawful Rate, as the case may be. Notwithstanding the foregoing, if at any time
the Established Rate exceeds the Highest Lawful Rate, the rate of interest on this Note shall be
limited to the Highest Lawful Rate, but any subsequent reductions in the Established Rate shall not
reduce the rate of interest hereon below the Highest Lawful Rate until the total amount of interest
accrued hereon approximately equals the amount of interest which would have accrued hereon if the
Established Rate had at all times been in effect. In the event that at maturity (stated or by
acceleration), or at final payment of this Note, the total amount of interest paid or accrued
hereon is less than the amount of interest which would have accrued if the Established Rate had at
all times been in effect, then, at such time and to the extent permitted by applicable laws,
Borrower shall pay to Lender an amount equal to the difference between (a) the lesser of the amount
of interest which would have accrued if the Established Rate had at all times been in effect or the
amount of interest which would have accrued if the Highest Lawful Rate had at all times been in
effect, and (b) the amount of interest actually paid or accrued on this Note. Interest
calculations may be made ten (10) days prior to any interest installment due date under this Note,
in which event, if there is an adjustment in the interest rate in accordance with the terms hereof
during such ten-day period, then Borrower shall subsequently, on demand, pay to Lender any
underpayment, or Lender shall pay to Borrower, any overpayment, as the case may be, as a result of
any adjustment during such ten-day period.

     This Note is the $1,500,000.00 Multiple Advance Term Promissory Note referred to in the Fourth
Amended and Restated Loan Agreement, dated as of March 14, 2005 (said Fourth Amended and Restated
Loan Agreement, as the same may be amended, supplemented or otherwise modified from time to time,
the “Loan Agreement”), by and among Borrower, the Guarantor thereto and the Lender, and is
subject to the terms and conditions thereof. Reference is made to the Loan

1

 

Agreement for provisions for the disbursement of funds hereunder and for a further statement of the
rights, remedies, powers, privileges, benefits, duties and obligations of Borrower, Guarantor and
Lender under the Loan Agreement and this Note. Terms used herein which are defined in the Loan
Agreement shall have such defined meanings unless otherwise defined herein. The holder of this
Note shall be entitled to the benefits of the Loan Agreement.

     Subject to the terms hereof and of the Loan Agreement, from the date of this Note until
maturity, the Lender will make Advances and Subsequent Advances under this Note in accordance with
the provisions of the Loan Agreement. The aggregate principal amount of all such Advances as may
be made by the Lender to the Borrower under this Note shall never exceed One Million Five Hundred
Thousand and No/100 Dollars ($1,500,000.00).

     The principal of this Note shall be due and payable in sixty (60) monthly installments
commencing on May 1, 2005, and thereafter on the first (1st) day of each succeeding
month, to and including April 1, 2010, as follows: (a) the first (1st) through twelfth
(12th) installments shall each be in the amount of $16,666.00; (b) the thirteenth
(13th) through fifty-ninth (59th) installments shall each be in the amount of
$31,250.00; and (c) the final installment in an amount equal to all remaining unpaid principal and
accrued and unpaid interest shall be due and payable on April 1, 2010. Interest computed on the
unpaid balance of this Note shall be due and payable monthly as it accrues, on the same dates as,
but in addition to, each installment of principal. All payments and prepayments shall be applied
first to accrued and unpaid interest, and the balance to principal. Partial prepayments of
principal shall be applied to the installments of principal thereof in the inverse order of their
maturity. All of the past due principal and accrued interest hereunder shall, at the option of
Lender, bear interest from maturity (stated or by acceleration) until paid at a rate per annum
equal to the Highest Lawful Rate.

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

     Time is of the essence of this Note. Upon the occurrence of any one or more of the Events of
Default specified in the Loan Agreement (after expiration of any applicable notice and cure
periods), all amounts then remaining unpaid on (a) this Note, (b) the Multiple Advance Term
Promissory Note dated March 14, 2005, from Borrower to Lender in the original principal amount of
$10,000,000.00; (c) the Term Promissory Note dated January 3, 2005, from Borrower to Lender in the
original principal amount of $8,000,000.00; (d) the Promissory Term Note dated January 3, 2005,
from Screw Compression Systems, Inc., to Lender in the original principal amount of $1,415,836.00;
(e) the Revolving Line of Credit Note dated January 3, 2005, from Borrower to Lender in the
original principal amount of $2,000,000.00; (f) the Term Promissory Note dated November 3, 2003,
from Borrower to Lender in the original principal amount of $7,512,109.00 as modified by that
certain Modification Agreement dated January 3, 2005, and (g) the Advance Term Promissory Note
dated November 3, 2003, from Borrower to Lender in the original principal mount of

-2

 

$10,000,000.00 as modified by that certain Modification Agreement, dated effective as of December
15, 2004, shall become, or may be declared to be, immediately due and payable, all as provided
therein.

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

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

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

3

 

Lender to accelerate the maturity of any interest that has not accrued at the time of such
acceleration or to collect unearned interest at the time of such acceleration.

     This Note is performable and payable in the County of Midland, State of Texas, and shall be
construed in accordance with, and governed by, the laws of the State of Texas; provided, however,
that the laws pertaining to allowable rates of interest may, from time to time, be governed by the
laws of the United States of America.

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

	 	 	 	 	 
	 	NATURAL GAS SERVICES GROUP, INC.

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

-4

 

	 	 	 	 	 

MULTIPLE ADVANCE TERM PROMISSORY NOTE

	 	 	 
	$10,000,000.00

	 	March 14, 2005

     FOR VALUE RECEIVED, in the manner, on the dates and in the amounts herein stipulated, NATURAL
GAS SERVICES GROUP, INC., a Colorado corporation (the “Borrower”), hereby promises and
agrees to pay to the order of WESTERN NATIONAL BANK, a national banking association (the
“Lender”), in Midland, Midland County, Texas, the principal sum of TEN MILLION AND NO/100
DOLLARS ($10,000,000.00) or, if less, the aggregate unpaid principal amount outstanding hereunder,
in lawful money of the United States of America, which shall be legal tender in payment of all
debts and dues, public and private, at the time of payment, together with interest on the unpaid
principal amount hereof from time to time outstanding until maturity at a rate per annum which
shall from day to day be equal to the lesser of (a) a rate per annum (the “Established
Rate”) equal to the greater of (i) one percent (1.00%) over the Prime Rate in effect from day
to day, or (ii) six and one-quarter percent (6.25%), or (b) the Highest Lawful Rate, in each case
calculated on the basis of actual days elapsed, but computed as if each calendar year consisted of
360 days. Each change in the rate of interest charged under this Multiple Advance Term Promissory
Note (this “Note”) shall, subject to the terms hereof, become effective, without notice to
Borrower, upon the effective date of each change in the Established Rate or the Highest Lawful
Rate, as the case may be. Notwithstanding the foregoing, if at any time the Established Rate
exceeds the Highest Lawful Rate, the rate of interest on this Note shall be limited to the Highest
Lawful Rate, but any subsequent reductions in the Established Rate shall not reduce the rate of
interest hereon below the Highest Lawful Rate until the total amount of interest accrued hereon
approximately equals the amount of interest which would have accrued hereon if the Established Rate
had at all times been in effect. In the event that at maturity (stated or by acceleration), or at
final payment of this Note, the total amount of interest paid or accrued hereon is less than the
amount of interest which would have accrued if the Established Rate had at all times been in
effect, then, at such time and to the extent permitted by applicable laws, Borrower shall pay to
Lender an amount equal to the difference between (a) the lesser of the amount of interest which
would have accrued if the Established Rate had at all times been in effect or the amount of
interest which would have accrued if the Highest Lawful Rate had at all times been in effect, and
(b) the amount of interest actually paid or accrued on this Note. Interest calculations may be
made ten (10) days prior to any interest installment due date under this Note, in which event, if
there is an adjustment in the interest rate in accordance with the terms hereof during such ten-day
period, then Borrower shall subsequently, on demand, pay to Lender any underpayment, or Lender
shall pay to Borrower, any overpayment, as the case may be, as a result of any adjustment during
such ten-day period.

     This Note is the $10,000,000.00 Multiple Advance Term Promissory Note referred to in the
Fourth Amended and Restated Loan Agreement, dated as of March 14, 2005 (said Fourth Amended and
Restated Loan Agreement, as the same may be amended, supplemented or otherwise modified from time
to time, the “Loan Agreement”), by and among Borrower, the Guarantor thereto and the
Lender, and is subject to the terms and conditions thereof. Reference is made to the Loan

 

 

Agreement for provisions for the disbursement of funds hereunder and for a further statement of the
rights, remedies, powers, privileges, benefits, duties and obligations of Borrower, Guarantor and
Lender under the Loan Agreement and this Note. Terms used herein which are defined in the Loan
Agreement shall have such defined meanings unless otherwise defined herein. The holder of this
Note shall be entitled to the benefits of the Loan Agreement.

     Subject to the terms hereof and of the Loan Agreement, from the date of this Note until
maturity, the Lender will make Advances and Subsequent Advances under this Note in accordance with
the provisions of the Loan Agreement. The aggregate principal amount of all such Advances as may
be made by the Lender to the Borrower under this Note shall never exceed Ten Million and No/100
Dollars ($10,000,000.00).

     Interest only on this Note shall be due and payable on the first (1st) day of each
month, commencing May 1, 2005, and continuing on the first (1st) day of each succeeding
month, to and including April 1, 2006. The principal of this Note shall be due and payable in (a)
fifty-nine (59) consecutive monthly installments which shall each be in an amount equal to
one-sixtieth (1/60th) of the outstanding principal of this Note on May 1, 2006, with the first such
installment being due and payable on May 1, 2006, and a like installment being due and payable on
the first (1st) day of each succeeding month, to and including March 1, 2011; and (b)
one final installment in an amount equal to all remaining unpaid principal and accrued and unpaid
interest on this Note shall be due and payable on April 1, 2011. Interest computed on the unpaid
balance of this Note, shall be due and payable monthly as it accrues, on the same dates as, but in
addition to, each installment of principal. All payments and prepayments shall be applied first to
accrued and unpaid interest, and the balance to principal. Partial prepayments of principal shall
be applied to the installments of principal thereof in the inverse order of their maturity. All of
the past due principal and accrued interest hereunder shall, at the option of Lender, bear interest
from maturity (stated or by acceleration) until paid at a rate per annum equal to the Highest
Lawful Rate.

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

     Time is of the essence of this Note. Upon the occurrence of any one or more of the Events of
Default specified in the Loan Agreement (after expiration of any applicable notice and cure
periods), all amounts then remaining unpaid on (a) this Note, (b) the Multiple Advance Term
Promissory Note dated March 14, 2005, from Borrower to Lender in the original principal amount of
$1,500,000.00; (c) the Term Promissory Note dated January 3, 2005, from Borrower to Lender in the
original principal amount of $8,000,000.00; (d) the Promissory Term Note dated January 3, 2005,
from Screw Compression Systems, Inc., to Lender in the original principal amount of $1,415,836.00;
(e) the Revolving Line of Credit Note dated January 3, 2005, from Borrower to Lender in the
original principal amount of $2,000,000.00; (f) the Term Promissory Note dated November 3, 2003,
from Borrower to Lender in the original principal amount of $7,512,109.00 as modified by that
certain Modification

2

 

Agreement dated January 3, 2005, and (g) the Advance Term Promissory Note dated November 3, 2003,
from Borrower to Lender in the original principal mount of $10,000,000.00 as modified by that
certain Modification Agreement, dated effective as of December 15, 2004, shall become, or may be
declared to be, immediately due and payable, all as provided therein.

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

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

     To the extent that Texas Finance Code Section 303.002 is relevant to Lender for the purposes
of determining the Highest Lawful Rate, the applicable rate ceiling under such provisions shall be
determined by the indicated (weekly) rate ceiling from time to time in effect, subject to Lender’s
right subsequently to change such method in accordance with applicable law. Notwithstanding
anything to the contrary

-3-

 

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

     This Note is performable and payable in the County of Midland, State of Texas, and shall be
construed in accordance with, and governed by, the laws of the State of Texas; provided, however,
that the laws pertaining to allowable rates of interest may, from time to time, be governed by the
laws of the United States of America.

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

	 	 	 	 	 
	 	NATURAL GAS SERVICES GROUP, INC.

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

4exv10w2

 

	 	 	 	 	 

Exhibit 10.2

GUARANTY AGREEMENT

     This GUARANTY AGREEMENT (this “Guaranty”), dated as of March 14, 2005, is made by
SCREW COMPRESSION SYSTEMS, INC. (“Guarantor”), a Texas corporation and a wholly owned
subsidiary of Natural Gas Services Group, Inc, for the benefit of WESTERN NATIONAL BANK, a national
banking association (“Lender”).

W I T N E S S E T H:

     WHEREAS, Lender and Natural Gas Services Group, Inc. (the “Borrower”), a Colorado
corporation, and Screw Compression Systems, Inc., as Guarantor, have entered into that certain
Fourth Amended and Restated Loan Agreement, dated as of March 14, 2005 (said Fourth Amended and
Restated Loan Agreement, as the same may hereafter be amended, restated or otherwise modified
from time to time, the “Loan Agreement”), pursuant to which Borrower has executed (i) that
certain Multiple Advance Term Promissory Note of even date therewith in the original principal
amount of $10,000,000.00, and (ii) that certain Multiple Advance Term Promissory Note of even date
therewith in the original principal amount of $1,500,000.00 (collectively, and together with all
renewals, refinancings, modifications, increases and extensions thereof, and all existing Notes
(the “Notes”) under which Borrower and Guarantor have become indebted, and may from time to
time be further indebted, to Lender with respect to loans (the “Loans”) made by the Lender
to the Borrower and Guarantor which are further evidenced, secured or governed by other instruments
and security documents executed in connection with the Loans (collectively, the “Security
Documents”); and

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

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

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

ARTICLE 1

NATURE AND SCOPE OF GUARANTY

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

1

 

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

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

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

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

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

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

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

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

2

 

subsequent holder of the Guaranteed Debt and shall not be discharged by the assignment or
negotiation of all or part of the Guaranteed Debt.

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

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

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

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

3

 

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

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

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

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

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

4

 

ARTICLE 2

EVENTS AND CIRCUMSTANCES NOT REDUCING

OR DISCHARGING GUARANTOR’S OBLIGATIONS

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

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

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

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

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

5

 

Guarantor shall remain liable hereon regardless of whether Borrower or any other person be found
not liable on the Guaranteed Debt or any part thereof for any reason.

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

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

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

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

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

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

6

 

right of offset, claim or defense arises in connection with the Guaranteed Debt (or the
transactions creating the Guaranteed Debt) or otherwise.

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

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

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

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

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

     3.1 Benefit. Guarantor is the owner of a direct or indirect interest in Borrower, or
has received, or will receive, direct or indirect benefit from the making of this Guaranty with
respect to the Guaranteed Debt. The loans to Natural Gas Services Group, Inc. and its Subsidiaries
and any additional loans to them are for the direct benefit of each of Natural Gas Services Group,
Inc. and its Subsidiaries, including Guarantor. Natural Gas Services Group, Inc. and its
Subsidiaries are engaged as an integrated group in the manufacturing, leasing and sale of natural
gas compressors and related equipment, systems and services for the oil and gas industry, and any
benefits to Natural Gas Services Group, Inc. or any of its Subsidiaries are a benefit to all of
them, both directly or indirectly, inasmuch as the successful operation and condition of Natural
Gas Services Group, Inc. and its Subsidiaries is dependent upon the continued successful
performance of the functions of the integrated group as a whole.

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

7

 

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

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

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

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

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

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

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

8

 

ARTICLE 4

SUBORDINATION OF CERTAIN INDEBTEDNESS

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

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

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

     4.4 Liens Subordinate. Guarantor agrees that any liens, security interests, judgment
liens, charges or other encumbrances upon Borrower’s assets securing payment of the Guarantor’s
Claims shall be and shall remain inferior and subordinate to any liens, security interests,
judgment liens, charges or other encumbrances upon

9

 

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

ARTICLE 5

AFFIRMATIVE COVENANTS

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

ARTICLE 6

MISCELLANEOUS

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

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

	 
	Guarantor

	 

	Screw Compression Systems, Inc.

	5725 Bird Creek Avenue

	Catoosa, Oklahoma 74015

	Attention: Paul D. Hensley, President

10

 

	 
	Lender

	 

	Western National Bank

	508 West Wall, Suite 1100

	Midland, Texas 79701

	Attention: Scott A. Lovett

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

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

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

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

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

11

 

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

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

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

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

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

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

12

 

DISPUTE, WHETHER IN FEDERAL OR STATE COURT, SHALL BE LAID IN MIDLAND COUNTY, TEXAS.

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

	 	 	 	 	 
	 	SCREW COMPRESSION SYSTEMS, INC.

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

	 	 	 	 	 
	 	WESTERN NATIONAL BANK

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

        Vice President 	 
	 

13

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