Document:

Exhibit 10.2

 

COMMERCIAL SECURITY AGREEMENT

 

	
  Principal

  	
   

  	
  Loan Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No

  	
   

  	
  Call / Coll

  	
   

  	
  Account

  	
   

  	
  Officer

  	
   

  	
  Initials

  	
   

  
	
  $

  	
  5,000,000.00

  	
   

  	
  09-16-2007

  	
   

  	
  09-16-2008

  	
   

  	
  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, 2007, 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

 

 

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 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

 

2

 

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. Should Borrower or any Grantor default 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 Grantor’s or any Grantor’s
ability to repay the Indebtedness 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 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.

 

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.

 

3

 

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.

 

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

 

4

 

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..

 

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, 2007, 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, 2007.

 

5

 

	
  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

 

6Exhibit
10.3

 

BUSINESS
LOAN AGREEMENT (ASSET BASED)

 

	
  Principal

  	
   

  	
  Loan Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No

  	
   

  	
  Call / Coll

  	
   

  	
  Account

  	
   

  	
  Officer

  	
   

  	
  Initials

  	
   

  
	
  $

  	
  5,000,000.00

  	
   

  	
  09-16-2007

  	
   

  	
  09-16-2008

  	
   

  	
  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, 2007, 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, 2007. 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 1304 Summit Avenue, Suite 2, Plano, Texas. 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.

 

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

 

 

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. Ste955, 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.

 

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.

 

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.

 

Financlal
Statements. Furnish
Lender with the following:

 

2

 

Annual
Statements. As soon as
available, but in no event later than sixty (60) 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 charge upon any of Borrower’s properties,
income, or profits.

 

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 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:

 

3

 

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.

 

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

 

4

 

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 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.

 

(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.

 

5

 

(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.

 

Note. The word “Note” means the Note executed by
TGC Industries, Inc. in the principal amount of $5,000,000.00 dated September
16. 2007, 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, 2007.

 

	
  BORROWER:

  
	
   

  
	
   

  
	
  TGC INDUSTRIES, INC.

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Wayne Whitener, President
  & CEO of TGC

  Industries, Inc.

  	
   

  
	
   

  
	
   

  
	
  LENDER:

  
	
   

  
	
   

  
	
  SOVEREIGN BANK

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized
  Signer

  	
   

  
				

 

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

 

6

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