Mandatorily Redeemable Preferred Stock

The Company classifies its mandatorily redeemable preferred stock, which is not convertible or exchangeable for the Company’s common stock, as a long-term liability. Dividends paid or accrued are reflected as interest expense in the Company’s consolidated statement of operations.

Mandatorily redeemable preferred stock consisted of (in thousands, expect share amounts):



	December 31, 2012				December 31, 2011
	Shares				Shares
Series C-1 Mandatorily Redeemable Preferred:
Issued	133,982	$	33,495		133,982	$	33,495
Discount, net of accretion	—	(696		)	—	(927		)
Accrued interest	—	14,116			—	8,909
Series C-1 Mandatorily Redeemable Preferred, net	133,982	46,915			133,982	41,477
Series D Mandatorily Redeemable Preferred:
Issued	120,000	30,000			120,000	30,000
Discount, net of accretion	—	(21,572		)	—	(22,049		)
Accrued interest	—	7,837			—	3,782
Series D Mandatorily Redeemable Preferred, net	120,000	$	16,265		120,000	$	11,733
Total		$	63,180			$	53,210

Series C-1 Mandatorily Redeemable Preferred Stock and 2008 Warrants

On July 28, 2008, the Company issued 120,000 shares of its Series B-2 Preferred Stock to Avista and an affiliate of Avista. In December 2009, the Company agreed to exchange its previously issued Series B-2 Preferred Stock for 133,982 shares of new Series C Preferred Stock plus 750,000 shares of Geokinetics common stock, which were issued to Avista and its affiliate. On May 9, 2012, the Company entered into a Series C Preferred Stock Subscription and Exchange Agreement pursuant to which all the shares of Series C Preferred Stock were exchanged for an equal number of shares of the new Series C-1 Senior Preferred Stock of the Company. The exchange was consummated to resolve certain technical legal questions relating to the prior issuance of and/or amendment to certain shares of the Series C Preferred Stock and to ensure that full legal effect is given to prior agreements between the Company and the holders of the Series C Preferred Stock. The terms of the new Series C-1 Preferred Stock are consistent with the terms of the Series C Preferred Stock such that the Series C-1 Preferred Stock is intended to have the same economic effect as the Series C Preferred Stock for which they were exchanged.

The Company is required to redeem the Series C-1 Preferred Stock on December 16, 2015. The Series C-1 Preferred Stock accrues dividends at a rate of 11.75%. Dividends accrue until December 16, 2015. The Series C-1 Preferred Stock is not convertible or exchangeable for Geokinetics’ common stock. The liquidation value of the Series C-1 Preferred Stock was $47.6 million at December 31, 2012. The Series C-1 Preferred Stock has liquidation preference over the Series D preferred stock (see below).

For the years ended December 31, 2012, 2011 and 2010, the Company recognized interest expense of $5.4 million $4.8 million and $4.1 million, respectively, related to the Series C-1 Preferred Stock, which includes accretion of discount of $0.2 million, $0.2 million and $0.2 million, respectively.

2008 Warrants

On July 28, 2008, the Company issued warrants to purchase 240,000 shares of Geokinetics common stock to Avista and an affiliate of Avista in conjunction with the issuance of the Series B-2 Preferred Stock. The 2008 Warrants have a current exercise price of $9.05 per share. The 2008 Warrants expire on July 28, 2013 and contain anti-dilution provisions substantially identical to the Series B-1 Preferred Stock such that if the Company issues certain equity securities for a price that is lower than the warrant exercise price, the exercise price of the warrants will be adjusted downward pursuant to a specific formula.

On May 9, 2012, the Company amended the terms of the 2008 Warrants to, among other things, provide that (i) if the exercise price of the 2008 Warrants is adjusted as a result of the issuance, if any, of the warrants pursuant to the Avista Commitment Letter, then the adjusted exercise price will not be lower than the closing price of the Company's common stock on the last trading day before such warrants are issued and (ii) the issuance of the new Series B-1 Preferred Stock pursuant to the exchange of Series B Preferred Stock will not result in adjustment to the exercise price of the 2008 Warrants.

As a result of the anti-dilution provisions, the 2008 Warrants are accounted for at fair value and recorded as derivative liabilities in the Company's consolidated balance sheets at December 31, 2012 and 2011.

Series D Mandatorily Redeemable Junior Preferred Stock and 2010 Warrants

In December 2010, the Company completed a $30.0 million private placement of 120,000 shares of a new series of junior preferred stock (“Series D Preferred Stock”) and warrants to purchase 3,495,000 shares of Geokinetics common stock. The Series D Preferred Stock was issued to related parties including Avista and its affiliates, PGS, Levant and certain directors of the Company. Dividends on the Series D Preferred Stock accrue from the date of issuance and are paid in cash or accrued at the election of Geokinetics at a rate of 10.5% per annum and compounded quarterly if paid in cash and 11.5% per annum and compounded quarterly if accrued but not paid. The Series D Preferred Stock is subject to mandatory redemption on December 15, 2016 and subject to redemption at the option of Geokinetics at the liquidation preference. The preferred stock was issued at a value of $8.3 million. The original discount of $21.7 million will be accreted through December 15, 2016 as additional interest expense using the effective interest rate method. The liquidation value of the Series D Preferred Stock was $37.8 million at December 31, 2012. The Series D Preferred Stock is not convertible or exchangeable for Geokinetics’ common stock.

For the years ended December 31, 2012 and 2011, the Company recognized total interest expense of $4.5 million and $3.1 million, respectively, related to the Series D Preferred Stock, which includes accretion of discount of $0.5 million and $(0.5) million, respectively.

2010 Warrants

On December 14, 2010, the Company issued warrants to purchase 3,495,000 shares of Geokinetics common stock in conjunction with the issuance of the Series D Preferred Stock. The 2010 Warrants have a current exercise price of $3.84 per share. The 2010 Warrants expire on December 15, 2016 and contain price protection provisions such that if the Company issues certain equity securities on or prior to December 14, 2012, for a price that is lower than the warrant conversion price, the exercise price of the warrants will be adjusted to the price of the newly issued equity securities. After December 14, 2012, the exercise price adjusts in accordance with a similar formula as the Series B-1 Preferred Stock. See note 8.

On May 9, 2012, the Company amended the terms of the 2010 Warrants to, among other things, provide that the issuance of the new Series B-1 Preferred Stock pursuant to the exchange of the Series B Preferred Stock will not result in an adjustment to the exercise price of the 2010 Warrants.

As a result of the anti-dilution provisions, the 2010 Warrants are accounted for at fair value and recorded as derivative liabilities in the consolidated balance sheets at December 31, 2012 and 2011.

Holders of Series D Preferred Stock will receive no distribution and their Series D Preferred Stock will be cancelled without consideration under the Plan.