-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G4R3FgamKjLylXd1M+AMskJy8YnO9q5nn9g+GhLd3Y07NXthHo50h6wg7R/Tx6SA Wp2GnssmrU2YSQWo1wvTBw== 0000890566-98-000543.txt : 19980402 0000890566-98-000543.hdr.sgml : 19980402 ACCESSION NUMBER: 0000890566-98-000543 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEOKINETICS INC CENTRAL INDEX KEY: 0000314606 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 941690082 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-09268 FILM NUMBER: 98584334 BUSINESS ADDRESS: STREET 1: MARATHON OIL TOWER STREET 2: 5555 SAN FELIPE SUITE 780 CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7138507600 MAIL ADDRESS: STREET 1: MARATHON OIL TOWER STREET 2: 5555 SAN FELIPE, ST 780 CITY: HOUSTON STATE: TX ZIP: 77056 10KSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-9268 GEOKINETICS INC. (Exact name of small business issuer as specified in its charter) Delaware 94-1690082 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5555 San Felipe, Suite 780 Houston, Texas 77056 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 850-7600 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |X| Issuer's revenues for its most recent fiscal year were $9,647,931. As of December 31, 1997, 16,589,483 shares of the Registrant's Common Stock were outstanding, and the aggregate market value of the Common Stock held by non-affiliates was approximately [$_________________] based on the last reported sales price of such stock on that date. ITEMS OMITTED: Items 1, 2 and 6 of Form 10-KSB are omitted and will be filed as an amendment hereto on or before April 15, 1998. DOCUMENTS INCORPORATED BY REFERENCE Documents incorporated by reference: Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 27, 1998, are incorporated by reference into Part III of this Form 10-KSB. GEOKINETICS INC. FORM 10-KSB YEAR ENDED DECEMBER 31, 1997 TABLE OF CONTENTS
PAGE PART I Item 3. Legal Proceedings...........................................................1 Item 4. Submission of Matters to a Vote of Security Holders.........................1 PART II Item 5. Market for Common Equity and Related Stockholder Matters....................2 Item 7. Financial Statements........................................................2 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........................................................2 PART III Item 13. Exhibits and Reports on Form 8-K...........................................3
i PART I ITEM 3. LEGAL PROCEEDINGS. As of this date, neither the Company nor either of its subsidiaries is a party to any pending legal proceedings. Moreover, the Company is not aware of any such legal proceedings that are contemplated by governmental authorities with respect to the Company, any of its subsidiaries, or any of their respective properties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The following matters were submitted to a vote of the stockholders of the Company during the 1997 Annual Meeting of Stockholders held on November 20, 1997: 1. The amendment to the Company's 1995 Stock Option Plan was approved by the stockholders of the Company; the number of votes "for" was 12,350,757, the number of votes "against" was 1,550 and the number of votes abstaining was 800. 2. The Company's 1997 Stock Awards Plan was approved by the stockholders of the Company; the number of votes "for" was 12,313,784, the number of votes "against" was 38,523 and the number of votes abstaining was 800. 3. The amendment to the Company's Certificate of Incorporation (i) increasing the number of authorized shares of the Company's Common Stock from 15,000,000 to 100,000,000 shares and (ii) changing the par value of the Company's Common Stock from $.20 to $.01 par value per share, was approved by the stockholders of the Company; the number of votes "for" was 12,315,184, the number of votes "against" was 37,423 and the number of votes abstaining was 500. 4. The ratification of the appointment of Tsakopulos, Brown, Schott & Anchors as the Company's independent public accountants was approved by the stockholders of the Company; the number of votes "for" was 12,352,807, the number of votes "against" was 0 and the number of votes abstaining was 300. 1 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock, $.01 par value per share (the "Common Stock"), is traded in the "pink sheets" of various NASD broker-dealers under the trading symbol GEOK. As of December 31, 1997, the Company had 376 stockholders of record. The following table sets forth the range of high and low bid and asked prices for the Common Stock during the Company's last two fiscal years as reported by the National Association of Security Dealers. These quotations reflect prices between dealers, without adjustment for retail markups, markdowns or commissions, and may not necessarily reflect actual transactions. Bid Ask LOW HIGH LOW HIGH --- ---- --- ---- Fiscal 1996 (ended 12/31/96) 1st quarter ........................ 1 3 1/8 1 1/2 3 3/4 2nd quarter ........................ 1 1/8 2 5/8 1 3/8 3 1/8 3rd quarter ........................ 3/4 2 1/4 1 1/16 2 5/8 4th quarter ........................ 1/2 2 1/8 3/4 2 1/2 Fiscal 1997 (ended 12/31/97) 1st quarter ........................ 13/16 1 1/4 29/32 1 9/16 2nd quarter ........................ 21/32 1 5/16 31/32 1 3/4 3rd quarter ........................ 21/32 6 1/4 1 3/32 6 1/2 4th quarter ........................ 3 15/32 5 3/8 3 3/4 5 11/16 - --------------- The Company has not paid any dividends to holders of Common Stock during its last two fiscal years and does not anticipate paying any such dividends in the foreseeable future. ITEM 7. FINANCIAL STATEMENTS. See page F-0 for Index to Financial Statements. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 2 PART III ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. The following documents are included as exhibits to this Form 10-KSB. Exhibits incorporated by reference are indicated as such by the information supplied thereafter. Exhibits being filed herewith are identified in the parenthetical appearing after each such exhibit. (A) EXHIBITS. 3.1 Certificate of Incorporation of the Company. Reference is made to Exhibit 3(a) to Amendment No. 1 to the Company's Registration Statement on Form S-3, filed with the Securities and Exchange Commission on March 25, 1980. 3.2 Certificate of Amendment of Certificate of Incorporation of the Company. Reference is made to Exhibit 3.2 to Form 10-KSB filed with the Securities and Exchange Commission on April 24, 1996. 3.3 Certificate of Amendment of Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on July 14, 1997. 3.4 Certificate of Amendment of Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on November 24, 1997. 3.5 Bylaws of the Company. Reference is made to Exhibit 3(b) to Amendment No. 1 to the Company's Registration Statement on Form S-3, filed with the Securities and Exchange Commission on March 25, 1980. 3.6 Amended and Restated Bylaws of the Company. 8.1 Tax Opinion of David E. Hammer, P.C. concerning the deductibility of the Company's net operating loss carryforwards following the Company's acquisition of certain oil and gas properties effective August 1, 1994. Reference is made to Exhibit 8.1 to Form 10-KSB filed with the Securities and Exchange Commission on May 19, 1995. 10.1 Agreement and Plan of Merger dated as of August 1, 1994, between the Company, HOC Acquisition Corp., HLX Acquisition Corp., HOC Operating Co., Inc., Hale Exploration Corporation, Jay D. Haber, and Michael Hale. Reference is made to Exhibit 1 to Form 8-K filed with the Securities and Exchange Commission on August 15, 1994. 10.2 Four common stock warrants issued to Wm. H. Murphy & Co., Inc., entitling the holder to purchase an aggregate of 443,492 shares of the Company's common stock par value $.20 per share, for purchase prices ranging from $1.00 to $1.75 per share. Reference is made to Exhibit 10.2 to Form 10-KSB filed with the Securities and Exchange Commission on May 19, 1995. 10.3* Employment Agreement dated as of August 1, 1994 between the Company and Jay D. Haber. Reference is made to Exhibit 10.2 to Form 10-KSB filed with the Securities and Exchange Commission on May 19, 1995. 3 10.4* Employment Agreement dated as of August 1, 1994 between the Company and Michael Hale. Reference is made to Exhibit 10.2 to Form 10-KSB filed with the Securities and Exchange Commission on May 19, 1995. 10.5 Employment Agreement dated as of July 15, 1997 between the Company and Lynn A. Turner. 10.6 Employment Agreement dated as of July 15, 1997 between the Company and Michael A. Dunn. 10.7 Employment Agreement dated as of July 15, 1998 between the Company and Thomas J. Concannon. 10.8 Lease Agreement dated April 29, 1988, between Marathon Oil Company and Lexington Oil Co., Inc. concerning office space leased in Houston, Texas. Reference is made to Exhibit 10.2 to Form 10-KSB filed with the Securities and Exchange Commission on May 19, 1995. 10.9 Post-Closing Adjustment Agreement dated as of August 31, 1995 between the Company, Jay D. Haber and Michael Hale. Reference is made to Exhibit 10.7 to Form 10-KSB filed with the Securities and Exchange Commission on April 24, 1996. 4 22 Following is a list of the Company's Subsidiaries: OTHER NAME UNDER WHICH SUBSIDIARY JURISDICTION OF NAME OF SUBSIDIARY CONDUCTS BUSINESS INCORPORATION HOC Operating Co., Inc. None Texas (formerly HOC Acquisition Corp.) Geokinetics Production Co., Inc. None Texas (formerly HLX Acquisition Corp.) Quantum Geophysical Services, Inc. None Texas (formerly Quantum Geophysical, Inc.) Geoscience Software Solutions, Inc. None Texas Quantum Geophysical, Inc. None Texas Following is a list of the subsidiaries of Quantum Geophysical, Inc.: Other Name Under Which Subsidiary Jurisdiction of NAME OF SUBSIDIARY CONDUCTS BUSINESS INCORPORATION Signature Geophysical, Inc. None Michigan Reliable Exploration, Incorporated None Montana * Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. (B) REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF THE PERIOD COVERED BY THIS FORM 10-KSB. None 5 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GEOKINETICS INC. Date: March 31, 1998 By: Jay D. Haber Chief Executive Officer (Principal Executive Officer) By: Paul Miles (Controller) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities* and on the dates indicated: SIGNATURE TITLE DATE /s/ Jay D. Haber Director and Chief March 31, 1998 Jay D. Haber Executive Officer /s/ Thomas J. Concannon Vice President and March 31, 1998 Thomas J. Concannon Chief Financial Officer /s/ Steven A. Webster Director March 31 , 1998 Steven A. Webster /s/ William R. Ziegler Director March 31, 1998 William R. Ziegler /s/ Christopher M. Harte Director March 31, 1998 Christopher M. Harte 6 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION 3.1 Certificate of Incorporation of the Company. Reference is made to Exhibit 3(a) to Amendment No. 1 to the Company's Registration Statement on Form S-3, filed with the Securities and Exchange Commission on March 25, 1980. 3.2 Certificate of Amendment of Certificate of Incorporation of the Company. Reference is made to Exhibit 3.2 to Form 10-KSB filed with the Securities and Exchange Commission on April 24, 1996. 3.3 Certificate of Amendment of Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on July 14, 1997. 3.4 Certificate of Amendment of Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on November 24, 1997. 3.5 Bylaws of the Company. Reference is made to Exhibit 3(b) to Amendment No. 1 to the Company's Registration Statement on Form S-3, filed with the Securities and Exchange Commission on March 25, 1980. 3.6 Amended and Restated Bylaws of the Company. 8.1 Tax Opinion of David E. Hammer, P.C. concerning the deductibility of the Company's net operating loss carryforwards following the Company's acquisition of certain oil and gas properties effective August 1, 1994. Reference is made to Exhibit 8.1 to Form 10-KSB filed with the Securities and Exchange Commission on May 19, 1995. 10.5 Agreement and Plan of Merger dated as of August 1, 1994, between the Company, HOC Acquisition Corp., HLX Acquisition Corp., HOC Operating Co., Inc., Hale Exploration Corporation, Jay D. Haber, and Michael Hale. Reference is made to Exhibit 1 to Form 8-K filed with the Securities and Exchange Commission on August 15, 1994. 10.6 Four common stock warrants issued to Wm. H. Murphy & Co., Inc., entitling the holder to purchase an aggregate of 443,492 shares of the Company's common stock par value $.20 per share, for purchase prices ranging from $1.00 to $1.75 per share. Reference is made to Exhibit 10.2 to Form 10-KSB filed with the Securities and Exchange Commission on May 19, 1995. 10.7 Employment Agreement dated as of August 1, 1994 between the Company and Jay D. Haber. Reference is made to Exhibit 10.2 to Form 10-KSB filed with the Securities and Exchange Commission on May 19, 1995. 10.8 Employment Agreement dated as of August 1, 1994 between the Company and Michael Hale. Reference is made to Exhibit 10.2 to Form 10-KSB filed with the Securities and Exchange Commission on May 19, 1995. 10.5 Employment Agreement dated as of July 15, 1997 between the Company and Lynn A. Turner. 10.6 Employment Agreement dated as of July 15, 1997 between the Company and Michael A. Dunn. 7 10.7 Employment Agreement dated as of July 15, 1998 between the Company and Thomas J. Concannon. 10.8 Lease Agreement dated April 29, 1988, between Marathon Oil Company and Lexington Oil Co., Inc. concerning office space leased in Houston, Texas. Reference is made to Exhibit 10.2 to Form 10-KSB filed with the Securities and Exchange Commission on May 19, 1995. 10.9 Post-Closing Adjustment Agreement dated as of August 31, 1995 between the Company, Jay D. Haber and Michael Hale. Reference is made to Exhibit 10.7 to Form 10-KSB filed with the Securities and Exchange Commission on April 24, 1996. 8 GEOKINETICS INC. AND SUBSIDIARIES ANNUAL CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 TABLE OF CONTENTS GEOKINETICS INC. AND SUBSIDIARIES DECEMBER 31, 1997 AND 1996 INDEPENDENT AUDITORS' REPORT...............................................F-1 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS........................................F-2 CONSOLIDATED STATEMENTS OF OPERATIONS..............................F-4 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)..........F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS..............................F-6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.....................F-7 INDEPENDENT AUDITORS' REPORT March 7, 1998 To the Board of Directors and Stockholders Geokinetics Inc. and subsidiaries We have audited the accompanying consolidated balance sheets of Geokinetics Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Geokinetics Inc. and subsidiaries as of December 31, 1997 and 1996 and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Tsakopulos Brown Schott & Anchors F - 1 CONSOLIDATED BALANCE SHEETS GEOKINETICS INC. AND SUBSIDIARIES ASSETS December 31, December 31, 1997 1996 ------------ ------------ CURRENT ASSETS Cash ............................................... $ 2,212,681 $ 413,935 Accounts receivable - trade ........................ 3,654,829 199,150 Accounts receivable - officers and employees ....... 182,480 -- Work in progress ................................... 380,925 -- Oil and gas leases held for resale ................. -- 597,822 Prepaid expenses ................................... 367,687 13,347 Accrued interest ................................... 11,221 -- ----------- ---------- Total Current Assets ........................... 6,809,823 1,224,254 PROPERTY AND EQUIPMENT, net .......................... 17,314,325 3,881,648 OTHER ASSETS Deferred loan cost ................................. 60,316 76,317 Deferred tax asset ................................. 2,292,430 1,620,000 Restricted investments ............................. 71,700 21,700 Deposits ........................................... 4,776 180,357 Goodwill and other intangibles, net of $87,614 amortization ................................... 1,949,626 -- ----------- ---------- Total Other Assets ............................. 4,378,848 1,898,374 ----------- ---------- TOTAL ASSETS .............................. $28,502,996 $7,004,276 =========== ========== The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements F-2 CONSOLIDATED BALANCE SHEETS GEOKINETICS INC. AND SUBSIDIARIES LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31, December 31, 1997 1996 ------------ ----------- CURRENT LIABILITIES Current maturities of long-term debt ................ $ 3,463,660 $ 331,825 Accounts payable - trade ............................ 2,282,037 721,535 Accrued liabilities ................................. 1,049,119 434,526 Customer deposits ................................... -- 10,000 Notes payable ....................................... 896,686 1,028,733 Due to officers and shareholders .................... 164,206 152,223 Advances for lease bank ............................. 260,500 360,500 Site restoration costs payable ...................... 6,418 6,418 ------------ ----------- Total Current Liabilities ....................... 8,122,626 3,045,760 LONG-TERM LIABILITIES Long-term debt, net of current maturities ........... 12,129,420 4,860,123 ------------ ----------- TOTAL LIABILITIES .......................... 20,252,046 7,905,883 STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock, Series B, $10 par value, 100,000 shares authorized, issued and outstanding at December 31, 1997, automatically convertible into 1,333,333 shares common stock on January 1, 1998 ................. 1,000,000 -- Common stock, $.01 par value, 100,000,000 shares authorized, 16,589,483 shares outstanding at December 31, 1997, and $.20 par value, 15,000,000 shares authorized, 4,953,288 outstanding at December 31, 1996 ............................... 165,985 990,657 Additional paid-in capital .......................... 14,017,394 3,924,345 Retained deficit .................................... (6,932,429) (5,816,609) ------------ ----------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ....................... 8,250,950 (901,607) ------------ ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ......... $ 28,502,996 $7,004,276 ============ ===========
The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements F - 3 CONSOLIDATED STATEMENTS OF OPERATIONS GEOKINETICS INC. AND SUBSIDIARIES
For the Years Ended December 31, -------------------------- 1997 1996 ----------- ------------ REVENUES Seismic revenue ........................................ $ 8,848,842 $ -- Oil and gas sales ...................................... 431,533 560,481 Operator overhead fees ................................. 242,556 248,358 Sale of oil and gas leases ............................. 125,000 4,011 ----------- ----------- Total Revenues ..................................... 9,647,931 812,850 EXPENSES Seismic operating expenses ............................. 5,563,525 -- General and administrative ............................. 2,441,581 1,297,474 Depletion, depreciation and amortization ............... 1,207,812 91,608 Lease abandonments ..................................... 364,481 1,450 Lease operating expenses ............................... 248,686 288,992 Cost of oil and gas leases sold ........................ 168,735 61,924 Non-recovery of advances ............................... -- 494,460 Pre-operating expenses ................................. -- 327,580 Impairment of equipment and vehicles ................... -- 224,451 Delay rentals .......................................... -- 22,086 ----------- ----------- Total Expenses ..................................... 9,994,820 2,810,025 ----------- ----------- Loss from Operations .......................... (346,889) (1,997,175) OTHER INCOME (EXPENSE) Interest income ........................................ 66,309 10,545 Interest expense ....................................... (1,210,240) (606,187) ----------- ----------- Total Other Income (Expense) ....................... (1,143,931) (595,642) ----------- ----------- Net Loss Before Income Tax Expense ............ (1,490,820) (2,592,817) =========== =========== INCOME TAX BENEFIT Deferred income tax benefit ............................ 375,000 820,000 ----------- ----------- NET LOSS ................................................. $(1,115,820) $(1,772,817) =========== =========== Loss per common share .................................... $ (.14) $ (0.36) =========== =========== Weighted average common shares and equivalents outstanding $ 8,091,336 $ 4,949,635 =========== ===========
The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements F - 4 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) GEOKINETICS INC. AND SUBSIDIARIES
Stockholders' Equity (Deficit) ------------------------------------------------------------------ Preferred Common Preferred Common Additional Accumulated Shares Issued Shares Issued Stock Stock Paid In Capital Deficit Total --------------- ------------- ------------ ----------- ---------------- ------------- ---------- Balance at January 1, 1996 ........... -- 4,869,955 $ -- $ 973,991 $ 3,815,179 $(4,043,792) $ 745,378 Net Loss ............................. -- -- -- -- -- (1,772,817) (1,772,817) Private placement offering ........... -- 83,333 -- 16,666 109,166 -- 125,832 -------- ---------- ----------- ----------- ------------ ----------- ----------- Balance at December 31, 1996 ......... -- 4,953,288 -- 990,657 3,924,345 (5,816,609) (901,607) Net Loss ............................. -- -- -- -- -- (1,115,820) (1,115,820) Private placement offerings: July 18, 1997 ................... 187,500 5,500,000 1,875,000 1,100,000 3,025,000 -- 6,000,000 July 24, 1997 ................... 100,000 -- 1,000,000 -- -- -- 1,000,000 Costs of placements .................. -- -- -- -- (80,728) -- (80,728) Employee stock options ............... -- 7,500 -- 1,500 7,953 -- 9,453 Acquisition of Signature Geophysical, Inc. ............... -- 400,000 -- 80,000 944,800 -- 1,024,800 Exercise of warrants ................. -- 1,732,139 -- 132,834 2,182,756 -- 2,315,590 Exercise of non-cash warrants ........ -- 1,505,556 -- 15,056 (15,056) -- -- Purchase of warrants ................. -- -- -- -- (738) -- (738) Reduction of common par value ........................... -- -- -- (2,179,062) 2,179,062 -- -- Conversion of Series A Preferred Stock ................. (187,500) 2,500,000 (1,875,000) 25,000 1,850,000 -- -- -------- ---------- ----------- ----------- ------------ ----------- ----------- Balance at December 31, 1997 ......... 100,000 16,598,483 $ 1,000,000 $ 165,985 $ 14,017,394 $(6,932,429) $ 8,250,950 ======== ========== =========== =========== ============ =========== ===========
The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements F - 5 CONSOLIDATED STATEMENTS OF CASH FLOWS GEOKINETICS INC. AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES INFLOWS CASH RECEIVED FROM CUSTOMERS ....................................... $ 6,567,888 $ 879,059 CASH RECEIVED FROM SALE OF LEASES .................................. 125,000 4,011 INTEREST AND DIVIDENDS RECEIVED .................................... 55,088 10,798 ----------- ----------- 6,747,976 893,868 OUTFLOWS CASH PAID TO SUPPLIERS AND EMPLOYEES ............................... 8,607,458 2,349,037 CASH PAID FOR OIL AND GAS LEASES ................................... 16,115 101,080 INTEREST PAID ...................................................... 1,224,910 472,588 CASH PAID FOR SITE RESTORATION COSTS ............................... -- 29,767 ----------- ----------- 9,848,483 2,952,472 ----------- ----------- NET CASH USED BY OPERATING ACTIVITIES ....................... (3,100,507) (2,058,604) CASH FLOWS FROM INVESTING ACTIVITIES INFLOWS REDEMPTION OF CERTIFICATE OF DEPOSIT ............................... -- 79,639 OUTFLOWS CASH PAYMENTS FOR THE PURCHASE OF PROPERTY ......................... 904,725 3,255,773 PURCHASE OF CERTIFICATE OF DEPOSIT ................................. 50,000 -- ----------- ----------- 954,725 3,255,773 ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES ....................... (954,725) (3,176,134) CASH FLOWS FROM FINANCING ACTIVITIES INFLOWS PROCEEDS FROM LONG-TERM DEBT ....................................... -- 5,000,000 PROCEEDS FROM SHORT-TERM DEBT ...................................... 500,000 798,732 PROCEEDS FROM PRIVATE PLACEMENT OFFERING, NET OF STOCK ISSUE COSTS OF $80,728 ............................................ 5,419,272 125,833 PROCEEDS FROM EXERCISE OF WARRANTS ................................. 1,899,661 PROCEEDS FROM EXERCISE OF OPTIONS .................................. 9,453 ADVANCES FROM OFFICERS ............................................. -- 15,501 PROCEEDS FROM ISSUANCE OF SERIES B PREFERRED STOCK ................. 1,000,000 -- ----------- ----------- 8,828,386 5,940,066 OUTFLOWS PAYMENTS ON LONG-TERM DEBT ......................................... 2,036,589 228,298 PAYMENTS ON SHORT-TERM DEBT ........................................ 778,104 -- PAYMENTS TO OFFICERS ............................................... 159,715 -- PAYMENT OF LOAN FEE ................................................ -- 80,000 ----------- ----------- 2,974,408 308,298 ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES ................... 5,853,978 5,631,768 ----------- ----------- NET INCREASE IN CASH .............................................................. 1,798,746 397,030 CASH, BEGINNING OF YEAR ........................................................... 413,935 16,905 ----------- ----------- CASH, END OF YEAR ................................................................. $ 2,212,681 $ 413,935 =========== ===========
The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements F - 6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS GEOKINETICS INC. AND SUBSIDARIES DECEMBER 31, 1997 AND 1996 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF THE ORGANIZATION Geokinetics Inc., a Delaware corporation, (the Company) is based in Houston, Texas. The Company has repositioned itself from an oil and gas exploration and production company into a technologically advanced provider of three dimensional ("3-D") seismic acquisition services to the U.S. land-based oil and gas industry. Through equipment purchases and acquisition of other companies, the Company currently operates four seismic crews in the Rocky Mountain region and on the Gulf Coast. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Geokinetics Inc. and its wholly-owned subsidiaries, HOC Operating Co., Inc. (HOC), Geokinetics Production Co., Inc. (GPCI), Quantum Geophysical, Inc. (Quantum), Quantum Geophysical Services, Inc. (QGS) and Signature Geophysical Services, Inc. (Signature). All inter-company items and transactions have been eliminated in the consolidation. BASIS OF ACCOUNTING The consolidated financial statements of the Company have been prepared on the accrual basis of accounting and, accordingly, reflect all significant receivables, payables and other liabilities. USE OF ESTIMATES IN PREPARING CONSOLIDATED FINANCIAL STATEMENTS Management uses estimates and assumptions in preparing consolidated financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. Actual results could vary from the estimates that were used. FAIR VALUES OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash, accounts receivable, accounts payable and notes payable. The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable and accounts payable approximate fair values due to the short maturity of those instruments. The fair value of debt was determined based upon the present value of expected cash flows considering expected maturities and using interest rates currently available to the Company for long-term borrowings with similar terms. The carrying amount of debt reported in the consolidated balance sheets approximates fair value. F - 7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) WORK IN PROGRESS In order to properly match revenue and expenses, the Company records amounts due from customers but not invoiced at the end of each accounting period, based upon the contractual agreement in effect with each customer for services. These calculations are based upon daily progress reports provided by field supervisors. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the respective assets. Repairs and maintenance, which are not considered betterments and do not extend the useful life of property, are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the asset and accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in income. The Company uses the successful efforts method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells that find proved reserves and to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs and costs of carrying and retaining unproved properties are expensed. Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value and a loss is recognized at the time of impairment by providing an impairment allowance. Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated salvage values, are depreciated and depleted by the unit-of-production method. On the sale or retirement of a complete unit of a proved property, the cost and related accumulated depreciation, depletion and amortization are eliminated from the property accounts and the resultant gain or loss is recognized. On the retirement or sale of a partial unit of proved property, the cost is charged to accumulated depreciation, depletion and amortization with a resulting gain or loss recognized in income. On the sale of an interest in an unproved property for cash or cash equivalent, gain or loss on the sale is recognized, taking into consideration the amount of any recorded impairment if the property had been assessed individually. F - 8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DEFERRED LOAN COST The deferred loan cost is the unamortized balance of bank fees that were incurred to obtain long-term financing with a guaranty from the Farmers Home Administration. These costs are amortized over the life of the term loan using the effective interest rate method. The amortized amount for the years ended December 31, 1997 and 1996 was $16,000 and $3,684, respectively. RESTRICTED INVESTMENTS AND SITE RESTORATION COSTS Restricted investments represent investments carried at cost which approximates market. Such investments are to be used in the future to fund site restoration as required by the state of Utah. Site restoration costs are based upon an estimate of the cost of restoration prepared by the Utah State agency responsible for site restoration. Expenditures made for site restoration are subtracted from the estimate. CASH EQUIVALENTS For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. There were no cash equivalents at December 31, 1997 and 1996, respectively. INCOME TAX The Company follows Statement of Financial Accounting Standards No. 109 entitled "Accounting for Income Taxes" which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are computed using the liability method based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred income tax is provided in the accompanying consolidated financial statements as a result of differences related to reporting of depreciation and depletion for income tax purposes and consolidated financial statement purposes. A valuation allowance account is maintained to estimate the amount of net operating loss carryforwards and tax credit carryforwards which the Company may not be able to use as a result of the expiration of maximum carryover periods allowed under Internal Revenue tax codes. F - 9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) IMPAIRMENT OF LONG-LIVED ASSETS The Company follows Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Statement established accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets. There was no material effect on the consolidated financial statements from the adoption because the Company's prior impairment recognition practice was consistent with the major provisions of the Statement. Under provisions of the Statement, impairment losses are recognized when expected future cash flows are less than the assets' carrying value. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of property and equipment and intangibles in relation to the operating performance and future undiscounted cash flows of the underlying business. The Company adjusts the net book value of the underlying assets if the sum of expected future cash flows is less than book value. PRE-OPERATING COSTS It is the Company's policy to expense non-recoverable pre-operating costs as they are incurred. LOSS PER COMMON SHARE Loss per common share is computed based on the weighted average number of common shares outstanding during the respective years. Stock warrants and common stock subscribed have not been included in the calculation as their effect would be antidilutive. F - 10 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. PROPERTY AND EQUIPMENT A summary of property and equipment follows: December 31, December 31, 1997 1996 ----------- ---------- Field operating equipment ......................... $18,383,515 $2,669,169 Proved oil and gas properties ..................... 919,285 1,032,509 Vehicles .......................................... 377,043 253,025 Buildings ......................................... 128,106 128,106 Furniture and equipment ........................... 80,186 26,854 ----------- ---------- 19,888,135 4,109,663 Less accumulated depletion, depreciation and amortization .............................. 2,597,260 251,465 ----------- ---------- 17,290,875 3,858,198 Land .............................................. 23,450 23,450 ----------- ---------- Net Property and Equipment ......... $17,314,325 $3,881,648 =========== ========== NOTE 3. ACCRUED LIABILITIES A summary of accrued liabilities follows: December 31, December 31, 1997 1996 ----------- ---------- Sales tax payable ........................... $ 398,656 $ -- Royalties payable ........................... 270,205 245,685 Accrued payroll ............................. 158,736 -- Accrued interest payable .................... 142,868 157,538 Payroll taxes payable ....................... 78,654 21,718 Other ....................................... -- 9,585 ----------- ---------- $ 1,049,119 $ 434,526 =========== ========== F - 11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. NOTES PAYABLE A summary of notes payable follows:
December 31, December 31, 1997 1996 ------------ ------------ Note representing an amount due under the - terms of an agreement for payment of funds in settlement of a claim, dated May 7, 1997, with no interest, payable directly out of funds to be received by an operating subsidiary in the performance of seismic data acquisition services under an existing contract with a customer $ 472,000 $ -- Notes representing financing of insurance premiums for operating subsidiaries over periods of nine to eleven months at interest rates varying from 6.67% to 6.9% final payment due November 14, 1998 313,370 -- Notes representing refinancing arrangements with certain suppliers of an operating subsidiary for accounts payable invoices outstanding beyond normal industry payment terms 86,316 -- Note in default dated December 18, 1990 due December 1, 1992 payable to unrelated corporation with interest accruing at 10% per annum; secured by certain oil and gas leases 25,000 25,000 Note to an unrelated corporation dated January 8, 1996 with principal and interest at 10% (18% default rate) originally due February 5, 1996; after default, note was extended to July 31, 1996 and then to October 1, 1997; secured by certain oil and gas leases -- 306,708
F - 12 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. NOTES PAYABLE (CONTINUED)
December 31, December 31, 1997 1996 -------------------- --------------------- Notes representing refinancing of defaulted 697,025 lease bank notes; dated March 31, 1997 with interest at 4% plus prime due monthly and principal and unpaid accrued interest due on June 30, 1997; secured by certain oil and gas leases $ -- $ -------------------- --------------------- $ 896,686 $ 1,028,733 ==================== =====================
NOTE 5. LEASE BANK The Company has a revolving credit facility to provide funds to acquire, package and sell oil and gas properties. Total borrowings under this facility (Lease Bank) are guaranteed by the Company and may not exceed $1,200,000. Funds are provided from individual investors. Notes issued under this agreement are payable upon demand one year from the date of the individual notes. If there is no demand, the notes automatically renew on a quarterly basis. In no event will the notes extend beyond December 31, 1999. Interest is payable quarterly based on the prime rate as of the first day of each quarter plus 4.0%. In addition to interest, the depositors will receive either (a) a proportionate share of a .25% after prospect payout overriding royalty interest in prospects acquired through the Lease Bank and sold by the Company or (b) a common stock purchase warrant for each full year of deposit numerically equal to the amount of deposit with a purchase price per share equal to twenty-five percent over the average of the daily closing high bid and low asked quotation for the sixty (60) day period immediately preceding the yearly anniversary date for which such warrant is issued. The outstanding balances on the Advances for Lease Bank were $260,500 and $360,500 at December 31, 1997 and 1996, respectively. F - 13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. LONG-TERM DEBT
December 31, December 31, 1997 1996 -------------------- --------------------- Note to a financial institution dated March 1, 1996 payable in 120 monthly installments of principal and interest adjusted quarterly based on interest at prime plus 1.5% through March 1, 2006 when all unpaid principal and accrued interest is due (monthly payments at December 31, 1997 were $66,043 including principal and interest at 10.0%), secured by first security interest in accounts receivable, inventory, property and equipment, oil and gas leases, intangibles, life insurance policies on key officers, guaranty of the Company and a $4,000,000 guaranty of the Farmers Home Administration of the United States Department of Agriculture $ 4,440,077 $ 4,771,702 Note to an equipment vendor dated September 30, 1997 payable in 36 monthly installments of $106,237 including principal and interest at 10%, due September 30, 2007, secured by equipment, unpaid principal and interest balances subject to certain mandatory prepayment amounts if the Company receives proceeds from the sale of common stock other than under employee benefit plans or currently outstanding warrants 3,054,050 --
F - 14 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. LONG-TERM DEBT (CONTINUED)
December 31, December 31, 1997 1996 -------------------- --------------------- Note to an equipment vendor dated August 31, 1997 payable in 4 installments of $360,000 including principal and interest at 12%, beginning August 31, 1997, and 45 monthly installments of $220,599 including principal and interest at 12%, beginning December 31, 1997, due August 31, 2001, secured by equipment, and corporate guaranty of the parent company, unpaid principal and interest balances subject to certain mandatory prepayment amounts if the Company receives proceeds from the sale of common stock other than under employee benefit plans or currently outstanding warrants $ 8,098,953 -- Notes dated March 15, 1995 payable to individuals for purchase of oil and gas interests with 8% interest payable quarterly, principal and unpaid accrued interest due September 30, 1999; collateralized by guarantee agreement with the Company -- 420,246 -------------------- -------------- 15,593,080 5,191,948 Less Current Maturities 3,463,660 331,825 -------------------- -------------- $ 12,129,420 $ 4,860,123 ==================== ============== A summary of long-term debt principal maturities follows: FOR THE YEARS ENDING DECEMBER 31, Amount ------------ 1998 $ 3,463,660 1999 3,560,111 2000 3,655,967 2001 2,180,227 2002 543,841 Thereafter 2,189,274 ------------ $ 15,593,080 ============
F - 15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. IMPAIRMENT OF EQUIPMENT AND VEHICLES As a result of improper unauthorized actions exercised by former Company personnel, an accumulation of costs in excess of the amount originally expected to acquire field equipment and vehicles was experienced during 1996. Management has physically examined the acquisitions and determined their fair market value based on current market prices and on recent arms-length transactions involving similar assets. The write-down to fair market value resulted in a charge to income of $224,451 for the year ended December 31, 1996. NOTE 8. INCOME TAX Income tax benefit is deferred tax arising from temporary differences between income for financial reporting and income for tax purposes. For the Years Ended --------------------------- December 31, December 31, 1997 1996 ----------- ----------- Income tax benefit at statutory rate ........... $ 3,308,145 $ 2,591,850 Valuation allowance ............................ (1,015,715) (971,850) ----------- ----------- Deferred Tax Asset ..................... $ 2,292,430 $ 1,620,000 =========== =========== Deferred tax asset, beginning of year .......... $ 1,620,000 $ 800,000 Deferred tax asset, subsidiary acquired ........ 297,430 -- Deferred tax asset, end of year ................ 2,292,430 1,620,000 ----------- ----------- Deferred Tax Benefit ................... $ (375,000) $ (820,000) =========== =========== Deferred tax assets at December 31, 1997 and 1996 are comprised primarily of net operating loss carryfoward and differences in reporting pre-operating expenses and amortization. A valuation allowance has been provided for deferred tax assets that the Company has not yet determined to be more likely than not to be realizable at this time. The Company will continue to review this valuation allowance and make adjustments when deemed appropriate. At December 31, 1997, the Company had net operating loss carryforwards of $9,244,955 and tax credit carryforwards of $245,769 that expire in 1999 through 2012. F - 16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. RELATED PARTY TRANSACTIONS The Chairman of the Company has made advances totaling $88,500 to the Company at December 31, 1997. The advances are payable upon demand. Interest is payable quarterly based on the prime rate as of the first day of each quarter plus 4%. Included in accrued interest at December 31, 1997 is $2,503 interest payable on the officer advances. The father of a Vice-President of the Company is a participant in the Lease Bank with a note balance of $110,500 at December 31, 1997. Included in long-term debt at December 31, 1996 are notes payable totaling $47,357 to a member of the board directors who resigned on July 18, 1997. The notes were paid in full during October 1997. Interest of $2,844 and $3,799 was paid to this director in 1997 and 1996, respectively, on the notes payable. In addition to the notes, this former director exercised 107,231 stock warrants to purchase common stock of the Company at an exercise price of $1.50 per warrant, for a total purchase price of $160,846. Another former member of the board of directors who resigned on July 18, 1997 held a total of 852,959 warrants to purchase common stock of the Company at prices ranging from $.415 to $1.25 per share. On December 31, 1997, this individual entered into an agreement with the Company to exchange these warrants for 635,000 warrants to acquire common stock of the Company at no cost, exercised the 635,000 warrants and was issued 635,000 shares of common stock. On April 25, 1997, the Company obtained a $500,000 private short-term financing from two individuals who were subsequently elected directors at the annual shareholders meeting on November 20, 1997. The Company issued 12% senior notes to the individuals, which were exchanged on July 18, 1997, in connection with the Securities Purchase and Exchange Agreement described in Note 12, for 458,333 shares of the Company's common stock, 15,625 shares of Series A preferred stock and 592,009 shadow warrants. As part of this financing transaction, the Company entered into a consulting agreement with one of the individuals, pursuant to which, in consideration of certain strategic planning and other consulting services to be provided to the Company and its subsidiaries by that individual, he will be paid a quarterly consulting fee equal to one half of 1% of the total investment made by him and certain other persons in debt and equity securities of the Company that is outstanding as of the end of each quarter during the three-year term of such agreement. As of December 31, 1997, the Company owed the director $63,207 in consulting fees under the terms of the agreement, which is included as an amount due to officers and shareholders in the Company's balance sheet. In addition, pursuant to the purchase agreement and in satisfaction of the Company's obligation under the consulting agreement, the Company and the director entered into an option agreement providing for the grant of options to purchase 50,000 shares of common stock of the Company to the Director. F - 17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. RELATED PARTY TRANSACTIONS (CONTINUED) Inconnection with the private placement offering described in Note 12 to the consolidated financial statements, the Company entered into an investment monitoring agreement, under which the Company will pay the investment group an annual fee of $25,000. A director of the Company is one of two partners of the sole managing member of the investment group. The Company owed the investment group $12,500 as of December 31, 1997 under the terms of the agreement, which is included as an amount due to officers and shareholders on the Company's balance sheet. NOTE 10.ACQUISITION OF WHOLLY-OWNED SUBSIDIARIES A wholly-owned subsidiary corporation was formed under the name of Quantum Geophysical, Inc. (Quantum) in November 1994. Quantum was formed to provide 3-D geophysical data acquisition services and business operations commenced in October 1997. Since the inception of Quantum through September 30, 1997, the Company has expensed $673,959 for non-recoverable pre-operating costs. It is the Company's policy to expense non-recoverable pre-operating costs as incurred. In addition, interest expense of $463,417 and $403,492 for the nine months ended September 30, 1997 and for the year ended December 31, 1996, respectively, has been incurred. A new wholly-owned subsidiary, Quantum Geophysical, Inc. was formed in September 1997 to conduct the field operations for 3-D seismic data acquisition commencing October 1, 1997. The name of the original Quantum was simultaneously changed to Quantum Geophysical Services, Inc. On July 18, 1997, the Company acquired all of the outstanding capital stock of Signature Geophysical Services, Inc. (SGS), a Michigan corporation, from Gallant Energy, Inc. (GEI), a Texas corporation, pursuant to the terms of a Stock Purchase Agreement (the SGS Agreement) among the Company, SGS, GEI and the sole shareholder of GEI. SGS, based in Houston, Texas, is engaged in the business of providing 2-D and 3-D seismic surveys of oil and gas properties, focusing on the Permian Basin and the U.S. Gulf Coast, with special emphasis on coastal swamp operations. Pursuant to the SGS Agreement, the Company acquired 500 shares of the outstanding common stock of SGS in exchange for 400,000 newly-issued shares of the Company's common stock. The Company also entered into an Employment Agreement with the sole shareholder of GEI granting options to purchase up to 400,000 shares of the Company's common stock at an exercise price of $.75 per share depending on the financial performance of SGS during the period from July 18, 1997 to September 30, 1999. F - 18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 10. ACQUISITION OF WHOLLY-OWNED SUBSIDIARIES (CONTINUED) The acquisition by the Company of Signature Geophysical Services, Inc. is accounted for as a purchase, with results of SGS operations included in the Company's financial statements from July 18, 1997 forward. The cost of the Company's investment in SGS is $1,024,800 and the goodwill of $1,834,159 acquired in the purchase is being amortized on a straight line basis over a forty-year period. Amortization expense from the date of acquisition through December 31, 1997 was $21,016. NOTE 11. STOCK OPTION PLANS The 1995 Stock Option Plan (the "Plan") was approved by stockholders of the Company on August 9, 1995 with an effective date of August 1, 1994. On August 1, 1997, the Board approved amendments to the plan (Option Amendment), which were approved by the stockholders of the Company on November 20, 1997 in order to increase the total number of shares of common stock available for grant under the 1995 Plan from 500,000 to 2,687,500, to increase the period in which a non-qualified stock option under the 1995 Plan can be exercisable from five years to ten years after the date of grant and to extend the date on which the 1995 Plan will automatically terminate from July 31, 2004 to July 31, 2007. The purpose of the Option Amendment is to allow the Company to meet contractual commitments to certain directors, key management employees and persons affiliated with the Company. The purpose of the 1995 Plan is to secure for the Company and its stockholders the benefits that flow from providing certain directors, key management employees and persons affiliated with the Company (the "Participants") with additional incentive to further the business of the Company by increasing their proprietary interest in the success of the Company. The 1995 Plan provides for the granting of options to purchase shares of the Company's common stock. Under the 1995 Plan, the Participants may be granted Nonqualified Stock Options, Nonqualified Stock Options with Stock Appreciation Rights, Incentive Stock Options and Incentive Stock Options with Stock Appreciation Rights. Stock options may be granted for the purchase of common stock at a price determined by the Stock Option Committee. Incentive stock options may be granted for the purchase of common stock at a price not less than the fair market value of the stock on the date of grant. At December 31, 1997, 2,687,500 stock options have been awarded under the Plan, 2,672,500 are outstanding, 7,500 have been exercised and 7,500 have been forfeited and are again available for grant under the Plan. F - 19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 11. STOCK OPTION PLANS (CONTINUED) On August 1, 1997, the Board authorized the adoption of the Company's 1997 Stock Awards Plan (the "1997 Plan"), which was approved by the stockholders of the Company on November 20, 1997, because the shares available under the 1995 Plan would become depleted once the Company met its contractual commitments to certain directors, key management employees and persons affiliated with the Company, and certain directors of the Company are not eligible to receive awards under the 1995 Plan. Unlike the 1995 Plan, however, the 1997 Plan permits directors who are not employees or consultants of the Company or of a subsidiary to be eligible to participate and takes advantage of recent amendments to Rule 16b-3. A total of 5,000,000 shares of common stock are reserved for issuance under the 1997 Plan, which will be used primarily to grant stock options in the future to certain employees, members of the Board or any persons affiliated with the Company. The purpose of the 1997 Plan is to provide a means by which the Company and its subsidiaries may attract, retain and motivate employees, members of the Board or other persons affiliated with the Company (the "1997 Plan Participants") and to provide a means whereby such 1997 Plan Participants can acquire and maintain stock ownership, thereby strengthening their concern for the welfare of the Company. Accordingly, the 1997 Plan provides for granting Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Phantom Stock Awards or any combination of the foregoing, as is best suited to the particular circumstances. The 1997 Plan is to be administered by the Board or, in the discretion of the Board, a committee appointed by the Board (the "1997 Plan Committee"), which will have sole authority, to determine which 1997 Plan Participant shall receive an Award, the time or times when such Award shall be made, the number of shares of common stock which may be issued under each Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right or Restricted Stock Award and the value of each Phantom Stock Award. Incentive Stock Options may only be granted to employees of the Company and its affiliates at a price which shall be determined by the Board or the 1997 Plan Committee, but such purchase price shall not be less than, in the case of Incentive Stock Options, the fair market value of common stock subject to the stock options on the date the stock option is granted. At December 31, 1997, 210,000 stock options have been awarded and are outstanding under the plan. F - 20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 12. PRIVATE PLACEMENT OFFERINGS In December 1995, the Company completed a private offering of 332,968 shares of its common stock for the purpose of raising funds for operations. Net proceeds received from the private offering during 1996, after deduction of associated expenses, were $125,832. The 332,968 shares were sold at $1.50 per share and with 332,968 accompanying warrants sold at $.01 per warrant. On July 18, 1997, the Company entered into a Securities Purchase and Exchange Agreement (the Purchase Agreement) with an investment limited liability company (Investment Group). Pursuant to the Purchase Agreement, the Company received $5,500,000 in cash and the exchange of certain indebtedness in the principal amount of $500,000 owed by the Company for the issuance of the following securities to the Investment Group: (i) 5,500,000 newly-issued shares of the Company's common stock, par value $.20 per share, (ii)187,500 newly-issued shares of the Company's Series A convertible preferred stock, (which was converted into an aggregate of 2,500,000 shares of common stock on November 20, 1997) and (iii) shadow warrants to purchase up to an additional 7,104,103 shares (subject to adjustment) of common stock at a price of $.20 per share. As a result of the Purchase Agreement, certain changes to the membership of the Company's board of directors and officers were made effective July 18, 1997. Pursuant to a Letter Agreement, the Investment Group invested an additional $1,000,000 in cash for 100,000 shares of the Company's newly-issued Series B preferred stock on July 24, 1997. The Series B preferred stock is automatically convertible into an aggregate of 1,333,333 shares of common stock on January 1, 1998. As set forth in Note 9, the Investment Group will oversee its investments in the Company pursuant to an Investment Monitoring Agreement agreed to by both parties. The Company will pay the Investment Group $25,000 annually under the Investment Monitoring Agreement. F - 21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 13. OUTSTANDING OPTIONS AND WARRANTS A summary of outstanding options and warrants issued in connection with notes payable, private placement offerings, the 1995 Stock Option Plan and the 1997 Stock Awards Plan are as follows: EMPLOYEE STOCK OPTIONS Shares Exercise Price ---------- ------------- 1995 Stock Option Plan: Outstanding at December 31, 1996 ....... 212,500 $0.875-$2.26 Employee stock options forfeited ....... (7,500) $ 1.03125 Employee stock options exercised ....... (7,500) $0.875-$1.875 Employee stock options granted ......... 2,475,000 $0.75-$1.00 ------------- Outstanding at December 31, 1997 ....... 2,672,500 $0.75-$1.875 ============= 1997 Stock Awards Plan: Employee stock options granted ......... 210,000 $0.75-$2.25 ------------- Outstanding at December 31, 1997 ....... 210,000 $0.75-$2.25 ============= WARRANTS Outstanding at December 31, 1996 ............... 1,486,626 $1.50-$2.26 Warrants issued ................................ 5,660,589 $0.26-$2.26 Warrants exercised, surrendered or called ...... (3,521,470) $0.00-$1.50 ------------- Outstanding at December 31, 1997 ............... 3,625,745 $0.26-$2.26 ============= SHADOW WARRANTS Outstanding at December 31, 1997 ............... 7,497,832 $ 0.20 ============= Exercisable at December 31, 1997 ............... 6,100,692 ============= F - 22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 14. COMMITMENTS OPERATING LEASES The Company leases office space for its corporate headquarters under a lease which expires July 30, 1998. The lease provides for a base rental of $24,104 per year. In addition, the Company pays for its share of the basic operating costs of the building. The Company's share of these costs has averaged $41,357 for the past three years. Additional space has been leased under a lease which expires November 30, 2002 at a base rental of $37,080 per year, plus its share of basic operating costs, currently $24,120 per year. Rental expense under these leases recorded in the consolidated financial statements amounted to $65,578 and $60,338 for the years ended December 31, 1997 and 1996. Aggregate future minimum rentals under the lease agreements including the base rent and the average operating cost follows: FOR THE YEARS ENDING DECEMBER 31, AMOUNT ------------- 1998 $ 99,386 1999 61,200 2000 61,200 2001 61,200 2002 56,100 ------------- $ 339,086 ============= EMPLOYMENT AGREEMENTS Beginning June 19, 1997, the Company entered into new employment agreements with officers of the Company. The compensation payable under these agreements consists of: (1) annual base salaries, (2) an incentive cash bonus in accordance with the Company's bonus plan to be established for its senior executives, (3) the Company's agreement to grant options to purchase shares of common stock under stock option plans adopted by the Company for the benefit of its directors, officers and employees and (4) eligibility to participate in the Company's employee benefits plans which may be adopted. The employment agreements have terms of three to five years and are terminable by the Company upon its good faith determination that there has been a willful violation of the terms of the agreements. Under the 1995 Stock Option Plan, there were 2,410,000 and 130,000 stock options granted to officers which were outstanding and exercisable at December 31, 1997 and 1996, respectively. F - 23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 14. COMMITMENTS (CONTINUED) Under the 1997 Stock Awards Plan, a total of 5,000,000 shares of the Company's common stock has been reserved for issuance to certain directors and key management employees. There were 50,000 stock options outstanding for officers or directors of the Company at December 31, 1997 under the 1997 Stock Awards Plan. NOTE 15. MAJOR CUSTOMERS Revenues from major customers which exceeded ten percent of total revenues are as follows: For the Years Ended --------------------------------------------- December 31, December 31, 1997 1996 -------------------- --------------------- Customer A $ 6,891,867 $ -- ==================== ===================== Customer B $ 950,608 $ -- ==================== ===================== Customer C $ -- $ 137,885 ==================== ===================== NOTE 16. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of unsecured trade receivables. In the normal course of business, the Company provides credit terms to its customers. Accordingly, the Company performs ongoing credit evaluations of its customers and maintains allowances for possible losses which, when realized, have been within the range of management's expectations. The Company's customer base consists primarily of oil and gas companies. Although the Company is directly affected by the well-being of the oil and gas industry, management does not believe significant credit risk exists at December 31, 1997. The Company has cash in bank and short-term investments which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and short-term investments. F - 24 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 17. SUBSEQUENT EVENTS On January 26, 1998, the Company acquired, effective January 1, 1998, all of the outstanding capital stock of Reliable Exploration Incorporated, a Montana corporation ("Reliable"), pursuant to the terms of a Stock Purchase Agreement dated as of December 3, 1997, by and among the Company, Reliable and the holders of all of the outstanding capital stock of Reliable. Reliable, based in Billings, Montana, is engaged in the business of providing 2-D and 3-D seismic surveys to the oil and gas industry, specifically focusing on the Rocky Mountain region of the United States. The consideration paid by the Company for the Reliable acquisition included $1,300,000 in cash and 375,000 newly-issued shares of the Company's common stock. On the closing date, Reliable restructured $1,487,500 of indebtedness to a former stockholder of Reliable by paying $900,000 in cash and refinancing the balance of $587,500 in a promissory note, which bears interest at the rate of 10% per annum beginning on January 8, 1998. The promissory note matures on January 8, 2001. The Company has guaranteed payment of Reliable's indebtedness due under the promissory note and advanced Reliable $900,000 on the closing date in order to permit the refinancing. The Company also entered into two-year employment agreements with the three former stockholders of Reliable. F - 25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 18. CASH FLOWS A reconciliation of net loss to net cash used by operating activities as follows: For the Years Ended ------------------------- December 31, December 31, 1997 1996 ----------- ----------- Net Loss ......................................... $(1,115,820) $(1,772,817) Adjustments to reconcile net loss to net cash used by operating activities: Depletion, depreciation and amortization ......... 1,207,812 91,608 Loss on disposal of property ..................... 511,735 -- Deferred income tax benefit ...................... (375,000) (820,000) (Increase) decrease in current assets, net of effects of acquisition of Signature Accounts receivable - trade .............. (2,955,672) 60,220 Work in progress ......................... 347,414 -- Oil and gas leases held for resale ....... -- (15,620) Prepaid expenses ......................... (233,252) (572) Interest ................................. (11,221) -- Increase (decrease) in current liabilities, net of effects of acquisition of Signature Accounts payable - trade ................. (522,132) 179,024 Accrued liabilities ...................... 55,629 235,636 Site restoration costs payable ........... -- (29,767) Customer deposits ........................ (10,000) 10,000 ----------- ----------- Net Cash Used by Operating Activities .... $(3,100,507) $(2,062,288) =========== =========== F - 26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 19. FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amounts and fair values of the Company's financial instruments are determined as described in Note 1, Summary of Significant Accounting Policies, Fair Values of Financial Instruments and are summarized as follows: December 31, 1997 December 31, 1996 -------------------------- ------------------------ Carrying Carrying Amount Fair Value Amount Fair Value ----------- ----------- ---------- ---------- Cash ................. $ 2,212,681 $ 2,212,681 $ 413,935 $ 413,935 Accounts receivable .. 3,654,829 3,654,829 199,150 199,150 Accounts payable ..... 2,282,037 2,282,037 721,535 721,535 Indebtedness ......... 16,914,472 16,914,472 6,733,404 6,733,404 NOTE 20. SUPPLEMENTAL OIL AND GAS INFORMATION Information with respect to the Company's oil and gas producing activities is presented in the following tables. Estimates of reserve quantities, as well as future production and discounted cash flows, were determined by R. T. Garcia & Co., Inc., Petroleum Engineering- Management Consulting, as of December 31, 1997. OIL AND GAS RELATED COSTS The following table sets forth information concerning costs related to the Company's oil and gas property acquisition, exploration and development activities in the United States during the years ended December 31, 1997 and 1996: For the Years Ended ------------------------------- December 31, December 31, 1997 1996 ----------- ---------- Property acquisition costs ....... $ 91,162 $ -- Exploration costs, net ........... -- -- Development costs, net ........... -- -- F - 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 20. SUPPLEMENTAL OIL AND GAS INFORMATION (CONTINUED) RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES The following table sets forth the Company's results of operations from oil and gas producing activities: For the Years Ended ------------------------ December 31, December 31, 1997 1996 --------- --------- Revenues ........................................ $ 431,533 $ 560,481 Production costs and taxes ...................... (248,686) (288,992) Depletion, depreciation and amortization ........ (14,763) (91,608) --------- --------- Results of operations from oil and gas producing activities .................... $ 168,084 $ 179,881 ========= ========= In the presentation above, no deduction has been made for direct costs such as corporate overhead or interest expense. No income taxes are reflected due to the fact that the Company is not currently in a taxpaying position. The depletion, depreciation and amortization rate per barrel of oil equivalent of production was $.57 and $2.33 for the years ended December 31, 1997 and 1996, respectively. F - 28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 20. SUPPLEMENTAL OIL AND GAS INFORMATION (CONTINUED) OIL AND GAS RESERVES (UNAUDITED) The following table sets forth the Company's net proved oil and gas reserves at December 31, 1997 and 1996 and the changes in net proved oil and gas reserves for the years then ended. Proved reserves represent the estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. The reserve information indicated below requires substantial judgement on the part of the reserve engineers, resulting in estimates which are not subject to precise determination. Accordingly, it is expected that the estimates of reserves will change as future production and development information becomes available and that revisions in these estimates could be significant. Oil (BBLS) Gas (MCF) -------- ---------- Proved reserves: Balance at December 31, 1996 ................. 533,000 3,438,000 Change in previous estimates .......... (43,000) 21,000 Production ............................ (17,000) (74,000) -------- ---------- Balance at December 31, 1997 ................. 473,000 3,385,000 ======== ========== Oil (BBLS) Gas (MCF) -------- ---------- Proved developed reserves at December 31: 1996 ............................... 323,000 1,061,000 ======== ========== 1997 ............................... 265,000 947,000 ======== ========== All of the Company's reserves are located in Texas. F - 29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 20. SUPPLEMENTAL OIL AND GAS INFORMATION (CONTINUED) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED) The standardized measure of discounted future net cash flows from the Company's proved oil and gas reserves is presented in the following table: December 31, December 31, 1997 1996 ------------ ------------ Future cash inflows ............................ $ 14,717,000 $ 23,069,000 Future production costs and taxes .............. (3,898,000) (5,315,000) Future development costs ....................... (1,812,000) (1,750,000) Future income tax expense ...................... -- -- ------------ ------------ Net Future Cash Flows .................. 9,007,000 16,004,000 Discounted at 10% for timing of cash flows ..... (4,813,000) (8,913,000) ------------ ------------ Discounted future net cash flows from proved reserves at December 31 ................ $ 4,194,000 $ 7,091,000 ============ ============ The following table sets forth the changes in the standardized measure of discounted future net cash flows from proved reserves: For the Years Ended --------------------------- December 31, December 31, 1997 1996 ----------- ----------- Balance at beginning of year ................... $ 7,091,000 $ 3,286,000 Sales, net of production costs and taxes ....... (183,000) (171,000) Net changes in prices, production costs and previous estimates ..................... (2,714,000) 3,976,000 Purchase of reserves in place .................. -- -- ----------- ----------- Balance at end of year ......................... $ 4,194,000 $ 7,091,000 =========== =========== F - 30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 20. SUPPLEMENTAL OIL AND GAS INFORMATION (CONTINUED) Estimated future net cash flows represent an estimate of future net revenues from the production of proved reserves using current sales prices, along with estimates of the production costs, ad valorem and production taxes and future development (and abandonment) costs necessary to produce such reserves. The average prices used at December 31, 1997 and 1996 were $15.68 and $24.25, respectively, per barrel of oil and $2.07 and $2.98, respectively, per mcf of gas. No deduction has been made for depletion, depreciation or any indirect costs such as general corporate overhead or interest expense. Operating costs and ad valorem and production taxes are estimated based on current costs with respect to producing oil and gas properties. Future development costs are based on the best estimate of such costs assuming current economic and operating conditions. Income tax expense is computed based on applying the appropriate statutory tax rate to the excess of future cash inflows less future production and development costs over the current tax basis of the properties involved, less applicable net operating loss and tax credit carryforwards, for both regular and alternative minimum tax (AMT). On such bases, no regular tax or AMT results. The future net revenues information assumes no escalation of costs or prices, except for gas sales made under terms of contracts which include fixed and determinable escalation. Future costs and prices could significantly vary from current amounts and, accordingly, revisions in the future could be material. F - 31 EX-3.3 2 EXHIBIT 3.3 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF GEOKINETICS INC. GEOKINETICS INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify that, in accordance with Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation adopted the following resolutions establishing a new class of capital stock consisting of 2,500,000 shares of Preferred Stock, $10.00 par value per share (the "Preferred Stock"): FIRST: That by the unanimous written consent of the Board of Directors of the Corporation, the directors adopted resolutions setting forth, among other things, a proposed amendment to the Certificate of Incorporation of the Corporation and declaring such amendment to be advisable and calling a meeting of the stockholders of the Corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: FURTHER RESOLVED, that it is in the best interest of the Corporation that the Certificate of Incorporation of the Corporation be amended by changing the fourth Article thereof pursuant to the authority conferred on the Board of Directors of this Corporation by Section 151 of the Delaware General Corporation Act, such that, as amended, Article Four shall read as follows: "The total number of shares of stock which the corporation shall have authority to issue is Seventeen Million Five Hundred Thousand (17,500,000) shares, consisting of Two Million Five Hundred (2,500,000) shares of Preferred Stock, $10.00 par value per share (the "PREFERRED STOCK"), and Fifteen Million (15,000,000) shares of Common Stock, $.20 par value per share (the "COMMON STOCK"). A description of the designations, preferences, and relative rights of each class is as follows: PREFERRED STOCK Section 1. The Preferred Stock may be issued from time to time in one or more series. All shares of Preferred Stock shall be of equal rank and shall be identical, except in respect of the matters that may be fixed by the Corporation's directors as hereinafter provided, and each share of each series shall be identical with all other shares of such series, except that in the case of series on which dividends are cumulative the dates from which dividends are cumulative may vary to reflect differences in the date of issue. Subject to the provisions of this Section, which provisions shall apply to all Preferred Stock, 1 the directors hereby are authorized to cause such shares to be issued in one or more series and with respect to each such series prior to the issuance thereof to fix: (a) The designation of the series which may be by distinguishing number, letter or title. (b) The number of shares of the series, which number the directors may (except where otherwise provided in the creation of the series) increase or decrease (but not below the number of shares thereof then outstanding). (c) The dividend rate of the series. (d) The dates at which dividends, if declared, shall be payable, whether such dividends shall be cumulative or non-cumulative and, if cumulative, the dates from which dividends shall be cumulative. (e) The redemption rights and price or prices, if any, for shares of the series. (f) The terms and amount of any sinking fund provided for the purchase or redemption of shares of the series. (g) The amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation. (h) Whether the shares of the series shall be convertible into shares of any other class or series of the Corporation, and, if so, the specification of such other class or series, the conversion price or prices, any adjustments thereof, the date or dates as of which such shares shall be convertible, and other terms and conditions upon which such conversion may be made. (i) Restrictions on the issuance of shares of the same series or of any other class or series. The Corporation's directors are authorized to adopt from time to time amendments to this Article Four fixing, with respect to each such series, the matters described in clauses (a) to (i), inclusive, of this Section. 2 Section 2. The holders of Preferred Stock of each series, in preference to the holders of Common Stock and of any other class of shares ranking junior to the Preferred Stock, shall be entitled to receive out of any funds legally available and when and as declared by the Corporation's directors, dividends in cash at the rate for such series fixed in accordance with the provisions of Section 1 of this Article Four and no more, payable on the dates fixed for such series. In the event dividends for a series are determined to be cumulative in accordance with the provisions of Section 1 of this Article Four, such dividends shall be cumulative, in the case of shares of each particular series, from and after the date or dates fixed with respect to such series. No dividends may be paid upon or declared or set apart for any of the Preferred Stock for any dividend period unless: (a) as to each series of Preferred Stock entitled to cumulative dividends, dividends for all past dividend periods shall have been paid or shall have been declared and a sum sufficient for the payment thereof set apart; and (b) as to all series of Preferred Stock, dividends for the current dividend period shall have been paid or be or have been declared and a sum sufficient to the payment thereof set apart ratably in accordance with the amounts which would be payable as dividends on the shares of the respective series for the current dividend period if all dividends for the current dividend period were declared and paid in full. No dividend in respect of past dividend periods shall be paid upon or declared and set apart for payment on any of the Preferred Stock entitled to cumulative dividends unless there shall be or have been declared and set apart for payment on all outstanding shares of Preferred Stock entitled to cumulative dividends, dividends for past dividend periods ratably in accordance with the amounts which would be payable on the shares of the series entitled to cumulative dividends if all dividends due for all past dividend periods were declared and paid in full. Section 3. In no event, so long as any Preferred Stock shall be outstanding, shall any dividends, except a dividend payable in Common Stock or other shares ranking junior to the Preferred Stock, be paid or declared or any distribution be made except as aforesaid on the Common Stock or any other shares ranking junior to the Preferred Stock, nor shall any Common Stock or any other shares ranking junior to the Preferred Stock be purchased, retired or otherwise acquired by the Corporation unless in each case: 3 (a) all accrued and unpaid dividends on Preferred Stock, including the full dividends for the current dividend period, shall have been declared and paid or a sum sufficient for payment thereof set apart; and (b) there shall be no arrearage with respect to the redemption of Preferred Stock of any series from any sinking fund provided for shares of such series in accordance with the provisions of Section 1 of this Article Four. Section 4. (a) The holders of Preferred Stock of any series, in the event of voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, shall be entitled to receive in full out of the assets of the Corporation, including its capital, before any amount shall be paid or distributed among the holders of the Common Stock or any other shares ranking junior to the Preferred Stock, the amounts fixed with respect to such series in accordance with Section 1 of this Article Four, plus an amount equal to all dividends accrued and unpaid thereon to the date of payment of the amount due pursuant to such liquidation, dissolution or winding up of the affairs of the Corporation. In case the net assets of the Corporation legally available therefor are insufficient to permit the payment upon all outstanding shares of Preferred Stock of the full preferential amount to which they are respectively entitled, then such net assets shall be distributed ratably upon outstanding shares of Preferred Stock in proportion to the full preferential amount to which each such share is entitled. After payment to holders of Preferred Stock of the full preferential amounts as aforesaid, holders of Preferred Stock as such shall have no right or claim to any of the remaining assets of the Corporation. (b) The merger or consolidation of the Corporation into or with any other corporation, or the merger of any other corporation into the Corporation, or the sale, lease or conveyance of all or substantially all of the property or business as of the Corporation shall not be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section 4. 4 Section 5. Except as otherwise expressly provided herein or as required by law, the holders of Preferred Stock shall be entitled to vote on all matters upon which holders of Common Stock have the right to vote and, with respect to such right to vote, shall be entitled to notice of any stockholders' meeting in accordance with the Corporation's Bylaws, and shall be entitled to a number of votes equal to the number of shares of Common Stock into which such shares of Preferred Stock could then be converted, at the record date for the determination of stockholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited. Except as otherwise expressly provided herein, or to the extent class or series voting is otherwise required by law or agreement, the holders of Preferred Stock or Common Stock shall vote together as a single class and not as separate classes. Section 6. For the purpose of this Article Four, whenever reference is made to shares "ranking junior to the Preferred Stock," such reference shall mean and include all shares of the Corporation in respect of which the rights of the holders thereof as to the payment of dividends and as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation are junior and subordinate to the rights of the holders of Preferred Stock. COMMON STOCK The Common Stock shall be subject to the express terms of the Preferred Stock and of any series thereof. The terms and provisions of each share of Common Stock shall be identical to every other share of Common Stock. The holders of shares of Common Stock shall be entitled to one vote for each share of such stock upon all matters presented to the stockholders." 5 SECOND: That, thereafter, pursuant to resolution of the Board of Directors of the Corporation, the annual meeting of stockholders of the Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That the amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, GEOKINETICS INC. has caused this certificate to be signed by JAY D. HABER, its President, this ____________ day of July, 1997. GEOKINETICS INC. By: ________________________________ Jay D. Haber, President STATE OF TEXAS ss. ss. COUNTY OF HARRIS ss. This instrument was acknowledged before me on the ______ day of July, 1997, by JAY D. HABER, President of GEOKINETICS INC., a corporation, on behalf of said corporation. --------------------------------- Notary Public in and for the State of T E X A S 6 EX-3.4 3 EXHIBIT 3.4 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF GEOKINETICS INC. GEOKINETICS INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify that, in accordance with Section 242 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation adopted the following resolutions increasing the number of authorized shares of the Corporation's Common Stock from 15,000,000 to 100,000,000 shares and reducing the par value of the Common Stock from $.20 to $.01 per share: FIRST: That, by unanimous written consent of the Board of Directors of the Corporation, the directors adopted resolutions setting forth, among other things, a proposed amendment to the Certificate of Incorporation of the Corporation and declaring such amendment to be advisable and calling a meeting of the stockholders of the Corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: FURTHER RESOLVED, that it is in the best interest of the Corporation that the Certificate of Incorporation of the Corporation be amended by changing the fourth Article thereof pursuant to the authority conferred on the Board of Directors of this Corporation, such that, as amended, Article Four shall read as follows: "The total number of shares of stock which the corporation shall have authority to issue is One Hundred Two Million five Hundred Thousand (102,500,000) shares, consisting of Two Million Five Hundred Thousand (2,500,000) shares of Preferred Stock, $10.00 par value per share (the "PREFERRED STOCK"), and One Hundred Million (100,000,000) shares of Common Stock, $.01 par value per share (the "COMMON STOCK"). A description of the designations, preferences, and relative rights of each class is as follows:" SECOND: That, thereafter, pursuant to resolution of the Board of Directors of the Corporation, the annual meeting of stockholders of the Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute was voted in favor of the amendment. THIRD: That the amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. 1 IN WITNESS WHEREOF, GEOKINETICS INC. has caused this certificate to be signed by JAY D. HABER, its Chairman and Chief Executive Officer, this _________ day of November, 1997. GEOKINETICS INC. By:________________________________ Name: Jay D. Haber Title:Chairman and Chief Executive Officer STATE OF TEXAS ss. ss. COUNTY OF HARRIS ss. This instrument was acknowledged before me on the ______ day of November, 1997, by JAY D. HABER, Chairman and Chief Executive Officer of GEOKINETICS INC., a corporation, on behalf of said corporation. --------------------------------- Notary Public in and for the State of T E X A S 2 EX-3.6 4 EXHIBIT 3.6 AMENDED AND RESTATED BYLAWS OF GEOKINETICS INC. TABLE OF CONTENTS PAGE ARTICLE 1. Offices..........................................................1 Section 1.1 Principal Offices..........................................1 Section 1.2 Registered Offices.........................................1 Section 1.3 Other Offices..............................................1 ARTICLE 2. Stockholder's Meetings...........................................1 Section 2.1 Annual Meeting.............................................1 Section 2.2 Special Meetings...........................................1 Section 2.3 Notices of Meetings and Adjourned Meetings.................2 Section 2.4 Voting Lists...............................................2 Section 2.5 Quorum.....................................................2 Section 2.6 Organization...............................................3 Section 2.7 Voting.....................................................3 Section 2.8 Stockholders Entitled to Vote..............................3 Section 2.9 Order of Business..........................................4 Section 2.10Action by Written Consent..................................4 Section 2.11Authorization of Proxies...................................4 Section 2.12Inspectors and Voting Procedures...........................5 ARTICLE 3. Directors........................................................5 Section 3.1 Management.................................................5 Section 3.2 Number and Term............................................5 Section 3.3 Quorum and Manner of Action................................6 Section 3.4 Vacancies..................................................6 Section 3.5 Resignations...............................................6 Section 3.6 Removals...................................................6 Section 3.7 Annual Meetings............................................7 Section 3.8 Regular Meetings...........................................7 Section 3.9 Special Meetings...........................................7 Section 3.10Organization of Meetings...................................7 Section 3.11Place of Meetings..........................................7 Section 3.12Compensation of Directors..................................8 Section 3.13Action by Unanimous Written Consent........................8 Section 3.14Participation in Meetings by Telephone.....................8 ARTICLE 4. Committees of the Board..........................................8 Section 4.1 Membership and Authorities.................................8 Section 4.2 Minutes....................................................9 Section 4.3 Vacancies..................................................9 Section 4.4 Telephone Meetings.........................................9 Section 4.5 Action Without Meeting.....................................9 SECTION 5. Officers.........................................................9 Section 5.1 Number and Title...........................................9 Section 5.2 Term of Office; Vacancies.................................10 Section 5.3 Removal of Elected officers...............................10 Section 5.4 Resignations..............................................10 Section 5.5 The Chairman of the Board.................................10 Section 5.6 Chief Executive Officer...................................10 Section 5.7 President.................................................11 Section 5.8 Vice Presidents...........................................11 Section 5.9 Secretary.................................................11 Section 5.10Assistant Secretaries.....................................11 Section 5.11Treasurer.................................................11 Section 5.12Assistant Treasurers......................................12 Section 5.13Subordinate Officers......................................12 Section 5.14Salaries and Compensation.................................12 ARTICLE 6. Indemnification.................................................12 Section 6.1 Indemnification of Directors and Officers.................12 ARTICLE 7. Capital Stock...................................................13 Section 7.1 Certificates of Stock.....................................13 Section 7.2 Lost Certificates.........................................14 Section 7.3 Fixing Date for Determination of Stockholders of Record for Certain Purposes......................................14 Section 7.4.Dividends. ...............................................15 Section 7.5.Registered Stockholders...................................15 Section 7.6.Transfer of Stock. .......................................15 ARTICLE 8. Miscellaneous Provisions........................................15 Section 8.1.Corporate Seal. ..........................................15 Section 8.2.Fiscal Year...............................................15 Section 8.3.Checks, Drafts, Notes. ...................................16 Section 8.4.Notice and Waiver of Notice...............................16 Section 8.5.Examination of Books and Records..........................16 ARTICLE 9. Amendments......................................................17 Section 9.1.Amendment. ...............................................17 AMENDED AND RESTATED BYLAWS OF GEOKINETICS INC. ARTICLE 1. OFFICES Section 1.1 PRINCIPAL OFFICES. The principal office of the Corporation shall be in the City of Houston, Texas. Section 1.2 REGISTERED OFFICES. The registered office of the Corporation required to be maintained in the State of Delaware by the General Corporation Laws of the State of Delaware may be, but need not be, identical with the Corporation's principal office, and the address of the registered office may be changed from time to time by the Board of Directors. Section 1.3 OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2. STOCKHOLDER'S MEETINGS Section 2.1 ANNUAL MEETING. The annual meeting of the holders of shares of each class or series of stock as are entitled to notice thereof and to vote thereat pursuant to applicable law and the Corporation's Certificate of Incorporation for the purpose of electing directors and transacting such other proper business as may come before it shall be held in each year, at such time, on such day and at such place, within or without the State of Delaware, as may be designated by the Board of Directors. Section 2.2 SPECIAL MEETINGS. In addition to such special meetings as are provided by law or the Corporation's Certificate of Incorporation, special meetings of the holders of any class or series or of all classes or series of the Corporation's stock for any purpose or purposes, may be called at any time by the Board of Directors 1 or the President of the Corporation and may be held on such day, at such time and at such place, within or without the State of Delaware, as shall be designated by the Board of Directors or the President of the Corporation. Section 2.3 NOTICES OF MEETINGS AND ADJOURNED MEETINGS. Except as otherwise provided by law, written notice of any meeting of Stockholders (i) shall be given either by personal delivery or by mail to each Stockholder of record entitled to vote thereat, (ii) shall be in such forms as approved by the Board of Directors, and (iii) shall state the date, place and hour of the meeting, and, in the case of a special meeting, the purpose for which the meeting is called. Unless otherwise provided by law, such written notice shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting. Except when a Stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened, presence in person or by proxy of a Stockholder shall constitute a waiver of notice of such meeting. Further, a written waiver of any notice required by law or by these Bylaws, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Except as otherwise provided by law, the business that may be transacted at any such meeting shall be limited to and consist of the purpose or purposes stated in such notice. If a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken; PROVIDED, HOWEVER, that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at the meeting. Section 2.4 VOTING LISTS. The officer or agent having charge of the stock transfer books for shares of the Corporation shall keep a complete list of Stockholders entitled to vote at meetings or any adjournments thereof, arranged in alphabetical order, in accordance with applicable law and shall make same available prior to and during each Stockholders' meeting for inspection by the Corporation's Stockholders as required by law. The Corporation's original stock transfer books shall be PRIMA FACIE evidence as to who are the Stockholders entitled to examine such list or transfer books or to vote at any meeting of Stockholders. Section 2.5 QUORUM. Except as otherwise provided by law or by the Corporation's Certificate of Incorporation, the holders of a majority of the Corporation's stock issued and outstanding and entitled to vote at a meeting, present in person or represented by proxy, without regard to class or series, shall constitute a quorum at all meetings of the Stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the Stockholders, the holders of a majority of such shares of stock, present in person or represented by proxy, may adjourn any meeting from time to time without notice other than announcement at the meeting, except as otherwise required by these Bylaws, until a quorum shall be present or represented. At any such adjourned 2 meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally called. Section 2.6 ORGANIZATION. Meetings of the Stockholders shall be presided over by the Chairman of the Board of Directors, if one shall be elected, or in his absence, by the President or by any Vice President, or, in the absence of any such officers, by a chairman to be chosen by a majority of the Stockholders entitled to vote at the meeting who are present in person or by proxy. The Secretary, or, in his absence, any Assistant Secretary or any person appointed by the individual presiding over the meeting, shall act as secretary at meetings of the Stockholders. Section 2.7 VOTING. Each Stockholder of record, as determined pursuant to SECTION 2.8, who is entitled to vote in accordance with the terms of the Corporation's Certificate of Incorporation and in accordance with the provisions of these Bylaws, shall be entitled to one vote, in person or by proxy, for each share of stock registered in his name on the books of the Corporation. Every Stockholder entitled to vote at any Stockholders' meeting may authorize another person or persons to act for him by proxy pursuant to SECTION 2.11, provided that no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A Stockholder's attendance at any meeting shall not have the effect of revoking a previously granted proxy unless such Stockholder shall in writing so notify the Secretary of the meeting prior to the voting of the proxy. Unless otherwise provided by law, no vote on the election of directors or any question brought before the meeting need be by ballot unless the chairman of the meeting shall determine that it shall be by ballot or the holders of a majority of the shares of stock present in person or by proxy and entitled to participate in such vote shall so demand. In a vote by ballot, each ballot shall state the number of shares voted and the name of the Stockholder or proxy voting. Except as otherwise provided by law, by the Corporation's Certificate of Incorporation or these Bylaws, all elections of directors and all other matters before the Stockholders shall be decided by the vote of the holders of a majority of the shares of stock present in person or by proxy at the meeting and entitled to vote in the election or on the question. In the election of directors, votes may not be cumulated. Section 2.8 STOCKHOLDERS ENTITLED TO VOTE. The Board of Directors may fix a date not more than sixty (60) days nor less than ten (10) days prior to the date of any meeting of Stockholders, or, in the case of corporate action by written consent in accordance with the terms of SECTION 2.10, not more than sixty (60) days prior to such action, as a record date for the determination of the Stockholders entitled to notice of and to vote at such meeting and any adjournment thereof, or to act by written consent, and in such case such Stockholders and only such Stockholders as shall be Stockholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting and any adjournment thereof, or to act by written 3 consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after such record date fixed as aforesaid. Section 2.9 ORDER OF BUSINESS. The order of business at all meetings of Stockholders shall be as determined by the chairman of the meeting or as is otherwise determined by the vote of the holders of a majority of the shares of stock present in person or by proxy and entitled to vote without regard to class or series at the meeting. Section 2.10 ACTION BY WRITTEN CONSENT. Unless otherwise provided by law or the Corporation's Certificate of Incorporation, any action required or permitted to be taken by the Stockholders of the Corporation may be taken without prior notice and an actual meeting if a consent in writing setting forth the action so taken shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Except as provided above, no action shall be taken by the Stockholders by written consent. Prompt notice of the taking of any corporate action without a meeting by less than unanimous written consent shall be given to those Stockholders who have not consented in writing. Section 2.11 AUTHORIZATION OF PROXIES. Without limiting the manner in which a Stockholder may authorize another person or persons to act for him as proxy, the following are valid means of granting such authority. A Stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the Stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. A Stockholder may also authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the Stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this Section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. 4 Section 2.12 INSPECTORS AND VOTING PROCEDURES. (a) The Corporation shall, in advance of any meeting of Stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of Stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. (b) The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. (c) The date and time of the opening and closing of the polls for each matter upon which the Stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a Stockholder shall determine otherwise. (d) In determining the validity and counting of proxies and ballots, the inspectors may examine and consider such records or factors as allowed by the General Corporation Laws of the State of Delaware. ARTICLE 3. DIRECTORS Section 3.1 MANAGEMENT. The property, affairs and business of the Corporation shall be managed by or under the direction of the Board of Directors. Section 3.2 NUMBER AND TERM. The number of directors may be fixed from time to time by resolution of the Board of Directors adopted by the affirmative vote of a majority of the members of the entire Board of Directors, but shall consist of not less than one (1) member who shall be elected annually by the Stockholders except as provided in SECTION 3.4. Directors need not be Stockholders. No decrease 5 in the number of directors shall have the effect of shortening the term of office of any incumbent director. Section 3.3 QUORUM AND MANNER OF ACTION. At all meetings of the Board of Directors a majority of the total number of directors holding office shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law, by the Corporation's Certificate of Incorporation or these Bylaws. When the Board of Directors consists of one director, the one director shall constitute a majority and a quorum. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at such adjourned meeting. Attendance by a director at a meeting shall constitute a waiver of notice of such meeting except where a director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 3.4 VACANCIES. Except as otherwise provided by law or the Corporation's Certificate of Incorporation, in the case of any increase in the authorized number of directors or of any vacancy in the Board of Directors, however created, the additional director or directors may be elected, or, as the case may be, the vacancy or vacancies may be filled by majority vote of the directors remaining on the whole Board of Directors although less than a quorum, or by a sole remaining director. In the event one or more directors shall resign, effective at a future date, such vacancy or vacancies shall be filled by a majority of the directors who will remain on the whole Board of Directors, although less than a quorum, or by a sole remaining director. Any director elected or chosen as provided herein shall serve until the sooner of: (i) the unexpired term of the directorship to which he is appointed; (ii) until his successor is elected and qualified; or (iii) until his earlier resignation or removal. Section 3.5 RESIGNATIONS. A director may resign at any time upon written notice of resignation to the Corporation. Any resignation shall be effective immediately unless a certain effective date is specified therein, in which event it will be effective upon such date and acceptance of any resignation shall not be necessary to make it effective. Section 3.6 REMOVALS. Any director or the entire Board of Directors may be removed, with cause, and another person or persons may be elected to serve for the remainder of his or their term by the holders of a majority of the shares of the Corporation entitled to vote in the election of directors. In case any vacancy so created shall not be filled by the Stockholders at such meeting, such vacancy may be filled by the directors as provided in SECTION 3.4. 6 Section 3.7 ANNUAL MEETINGS. The annual meeting of the Board of Directors shall be held, if a quorum be present, immediately following each annual meeting of the Stockholders at the place such meeting of Stockholders took place, for the purpose of organization and transaction of any other business that might be transacted at a regular meeting thereof, and no notice of such meeting shall be necessary. If a quorum is not present, such annual meeting may be held at any other time or place that may be specified in a notice given in the manner provided in SECTION 3.9 for special meetings of the Board of Directors or in a waiver of notice thereof. Section 3.8 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such places and times as shall be determined from time to time by resolution of the Board of Directors. Except as otherwise provided by law, any business may be transacted at any regular meeting of the Board of Directors. Section 3.9 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the President, or by the Secretary on the written request of one-third (1/3) of the members of the whole Board of Directors stating the purpose or purposes of such meeting. Notices of special meetings, if mailed, shall be mailed to each director not later than two (2) days before the day of the meeting is to be held or if otherwise given in the manner permitted by these Bylaws, not later than the day before such meeting. Neither the business to be transacted at, nor the purpose of, any special meetings need be specified in any notice or written waiver of notice unless so required by the Corporation's Certificate of Incorporation or by these Bylaws. Any and all business may be transacted at a special meeting, unless limited by law, the Corporation's Certificate of Incorporation or by these Bylaws. Section 3.10 ORGANIZATION OF MEETINGS. At any meeting of the Board of Directors, business shall be transacted in such order and manner as such Board of Directors may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present at any meeting at which there is a quorum, except as otherwise provided by these Bylaws or required by law. Section 3.11 PLACE OF MEETINGS. The Board of Directors may hold their meetings and have one or more offices, and keep the books of the Corporation, outside the State of Delaware, at any office or offices of the Corporation, or at any other place as they may from time to time by resolution determine. 7 Section 3.12 COMPENSATION OF DIRECTORS. Directors shall not receive any stated salary for their services as directors, but by resolution of the Board of Directors a fixed honorarium or fees and expenses, if any, of attendance may be allowed for attendance at each meeting. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending such committee meetings. Section 3.13 ACTION BY UNANIMOUS WRITTEN CONSENT. Unless otherwise restricted by law, the Corporation's Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or of such committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors of the committee. Section 3.14 PARTICIPATION IN MEETINGS BY TELEPHONE. Unless otherwise restricted by the Corporation's Certificate of Incorporation or these Bylaws, members of the Board of Directors or of any committee thereof may participate in a meeting of such Board of Directors or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting in such manner shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened. ARTICLE 4. COMMITTEES OF THE BOARD Section 4.1 MEMBERSHIP AND AUTHORITIES. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board of Directors, designate one(1) or more Directors to constitute an Executive Committee and such other committees as the Board of Directors may determine, each of which committees to the extent provided in said resolution or resolutions or in these Bylaws, shall have and may exercise all the powers of the Board of Directors in the management of the business and affairs of the Corporation, except in those cases where the authority of the Board of Directors is specifically denied to the Executive Committee or such other committee or committees by law, the Corporation's Certificate of Incorporation or these Bylaws, and may authorize the seal of the Corporation to be affixed to all papers that may require it. The designation of an Executive Committee or other committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him by law. 8 Section 4.2 MINUTES. Each committee designated by the Board of Directors shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. Section 4.3 VACANCIES. The Board of Directors may designate one (1) or more of its members as alternate members of any committee who may replace any absent or disqualified member at any meeting of such committee. If no alternate members have been appointed, the committee member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. The Board of Directors shall have the power at any time to fill vacancies in, to change the membership of, and to dissolve, any committee. Section 4.4 TELEPHONE MEETINGS. Members of any committee designated by the Board of Directors may participate in or hold a meeting by use of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this SECTION 4.4 shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 4.5 ACTION WITHOUT MEETING. Any action required or permitted to be taken at a meeting of any committee designated by the Board of Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the committee and filed with the minutes of the committee proceedings. Such consent shall have the same force and effect as a unanimous vote at a meeting. SECTION 5. OFFICERS Section 5.1 NUMBER AND TITLE. The elected officers of the Corporation shall be chosen by the Board of Directors and shall be a Chief Executive Officer, a President, a Vice President, a Secretary and a Treasurer. The Board of Directors may also choose a Chairman of the Board, who must be a Board member of the Board of Directors, and additional Vice Presidents, Assistant Secretaries and/or Assistant Treasurers. One person may hold any two or more of these offices and any one or more of the Vice Presidents may be designated as an Executive Vice President or Senior Vice President. 9 Section 5.2 TERM OF OFFICE; VACANCIES. So far as is practicable, all elected officers shall be elected by the Board of Directors at the annual meeting of the Board of Directors each year, and except as otherwise provided in this ARTICLE 5, shall hold office until the next such meeting of the Board of Directors in the subsequent year and until their respective successors are elected and qualified or until their earlier resignation or removal. All appointed officers shall hold office at the pleasure of the Board of Directors. If any vacancy shall occur in any office, the Board of Directors may elect or appoint a successor to fill such vacancy for the remainder of the term. Section 5.3 REMOVAL OF ELECTED OFFICERS. Any elected officer may be removed at any time, with or without cause, by affirmative vote of a majority of the whole Board of Directors, at any regular meeting or at any special meeting called for such purpose. Section 5.4 RESIGNATIONS. Any officer may resign at any time upon written notice of resignation to the President, Secretary or Board of Directors of the Corporation. Any resignation shall be effective immediately unless a date certain is specified for it to take effect, in which event it shall be effective upon such date, and acceptance of any resignation shall not be necessary to make it effective, irrespective of whether the resignation is tendered subject to such acceptance. Section 5.5 THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if one shall be elected, shall preside at all meetings of the Stockholders and Board of Directors. In addition, the Chairman of the Board shall perform whatever duties and shall exercise all powers that are given to him by the Board of Directors. Section 5.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the most senior executive officer of the Corporation; shall (in the absence of the Chairman of the Board, if one be elected) preside at meetings of the Stockholders and Board of Directors; shall be EX OFFICIO a member of all standing committees; shall have general and active management of business of the Corporation; shall implement the general directives, plans and policies formulated by the Board of Directors; and shall further have such duties, responsibilities and authorities as may be assigned to him by the Board of Directors. He may sign, with any other proper officer, certificates for shares of the Corporation and any deeds, bonds, mortgages, contracts and other documents which the Board of Directors has authorized to be executed, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors or these Bylaws, to some other officer or agent of the corporation. In the absence of the Chief Executive Officer, his duties shall be performed and his authority may be exercised by the President of the Corporation. 10 Section 5.7 PRESIDENT. The President shall, after the Chief Executive Officer, be the most senior executive officer of the corporation and shall, subject to the authority of the Chief Executive Officer, implement the general plans and directives of the Board of Directors and perform such other duties as may be assigned to him by the Board of Directors. Section 5.8 VICE PRESIDENTS. The several Vice Presidents shall have such powers and duties as may be assigned to them by these Bylaws and as may from time to time be assigned to them by the Board of Directors and may sign, with any other proper officer, certificates for shares of the Corporation. Section 5.9 SECRETARY. The Secretary, if available, shall attend all meetings of the Board of Directors and all meetings of the Stockholders and record the proceedings of the meetings in a book to be kept for that purpose and shall perform like duties for any committee of the Board of Directors as shall designate him to serve. He shall give, or cause to be given, notice of all meetings of the Stockholders and meetings of the Board of Directors and committees thereof and shall perform such other duties incident to the office of secretary or as may be prescribed by the Board of Directors or the President, under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation and he, or any Assistant Secretary, or any other person whom the Board of Directors may designate, shall have authority to affix the same to any instrument requiring it, and when so affixed it may be attested by his signature or by the signature of any Assistant Secretary or by the signature of such other person so affixing such seal. Section 5.10 ASSISTANT SECRETARIES. Each Assistant Secretary shall have the usual powers and duties pertaining to his office, together with such other powers and duties as may be assigned to him by the Board of Directors, the President or the Secretary. The Assistant Secretary or such other person as may be designated by the President shall exercise the powers of the Secretary during that officer's absence or inability to act. Section 5.11 TREASURER. The Treasurer shall have the custody of and be responsible for the corporate funds and securities, shall keep full and separate accounts of receipts and disbursements in the books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation and he shall perform all other duties 11 incident to the position of Treasurer, or as may be prescribed by the Board of Directors or the President. If required by the Board of Directors, he shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation Section 5.12 ASSISTANT TREASURERS. Each Assistant Treasurer shall have the usual powers and duties pertaining to his office, together with such other powers and duties as may be assigned to him by the Board of Directors, the President or the Treasurer. The Assistant Treasurer or such other person designated by the President shall exercise the power of the Treasurer during that officer's absence or inability to act. Section 5.13 SUBORDINATE OFFICERS. The Board of Directors may (i) appoint such other subordinate officers and agents as it shall deem necessary who shall hold their offices for such terms, have such authority and perform such duties as the Board of Directors may from time to time determine, or (ii) delegate to any committee or officer the power to appoint any such subordinate officers or agents. Section 5.14 SALARIES AND COMPENSATION. The salary or other compensation of officers shall be fixed from time to time by the Board of Directors. The Board of Directors may delegate to any committee or officer the power to fix from time to time the salary or other compensation of subordinate officers and agents appointed in accordance with the provisions of SECTION 5.13. ARTICLE 6. INDEMNIFICATION Section 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall indemnify its current or former directors, officers, employees and agents or any person who served or is serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise from and against any and all expenses, liabilities or other matters to the fullest extent permitted by the General Corporation Law of Delaware, as the same exists or may hereafter be amended. Such indemnification shall not be deemed exclusive of any other rights to which such person may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall inure to the benefit of the heirs, executors and administrators of such person. 12 ARTICLE 7. CAPITAL STOCK Section 7.1 CERTIFICATES OF STOCK. Certificates of stock shall be issued to each Stockholder certifying the number of shares owned by him in the Corporation and shall be in a form not inconsistent with the Certificate of Incorporation and as approved by the Board of Directors. The certificates shall be signed by the Chairman of the Board, the President or a Vice President and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer and may be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 7.2 LOST CERTIFICATES. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the owner of such certificate, or his legal representative. When authorizing the issuance of a new certificate, the Board of Directors may in its discretion, as a condition precedent to the issuance thereof, require the owner, or his legal representative, to give a bond in such form and substance with such surety as it may direct, to indemnify the Corporation against any claim that may be made on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate. Section 7.3 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD FOR CERTAIN PURPOSES. (a) In order that the Corporation may determine the Stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of capital stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days prior to the date of payment of such dividend or other distribution or allotment of such rights or the date when any such rights in respect of any change, conversion or exchange of stock may be exercised or the date of such other action. In such a case, only Stockholders of record on the date so fixed shall be entitled to receive any such dividend or other distribution or allotment of rights or to exercise such rights or for any other purpose, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. (b) If no record date is fixed, the record date for determining Stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. 13 Section 7.4.DIVIDENDS. Subject to the provisions of the Corporation's Certificate of Incorporation, if any, and except as otherwise provided by law, the directors may declare dividends upon the capital stock of the Corporation as and when they deem it to be expedient. Such dividends may be paid in cash, in property or in shares of the Corporation's capital stock. Before declaring any dividend there may be set apart out of the funds of the Corporation available for dividends, such sum or sums as the directors from time to time in their discretion think proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends, or for such other purposes as the directors shall think conducive to the interests of the Corporation and the directors may modify or abolish any such reserve in the manner in which it was created. Section 7.5.REGISTERED STOCKHOLDERS. Except as expressly provided by law, the Corporation's Certificate of Incorporation or these Bylaws, the Corporation shall be entitled to treat registered Stockholders as the only holders and owners in fact of the shares standing in their respective names and the Corporation shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, regardless of whether it shall have express or other notice thereof. Section 7.6.TRANSFER OF STOCK. Transfers of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by the registered owners thereof, or by their legal representatives or their duly authorized attorneys. Upon any such transfers the old certificates shall be surrendered to the Corporation by the delivery thereof to the person in charge of the stock transfer books and ledgers, by whom they shall be canceled and new certificates shall thereupon be issued. ARTICLE 8. MISCELLANEOUS PROVISIONS Section 8.1.CORPORATE SEAL. If one is adopted, the corporate seal shall have inscribed thereon the name of the Corporation and shall be in such form as may be approved by the Board of Directors. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. Section 8.2.FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. 14 Section 8.3.CHECKS, DRAFTS, NOTES. All checks, drafts or other orders tor the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner as shall from time to time be determined by resolution (whether general or special) of the Board of Directors or may be prescribed by any officer or officers, or any officer and agent jointly, thereunto duly authorized by the Board of Directors. Section 8.4.NOTICE AND WAIVER OF NOTICE. Whenever notice is required to be given to any director or Stockholder under the provisions of applicable law, the Corporation's Certificate of Incorporation or these Bylaws, such notice shall be in writing and delivered whether (i) personally, or (ii) by registered or certified mail, or (iii) by telegram, telecopy, or similar facsimile means (delivered during the recipient's regular business hours). Such notice shall be sent to such director or Stockholder at the address or telecopy number as it appears on the records of the Corporation, unless prior to the sending of such notice he has designated, in a written request to the Secretary of the Corporation, another address or telecopy number to which notices are to be sent. Notices shall be deemed given when received, if sent by telegram, telex, telecopy or similar facsimile means (confirmation of such receipt by confirmed facsimile transmission being deemed receipt of communications sent by telex, telecopy or other facsimile means); and when delivered and receipted for (or upon the date of attempted delivery where delivery is refused), if hand delivered, sent by express courier or delivery service, or sent by certified or registered mail. Whenever notice is required to be given under any provision of law, the Corporation's Certificate of Incorporation or these Bylaws, a waiver thereof in writing, by telegraph, cable or other form of recorded communication, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Corporation's Certificate of Incorporation or these Bylaws. Section 8.5.EXAMINATION OF BOOKS AND RECORDS. The Board of Directors shall determine from time to time whether, and if allowed, when and under what conditions and regulations the accounts and books of the Corporation (except such as may be statute be specifically opened to inspection) or any of them shall be open to inspection by the Stockholders, and the Stockholders' rights in this respect are and shall be restricted and limited accordingly. 15 ARTICLE 9. AMENDMENTS Section 9.1.AMENDMENTS. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors of the corporation is expressly authorized to adopt, amend or repeal the bylaws of the corporation subject to the power of the stockholders of the corporation to alter or repeal any bylaw whether adopted by them or otherwise. 16 EX-10.5 5 EXHIBIT 10.5 EMPLOYMENT AGREEMENT This Employment Agreement (this "AGREEMENT") is made as of July __, 1997 by GEOKINETICS INC, a Delaware corporation (the "EMPLOYER"), and LYNN TURNER, an individual resident of the State of Texas (the "EXECUTIVE"). INTRODUCTION Employer, directly or through one or more subsidiaries, is engaged in the business of (i) conducting 2-D and 3-D seismic surveys of oil and gas prospects and (ii) exploring for and producing oil and gas in the United States. The Employer desires to employ the Executive, and the Executive wishes to accept such employment, upon the terms and conditions set forth in this Agreement. The parties, intending to be legally bound, agree as follows: Section 1. DEFINITIONS. For the purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1. 1.1 "AFFILIATE" or "AFFILIATES" -- any Person that, directly or indirectly, controls, or is controlled by or under common control with, the Employer, including the Employer. For the purposes of this definition, "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the power to direct or cause the direction of the management and policies of any Person, directly or indirectly, through ownership of voting securities, by contract, or otherwise. 1.2 "AGREEMENT" -- this Employment Agreement, including all Exhibits attached hereto, as amended from time to time. 1.3 "BASIC COMPENSATION" -- Salary and Benefits. 1.4 "BENEFITS" -- as defined in Section 3.1(c). 1.5 "BOARD OF DIRECTORS" -- the board of directors of the Employer. 1.6 "CONFIDENTIAL INFORMATION" -- any and all: (a) trade secrets concerning the business and affairs of any Affiliate, product specifications, data, know-how, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, inventions and ideas, past, current, and planned research and development, current and planned manufacturing or distribution methods and processes, customer lists, current and anticipated customer requirements, price lists, market studies, business plans, seismic data bases, computer software and programs (including object code and source code), computer software and database technologies, systems, structures, and architectures (and related formulae, compositions, 1 processes, improvements, devices, know-how, inventions, discoveries, concepts, ideas, designs, methods and information), and any other information, however documented, that is a trade secret within the meaning of the common law of the State of Texas; and (b) information concerning the business and affairs of any Affiliate (which includes historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets, exploration prospects and plans, the names and backgrounds of key personnel, personnel training and techniques and materials), however documented; and (c) notes, analysis, compilations, studies, summaries, and other material prepared by or for any Affiliate containing or based, in whole or in part, on any information included in the foregoing. 1.7 "DISABILITY" -- as defined in Section 5.2. 1.8 "EFFECTIVE DATE" -- the date stated in the first paragraph of the Agreement. 1.9 "EMPLOYEE INVENTION" -- any idea, invention, technique, modification, process, or improvement (whether patentable or not), any industrial design (whether registerable or not), any mask work, however fixed or encoded, that is suitable to be fixed, embedded or programmed in a semiconductor product (whether recordable or not), and any work of authorship (whether or not copyright protection may be obtained for it) created, conceived, or developed by the Executive, either solely or in conjunction with others, during the Employment Period, or a period that includes a portion of the Employment Period, that relates in any way to, or is useful in any manner in, the business then being conducted or proposed to be conducted by the Employer or the Affiliates, and any such item created by the Executive, either solely or in conjunction with others, following termination of the Executive's employment with the Employer, that is based upon or uses Confidential Information. 1.10 "EMPLOYMENT PERIOD" -- the term of the Executive's employment under this Agreement. 1.11 "FISCAL YEAR" -- the Employer's fiscal year, as it exists on the Effective Date or as changed from time to time. 1.12 "FOR CAUSE" -- as defined in Section 5.3. 1.13 "INCENTIVE COMPENSATION" -- as defined in Section 3.2. 1.14 "OPTION PLAN" -- the Geokinetics Inc. 1995 Employee Stock Option Plan. 1.15 "NONINCENTIVE COMPENSATION" -- as defined in Section 3.3. 2 1.16 "PERSON" -- any individual, general or limited partnership, joint venture, corporation (including any non-profit corporation), limited liability company, bank, estate, trust, association, entity, unincorporated organization, or government body. 1.17 "POST-EMPLOYMENT PERIOD" -- as defined in Section 7.2. 1.18 "PROPRIETARY ITEMS" -- as defined in Section 6.2(a)(iv). 1.19 "SALARY" -- as defined in Section 3.1(a). 1.20 "SIGNING BONUS" -- as defined in Section 3.1(b). Section 2. EMPLOYMENT TERMS AND DUTIES. 2.1 EMPLOYMENT. The Employer hereby employs the Executive, and the Executive hereby accepts employment by the Employer, upon the terms and conditions set forth in this Agreement. 2.2 TERM. Subject to the provisions of Section 5, the term of the Executive's employment under this Agreement will be five (5) years, beginning on the Effective Date and ending on the fifth anniversary of the Effective Date. Thereafter, the term may continue for additional one (1) year periods upon the mutual written agreement of the Executive and the Employer. 2.3 DUTIES. The Executive will have such duties as are assigned or delegated to the Executive by the Board of Directors (which duties shall be of a senior management or executive level) and will initially serve as President and Chief Operating Officer of the Employer, with overall responsibility for geophysical operations. The Executive will devote substantially all of his entire business time, attention, skill, and energy exclusively to the business of the Employer, will use his best efforts to promote the success of the Employer's business, and will cooperate fully with the Board of Directors in the advancement of the best interests of the Employer. For the Executive's service as a director of the Employer or as a director or officer of any of its Affiliates, the Executive will fulfill his duties as such director or officer without additional compensation. Section 3. COMPENSATION. 3.1 BASIC COMPENSATION. (a) SALARY. The Executive will be paid an annual salary of $135,000.00, subject to adjustment as provided below (the "SALARY"), which will be payable in equal periodic installments according to the Employer's customary payroll practices, but no less frequently than monthly. The Salary will be reviewed by the Board of Directors not less frequently than annually, and may be adjusted upward or downward in the sole discretion of the Board of Directors, but in no event will the Salary be less than $135,000.00 per year. 3 (b) SIGNING BONUS. In order to induce the Executive to accept employment with the Employer, the Employer agrees to pay the Executive a bonus of $150,000.00 ("SIGNING BONUS"). Subject to the Executive's employment by the Employer, such bonus shall be paid to the Executive on the date he commences employment hereunder. (c) BENEFITS. The Executive will, during the Employment Period, be permitted to participate in such pension, profit sharing, bonus, life insurance, hospitalization, major medical, and other employee benefit plans of the Employer that may be in effect from time to time, to the extent the Executive is eligible under the terms of those plans (collectively, the "BENEFITS"). 3.2 INCENTIVE COMPENSATION. As additional compensation (the "INCENTIVE COMPENSATION") for the services to be rendered by the Executive pursuant to this Agreement, the Executive will be entitled to participate in the following plans, in the manner described below: (a) The Executive shall be entitled to receive an annual bonus ("BONUS") based upon the amount of the Employer's earnings before interest, taxes, depreciation and amortization ("EBITDA") in accordance with the terms of the Bonus Plan attached hereto as Exhibit "A". The Employer's earnings before EBITDA shall be computed by Geokinetics, for purposes of calculation of the Bonus, for each twelve-month period beginning on July 1 and ending on June 30 during the term hereof, and shall be determined in accordance with generally accepted accounting principles, consistently applied. 3.3 NONINCENTIVE COMPENSATION. As additional compensation (the "NONINCENTIVE COMPENSATION") for the services to be rendered by the Executive pursuant to this Agreement, the Executive shall be permitted to participate in the Option Plan. Upon the commencement of Executive's employment hereunder, the Executive shall be granted one, seven-year option to purchase an aggregate of 500,000 shares of Common Stock on the terms and conditions set forth below: (a) The Executive will have one option (the "Option") to purchase 500,000 shares of Common Stock and will become eligible to exercise 100,000 shares of the Option on and after each of July 15, 1998, 1999, 2000, 2001 and 2002, provided the Executive continues to be employed by the Employer hereunder on such dates, and the Executive exercises such Option prior to or on July 15, 2004; and (b) The Option shall be exercisable at a price per share of Common Stock of $.75. 3.4 VACATIONS AND HOLIDAYS. The Executive will be entitled to three weeks' paid vacation each Fiscal Year in accordance with the vacation policies of the Employer in effect for its executive officers from time to time. Vacation must be taken by the Executive at such time or times as approved by the Chairman of the Board of Directors. The Executive will also be entitled to the paid holidays and other paid leave set forth in the Employer's policies. Vacation days and holidays during 4 any Fiscal Year that are not used by the Executive during such Fiscal Year may not be used in any subsequent Fiscal Year, but Executive shall be paid at the end of each Fiscal Year for any vacation days which Executive was unable to use as a result of a request for approval of a vacation having been denied by the Chairman of the Board of Directors. 3.5 AUTOMOBILE. During the Employment Period, the Executive shall be entitled to a monthly automobile allowance of $400.00. The Employer will reimburse the Executive for reasonable expenses incurred by the Executive for the operation, repair and maintenance of such automobile in the performance of the Executive's duties pursuant to this Agreement, in accordance with the Employer's employment policies, at a rate of $.35 per mile. The Executive shall file expense reports with respect to such expenses in accordance with the Employer's policies. Section 4. FACILITIES AND EXPENSES. The Employer will furnish the Executive office space, equipment, supplies, and such other facilities and personnel as the Employer deems necessary or appropriate for the performance of the Executive's duties under this Agreement and as are commensurate with Executive's duties under Section 2.3. The Employer will pay the Executive's dues in such professional societies and organizations as the Chairman of the Board of Directors of the Employer deems appropriate, and will pay on behalf of the Executive (or reimburse the Executive for) reasonable expenses incurred by the Executive at the request of, or on behalf of, the Employer in the performance of the Executive's duties pursuant to this Agreement, and in accordance with the Employer's employment policies, including reasonable expenses incurred by the Executive in attending conventions, seminars, and other business meetings, in appropriate business entertainment activities, and for promotional expenses. The Executive must file expense reports with respect to such expenses in accordance with the Employer's policies. Section 5. TERMINATION. 5.1 EVENTS OF TERMINATION. The Employment Period, the Executive's Basic Compensation, Incentive Compensation, Nonincentive Compensation, and any and all other rights of the Executive under this Agreement or otherwise as an employee of the Employer will terminate (except as otherwise provided in this Section 5): (a) upon the death of the Executive; (b) upon the Disability of the Executive (as defined in Section 5.2) immediately upon notice from either party to the other; (c) For Cause (as defined in Section 5.3), immediately upon notice from the Employer to the Executive, or at such later time as such notice may specify; or (d) upon Executive's voluntary termination of employment, which termination shall be effective thirty (30) days after Employer's receipt of Executive's written resignation. 5 5.2 DISABILITY. For purposes of this Section 5, the Executive will be deemed to have a "DISABILITY" if, for physical or mental reasons, the Executive is unable to perform the Executive's duties under this Agreement for 120 consecutive days, or 180 days during any twelve month period, as determined in accordance with this Section 5.2. The Disability of the Executive will be determined by a medical doctor selected by written agreement of the Employer and the Executive upon the request of either party by notice to the other. If the Employer and the Executive cannot agree on the selection of a medical doctor, each of them will select a medical doctor and the two medical doctors will select a third medical doctor who will determine whether the Executive has a Disability. The determination of the medical doctor selected under this Section 5.2 will be binding on both parties. The Executive must submit to a reasonable number of examinations by the medical doctor making the determination of Disability under this Section 5.2, and the Executive hereby authorizes the disclosure and release to the Employer of such determination and all supporting medical records. If the Executive is not legally competent, the Executive's legal guardian or duly authorized attorney-in-fact will act on behalf of the Executive, under this Section 5.2, for the purposes of submitting the Executive to the examinations, and providing the authorization of disclosure, required under this Section 5.2. 5.3 FOR CAUSE. For purposes of Section 5.1, the phrase "FOR CAUSE" means any conduct or behavior by the Executive that, in the good faith judgment of the Employer's Board of Directors, is materially detrimental to or materially harmful to the business or reputation of the Employer including, without limitation: (a) the Executive's breach of a material provisions of this Agreement, which breach is not substantially cured within thirty (30) days after Executive's receipt of written notice thereof from Employer; (b) the Executive's repeated failure to adhere to any written Employer policy and Executive's failure to cure such noncompliance within thirty (30) days after receipt of written notice thereof from Employer; (c) the appropriation (or attempted appropriation) of a material business opportunity of the Employer, including attempting to secure or securing any personal profit in connection with any transaction entered into on behalf of the Employer; (d) the misappropriation (or attempted misappropriation) of any of the Employer's funds or property; or (e) the conviction of, the indictment for (or its procedural equivalent), or the entering of a guilty plea or plea of no contest with respect to, a felony (other than involving the misuse of alcohol) or the equivalent thereof. 5.4 TERMINATION PAY. Effective upon the termination of this Agreement, the Employer will be obligated to pay the Executive (or, in the event of his death, his designated beneficiary as defined below) only such compensation as is provided in this Section 5.4, and in lieu of all other amounts and in settlement and complete release of all claims the Executive may have against the Employer under this Agreement. For purposes of this Section 5.4, the Executive's designated beneficiary will be such individual beneficiary or trust, located at such address, as the Executive may designate by notice to the Employer from time to time or, if the Executive fails to give notice to the Employer of such a beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the Employer will have no duty, in any circumstances, to attempt to open an estate on behalf of the Executive, to determine whether any beneficiary designated by the Executive is alive or to ascertain the address of any such beneficiary, to determine the existence of any trust, to determine whether any person or entity purporting to act as the Executive's personal representative (or the trustee of a trust established by the Executive) is duly authorized to act in that capacity, or to locate or attempt to locate any beneficiary, personal representative, or trustee. 6 (a) TERMINATION BY THE EMPLOYER FOR CAUSE. If the Employer terminates this Agreement For Cause, the Executive will be entitled to receive his Salary and Benefits through the date such termination is effective and the vested portion of any Incentive Compensation and any Nonincentive Compensation. (b) TERMINATION UPON DISABILITY. If this Agreement is terminated by either party as a result of the Executive's Disability, as determined under Section 5.2, the Employer will pay the Executive his Salary and Benefits through the remainder of the calendar month during which such termination is effective and for the lesser of (i) six consecutive months thereafter, or (ii) the period until Disability insurance benefits commence under the Disability insurance coverage, if any, furnished by the Employer to the Executive. The Executive shall be entitled to the vested portions of his Incentive Compensation and Nonincentive Compensation and to a pro rata portion of his Incentive Compensation and Nonincentive Compensation for the year during which such Disability occurs, but shall not be entitled to any other Incentive Compensation or Nonincentive Compensation. Executive shall be entitled to continue to participate in Employer's group health insurance (if such participation is permitted by the insurance company providing such insurance coverage) after Disability occurs, provided Executive reimburses Employer for the costs of such coverage. Executive shall also be entitled to acquire from Employer any life insurance policy in effect on Executive's life at the date of Disability, provided Executive reimburses Employer the cash surrender value, if any, accumulated in such life insurance policy and assumes the obligation to make payments to maintain such insurance policy in effect. (c) TERMINATION UPON DEATH. If this Agreement is terminated because of the Executive's death, the Executive will be entitled to receive his Salary and Benefits through the end of the calendar month in which his death occurs. The Executive shall be entitled to receive the vested portions of his Incentive Compensation and Nonincentive Compensation and to a pro rata portion of his Incentive Compensation and Nonincentive Compensation for the year during which the Executive's death occurs, but shall not be entitled to any other Incentive Compensation or Nonincentive Compensation for or any subsequent year. Executive's family shall be entitled to continue to participate in Employer's group health insurance (if such participation is permitted by the insurance company providing such insurance coverage) after Executive's occurs, provided Executive's family reimburses Employer for the costs of such coverage. (d) TERMINATION UPON RESIGNATION. If this Agreement is terminated because of the voluntary resignation of the Executive hereunder, the Executive shall be entitled to receive his Salary and Benefits through the effective date of his termination and any vested portions of his Incentive Compensation or 7 Nonincentive Compensation. The Executive shall not be entitled to any other Incentive Compensation or to any other Nonincentive Compensation. (e) TERMINATION BY THE EMPLOYER NOT FOR CAUSE. If the Employer terminates this Agreement not For Cause, the Executive, at the option of the Employer, will be entitled to either: (i) receive all of the compensation and Benefits provided by Section 3.1, and the Incentive Compensation provided by Section 3.2 and the Nonincentive Compensation provided by Section 3.3 for the remainder of the Employment Term, and the Executive shall be subject to the provisions of Section 7.2 hereof; or (ii) the Executive shall be entitled to receive all of the compensation and Benefits provided by Section 3.1 and the vested portions of any Incentive Compensation provided by Section 3.2 and Nonincentive Compensation provided by Section 3.3 through the end of the calendar month in which such termination occurs, and the Executive shall not be subject to the provisions of Section 7.2. (f) BENEFITS. The Executive's accrual of, or participation in plans providing for, the Benefits will cease at the effective date of the termination of this Agreement, and the Executive will be entitled to accrued Benefits pursuant to such plans only as provided in such plans. The Executive will not receive, as part of his termination pay pursuant to this Section 5, any payment or other compensation for any vacation, holiday, sick leave, or other leave unused on the date the notice of termination is given under this Agreement. (g) EXPIRATION OF EMPLOYMENT. Employer agrees to notify the Executive not less than sixty (60) days prior to the expiration of the initial term of this Agreement or any subsequent continuation thereof as to whether Employer desires to extend the Employment Period of this Agreement. 5.5 TERMINATION UPON BREACH BY EMPLOYER. This Agreement may be terminated by Executive, by written notice to Employer, in the event of the Employer's breach of a material provision of this Agreement, which breach is not substantially cured within thirty (30) days after Employer's receipt of written notice thereof from Executive. If this Agreement is terminated by Executive as a result of Employer's breach, Executive shall not be subject to the provisions of Section 7.2 hereof. Section 6. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS. 6.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges that during the Employment Period and as a part of his employment, the Executive will be afforded access to Confidential Information; public disclosure of such Confidential Information could have an adverse effect on the Employer and its business; because the Executive possesses substantial technical expertise and skill with respect to the Employer's business, the Employer desires to obtain exclusive ownership of each Employee Invention, and the Employer will be at a substantial competitive disadvantage if it fails to acquire exclusive ownership of each Employee Invention; and the provisions 8 of this Section 6 are reasonable and necessary to prevent the improper use or disclosure of Confidential Information and to provide the Employer with exclusive ownership of all Employee Inventions. 6.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the compensation and benefits to be paid or provided to the Executive by the Employer under this Agreement, the Executive covenants as follows: (a) CONFIDENTIALITY. (i) During and for a period of three (3) years following the Employment Period, the Executive will hold in confidence the Confidential Information and will not disclose it to any person except with the specific prior written consent of the Employer or except as otherwise expressly permitted by the terms of this Agreement. (ii) Any trade secrets of any Affiliate will be entitled to all of the protections and benefits under the common law of the State of Texas and any other applicable law. If any information that the Employer deems to be a trade secret is found by a court of competent jurisdiction not to be a trade secret for purposes of this Agreement, such information will, nevertheless, be considered Confidential Information for purposes of this Agreement. The Executive hereby waives any requirement that the Employer submit proof of the economic value of any trade secret or post a bond or other security. (iii) None of the foregoing obligations and restrictions applies to any part of the Confidential Information that the Executive demonstrates either (x) was known by Executive prior to the date of his employment by the Employer, (y) was or became generally available to the public other than as a result of a disclosure by the Executive, or (z) was made known to Executive on a nonconfidential basis from a source other than Employer or its representatives or agents, provided that such source is not bound by a confidentiality agreement with, or other obligation of secrecy to, Employer or another party. (iv) The Executive will not remove from the premises of the Employer or any Affiliate (except to the extent such removal is for purposes of the performance of the Executive's duties at home or while traveling, or except as otherwise specifically authorized by the Employer or such Affiliate) any document, record, notebook, plan, model, component, device, or computer software or code, whether embodied in a disk or in any other form (collectively, the "PROPRIETARY ITEMS"). The Executive recognizes that, as between the Employer or any Affiliate and the Executive, all of the Proprietary Items, whether or not 9 developed by the Executive, are the exclusive property of the Employer or the Affiliates. Upon termination of this Agreement by either party, or upon the request of the Employer or any Affiliate during the Employment Period, the Executive will return to the Employer or the Affiliates all of the Proprietary Items in the Executive's possession or subject to the Executive's control, and the Executive shall not retain any copies, abstracts, sketches, or other physical embodiment of any of the Proprietary Items. (b) EMPLOYEE INVENTIONS. Each Employee Invention will belong exclusively to the Employer. The Executive acknowledges that all of the Executive's writing, works of authorship, specially commissioned works, and other Employee Inventions are works made for hire and the property of the Employer, including any copyrights, patents, or other intellectual property rights pertaining thereto. If it is determined that any such works are not works made for hire, the Executive hereby assigns to the Employer all of the Executive's right, title, and interest, including all rights of copyright, patent, and other intellectual property rights, to or in such Employee Inventions. The Executive covenants that he will promptly: (i) disclose to the Employer in writing any Employee Invention; (ii) assign to the Employer or to a party designated by the Employer, at the Employer's request and without additional compensation, all of the Executive's right to the Employee Invention for the United States and all foreign jurisdictions; (iii) execute and deliver to the Employer such applications, assignments, and other documents as the Employer may request in order to apply for and obtain patents or other registrations with respect to any Employee Invention in the United States and any foreign jurisdictions; (iv) sign all other papers necessary to carry out the above obligations; and (v) give testimony and render any other assistance in support of the Employer's rights to any Employee Invention. 6.3 DISPUTES OR CONTROVERSIES. The Executive recognizes that should a dispute or controversy arising from or relating to this Agreement be submitted for adjudication to any court, arbitration panel, or other third party, the preservation of the secrecy of Confidential Information may be jeopardized. All pleadings, documents, testimony, and records relating to any such adjudication will be maintained in secrecy and will be available for inspection by the Employer, the Executive, and 10 their respective attorneys and experts, who will agree, in advance and in writing, to receive and maintain all such information in secrecy, except as may be limited by them in writing. Section 7. NON-COMPETITION AND NON-INTERFERENCE. 7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges and agrees that the limitations set forth in this Section 7 are a necessary part of and ancillary to the Executive's agreement not to disclose Confidential Information, reasonable and do not impose a greater restraint on the activities of the Executive than is necessary to protect the business interest of the Employer. In the event that any such territorial, scope, or time limitation are deemed to be unreasonable by a court of competent jurisdiction, the Executive agrees to the reduction of the territorial, scope or time limitation to the area, scope or time which such court shall have deemed reasonable. 7.2 COVENANTS OF THE EXECUTIVE. In consideration of the acknowledgments by the Executive, and in consideration of the compensation and benefits to be paid or provided to the Executive by the Employer in the event this Agreement is terminated pursuant to Section 5.4(a), 5.4(d) or 5.4(e)(i), the Executive covenants that he will not, directly or indirectly: (a) during the Employment Period, except in the course of his employment hereunder, and during the Post-Employment Period (as defined below), engage or invest in, own, manage, operate, finance, control, or participate in the ownership, management, operation, financing, or control of, be employed by, associated with, or in any manner connected with, lend the Executive's name or any similar name to, lend Executive's credit to or render services or advice to, any business whose products or activities compete in whole or in part with the products or activities of the Employer or any Affiliate of Employer anywhere within the geographic areas in which the Employer or any such Affiliate now or hereafter conducts its business; provided, however, that the Executive may purchase or otherwise acquire up to (but not more than) one percent of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934; (b) whether for the Executive's own account or for the account of any other person, at any time during the Employment Period and the Post-Employment Period, solicit business of the same or similar type being carried on by the Employer or any Affiliate of Employer, from any person known by the Executive to be a customer of the Employer or any such Affiliate, whether or not the Executive had personal contact with such person during and by reason of the Executive's employment with the Employer; (c) whether for the Executive's own account or the account of any other person at any time during the Employment Period and the Post-Employment Period, (i) solicit, employ, or otherwise engage as an employee, independent 11 contractor, or otherwise, any person who is or was an employee of the Employer or any Affiliate of Employer at any time during the Employment Period or in any manner induce or attempt to induce any employee of the Employer and any such Affiliate to terminate his employment with the Employer; or (ii) interfere with the Employer's or any Affiliate's relationship with any person, including any person who at any time during the Employment Period was an employee, contractor, supplier, or customer of the Employer or any such Affiliate; or (d) at any time during or after the Employment Period, disparage the Employer or any of its shareholders, directors, officers, employees, or agents. For purposes of this Section 7.2, the term (x) "POST-EMPLOYMENT PERIOD" means the two-year period beginning on the date of termination of the Executive's employment with the Employer and (y) "AFFILIATE" shall not include Falcon Drilling Company, Inc. If any covenant in this Section 7.2 is held to be unreasonable, arbitrary, or against public policy, such covenant will be considered to be divisible with respect to scope, time, and geographic area, and such lesser scope, time, or geographic area, or all of them, as a court of competent jurisdiction may determine to be reasonable, not arbitrary, and not against public policy, will be effective, binding, and enforceable against the Executive. The Executive will, while the covenant under this Section 7.2 is in effect, give notice to the Employer, within ten days after accepting any other employment, of the identity of the Executive's new employer. The Employer may notify such new employer that the Executive is bound by this Agreement. Notwithstanding the foregoing to the contrary, the Executive will not be subject to any covenant under this Section 7.2 in the event: (i) the term of the Executive's employment under this Agreement is not renewed pursuant to Section 2.2; (ii) Employer voluntarily files a bankruptcy or insolvency proceeding (or an involuntary bankruptcy or insolvency proceeding is filed against Employer, which proceedings have not been dismissed within ninety (90) days from the filing thereof); or (iii) Executive is removed or not reelected the President of Employer after (x) Steven A. Webster and William R. Ziegler are no longer members of the Board of Directors of Employer or (y) Steven A. Webster, William R. Ziegler and Blackhawk Investors, L.L.C. own or control, directly or indirectly, less than ten (10%) percent of the combined voting power of the then outstanding voting securities of Employer. 12 Section 8. GENERAL PROVISIONS. 8.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The Executive acknowledges that the injury that would be suffered by the Employer as a result of a breach of the provisions of this Agreement (including any provision of Sections 6 and 7) would be irreparable and that an award of monetary damages to the Employer for such a breach would be an inadequate remedy. Consequently, the Employer will have the right, in addition to any other rights it may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Employer will not be obligated to post bond or other security in seeking such relief. Any such remedy shall be in addition to any damages which the Employer may be legally entitled to recover as a result of any breach by the Employee of any provision of this Agreement. The Employer may pursue any of the remedies described in this Section concurrently or consecutively and in any order as to such breach or violation, and the pursuit of any one of such remedies at any time will not be deemed an election of remedies or a waiver of the right to pursue any other available remedy. 8.2 ESSENTIAL AND INDEPENDENT COVENANTS. The covenants by the Executive in Sections 6 and 7 are essential elements of this Agreement supported by the payment of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Executive, and without the Executive's agreement to comply with such covenants, the Employer would not have entered into this Agreement or employed or continued the employment of the Executive. The Employer and the Executive have independently consulted their respective counsel and have been advised in all respects concerning the reasonableness and propriety of such covenants, with specific regard to the nature of the business conducted by the Employer. If the Executive's employment hereunder expires or is terminated, this Agreement will continue in full force and effect as is necessary or appropriate to enforce the covenants and agreements of the Executive in Sections 6 and 7. 8.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The Executive represents and warrants to the Employer that the execution and delivery by the Executive of this Agreement do not, and the performance by the Executive of the Executive's obligations hereunder will not, with or without the giving of notice or the passage of time, or both: violate any judgment, writ, injunction, or order of any court, arbitrator, or governmental agency applicable to the Executive; or conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which the Executive is a party or by which the Executive is or may be bound. The Executive further represents and warrants to the Employer that no agreements or understandings, whether written or oral, are currently in force and effect between the Executive and the Employer, or any other Person concerning the subject matter of this Agreement. 8.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The obligations of the Employer hereunder, including its obligation to pay the compensation provided for herein, are contingent upon the Executive's performance of the Executive's obligations hereunder. 13 8.5 WAIVER. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by either party in exercising any right, power, or privilege under this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, no claim or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement. 8.6 NOTICES. All notices pertaining to this Agreement must be in writing, must be sent to the addressee at the address set forth in this Section, or at such other address as the addressee has designated by a notice given in the manner set forth in this Section, and must be sent by telegram, telex, facsimile, electronic mail, courier, or prepaid, certified U.S. Mail. Notices will be deemed given when received, if sent by telegram, telex, electronic mail or facsimile and if received between the hours of 8:00 a.m. and 5:00 p.m., local time of the destination address, on a business day (with confirmation of completed transmission sufficing as prima facie evidence of receipt of a notice sent by telex, telecopy, electronic mail, or facsimile), and when delivered and receipted for (or when attempted delivery is refused at the address where sent) if sent by courier or by certified U.S. Mail. Notices sent by telegram, telex, electronic mail, or facsimile and received between 12:01 a.m. and 7:59 a.m., local time of the destination address, on a business day will be deemed given at 8:00 a.m. on that same day. Notices sent by telegram, telex, electronic mail, or facsimile and received at a time other than between the hours of 12:01 a.m. and 5:00 p.m., local time of the destination address, on a business day will be deemed given at 8:00 a.m. on the next following business day after the day of receipt. The addresses for notice are as follows: If to Employer: Geokinetics Inc. 5555 San Felipe, Suite 780 Houston, Texas 77056 Attention: President Facsimile No.: (713) 850-7330 With a copy to: Chamberlain, Hrdlicka, White, Williams & Martin 1200 Smith Street, Suite 1400 Houston, Texas 77002 Attention: Mr. James J. Spring, III Facsimile No.: (713) 658-2553 and If to the Executive: Lynn Turner 23030 S. Waterlily Richmond, Texas 77469 14 With a copy to: Jack E. Eidman, Jr. 11 Greenway Plaza, Suite 2930 Houston, Texas 77046 Facsimile No.: (713) 871-2498 8.7 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, and legal representatives, including any entity with which the Employer may merge or consolidate or to which all or substantially all of its assets may be transferred. The duties and covenants of the Executive under this Agreement, being personal, may not be delegated. 8.8 INTERPRETATION. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law. A determination that any provision of this Agreement is unenforceable or invalid shall not affect the enforceability or validity of any other provision. 8.9 HEADINGS. The section headings appearing in this Agreement have been inserted for convenience only and shall be given no substantive meaning or significance whatever in construing the terms and provisions of this Agreement. 8.10 ENTIRE AGREEMENT. This Agreement constitutes the final and entire agreement and understanding between the parties to this Agreement concerning the subject matter of this Agreement, and this Agreement supersedes and replaces all prior agreements and understandings, whether written or oral, between such parties concerning the subject matter of this Agreement. No alleged representation, warranty, promise, inducement, or statement of intention not expressly set forth in this Agreement is binding on any party to this Agreement. 8.11 ACKNOWLEDGMENT AND RELEASE BY THE EXECUTIVE. By his execution of this Agreement, the Executive acknowledges that this Agreement supersedes and replaces all other agreements and understandings, whether written or oral, between the Executive and any other Person concerning the subject matter of this Agreement. In consideration for the rights and obligations arising under this Agreement, the Executive hereby voluntarily, knowingly, fully, finally, completely, and forever releases, relinquishes, and forever discharges the Employer and its Affiliates, their officers, directors, employees, and agents, from any and all claims, actions, demands, and causes of action of whatever kind or character, whether known or unknown, joint or several, which the Executive might have or might claim to have against the Employer for any and all injuries, harm, damages, penalties, costs, losses, expenses, attorneys' fees, liabilities, or other detriments, if any, whatsoever and whenever incurred, suffered, or claimed by the Executive arising from any prior agreement or understanding, whether written or oral, between the Executive and the Employer, or any other Person concerning the subject matter of this Agreement. 8.12 GOVERNING LAW. This Agreement will be governed by the laws of the State of Texas without regard to conflicts of laws principles. 15 8.13 JURISDICTION. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against either of the parties in the courts of the State of Texas, County of Harris, or, if it has or can acquire jurisdiction, in the United States District Court for the District of Texas, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on either party anywhere in the world. 8.14 CASHLESS EXERCISE OF OPTIONS. The Executive shall be entitled to exercise the options granted pursuant to Section 3.3: (i) in cash or by certified or cashier's check payable to Employer; or (ii) by delivery to Employer of certificates representing the number of shares of Common Stock then owned by the Executive, the Designated Value of which equals the option price of the shares of Common Stock purchased pursuant to the option or options being exercised. (For purposes of this Agreement, the Designated Value of any shares of Common Stock delivered in payment of the option price payable upon exercise of any option granted hereunder shall be the Designated Value as of the exercise date, and the exercise date shall be the date of delivery of the certificates for the Common Stock used as payment of such option price. The "Designated Value" of the shares of Common Stock on a given date shall mean the average of the closing prices of the Common Stock on the principal market or registered exchange on which the Common Stock is traded (or the average of the closing bid and asked prices, if a single closing price is not reported for such market) on the ten (10) consecutive trading days preceding the date for the determination of such value, provided that the Common Stock is then traded on the over-the-counter market or on the NASDAQ National Market System or any registered securities exchange. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. EMPLOYER: GEOKINETICS INC. BY: JAY D. HABER, PRESIDENT EXECUTIVE: LYNN TURNER 16 EX-10.6 6 EXHIBIT 10.6 EMPLOYMENT AGREEMENT This Employment Agreement (this "AGREEMENT") is made as of July __, 1997 by GEOKINETICS INC, a Delaware corporation (the "EMPLOYER"), and MICHAEL A. DUNN, an individual resident of the State of Texas (the "EXECUTIVE"). INTRODUCTION Employer, directly or through one or more subsidiaries, is engaged in the business of (i) conducting 2-D and 3-D seismic surveys of oil and gas prospects and (ii) exploring for and producing oil and gas in the United States. The Employer desires to employ the Executive, and the Executive wishes to accept such employment, upon the terms and conditions set forth in this Agreement. The parties, intending to be legally bound, agree as follows: Section 1. DEFINITIONS. For the purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1. 1.1 "AFFILIATE" or "AFFILIATES" -- any Person that, directly or indirectly, controls, or is controlled by or under common control with, the Employer, including the Employer. For the purposes of this definition, "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the power to direct or cause the direction of the management and policies of any Person, directly or indirectly, through ownership of voting securities, by contract, or otherwise. 1.2 "AGREEMENT" -- this Employment Agreement, including all Exhibits attached hereto, as amended from time to time. 1.3 "BASIC COMPENSATION" -- Salary and Benefits. 1.4 "BENEFITS" -- as defined in Section 3.1(c). 1.5 "BOARD OF DIRECTORS" -- the board of directors of the Employer. 1.6 "CONFIDENTIAL INFORMATION" -- any and all: (a) trade secrets concerning the business and affairs of any Affiliate, product specifications, data, know-how, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, inventions and ideas, past, current, and planned research and development, current and planned manufacturing or distribution methods and processes, customer lists, current and anticipated customer requirements, price lists, market studies, business plans, seismic data bases, computer software and programs (including object code and source code), computer software and database technologies, systems, structures, and architectures (and related formulae, compositions, 1 processes, improvements, devices, know-how, inventions, discoveries, concepts, ideas, designs, methods and information), and any other information, however documented, that is a trade secret within the meaning of the common law of the State of Texas; and (b) information concerning the business and affairs of any Affiliate (which includes historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets, exploration prospects and plans, the names and backgrounds of key personnel, personnel training and techniques and materials), however documented; and (c) notes, analysis, compilations, studies, summaries, and other material prepared by or for any Affiliate containing or based, in whole or in part, on any information included in the foregoing. 1.7 "DISABILITY" -- as defined in Section 5.2. 1.8 "EFFECTIVE DATE" -- the date on which Executive actually commences his employment herewith (but not later than September 1, 1997). 1.9 "EMPLOYEE INVENTION" -- any idea, invention, technique, modification, process, or improvement (whether patentable or not), any industrial design (whether registerable or not), any mask work, however fixed or encoded, that is suitable to be fixed, embedded or programmed in a semiconductor product (whether recordable or not), and any work of authorship (whether or not copyright protection may be obtained for it) created, conceived, or developed by the Executive, either solely or in conjunction with others, during the Employment Period, or a period that includes a portion of the Employment Period, that relates in any way to, or is useful in any manner in, the business then being conducted or proposed to be conducted by the Employer or the Affiliates, and any such item created by the Executive, either solely or in conjunction with others, following termination of the Executive's employment with the Employer, that is based upon or uses Confidential Information. 1.10 "EMPLOYMENT PERIOD" -- the term of the Executive's employment under this Agreement. 1.11 "FISCAL YEAR" -- the Employer's fiscal year, as it exists on the Effective Date or as changed from time to time. 1.12 "FOR CAUSE" -- as defined in Section 5.3. 1.13 "INCENTIVE COMPENSATION" -- as defined in Section 3.2. 1.14 "OPTION PLAN" -- the Geokinetics Inc. 1995 Employee Stock Option Plan. 1.15 "NONINCENTIVE COMPENSATION" -- as defined in Section 3.3. 2 1.16 "PERSON" -- any individual, general or limited partnership, joint venture, corporation (including any non-profit corporation), limited liability company, bank, estate, trust, association, entity, unincorporated organization, or government body. 1.17 "POST-EMPLOYMENT PERIOD" -- as defined in Section 7.2. 1.18 "PROPRIETARY ITEMS" -- as defined in Section 6.2(a)(iv). 1.19 "SALARY" -- as defined in Section 3.1(a). 1.20 "SIGNING BONUS" -- as defined in Section 3.1(b). Section 2. EMPLOYMENT TERMS AND DUTIES. 2.1 EMPLOYMENT. The Employer hereby employs the Executive, and the Executive hereby accepts employment by the Employer, upon the terms and conditions set forth in this Agreement. 2.2 TERM. Subject to the provisions of Section 5, the term of the Executive's employment under this Agreement will be five (5) years, beginning on the Effective Date and ending on the fifth anniversary of the Effective Date. Thereafter, the term may continue for additional one (1) year periods upon the mutual written agreement of the Executive and the Employer. 2.3 DUTIES. The Executive will have such duties as are assigned or delegated to the Executive by the Board of Directors (which duties shall be of a senior management or executive level) and will initially serve as Vice President and Chief Technology Officer of the Employer, with overall responsibility for Employer's technology development and acquisition programs. The Executive will devote his entire business time, attention, skill, and energy exclusively to the business of the Employer, will use his best efforts to promote the success of the Employer's business, and will cooperate fully with the Board of Directors in the advancement of the best interests of the Employer. For the Executive's service as a director of the Employer or as a director or officer of any of Employer's Affiliates, the Executive will fulfill his duties as such director or officer without additional compensation. Section 3. COMPENSATION. 3.1 BASIC COMPENSATION. (a) SALARY. The Executive will be paid an annual salary of $150,000.00, subject to adjustment as provided below (the "SALARY"), which will be payable in equal periodic installments according to the Employer's customary payroll practices, but no less frequently than monthly. The Salary will be reviewed by the Board of Directors not less frequently than annually, and may be adjusted upward or downward in the sole discretion of the Board of Directors, but in no event will the Salary be less than $150,000.00 per year. 3 (b) SIGNING BONUS. In order to induce the Executive to accept employment with the Employer, the Employer agrees to pay the Executive a bonus of $90,000.00 ("SIGNING BONUS"). Subject to the Executive's employment by the Employer, such bonus shall be paid to the Executive on the Effective Date. (c) BENEFITS. The Executive will, during the Employment Period, be permitted to participate in such pension, profit sharing, bonus, life insurance, hospitalization, major medical, and other employee benefit plans of the Employer that may be in effect from time to time, to the extent the Executive is eligible under the terms of those plans (collectively, the "BENEFITS"). 3.2 INCENTIVE COMPENSATION. As additional compensation (the "INCENTIVE COMPENSATION") for the services to be rendered by the Executive pursuant to this Agreement, the Executive will be entitled to participate in the following plans, in the manner described below: (a) The Executive shall be entitled to receive an annual bonus ("BONUS") based upon the amount of the Employer's earnings before interest, taxes, depreciation and amortization ("EBITDA") in accordance with the terms of the Bonus Plan attached hereto as Exhibit "A". The Employer's earnings before EBITDA shall be computed by Geokinetics, for purposes of calculation of the Bonus, for each twelve-month period beginning on July 1 and ending on June 30 during the term hereof, and shall be determined in accordance with generally accepted accounting principles, consistently applied. 3.3 NONINCENTIVE COMPENSATION. As additional compensation (the "NONINCENTIVE COMPENSATION") for the services to be rendered by the Executive pursuant to this Agreement, the Executive shall be permitted to participate in the Option Plan. Upon the commencement of Executive's employment hereunder, the Executive shall be granted two options to purchase an aggregate of 550,000 shares of Common Stock, at a price of $.75 per share, on the terms and conditions set forth below: (a) The Executive will have one option (the "First Option") to purchase 500,000 shares of Common Stock and will become eligible to exercise 100,000 shares of the First Option on and after each of July 15, 1998, 1999, 2000, 2001 and 2002, provided the Executive continues to be employed by the Employer hereunder on such dates, and the Executive exercises such First Option prior to or on July 15, 2004. (b) The Executive will have a second option (the "Second Option") to purchase 50,000 shares of Common Stock and will be eligible to exercise all or any part of the Second Option on and after the Effective Date hereof, and, provided the Executive continues to be employed by the Employer hereunder, prior to or on July 15, 2002. 4 3.4 VACATIONS AND HOLIDAYS. The Executive will be entitled to four weeks' paid vacation each Fiscal Year in accordance with the vacation policies of the Employer in effect for its executive officers from time to time. Vacation must be taken by the Executive at such time or times as approved by the Chairman of the Board of Directors. The Executive will also be entitled to the paid holidays and other paid leave set forth in the Employer's policies. Vacation days and holidays during any Fiscal Year that are not used by the Executive during such Fiscal Year may not be used in any subsequent Fiscal Year, but Executive shall be paid at the end of each Fiscal Year for any vacation days which Executive was unable to use as a result of a request for approval of a vacation having been denied by the Chairman of the Board of Directors. Section 4.1 FACILITIES AND EXPENSES. The Employer will furnish the Executive office space, equipment, supplies, and such other facilities and personnel as the Employer deems necessary or appropriate for the performance of the Executive's duties under this Agreement and as are commensurate with Executive's duties under Section 2.3. The Employer will pay the Executive's dues in such professional societies and organizations as the Chairman of the Board of Directors of the Employer deems appropriate, and will pay on behalf of the Executive (or reimburse the Executive for) reasonable expenses incurred by the Executive at the request of, or on behalf of, the Employer in the performance of the Executive's duties pursuant to this Agreement, and in accordance with the Employer's employment policies, including reasonable expenses incurred by the Executive in attending conventions, seminars, and other business meetings, in appropriate business entertainment activities, and for promotional expenses. The Executive must file expense reports with respect to such expenses in accordance with the Employer's policies. Section 4.2 AUTOMOBILE. The Executive will own his own automobile, and maintain and insure it at his own expense for his business use in connection with his employment under this Agreement. The Executive will, at his own expense, maintain liability insurance on any automobile used in connection with the Employer's business, including excess liability (umbrella) insurance coverage in an amount not less than $1,000,000 per occurrence with underlying insurance coverage as required by such excess liability insurance policy. The Executive will furnish proof of such insurance to the Employer as requested by the Employer. The Employer will reimburse the Executive for reasonable expenses incurred by the Executive for the operation, repair and maintenance of Executive's automobile in the performance of the Executive's duties pursuant to this Agreement, in accordance with the Employer's employment policies, at a rate of $.35 per mile. The Executive shall file expense reports with respect to such expenses in accordance with Employer's policies. Section 5. TERMINATION. 5.1 EVENTS OF TERMINATION. The Employment Period, the Executive's Basic Compensation, Incentive Compensation, Nonincentive Compensation, and any and all other rights of the Executive under this Agreement or otherwise as an employee of the Employer will terminate (except as otherwise provided in this Section 5): (a) upon the death of the Executive; 5 (b) upon the Disability of the Executive (as defined in Section 5.2) immediately upon notice from either party to the other; (c) For Cause (as defined in Section 5.3), immediately upon notice from the Employer to the Executive, or at such later time as such notice may specify; or (d) upon Executive's voluntary termination of employment, which termination shall be effective thirty (30) days after Employer's receipt of Executive's written resignation. 5.2 DISABILITY. For purposes of this Section 5, the Executive will be deemed to have a "DISABILITY" if, for physical or mental reasons, the Executive is unable to perform the Executive's duties under this Agreement for 120 consecutive days, or 180 days during any twelve month period, as determined in accordance with this Section 5.2. The Disability of the Executive will be determined by a medical doctor selected by written agreement of the Employer and the Executive upon the request of either party by notice to the other. If the Employer and the Executive cannot agree on the selection of a medical doctor, each of them will select a medical doctor and the two medical doctors will select a third medical doctor who will determine whether the Executive has a Disability. The determination of the medical doctor selected under this Section 5.2 will be binding on both parties. The Executive must submit to a reasonable number of examinations by the medical doctor making the determination of Disability under this Section 5.2, and the Executive hereby authorizes the disclosure and release to the Employer of such determination and all supporting medical records. If the Executive is not legally competent, the Executive's legal guardian or duly authorized attorney-in-fact will act on behalf of the Executive, under this Section 5.2, for the purposes of submitting the Executive to the examinations, and providing the authorization of disclosure, required under this Section 5.2. 5.3 FOR CAUSE. For purposes of Section 5.1, the phrase "FOR CAUSE" means any conduct or behavior by the Executive that, in the good faith judgment of the Employer's Board of Directors, is materially detrimental to or materially harmful to the business or reputation of the Employer including, without limitation: (a) the Executive's breach of a material provision of this Agreement, which breach is not substantially cured within ten (10) days after Executive's receipt of written notice thereof from Employer; (b) the Executive's repeated failure to adhere to any written Employer policy and Executive's failure to cure such noncompliance within ten (10) days after receipt of written notice thereof from Employer; (c) the appropriation (or attempted appropriation) of a material business opportunity of the Employer, including attempting to secure or securing any personal profit in connection with any transaction entered into on behalf of the Employer; (d) the misappropriation (or attempted misappropriation) of any of the Employer's funds or property; or (e) the conviction of, the indictment for (or its procedural equivalent), or the entering of a guilty plea or plea of no contest with respect to, a felony (other than involving the misuse of alcohol) or the equivalent thereof. 5.4 TERMINATION PAY. Effective upon the termination of this Agreement, the Employer will be obligated to pay the Executive (or, in the event of his death, his designated beneficiary as defined below) only such compensation as is provided in this Section 5.4, and in lieu of all other amounts and 6 in settlement and complete release of all claims the Executive may have against the Employer under this Agreement. For purposes of this Section 5.4, the Executive's designated beneficiary will be such individual beneficiary or trust, located at such address, as the Executive may designate by notice to the Employer from time to time or, if the Executive fails to give notice to the Employer of such a beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the Employer will have no duty, in any circumstances, to attempt to open an estate on behalf of the Executive, to determine whether any beneficiary designated by the Executive is alive or to ascertain the address of any such beneficiary, to determine the existence of any trust, to determine whether any person or entity purporting to act as the Executive's personal representative (or the trustee of a trust established by the Executive) is duly authorized to act in that capacity, or to locate or attempt to locate any beneficiary, personal representative, or trustee. (a) TERMINATION BY THE EMPLOYER FOR CAUSE. If the Employer terminates this Agreement For Cause, the Executive will be entitled to receive his Salary and Benefits through the date such termination is effective and the vested portion of any Incentive Compensation and any Nonincentive Compensation. (b) TERMINATION UPON DISABILITY. If this Agreement is terminated by either party as a result of the Executive's Disability, as determined under Section 5.2, the Employer will pay the Executive his Salary and Benefits through the remainder of the calendar month during which such termination is effective and for the lesser of (i) six consecutive months thereafter, or (ii) the period until Disability insurance benefits commence under the Disability insurance coverage, if any, furnished by the Employer to the Executive. The Executive shall be entitled to the vested portions of his Incentive Compensation and Nonincentive Compensation and to a pro rata portion of his Incentive Compensation and Nonincentive Compensation for the year during which such Disability occurs, but shall not be entitled to any other Incentive Compensation or Nonincentive Compensation. (c) TERMINATION UPON DEATH. If this Agreement is terminated because of the Executive's death, the Executive will be entitled to receive his Salary and Benefits through the end of the calendar month in which his death occurs. The Executive shall be entitled to receive the vested portions of his Incentive Compensation and Nonincentive Compensation and to a pro rata portion of his Incentive Compensation and Nonincentive Compensation for the year during which the Executive's death occurs, but shall not be entitled to any other Incentive Compensation or Nonincentive Compensation for or any subsequent year. (d) TERMINATION UPON RESIGNATION. If this Agreement is terminated because of the voluntary resignation of the Executive hereunder, the Executive shall be entitled to receive his Salary and Benefits through the effective date of his termination and any vested portions of his Incentive Compensation or 7 Nonincentive Compensation. The Executive shall not be entitled to any other Incentive Compensation or to any other Nonincentive Compensation. (e) TERMINATION BY THE EMPLOYER NOT FOR CAUSE. If the Employer terminates this Agreement not For Cause, the Executive, at the option of the Employer, will be entitled to either: (i) receive all of the compensation and Benefits provided by Section 3.1, and the Incentive Compensation provided by Section 3.2 and the Nonincentive Compensation provided by Section 3.3 for the remainder of the Employment Term, and the Executive shall be subject to the provisions of Section 7.2 hereof; or (ii) the Executive shall be entitled to receive all of the compensation and Benefits provided by Section 3.1 and the vested portions of any Incentive Compensation provided by Section 3.2 and Nonincentive Compensation provided by Section 3.3 through the end of the calendar month in which such termination occurs, and the Executive shall not be subject to the provisions of Section 7.2. (f) BENEFITS. The Executive's accrual of, or participation in plans providing for, the Benefits will cease at the effective date of the termination of this Agreement, and the Executive will be entitled to accrued Benefits pursuant to such plans only as provided in such plans. The Executive will not receive, as part of his termination pay pursuant to this Section 5, any payment or other compensation for any vacation, holiday, sick leave, or other leave unused on the date the notice of termination is given under this Agreement. (g) EXPIRATION OF EMPLOYMENT. Employer agrees to notify the Executive not less than sixty (60) days prior to the expiration of the initial term of this Agreement or any subsequent continuation thereof as to whether Employer desires to extend the Employment Period of this Agreement. Section 6. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS. 6.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges that during the Employment Period and as a part of his employment, the Executive will be afforded access to Confidential Information; public disclosure of such Confidential Information could have an adverse effect on the Employer and its business; because the Executive possesses substantial technical expertise and skill with respect to the Employer's business, the Employer desires to obtain exclusive ownership of each Employee Invention, and the Employer will be at a substantial competitive disadvantage if it fails to acquire exclusive ownership of each Employee Invention; and the provisions of this Section 6 are reasonable and necessary to prevent the improper use or disclosure of Confidential Information and to provide the Employer with exclusive ownership of all Employee Inventions. 6.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the compensation and benefits to be paid or provided to the Executive by the Employer under this Agreement, the Executive covenants as follows: 8 (a) CONFIDENTIALITY. (i) During and for a period of three (3) years following the Employment Period, the Executive will hold in confidence the Confidential Information and will not disclose it to any person except with the specific prior written consent of the Employer or except as otherwise expressly permitted by the terms of this Agreement. (ii) Any trade secrets of any Affiliate will be entitled to all of the protections and benefits under the common law of the State of Texas and any other applicable law. If any information that the Employer deems to be a trade secret is found by a court of competent jurisdiction not to be a trade secret for purposes of this Agreement, such information will, nevertheless, be considered Confidential Information for purposes of this Agreement. The Executive hereby waives any requirement that the Employer submit proof of the economic value of any trade secret or post a bond or other security. (iii) None of the foregoing obligations and restrictions applies to any part of the Confidential Information that the Executive demonstrates either (x) was known by Executive prior to the date of his employment by the Employer, (y) was or became generally available to the public other than as a result of a disclosure by the Executive, or (z) was made known to Executive on a nonconfidential basis from a source other than Employer or its representatives or agents, provided that such source is not bound by a confidentiality agreement with, or other obligation of secrecy to, Employer or another party. (iv) The Executive will not remove from the premises of the Employer or any Affiliate (except to the extent such removal is for purposes of the performance of the Executive's duties at home or while traveling, or except as otherwise specifically authorized by the Employer or such Affiliate) any document, record, notebook, plan, model, component, device, or computer software or code, whether embodied in a disk or in any other form (collectively, the "PROPRIETARY ITEMS"). The Executive recognizes that, as between the Employer or any Affiliate and the Executive, all of the Proprietary Items, whether or not developed by the Executive, are the exclusive property of the Employer or the Affiliates. Upon termination of this Agreement by either party, or upon the request of the Employer or any Affiliate during the Employment Period, the Executive will return to the Employer or the Affiliates all of the Proprietary Items in the Executive's possession or subject to the Executive's control, and the Executive shall not retain any copies, abstracts, sketches, or other physical embodiment of any of the Proprietary Items. 9 (b) EMPLOYEE INVENTIONS. Each Employee Invention will belong exclusively to the Employer. The Executive acknowledges that all of the Executive's writing, works of authorship, specially commissioned works, and other Employee Inventions are works made for hire and the property of the Employer, including any copyrights, patents, or other intellectual property rights pertaining thereto. If it is determined that any such works are not works made for hire, the Executive hereby assigns to the Employer all of the Executive's right, title, and interest, including all rights of copyright, patent, and other intellectual property rights, to or in such Employee Inventions. The Executive covenants that he will promptly: (i) disclose to the Employer in writing any Employee Invention; (ii) assign to the Employer or to a party designated by the Employer, at the Employer's request and without additional compensation, all of the Executive's right to the Employee Invention for the United States and all foreign jurisdictions; (iii) execute and deliver to the Employer such applications, assignments, and other documents as the Employer may request in order to apply for and obtain patents or other registrations with respect to any Employee Invention in the United States and any foreign jurisdictions; (iv) sign all other papers necessary to carry out the above obligations; and (v) give testimony and render any other assistance in support of the Employer's rights to any Employee Invention. (c) COMPENSATION FOR EMPLOYEE INVENTIONS. In the event that any Employee Invention results in the issuance to the Employer of a patent or copyright for the United States or any foreign jurisdiction, Executive shall be entitled to receive from the Employer a royalty equal to 2.0% of Employer's revenues directly arising from the sale or licensing of one or more products utilizing the Employee Invention covered by such patent or copyright. Such royalty shall be payable to Executive annually, within one hundred and twenty (120) days after the end of each Fiscal Year during the Employment Period. 6.3 DISPUTES OR CONTROVERSIES. The Executive recognizes that should a dispute or controversy arising from or relating to this Agreement be submitted for adjudication to any court, arbitration panel, or other third party, the preservation of the secrecy of Confidential Information may be jeopardized. All pleadings, documents, testimony, and records relating to any such adjudication will be maintained in secrecy and will be available for inspection by the Employer, the Executive, and 10 their respective attorneys and experts, who will agree, in advance and in writing, to receive and maintain all such information in secrecy, except as may be limited by them in writing. Section 7. NON-COMPETITION AND NON-INTERFERENCE. 7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges and agrees that the limitations set forth in this Section 7 are a necessary part of and ancillary to the Executive's agreement not to disclose Confidential Information, reasonable and do not impose a greater restraint on the activities of the Executive than is necessary to protect the business interest of the Employer. In the event that any such territorial, scope, or time limitation are deemed to be unreasonable by a court of competent jurisdiction, the Executive agrees to the reduction of the territorial, scope or time limitation to the area, scope or time which such court shall have deemed reasonable. 7.2 COVENANTS OF THE EXECUTIVE. In consideration of the acknowledgments by the Executive, and in consideration of the compensation and benefits to be paid or provided to the Executive by the Employer in the event this Agreement is terminated pursuant to Section 5.4(a), 5.4(d) or 5.4(e)(i), the Executive covenants that he will not, directly or indirectly: (a) during the Employment Period, except in the course of his employment hereunder, and during the Post-Employment Period (as defined below), engage or invest in, own, manage, operate, finance, control, or participate in the ownership, management, operation, financing, or control of, be employed by, associated with, or in any manner connected with, lend the Executive's name or any similar name to, lend Executive's credit to or render services or advice to, any business whose products or activities compete in whole or in part with the products or activities of the Employer or any Affiliate of Employer anywhere within the geographic areas in which the Employer or any such Affiliate now or hereafter conducts its business; provided, however, that the Executive may purchase or otherwise acquire up to (but not more than) one percent of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934; (b) whether for the Executive's own account or for the account of any other person, at any time during the Employment Period and the Post-Employment Period, solicit business of the same or similar type being carried on by the Employer or any Affiliate of Employer, from any person known by the Executive to be a customer of the Employer or any such Affiliate, whether or not the Executive had personal contact with such person during and by reason of the Executive's employment with the Employer; (c) whether for the Executive's own account or the account of any other person at any time during the Employment Period and the Post-Employment Period, (i) solicit, employ, or otherwise engage as an employee, independent 11 contractor, or otherwise, any person who is or was an employee of the Employer or any Affiliate of Employer at any time during the Employment Period or in any manner induce or attempt to induce any employee of the Employer and any such Affiliate to terminate his employment with the Employer; or (ii) interfere with the Employer's or any Affiliate's relationship with any person, including any person who at any time during the Employment Period was an employee, contractor, supplier, or customer of the Employer or any such Affiliate; or (d) at any time during or after the Employment Period, disparage the Employer or any of its shareholders, directors, officers, employees, or agents. For purposes of this Section 7.2, the term "POST-EMPLOYMENT PERIOD" means the two-year period beginning on the date of termination of the Executive's employment with the Employer. If any covenant in this Section 7.2 is held to be unreasonable, arbitrary, or against public policy, such covenant will be considered to be divisible with respect to scope, time, and geographic area, and such lesser scope, time, or geographic area, or all of them, as a court of competent jurisdiction may determine to be reasonable, not arbitrary, and not against public policy, will be effective, binding, and enforceable against the Executive. The period of time applicable to any covenant in this Section 7.2 will be extended by the duration of any violation by the Executive of such covenant. The Executive will, while the covenant under this Section 7.2 is in effect, give notice to the Employer, within ten days after accepting any other employment, of the identity of the Executive's new employer. The Employer may notify such new employer that the Executive is bound by this Agreement. Section 8. GENERAL PROVISIONS. 8.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The Executive acknowledges that the injury that would be suffered by the Employer as a result of a breach of the provisions of this Agreement (including any provision of Sections 6 and 7) would be irreparable and that an award of monetary damages to the Employer for such a breach would be an inadequate remedy. Consequently, the Employer will have the right, in addition to any other rights it may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Employer will not be obligated to post bond or other security in seeking such relief. Any such remedy shall be in addition to any damages which the Employer may be legally entitled to recover as a result of any breach by the Employee of any provision of this Agreement. The Employer may pursue any of the remedies described in this Section concurrently or consecutively and in any order as to such breach or violation, and the pursuit of any one of such remedies at any time will not be deemed an election of remedies or a waiver of the right to pursue any other available remedy. 12 8.2 ESSENTIAL AND INDEPENDENT COVENANTS. The covenants by the Executive in Sections 6 and 7 are essential elements of this Agreement supported by the payment of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Executive, and without the Executive's agreement to comply with such covenants, the Employer would not have entered into this Agreement or employed or continued the employment of the Executive. The Employer and the Executive have independently consulted their respective counsel and have been advised in all respects concerning the reasonableness and propriety of such covenants, with specific regard to the nature of the business conducted by the Employer. If the Executive's employment hereunder expires or is terminated, this Agreement will continue in full force and effect as is necessary or appropriate to enforce the covenants and agreements of the Executive in Sections 6 and 7. 8.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The Executive represents and warrants to the Employer that the execution and delivery by the Executive of this Agreement do not, and the performance by the Executive of the Executive's obligations hereunder will not, with or without the giving of notice or the passage of time, or both: violate any judgment, writ, injunction, or order of any court, arbitrator, or governmental agency applicable to the Executive; or conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which the Executive is a party or by which the Executive is or may be bound. The Executive further represents and warrants to the Employer that no agreements or understandings, whether written or oral, are currently in force and effect between the Executive and the Employer, or any other Person concerning the subject matter of this Agreement. 8.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The obligations of the Employer hereunder, including its obligation to pay the compensation provided for herein, are contingent upon the Executive's performance of the Executive's obligations hereunder. 8.5 WAIVER. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by either party in exercising any right, power, or privilege under this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, no claim or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement. 8.6 NOTICES. All notices pertaining to this Agreement must be in writing, must be sent to the addressee at the address set forth in this Section, or at such other address as the addressee has designated by a notice given in the manner set forth in this Section, and must be sent by telegram, telex, facsimile, electronic mail, courier, or prepaid, certified U.S. Mail. Notices will be deemed given when received, if sent by telegram, telex, electronic mail or facsimile and if received between the 13 hours of 8:00 a.m. and 5:00 p.m., local time of the destination address, on a business day (with confirmation of completed transmission sufficing as prima facie evidence of receipt of a notice sent by telex, telecopy, electronic mail, or facsimile), and when delivered and receipted for (or when attempted delivery is refused at the address where sent) if sent by courier or by certified U.S. Mail. Notices sent by telegram, telex, electronic mail, or facsimile and received between 12:01 a.m. and 7:59 a.m., local time of the destination address, on a business day will be deemed given at 8:00 a.m. on that same day. Notices sent by telegram, telex, electronic mail, or facsimile and received at a time other than between the hours of 12:01 a.m. and 5:00 p.m., local time of the destination address, on a business day will be deemed given at 8:00 a.m. on the next following business day after the day of receipt. The addresses for notice are as follows: If to Employer: Geokinetics Inc. 5555 San Felipe, Suite 780 Houston, Texas 77056 Attention: President Facsimile No.: (713) 850-7330 With a copy to: Chamberlain, Hrdlicka, White, Williams & Martin 1200 Smith Street, Suite 1400 Houston, Texas 77002 Attention: Mr. James J. Spring, III Facsimile No.: (713) 658-2553 and If to the Executive: Michael A. Dunn 3323 Sunset Houston, Texas 77005 8.7 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, and legal representatives, including any entity with which the Employer may merge or consolidate or to which all or substantially all of its assets may be transferred. The duties and covenants of the Executive under this Agreement, being personal, may not be delegated. 8.8 INTERPRETATION. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law. A determination that any provision of this Agreement is unenforceable or invalid shall not affect the enforceability or validity of any other provision. 8.9 HEADINGS. The section headings appearing in this Agreement have been inserted for convenience only and shall be given no substantive meaning or significance whatever in construing the terms and provisions of this Agreement. 14 8.10 ENTIRE AGREEMENT. This Agreement constitutes the final and entire agreement and understanding between the parties to this Agreement concerning the subject matter of this Agreement, and this Agreement supersedes and replaces all prior agreements and understandings, whether written or oral, between such parties concerning the subject matter of this Agreement. No alleged representation, warranty, promise, inducement, or statement of intention not expressly set forth in this Agreement is binding on any party to this Agreement. 8.11 ACKNOWLEDGMENT AND RELEASE BY THE EXECUTIVE. By his execution of this Agreement, the Executive acknowledges that this Agreement supersedes and replaces all other agreements and understandings, whether written or oral, between the Executive and any other Person concerning the subject matter of this Agreement. In consideration for the rights and obligations arising under this Agreement, the Executive hereby voluntarily, knowingly, fully, finally, completely, and forever releases, relinquishes, and forever discharges the Employer and its Affiliates, their officers, directors, employees, and agents, from any and all claims, actions, demands, and causes of action of whatever kind or character, whether known or unknown, joint or several, which the Executive might have or might claim to have against the Employer for any and all injuries, harm, damages, penalties, costs, losses, expenses, attorneys' fees, liabilities, or other detriments, if any, whatsoever and whenever incurred, suffered, or claimed by the Executive arising from any prior agreement or understanding, whether written or oral, between the Executive and the Employer, or any other Person concerning the subject matter of this Agreement. 8.12 GOVERNING LAW. This Agreement will be governed by the laws of the State of Texas without regard to conflicts of laws principles. 8.13 JURISDICTION. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against either of the parties in the courts of the State of Texas, County of Harris, or, if it has or can acquire jurisdiction, in the United States District Court for the District of Texas, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on either party anywhere in the world. 8.14 CASHLESS EXERCISE OF OPTIONS. The Executive shall be entitled to exercise the options granted pursuant to Section 3.3: (i) in cash or by certified or cashier's check payable to Employer; or (ii) by delivery to Employer of certificates representing the number of shares of Common Stock then owned by the Executive, the Designated Value of which equals the option price of the shares of Common Stock purchased pursuant to the option or options being exercised. (For purposes of this Agreement, the Designated Value of any shares of Common Stock delivered in payment of the option price payable upon exercise of any option granted hereunder shall be the Designated Value as of the exercise date, and the exercise date shall be the date of delivery of the certificates for the Common Stock used as payment of such option price. The "Designated Value" of the shares of Common Stock on a given date shall mean the average of the closing prices of the Common Stock on the principal market or registered exchange on which the Common Stock is traded (or the average of the closing bid and asked prices, if a single closing price is not reported for such market) on the ten (10) consecutive trading days preceding the date for the determination of such value, provided 15 that the Common Stock is then traded on the over-the-counter market or on the NASDAQ National Market System or any registered securities exchange. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. EMPLOYER: GEOKINETICS INC. BY: JAY D. HABER, PRESIDENT EXECUTIVE: MICHAEL A. DUNN 16 EX-10.7 7 EXHIBIT 10.7 EMPLOYMENT AGREEMENT This Employment Agreement (this "AGREEMENT") is made as of July __, 1997 by GEOKINETICS INC, a Delaware corporation (the "EMPLOYER"), and THOMAS J. CONCANNON, an individual resident of the State of New Jersey (the "EXECUTIVE"). INTRODUCTION Employer, directly or through one or more subsidiaries, is engaged in the business of (i) conducting 2-D and 3-D seismic surveys of oil and gas prospects and (ii) exploring for and producing oil and gas in the United States. The Employer desires to employ the Executive, and the Executive wishes to accept such employment, upon the terms and conditions set forth in this Agreement. The parties, intending to be legally bound, agree as follows: Section 1. DEFINITIONS. For the purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1. 1.1 "AFFILIATE" or "AFFILIATES" -- any Person that, directly or indirectly, controls, or is controlled by or under common control with, the Employer, including the Employer. For the purposes of this definition, "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the power to direct or cause the direction of the management and policies of any Person, directly or indirectly, through ownership of voting securities, by contract, or otherwise. 1.2 "AGREEMENT" -- this Employment Agreement, including all Exhibits attached hereto, as amended from time to time. 1.3 "BASIC COMPENSATION" -- Salary and Benefits. 1.4 "BENEFITS" -- as defined in Section 3.1(b). 1.5 "BOARD OF DIRECTORS" -- the board of directors of the Employer. 1.6 "CONFIDENTIAL INFORMATION" -- any and all: (a) trade secrets concerning the business and affairs of any Affiliate, product specifications, data, know-how, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, inventions and ideas, past, current, and planned research and development, current and planned manufacturing or distribution methods and processes, customer lists, current and anticipated customer requirements, price lists, market studies, business plans, seismic data bases, computer software and programs (including object code and source code), computer software and database technologies, systems, structures, and architectures (and related formulae, compositions, 1 processes, improvements, devices, know-how, inventions, discoveries, concepts, ideas, designs, methods and information), and any other information, however documented, that is a trade secret within the meaning of the common law of the State of Texas; and (b) information concerning the business and affairs of any Affiliate (which includes historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets, exploration prospects and plans, the names and backgrounds of key personnel, personnel training and techniques and materials), however documented; and (c) notes, analysis, compilations, studies, summaries, and other material prepared by or for any Affiliate containing or based, in whole or in part, on any information included in the foregoing. 1.7 "DISABILITY" -- as defined in Section 5.2. 1.8 "EFFECTIVE DATE" -- the date stated in the first paragraph of the Agreement. 1.9 "EMPLOYEE INVENTION" -- any idea, invention, technique, modification, process, or improvement (whether patentable or not), any industrial design (whether registerable or not), any mask work, however fixed or encoded, that is suitable to be fixed, embedded or programmed in a semiconductor product (whether recordable or not), and any work of authorship (whether or not copyright protection may be obtained for it) created, conceived, or developed by the Executive, either solely or in conjunction with others, during the Employment Period, or a period that includes a portion of the Employment Period, that relates in any way to, or is useful in any manner in, the business then being conducted or proposed to be conducted by the Employer or the Affiliates, and any such item created by the Executive, either solely or in conjunction with others, following termination of the Executive's employment with the Employer, that is based upon or uses Confidential Information. 1.10 "EMPLOYMENT PERIOD" -- the term of the Executive's employment under this Agreement. 1.11 "FISCAL YEAR" -- the Employer's fiscal year, as it exists on the Effective Date or as changed from time to time. 1.12 "FOR CAUSE" -- as defined in Section 5.3. 1.13 "INCENTIVE COMPENSATION" -- as defined in Section 3.2. 1.14 "OPTION PLAN" -- the Geokinetics Inc. 1995 Employee Stock Option Plan. 1.15 "NONINCENTIVE COMPENSATION" -- as defined in Section 3.3. 2 1.16 "PERSON" -- any individual, general or limited partnership, joint venture, corporation (including any non-profit corporation), limited liability company, bank, estate, trust, association, entity, unincorporated organization, or government body. 1.17 "POST-EMPLOYMENT PERIOD" -- as defined in Section 7.2. 1.18 "PROPRIETARY ITEMS" -- as defined in Section 6.2(a)(iv). 1.19 "SALARY" -- as defined in Section 3.1(a). Section 2. EMPLOYMENT TERMS AND DUTIES. 2.1 EMPLOYMENT. The Employer hereby employs the Executive, and the Executive hereby accepts employment by the Employer, upon the terms and conditions set forth in this Agreement. 2.2 TERM. Subject to the provisions of Section 5, the term of the Executive's employment under this Agreement will be three (3) years, beginning on the Effective Date and ending on the third anniversary of the Effective Date. Thereafter, the term may continue for additional one (1) year periods upon the mutual written agreement of the Executive and the Employer. 2.3 DUTIES. The Executive will have such duties as are assigned or delegated to the Executive by the Board of Directors (which duties shall be of a senior management or executive level) and will initially serve as Vice President and Chief Financial Officer of the Employer. The Executive will devote substantially all of his entire business time, attention, skill, and energy exclusively to the business of the Employer, will use his best efforts to promote the success of the Employer's business, and will cooperate fully with the Board of Directors in the advancement of the best interests of the Employer. For the Executive's service as a director of the Employer or as a director or officer of any of its Affiliates, the Executive will fulfill his duties as such director or officer without additional compensation. Section 3. COMPENSATION. 3.1 BASIC COMPENSATION. (a) SALARY. The Executive will be paid an annual salary of $120,000.00, subject to adjustment as provided below (the "SALARY"), which will be payable in equal periodic installments according to the Employer's customary payroll practices, but no less frequently than monthly. The Salary will be reviewed by the Board of Directors not less frequently than annually, and may be adjusted upward or downward in the sole discretion of the Board of Directors, but in no event will the Salary be less than $120,000.00 per year. (b) BENEFITS. The Executive will, during the Employment Period, be permitted to participate in such pension, profit sharing, bonus, life insurance, hospitalization, major medical, and other employee benefit plans of the 3 Employer that may be in effect from time to time, to the extent the Executive is eligible under the terms of those plans (collectively, the "BENEFITS"). 3.2 INCENTIVE COMPENSATION. As additional compensation (the "INCENTIVE COMPENSATION") for the services to be rendered by the Executive pursuant to this Agreement, the Executive will be entitled to participate in the following plans, in the manner described below: (a) The Executive shall be entitled to receive an annual bonus ("BONUS") based upon the amount of the Employer's earnings before interest, taxes, depreciation and amortization ("EBITDA") in accordance with the terms of the Bonus Plan attached hereto as Exhibit "A". The Employer's earnings before EBITDA shall be computed by Geokinetics, for purposes of calculation of the Bonus, for each twelve-month period beginning on July 1 and ending on June 30 during the term hereof, and shall be determined in accordance with generally accepted accounting principles, consistently applied. 3.3 NONINCENTIVE COMPENSATION. As additional compensation (the "NONINCENTIVE COMPENSATION") for the services to be rendered by the Executive pursuant to this Agreement, the Executive shall be permitted to participate in the Option Plan. Upon the commencement of Executive's employment hereunder, the Executive shall be granted two options to purchase an aggregate of 300,000 shares of Common Stock at a price of $.75 per share on the terms set forth below: (a) The Executive will have one option (the "First Option") to purchase 150,000 shares of Common Stock and will become eligible to exercise 50,000 shares of the First Option on and after each of July 15, 1998, 1999 and 2000, provided the Executive continues to be employed by the Employer hereunder on such dates, and the Executive exercises such Option prior to or on July 15, 2002. (b) The Executive will have a second option (the "Second Option") to purchase 150,000 shares of Common Stock and will be eligible to exercise all or any part of the Second Option during the period beginning on the Effective Date hereof and ending on July 15, 2002. 3.4 VACATIONS AND HOLIDAYS. The Executive will be entitled to four weeks' paid vacation each Fiscal Year in accordance with the vacation policies of the Employer in effect for its executive officers from time to time. Vacation must be taken by the Executive at such time or times as approved by the Chairman of the Board of Directors. The Executive will also be entitled to the paid holidays and other paid leave set forth in the Employer's policies. Vacation days and holidays during any Fiscal Year that are not used by the Executive during such Fiscal Year may not be used in any subsequent Fiscal Year, but Executive shall be paid at the end of each Fiscal Year for any vacation days which Executive was unable to use as a result of a request for approval of a vacation having been denied by the Chairman of the Board of Directors. 4 Section 4. FACILITIES AND EXPENSES. The Employer will furnish the Executive office space, equipment, supplies, and such other facilities and personnel as the Employer deems necessary or appropriate for the performance of the Executive's duties under this Agreement and as are commensurate with Executive's duties under Section 2.3. The Employer will pay the Executive's dues in such professional societies and organizations as the Chairman of the Board of Directors of the Employer deems appropriate, and will pay on behalf of the Executive (or reimburse the Executive for) reasonable expenses incurred by the Executive at the request of, or on behalf of, the Employer in the performance of the Executive's duties pursuant to this Agreement, and in accordance with the Employer's employment policies, including reasonable expenses incurred by the Executive in attending conventions, seminars, and other business meetings, in appropriate business entertainment activities, and for promotional expenses. The Executive must file expense reports with respect to such expenses in accordance with the Employer's policies. Section 5. TERMINATION. 5.1 EVENTS OF TERMINATION. The Employment Period, the Executive's Basic Compensation, Incentive Compensation, Nonincentive Compensation, and any and all other rights of the Executive under this Agreement or otherwise as an employee of the Employer will terminate (except as otherwise provided in this Section 5): (a) upon the death of the Executive; (b) upon the Disability of the Executive (as defined in Section 5.2) immediately upon notice from either party to the other; (c) For Cause (as defined in Section 5.3), immediately upon notice from the Employer to the Executive, or at such later time as such notice may specify; or (d) upon Executive's voluntary termination of employment, which termination shall be effective thirty (30) days after Employer's receipt of Executive's written resignation. 5.2 DISABILITY. For purposes of this Section 5, the Executive will be deemed to have a "DISABILITY" if, for physical or mental reasons, the Executive is unable to perform the Executive's duties under this Agreement for 120 consecutive days, or 180 days during any twelve month period, as determined in accordance with this Section 5.2. The Disability of the Executive will be determined by a medical doctor selected by written agreement of the Employer and the Executive upon the request of either party by notice to the other. If the Employer and the Executive cannot agree on the selection of a medical doctor, each of them will select a medical doctor and the two medical doctors will select a third medical doctor who will determine whether the Executive has a Disability. The determination of the medical doctor selected under this Section 5.2 will be binding on both parties. The Executive must submit to a reasonable number of examinations by the medical doctor making the determination of Disability under this Section 5.2, and the Executive hereby authorizes the disclosure and release to the Employer of such determination and all supporting medical records. If 5 the Executive is not legally competent, the Executive's legal guardian or duly authorized attorney-in-fact will act on behalf of the Executive, under this Section 5.2, for the purposes of submitting the Executive to the examinations, and providing the authorization of disclosure, required under this Section 5.2. 5.3 FOR CAUSE. For purposes of Section 5.1, the phrase "FOR CAUSE" means any conduct or behavior by the Executive that, in the good faith judgment of the Employer's Board of Directors, is materially detrimental to or materially harmful to the business or reputation of the Employer including, without limitation: (a) the Executive's breach of a material provisions of this Agreement, which breach is not substantially cured within ten (10) days after Executive's receipt of written notice thereof from Employer; (b) the Executive's repeated failure to adhere to any written Employer policy and Executive's failure to cure such noncompliance within ten (10) days after receipt of written notice thereof from Employer; (c) the appropriation (or attempted appropriation) of a material business opportunity of the Employer, including attempting to secure or securing any personal profit in connection with any transaction entered into on behalf of the Employer; (d) the misappropriation (or attempted misappropriation) of any of the Employer's funds or property; or (e) the conviction of, the indictment for (or its procedural equivalent), or the entering of a guilty plea or plea of no contest with respect to, a felony (other than involving the misuse of alcohol) or the equivalent thereof. 5.4 TERMINATION PAY. Effective upon the termination of this Agreement, the Employer will be obligated to pay the Executive (or, in the event of his death, his designated beneficiary as defined below) only such compensation as is provided in this Section 5.4, and in lieu of all other amounts and in settlement and complete release of all claims the Executive may have against the Employer under this Agreement. For purposes of this Section 5.4, the Executive's designated beneficiary will be such individual beneficiary or trust, located at such address, as the Executive may designate by notice to the Employer from time to time or, if the Executive fails to give notice to the Employer of such a beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the Employer will have no duty, in any circumstances, to attempt to open an estate on behalf of the Executive, to determine whether any beneficiary designated by the Executive is alive or to ascertain the address of any such beneficiary, to determine the existence of any trust, to determine whether any person or entity purporting to act as the Executive's personal representative (or the trustee of a trust established by the Executive) is duly authorized to act in that capacity, or to locate or attempt to locate any beneficiary, personal representative, or trustee. (a) TERMINATION BY THE EMPLOYER FOR CAUSE. If the Employer terminates this Agreement For Cause, the Executive will be entitled to receive his Salary and Benefits through the date such termination is effective and the vested portion of any Incentive Compensation and any Nonincentive Compensation. (b) TERMINATION UPON DISABILITY. If this Agreement is terminated by either party as a result of the Executive's Disability, as determined under Section 5.2, the Employer will pay the Executive his Salary and Benefits through the remainder of the calendar month during which such termination is effective and for the lesser of (i) six consecutive months thereafter, or (ii) the period until Disability insurance benefits commence under the Disability insurance 6 coverage, if any, furnished by the Employer to the Executive. The Executive shall be entitled to the vested portions of his Incentive Compensation and Nonincentive Compensation and to a pro rata portion of his Incentive Compensation and Nonincentive Compensation for the year during which such Disability occurs, but shall not be entitled to any other Incentive Compensation or Nonincentive Compensation. (c) TERMINATION UPON DEATH. If this Agreement is terminated because of the Executive's death, the Executive will be entitled to receive his Salary and Benefits through the end of the calendar month in which his death occurs. The Executive shall be entitled to receive the vested portions of his Incentive Compensation and Nonincentive Compensation and to a pro rata portion of his Incentive Compensation and Nonincentive Compensation for the year during which the Executive's death occurs, but shall not be entitled to any other Incentive Compensation or Nonincentive Compensation for or any subsequent year. (d) TERMINATION UPON RESIGNATION. If this Agreement is terminated because of the voluntary resignation of the Executive hereunder, the Executive shall be entitled to receive his Salary and Benefits through the effective date of his termination and any vested portions of his Incentive Compensation or Nonincentive Compensation. The Executive shall not be entitled to any other Incentive Compensation or to any other Nonincentive Compensation. (e) TERMINATION BY THE EMPLOYER NOT FOR CAUSE. If the Employer terminates this Agreement not For Cause, the Executive, at the option of the Employer, will be entitled to either: (i) receive all of the compensation and Benefits provided by Section 3.1, and the Incentive Compensation provided by Section 3.2 and the Nonincentive Compensation provided by Section 3.3 for the remainder of the Employment Term, and the Executive shall be subject to the provisions of Section 7.2 hereof; or (ii) the Executive shall be entitled to receive all of the compensation and Benefits provided by Section 3.1 and the vested portions of any Incentive Compensation provided by Section 3.2 and Nonincentive Compensation provided by Section 3.3 through the end of the calendar month in which such termination occurs, and the Executive shall not be subject to the provisions of Section 7.2. (f) BENEFITS. The Executive's accrual of, or participation in plans providing for, the Benefits will cease at the effective date of the termination of this Agreement, and the Executive will be entitled to accrued Benefits pursuant to such plans only as provided in such plans. The Executive will not receive, as part of his termination pay pursuant to this Section 5, any payment or other compensation for any vacation, holiday, sick leave, or other leave unused on the date the notice of termination is given under this Agreement. 7 (g) EXPIRATION OF EMPLOYMENT. Employer agrees to notify the Executive not less than sixty (60) days prior to the expiration of the initial term of this Agreement or any subsequent continuation thereof as to whether Employer desires to extend the Employment Period of this Agreement. Section 6. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS. 6.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges that during the Employment Period and as a part of his employment, the Executive will be afforded access to Confidential Information; public disclosure of such Confidential Information could have an adverse effect on the Employer and its business; because the Executive possesses substantial technical expertise and skill with respect to the Employer's business, the Employer desires to obtain exclusive ownership of each Employee Invention, and the Employer will be at a substantial competitive disadvantage if it fails to acquire exclusive ownership of each Employee Invention; and the provisions of this Section 6 are reasonable and necessary to prevent the improper use or disclosure of Confidential Information and to provide the Employer with exclusive ownership of all Employee Inventions. 6.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the compensation and benefits to be paid or provided to the Executive by the Employer under this Agreement, the Executive covenants as follows: (a) CONFIDENTIALITY. (i) During and for a period of two (2) years following the Employment Period, the Executive will hold in confidence the Confidential Information and will not disclose it to any person except with the specific prior written consent of the Employer or except as otherwise expressly permitted by the terms of this Agreement. (ii) Any trade secrets of any Affiliate will be entitled to all of the protections and benefits under the common law of the State of Texas and any other applicable law. If any information that the Employer deems to be a trade secret is found by a court of competent jurisdiction not to be a trade secret for purposes of this Agreement, such information will, nevertheless, be considered Confidential Information for purposes of this Agreement. The Executive hereby waives any requirement that the Employer submit proof of the economic value of any trade secret or post a bond or other security. (iii) None of the foregoing obligations and restrictions applies to any part of the Confidential Information that the Executive demonstrates either (x) was known by Executive prior to the date of his employment by the Employer, (y) was or became generally available to the public other than as a result of a disclosure by the Executive, or (z) was 8 made known to Executive on a nonconfidential basis from a source other than Employer or its representatives or agents, provided that such source is not bound by a confidentiality agreement with, or other obligation of secrecy to, Employer or another party. (iv) The Executive will not remove from the premises of the Employer or any Affiliate (except to the extent such removal is for purposes of the performance of the Executive's duties at home or while traveling, or except as otherwise specifically authorized by the Employer or such Affiliate) any document, record, notebook, plan, model, component, device, or computer software or code, whether embodied in a disk or in any other form (collectively, the "PROPRIETARY ITEMS"). The Executive recognizes that, as between the Employer or any Affiliate and the Executive, all of the Proprietary Items, whether or not developed by the Executive, are the exclusive property of the Employer or the Affiliates. Upon termination of this Agreement by either party, or upon the request of the Employer or any Affiliate during the Employment Period, the Executive will return to the Employer or the Affiliates all of the Proprietary Items in the Executive's possession or subject to the Executive's control, and the Executive shall not retain any copies, abstracts, sketches, or other physical embodiment of any of the Proprietary Items. (b) EMPLOYEE INVENTIONS. Each Employee Invention will belong exclusively to the Employer. The Executive acknowledges that all of the Executive's writing, works of authorship, specially commissioned works, and other Employee Inventions are works made for hire and the property of the Employer, including any copyrights, patents, or other intellectual property rights pertaining thereto. If it is determined that any such works are not works made for hire, the Executive hereby assigns to the Employer all of the Executive's right, title, and interest, including all rights of copyright, patent, and other intellectual property rights, to or in such Employee Inventions. The Executive covenants that he will promptly: (i) disclose to the Employer in writing any Employee Invention; (ii) assign to the Employer or to a party designated by the Employer, at the Employer's request and without additional compensation, all of the Executive's right to the Employee Invention for the United States and all foreign jurisdictions; (iii) execute and deliver to the Employer such applications, assignments, and other documents as the Employer may request in order to apply for and obtain patents or other 9 registrations with respect to any Employee Invention in the United States and any foreign jurisdictions; (iv) sign all other papers necessary to carry out the above obligations; and (v) give testimony and render any other assistance in support of the Employer's rights to any Employee Invention. 6.3 DISPUTES OR CONTROVERSIES. The Executive recognizes that should a dispute or controversy arising from or relating to this Agreement be submitted for adjudication to any court, arbitration panel, or other third party, the preservation of the secrecy of Confidential Information may be jeopardized. All pleadings, documents, testimony, and records relating to any such adjudication will be maintained in secrecy and will be available for inspection by the Employer, the Executive, and their respective attorneys and experts, who will agree, in advance and in writing, to receive and maintain all such information in secrecy, except as may be limited by them in writing. Section 7. NON-COMPETITION AND NON-INTERFERENCE. 7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges and agrees that the limitations set forth in this Section 7 are a necessary part of and ancillary to the Executive's agreement not to disclose Confidential Information, reasonable and do not impose a greater restraint on the activities of the Executive than is necessary to protect the business interest of the Employer. In the event that any such territorial, scope, or time limitation are deemed to be unreasonable by a court of competent jurisdiction, the Executive agrees to the reduction of the territorial, scope or time limitation to the area, scope or time which such court shall have deemed reasonable. 7.2 COVENANTS OF THE EXECUTIVE. In consideration of the acknowledgments by the Executive, and in consideration of the compensation and benefits to be paid or provided to the Executive by the Employer in the event this Agreement is terminated pursuant to Section 5.4(a), 5.4(d) or 5.4(e)(i), the Executive covenants that he will not, directly or indirectly: (a) during the Employment Period, except in the course of his employment hereunder, and during the Post-Employment Period (as defined below), engage or invest in, own, manage, operate, finance, control, or participate in the ownership, management, operation, financing, or control of, be employed by, associated with, or in any manner connected with, lend the Executive's name or any similar name to, lend Executive's credit to or render services or advice to, any business whose products or activities compete in whole or in part with the products or activities of the Employer or any Affiliate of Employer anywhere within the geographic areas in which the Employer or any such Affiliate now or hereafter conducts its business; provided, however, that the Executive may purchase or otherwise acquire up to (but not more than) one percent of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on 10 any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934; (b) whether for the Executive's own account or for the account of any other person, at any time during the Employment Period and the Post-Employment Period, solicit business of the same or similar type being carried on by the Employer or any Affiliate of Employer, from any person known by the Executive to be a customer of the Employer or any such Affiliate, whether or not the Executive had personal contact with such person during and by reason of the Executive's employment with the Employer; (c) whether for the Executive's own account or the account of any other person at any time during the Employment Period and the Post-Employment Period, (i) solicit, employ, or otherwise engage as an employee, independent contractor, or otherwise, any person who is or was an employee of the Employer or any Affiliate of Employer at any time during the Employment Period or in any manner induce or attempt to induce any employee of the Employer and any such Affiliate to terminate his employment with the Employer; or (ii) interfere with the Employer's or any Affiliate's relationship with any person, including any person who at any time during the Employment Period was an employee, contractor, supplier, or customer of the Employer or any such Affiliate; or (d) at any time during or after the Employment Period, disparage the Employer or any of its shareholders, directors, officers, employees, or agents. For purposes of this Section 7.2, the term "POST-EMPLOYMENT PERIOD" means the two-year period beginning on the date of termination of the Executive's employment with the Employer. If any covenant in this Section 7.2 is held to be unreasonable, arbitrary, or against public policy, such covenant will be considered to be divisible with respect to scope, time, and geographic area, and such lesser scope, time, or geographic area, or all of them, as a court of competent jurisdiction may determine to be reasonable, not arbitrary, and not against public policy, will be effective, binding, and enforceable against the Executive. The period of time applicable to any covenant in this Section 7.2 will be extended by the duration of any violation by the Executive of such covenant. The Executive will, while the covenant under this Section 7.2 is in effect, give notice to the Employer, within ten days after accepting any other employment, of the identity of the Executive's new employer. The Employer may notify such new employer that the Executive is bound by this Agreement. 11 Section 8. GENERAL PROVISIONS. 8.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The Executive acknowledges that the injury that would be suffered by the Employer as a result of a breach of the provisions of this Agreement (including any provision of Sections 6 and 7) would be irreparable and that an award of monetary damages to the Employer for such a breach would be an inadequate remedy. Consequently, the Employer will have the right, in addition to any other rights it may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Employer will not be obligated to post bond or other security in seeking such relief. Any such remedy shall be in addition to any damages which the Employer may be legally entitled to recover as a result of any breach by the Employee of any provision of this Agreement. The Employer may pursue any of the remedies described in this Section concurrently or consecutively and in any order as to such breach or violation, and the pursuit of any one of such remedies at any time will not be deemed an election of remedies or a waiver of the right to pursue any other available remedy. 8.2 ESSENTIAL AND INDEPENDENT COVENANTS. The covenants by the Executive in Sections 6 and 7 are essential elements of this Agreement supported by the payment of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Executive, and without the Executive's agreement to comply with such covenants, the Employer would not have entered into this Agreement or employed or continued the employment of the Executive. The Employer and the Executive have independently consulted their respective counsel and have been advised in all respects concerning the reasonableness and propriety of such covenants, with specific regard to the nature of the business conducted by the Employer. If the Executive's employment hereunder expires or is terminated, this Agreement will continue in full force and effect as is necessary or appropriate to enforce the covenants and agreements of the Executive in Sections 6 and 7. 8.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The Executive represents and warrants to the Employer that the execution and delivery by the Executive of this Agreement do not, and the performance by the Executive of the Executive's obligations hereunder will not, with or without the giving of notice or the passage of time, or both: violate any judgment, writ, injunction, or order of any court, arbitrator, or governmental agency applicable to the Executive; or conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which the Executive is a party or by which the Executive is or may be bound. The Executive further represents and warrants to the Employer that no agreements or understandings, whether written or oral, are currently in force and effect between the Executive and the Employer, or any other Person concerning the subject matter of this Agreement. 8.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The obligations of the Employer hereunder, including its obligation to pay the compensation provided for herein, are contingent upon the Executive's performance of the Executive's obligations hereunder. 12 8.5 WAIVER. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by either party in exercising any right, power, or privilege under this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, no claim or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement. 8.6 NOTICES. All notices pertaining to this Agreement must be in writing, must be sent to the addressee at the address set forth in this Section, or at such other address as the addressee has designated by a notice given in the manner set forth in this Section, and must be sent by telegram, telex, facsimile, electronic mail, courier, or prepaid, certified U.S. Mail. Notices will be deemed given when received, if sent by telegram, telex, electronic mail or facsimile and if received between the hours of 8:00 a.m. and 5:00 p.m., local time of the destination address, on a business day (with confirmation of completed transmission sufficing as prima facie evidence of receipt of a notice sent by telex, telecopy, electronic mail, or facsimile), and when delivered and receipted for (or when attempted delivery is refused at the address where sent) if sent by courier or by certified U.S. Mail. Notices sent by telegram, telex, electronic mail, or facsimile and received between 12:01 a.m. and 7:59 a.m., local time of the destination address, on a business day will be deemed given at 8:00 a.m. on that same day. Notices sent by telegram, telex, electronic mail, or facsimile and received at a time other than between the hours of 12:01 a.m. and 5:00 p.m., local time of the destination address, on a business day will be deemed given at 8:00 a.m. on the next following business day after the day of receipt. The addresses for notice are as follows: If to Employer: Geokinetics Inc. 5555 San Felipe, Suite 780 Houston, Texas 77056 Attention: President Facsimile No.: (713) 850-7330 With a copy to: Chamberlain, Hrdlicka, White, Williams & Martin 1200 Smith Street, Suite 1400 Houston, Texas 77002 Attention: Mr. James J. Spring, III Facsimile No.: (713) 658-2553 and If to the Executive: Thomas J. Concannon 34 Willow Drive Chester, New Jersey 07930 13 8.7 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, and legal representatives, including any entity with which the Employer may merge or consolidate or to which all or substantially all of its assets may be transferred. The duties and covenants of the Executive under this Agreement, being personal, may not be delegated. 8.8 INTERPRETATION. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law. A determination that any provision of this Agreement is unenforceable or invalid shall not affect the enforceability or validity of any other provision. 8.9 HEADINGS. The section headings appearing in this Agreement have been inserted for convenience only and shall be given no substantive meaning or significance whatever in construing the terms and provisions of this Agreement. 8.10 ENTIRE AGREEMENT. This Agreement constitutes the final and entire agreement and understanding between the parties to this Agreement concerning the subject matter of this Agreement, and this Agreement supersedes and replaces all prior agreements and understandings, whether written or oral, between such parties concerning the subject matter of this Agreement. No alleged representation, warranty, promise, inducement, or statement of intention not expressly set forth in this Agreement is binding on any party to this Agreement. 8.11 ACKNOWLEDGMENT AND RELEASE BY THE EXECUTIVE. By his execution of this Agreement, the Executive acknowledges that this Agreement supersedes and replaces all other agreements and understandings, whether written or oral, between the Executive and any other Person concerning the subject matter of this Agreement. In consideration for the rights and obligations arising under this Agreement, the Executive hereby voluntarily, knowingly, fully, finally, completely, and forever releases, relinquishes, and forever discharges the Employer and its Affiliates, their officers, directors, employees, and agents, from any and all claims, actions, demands, and causes of action of whatever kind or character, whether known or unknown, joint or several, which the Executive might have or might claim to have against the Employer for any and all injuries, harm, damages, penalties, costs, losses, expenses, attorneys' fees, liabilities, or other detriments, if any, whatsoever and whenever incurred, suffered, or claimed by the Executive arising from any prior agreement or understanding, whether written or oral, between the Executive and the Employer, or any other Person concerning the subject matter of this Agreement. 8.12 GOVERNING LAW. This Agreement will be governed by the laws of the State of Texas without regard to conflicts of laws principles. 8.13 JURISDICTION. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against either of the parties in the courts of the State of Texas, County of Harris, or, if it has or can acquire jurisdiction, in the United States District Court for the District of Texas, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any 14 objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on either party anywhere in the world. 8.14 CASHLESS EXERCISE OF OPTIONS. The Executive shall be entitled to exercise the options granted pursuant to Section 3.3: (i) in cash or by certified or cashier's check payable to Employer; or (ii) by delivery to Employer of certificates representing the number of shares of Common Stock then owned by the Executive, the Designated Value of which equals the option price of the shares of Common Stock purchased pursuant to the option or options being exercised. (For purposes of this Agreement, the Designated Value of any shares of Common Stock delivered in payment of the option price payable upon exercise of any option granted hereunder shall be the Designated Value as of the exercise date, and the exercise date shall be the date of delivery of the certificates for the Common Stock used as payment of such option price. The "Designated Value" of the shares of Common Stock on a given date shall mean the average of the closing prices of the Common Stock on the principal market or registered exchange on which the Common Stock is traded (or the average of the closing bid and asked prices, if a single closing price is not reported for such market) on the ten (10) consecutive trading days preceding the date for the determination of such value, provided that the Common Stock is then traded on the over-the-counter market or on the NASDAQ National Market System or any registered securities exchange. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. EMPLOYER: GEOKINETICS INC. BY: JAY D. HABER, PRESIDENT EXECUTIVE: THOMAS J. CONCANNON 15 -----END PRIVACY-ENHANCED MESSAGE-----