Document:

Exhibit 10.2

 

COMMERCIAL SECURITY AGREEMENT

 

	
  Principal

  	
   

  	
  Loan Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No

  	
   

  	
  Call /

  Coll

  	
   

  	
  Account

  	
   

  	
  Officer

  	
   

  	
  Initials

  	
   

  
	
  $

  	
  5,000,000.00

  	
   

  	
  09-16-2008

  	
   

  	
  09-16-2009

  	
   

  	
  17003864

  	
   

  	
  4A / 466

  	
   

  	
   

  	
   

  	
  SBV

  	
   

  	
   

  	
   

  
																	

 

References in the boxes above are for Lender’s use only and do not
limit the applicability of this document to any particular loan or item.  Any item above containing “***” has been
omitted due to text length limitations.

 

	
  Grantor:

  	
   

  	
  TGC Industries, Inc.

  	
   

  	
  Lender:

  	
   

  	
  Sovereign Bank

  
	
   

  	
   

  	
  101 E. Park Blvd. Ste955

  	
   

  	
   

  	
   

  	
  Preston Center

  
	
   

  	
   

  	
  Plano, TX 75074

  	
   

  	
   

  	
   

  	
  6060 Sherry Lane

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Dallas,
  TX  75225

  

 

THIS
COMMERCIAL SECURITY AGREEMENT dated
September 16, 2008, is made and executed between TGC industries, Inc.
(“Grantor”) and Sovereign
Bank (“Lender”).

 

GRANT OF SECURITY INTEREST. For valuable consideration,
Grantor grants to Lender
a security interest in the Collateral to secure the Indebtedness and agrees
that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender
may have by
law.

 

COLLATERAL DESCRIPTION. The
word “Collateral” as used in this Agreement means the following described
property, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located, in which Grantor is giving to Lender a
security interest for the payment of the Indebtedness and performance of all
other obligations under the Note and this Agreement:

 

All Accounts
and General Intangibles

 

In
addition, the word “Collateral” also includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:

 

(A) All
accessions, attachments, accessories, replacements of and additions to any of
the collateral described herein, whether added now or later.

 

(B) All
products and produce of any of the property described in this Collateral
section.

 

(C) All
accounts, general intangibles, instruments, rents, monies, payments, and all
other rights, arising out of a sale, lease, consignment or other disposition of
any of the property described in this Collateral section.

 

(D) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property described in
this Collateral section, and sums due from a third party who has damaged or
destroyed the Collateral or from that party’s insurer, whether due to judgment,
settlement or other process.

 

(E) All
records and data relating to any of the property described in this Collateral
section, whether in the form of a writing, photograph, microfilm, microfiche,
or electronic media, together with all of Grantor’s right, title, and interest
in and to all computer software required to utilize, create, maintain, and
process any such records or data on electronic media.

 

RIGHT OF SETOFF. To the extent permitted by applicable law,
Lender reserves a right of setoff in all Grantor’s accounts with Lender
(whether checking, savings, or some other account). This includes all accounts
Grantor holds jointly with someone else and all accounts Grantor may open in
the future. However, this does not include any IRA or Keogh accounts, or any
trust accounts for which setoff would be prohibited by law. Grantor authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all sums
owing on the Indebtedness against any and all such accounts.

 

GRANTOR’S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE
COLLATERAL. With respect to  the
Collateral,  Grantor represents and promises to Lender that:

 

Perfection of Security Interest. Grantor agrees to take whatever actions are
requested by Lender to perfect and continue Lender’s security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender any and all
of the documents evidencing or constituting the Collateral, and Grantor will
note Lender’s interest upon any and all chattel paper 

 

 

and
instruments if not delivered to Lender for possession by Lender. This is a continuing Security
Agreement and will continue in
effect even though all or any part of the Indebtedness is paid in full and even
though for a period of time Grantor
may not be indebted to Lender.

 

Notices to Lender. Grantor will promptly notify Lender in writing at Lender’s address
shown above (or such other addresses as Lender may designate from time to time)
prior to any (1) change in Grantor’s name; (2) change in Grantor’s
assumed business name(s); (3) change in the management of the Corporation
Grantor; (4) change in the authorized signer(s); (5) change in
Grantor’s principal office address; (6) change in Grantor’s state of
organization; (7) conversion of Grantor to a new or different type of
business entity; or (8) change in any other aspect of Grantor that
directly or indirectly relates to any agreements between Grantor and
Lender.  No change in Grantor’s name or
state of organization will take effect until after Lender has received notice.

 

No Violation.
The execution and delivery of this Agreement will not violate any law or
agreement governing Grantor or to which Grantor is a party, and its certificate
or articles of incorporation and bylaws do not prohibit any term or condition
of this Agreement.

 

Enforceability of Collateral. To
the extent the Collateral consists of accounts, chattel paper, or general
intangibles, as defined by the Uniform Commercial Code, the Collateral is
enforceable in accordance with its terms, is genuine, and fully complies with
all applicable laws and regulations concerning form, content and manner of
preparation and execution, and all persons appearing to be obligated on the
Collateral have authority and capacity to contract and are in fact obligated as
they appear to be on the Collateral. At the time any account becomes subject to
a security interest in favor of Lender, the account shall be a good and valid account
representing an undisputed, bonafide indebtedness incurred by the account
debtor, for merchandise held subject to delivery instructions or previously
shipped or delivered pursuant to a contract of sale, or for services previously
performed by Grantor with or for the account debtor. So long as this Agreement
remains in effect, Grantor shall not, without Lender’s prior written consent,
compromise, settle, adjust, or extend payment under or with regard to any such
Accounts. There shall be no setoffs or counterclaims against any of the
Collateral, and no agreement shall have been made under which any deductions or
discounts may be claimed concerning the Collateral except those disclosed to
Lender in writing.

 

Location of the Collateral. Except in the ordinary course of Grantor’s business, Grantor agrees to
keep the Collateral (or to the extent the Collateral consists of intangible
property such as accounts or general intangibles, the records concerning the
Collateral) at Grantor’s address shown above or at such other locations as are
acceptable to Lender. Upon Lender’s request, Grantor will deliver to Lender in
form satisfactory to Lender a schedule of real properties and Collateral
locations relating to Grantor’s operations, including without limitation the following:
(1) all real property Grantor owns or is purchasing; (2) all real
property Grantor is renting or leasing; (3) all storage facilities

 

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Grantor
owns, rents, leases, or uses; and (4) all other properties where
Collateral is or may be located.

 

Removal of the Collateral. Except in the ordinary course of Grantor’s business, Grantor shall not
remove the Collateral from its existing location without Lender’s prior written
consent. Grantor shall, whenever requested, advise Lender of the exact location
of the Collateral.

 

Transactions Involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor’s business, or as otherwise
provided for in this Agreement, Grantor shall not sell, offer to sell, or
otherwise transfer or dispose of the Collateral. Grantor shall not pledge,
mortgage, encumber or otherwise permit the Collateral to be subject to any
lien, security interest, encumbrance, or charge, other than the security
interest provided for in this Agreement, without the prior written consent of
Lender. This includes security interests even if junior in right to the
security interests granted under this Agreement. Unless waived by Lender, all
proceeds from any disposition of the Collateral (for whatever reason) shall be
held in trust for Lender and shall not be commingled with any other funds;
provided however, this requirement shall not constitute consent by Lender to
any sale or other disposition. Upon receipt, Grantor shall immediately deliver
any such proceeds to Lender.

 

Title.
Grantor represents and warrants to Lender that Grantor holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than those
which reflect the security interest created by this Agreement or to which
Lender has specifically consented. Grantor shall defend Lender’s rights in the
Collateral against the claims and demands of all other persons.

 

Repairs and Maintenance. Grantor agrees to keep and maintain, and to cause others to keep and
maintain, the Collateral in good order, repair and condition at all times while
this Agreement remains in effect. Grantor further agrees to pay when due all
claims for work done on, or services rendered or material furnished in
connection with the Collateral so that no lien or encumbrance may ever attach
to or be filed against the Collateral.

 

Inspection of Collateral. Lender and Lender’s designated representatives and agents  shall have the right at  all
reasonable times to examine  and inspect the Collateral
wherever located.

 

Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness, or
upon any of the other Related Documents. Grantor may withhold any such payment
or may elect to contest any lien if Grantor is in good faith conducting an
appropriate proceeding to contest the obligation to pay and so long as Lender’s
interest in the Collateral is not jeopardized in Lender’s sole opinion. In any
contest Grantor shall defend itself and Lender and shall satisfy any final
adverse judgment before enforcement against the Collateral. Grantor shall name
Lender as an additional obligee under any surety bond furnished in the contest
proceedings. Grantor further agrees to furnish Lender with evidence that such taxes,
assessments, and governmental and other charges have been paid in full and in a
timely manner. Grantor may withhold any such payment or may elect to contest
any lien if Grantor is in good faith conducting an appropriate proceeding to
contest the obligation to pay and so long as Lender’s interest in the
Collateral is not jeopardized.

 

Compliance with Governmental Requirements. Grantor shall comply promptly with all laws,
ordinances, rules and regulations of all governmental authorities, now or
hereafter in effect, applicable to the ownership, production, disposition, or
use of the Collateral, including all laws or regulations relating to the undue
erosion of highly-erodible land or relating to the conversion of wetlands for
the production of an agricultural product or commodity. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance during
any proceeding, including appropriate appeals, so long as Lender’s interest in
the Collateral, in Lender’s opinion, is not jeopardized.

 

Hazardous Substances. Grantor represents and warrants that the Collateral never has been,
and never will be so long as this Agreement remains a lien on the Collateral,
used in violation of any Environmental Laws or for the generation, manufacture,
storage, transportation, treatment, disposal, release or threatened release of
any Hazardous Substance. The representations and warranties contained herein
are based on Grantor’s due diligence in investigating the Collateral for
Hazardous Substances. Grantor hereby (1) releases and waives any future
claims against Lender for indemnity or contribution in the event Grantor
becomes liable for cleanup or other costs under any Environmental Laws, and (2) agrees
to indemnify, defend, and hold harmless Lender against any and all claims and
losses resulting from a breach of this provision of this Agreement. This
obligation to indemnify and defend shall survive the payment of the
indebtedness and the satisfaction of this Agreement.

 

Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks
insurance, including without limitation fire, theft and liability coverage
together with such other insurance as Lender may require with respect to the
Collateral, in form, amounts, coverages and basis reasonably acceptable to
Lender. Grantor, upon request of Lender, will deliver to Lender from time to
time the policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages 

 

3

 

will
not be cancelled or diminished without at least thirty (30) days’ prior written
notice to Lender and not including any disclaimer of the insurer’s liability
for failure to give such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired in
any way by any act, omission or default of Grantor or any other person. In
connection with all policies covering assets in which Lender holds or is
offered a security interest, Grantor will provide Lender with such loss payable
or other endorsements as Lender may require. If Grantor at any time fails to
obtain or maintain any insurance as required under this Agreement, Lender may
(but shall not be obligated to) obtain such insurance as Lender deems
appropriate, including if Lender so chooses “single interest insurance,” which
will cover only Lender’s interest in the Collateral.

 

Application of Insurance Proceeds. Grantor shall promptly notify Lender of any
loss or damage to the Collateral if the estimated cost of repair or replacement
exceeds 5,000.00, whether or not such casualty or loss is covered by insurance.
Lender may make proof of loss if Grantor fails to do so within fifteen (15)
days of the casualty. All proceeds of any insurance on the Collateral,
including accrued proceeds thereon, shall be held by Lender as part of the
Collateral. If Lender consents to repair or replacement of the damaged or
destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay
or reimburse Grantor from the proceeds for the reasonable cost of repair or
restoration. If Lender does not consent to repair or replacement of the
Collateral, Lender shall retain a sufficient amount of the proceeds to pay all
of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which
have not been disbursed within six (6) months after their receipt and
which Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.

 

Insurance Reserves. Lender may require Grantor to maintain with Lender reserves for
payment of insurance premiums, which reserves shall be created by monthly
payments from Grantor of a sum estimated by Lender to be sufficient to produce,
at least fifteen (15) days before the premium due date, amounts at least equal
to the insurance premiums to be paid. If fifteen (15) days before payment is
due, the reserve funds are insufficient, Grantor shall upon demand pay any
deficiency to Lender. The reserve funds shall be held by Lender as a general
deposit and shall constitute a non-interest-bearing account which Lender may
satisfy by payment of the insurance premiums required to be paid by Grantor as
they become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance premiums
required to be paid by Grantor. The responsibility for the payment of premiums
shall remain Grantor’s sole responsibility.

 

Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on
each existing policy of insurance showing such

 

4

 

information
as Lender may reasonably request including the following: (1) the name of
the insurer; (2) the risks insured; (3) the amount of the policy; (4) the
property insured; (5) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and (6) the
expiration date of the policy. In addition, Grantor shall upon request by
Lender (however not more often than annually) have an independent appraiser
satisfactory to Lender determine, as applicable, the cash value or replacement
cost of the Collateral.

 

Financing Statements. Grantor authorizes Lender to file a UCC
financing statement, or alternatively, a copy of this Agreement to perfect
Lender’s security interest. At Lender’s request, Grantor additionally agrees to
sign all other documents that are necessary to perfect, protect, and continue
Lender’s security interest in the Property. Grantor will pay all filing fees,
title transfer fees, and other fees and costs involved unless prohibited by law
or unless Lender is required by law to pay such fees and costs. Grantor
irrevocably appoints Lender to execute documents necessary to transfer title if
there is a default. Lender may file a copy of this Agreement as a financing
statement. If Grantor changes Grantor’s name or address, or the name or address
of any person granting a security interest under this Agreement changes,
Grantor will promptly notify the Lender of such change.

 

GRANTOR’S RIGHT TO  POSSESSION AND TO COLLECT ACCOUNTS. Until
default and except as otherwise provided below with respect to accounts,
Grantor may have possession of the tangible personal property and beneficial
use of all the Collateral and may use it in any lawful manner not inconsistent
with this Agreement or the Related Documents, provided that Grantor’s right to
possession and beneficial use shall not apply to any Collateral where
possession of the Collateral by Lender is required by law to perfect Lender’s
security interest in such Collateral. Until otherwise notified by Lender,
Grantor may collect any of the Collateral consisting of accounts. At any time
and even though no Event of Default exists, Lender may exercise its rights to
collect the accounts and to notify account debtors to make payments directly to
Lender for application to the Indebtedness. If Lender at any time has
possession of any Collateral, whether before or after an Event of Default,
Lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for that purpose as
Grantor shall request or as Lender, in Lender’s sole discretion, shall deem
appropriate under the circumstances, but failure to honor any request by
Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.

 

LENDER’S EXPENDITURES. If any action or proceeding is commenced that
would materially affect Lender’s interest in the Collateral or if Grantor fails
to comply with any provision of this Agreement or any Related Documents,
including but not limited to Grantor’s failure to discharge or pay when due any
amounts Grantor is required to discharge or pay under this Agreement or any
Related Documents, Lender on Grantor’s behalf may (but shall not be obligated
to) take any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and
other claims, at any time levied or placed on the Collateral and paying all costs
for insuring, maintaining and preserving the Collateral. All such expenditures
paid by Lender for such purposes will then bear interest at the Note rate from
the date paid by Lender to the date of repayment by Grantor. To the extent
permitted by applicable law, all such expenses will become a part of the
Indebtedness and, at Lender’s option, will (A) be payable on demand; (B) be
added to the balance of the Note and be apportioned among and be payable with
any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable at the Note’s
maturity. The Agreement also will secure payment of these amounts. Such right shall
be in addition to all other rights and remedies to which Lender may be entitled
upon Default.

 

DEFAULT. Each of the following shall constitute an
Event of Default under this Agreement:

 

Payment Default.
Grantor fails to make any payment when due under the Indebtedness.

 

Other Defaults.
Grantor fails to comply with or to perform any other term, obligation, covenant
or condition contained in this Agreement or in any of the Related Documents or
to comply with or to perform any term, obligation, covenant or condition
contained in any other agreement between Lender and Grantor.

 

Default in Favor of Third
Parties. Grantor defaults
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Grantor’s property or ability to perform
Grantor’s obligations under this Agreement or any Related Documents.

 

False Statements. Any warranty, representation or statement made or furnished to Lender
by Grantor or on Grantor’s behalf under this Agreement or the Related Documents
is false or misleading in any material respect, either now or at the time made
or furnished or becomes false or misleading at any time thereafter.

 

Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full
force and effect (including failure of any collateral document to create a
valid and perfected security interest or lien) at any time and for any reason.

 

5

 

Insolvency.
The dissolution or termination of Grantor’s existence as a going business, the
insolvency of Grantor, the appointment of a receiver for any part of Grantor’s
property, any assignment for the benefit of creditors, any type of creditor
workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Grantor.

 

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Grantor or by any governmental agency against
any collateral securing the Indebtedness. This includes a garnishment of any of
Grantor’s accounts, including deposit accounts, with Lender. However, this
Event of Default shall not apply if there is a good faith dispute by Grantor as
to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Grantor gives Lender written notice of
the creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, in its sole discretion, as being an adequate reserve or bond for the
dispute.

 

Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor,
endorser, surety, or accommodation party of any of the Indebtedness or
guarantor, endorser, surety, or accommodation party dies or becomes incompetent
or revokes or disputes the validity of, or liability under, any Guaranty of the
Indebtedness.

 

Adverse Change. A material
adverse change occurs in Grantor’s financial condition, or Lender believes the
prospect of payment or performance of the indebtedness is impaired

 

Insecurity.
Lender in good faith believes itself insecure.

 

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Texas Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:

 

Accelerate Indebtedness. Lender may declare the entire Indebtedness immediately due and
payable, without notice of any kind to Grantor.

 

6

 

Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of
the Collateral and any and all certificates of title and other documents
relating to the Collateral. Lender may require Grantor to assemble the
Collateral and make it available to Lender at a place to be designated by
Lender. Lender also shall have full power to enter, provided Lender does so
without a breach of the peace or a trespass, upon the property of Grantor to
take possession of and remove the Collateral. If the Collateral contains other
goods not covered by this Agreement at the time of repossession, Grantor agrees
Lender may take such other goods, provided that Lender makes reasonable efforts
to return them to Grantor after repossession.

 

Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise
deal with the Collateral or proceeds thereof in Lender’s own name or that of
Grantor. Lender may sell the Collateral at public auction or private sale.
Unless the Collateral threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Lender will give Grantor, and other
persons as required by law, reasonable notice of the time and place of any
public sale, or the time after which any private sale or any other disposition
of the Collateral is to be made. However, no notice need be provided to any
person who, after Event of Default occurs, enters into and authenticates an
agreement waiving that person’s right to notification of sale. The requirements
of reasonable notice shall be met if such notice is given at least ten (10) days
before the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall be
payable on demand, with interest at the Note rate from date of expenditure
until repaid.

 

Appoint Receiver. Lender shall have the right to have a receiver appointed to take
possession of all or any part of the Collateral, with the power to protect and
preserve the Collateral, to operate the Collateral preceding foreclosure or
sale, and to collect the Rents from the Collateral and apply the proceeds, over
and above the cost of the receivership, against the Indebtedness. The receiver
may serve without bond if permitted by law. Lender’s right to the appointment
of a receiver shall exist whether or not the apparent value of the Collateral
exceeds the Indebtedness by a substantial amount. Employment by Lender shall
not disqualify a person from serving as a receiver.

 

Collect Revenues, Apply Accounts. Lender, either itself or through a receiver,
may collect the payments, rents, income, and revenues from the Collateral.
Lender may at any time in Lender’s discretion transfer any Collateral into
Lender’s own name or that of Lender’s nominee and receive the payments, rents,
income, and revenues therefrom and hold the same as security for the
Indebtedness or apply it to payment of the Indebtedness in such order of
preference as Lender may determine. Insofar as the Collateral consists of
accounts, general intangibles, insurance policies, instruments, chattel paper,
choses in action, or similar property, Lender may demand, collect, receipt for,
settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as
Lender may determine, whether or not Indebtedness or Collateral is then due.
For these purposes, Lender may, on behalf of and in the name of Grantor,
receive, open and dispose of mail addressed to Grantor; change any address to
which mail and payments are to be sent; and endorse notes, checks, drafts,
money orders, documents of title, instruments and items pertaining to payment,
shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and
obligors on any Collateral to make payments directly to Lender.

 

Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain
a judgment against Grantor for any deficiency remaining on the Indebtedness due
to Lender after application of all amounts received from the exercise of the
rights provided in this Agreement. Grantor shall be liable for a deficiency
even if the transaction described in this subsection is a sale of accounts or
chattel paper.

 

Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor
under the provisions of the Uniform Commercial Code, as may be amended from
time to time. In addition, Lender shall have and may exercise any or all other
rights and remedies it may have available at law, in equity, or otherwise.

 

Election of Remedies. Except as may be prohibited by applicable law, all of Lender’s rights
and remedies, whether evidenced by this Agreement, the Related Documents, or by
any other writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Grantor under this Agreement, after Grantor’s failure
to perform, shall not affect Lender’s right to declare a default and exercise
its remedies.

 

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a
part of this Agreement:

 

Amendments.
This Agreement, together with any Related Documents, constitutes the entire
understanding and agreement of the parties as to the matters set forth in this
Agreement. No alteration of or amendment to this Agreement shall be effective
unless given in writing and signed by the party or parties sought to be charged
or bound by the alteration or amendment.

 

7

 

Attorneys’ Fees; Expenses. Grantor agrees to pay upon demand all of Lender’s costs and expenses,
including Lender’s reasonable attorneys’ fees and Lender’s legal expenses,
incurred in connection with the enforcement of this Agreement. Lender may hire
or pay someone else to help enforce this Agreement, and Grantor shall pay the
costs and expenses of such enforcement. Costs and expenses include Lender’s
reasonable attorneys’ fees and legal expenses whether or not there is a
lawsuit, including Lender’s reasonable attorneys’ fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay  all court costs and such
additional fees as may be directed by the court.

 

Caption Headings. Caption headings in this Agreement are for convenience purposes only
and are not to be used to interpret or define the provisions of this Agreement.

 

Governing Law.
This Agreement will be governed by federal law
applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Texas without regard to its
conflicts of law provisions. This Agreement has been accepted by Lender
in the State of Texas.

 

Choice of Venue. If there is a
lawsuit, and if the transaction evidenced by this Agreement occurred in Dallas
County, Grantor agrees upon Lender’s request to submit to the jurisdiction of
the courts of Dallas County, State of Texas.

 

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender’s right
otherwise to demand strict compliance with that provision or any other
provision of this Agreement. No prior waiver by Lender, nor any course of
dealing between Lender and Grantor, shall constitute a waiver of any of Lender’s
rights or of any of Grantor’s obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the granting
of such consent by Lender in any instance shall not constitute continuing consent
to subsequent instances where such consent is required and in all cases such
consent may be granted or withheld in the sole discretion of Lender,

 

Notices. Any
notice required to be given under this Agreement shall be given in writing, and
shall be effective when actually delivered, when actually received by
telefacsimile (unless otherwise required by law), when deposited with a
nationally recognized overnight courier, or,  if mailed, when
deposited in the United States mail, as first class, certified or registered
mail postage prepaid, directed to the addresses

 

8

 

shown
near the beginning of this Agreement. Any party may change its address for
notices under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the party’s
address. For notice purposes, Grantor agrees to keep Lender informed at all
times of Grantor’s current address. Unless otherwise provided or required by
law, if there is more than one Grantor, any notice given by Lender to any
Grantor is deemed to be notice given to all Grantors.

 

Power of Attorney. Grantor hereby appoints Lender as Grantor’s irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect, amend, or to continue the security interest granted in this Agreement
or to demand termination of filings of other secured parties. Lender may at any
time, and without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or of this
Agreement for use as a financing statement. Grantor will reimburse Lender for
all expenses for the perfection and the continuation of the perfection of
Lender’s security interest in the Collateral.

 

Severability.
If a court of competent jurisdiction finds any provision of this Agreement to
be illegal, invalid, or unenforceable as to any circumstance, that finding
shall not make the offending provision illegal, invalid, or unenforceable as to
any other circumstance. If feasible, the offending provision shall be
considered modified so that it becomes legal, valid and enforceable. If the
offending provision cannot be so modified, it shall be considered deleted from
this Agreement. Unless otherwise required by law, the illegality, invalidity,
or unenforceability of any provision of this Agreement shall not affect the
legality, validity or enforceability of any other provision of this Agreement.

 

Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of
Grantor’s interest, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns. If ownership of the
Collateral becomes vested in a person other than Grantor, Lender, without
notice to Grantor, may deal with Grantor’s successors with reference to this
Agreement and the Indebtedness by way of  forbearance
or extension without releasing Grantor from the obligations of this Agreement
or liability under the Indebtedness.

 

Survival of Representations and Warranties. All representations, warranties, and
agreements made by Grantor in this Agreement shall survive the execution and
delivery of this Agreement, shall be continuing in nature, and shall remain in
full force and effect until such time as Grantor’s Indebtedness shall be paid
in full.

 

Time is of the Essence. Time is of the essence in the performance of this Agreement.

 

DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money
of the United States of America. Words and terms used in the singular shall
include the plural, and the plural shall include the singular, as the context
may require. Words and terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code:

 

Agreement.
The word “Agreement” means this Commercial Security Agreement, as this
Commercial Security Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Commercial Security
Agreement from time to time.

 

Borrower. The
word “Borrower” means TGC Industries, Inc. and includes all co-signers and
co-makers signing the Note and all their successors and assigns.

 

Collateral. The word “Collateral” means all of Grantor’s right, title and interest
in and to all the Collateral as described in the Collateral Description section
of this Agreement.

 

Default. The
word “Default” means the Default set forth in this Agreement in the section
titled “Default”.

 

Environmental Laws. The words “Environmental Laws” mean any and all state, federal and
local statutes, regulations and ordinances relating to the protection of human
health or the environment, including without limitation the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.,
or other applicable state or federal laws, rules, or regulations adopted
pursuant thereto.

 

Event of Default. The words “Event of Default” mean any of the events of default set
forth in this Agreement in the default section of this Agreement.

 

Grantor. The
word “Grantor” means TGC Industries, Inc..

 

9

 

Guaranty. The word “Guaranty” means the guaranty from guarantor, endorser,
surety, or accommodation party to Lender, including without limitation a
guaranty of all or part of the Note.

 

Hazardous Substances. The words “Hazardous Substances” mean materials that, because of their
quantity, concentration or physical, chemical or infectious characteristics,
may cause or pose a present or potential hazard to human health or the
environment when improperly used, treated, stored, disposed of, generated,
manufactured, transported or otherwise handled. The words “Hazardous Substances”
are used in their very broadest sense and include without limitation any and
all hazardous or toxic substances, materials or waste as defined by or listed
under the Environmental Laws. The term “Hazardous Substances” also includes,
without limitation, petroleum and petroleum by-products or any fraction thereof
and asbestos.

 

Indebtedness.
The word “Indebtedness” means the indebtedness evidenced by the Note or Related
Documents, including all principal and interest together with all other
indebtedness and costs and expenses for which Grantor is responsible under this
Agreement or under any of the Related Documents.

 

Lender. The
word “Lender” means Sovereign Bank, its successors and assigns.

 

Note. The
word “Note” means the Note executed by TGC Industries, Inc. in the
principal amount of $5,000,000.00 dated September 16, 2008, together with
all renewals of, extensions of, modifications of, refinancings of, consolidations
of, and substitutions for the note or credit agreement.

 

Property. The
word “Property” means all of Grantor’s right, title and interest in and to all
the Property as described in the “Collateral Description” section of this
Agreement.

 

Related Documents. The words “Related Documents” mean all promissory notes, credit
agreements, loan agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, security deeds, collateral mortgages,
and all other instruments, agreements and documents, whether now or hereafter
existing, executed in connection with the Indebtedness.

 

GRANTOR HAS READ AND UNDERSTOOD ALL
THE PROVISIONS
OF THIS COMMERCIAL SECURITY
AGREEMENT AND
AGREES TO ITS TERMS. THIS AGREEMENT IS DATED SEPTEMBER 16, 2008.

 

10

 

	
  GRANTOR:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  TGC
  INDUSTRIES, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  	
   

  
	
   

  	
  Wayne
  Whitener, President & CEO of TGC

  	
   

  
	
   

  	
  Industries, Inc.

  	
   

  

 

LASER PRO Lending. Ver. 5.30.10.001 Copr. Harland Financial Solutions, Inc.
1997, 2007.

All Rights Reserved. TX LACFI\PL\D2G FC TR-1443

 

11Exhibit 10.3

 

BUSINESS LOAN AGREEMENT (ASSET BASED)

 

	
  Principal

  	
   

  	
  Loan Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No

  	
   

  	
  Call /

  Coll

  	
   

  	
  Account

  	
   

  	
  Officer

  	
   

  	
  Initials

  	
   

  
	
  $

  	
  5,000,000.00

  	
   

  	
  09-16-2008

  	
   

  	
  09-16-2009

  	
   

  	
  17003864

  	
   

  	
  4A / 468

  	
   

  	
   

  	
   

  	
  SBV

  	
   

  	
   

  	
   

  
																	

 

References in the boxes above are for Lender’s use only and do not
limit the applicability of this document to any particular loan or item. 

Any item above containing “***” has been omitted due to text length
limitations.

 

	
  Borrower:

  	
   

  	
  TGC
  Industries, Inc.

  	
   

  	
  Lender:

  	
   

  	
  Sovereign
  Bank

  
	
   

  	
   

  	
  101 E. Park Blvd- Ste955

  	
   

  	
   

  	
   

  	
  Preston
  Center

  
	
   

  	
   

  	
  Plane, TX 75074

  	
   

  	
   

  	
   

  	
  6060 Sherry Lane

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Dallas, TX 75225

  

 

THIS BUSINESS LOAN AGREEMENT (ASSET BASED) dated September 16, 2008, is made and
executed between TGC Industries, Inc. (“Borrower”) and Sovereign Bank (“Lender”)
on the following terms and conditions- Borrower has received prior commercial
loans from Lender or has applied to Lender for a commercial loan or loans or
other financial accommodations, including those which may be described on any exhibit or schedule attached
to this Agreement (“Loan”). Borrower understands and agrees that: (A) in
granting, renewing, or extending any Loan. Lender is relying upon Borrower’s
representations, warranties, and agreements as set forth in this Agreement: (B) the
granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender’s sole judgment and discretion; and (C) all such Loans
shall be and remain subject to the terms and conditions of this Agreement.

 

TERM. This Agreement shall be effective as of September 16,
2008, and shall continue in full force and effect until such time as all of
Borrower’s Loans in favor of Lender have been paid in full, including
principal, interest, costs, expenses, attorneys’ fees, and other fees and
charges. or until such time as the parties may agree in writing to terminate
this Agreement.

 

LINE OF
CREDIT. Lender agrees to
make Advances to Borrower from time to time from the date of this Agreement to
the Expiration Date, provided the aggregate amount of such Advances outstanding
at any time does not exceed the Borrowing Base. Within the foregoing limits,
Borrower may borrow, partially or wholly prepay, and reborrow under this
Agreement as follows:

 

Conditions Precedent to Each Advance. Lender’s obligation to make any Advance to
or for the account of Borrower under this Agreement is subject to the following
conditions precedent. with all documents, instruments. opinions. reports. and
other items required under this Agreement to be in form and substance
satisfactory to Lender.

 

(1) Lender
shall have received evidence that this Agreement and all Related Documents have
been duly authorized, executed, and delivered by Borrower to Lender.

 

(2) Lender
shall have received such opinions of counsel, supplemental opinions, and
documents as Lender may request.

 

(3) The
security interests in the Collateral shall have been duly authorized. created,
and perfected with first lien priority and shall be in full force and effect.

 

(4) All
guaranties required by Lender for the credit facility(ies) shall have been
executed by each Guarantor, delivered to Lender, and be in full force and
effect.

 

(5) Lender,
at its option and for its sole benefit, shall have conducted an audit of
Borrower’s Accounts, books, records, and operations, and Lender shall be
satisfied as to their condition.

 

(6) Borrower
shall have paid to Lender all fees. costs, and expenses specified in this
Agreement and the Related Documents as are than due and payable.

 

(7) There
shall not exist at the time of any Advance a condition which would constitute
an Event of Default under this Agreement, and Borrower shall have delivered to
Lender the compliance certificate called for in the paragraph below titled “Compliance
Certificate”.

 

 

Making Loan Advances. Advances under this credit facility, as well as directions for payment
from Borrower’s accounts, may he requested orally or in writing by authorized
persons. Lender may, but need not, require that all oral requests be confirmed
in writing. Each Advance shall be conclusively deemed to have been made at the
request of and for the benefit of Borrower (1) when credited to any deposit account of Borrower
maintained with Lender or (2) when advanced in accordance with the
instructions of an authorized person. Lender, at its option, may set a cutoff
time, after which all requests for Advances will be treated as having been
requested on the next succeeding Business Day.

 

Mandatory Loan Repayments. If at any time the aggregate principal amount of the outstanding
Advances shall exceed The applicable Borrowing Base. Borrower. immediately upon
written or oral notice from Lender, shall pay to Lender an amount equal 1o the
difference between the outstanding principal balance of the Advances and the
Borrowing Base. On the Expiration Date, Borrower shall pay to Lender in full
the aggregate unpaid principal amount of all Advances then outstanding and all
accrued unpaid interest, together with all other applicable fees, costs and
charges, if any, not yet paid.

 

Loan Account.
Lender shall maintain on its books a record of account in which Lender shall
make entries for each Advance and such other debits and credits as shall be
appropriate in connection with the. credit facility. Lender shall provide
Borrower with periodic statements of Borrower’s account, which statements shall
be considered to be correct and conclusively binding on Borrower unless
Borrower notifies Leader to the contrary within thirty (30) days after Borrower’s
receipt of any such statement
which Borrower deems to be incorrect.

 

COLLATERAL. To secure payment of the Primary Credit
Facility and performance of all other Loans, obligations and duties owed by
Borrower to Lender, Borrower (and others, if required) shall grant to Lender
Security Interests in such property and assets as Lender may require. Lender’s
Security Interests in the Collateral shall be continuing liens and shall
include the proceeds and products of the Collateral, including without
limitation the proceeds of any insurance. With respect to the Collateral,
Borrower agrees and represents and warrants to Lender:

 

Perfection of Security Interests. Borrower agrees to execute all documents
perfecting lender’s Security Interest and to take whatever actions are
requested by Lender to perfect and continue Lender’s Security Interests in the
Collateral. Upon request of Lender, Borrower will deliver to Lender any and all
of the documents evidencing or constituting the Collateral. and Borrower will
note Lender’s interest upon any and all chattel paper and instruments if not
delivered to Lender for possession by Lender. Contemporaneous with the
execution of this Agreement, Borrower
will execute one or more UCC financing statements and any similar statements as
may be required by applicable law, and Lender will file such financing
statements and all such similar statements in the appropriate location or
locations. Borrower hereby appoints Lender as its irrevocable attorney-in-fact
for the purpose of executing any documents necessary to perfect or to continue
any Security Interest. Lender may at any time, and without further
authorization from Borrower, file a carbon, photograph, facsimile, or other
reproduction of any financing statement for use as a financing statement.
Borrower will reimburse Lender for all expenses for the perfection, termination,
and the continuation of the perfection of Lender’s security interest in the
Collateral. Borrower promptly will notify Lender before any change in Borrower’s
name including any change to the assumed business names of Borrower. Borrower
also promptly will notify Lender Before any change in Borrower’s Social
Security Number or Employer Identification Number. Borrower further agrees to
notify Lender in writing prior to any change in address or location of Borrower’s
principal governance office or should Borrower merge or consolidate with any
other entity.

 

Collateral Records. Borrower does now, and at all times hereafter shall, keep correct and
accurate records of the Collateral, all of which records shall be available to
Lender or Lender’s representative upon demand for inspection and copying at any
reasonable time. With respect to the Accounts, Borrower agrees to keep and
maintain such records as Lender may require, including without limitation
information concerning Eligible Accounts and Account balances and agings.
Records related to Accounts (Receivables) are or will be located at 101 E. Park
Blvd., Suite 955, Plano, Texas 75074. The above is an accurate and
complete list of all locations at which Borrower keeps or maintains business
records concerning Borrower’s collateral.

 

Collateral Schedules. Concurrently with the execution and delivery of this Agreement,
Borrower shall execute and deliver to Lender schedules of Accounts and
schedules of Eligible Accounts in form and substance satisfactory to the Lender.
Thereafter supplemental schedules shall be delivered according to the following
schedule: With respect to Eligible Accounts, schedules shall be delivered
within thirty (30) days.

 

Representations and Warranties Concerning Accounts. With. respect to the Accounts, Borrower
represents and warrants to Lender: (l) Each Account represented by
Borrower to be an Eligible Account for purposes of this Agreement conforms to
the requirements of the definition of an Eligible Account; (2) All Account
information listed on schedules delivered to Lender will be true and correct,
subject to immaterial variance; and (3) Lender, its assigns, or agents
shall have the right at any time and at Borrower’s expense to inspect, examine,
and audit Borrower’s records and to with Account Debtors the accuracy of such
Accounts.

 

2

 

CONDITIONS
PRECEDENT TO EACH ADVANCE. Lender’s obligation to make the initial Advance and each subsequent
Advance under this Agreement shall be subject to the fulfillment to Lender’s
satisfaction of all of the conditions set forth in this Agreement and in the
Related Documents.

 

Loan
Documents. Borrower shall provide to Lender the following documents for the
Loan: (1) the Note; (2) Security Agreements

 

3

 

granting
to Lender security interests in the Collateral: (3) financing statements
and all other documents perfecting Lender’s Security Interests; (4) evidence
of insurance as required below: (5) together with all such Related
Documents as Lender may require for the Loan; all in form and substance
satisfactory to Lender and Lender’s counsel.

 

Borrower’s Authorization. Borrower shall have provided in form and substance satisfactory to
Lender properly certified resolutions, duly authorizing the execution and
delivery of this Agreement, the Note and the Related Documents. In addition,
Borrower shall have provided such other resolutions, authorizations, documents
and instruments as Lender or its counsel, may require.

 

Fees and Expenses Under This Agreement. Borrower shall have paid to Lender all fees,
costs, and expenses specified in this Agreement and the Related Documents as
are then due and payable.

 

Representations and Warranties. The representations and warranties set forth
in this Agreement, in the Related Documents, and in any document or certificate
delivered to Lender under this Agreement are true and correct.

 

No Event of Default. There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement or under any Related
Document.

 

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists;

 

Organization.
Borrower is a corporation for profit which is, and at all times shall be, duly
organized, validly existing, and in good standing under and by virtue of the
laws of the State of Texas. Borrower is duly authorized to transact business in
all other states in which Borrower is doing business, having obtained all
necessary filings, governmental licenses and approvals for each state in which
Borrower is doing business. Specifically, Borrower is, and at all times shall
be, duly qualified as a foreign corporation in all states in which the failure
to so qualify would have a material adverse effect on its business or financial
condition. Borrower has the full power and authority to own its properties and
to transact the business in which it is presently engaged or presently proposes
to engage. Borrower maintains an office at 101 E. Park Blvd. Suite 955,
Plano, TX 75074. Unless Borrower has designated otherwise in writing, the
principal office is the office at which Borrower keeps its books and records
including its records concerning the Collateral. Borrower will notify Lender
prior to any change in the location of Borrower’s state of organization or any
change in Borrower’s name. Borrower shall do all things necessary to preserve
and to keep in full force and effect its existence, rights and privileges, and
shall comply with all regulations, rules, ordinances, statutes, orders and
decrees of any governmental or quasi-governmental authority or court applicable
to Borrower and Borrower’s business activities.

 

Assumed Business Names. Borrower has filed or recorded all documents or filings required by
law relating to all assumed business names used by Borrower. Excluding the name
of Borrower, the following is a complete list of all assumed business names
under which Borrower does business:

 

	
  Borrower

  	
   

  	
  Assumed Business Name

  	
   

  	
  Filing Location

  	
   

  	
  Date

  	
   

  
	
  TGC Industries, Inc.

  	
   

  	
  Tidelands
  Geophysical Co., Inc

  	
   

  	
  Texas
  Secretary of State

  	
   

  	
  02-20-2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TGC Industries, Inc.

  	
   

  	
  Exploration
  Surveys, Inc.

  	
   

  	
  Texas
  Secretary of State

  	
   

  	
  02-20-2007

  	
   

  

 

Authorization.
Borrower’s execution, delivery, and performance of this Agreement and all the
Related Documents have been duly authorized by all necessary action by Borrower
and do not conflict with, result in a violation of, or constitute a default
under (1) any provision of (a) Borrower’s articles of incorporation
or organization, or bylaws, or (b) any agreement or other instrument
binding upon Borrower or (2) any law, governmental regulation, court
decree, or order applicable to Borrower or to Borrower’s properties.

 

Financial Information. Each of Borrower’s financial statements supplied to Lender truly and
completely disclosed Borrower’s financial condition as of the date of the
statement, and there has been no material adverse change in Borrower’s
financial condition subsequent to the date of the most recent financial
statement supplied to Lender. Borrower has no material contingent obligations
except as disclosed in such financial statements.

 

Legal Effect.
This Agreement constitutes, and any instrument or agreement Borrower is
required to give under this Agreement when delivered will constitute legal,
valid, and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms.

 

4

 

Properties.
Except as contemplated by this Agreement or as previously disclosed in Borrower’s
financial statements or in writing to Lender and as accepted by Lender, and
except for property tax liens for taxes not presently due and payable, Borrower
owns and has good title to all of Borrower’s properties free and clear of all
Security Interests, and has not executed any security documents or financing
statements relating to such properties. All of Borrower’s properties are titled
in Borrower’s legal name, and Borrower has not used or filed a financing
statement under any other name for at least the last five (5) years.

 

Hazardous Substances.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (1) During the period of Borrower’s ownership of
the Collateral, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any Hazardous Substance
by any person on, under, about or from any of the Collateral. (2) Borrower has
no knowledge of, or reason to believe that there has been (a) any breach or
violation of any Environmental Laws; (b) any use, generation, manufacture,
storage, treatment, disposal, release or threatened release of any Hazardous
Substance on, under, about or from the Collateral by any prior owners or
occupants of any of the Collateral; or (c) any actual or threatened litigation
or claims of any kind by any person relating to such matters. (3) Neither
Borrower nor any tenant, contractor, agent or other authorized user of any of
the Collateral shall use, generate, manufacture, store, treat, dispose of or
release any Hazardous Substance on, under, about or from any of the Collateral;
and any such activity shall be conducted in compliance with all applicable
federal, state, and local laws, regulations, and ordinances, including without
limitation all Environmental Laws. Borrower authorizes Lender and its agents to
enter upon the Collateral to make such inspections and tests as Lender may deem
appropriate to determine compliance of the Collateral with this section of the
Agreement. Any inspections or tests made by Lender shall be at Borrower’s
expense and for Lender’s purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any other
person. The representations and warranties contained herein are based on Borrower’s
due diligence in investigating the Collateral for hazardous waste and Hazardous
Substances. Borrower hereby (1) releases and waives any future claims against
Lender for indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (2) agrees to indemnify,
defend, and hold harmless Lender against any and all claims, losses,
liabilities, damages, penalties, and expenses which Lender may directly or
indirectly sustain or suffer resulting from a breach of this section of the
Agreement or as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release of a hazardous waste or substance on
the Collateral. The provisions of this section of the Agreement, including the
obligation to indemnify and defend, shall survive the payment of the
Indebtedness and the termination, expiration or satisfaction of this Agreement
and shall not be affected by Lender’s acquisition of any interest in any of the
Collateral, whether by foreclosure or otherwise.

 

Litigation and Claims. No litigation, claim, investigation, administrative proceeding or
similar action (including those for unpaid taxes) against Borrower is pending
or threatened, and no other event has occurred which may materially adversely
affect Borrower’s financial condition or properties, other than litigation,
claims, or other events, if any, that have been disclosed to and acknowledged
by Lender in writing.

 

Taxes. To the
best of Borrower’s knowledge, all of Borrower’s tax returns and reports that
are or were required to be filed, have been filed, and all taxes, assessments
and other governmental charges have been paid in full, except those presently
being or to be contested by Borrower in good faith in the ordinary course of
business and for which adequate reserves have been provided.

 

Lien Priority.
Unless otherwise previously disclosed to Lender in writing, Borrower has not
entered into or granted any Security Agreements, or permitted the filing or
attachment of any Security Interests on or affecting any of the Collateral
directly or indirectly securing repayment of Borrower’s Loan and Note, that
would be prior or that may in any way be superior to Lender’s Security
Interests and rights in and to such Collateral.

 

Binding Effect. This
Agreement, the Note, all Security Agreements (if any), and all Related
Documents are binding upon the signers thereof, as well as upon their
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.

 

AFFIRMATIVE
COVENANTS. Borrower
covenants and agrees with Lender that, so long as this Agreement remains in
effect, Borrower will:

 

Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all
material adverse changes in Borrower’s financial condition, and (2) all
existing and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.

 

5

 

Financial Records. Maintain its books and records in accordance with GAAP, applied on a
consistent basis, and permit Lender to examine and audit Borrower’s books and records
at all reasonable times.

 

Financial Statements. Furnish Lender with the following:

 

6

 

Annual Statements. As soon as available, but in no event later than ninety (90) days
after the end of each fiscal year, Borrower’s balance sheet and income
statement for the year ended,
prepared by Borrower.

 

Interim Statements. As soon as available, but in no event later than 45 days after the end
of each fiscal quarter, Borrower’s balance sheet and profit and loss statement
for the period ended, prepared by Borrower.

 

All
financial reports required to be provided under this Agreement shall be
prepared in accordance with GAAP, applied on a consistent basis, and certified
by Borrower as being true and correct.

 

Additional Information. Furnish such additional information and statements, as Lender may
request from time to time.

 

Financial Covenants and Ratios. Comply with the following covenants and
ratios.

 

Minimum Income and Cash flow
Requirements.
Borrower shall comply with the following
cash flow ratio requirements:

 

Minimum Debt Service Coverage Ratio. Maintain a ratio of Minimum Debt Service
Coverage in excess of 2.000 to 1.000. This coverage ratio will be evaluated as
of quarter-end.

 

Tangible Net Worth Requirements. Borrower shall comply with the following net worth ratio requirements:

 

Debt / Worth Ratio. Maintain a ratio of Debt / Worth
not in excess of 1.250 to 1.000. The ratio “Debt / Worth”
means Borrower’s Total
Liabilities divided by Borrower’s
Tangible Net Worth. This leverage ratio will be evaluated as of quarter-end.

 

Except
as provided above, all computations made to determine compliance with the
requirements contained in this paragraph shall be made in accordance with
generally accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.

 

Insurance.
Maintain fire and other risk insurance, public liability insurance, and such
other insurance as Lender may require with respect to Borrower’s properties and
operations, in form, amounts, and coverages reasonably acceptable to Lender and
by insurance companies authorized to transact business in Texas. BORROWER MAY FURNISH THE INSURANCE REQUIRED BY THIS AGREEMENT WHETHER THROUGH EXISTING POLICIES OWNED OR CONTROLLED
BY BORROWER OR THROUGH EQUIVALENT COVERAGE FROM ANY INSURANCE COMPANY
AUTHORIZED TO TRANSACT BUSINESS IN
TEXAS. Borrower, upon request of Lender, will deliver to Lender from time
to time the policies or certificates of insurance in form satisfactory to
lender, including stipulations that coverages will not be cancelled or
diminished without at least thirty (30) days prior written notice to Lender.
Each insurance policy also shall include an endorsement providing that coverage
in favor of Lender will not be impaired in any way by any act, omission or
default of Borrower or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such lender’s loss payable or other
endorsements as Lender may require.

 

Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing
insurance policy showing such information as Lender may reasonably request,
including Without limitation the following: (1) the name of the insurer; (2) the
risks insured; (3) the amount of
the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance
has been obtained, and the manner of determining those values; and (6) the
expiration date of the policy. In addition, upon request of Lender (however not
more often than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value or
replacement cost of any Collateral. The cost of such appraisal shall be paid by
Borrower.

 

Other Agreements. Comply with all terms and conditions of all other agreements, whether
now or hereafter existing, between Borrower and any other party and notify
Lender immediately in writing of any default in connection with any other such
agreements.

 

Loan Proceeds.
Use all Loan proceeds solely for Borrower’s business operations, unless
specifically consented to the contrary by Lender in writing.

 

Taxes,
Charges and Liens. Pay and discharge when due all of its indebtedness and
obligations, including without limitation all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or 

 

7

 

charge upon any of Borrower’s properties, income, or profits.  Provided however, Borrower will not be required
to pay and discharge any such assessment, tax, charge, levy, lien or claim so
long as (1) the legality of the same shall be contested in good faith by
appropriate proceedings, and (2) Borrower shall have established on
Borrower’s books adequate reserves with respect to such contested assessment,
tax, charge, levy, lien, or claim in accordance with GAAP.

 

Performance.
Perform and comply, in a timely manner, with all terms, conditions, and
provisions set forth in this Agreement, in the Related Documents, and in all
other instruments and agreements between Borrower and Lender. Borrower shall
notify Lender immediately in writing of any default in connection with any
agreement.

 

Operations.
Maintain executive and management personnel with substantially the same
qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner.

 

Environmental Studies. Promptly conduct and complete, at Borrower’s expense, all such
investigations, studies, samplings and testings as may be requested by Lender
or any governmental authority relative to any substance, or any waste or
by-product of any substance defined as toxic or a hazardous substance under
applicable federal, state, or local law, rule, regulation, order or directive,
at or affecting any property or any facility owned, leased or used by Borrower.

 

Compliance with Governmental Requirements. Comply with all laws, ordinances, and
regulations, now or hereafter in effect, of all governmental authorities
applicable to the conduct of Borrower’s properties, businesses and operations,
and to the use or occupancy of the Collateral, including without limitation,
the Americans With Disabilities Act. Borrower may contest in good faith any
such law, ordinance, or regulation and withhold compliance during any
proceeding, including appropriate appeals, so long as Borrower has notified
Lender in writing prior to doing so and so long as, in Lender’s sole opinion.
Lender’s interests in the Collateral are not jeopardized. Lender may require
Borrower to post adequate security or a surety bond, reasonably satisfactory to
Lender, to protect Lender’s interest.

 

Inspection.
Permit employees or agents of Lender at any reasonable time to inspect any and
all Collateral for the Loan or Loans and Borrower’s other properties and to
examine or audit Borrower’s books, accounts, and records and to make copies and
memoranda of Borrower’s books, accounts, and records. If Borrower now or at any
time hereafter maintains any records (including without limitation computer
generated records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of
Lender, shall notify such party to permit lender free access to such records at
all reasonable times and to provide Lender with copies of any records it may
request, all at Borrower’s expense.

 

Compliance Certificates. Unless waived in writing by Lender, provide Lender within thirty (30)
days after the end of each month, with a certificate executed by Borrower’s
chief financial officer, or other officer or person acceptable to Lender,
certifying that the representations and warranties set forth in this Agreement
are true and correct as of the date of the certificate and further certifying
that, as of the date of the certificate, no Event of Default exists under this
Agreement.

 

Environmental Compliance and Reports. Borrower shall comply in all respects with
any and all Environmental Laws; not cause or permit to exist, as a result of
an intentional or unintentional
action or omission on Borrower’s part or on the part of any third
party, on property owned and/or
occupied by Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate federal,
state or local governmental authorities; shall furnish to Lender promptly and
in any event within thirty (30) days after receipt thereof a copy of any
notice, summons, lien, citation, directive,
letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission
on Borrower’s part in connection with any environmental activity whether or not
there is damage to the environment and/or other natural resources.

 

Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages,
deeds of trust, security agreements, assignments, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all Security
Interests.

 

LENDER’S EXPENDITURES. If any action or proceeding is commenced
that would materially affect Lender’s interest in the Collateral or if Borrower
fails to comply with any provision
of this Agreement or any Related Documents, including but not limited to Borrower’s failure to
discharge or pay when due any amounts Borrower is required to discharge
or pay under this Agreement or any Related Documents. Lender on Borrower’s
behalf may (but shall not be obligated to) take any action that lender deems
appropriate, including but not limited to discharging or paying all taxes,
liens, security interests, encumbrances and other claims, at any time levied or
placed on any Collateral and paying all costs for insuring, maintaining and
preserving any Collateral- All such expenditures paid by Lender for
such purposes will then bear interest at the Note rate from the date paid by
Lender to the date of repayment by Borrower. To the extent permitted by
applicable law, all such expenses will become a part of the Indebtedness and,
at Lender’s option, will (A) be payable on demand; (B) be added to
the balance of the Note and be apportioned among and be payable with any installment

 

8

 

payments
to become due during either (1) the term of any applicable insurance
policy; or (2) the remaining term of the Note; or (C) be treated as a
balloon payment which will be due and payable at the Note’s maturity.

 

NEGATIVE
COVENANTS. Borrower
covenants and agrees with Lender that while this Agreement is in effect. Borrower
shall not, without the prior written consent of Lender:

 

9

 

Indebtedness and Liens. (1) Except for trade debt incurred in the normal course of
business and indebtedness to Lender contemplated by this Agreement, create,
incur or assume indebtedness for borrowed money, including capital leases, (2) sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower’s assets (except as allowed as Permitted Liens), or (3) sell
with recourse any of Borrower’s accounts, except to Lender.

 

Continuity of Operations. (1) Engage in any business activities substantially different
than those in which Borrower is presently engaged, (2) cease operations,
liquidate, merge, transfer, acquire or consolidate with any other entity,
change its name, dissolve or transfer or sell Collateral out of the ordinary
course of business, or (3) pay any dividends on Borrower’s stock (other
than dividends payable in its stock), provided, however that notwithstanding
the foregoing, but only so long as no Event of Default has occurred and is
continuing or would result from the payment of dividends, if Borrower is a “Subchapter
S Corporation” (as defined in the Internal Revenue Code of 1986, as amended),
Borrower may pay cash dividends on its stock to its shareholders from time to
time in amounts necessary to enable the shareholders to pay income taxes and
make estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of Borrower’s
stock, or purchase or retire any of Borrower’s outstanding shares or alter or
amend Borrower’s capital structure.

 

Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or
assets to any other person, enterprise or entity, (2) purchase, create or
acquire any interest in any other enterprise or entity, or (3) incur any
obligation as surety or guarantor other than in the ordinary course of
business.

 

Agreements.
Borrower will not enter into any agreement containing any provisions which
would be violated or breached by the performance of Borrower’s obligations
under this Agreement or in connection herewith.

 

CESSATION OF ADVANCES. If Lender has made any commitment to make any
Loan to Borrower, whether under this Agreement or under any other agreement,
Lender shall have no obligation to make Loan Advances or to disburse Loan
proceeds if: (A) Borrower or any Guarantor is in default under the terms
of this Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes
insolvent, files a petition in bankruptcy or similar proceedings, or is
adjudged a bankrupt; (C) there occurs a material adverse change in
Borrower’s financial condition, in the financial condition of any Guarantor, or
in the value of any Collateral securing any Loan; or (D) any Guarantor
seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor’s
guaranty of the Loan or any other loan with Lender; or (E) Lender in good
faith deems itself insecure, even though no Event of Default shall have
occurred.

 

RIGHT
OF SETOFF. To the  extent permitted by applicable law, Lender
reserves a right of setoff in all Borrower’s accounts with Lender (whether
checking, savings, or some other account). This includes all accounts Borrower
holds jointly with someone else and all accounts Borrower may open in the
future. However, this does not include any IRA or Keogh accounts, or any trust
accounts for which setoff would be prohibited by law. Borrower authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all sums
owing on the Indebtedness against any and all such accounts.

 

DEFAULT. Each of the following shall constitute an
Event of Default under this Agreement:

 

Payment Default.
Borrower fails to make any payment when due under the Loan.

 

Other Defaults.
Borrower fails to comply with or to perform any other term, obligation,
covenant or condition contained in this Agreement or in any of the Related
Documents or to comply with or to perform any term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower.

 

Default in Favor of Third Parties. Borrower or any Grantor defaults under any
loan, extension of credit, security agreement, purchase or sales agreement, or
any other agreement, in favor of any other creditor or person that may
materially affect any of Borrower’s or any Grantor’s property or Borrower’s or
any Grantor’s ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.

 

False Statements. Any warranty, representation or statement made or furnished to Lender
by Borrower or on Borrower’s behalf under this Agreement or the Related Documents
is false or misleading in any material respect, either now or at the time made
or furnished or becomes false or misleading at any time thereafter.

 

Insolvency.
The dissolution or termination of Borrower’s existence as a going business, the
insolvency of Borrower, the appointment of a receiver for any part of Borrower’s
property, any assignment for the benefit of creditors, any type of creditor
workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

 

10

 

Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full
force and effect (including failure of any collateral document to create a
valid and perfected security interest or lien) at any time and for any reason.

 

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or by any governmental agency against
any collateral securing the Loan. This includes a garnishment of any of
Borrower’s accounts, including deposit accounts, with Lender. However, this
Event of Default shall not apply if there is a good faith dispute by Borrower
as to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Borrower gives Lender written notice
of the creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, in its sole discretion, as being an adequate reserve or bond for the
dispute.

 

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of
any of the Indebtedness or any Guarantor
dies or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness.

 

Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the
common stock of Borrower.

 

Adverse Change.
A material adverse change occurs in Borrower’s financial condition, or Lender
believes the prospect of payment or performance of the Loan is impaired.

 

Insecurity.
Lender in good faith believes itself insecure.

 

EFFECT
OF AN EVENT OF DEFAULT.
If any Event of Default shall occur, except where otherwise provided in this
Agreement or the Related Documents, all commitments and obligations of Lender
under this Agreement or the Related Documents or any other agreement
immediately will terminate (including any obligation to make further Loan
Advances or disbursements), and, at Lender’s option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the “Insolvency” subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender’s rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender’s right to
declare a default and to exercise its rights and remedies.

 

30 DAY CLEAN
UP PERIOD. Borrower agrees that during the term of the
Loan the balance of the Loan will be reduced to a zero balance for at least 30
consecutive days during the term of the Loan.

 

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a
part of this Agreement:

 

Amendments.
This Agreement, together with any Related Documents, constitutes the entire
understanding and agreement of the parties as to the matters set forth in this
Agreement. No alteration of or amendment to this Agreement shall be effective
unless given in writing and signed by the party or parties sought to be charged
or bound by the alteration or amendment.

 

Attorneys’ fees; Expenses. Borrower agrees to pay upon demand all of
Lender’s costs and expenses, including Lender’s reasonable attorneys’ fees and
Lender’s legal expenses, incurred in connection with the enforcement of this
Agreement. Lender may hire or pay someone else to help enforce this Agreement,
and Borrower shall pay the costs and expenses of such enforcement. Costs and
expenses include Lender’s reasonable attorneys’ fees and legal expenses whether
or not there is a lawsuit, including Lender’s reasonable attorneys’ fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. Borrower also shall pay all court costs and such
additional fees as may be directed by the court.

 

Caption Headings. Caption headings in this Agreement are for convenience purposes only
and are not to be used to interpret or define the provisions of this Agreement.

 

Consent to Loan Participation. Borrower agrees and consents to Lender’s sale or transfer, whether now
or later, of one or more participation interests in the Loan to one or more
purchasers, whether related or unrelated to Lender. Lender may provide, without
any limitation whatsoever, to any one or more purchasers, or potential
purchasers, any information or knowledge Lender may have about Borrower or
about any other matter relating to the Loan, and Borrower hereby waives any
rights to privacy Borrower may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation interests, as
well as all notices of any repurchase

 

11

 

of
such participation interests. Borrower also agrees that the purchasers of any
such participation interests will be considered as the absolute owners of such
interests in the Loan and will have all the rights granted under the
participation agreement or agreements governing the sale of such participation
interests. Borrower further waives all rights of offset or counterclaim that it
may have now or later against Lender or against any purchaser of such a
participation interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower’s obligation under the Loan irrespective of the
failure or insolvency of any holder of any interest in the Loan. Borrower
further agrees that the purchaser of any such participation interests may enforce
its interests irrespective of any personal claims or defenses that Borrower may
have against Lender.

 

Governing Law. This Agreement will be governed by federal law
applicable to Lender and, to the extent not preempted by federal law, the laws
of the State of Texas without regard to its conflicts of law provisions. This
Agreement has been accepted by Lender in the State of Texas.

 

Choice of Venue.
If there is a lawsuit, and if the transaction evidenced by this Agreement
occurred in Dallas County, Borrower agrees upon Lender’s request to submit to
the jurisdiction of the courts of Dallas County, State of Texas.

 

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender’s right
otherwise to demand strict compliance with that provision or any other
provision of this Agreement. No prior waiver by Lender, nor any course of
dealing between Lender and Borrower, or between Lender and any Grantor, shall
constitute a waiver of any of Lender’s rights or of any of Borrower’s or any
Grantor’s obligations as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such consent by Lender
in any instance shall not constitute continuing consent to subsequent instances
where such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.

 

Notices. Any
notice required to be given under this Agreement shall be given in writing, and
shall be effective when actually delivered, when actually received by
telefacsimile (unless otherwise required by law), when deposited with a
nationally recognized overnight courier, or, if mailed, when deposited in the
United States mail, as first class, certified or registered mail postage
prepaid, directed to the addresses shown near the beginning of this Agreement.
Any party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose of the
notice is to change the party’s address. For notice purposes. Borrower agrees
to keep Lender informed at all times of Borrower’s current address. Unless
otherwise provided or required by law, if there is more than one Borrower, any
notice given by Lender to any Borrower is deemed to be notice given to all
Borrowers.

 

Payment of Interest and Fees. Notwithstanding any other provision of this Agreement or any provision
of any Related Document, Borrower does not agree or intend to pay, and Lender
does not agree or intend to charge, collect, take, reserve or receive
(collectively referred to herein as “charge or collect”), any amount in the
nature of interest or in the nature of a fee for the Loan which would in any
way or event (including demand, prepayment, or acceleration) cause Lender to
contract for, charge or collect more for the Loan than the maximum Lender would
be permitted to charge or collect by any applicable federal or Texas state law.
Any such excess interest or unauthorized fee will, instead of anything stated to the contrary,
be applied first to reduce
the unpaid principal balance of the Loan, and when the
principal has been paid in full, be refunded to Borrower.

 

Severability. If a
court of competent jurisdiction finds any provision of this
Agreement to be illegal,
invalid, or unenforceable as to any circumstance, that finding
shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If
feasible, the offending
provision shall be considered modified so
that it becomes legal, valid and
enforceable. If the offending
provision cannot be so modified,
it shall be considered deleted from this Agreement. Unless otherwise
required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not
affect the legality, validity or enforceability of any other provision of this
Agreement.

 

Subsidiaries and Affiliates
of Borrower. To the
extent the context of any provisions of this Agreement makes it appropriate,
including without limitation any representation, warranty or covenant, the word
“Borrower” as used in this Agreement shall include all of Borrower’s
subsidiaries and affiliates. Notwithstanding the foregoing however, under no
circumstances shall this Agreement be construed to require Lender to make any
Loan or other financial accommodation to any of Borrower’s subsidiaries or
affiliates.

 

Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in
this Agreement or any Related Documents shall bind Borrower’s successors and
assigns and shall inure to the benefit of Lender and its successors 

 

12

 

and
assigns. Borrower shall not, however, have the right to assign Borrower’s
rights under this Agreement or any interest therein, without the prior written
consent of Lender.

 

Survival of Representations and Warranties. Borrower understands and agrees that in
extending Loan Advances, Lender is relying on all representations, warranties,
and covenants made by Borrower in this Agreement or in any certificate or other
instrument delivered by Borrower to Lender under this Agreement or the Related
Documents. Borrower further agrees that regardless of any investigation made by
Lender, all such representations, warranties and covenants will survive the
extension of Loan Advances and delivery to Lender of the Related Documents,
shall be continuing in nature, shall be deemed made and redated by Borrower at
the time each Loan Advance is made, and shall remain in full force and effect
until such time as Borrower’s Indebtedness shall be  paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.

 

Time is of the Essence. Time is of the essence in the performance of this Agreement.

 

DEFINITIONS. The following capitalized words and terms
shall have the following meanings when used in this Agreement. Unless
specifically stated to the contrary, all references to dollar amounts shall
mean amounts in lawful money of the United States of America. Words and terms
used in the singular shall include the plural, and the plural shall include the
singular, as the context may require. Words and terms not otherwise defined in
this Agreement shall have the meanings attributed to such terms in the Uniform
Commercial Code. Accounting words and terms not otherwise defined in this
Agreement shall have the meanings assigned to them in accordance with generally
accepted accounting principles as in effect on the date of this Agreement:

 

Account. The
word “Account” means a trade account, account receivable, other receivable, or
other right to payment for goods sold or services rendered owing to Borrower
(or to a third party grantor acceptable to Lender).

 

Account Debtor.
The words “Account Debtor” mean the person or entity obligated upon an Account.

 

Advance. The
word “Advance” means a disbursement of Loan funds made, or to be made, to
Borrower or on Borrower’s behalf under the terms and conditions of this
Agreement.

 

Agreement.
The word “Agreement” means this Business Loan Agreement (Asset Based), as this
Business Loan Agreement (Asset Based) may be amended or modified from time to
time, together with all exhibits and schedules attached to this Business Loan
Agreement (Asset Based) from time to time.

 

Borrower. The
word “Borrower” means TGC Industries, Inc. and includes all co-signers and
co-makers signing the Note and all their successors and assigns.

 

Borrowing Base.
The words “Borrowing Base” mean, as determined by Lender from time to time, the
lesser of (1) $5,000,000.00 or
(2) 80.000% of the aggregate amount of Eligible Accounts.

 

Business Day.
The words “Business Day” mean a day on which commercial banks are open in the
State of Texas.

 

Collateral.
The word “Collateral” means all property and assets granted as collateral
security for a Loan, whether real or personal property, whether granted
directly or indirectly, whether granted now or in the future, and whether
granted in the form of a security interest, mortgage, collateral mortgage, deed
of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel
mortgage, chattel trust, factor’s lien, equipment trust, conditional sale,
trust receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise. The word
Collateral also includes without limitation all collateral described in the
Collateral section of this Agreement.

 

Eligible Accounts. The words “Eligible Accounts” mean at any time, all of Borrower’s
Accounts which contain selling terms and conditions acceptable to Lender. The
net amount of any Eligible Account against which Borrower may borrow shall
exclude all returns, discounts, credits, and offsets of any nature. Unless
otherwise agreed to by Lender in writing. Eligible Accounts do not include:

 

(1)    Accounts
with respect to which the Account Debtor is employee or agent of Borrower.

 

(2)    Accounts
with respect to which the Account Debtor is a subsidiary of, or affiliated with
Borrower or its shareholders, officers, or directors.

 

13

 

(3)    Accounts
with respect to which goods are placed on consignment, guaranteed sale, or
other terms by reason of which the payment by the Account Debtor may be
conditional.

 

(4)    Accounts
with respect to which Borrower is or may become liable to the Account Debtor
for goods sold or services rendered by the Account Debtor to Borrower.

 

14

 

(5) Accounts which are subject to dispute, counterclaim, or
setoff.

 

(6) Accounts with respect to which the goods have not been shipped
or delivered, or the services have not been rendered, to the Account Debtor.

 

(7) Accounts
with respect to which Lender, in its sole discretion, deems the
creditworthiness or financial condition of the Account Debtor to be
unsatisfactory.

 

(8) Accounts of any Account Debtor who has filed or has had filed against it a
petition in bankruptcy or an application for relief under any provision of any
state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who has
had appointed a trustee, custodian, or receiver for the assets of such Account
Debtor; or who has made an assignment for the benefit of creditors or has
become insolvent or fails generally to pay its debts (including its payrolls)
as such debts become due.

 

(9) Accounts which have not been paid in full within ninety (90)
days from the invoice date.

 

Environmental Laws. The words “Environmental Laws” mean any and all state, federal and
local statutes, regulations and ordinances relating to the protection of human
health or the environment, including without limitation the Comprehensive
Environmental Response, Compensation, and Liability Act .of 1980, as amended,
42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.,
or other applicable state or federal laws, rules, or regulations adopted
pursuant thereto.

 

Event of Default. The words “Event of Default” mean any of the events of default set
forth in this Agreement in the default section of this Agreement.

 

Expiration Date.
The words “Expiration Date” mean the date of termination of Lender’s commitment
to lend under this Agreement.

 

GAAP. The
word “GAAP” means generally accepted accounting principles.

 

Grantor. The
word “Grantor” means each and all of the persons or entities granting a
Security Interest in any Collateral for the Loan, including without limitation
all Borrowers granting such a Security Interest.

 

Guarantor.
The word “Guarantor” means any guarantor, surety, or accommodation party of any
or all of the Loan.

 

Guaranty. The
word “Guaranty” means the guaranty from Guarantor to Lender, including without
limitation a guaranty of all or part of the Note.

 

Hazardous Substances. The words “Hazardous Substances” mean materials that, because of their
quantity, concentration or physical, chemical or infectious characteristics,
may cause or pose a present or potential hazard to human health or the
environment when improperly used, treated, stored, disposed of, generated.
manufactured, transported or otherwise handled. The words “Hazardous Substances”
are ,used in their very broadest sense and include without limitation any and
all hazardous or toxic substances, materials or waste as defined by or listed
under the Environmental Laws. The term “Hazardous Substances” also includes,
without limitation, petroleum and petroleum by-products or any fraction thereof
and asbestos.

 

Indebtedness.
The word “indebtedness” means the indebtedness evidenced by the Note or Related
Documents, including all principal and interest together with all other
indebtedness and costs and expenses for which Borrower is responsible under
this Agreement or under any of the Related Documents.

 

Lender. The
word “Lender” means Sovereign Bank, its successors and assigns.

 

Loan. The word “Loan” means any and all loans
and financial accommodations from Lender to Borrower whether now or hereafter
existing, and however evidenced, including without limitation those loans and
financial accommodations described herein or described on any exhibit or
schedule attached to this Agreement from time to time.

 

15

 

Note. The
word “Note” means the Note executed by TGC Industries, Inc. in the
principal amount of $5,000,000.00 dated September 16. 2008, together with all renewals of,
extensions of, modifications of, refinancings of, consolidations of, and
substitutions for the note or credit agreement.

 

Permitted Liens.
The words “Permitted Liens” mean (1) liens and security interests securing
Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments,
or similar charges either not yet due or being contested in good faith; (3) liens
of materialmen, mechanics. warehousemen, or carriers, or other like liens arising
in the ordinary course of business and securing obligations which are not yet
delinquent; (4) purchase money liens or purchase money security interests
upon or in any property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this Agreement or
permitted to be incurred under the paragraph of this Agreement titled “Indebtedness
and Liens”; (5) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing; and (6) those
liens and security interests which in the aggregate constitute an immaterial
and insignificant monetary amount with respect to the net value of Borrower’s
assets.

 

Primary Credit Facility. The words “Primary Credit Facility” mean the credit facility described
in the Line of Credit section of this Agreement.

 

Related Documents. The words “Related Documents” mean all promissory notes, credit
agreements, loan agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, security deeds, collateral mortgages,
and all other instruments, agreements and documents, whether now or hereafter
existing, executed in connection with the Loan.

 

Security Agreement. The words “Security Agreement” mean and include without limitation any
agreements, promises, covenants, arrangements. understandings or other
agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.

 

Security Interest. The words “Security Interest” mean, without limitation, any and all
types of collateral security, present and future, whether in the form of a
lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment,
pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel
trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device,
or any other security or lien interest whatsoever whether created by law,
contract, or otherwise.

 

Tangible Net Worth. The words “Tangible Net Worth” mean Borrower’s total assets excluding
all intangible assets (i.e., goodwill, trademarks, patents, copyrights,
organizational expenses, and similar intangible items, but including leaseholds
and leasehold improvements) less total debt.

 

BORROWER
ACKNOWLEDGES
HAVING READ
ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT (ASSET BASED) AND
BORROWER AGREES
TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT (ASSET BASED) IS DATED SEPTEMBER 16, 2008.

 

BORROWER:

 

 

	
  TGC
  INDUSTRIES, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Wayne
  Whitener, President & CEO of
  TGC

  	
   

  
	
   

  	
  Industries, Inc.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  LENDER:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  SOVEREIGN
  BANK

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized
  Signer

  	
   

  
				

 

16

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