Organization and Current Events

Geokinetics Inc., a Delaware corporation founded in 1980, is based in Houston, Texas. The Company is a global provider of seismic data acquisition, processing and integrated reservoir geosciences services, and a leader in providing land, transition zone and shallow water OBC environment geophysical services. These geophysical services include acquisition of 2D, 3D, time-lapse 4D and multi-component seismic data surveys, data processing and integrated reservoir geosciences services for customers in the oil and natural gas industry, which include national oil companies, major international oil companies and independent oil and gas exploration and production companies worldwide. Seismic data is used by these companies to identify and analyze drilling prospects and maximize successful drilling. The Company also owns a multi-client seismic data library whereby it maintains full or partial ownership of data acquired; client access is provided via licensing agreements. The Company’s multi-client seismic data library consists of data covering various areas in the United States, Canada and Brazil.

Voluntary Reorganization under Chapter 11

On January 15, 2013, the Debtors entered into a restructuring support agreement with holders of more than 70% in aggregate principal amount of the Notes and the largest holder of the Company's preferred stock. Under the terms of the RSA, the Debtors agreed to implement a financial restructuring of the Company and its domestic subsidiaries and the other parties agreed to support and vote for either a pre-negotiated or pre-packaged plan of reorganization in accordance with the terms and conditions of the agreement. The Plan provides for the exchange of the Notes for a newly issued common stock representing 100% of the issued and outstanding common stock of the reorganized Company (subject to dilution from a management incentive plan and the satisfaction of borrowings under the DIP Facility with common stock of the reorganized Company described below), the repayment of the Whitebox Revolving Credit Facility in full, the payment in full of unsecured creditors, including trade vendors, either at the conclusion of the Chapter 11 case or in the ordinary course of business, and a $6 million cash payment to certain of the Company's preferred stockholders. The Company's existing common stock will not receive a distribution and all existing equity interests will be cancelled without consideration.

The reorganization is not expected to have a material impact on the Company's operations and it will seek to pay unsecured trade and other creditors in full either in the ordinary course of business or at the conclusion of the Chapter 11 case.

A special committee of the Company's Board of Directors unanimously approved entering into the RSA. The parties' commitment under the restructuring support agreement and the completion of the transactions contemplated by the restructuring support agreement are subject to a number of closing conditions, termination rights and approvals, including the achievement of certain milestones in the Chapter 11 process by the deadlines specified in the RSA.

The Company commenced a solicitation of acceptances of the Plan on February 7, 2013 and the Plan was approved by the classes entitled to vote on the Plan, which represented the requisite majority of the Company's stakeholders. On March 10, 2013, the Company filed voluntary petitions for relief under Chapter 11 of Title 11 of the U.S. Code in the Bankruptcy Court. The Plan remains subject to the approval of the Bankruptcy Court.

The Company entered into the DIP Facility with the Backstop DIP Lenders on March 13, 2013. The DIP Facility, which provides for term loans of up to $25 million, will be used for general corporate purposes and working capital needs in accordance with a budget approved by the Backstop DIP Lenders and to satisfy the costs associated with the restructuring. All borrowings under the DIP Facility are to be satisfied in common stock of the reorganized Company under the terms of the Plan or repaid on the earlier of (i) the date that is four months after the effective date of the DIP Facility, (ii) the date the obligations are accelerated pursuant to the terms of the DIP Facility and (iii) the effective date of a Chapter 11 plan.

During the pendency of the bankruptcy proceedings, the Company plans to continue to operate its businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the U.S. Code and order of the Bankruptcy Court. The Company is seeking to emerge from bankruptcy early in the second quarter of 2013. The Company expects to enter into an Exit Facility in connection with the consummation of the reorganization to provide it with liquidity for operations after the restructuring.

Events Leading to Proposed Restructuring

The following is a general description of factors that ultimately led the Company to enter into a restructuring plan to restructure the Company's liabilities and maximize recoveries to holders of claims and interests. The Company incurred operating losses primarily due to delays in project commencements, low asset utilization, idle crew costs, and the Mexico liftboat incident, which resulted in serious concerns about the Company's liquidity beginning in 2011 and continuing into 2012. In 2011, the Company began working with a financial advisor regarding a possible right-sizing of the Company's capital structure, and the Company began focusing on improving liquidity by giving priority to generating cash flows while maintaining long-term commitments to providing high quality seismic data acquisition services. These actions included:


•	the May 31, 2012 appointment of David Crowley as the President and Chief Operating Officer and his subsequent appointment as Chief Executive Officer on November 9, 2012;


•	an increased focus on cost reductions;


•	the rationalization of operating locations resulting in the decision to close some of the Company's Africa and Middle East regional offices and operations;


•	the identification of additional assets for potential sale, including the sale of certain North American seismic data described below;


•	the centralization of bidding and management service processes to provide a higher level of control over costs; and


•	a focus on bidding for seismic acquisition services with consideration of required capital expenditures for additional equipment given the restrictions in cash required for bid or posting of performance or bid bonds.

In furtherance of the above, on March 31, 2012, the Company sold certain North American seismic data to SEI for $10 million in cash. The data sold included 4,751 miles of 3D data and 644 linear miles of 2D data. In connection with this sale, the Company retained the right to receive 75% of the new revenues generated and collected on this seismic data until the earlier of such time as the Company receives $2.0 million or March 7, 2017. If the Company receives $2.0 million prior to March 7, 2017, then the Company will thereafter receive 50% of the net revenues generated from the applicable seismic data until March 7, 2017. We have recognized $2.0 million for our portion during the period ended December 31, 2012.

The Company's financial position continued to deteriorate during the third quarter of 2012. Consequently, with the assistance of our legal and financial advisors, during the fourth quarter of 2012, the Company entered into discussions with the Lenders, certain holders of the Notes, and certain holders of the Company's preferred stock regarding the restructuring of the Debtors' balance sheet. The parties were initially unable to reach an agreement regarding a consensual restructuring, and a confidentiality agreement terminated on or about December 14, 2012.

On December 17, 2012, the Company announced that it had elected not to make the approximately $14.6 million interest payment on the Notes that was due on December 15, 2012 and to operate under the 30-day grace period provided for in the Notes Indenture. To avoid contested and lengthy Chapter 11 cases, the Company utilized the 30-day grace period to continue negotiations with its stakeholders and prepare for an in-court restructuring, which focused on a balance sheet restructuring designed to minimize the impact on operations.

As a result, on January 15, 2013, the Company entered into the Restructuring Support Agreement with these Noteholders and preferred stockholders. Under the terms of the Restructuring Support Agreement, the Company agreed to implement a financial restructuring of the Debtors, and the other parties to the Restructuring Support Agreement agreed to support and vote for either a pre-packaged or pre-negotiated plan of reorganization in accordance with the terms and conditions of the agreement. The Plan reflects the agreements reached in connection with the restructuring support agreement.

Summary of the Plan

The Plan provides that the Company will (i) repay $50 million in loans plus accrued interest outstanding under the Whitebox Revolving Credit Facility from the proceeds of an Exit Facility, (ii) newly issued common stock representing 100% of the issued and outstanding common stock of the reorganized Company (subject to dilution for a management incentive plan and satisfaction of borrowings under the the DIP Facility in common stock of the reorganized Company described below), (iii) pay general unsecured claims in full either at the conclusion of the Chapter 11 cases or in the ordinary course of business, and (iv) make a $6 million cash payment to the holders of the Company's Series B-1 and Series C-1 preferred stock and cancel all of the preferred stock. The existing holders of the Company's Series D preferred stock and the common stock will not receive any distributions and their equity interests will be cancelled without consideration. The terms and conditions of the management incentive plan are expected to be determined after the Company emerges from Chapter 11.

The Plan represents a settlement and consensual arrangement among the Debtors’ significant creditor and equity constituencies. Based on the valuation analysis prepared by the Debtors with the assistance of its advisors, the value of the Debtors is not sufficient to provide a full recovery to the holders of Notes. The Debtors have determined that the value of the new common stock that will be distributed on account of the Note claims is approximately $224 million prior to any dilution from the DIP equity distribution, while the aggregate amount of the Notes outstanding is $300 million in principal, plus accrued and unpaid interest. Further, the Debtors and the consenting Noteholders concluded that in order to preserve and protect the Debtors’ present and future operations, it is critical that trade creditors, vendors, suppliers and customers are unimpaired by and experience minimal interruption during the Chapter 11 case. Therefore, in exchange for a fully consensual Chapter 11 process, the consenting Noteholders have agreed to support the settlement and compromise set forth in the Restructuring Support Agreement which provides for trade and other unsecured claims to be unimpaired and for the holders of the Company's Series B-1 and Series C-1 preferred stock to receive a $6 million cash payment.

Going Concern

The Company incurred a net loss for the years ended 2012, 2011 and 2010 and had a shareholders' deficit as of December 31, 2012 and 2011. To improve the Company's performance and address competitive challenges, the Company has developed a strategic plan for the ongoing operation of the Company's business. Successful implementation of the Company's plan, however, is subject to numerous risks and uncertainties. In addition, the increasingly competitive industry conditions under which the Company operates have negatively impacted the Company's results of operations and cash flows and may continue to do so in the future. These factors raise substantial doubt about the Company's ability to continue as a going concern.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company's ability to continue as a going concern is contingent upon the Company's ability to comply with the financial and other covenants contained in the DIP Facility, the Bankruptcy Court's approval of the Company's reorganization plan and the Company's ability to successfully implement the Company's plan and obtain exit financing, among other factors. As a result of the Bankruptcy Filing, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession under Chapter 11, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in the DIP Facility), for amounts other than those reflected in the accompanying consolidated financial statements. Further, the reorganization plan could materially change the amounts and classifications of assets and liabilities reported in the consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Bankruptcy Filing.

Delisting from the NYSE MKT

The Company's common stock was previously listed on the NYSE MKT (formerly the NYSE AMEX) under the trading symbol “GOK.” The NYSE MKT placed a trading halt on our common stock beginning on December 17, 2012 and subsequently suspended our listing before the opening of the market on December 27, 2012. On December 27, 2012, the OTCQB market operated by OTC Markets Group, Inc. (www.otcmarkets.com) and the OTC Bulletin Board (www.otcbb.com) began quoting our common stock under the symbol “GEOK.” The Company intends to deregister under the Exchange Act and to suspend its SEC reporting obligations after this Annual Report on Form 10-K is filed with the SEC.