10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 1-12691

ION GEOPHYSICAL CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE
(State or other jurisdiction of	22-2286646
incorporation or organization)	(I.R.S. Employer Identification No.)

2105 CityWest Blvd.
Suite 400
Houston, Texas	77042-2839
(Address of principal executive offices)	(Zip Code)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 933-3339

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: þ No: o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: o No: þ

At July 27, 2011, there were 155,138,787 shares of common stock, par value $0.01 per share, outstanding.

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS FOR FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2011

	PAGE
PART I. Financial Information
Item 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010		3
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010		4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010		5
Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures about Market Risk		26
Item 4. Controls and Procedures		26
PART II. Other Information
Item 1. Legal Proceedings		26
Item 1A. Risk Factors		28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30
Item 6. Exhibits		30
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

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PART I. FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2011 (unaudited)			2010 (audited)
	( In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	55,953		$	84,419
Short-term investments		39,000			—
Accounts receivable, net		65,921			77,576
Unbilled receivables		45,306			70,590
Inventories		86,160			66,882
Prepaid expenses and other current assets		15,373			13,165
Total current assets		307,713			312,632
Deferred income tax asset		14,098			8,998
Property, plant and equipment, net		25,913			20,145
Multi-client data library, net		120,086			112,620
Investment in INOVA Geophysical		91,722			95,173
Goodwill		52,194			51,333
Intangible assets, net		17,654			20,317
Other assets		10,054			3,224
Total assets	$	639,434		$	624,442
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt	$	5,119		$	6,073
Accounts payable		30,700			30,940
Accrued expenses		42,811			54,799
Accrued multi-client data library royalties		13,024			18,667
Deferred revenue and other current liabilities		36,558			22,887
Total current liabilities		128,212			133,366
Long-term debt, net of current maturities		100,153			102,587
Other long-term liabilities		7,499			8,042
Total liabilities		235,864			243,995
Equity:
Cumulative convertible preferred stock		27,000			27,000
Common stock, $0.01 par value; authorized 200,000,000 shares; outstanding 155,118,287 and 152,870,679 shares at June 30, 2011 and December 31, 2010, respectively, net of treasury stock		1,551			1,529
Additional paid-in capital		837,726			822,399
Accumulated deficit		(445,015	)		(448,386	)
Accumulated other comprehensive loss		(11,376	)		(15,530	)
Treasury stock, at cost, 849,539 shares both at June 30, 2011 and December 31, 2010		(6,565	)		(6,565	)
Total stockholders’ equity		403,321			380,447
Noncontrolling interest		249			—
Total equity		403,570			380,447
Total liabilities and equity	$	639,434		$	624,442

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(In thousands, except per share data)
Product revenues	$	39,016		$	39,433		$	71,403		$	79,675
Service revenues		49,516			35,953			107,681			84,430
Total net revenues		88,532			75,386			179,084			164,105
Cost of products		17,624			20,576			32,263			51,067
Cost of services		37,277			26,748			82,051			62,610
Gross profit		33,631			28,062			64,770			50,428
Operating expenses:
Research, development and engineering		5,906			5,217			11,745			14,216
Marketing and sales		7,838			5,649			14,880			13,555
General and administrative		11,087			11,212			23,274			27,650
Total operating expenses		24,831			22,078			49,899			55,421
Income (loss) from operations		8,800			5,984			14,871			(4,993	)
Interest expense, net		(1,187	)		(1,373	)		(2,802	)		(27,016	)
Loss on disposition of land division		—			—			—			(38,115	)
Fair value adjustment of warrant		—			—			—			12,788
Equity in losses of INOVA Geophysical		(4,173	)		(179	)		(5,033	)		(179	)
Other income (expense)		497			(799	)		(2,502	)		2,418
Income (loss) before income taxes		3,937			3,633			4,534			(55,097	)
Income tax expense		1,085			2,174			1,232			14,334
Net income (loss)		2,852			1,459			3,302			(69,431	)
Net income attributable to noncontrolling interest		44			—			69			—
Net income (loss) attributable to ION		2,896			1,459			3,371			(69,431	)
Preferred stock dividends		338			385			676			1,260
Net income (loss) applicable to common shares	$	2,558		$	1,074		$	2,695		$	(70,691	)
Net income (loss) per share:
Basic	$	0.02		$	0.01		$	0.02		$	(0.52	)
Diluted	$	0.02		$	0.01		$	0.02		$	(0.52	)
Weighted average number of common shares outstanding:
Basic		155,096			151,441			154,385			135,962
Diluted		156,553			152,036			156,058			135,962

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Six Months Ended
	June 30,
	2011			2010
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	3,302		$	(69,341	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization (other than multi-client library)		7,476			15,766
Amortization of multi-client library		36,748			18,858
Stock-based compensation expense related to stock options, nonvested stock and employee stock purchases		3,727			3,343
Amortization of debt discount		—			8,656
Write-off of unamortized debt issuance costs		—			10,121
Fair value adjustment of warrant		—			(12,788	)
Loss on disposition of land division		—			38,115
Equity in losses of INOVA Geophysical		5,033			179
Deferred income taxes		(8,192	)		8,250
Change in operating assets and liabilities:
Accounts receivable		11,422			31,088
Unbilled receivables		25,284			(8,183	)
Inventories		(22,051	)		1,153
Accounts payable, accrued expenses and accrued royalties		(15,847	)		(23,568	)
Deferred revenue		16,630			1,768
Other assets and liabilities		(2,720	)		(3,755	)
Net cash provided by operating activities		60,812			19,572
Cash flows from investing activities:
Purchase of property, plant and equipment		(7,240	)		(2,056	)
Investment in multi-client data library		(46,102	)		(21,226	)
Purchase of short-term investments		(80,000	)		—
Proceeds from sale of short-term investments		41,000			—
Investment in a convertible note		(6,500	)		—
Proceeds from disposition of land division, net of fees paid		—			99,790
Advances to INOVA Geophysical		—			(6,500	)
Other investing activities		50			(1,272	)
Net cash provided by (used in) investing activities		(98,792	)		68,736
Cash flows from financing activities:
Borrowings under revolving line of credit		—			85,000
Repayments under revolving line of credit		—			(174,429	)
Net proceeds from the issuance of debt		—			105,695
Net proceeds from the issuance of stock		—			38,039
Payments on notes payable and long-term debt		(3,388	)		(142,047	)
Payment of preferred dividends		(676	)		(1,260	)
Contribution from noncontrolling interest		307			—
Proceeds from exercise of stock options		12,931			—
Other financing activities		(40	)		(78	)
Net cash provided by (used in) financing activities		9,134			(89,080	)
Effect of change in foreign currency exchange rates on cash and cash equivalents		380			843
Net increase (decrease) in cash and cash equivalents		(28,466	)		71
Cash and cash equivalents at beginning of period		84,419			16,217
Cash and cash equivalents at end of period	$	55,953		$	16,288
Non-cash items from investing and financing activities:
Transfer of inventory to rental equipment	$	2,978		$	—
Reduction in multi-client data library related to finalization of accrued liabilities		1,888			—
Expiration of BGP Warrant		—			32,001
Conversion of BGP Domestic Convertible Note to equity		—			28,571
Investment in INOVA Geophysical		—			119,000
Exchange of RXT receivables into shares		—			9,516

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

5

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

     The condensed consolidated balance sheet of ION Geophysical Corporation and its subsidiaries (collectively referred to as the “Company” or “ION,” unless the context otherwise requires) at December 31, 2010 has been derived from the Company’s audited consolidated financial statements at that date. The condensed consolidated balance sheet at June 30, 2011, the condensed consolidated statements of operations for the three and six months ended June 30, 2011 and 2010, and the condensed consolidated statements of cash flows for the six months ended June 30, 2011 and 2010 are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of the operating results for a full year or of future operations.

     These condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements presented in accordance with accounting principles generally accepted in the United States have been omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and on Form 10-K/A which contains the separate consolidated financial statements of INOVA Geophysical Equipment Limited for the fiscal year ended December 31, 2010.

(2) Equity Method Investment in INOVA Geophysical

     On March 25, 2010, the Company completed the disposition of most of its land seismic equipment businesses in connection with its formation of a land equipment joint venture with BGP, Inc., China National Petroleum Corporation (“BGP”). BGP is a subsidiary of China National Petroleum Corporation (“CNPC”) and is a leading global geophysical services contracting company. The resulting joint venture company, organized under the laws of the People’s Republic of China, is named INOVA Geophysical Equipment Limited (“INOVA,” or “INOVA Geophysical”). BGP owns a 51% interest in INOVA Geophysical, and the Company owns a 49% interest. INOVA Geophysical is managed through a Board of Directors consisting of four members appointed by BGP and three members appointed by the Company. The Company accounts for its 49% interest in INOVA Geophysical as an equity method investment and, as provided by Accounting Standards Codification (“ASC”) 815 “Investments,” the Company records its share of earnings in INOVA Geophysical on a one fiscal quarter lag basis. The Company’s share of INOVA Geophysical’s losses for the five-day period ended March 31, 2010 of $0.2 million is included in its financial results for the three months ended June 30, 2010, and INOVA Geophysical’s financial results for this five-day period are not presented in the table below. The following table reflects summarized, unaudited financial information for INOVA Geophysical for the three months ended March 31, 2011 and for the six-month period from October 1, 2010 through March 31, 2011 (in thousands):

	Three Months			October 1, 2010
	Ended			through
	March 31, 2011			March 31, 2011
Total net revenues	$	32,452		$	77,991
Gross profit	$	3,708		$	14,924
Loss from operations	$	(6,657	)	$	(9,867	)
Net loss	$	(8,090	)	$	(10,771	)

(3) Segment Information

     The Company evaluates and reviews its results based on four segments: Systems, Software, Solutions and Legacy Land Systems (INOVA). The Company measures segment operating results based on income from operations. The Legacy Land Systems (INOVA) segment represents the disposed land division operations through March 25, 2010, the date of the formation of the INOVA Geophysical joint venture.

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     A summary of segment information is as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Net revenues:
Systems:
Towed Streamer	$	20,234		$	19,677		$	37,781		$	29,910
Ocean Bottom		507			1,137			509			1,311
Other		8,734			8,978			15,145			14,686
Total	$	29,475		$	29,792		$	53,435		$	45,907
Software:
Software Systems	$	9,541		$	9,641		$	17,968		$	17,257
Services		558			492			830			848
Total	$	10,099		$	10,133		$	18,798		$	18,105
Solutions:
Data Processing	$	20,634		$	27,753		$	40,933		$	51,718
New Venture		9,772			4,917			32,222			12,343
Data Library		18,552			2,791			33,696			19,521
Total	$	48,958		$	35,461		$	106,851		$	83,582
Legacy Land Systems (INOVA)	$	—		$	—		$	—		$	16,511
Total	$	88,532		$	75,386		$	179,084		$	164,105
Gross profit:
Systems	$	15,110		$	12,381		$	27,355		$	17,939
Software		7,331			6,811			12,909			12,180
Solutions		11,190			8,870			24,506			21,293
Legacy Land Systems (INOVA)		—			—			—			(984	)
Total	$	33,631		$	28,062		$	64,770		$	50,428
Gross margin:
Systems		51	%		42	%		51	%		39	%
Software		73	%		67	%		69	%		67	%
Solutions		23	%		25	%		23	%		26	%
Legacy Land Systems (INOVA)		—	%		—	%		—	%		(6	%)
Total		38	%		37	%		36	%		31	%
Income (loss) from operations:
Systems	$	9,057		$	7,231		$	15,137		$	8,140
Software		6,439			6,256			11,292			11,062
Solutions		3,042			2,548			8,854			8,113
Legacy Land Systems (INOVA)		—			—			—			(9,623	)
Corporate and other		(9,738	)		(10,051	)		(20,412	)		(22,685	)
Income (loss) from operations		8,800			5,984			14,871			(4,993	)
Interest expense, net		(1,187	)		(1,373	)		(2,802	)		(27,016	)
Loss on disposition of land division		—			—			—			(38,115	)
Fair value adjustment of warrant		—			—			—			12,788
Equity in losses of INOVA Geophysical		(4,173	)		(179	)		(5,033	)		(179	)
Other income (expense)		497			(799	)		(2,502	)		2,418
Income (loss) before income taxes	$	3,937		$	3,633		$	4,534		$	(55,097	)

7

(4) Investments

     Short-term Investments

     Short-term investments are comprised solely of bank certificates of deposit denominated in U.S. dollars with original maturities in excess of three months and represent the investment of excess cash that is available for current operations. The Company recorded these investments on its balance sheet at cost based on its intent and ability to hold these investments to maturity. These short-term investments were purchased at a cost, which approximates fair value based on Level 1 inputs, of $80.0 million and have scheduled maturities through January 2012. During the second quarter of 2011, the Company liquidated $41.0 million of its original investment to cover the working capital required to bridge the funding of the Company’s multi-client projects.

     Long-term Investment

     In May 2011, the Company purchased a convertible note from a private U.S-based technology company. The principal amount of the note is $6.5 million and bears interest at a rate of 4% per annum. The maturity date of the note is two years; however, the note will automatically convert into shares of common stock of the investee on the earlier to occur of (a) the maturity date of the note and (b) the date funds are invested into the investee by any venture capital firm or other investor. Upon the occurrence of a conversion event, the note will convert into a number of shares of common stock equal to 15% of the total post-conversion outstanding shares of common stock of the investee. The investee does not have the right to prepay any principal on the note without the Company’s consent; therefore, it is expected that the note will automatically convert within two years. Interest on the note will be paid in cash upon the maturity date, or conversion, if sooner.

     The Company classifies its investment as available-for-sale and has recorded the fair value of this investment as a noncurrent asset included in other assets on its consolidated balance sheet with unrealized gains and losses reflected in accumulated other comprehensive income until realized. The Company uses a market approach to estimate the fair value of its investment in the convertible debt security using Level 3 inputs, such as financial information available related to the investee and the length of time since the investment was purchased in May 2011. As of June 30, 2011, the fair value of this investment was $6.5 million with no unrealized gains or losses recorded in accumulated other comprehensive income.

(5) Inventories

     A summary of inventories is as follows (in thousands):

	June 30,			December 31,
	2011			2010
Raw materials and subassemblies	$	42,552		$	39,412
Work-in-process		4,370			4,605
Finished goods		52,244			35,741
Reserve for excess and obsolete inventories		(13,006	)		(12,876	)
Total	$	86,160		$	66,882

(6) Net Income (Loss) per Share

     Basic net income (loss) per common share is computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted net income per common share is determined based on the assumption that dilutive restricted stock and restricted stock unit awards have vested and outstanding dilutive stock options have been exercised and the aggregate proceeds were used to reacquire common stock using the average price of such common stock for the period. The total number of shares issued or committed for issuance under outstanding stock options at June 30, 2011 and 2010 was 5,396,075 and 7,575,100, respectively, and the total number of shares of restricted stock and shares reserved for restricted stock units outstanding at June 30, 2011 and 2010 was 964,882 and 914,907, respectively.

8

     There are 27,000 outstanding shares of the Company’s Series D Cumulative Convertible Preferred Stock, which may currently be converted, at the holder’s election, into up to 6,065,075 shares of the Company’s common stock. See further discussion of the Series D Preferred Stock conversion provisions at Note 8 “— Cumulative Convertible Preferred Stock” and Note 12 “— Litigation.” The outstanding shares of all Series D Preferred Stock were anti-dilutive for all periods presented.

     The following table summarizes the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Net income (loss) applicable to common shares	$	2,558	$	1,074	$	2,695	$	(70,691	)
Weighted average number of common shares outstanding		155,096		151,441		154,385		135,962
Effect of dilutive stock awards		1,457		595		1,673		—
Weighted average number of diluted common shares outstanding		156,553		152,036		156,058		135,962
Basic net income (loss) per share	$	0.02	$	0.01	$	0.02	$	(0.52	)
Diluted net income (loss) per share	$	0.02	$	0.01	$	0.02	$	(0.52	)

(7) Notes Payable, Long-term Debt, Lease Obligations and Interest Rate Caps

	June 30,			December 31,
Obligations (in thousands)	2011			2010
$100.0 million revolving line of credit	$	—		$	—
Term loan facility		101,250			103,250
Facility lease obligation		3,365			3,657
Equipment capital leases and other notes payable		657			1,753
Total		105,272			108,660
Current portion of notes payable, long-term debt and lease obligations		(5,119	)		(6,073	)
Non-current portion of notes payable, long-term debt and lease obligations	$	100,153		$	102,587

     Revolving Line of Credit and Term Loan Facility

     In March 2010, ION, its Luxembourg subsidiary, ION International S.à r.l. (“ION Sàrl”), and certain of its other U.S. and foreign subsidiaries entered into a new credit facility (the “Credit Facility”). The terms of the Credit Facility are set forth in a credit agreement dated as of March 25, 2010 (the “Credit Agreement”), by and among ION, ION Sàrl and China Merchants Bank Co., Ltd., New York Branch (“CMB”), as administrative agent and lender. The obligations of ION under the Credit Facility are guaranteed by certain of ION’s material U.S. subsidiaries and the obligations of ION Sàrl under the Credit Facility are guaranteed by certain of ION’s material U.S. and foreign subsidiaries, in each case that are parties to the Credit Agreement. In addition, in June 2010, INOVA Geophysical also entered into an agreement to guarantee the indebtedness under the Credit Facility.

     The Credit Facility provides ION with a revolving line of credit of up to $100.0 million in borrowings (including borrowings for letters of credit) and refinanced ION’s outstanding term loan with a new term loan in the original principal amount of $106.3 million. As of June 30, 2011, ION had no indebtedness outstanding under the revolving line of credit.

     The revolving credit facility and term loan under the Credit Facility are each scheduled to mature on March 24, 2015. The $106.3 million original principal amount under the term loan is subject to scheduled quarterly amortization payments that commenced on June 30, 2010, of $1.0 million per quarter until the maturity date, with the remaining unpaid principal amount of the term loan due upon the maturity date. The indebtedness under the Credit Facility may sooner mature on a date that is 18 months after the earlier of (i) any dissolution of INOVA Geophysical, or (ii) the administrative agent determining in good faith that INOVA Geophysical is unable to perform its obligations under its guarantee.

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     The interest rate per annum on borrowings under the Credit Facility will be, at ION’s option:

• An alternate base rate equal to the sum of (i) the greatest of (a) the prime rate of CMB, (b) a federal funds effective rate plus 0.50%, or (c) an adjusted LIBOR-based rate plus 1.0%, and (ii) an applicable interest margin of 2.5%; or

• For eurodollar borrowings and borrowings in euros, pounds sterling or canadian dollars, the sum of (i) an adjusted LIBOR-based rate, and (ii) an applicable interest margin of 3.5%.

     As of June 30, 2011, the $101.3 million in outstanding term loan indebtedness under the Credit Facility accrued interest at a rate of 3.8% per annum.

     The Credit Facility requires compliance with certain financial covenants. Certain of these financial covenants became effective on June 30, 2011, and will continue in effect for each fiscal quarter thereafter over the term of the Credit Facility. These financial covenants require ION and its U.S. subsidiaries to:

• Maintain a minimum fixed charge coverage ratio in an amount equal to at least 1.125 to 1;

• Not exceed a maximum leverage ratio of 3.25 to 1; and

• Maintain a minimum tangible net worth of at least 60% of ION’s tangible net worth as of March 31, 2010, as defined in the Credit Agreement.

     The fixed charge coverage ratio is defined as the ratio of (i) ION’s consolidated EBITDA less cash income tax expense and non-financed capital expenditures, to (ii) the sum of scheduled payments of lease payments and payments of principal indebtedness, interest expense actually paid and cash dividends, in each case for the four consecutive fiscal quarters most recently ended. The leverage ratio is defined as the ratio of (x) total funded consolidated debt, capital lease obligations and issued letters of credit (net of cash collateral) to (y) consolidated EBITDA of ION for the four consecutive fiscal quarters most recently ended. The Company was in compliance with these financial covenants when they became effective on June 30, 2011, and expects to remain in compliance with these financial covenants throughout the remainder of 2011.

     Interest Rate Caps

     In August 2010, the Company entered into an interest rate cap agreement and purchased interest rate caps (the “August 2010 Caps”) having an initial notional amount of $103.3 million with a three-month average LIBOR cap of 2.0%. If and when the three-month average LIBOR rate exceeds 2.0%, the LIBOR portion of interest owed by the Company would be capped at 2.0%. The initial notional amount was set to equal the projected outstanding balance under the Company’s term loan facility at December 31, 2010. The notional amount was then set so as not to exceed the Company’s outstanding balance of its term loan facility over a period extending through March 29, 2013. The Company purchased these interest rate caps for approximately $0.4 million.

     In July 2011, the Company purchased additional interest rate caps (the “July 2011 Caps”) related to its term loan facility. The notional amounts, together with the notional amounts of the August 2010 Caps, were set so as not to exceed the outstanding balance of the Company’s term loan facility over a period that extends through March 31, 2014. The Company purchased these interest rate caps for an amount equal to approximately $0.3 million.

     As of July 2011, the Company held interest rate caps as follows (amounts in thousands):

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				Notional Amounts
Payment Date	Cap Rate			August 2010 Caps		July 2011 Caps		Total
September 29, 2011		2.0	%	$	91,125	$	—	$	91,125
December 29, 2011		2.0	%	$	90,225	$	—	$	90,225
March 29, 2012		2.0	%	$	89,325	$	—	$	89,325
June 29, 2012		2.0	%	$	68,775	$	18,850	$	87,625
September 28, 2012		2.0	%	$	68,075	$	18,650	$	86,725
December 31, 2012		2.0	%	$	67,375	$	18,450	$	85,825
March 29, 2013		2.0	%	$	66,675	$	18,250	$	84,925
June 28, 2013		2.0	%	$	—	$	63,175	$	63,175
September 30, 2013		2.0	%	$	—	$	62,475	$	62,475
December 31, 2013		2.0	%	$	—	$	61,775	$	61,775
March 31, 2014		2.0	%	$	—	$	61,075	$	61,075

     These interest rate caps have been designated as cash flow hedges according to ASC 815 (“Derivatives and Hedging”) and, accordingly, the effective portion of the change in fair value of these interest rate caps are recognized in other comprehensive income in the Company’s consolidated financial statements. As of June 30, 2011, the total fair value of the August 2010 Caps was $0.1 million, which was based on Level 2 inputs such as interest rates and yield curves that are observable at commonly quoted intervals. For both the three and six months ended June 30, 2011, there was approximately $0.1 million, net of tax, related to the change in fair value included in other comprehensive income.

(8) Cumulative Convertible Preferred Stock

     During 2005, the Company entered into an Agreement with Fletcher International, Ltd. (this Agreement, as amended, is referred to as the “Fletcher Agreement”) and issued to Fletcher 30,000 shares of Series D-1 Cumulative Convertible Preferred Stock (“Series D-1 Preferred Stock”) in a privately-negotiated transaction, receiving $29.8 million in net proceeds. The Fletcher Agreement also provided to Fletcher an option to purchase up to an additional 40,000 shares of additional series of preferred stock from time to time, with each series having a conversion price that would be equal to 122% of an average daily volume-weighted market price of the Company’s common stock over a trailing period of days at the time of issuance of that series. In 2007 and 2008, Fletcher exercised this option and purchased 5,000 shares of Series D-2 Cumulative Convertible Preferred Stock (“Series D-2 Preferred Stock”) for $5.0 million (in December 2007) and 35,000 shares of Series D-3 Cumulative Convertible Preferred Stock (“Series D-3 Preferred Stock”) for $35.0 million (in February 2008). The shares of Series D-1 Preferred Stock, Series D-2 Preferred Stock and Series D-3 Preferred Stock are sometimes referred to herein as the “Series D Preferred Stock.”

     Dividends on the shares of Series D Preferred Stock must be paid in cash on a quarterly basis. Dividends are payable at a rate equal to the greater of (i) 5.0% per annum or (ii) the three month LIBOR rate on the last day of the immediately preceding calendar quarter plus 2.5% per annum. The Series D Preferred Stock dividend rate was 5.0% at June 30, 2011.

     Under the Fletcher Agreement, if a 20-day volume-weighted average trading price per share of the Company’s common stock fell below $4.4517 (the “Minimum Price”), the Company was required to deliver a notice (the “Reset Notice”) to Fletcher. On November 28, 2008, the volume-weighted average trading price per share of the Company’s common stock on the New York Stock Exchange for the previous 20 trading days was calculated to be $4.328, and the Company delivered the Reset Notice to Fletcher in accordance with the terms of the Fletcher Agreement. In the Reset Notice, the Company elected to reset the conversion prices for the Series D Preferred Stock to the Minimum Price ($4.4517 per share), and Fletcher’s rights to redeem the Series D Preferred Stock were terminated. The adjusted conversion price resulting from this election was effective on November 28, 2008.

     In addition, under the Fletcher Agreement, the aggregate number of shares of common stock issued or issuable to Fletcher upon conversion or redemption of, or as dividends paid on, the Series D Preferred Stock could not exceed a designated maximum number of shares (the “Maximum Number”), and such Maximum Number could be increased by Fletcher providing the Company with a 65-day notice of increase, but under no circumstance could the total number of shares of common stock issued or issuable to Fletcher with respect to the Series D Preferred Stock ever exceed 15,724,306 shares. The Fletcher Agreement had designated 7,669,434 shares as the original Maximum Number. On November 28, 2008, Fletcher delivered a notice to the Company to increase the Maximum Number to 9,669,434 shares, effective February 1, 2009. On November 8, 2010, Fletcher delivered a notice to the Company to increase the Maximum Number to the full 15,724,306 shares, effective January 12, 2011. See discussion of legal actions between Fletcher and the Company at Note 12 “— Litigation.”

     On April 8, 2010, Fletcher converted 8,000 of its shares of the outstanding Series D-1 Cumulative Convertible Preferred Stock and all of the outstanding 35,000 shares of the Series D-3 Cumulative Convertible Preferred Stock into a total of 9,659,231 shares of the Company’s common stock. The conversion price for these shares was $4.4517 per share, in accordance with the terms of these series of preferred stock. Fletcher continues to own 22,000 shares of the Series D-1 Cumulative Convertible Preferred Stock and 5,000

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shares of the Series D-2 Cumulative Convertible Preferred Stock. As a result of Fletcher’s delivery of its notice to increase the Maximum Number to the full 15,724,306 shares in November 2010, under the terms of the Fletcher Agreement, Fletcher’s remaining 27,000 shares of Series D Preferred Stock are convertible into 6,065,075 shares of the Company’s common stock. The conversion prices and number of shares of common stock to be acquired upon conversion are also subject to customary anti-dilution adjustments. Fletcher remains the sole holder of all of the outstanding shares of Series D Preferred Stock.

(9) Noncontrolling Interest

     In February 2011, the Company established a new seismic data processing center in Rio de Janeiro, Brazil, with Brazilian energy consultancy Bratexco, to provide advanced imaging services to E&P companies operating in basins off the coast of Brazil. The entity is named GX Technology Processamento de Dados Ltda. The Company owns a 70% interest, and Bratexco owns a 30% interest. Bratexco’s initial cash contribution was $0.2 million.

     The Company consolidates the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Company exercises control or for which the Company has a controlling financial interest. Bratexco’s interest in results of operations related to the entity is reflected in “Net income attributable to noncontrolling interest” in the condensed consolidated statements of operations and its interest in the assets and liabilities related to the entity is reflected in “Noncontrolling interest” in the condensed consolidated balance sheet.

(10) Income Taxes

     The Company maintains a valuation allowance for a portion of its U.S. deferred tax assets. The valuation allowance is calculated in accordance with the provisions of ASC 740 “Income Taxes,” which requires that a valuation allowance be established or maintained when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. In the event the Company’s expectations of future operating results change, the valuation allowance may need to be adjusted upward or downward. As of June 30, 2011, the Company’s unreserved U.S. deferred tax assets totaled $12.0 million. These existing unreserved deferred tax assets are currently considered to be “more likely than not” realized.

     The Company’s effective tax rates for the three months ended June 30, 2011 and 2010 were 27.6% and 59.8%, respectively. The decrease in the Company’s effective tax rate for the three months ended June 30, 2011 as compared to the corresponding period in 2010 was due to lower expected tax expense in certain foreign jurisdictions for 2011. The high effective rate in the three months ended June 30, 2010 was due to an update to the Company’s expectation of the distribution of earnings between U.S. and foreign jurisdictions resulting in a higher than usual estimated annual effective tax rate for that period. The Company’s effective tax rates for the six months ended June 30, 2011 and 2010 were 27.2% (provision on income) and 26.0% (provision on a loss), respectively. The increase in the Company’s effective tax rate for the six months ended June 30, 2011 was due primarily to changes in the distribution of earnings between U.S. and foreign jurisdictions.

     A reconciliation of the expected income tax expense (benefit) on income (loss) before income taxes using the statutory federal income tax rate of 35% for the six months ended June 30, 2011 and 2010 to income tax expense is as follows (in thousands):

	Six Months Ended
	June 30,
	2011			2010
Expected income tax expense (benefit) at 35%	$	1,587		$	(19,284	)
Foreign taxes (tax rate differential and foreign tax differences)		(333	)		2,075
Formation of INOVA Geophysical		—			10,507
Nondeductible financings		—			1,015
Nondeductible expenses and other		(22	)		(292	)
Deferred tax asset valuation allowance on formation of INOVA Geophysical		—			20,313
Total income tax expense	$	1,232		$	14,334

     The Company has no significant unrecognized tax benefits and does not expect to recognize significant increases in unrecognized tax benefits during the next twelve month period. Interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense.

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     The Company’s U.S. federal tax returns for 2007 and subsequent years remain subject to examination by tax authorities. The Company is no longer subject to IRS examination for periods prior to 2007, although carryforward attributes that were generated prior to 2007 may still be adjusted upon examination by the IRS if they either have been or will be used in an open year. In the Company’s foreign tax jurisdictions, tax returns for 2007 and subsequent years generally remain open to examination.

(11) Comprehensive Net Income (Loss)

     The components of comprehensive net income (loss) are as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Net income (loss)	$	2,852		$	1,459		$	3,302		$	(69,431	)
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments (ION)		(313	)		696			3,237			(1,730	)
Foreign currency translation adjustments (noncontrolling interest)		(11	)		—			(11	)		—
Change in fair value of effective cash flow hedges (net of taxes)		(104	)		—			(148	)		—
Equity interest in INOVA Geophysical’s other comprehensive income		997			—			1,582			—
Unrealized income (loss) on available-for-sale securities		308			(7,352	)		(506	)		(7,352	)
Total other comprehensive income (loss)		877			(6,656	)		4,154			(9,082	)
Comprehensive net income (loss)		3,729			(5,197	)		7,456			(78,513	)
Comprehensive income attributable to noncontrolling interest		44			—			69			—
Comprehensive net income (loss) attributable to ION	$	3,773		$	(5,197	)	$	7,525		$	(78,513	)

(12) Litigation

     WesternGeco

     On June 12, 2009, WesternGeco L.L.C. (“WesternGeco”) filed a lawsuit against the Company in the United States District Court for the Southern District of Texas, Houston Division. In the lawsuit, styled WesternGeco L.L.C. v. ION Geophysical Corporation, WesternGeco alleges that the Company has infringed several United States patents regarding marine seismic streamer steering devices that are owned by WesternGeco. WesternGeco is seeking unspecified monetary damages and an injunction prohibiting the Company from making, using, selling, offering for sale or supplying any infringing products in the United States. Based on the Company’s review of the lawsuit filed by WesternGeco and the WesternGeco patents at issue, the Company believes that its products do not infringe any WesternGeco patents, that the claims asserted against the Company by WesternGeco are without merit and that the ultimate outcome of the claims against it will not result in a material adverse effect on the Company’s financial condition or results of operations. The Company intends to defend the claims against it vigorously.

     On June 16, 2009, the Company filed an answer and counterclaims against WesternGeco, in which the Company denies that it has infringed WesternGeco’s patents and asserts that the WesternGeco patents are invalid or unenforceable. The Company also asserted that WesternGeco’s Q-Marine system, components and technology infringe upon a United States patent owned by the Company related to marine seismic streamer steering devices. The claims by the Company also assert that WesternGeco tortiously interfered with the Company’s relationship with its customers. In addition, the Company claims that the lawsuit by WesternGeco is an illegal attempt by WesternGeco to control and restrict competition in the market for marine seismic surveys performed using laterally steerable streamers. In its counterclaims, the Company is requesting various remedies and relief, including a declaration that the WesternGeco patents are invalid or unenforceable, an injunction prohibiting WesternGeco from making, using, selling, offering for sale or supplying any infringing products in the United States, a declaration that the WesternGeco patents should be co-owned by the Company, and an award of unspecified monetary damages.

     In June 2010, WesternGeco filed a lawsuit against various subsidiaries and affiliates of Fugro N.V. (“Fugro”), a seismic contractor customer of the Company, accusing Fugro of infringing the same United States patents regarding marine seismic streamer steering devices by planning to use certain equipment purchased from the Company on a survey located outside of U.S. territorial waters. The

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court approved the consolidation of the Fugro case with the case against the Company. Fugro filed a motion to dismiss the lawsuit, and in March 2011 the presiding judge granted Fugro’s motion to dismiss in part, on the basis that the alleged activities of Fugro would occur more than 12 miles from the U.S. coast and therefore are not actionable under U.S. patent infringement law.

     Fletcher

     On November 25, 2009, Fletcher, the holder of shares of the Company’s outstanding Series D Preferred Stock, filed a lawsuit against the Company and certain of its directors in the Delaware Court of Chancery. In the lawsuit, styled Fletcher International, Ltd. v. ION Geophysical Corporation, f/k/a Input/Output, Inc., ION International S.à r.l., James M. Lapeyre, Bruce S. Appelbaum, Theodore H. Elliott, Jr., Franklin Myers, S. James Nelson, Jr., Robert P. Peebler, John Seitz, G. Thomas Marsh And Nicholas G. Vlahakis, Fletcher alleged, among other things, that the Company violated Fletcher’s consent rights contained in the Series D Preferred Stock Certificates of Designation, by ION Sàrl’s issuance of a convertible promissory note to the Bank of China, New York Branch, in connection with a bridge loan funded in October 2009 by Bank of China, and that the directors violated their fiduciary duty to the Company by allowing ION Sàrl to issue the convertible note without Fletcher’s consent. A total of $10.0 million was advanced to ION Sàrl under the bridge loan, and ION Sàrl repaid $10 million on the following day. Fletcher sought a court order requiring ION Sàrl to repay the $10 million advanced to ION Sàrl under the bridge loan and unspecified monetary damages. On March 24, 2010, the presiding judge in the case denied Fletcher’s request for the court order. In a Memorandum Opinion issued on May 28, 2010 in response to a motion for partial summary judgment, the judge dismissed all of Fletcher’s claims against the named Company directors but also concluded that, because the bridge loan note issued by ION Sàrl was convertible into ION common stock, Fletcher technically had the right to consent to the issuance of the note and that the Company violated Fletcher’s consent right by ION Sàrl issuing the note without Fletcher’s consent. In December 2010, the presiding judge in the case recused himself from the case and a new presiding judge was appointed to the case. The Company believes that the remaining claims asserted by Fletcher in the lawsuit are without merit. The Company further believes that the monetary damages suffered by Fletcher as a result of ION Sàrl issuing the bridge loan note without Fletcher’s consent are nonexistent or nominal, and that the ultimate outcome of the lawsuit will not result in a material adverse effect on the Company’s financial condition or results of operations. The Company intends to defend the remaining claims against it in this lawsuit vigorously.

     Sercel

     On January 29, 2010, the jury in a patent infringement lawsuit filed by the Company against seismic equipment provider Sercel, Inc. in the United States District Court for the Eastern District of Texas returned a verdict in the Company’s favor. In the lawsuit, styled Input/Output, Inc. et al v. Sercel, Inc., (5-06-cv-00236), the Company alleged that Sercel’s 408, 428 and SeaRay digital seismic sensor units infringe the Company’s United States Patent No. 5,852,242, which is incorporated in the Company’s VectorSeis^® sensor technology. Products of the Company or INOVA Geophysical that use the VectorSeis technology include the System Four, Scorpion^®, FireFly^®, and VectorSeis Ocean seismic acquisition systems. After a two-week trial, the jury concluded that Sercel infringed the Company’s patent and that the Company’s patent was valid, and the jury awarded the Company $25.2 million in compensatory past damages. In response to post-verdict motions made by the parties, on September 16, 2010, the presiding judge issued a series of rulings that (a) granted the Company’s motion for a permanent injunction to be issued prohibiting the manufacture, use or sale of the infringing Sercel products, (b) confirmed that the Company’s patent was valid, (c) confirmed that the jury’s finding of infringement was supported by the evidence and (d) disallowed $5.4 million of lost profits that were based on infringing products that were manufactured and delivered by Sercel outside of the United States, but were offered for sale by Sercel in the United States and involved underlying orders and payments received by Sercel in the United States. In addition, the judge concluded that the evidence supporting the jury’s finding that the Company was entitled to be awarded $9.0 million in lost profits associated with certain infringing pre-verdict marine sales by Sercel was too speculative and therefore disallowed that award of lost profits. As a result of the judge’s ruling, the Company is now entitled to be awarded an additional amount of damages equal to a reasonable royalty on the infringing pre-verdict Sercel marine sales. After the Company learned that Sercel continued to make sales of infringing products after the January 2010 jury verdict was rendered, the Company filed motions with the court to seek additional compensatory damages for the post-verdict infringing sales and enhanced damages as a result of the willful nature of Sercel’s post-verdict infringement. On February 16, 2011, the Court entered a final judgment and permanent injunction in the case. The final judgment awarded the Company $10.7 million in damages, plus interest, and the permanent injunction prohibits Sercel and parties acting in concert with Sercel from making, using, offering to sell, selling, or importing in the United States (which includes territorial waters of the United States) Sercel’s 408UL, 428XL and SeaRay digital sensor units, and all other products that are only colorably different from those products. The Court ordered that the additional damages to be paid by Sercel as a reasonable royalty on the infringing pre-verdict

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Sercel marine sales and the additional damages to be paid by Sercel resulting from post-verdict infringing sales would be determined in a separate future proceeding. Sercel and the Company have each appealed portions of the final judgment. The Company has not recorded any amounts related to this gain contingency as of June 30, 2011.

     Other

     The Company has been named in various other lawsuits or threatened actions that are incidental to its ordinary business. Litigation is inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time-consuming, cause the Company to incur costs and expenses, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits and actions cannot be predicted with certainty. Management currently believes that the ultimate resolution of these matters will not have a material adverse impact on the financial condition, results of operations or liquidity of the Company.

(13) Concentration of Credit and Foreign Sales Risks

     The majority of the Company’s foreign sales are denominated in U.S. dollars. Product revenues are allocated to geographical locations on the basis of the ultimate destination of the equipment, if known. If the ultimate destination of such equipment is not known, product revenues are allocated to the geographical location of initial shipment. Service revenues, which relate primarily to the Solutions division, are allocated based upon the billing location of the customer. For the six months ended June 30, 2011 and 2010, international sales comprised 64% and 50%, respectively, of total net revenues.

     A summary of net revenues by geographic area follows (in thousands):

	Six Months Ended
	June 30,
	2011		2010
North America	$	64,770	$	82,354
Europe		56,657		34,755
Asia Pacific		30,136		16,582
Middle East		17,377		3,442
Latin America		4,451		13,878
Africa		3,713		11,528
Commonwealth of Independent States (CIS)		1,980		1,566
Total	$	179,084	$	164,105

     To the extent that world events or economic conditions negatively affect the Company’s future sales to customers in these and other regions of the world or the collectability of the Company’s existing receivables, the Company’s future results of operations, liquidity, and financial condition would be adversely affected. The Company currently requires customers in these higher risk countries to provide their own financing. The Company does not currently extend long-term credit through promissory notes or similar credit agreements to companies in countries the Company considers to be inappropriate for credit risk purposes.

(14) Restructuring Activities

     At December 31, 2010, the Company had a liability (reflected in “Other long-term liabilities”) of $6.7 million related to permanently ceasing to use certain leased facilities. During the six months ended June 30, 2011, the Company made cash payments of $0.6 million and accrued $0.2 million related to accretion expense, resulting in a remaining liability of $6.3 million as of June 30, 2011.

(15) Recent Accounting Pronouncement

     In June 2011, the Financial Accounting Standards Board issued revised guidance on the presentation of comprehensive income that will be effective for the Company beginning in 2012. This guidance eliminates the option to present the components of comprehensive income as part of the statement of shareholders’ equity and also requires presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements. The implementation of this revised guidance in 2012 will change the presentation of the Company’s financial statements but will not have any impact on the Company’s financial position, results of operations or cash flows.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

     Our Business

     We are a leading provider of geophysical technology, services, and solutions for the global oil and gas industry, offering advanced acquisition equipment, software and planning and seismic processing services to the global energy industry. Our product and service offerings allow exploration and production (“E&P”) operators to obtain higher resolution images of the subsurface to reduce the risk of exploration and reservoir development, and to enable seismic contractors to acquire geophysical data more efficiently.

     We serve customers in all major energy-producing regions of the world from strategically located offices in 19 cities on five continents. In March 2010, we contributed most of our land seismic equipment business to a joint venture we formed with BGP Inc., China National Petroleum Corporation (“BGP”), a wholly-owned oil field service subsidiary of China National Petroleum Corporation (“CNPC”). The resulting joint venture company, organized under the laws of the People’s Republic of China, is named INOVA Geophysical Equipment Limited (“INOVA Geophysical”). We believe that this joint venture will provide us the opportunity to further extend the geographic scope of our business through the sales and service facilities of BGP, especially in Africa, the Middle East, China and Southeast Asia.

     Our products and services include the following:

• Land seismic data acquisition equipment (principally through our 49% ownership in INOVA Geophysical),

• Marine seismic data acquisition equipment,

• Navigation, command & control and data management software products,

• Planning services for survey design and optimization,

• Seismic data processing and reservoir imaging services, and

• Seismic data libraries.

     We operate our company through four business segments: Systems, Software, Solutions and our INOVA Geophysical joint venture.

• Systems — towed streamer and redeployable ocean bottom cable seismic data acquisition systems and shipboard recorders, streamer positioning and control systems and energy sources (such as air guns and air gun controllers) and analog geophone sensors.

• Software — software systems and related services for navigation and data management involving towed marine streamer and seabed operations.

• Solutions — advanced seismic data processing services for marine and land environments, seismic data libraries, and our Integrated Seismic Solutions (“ISS”) services.

• INOVA Geophysical — cable-based, cableless and radio-controlled seismic data acquisition systems, digital sensors, vibroseis vehicles (i.e. vibrator trucks) and source controllers for detonator and energy sources business lines.

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     Economic Conditions

     Demand for our seismic data acquisition products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers’ willingness and ability to expend their capital for oil and natural gas exploration and development projects. This demand is sensitive to current and expected future oil and natural gas prices. During the first half of 2011, oil prices initially rose above $100 per barrel followed by downward movement towards $90 per barrel. External reports indicate that oil prices for 2011 will likely remain above $80 per barrel as global demand for energy continues to grow. Unlike the recovery in oil prices, U.S. natural gas prices have remained depressed relative to 2008 levels, due to the excess supply of natural gas in the North American market. However, demand for natural gas and interest in oil shale opportunities are increasing, and developments in the technology to locate and extract oil shale reserves are continuing.

     As economic conditions improved during the second half of 2010, our E&P customers increased their capital spending levels leading to significant fourth quarter licensing of our data libraries. In addition, our new venture activities increased during the second half of 2010. Our data processing and software businesses also grew during 2010. The marine side of our systems business experienced consistent demand for its towed streamer product, and the land seismic business, particularly in North America and Russia, began showing signs of improvement.

     During the first half of 2011, our Solutions segment’s data library and new venture business delivered increased revenues compared to the first half of 2010, driven by our customers’ strong demand for access to our multi-client programs in Northeast Greenland, East Africa, Brazil and the Gulf of Mexico. In addition, similar to 2010, we expect to see increased new venture activity in the second half of this year. Our Solutions segment’s data processing business, which had shown signs of growth throughout 2010, began to be impacted by the lagging effects of the slowdown in the Gulf of Mexico during the first half of 2011. However, our data processing sales pipeline has grown significantly during the second quarter of 2011 and we expect to see this growth begin to convert into revenues during the fourth quarter of this year.

     Our Software business generated slightly higher revenues during the first half of 2011 compared to the prior period due to favorable foreign currency exchange rates. In terms of British pounds sterling, Software segment revenues declined slightly as higher sales of Orca and Gator software were offset by decreased revenue associated with a large sale of Gator-related hardware in the prior period which was not repeated in the current period.

     Revenues for our Systems’ business increased for the first half of 2011 as demand for our marine products offset decreased sales of our sensor geophone products. The land seismic business, particularly INOVA Geophysical’s business in North America and Russia, continues to show signs of recovery. However, due to the recent political unrest in North Africa and the Middle East, and the planned launch of INOVA Geophysical’s next-generation cable and cableless land acquisition systems later this year, we do not expect to see significant improvements in our land seismic business’s results until 2012.

     As market conditions continue to improve and the global energy demand continues to grow, we believe that our industry’s long-term prospects remain favorable because of the decreasing number of significant new discoveries and the increasing interest in oil and natural gas shale opportunities, as developments in the technology to locate and extract shale reserves continue to progress. We believe that technologies that add a competitive advantage through cost reductions or improvements in productivity will continue to be valued in our marketplace. We expect that our latest technologies such as DigiFIN^®, Orca^®, and INOVA Geophysical’s FireFly will continue to attract customer interest because those technologies are designed to deliver improvements in image quality within more productive delivery systems.

     Key Financial Metrics

     The following table provides an overview of key financial metrics for our company as a whole and our four business segments during the three and six months ended June 30, 2011, compared to those for the same period of 2010 (in thousands, except per share amounts):

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	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Net revenues:
Systems:
Towed Streamer	$	20,234		$	19,677		$	37,781		$	29,910
Ocean Bottom		507			1,137			509			1,311
Other		8,734			8,978			15,145			14,686
Total	$	29,475		$	29,792		$	53,435		$	45,907
Software:
Software Systems	$	9,541		$	9,641		$	17,968		$	17,257
Services		558			492			830			848
Total	$	10,099		$	10,133		$	18,798		$	18,105
Solutions:
Data Processing	$	20,634		$	27,753		$	40,933		$	51,718
New Venture		9,772			4,917			32,222			12,343
Data Library		18,552			2,791			33,696			19,521
Total	$	48,958		$	35,461		$	106,851		$	83,582
Legacy Land Systems (INOVA)	$	—		$	—		$	—		$	16,511
Total	$	88,532		$	75,386		$	179,084		$	164,105
Gross profit:
Systems	$	15,110		$	12,381		$	27,355		$	17,939
Software		7,331			6,811			12,909			12,180
Solutions		11,190			8,870			24,506			21,293
Legacy Land Systems (INOVA)		—			—			—			(984	)
Total	$	33,631		$	28,062		$	64,770		$	50,428
Gross margin:
Systems		51	%		42	%		51	%		39	%
Software		73	%		67	%		69	%		67	%
Solutions		23	%		25	%		23	%		26	%
Legacy Land Systems (INOVA)		—	%		—	%		—	%		(6	%)
Total		38	%		37	%		36	%		31	%
Income (loss) from operations:
Systems	$	9,057		$	7,231		$	15,137		$	8,140
Software		6,439			6,256			11,292			11,062
Solutions		3,042			2,548			8,854			8,113
Legacy Land Systems (INOVA)		—			—			—			(9,623	)
Corporate and other		(9,738	)		(10,051	)		(20,412	)		(22,685	)
Income (loss) from operations	$	8,800		$	5,984		$	14,871		$	(4,993	)
Net income (loss) applicable to common shares	$	2,558		$	1,074		$	2,695		$	(70,691	)
Basic and diluted net income (loss) per common share	$	0.02		$	0.01		$	0.02		$	(0.52	)

     We intend that the following discussion of our financial condition and results of operations will provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from quarter to quarter, and the primary factors that accounted for those changes. Our results of operations for the six months ended June 30, 2011 and 2010 were materially affected by the disposition of our land systems businesses in forming INOVA Geophysical on March 25, 2010, which affects the comparability of certain of the financial information contained in this Form 10-Q. In order to assist with the comparability to our historical results of operations, certain of the financial tables and discussions below have been adjusted to exclude the results of operations of our disposed legacy land equipment segment (which we refer to below as our “Legacy Land Systems” segment).

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     We account for our 49% interest in INOVA Geophysical as an equity method investment and record our share of earnings of INOVA Geophysical on a one fiscal quarter lag basis. Thus, for the three and six months ended June 30, 2011, we recognized our share of losses in INOVA Geophysical of approximately $4.2 million and $5.0 million, respectively, which reflected joint venture operating results for the three months ended March 31, 2011 and the six month period from October 1, 2010 through March 31, 2011.

     We filed an amendment to our 2010 Annual Report on Form 10-K on Form 10-K/A in June 2011 that contained separate consolidated financial statements for INOVA Geophysical for the fiscal year ended December 31, 2010, as required under SEC Regulation S-X.

     For a discussion of factors that could impact our future operating results and financial condition, see Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010.

     The information contained in this Quarterly Report on Form 10-Q contains references to our registered marks, as indicated. Except where stated otherwise or unless the context otherwise requires, the terms “VectorSeis,” “Scorpion,” “Orca,” “DigiFIN,” and “FireFly” refer to our (or INOVA Geophysical’s (as applicable)) VectorSeis^®, Scorpion^®, Orca^®, DigiFIN^® and FireFly^® registered marks.

Results of Operations

     Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010

     Our overall total net revenues of $88.5 million for the three months ended June 30, 2011 increased $13.1 million, or 17%, compared to total net revenues for the three months ended June 30, 2010. Our overall gross profit percentage for the three months ended June 30, 2011 was 38%, compared to 37% for the same period of 2010. Total operating expenses as a percentage of net revenues for the three months ended June 30, 2011 and 2010 were 28% and 29%, respectively. For the three months ended June 30, 2011, we recorded income from operations of $8.8 million, compared to $6.0 million for the same prior-year period.

Net Revenues, Gross Profits and Gross Margins

     Systems — Net revenues for the three months ended June 30, 2011 slightly decreased by $0.3 million, or 1%, to $29.5 million, compared to $29.8 million for the three months ended June 30, 2010. Gross profit for the three months ended June 30, 2011 increased by $2.7 million to $15.1 million, representing a 51% gross margin, compared to $12.4 million, representing a 42% gross margin, for the three months ended June 30, 2010. The increase in gross margins in our Systems segment was primarily due to higher volumes of towed streamer positioning equipment.

     Software — Net revenues for the three months ended June 30, 2011 of $10.1 million remained consistent with the net revenues for the same prior-year period. Excluding the effects of foreign currency translation, revenues decreased 9% due to one large sale of Gator-related hardware in the prior period that was not repeated in the current period. Gross profit of $7.3 million for the three months ended June 30, 2011 increased $0.5 million over the comparative period and gross margins increased by 6% to 73% due to changes in product mix (there was a relative increase in software sales during the second quarter of 2011, which have higher margins than the associated hardware sales for this segment).

     Solutions — Net revenues for the three months ended June 30, 2011 increased by $13.5 million, or 38%, to $49.0 million, compared to $35.5 million for the three months ended June 30, 2010. This increase was predominantly driven by demand for access to our multi-client data libraries in Northeast Greenland, East Africa, Brazil and the Gulf Mexico, partially offset by lower data processing revenues attributable to the lagging impact of the slowdown in the Gulf of Mexico. Gross profit increased by $2.3 million to $11.2 million compared to $8.9 million in 2010, while gross margins decreased 2% to 23% as a result of lower data processing revenues.

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Operating Expenses

     Research, Development and Engineering — Research, development and engineering expense was $5.9 million, or 7% of net revenues, for the three months ended June 30, 2011, an increase of $0.7 million compared to $5.2 million or 7% of net revenues, for the corresponding period of 2010, as we continue to invest in our next generation of seismic acquisition products and services.

     Marketing and Sales — Marketing and sales expense of $7.8 million, or 9% of net revenues, for the three months ended June 30, 2011 increased $2.2 million compared to $5.6 million, or 7% of net revenues, for the corresponding period of 2010. The increase was primarily due to higher costs associated with conventions and exhibits, commissions and other employment-related expenses.

     General and Administrative — General and administrative expenses of $11.1 million for the three months ended June 30, 2011 decreased $0.1 million compared to $11.2 million, for the corresponding period of 2010. General and administrative expenses as a percentage of net revenues for the three months ended June 30, 2011 and 2010 were 13% and 15%, respectively.

Non-operating Items

     Interest Expense, net — Interest expense, net, was $1.2 million for the three months ended June 30, 2011 compared to $1.4 million for the three months ended June 30, 2010. We expect interest expense, net, for each of the remaining quarters of 2011 to be consistent with interest expense levels experienced during our first and second quarters of 2011.

     Equity in Losses of INOVA Geophysical — We account for our 49% interest in INOVA Geophysical as an equity method investment and record our share of earnings of INOVA Geophysical on a one fiscal quarter lag basis. Thus, our share of INOVA Geophysical’s losses for the three months ended March 31, 2011 are included in our financial results for the three months ended June 30, 2011. For the three months ended June 30, 2011, we recorded approximately $4.2 million of equity in losses of INOVA Geophysical compared to equity in losses of $0.2 million for the three months ended June 30, 2010, which represented our 49% share of equity in losses of INOVA Geophysical for the five-day period from March 26, 2010 to March 31, 2010. Due to the recent political unrest in North Africa and the Middle East and the planned launch of INOVA Geophysical’s next-generation cable and cableless land acquisition systems later this year, we do not expect significant positive improvements to INOVA Geophysical’s results of operations until 2012.

     Other Income (Expense) — Other income (expense) for the three months ended June 30, 2011 was $0.5 million compared to ($0.8) million for the comparative period of 2010. This difference primarily related to foreign currency exchange gains associated with our operations in the United Kingdom.

     Income Tax Expense — Income tax expense for the three months ended June 30, 2011 was $1.1 million compared to $2.2 million for the comparative period of 2010. Our effective tax rates for the three months ended June 30, 2011 and 2010 were 27.6% and 59.8%, respectively. The decrease in our effective tax rate for the three months ended June 30, 2011 as compared to the corresponding period in 2010 was due to lower expected tax expense in certain foreign jurisdictions for 2011. The high effective rate in the three months ended June 30, 2010 was due to an update to our expectation of the distribution of earnings between U.S. and foreign jurisdictions resulting in a higher than usual estimated annual effective tax rate for that period.

     Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

				Six Months Ended
	Six Months Ended			June 30, 2010
	June 30, 2011			As Reported			As Adjusted 1
	(In thousands)
Net revenues	$	179,084		$	164,105		$	147,594
Cost of sales		114,314			113,677			96,182
Gross profit		64,770			50,428			51,412
Gross margin		36	%		31	%		35	%
Operating expenses:
Research, development and engineering		11,745			14,216			10,035
Marketing and sales		14,880			13,555			11,996
General and administrative		23,274			27,650			24,751
Total operating expenses		49,899			55,421			46,782
Income (loss) from operations	$	14,871		$	(4,993	)	$	4,630

¹ Excluding Legacy Land Systems (INOVA).

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     Our overall total net revenues of $179.1 million for the six months ended June 30, 2011 increased $15.0 million, or 9%, compared to total net revenues for the six months ended June 30, 2010. Excluding Legacy Land Systems (INOVA), total net revenues increased $31.5 million, or 21%, for the same comparative period. Our overall gross profit percentage for the six months ended June 30, 2011 was 36%, compared to 35%, as adjusted, for the same period of 2010. Total operating expenses as a percentage of net revenues for the six months ended June 30, 2011 and 2010 were, respectively, 28% and 32%, as adjusted. For the six months ended June 30, 2011, we recorded income from operations of $14.9 million, compared to $4.6 million, as adjusted, for the same prior-year period.

Net Revenues, Gross Profits and Gross Margins (excluding Legacy Land Systems)

     Systems — Net revenues for the six months ended June 30, 2011 increased by $7.5 million, or 16%, to $53.4 million, compared to $45.9 million for the six months ended June 30, 2010. This increase was primarily due to higher revenues from towed streamer and other marine products. Gross profit for the six months ended June 30, 2011 increased by $9.4 million to $27.4 million, representing a 51% gross margin, compared to $17.9 million, representing a 39% gross margin, for the six months ended June 30, 2010. The increase in gross margins in our Systems segment was primarily due to higher volumes of towed streamer positioning equipment.

     Software — Net revenues for the six months ended June 30, 2011 increased by $0.7 million, or 4%, to $18.8 million, compared to $18.1 million for the six months ended June 30, 2010. The increase was principally due to the favorable impact of foreign exchange rates. Excluding the effects of foreign currency translation, revenues decreased 3% as higher sales of Orca and Gator software were offset by decreased revenue associated with a large sale of Gator-related hardware which was not repeated in the current period. Gross profit of $12.9 million for the six months ended June 30, 2011 increased $0.7 million over the comparative period and gross margins increased by 2% to 69% due to changes in product mix (there was a relative increase in software sales during the first six months of 2011, which have higher margins than the associated hardware sales for this segment).

     Solutions — Net revenues for the six months ended June 30, 2011 increased by $23.3 million, or 28%, to $106.9 million, compared to $83.6 million for the six months ended June 30, 2010. This increase was predominantly driven by demand for access to our multi-client data libraries in Northeast Greenland, East Africa, Brazil and the Gulf of Mexico, partially offset by lower data processing revenues attributable to the lagging impact of the exploration and development slowdown in the Gulf of Mexico. Gross profit increased by $3.2 million to $24.5 million compared to $21.3 million in 2010, while gross margins decreased 3% to 23% as a result of lower data processing revenues.

Operating Expenses (excluding Legacy Land Systems)

     Research, Development and Engineering — Research, development and engineering expense was $11.7 million, or 7% of net revenues, for the six months ended June 30, 2011, an increase of $1.7 million compared to $10.0 million, as adjusted, or 7% of net revenues, for the corresponding period of 2010, as we continue to invest in our next generation of seismic acquisition products and services.

     Marketing and Sales — Marketing and sales expense of $14.9 million, or 8% of net revenues, for the six months ended June 30, 2011 increased $2.9 million compared to $12.0 million, as adjusted, or 8% of net revenues, for the corresponding period of 2010. The increase was primarily due to higher employment-related expenses and professional fees.

     General and Administrative — General and administrative expenses of $23.3 million for the six months ended June 30, 2011 decreased $1.5 million compared to $24.8 million, as adjusted, for the corresponding period of 2010. General and administrative expenses as a percentage of net revenues for the six months ended June 30, 2011 and 2010 were 13% and 17% (as adjusted), respectively. This decrease was predominantly due to lower legal costs.

Non-operating Items

     Interest Expense, net — Interest expense, net, was $2.8 million for the six months ended June 30, 2011 compared to $27.0 million for the six months ended June 30, 2010. As a result of our first quarter 2010 debt refinancing, our interest expense for the six months

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ended June 30, 2010 included a $10.1 million write-off of deferred financing charges and an $8.7 million non-cash debt discount (which was fully amortized by March 31, 2010). After excluding these two non-cash items, our interest expense, net, for the six months ended June 30, 2010 was $8.2 million. As of June 30, 2011, we had no amounts drawn on our revolving line of credit under our Credit Facility, and had cash on hand and short-term investments of $95.0 million. We expect interest expense, net, for each of the remaining quarters of 2011 to be consistent with interest expense levels experienced during our first and second quarters of 2011.

     Loss on Disposition of Land Division — Due to the formation of INOVA Geophysical, we recorded a $38.1 million loss on disposition of our land systems division in the first quarter of 2010. The majority of the loss recognized from this transaction related to accumulated foreign currency translation adjustments (effect of exchange rates) of our foreign subsidiaries, mainly in Canada.

     Fair Value Adjustment of Warrant — In October 2009, we issued to BGP a warrant to purchase shares of our common stock (the “Warrant”). BGP elected not to exercise the Warrant and, on March 25, 2010, BGP terminated the Warrant and surrendered it to us. Prior to its termination, the Warrant was required to be accounted for as a liability at its fair value, resulting in a positive non-cash fair value adjustment of $12.8 million in the first quarter of 2010.

     Equity in Losses of INOVA Geophysical — We account for our 49% interest in INOVA Geophysical as an equity method investment and record our share of earnings of INOVA Geophysical on a one fiscal quarter lag basis. Thus, our share of INOVA Geophysical’s losses for the six month period from October 1, 2010 through March 31, 2011 are included in our financial results for the six months ended June 30, 2011. For the six months ended June 30, 2011, we recorded charges of approximately $5.0 million compared to charges of $0.2 million for the six months ended June 30, 2010, which represented our 49% share of equity in losses of INOVA Geophysical for the five-day period from March 26, 2010 to March 31, 2010. Due to the recent political unrest in North Africa and the Middle East and the planned launch of INOVA Geophysical’s next-generation cable and cableless land acquisition systems later this year, we do not expect significant positive improvements to INOVA Geophysical’s results of operations until 2012.

     Other Income (Expense) — Other (expense) for the six months ended June 30, 2011 was ($2.5) million compared to other income of $2.4 million for the comparative period of 2010. This difference primarily related to foreign currency exchange losses primarily associated with our operations in the United Kingdom.

     Income Tax Expense (Benefit) — Income tax expense for the six months ended June 30, 2011 was $1.2 million compared to $14.3 million for the comparative period of 2010. Income tax expense for the six months ended June 30, 2010, included $16.4 million of expense related to the transactions involved in the formation of INOVA Geophysical. Our effective tax rates for the six months ended June 30, 2011 and 2010 were 27.2% (provision on income) and 26.0% (provision on a loss), respectively. Excluding the impact of the transactions involved in the formation of INOVA Geophysical, our effective tax rate for the six months ended June 30, 2010 would have been 18.9% (benefit on a loss). The change in our effective tax rate for the six months ended June 30, 2011 as compared to the corresponding period in 2010 was due primarily to discrete tax effects related to the transactions involved in the formation of the INOVA Geophysical, which occurred in the three months ended March 31, 2010, and changes in the distribution of earnings between U.S. and foreign jurisdictions.

     Preferred Stock Dividends — The preferred stock dividend relates to our Series D Preferred Stock. Quarterly dividends must be paid in cash. Dividends are paid at a rate equal to the greater of (i) 5.0% per annum or (ii) the three month LIBOR rate on the last day of the immediately preceding calendar quarter plus 2.5% per annum. The Series D Preferred Stock dividend rate was 5.0% at June 30, 2011. The total amount of dividends paid on our preferred stock for the six months ended June 30, 2011 was less than the comparative period of 2010 due to the conversion of 43,000 shares of preferred stock into 9,659,231 shares of common stock in April 2010.

Liquidity and Capital Resources

Capital Requirements and Sources of Capital

     Our cash requirements include our working capital requirements, and cash required for our debt service payments, seismic data acquisitions and capital expenditures. As of June 30, 2011, we had working capital of $179.5 million, which included $56.0 million of cash on hand and $39.0 million of short-term investments. Capital requirements are primarily driven by our continued investment in our multi-client seismic data library ($46.1 million in the six months ended June 30, 2011) and, to a lesser extent, our inventory

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purchase obligations. Also, our headcount is a significant driver of our working capital needs. Because a significant portion of our business is involved in the planning, processing and interpretation of seismic data services, one of our largest investments is in our employees, which involves cash expenditures for their salaries, bonuses, payroll taxes and related compensation expenses. Our working capital requirements may change from time to time depending upon many factors, including our operating results and adjustments in our operating plan required in response to industry conditions, competition, acquisition opportunities and unexpected events. In recent years, our primary sources of funds have been cash flows generated from our operations, our existing cash balances, debt and equity issuances and borrowings under our revolving credit and term loan facilities (see “— Revolving Line of Credit and Term Loan Facility” below)

     At June 30, 2011, our principal credit facility consisted of:

• A revolving line of credit sub-facility providing for borrowings of up to $100.0 million (no borrowings were outstanding as of that date); and

• A term loan sub-facility having an outstanding principal balance of $101.3 million.

     Revolving Line of Credit and Term Loan Facility — In March 2010, we, our Luxembourg subsidiary, ION International S.à r.l. (“ION Sàrl”), and certain of our other U.S. and foreign subsidiaries entered into a new credit facility (the “Credit Facility”). The terms of the Credit Facility are set forth in a credit agreement dated March 25, 2010 (the “Credit Agreement”), by and among us, ION Sàrl and China Merchants Bank Co., Ltd., New York Branch (“CMB”), as administrative agent and lender. Our obligations under the Credit Facility are guaranteed by certain of our material U.S. subsidiaries and the obligations of ION Sàrl under the Credit Facility are guaranteed by certain of our material U.S. and foreign subsidiaries, in each case that are parties to the Credit Agreement. In addition, in June 2010, INOVA Geophysical entered into an agreement to guarantee the indebtedness under the Credit Facility.

     The Credit Facility provides us with a revolving line of credit of up to $100.0 million in borrowings (including borrowings for letters of credit), and refinanced our outstanding term loan with a new term loan in the original principal amount of $106.3 million. As of June 30, 2011, we had no indebtedness outstanding under the revolving line of credit.

     The revolving credit facility and term loan under the Credit Facility are each scheduled to mature on March 24, 2015. The $106.3 million original principal amount under the term loan is subject to scheduled quarterly amortization payments of $1.0 million per quarter until the maturity date, with the remaining unpaid principal amount of the term loan due upon the maturity date. The indebtedness under the Credit Facility may sooner mature on a date that is 18 months after the earlier of (i) any dissolution of INOVA Geophysical, or (ii) the administrative agent determining in good faith that INOVA Geophysical is unable to perform its obligations under its guarantee that it has provided under the Credit Facility.

     The interest rate per annum on borrowings under the Credit Facility will be, at our option:

• An alternate base rate equal to the sum of (i) the greatest of (a) the prime rate of CMB, (b) a federal funds effective rate plus 0.50%, or (c) an adjusted LIBOR-based rate plus 1.0%, and (ii) an applicable interest margin of 2.5%; or

• For eurodollar borrowings and borrowings in euros, pounds sterling or canadian dollars, the sum of (i) an adjusted LIBOR-based rate, and (ii) an applicable interest margin of 3.5%.

     As of June 30, 2011, the $101.3 million in outstanding term loan indebtedness under the Credit Facility accrued interest at a rate of 3.8% per annum.

     The Credit Facility requires us to be in compliance with certain financial covenants. Certain of these financial covenants became effective on June 30, 2011 and will continue in effect for each fiscal quarter thereafter over the term of the Credit Facility. These financial covenants require us and our subsidiaries to:

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• Maintain a minimum fixed charge coverage ratio in an amount equal to at least 1.125 to 1;

• Not exceed a maximum leverage ratio of 3.25 to 1; and

• Maintain a minimum tangible net worth of at least 60% of ION’s tangible net worth as of March 31, 2010, as defined in the Credit Agreement.

     The fixed charge coverage ratio is defined as the ratio of (i) our consolidated EBITDA less cash income tax expense and non-financed capital expenditures, to (ii) the sum of scheduled payments of lease payments and payments of principal indebtedness, interest expense actually paid and cash dividends, in each case for the four consecutive fiscal quarters most recently ended. The leverage ratio is defined as the ratio of (x) total funded consolidated debt, capital lease obligations and issued letters of credit (net of cash collateral) to (y) our consolidated EBITDA for the four consecutive fiscal quarters most recently ended. We were in compliance with these financial covenants as of June 30, 2011, and we expect to remain in compliance with these covenants throughout the remainder of 2011.

     Interest Rate Caps — We use derivative financial instruments to manage our exposure to the interest rate risks related to the variable rate debt under our term loan indebtedness. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors.

     In August 2010, we entered into an interest rate cap agreement and purchased interest rate caps having an initial notional amount of $103.3 million with a three-month average LIBOR cap of 2.0%. If and when the three-month average LIBOR rate exceeds 2.0%, the LIBOR portion of interest owed by us would be effectively capped at 2.0%. This initial notional amount was set to equal the projected outstanding balance under our term loan facility at December 31, 2010. The notional amount was then set so as not to exceed the outstanding balance of our term loan facility over a period that extends through March 29, 2013. We purchased these interest rate caps for an amount equal to approximately $0.4 million. We designated the interest rate caps as cash flow hedges.

     In July 2011, we purchased additional interest rate caps related to our term loan facility. The notional amounts, together with the notional amounts of the interest rate caps purchased in August 2010, were set so as not to exceed the outstanding balance of our term loan facility over a period that extends through March 31, 2014. We purchased these interest rate caps for an amount equal to approximately $0.3 million and designated the interest rate caps as cash flow hedges. See further discussion regarding these interest rate caps at Note 7 “— Notes Payable, Long-term Debt, Lease Obligations and Interest Rate Caps.”

Meeting our Liquidity Requirements

     As of June 30, 2011, our total outstanding indebtedness (including capital lease obligations) was approximately $105.3 million, primarily consisting of approximately $101.3 million outstanding under the term loan. As of June 30, 2011, we had no amounts drawn on our revolving line of credit under our Credit Facility, and had approximately $56.0 million of cash on hand and $39.0 million in short-term investments.

     For the six months ended June 30, 2011, total capital expenditures, including investments in our multi-client data library, were $53.3 million, and we are projecting additional capital expenditures for the remaining six months of 2011 to be between $67 million and $87 million. Of the total projected capital expenditures for the remaining six months of 2011, we are estimating that approximately $64 million to $84 million will be spent on investments in our multi-client data library, but we are anticipating that a significant portion of these investments will be underwritten by our customers. To the extent our customers’ commitments do not reach an acceptable level of pre-funding, the amount of our anticipated investment in these data libraries could be significantly less.

Cash Flow from Operations

     We have historically financed our operations from internally generated cash and funds from equity and debt financings. Cash and cash equivalents were $56.0 million, which excludes $39.0 million of excess cash invested in short-term bank certificates of deposit, at June 30, 2011, compared to $84.4 million at December 31, 2010. Net cash provided by operating activities was $60.8 million for the six months ended June 30, 2011, compared to $19.6 million for the comparative period of 2010. The increase in our cash flows from operations was primarily due to increased net income in 2011, and decreases in our accounts receivables and unbilled receivables, offset partially by an increase in inventory by our Systems segment, including building inventory related to our contract to outfit a BGP twelve-streamer vessel with our DigiSTREAMER data acquisition system, announced in August 2010.

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Cash Flow from Investing Activities

     Net cash flow used in investing activities was $98.8 million for the six months ended June 30, 2011, compared to net cash provided by investing activities of $68.7 million for the comparative period of 2010. The principal uses of cash in our investing activities during the six months ended June 30, 2011 were our net investment of $39.0 million of excess cash in short-term bank certificates of deposit, $46.1 million of continued investment in our multi-client data library and our $6.5 million investment in a convertible note. The principal source of cash from our investing activities during the six months ended June 30, 2010 was $99.8 million net proceeds received from BGP for their 51% interest in INOVA Geophysical and the use of cash of $21.2 million on investment in our multi-client data library.

Cash Flow from Financing Activities

     Net cash flow provided by financing activities was $9.1 million for the six months ended June 30, 2011, compared to $89.1 million of net cash flow used in financing activities for the comparative period of 2010. The net cash flow provided by financing activities during the six months ended June 30, 2011 was primarily related to proceeds from stock option exercises of $12.9 million, partially offset by payments on our notes payable and long-term debt of $3.4 million and payment of cash dividends on our outstanding Series D Preferred Stock of $0.7 million. The net cash flow used in financing activities during the six months ended June 30, 2010 was primarily related to net repayments on our prior revolving credit facility of $89.4 million and payments on our notes payable and long-term debt of $142.0 million. This cash outflow was partially offset by proceeds of $38.0 million from the issuance of our common stock to BGP in March 2010 and net proceeds of $105.7 million related to the issuance of the term loan under the Credit Facility. We also paid $1.3 million in cash dividends on our outstanding Series D Preferred Stock.

Inflation and Seasonality

     Inflation in recent years has not had a material effect on our costs of goods or labor, or the prices for our products or services. Traditionally, our business has been seasonal, with strongest demand in the fourth quarter of our fiscal year.

Critical Accounting Policies and Estimates

     Refer to our Annual Report on Form 10-K for the year ended December 31, 2010 for a complete discussion of our significant accounting policies and estimates. There have been no material changes in the current period regarding our critical accounting policies and estimates.

Recent Accounting Pronouncements

     See Note 15 of Notes to Unaudited Condensed Consolidated Financial Statements.

Credit and Foreign Sales Risks

     The majority of our foreign sales are denominated in United States dollars. Product revenues are allocated to geographical locations on the basis of the ultimate destination of the equipment, if known. If the ultimate destination of such equipment is not known, product revenues are allocated to the geographical location of initial shipment. Service revenues, which primarily relate to our Solutions division, are allocated based upon the billing location of the customer. For the six months ended June 30, 2011 and 2010, international sales comprised 64% and 50%, respectively, of total net revenues.

     A summary of net revenues by geographic area follows (in thousands):

	Six Months Ended
	June 30,
	2011		2010
North America	$	64,770	$	82,354
Europe		56,657		34,755
Asia Pacific		30,136		16,582
Middle East		17,377		3,442
Latin America		4,451		13,878
Africa		3,713		11,528
Commonwealth of Independent States (CIS)		1,980		1,566
Total	$	179,084	$	164,105

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     To the extent that world events or economic conditions negatively affect our future sales to customers in these and other regions of the world or the collectability of our existing receivables, our future results of operations, liquidity, and financial condition may be adversely affected. We currently require customers in these higher risk countries to provide their own financing. We do not currently extend long-term credit through promissory notes or similar credit agreements to companies in countries we consider to be inappropriate for credit risk purposes.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     Refer to Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2010 for a discussion regarding the Company’s quantitative and qualitative disclosures about market risk. There have been no material changes to those disclosures during the six months ended June 30, 2011.

Item 4. Controls and Procedures

     Disclosure Controls and Procedures. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file with or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms. Disclosure controls and procedures, include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

     Our management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of June 30, 2011. Based upon that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2011.

     Changes in Internal Control over Financial Reporting. There was not any change in our internal control over financial reporting that occurred during the three months ended June 30, 2011, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     WesternGeco

     On June 12, 2009, WesternGeco L.L.C. (“WesternGeco”) filed a lawsuit against us in the United States District Court for the Southern District of Texas, Houston Division. In the lawsuit, styled WesternGeco L.L.C. v. ION Geophysical Corporation, WesternGeco alleges that we have infringed several United States patents regarding marine seismic streamer steering devices that are owned by WesternGeco. WesternGeco is seeking unspecified monetary damages and an injunction prohibiting us from making, using, selling, offering for sale or supplying any infringing products in the United States. Based on our review of the lawsuit filed by WesternGeco and the WesternGeco patents at issue, we believe that its products do not infringe any WesternGeco patents, that the claims asserted against us by WesternGeco are without merit and that the ultimate outcome of the claims against us will not result in a material adverse effect on our financial condition or results of operations. We intend to defend the claims against us vigorously.

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     On June 16, 2009, we filed an answer and counterclaims against WesternGeco, in which we deny that we have infringed WesternGeco’s patents and assert that the WesternGeco patents are invalid or unenforceable. We also asserted that WesternGeco’s Q-Marine system, components and technology infringe upon a United States patent owned by us related to marine seismic streamer steering devices. The claims by us also assert that WesternGeco tortiously interfered with our relationship with our customers. In addition, we claim that the lawsuit by WesternGeco is an illegal attempt by WesternGeco to control and restrict competition in the market for marine seismic surveys performed using laterally steerable streamers. In our counterclaims, we are requesting various remedies and relief, including a declaration that the WesternGeco patents are invalid or unenforceable, an injunction prohibiting WesternGeco from making, using, selling, offering for sale or supplying any infringing products in the United States, a declaration that the WesternGeco patents should be co-owned by us, and an award of unspecified monetary damages.

     In June 2010, WesternGeco filed a lawsuit against various subsidiaries and affiliates of Fugro N.V. (“Fugro”), one of our seismic contractor customers, accusing Fugro of infringing the same United States patents regarding marine seismic streamer steering devices by planning to use certain equipment purchased from us on a survey located outside of U.S. territorial waters. The court approved the consolidation of the Fugro case with the case against us. Fugro filed a motion to dismiss the lawsuit, and in March 2011 the presiding judge granted Fugro’s motion to dismiss in part, on the basis that the alleged activities of Fugro would occur more than 12 miles from the U.S. coast and therefore are not actionable under U.S. patent infringement law.

     Fletcher

     On November 25, 2009, Fletcher, the holder of shares of our outstanding Series D Preferred Stock, filed a lawsuit against us and certain of our directors in the Delaware Court of Chancery. In the lawsuit, styled Fletcher International, Ltd. v. ION Geophysical Corporation, f/k/a Input/Output, Inc., ION International S.à r.l., James M. Lapeyre, Bruce S. Appelbaum, Theodore H. Elliott, Jr., Franklin Myers, S. James Nelson, Jr., Robert P. Peebler, John Seitz, G. Thomas Marsh And Nicholas G. Vlahakis, Fletcher alleged, among other things, that we violated Fletcher’s consent rights contained in the Series D Preferred Stock Certificates of Designation, by ION Sàrl’s issuance of a convertible promissory note to the Bank of China, New York Branch, in connection with a bridge loan funded in October 2009 by Bank of China, and that the directors violated their fiduciary duty to us by allowing ION Sàrl to issue the convertible note without Fletcher’s consent. A total of $10.0 million was advanced to ION Sàrl under the bridge loan, and ION Sàrl repaid $10.0 million on the following day. Fletcher sought a court order requiring ION Sàrl to repay the $10 million advanced to ION Sàrl under the bridge loan and unspecified monetary damages. On March 24, 2010, the presiding judge in the case denied Fletcher’s request for the court order. In a Memorandum Opinion issued on May 28, 2010 in response to a motion for partial summary judgment, the judge dismissed all of Fletcher’s claims against our named directors but also concluded that, because the bridge loan note issued by ION Sàrl was convertible into ION common stock, Fletcher technically had the right to consent to the issuance of the note and that we violated Fletcher’s consent right by ION Sàrl issuing the note without Fletcher’s consent. In December 2010, the presiding judge in the case recused himself from the case and a new presiding judge was appointed to the case. We believe that the remaining claims asserted by Fletcher in the lawsuit are without merit. We further believe that the monetary damages suffered by Fletcher as a result of ION Sàrl issuing the bridge loan note without Fletcher’s consent are nonexistent or nominal, and that the ultimate outcome of the lawsuit will not result in a material adverse effect on our financial condition or results of operations. We intend to defend the remaining claims against us in this lawsuit vigorously.

     Sercel

     On January 29, 2010, the jury in a patent infringement lawsuit filed by us against seismic equipment provider Sercel, Inc. in the United States District Court for the Eastern District of Texas returned a verdict in our favor. In the lawsuit, styled Input/Output, Inc. et al v. Sercel, Inc., (5-06-cv-00236), we alleged that Sercel’s 408, 428 and SeaRay digital seismic sensor units infringe our United States Patent No. 5,852,242, which is incorporated in our VectorSeis sensor technology. Products of ION or INOVA Geophysical that use the VectorSeis technology include the System Four, Scorpion, FireFly, and VectorSeis Ocean seismic acquisition systems. After a two-week trial, the jury concluded that Sercel infringed our patent and that our patent was valid, and the jury awarded us $25.2 million in compensatory past damages. In response to post-verdict motions made by the parties, on September 16, 2010, the presiding judge issued a series of rulings that (a) granted our motion for a permanent injunction to be issued prohibiting the manufacture, use or sale of the infringing Sercel products, (b) confirmed that our patent was valid, (c) confirmed that the jury’s finding of infringement was supported by the evidence and (d) disallowed $5.4 million of lost profits that were based on infringing products that were manufactured and delivered by Sercel outside of the United States, but were offered for sale by Sercel in the United States and involved underlying orders and payments received by Sercel in the United States. In addition, the judge concluded that the evidence supporting the jury’s finding that we were entitled to be awarded $9.0 million in lost profits associated with certain infringing pre-verdict marine sales by Sercel was too speculative and therefore disallowed that award of lost profits. As a result of the judge’s ruling,

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we are now entitled to be awarded an additional amount of damages equal to a reasonable royalty on the infringing pre-verdict Sercel marine sales. After we learned that Sercel continued to make sales of infringing products after the January 2010 jury verdict was rendered, we filed motions with the court to seek additional compensatory damages for the post-verdict infringing sales and enhanced damages as a result of the willful nature of Sercel’s post-verdict infringement. On February 16, 2011, the Court entered a final judgment and permanent injunction in the case. The final judgment awarded us $10.7 million in damages, plus interest, and the permanent injunction prohibits Sercel and parties acting in concert with Sercel from making, using, offering to sell, selling, or importing in the United States (which includes territorial waters of the United States) Sercel’s 408UL, 428XL and SeaRay digital sensor units, and all other products that are only colorably different from those products. The Court ordered that the additional damages to be paid by Sercel as a reasonable royalty on the infringing pre-verdict Sercel marine sales and the additional damages to be paid by Sercel resulting from post-verdict infringing sales would be determined in a separate future proceeding. Sercel and we have each appealed portions of the final judgment. We have not recorded any amounts related to this gain contingency as of June 30, 2011.

     Other

     We have been named in various other lawsuits or threatened actions that are incidental to our ordinary business. Such lawsuits and actions could increase in number as our business expands and we grow larger. Litigation is inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, cause us to incur costs and expenses, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits and actions cannot be predicted with certainty. We currently believe that the ultimate resolution of these matters will not have a material adverse impact on our financial condition, results of operations or liquidity.

Item 1A. Risk Factors

     This report contains or incorporates by reference statements concerning our future results and performance and other matters that are “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). These statements involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “would,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of such terms or other comparable terminology. Examples of other forward-looking statements contained or incorporated by reference in this report include statements regarding:

• the effects of current and future worldwide economic conditions and demand for oil and natural gas and seismic equipment and services;

• the effects of current and future unrest in the Middle East and other regions;

• future benefits to be derived from INOVA Geophysical;

• a continuation in the future of increased capital expenditures for seismic spending;

• the expected outcome of litigation and other claims against us;

• the timing of anticipated sales;

• future levels of spending by our customers;

• future oil and gas commodity prices;

• the short-term and long-term effects from the Deepwater Horizon incident in the Gulf of Mexico on regulatory requirements for offshore development, which will affect us and our customers;

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• expected net revenues, income from operations and net income;

• expected gross margins for our products and services;

• future benefits to our customers to be derived from new products and services;

• future benefits to be derived from our investments in technologies and companies that we may make in the future;

• future growth rates for our products and services;

• the degree and rate of future market acceptance of our new products and services;

• our expectations regarding oil and gas exploration and production companies and contractor end-users purchasing our more technologically-advanced products and services;

• anticipated timing and success of commercialization and capabilities of products and services under development and start-up costs associated with their development;

• future cash needs and future availability of cash to fund our operations and pay our obligations;

• potential future acquisitions;

• future levels of capital expenditures;

• our ability to maintain our costs at consistent percentages of our revenues in the future;

• future demand for seismic equipment and services;

• future seismic industry fundamentals;

• future opportunities for new products and projected research and development expenses;

• future success in integrating our acquired businesses;

• sufficient future profits to fully utilize our net operating losses;

• future compliance with our debt financial covenants;

• expectations regarding realization of deferred tax assets; and

• anticipated results regarding accounting estimates we make.

     These forward-looking statements reflect our best judgment about future events and trends based on the information currently available to us. Our results of operations can be affected by inaccurate assumptions we make or by risks and uncertainties known or unknown to us. Therefore, we cannot guarantee the accuracy of the forward-looking statements. Actual events and results of operations may vary materially from our current expectations and assumptions.

     Information regarding factors that may cause actual results to vary from our expectations, called “risk factors,” appears in our Annual Report on Form 10-K for the year ended December 31, 2010 in Part II, Item 1A. “Risk Factors.” There have been no material changes from the risk factors previously disclosed in that Form 10-K.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     (c) During the three months ended June 30, 2011, in connection with the vesting of (or lapse of restrictions on) shares of our restricted stock held by certain employees, we acquired shares of our common stock in satisfaction of tax withholding obligations that were incurred on the vesting date. The date of cancellation, number of shares and average effective acquisition price per share were as follows:

						(d) Maximum Number
						(or Approximate
						Dollar
					(c) Total Number of	Value) of Shares
					Shares Purchased as	That
	(a)		(b)		Part of Publicly	May Yet Be Purchased
	Total Number of		Average Price		Announced Plans or	Under the Plans or
Period	Shares Acquired		Paid Per Share		Program	Program
April 1, 2011 to April 30, 2011		—	$	—	Not applicable	Not applicable
May 1, 2011 to May 31, 2011		—	$	—	Not applicable	Not applicable
June 1, 2011 to June 30, 2011		222	$	9.41	Not applicable	Not applicable
Total		222	$	9.41

Item 6. Exhibits

10.1	Sixth Amended and Restated 2004 Long-Term Incentive Plan, as amended on May 20, 2011.
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350.
101	The following materials are formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010, (ii) Condensed Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2011 and 2010, (iii) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010, and (iv) Notes to Condensed Consolidated Financial Statements tagged as block text.*

* In accordance with Rule 406T of Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

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SIGNATURES

     Pursuant to the requirements 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.

	ION GEOPHYSICAL CORPORATION
By	/s/ R. Brian Hanson R. Brian Hanson
	President, Chief Operating Officer and Chief Financial Officer
	(Duly authorized executive officer and principal financial officer)

Date: August 4, 2011

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Sixth Amended and Restated 2004 Long-Term Incentive Plan, as amended on May 20, 2011.
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350.
101	The following materials are formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010, (ii) Condensed Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2011 and 2010, (iii) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010, and (iv) Notes to Condensed Consolidated Financial Statements tagged as block text.*

* In accordance with Rule 406T of Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

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EX-10.1

Exhibit 10.1

SIXTH AMENDED AND RESTATED
2004 LONG-TERM INCENTIVE PLAN

SECTION 1
GENERAL PROVISIONS RELATING
TO PLAN GOVERNANCE, COVERAGE AND BENEFITS

     1.1 Purpose

     The purpose of the Plan is to foster and promote the long-term financial success of ION Geophysical Corporation (the “Company”) and its Subsidiaries and to increase stockholder value by: (a) encouraging the commitment of Directors and selected key Employees and Consultants, (b) motivating superior performance of Directors and key Employees and Consultants by means of long-term performance related incentives, (c) encouraging and providing Directors and selected key Employees and Consultants with a program for obtaining ownership interests in the Company that link and align their personal interests to those of the Company’s stockholders, (d) attracting and retaining Directors and selected key Employees and Consultants by providing competitive incentive compensation opportunities, and (e) enabling Directors and selected key Employees and Consultants to share in the long-term growth and success of the Company. For administrative purposes, and subject to Section 8.13, this Plan incorporates the ION Geophysical Corporation Amended and Restated 1996 Non-Employee Director Stock Option Plan (the “Director Plan”).

     The Plan provides for payment of various forms of incentive compensation. Except as provided in Section 8.14, it is not intended to be a plan that is subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and, as such, the Plan will be interpreted, construed and administered consistent with its status as a plan that is not subject to ERISA.

     This sixth amendment and restatement of the Plan will become effective as of May 27, 2011 (with the Plan having an original effective date of May 3, 2004 (the “Effective Date”)). The Plan will commence on the Effective Date, and will remain in effect, subject to the right of the Board to amend or terminate the Plan at any time pursuant to Section 8.6, until all Shares subject to the Plan have been purchased or acquired according to its provisions. However, in no event may any Incentive Award be granted under the Plan after ten (10) years from the Effective Date.

     1.2 Definitions

     The following terms shall have the meanings set forth below:

     (a) Appreciation. The difference between the Fair Market Value of a share of Common Stock on the date of exercise of a Tandem SAR and the option exercise price per share of the Nonstatutory Stock Option to which the Tandem SAR relates.

     (b) Authorized Officer. The Chairman of the Board, the CEO or any other senior officer of the Company to whom either of them delegate the authority to execute any Incentive Agreement for and on behalf of the Company. No officer or director shall be an Authorized Officer with respect to any Incentive Agreement for himself.

     (c) Board. The Board of Directors of the Company.

     (d) Cause. Except as otherwise provided by the Committee or as otherwise provided in a Grantee’s employment agreement, when used in connection with the termination of a Grantee’s Employment or service, shall mean the termination of the Grantee’s Employment or Grantee’s services as a Director or Consultant by the Company or any Subsidiary by reason of (i) the conviction of the Grantee by a court of competent jurisdiction as to which no further appeal can be taken of a crime involving moral turpitude or a felony; (ii) the proven commission by the Grantee of a material act of fraud upon the Company or any Subsidiary, or any customer or supplier thereof; (iii) the willful and proven misappropriation of any funds or property of the Company or any Subsidiary, or any customer or supplier thereof; (iv) the willful, continued and unreasonable failure by the Grantee to perform the material duties assigned to him which is not cured to the reasonable satisfaction of the Company within 30 days after written notice of such failure is provided to Grantee by the Board or by a designated officer of the Company or a Subsidiary; (v) the knowing engagement by the Grantee in any direct and material conflict of interest with the Company or any Subsidiary without compliance with the Company’s or Subsidiary’s conflict of interest policy, if any, then in effect; or (vi) the knowing engagement by the Grantee, without the written approval of the Board, in any material activity which competes with the business of the Company or any Subsidiary or which would result in a material injury to the business, reputation or goodwill of the Company or any Subsidiary; or (vii) the material breach by a Consultant of such Grantee’s contract with the Company.

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     (e) CEO. The Chief Executive Officer of the Company.

     (f) Change in Control. Any of the events described in and subject to Section 7.7.

     (g) Code. The Internal Revenue Code of 1986, as amended, and the regulations and other authority promulgated thereunder by the appropriate governmental authority. References herein to any provision of the Code shall refer to any successor provision thereto.

     (h) Committee. A committee appointed by the Board consisting of at least two directors, who fulfill the “outside directors” requirements of Section 162(m) of the Code, to administer the Plan. The Committee may be the Compensation Committee of the Board, or any subcommittee of the Compensation Committee. The Board shall have the power to fill vacancies on the Committee arising by resignation, death, removal or otherwise. The Board, in its sole discretion, may bifurcate the powers and duties of the Committee among one or more separate committees, or retain all powers and duties of the Committee in a single Committee. The members of the Committee shall serve at the discretion of the Board.

     (i) Common Stock. The common stock of the Company, $.01 per value per share, and any class of common stock into which such common shares may hereafter be converted, reclassified, re-capitalized, or exchanged.

     (j) Company. ION Geophysical Corporation, a corporation organized under the laws of the State of Delaware, and any successor-in-interest thereto.

     (k) Consultant. An independent agent, consultant, attorney, an individual who has agreed to become an Employee within the next six months, or any other individual who is not a Director or employee of the Company (or any Parent or Subsidiary) and who, in the opinion of the Committee, is in a position to contribute to the growth or financial success of the Company (or any Parent or Subsidiary), (ii), is a natural person and (iii) provides bona fide services to the Company (or any Parent or Subsidiary), which services are not in connection with the offer or sale of securities in a capital raising transaction, and do not directly or indirectly promote or maintain a market for the Company’s securities.

     (l) Covered Employee. A named executive officer who is one of the group of covered employees, as defined in Section 162(m) of the Code and Treasury Regulation § 1.162-27(c) (or its successor), during any such period that the Company is a Publicly Held Corporation.

     (m) Deferred Stock. Shares of Common Stock to be issued or transferred to a Grantee under an Other Stock-Based Award granted pursuant to Section 5 at the end of a specified deferral period, as set forth in the Incentive Agreement pertaining thereto.

     (n) Director. Any individual who is a member of the Board.

     (o) Director Plan. The Amended and Restated 1996 Non-Employee Director Stock Option Plan.

     (p) Disability. As determined by the Committee in its discretion exercised in good faith, a physical or mental condition of the Employee that would entitle him to disability income payments under the Company’s long term disability insurance policy or plan for employees, as then effective, if any; or in the event that the Grantee is not covered, for whatever reason, under the Company’s long-term disability insurance policy or plan, “Disability” means a permanent and total disability as defined in Section 22(e)(3) of the Code. A determination of Disability may be made by a physician selected or approved by the Committee and, in this respect, the Grantee shall submit to any reasonable examination by such physician upon request.

     (q) Employee. Any employee of the Company (or any Parent or Subsidiary) within the meaning of Section 3401(c) of the Code who, in the opinion of the Committee, is in a position to contribute to the growth, development or financial success of the Company (or any Parent or Subsidiary), including, without limitation, officers who are members of the Board.

     (r) Employment. Employment by the Company (or any Parent or Subsidiary), or by any corporation issuing or assuming an Incentive Award in any transaction described in Section 424(a) of the Code, or by a parent corporation or a subsidiary corporation of such corporation issuing or assuming such Incentive Award, as the parent-subsidiary relationship shall be determined at the time of the corporate action described in Section 424(a) of the Code. In this regard, neither the transfer of a Grantee from Employment by the Company to Employment by any Parent or Subsidiary, nor the transfer of a Grantee from Employment by any Parent or Subsidiary to Employment by the Company, shall be deemed to be a termination of Employment of the Grantee. Moreover, the

2

Employment of a Grantee shall not be deemed to have been terminated because of an approved leave of absence from active Employment on account of temporary illness, authorized vacation or granted for reasons of professional advancement, education, health, government service or military leave, or during any period required to be treated as a leave of absence by virtue of any applicable statute, Company personnel policy or agreement. Whether an authorized leave of absence shall constitute termination of Employment hereunder shall be determined by the Committee in its discretion. Unless otherwise provided in the Incentive Agreement, the term “Employment” for purposes of the Plan is also defined to include compensatory or advisory services performed by a Consultant for the Company (or any Parent or Subsidiary).

     (s) Exchange Act. The Securities Exchange Act of 1934, as amended.

     (t) Fair Market Value. While the Company is a Publicly Held Corporation, the Fair Market Value of one share of Common Stock on the date in question is deemed to be the closing sales price on the immediately preceding business day of a share of Common Stock as reported on the New York Stock Exchange or other principal securities exchange on which Shares are then listed or admitted to trading, or as quoted on any national interdealer quotation system, if such shares are not so listed.

     (u) Grantee. Any Employee, Director or Consultant who is granted an Incentive Award under the Plan.

     (v) Immediate Family. With respect to a Grantee, the Grantee’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships.

     (w) Incentive Award. A grant of an award under the Plan to a Grantee, including any Nonstatutory Stock Option, Incentive Stock Option, Stock Appreciation Right, Performance Share, Restricted Stock, Restricted Stock Unit or Other Stock-Based Award, as well as any Supplemental Payment.

     (x) Incentive Agreement. The written agreement entered into between the Company and the Grantee setting forth the terms and conditions pursuant to which an Incentive Award is granted under the Plan, as such agreement is further defined in Section 7.1 (a).

     (y) Incentive Stock Option or ISO. A Stock Option granted by the Committee to an Employee under Section 2 that is designated by the Committee as an Incentive Stock Option and intended to qualify as an Incentive Stock Option under Section 422 of the Code.

     (z) Independent SAR. A Stock Appreciation Right described in Section 2.5.

     (aa) Insider. While the Company is a Publicly Held Corporation, an individual who is, on the relevant date, an officer, director or ten percent (10%) beneficial owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act.

     (bb) Non-Employee Director. A Director who is not an Employee.

     (cc) Non-Employee Director Award. Any Nonstatutory Stock Option, SAR, Performance Shares, Restricted Stock, Restricted Stock Unit or Other Stock-Based Award granted, whether singly, in combination, or in tandem, to a Grantee who is a Non-Employee Director pursuant to such applicable terms, conditions, and limitations as the Board or Committee may establish in accordance with this Plan.

     (dd) Nonstatutory Stock Option. A Stock Option granted by the Committee to a Grantee under Section 2 that is not designated by the Committee as an Incentive Stock Option or to which Section 421 of the Code does not apply.

     (ee) Option Price. The exercise price at which a Share may be purchased by the Grantee of a Stock Option.

     (ff) Other Stock-Based Award. An award granted by the Committee to a Grantee under Section 2 that is not a Nonstatutory Stock Option, SAR, Performance Share, Restricted Stock or Restricted Stock Unit and is valued in whole or in part by reference to, or is otherwise based upon, Common Stock.

     (gg) Parent. Any corporation (whether now or hereafter existing) that constitutes a “Parent” of the Company, as defined in Section 424(e) of the Code.

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     (hh) Performance-Based Exception. The performance-based exception from the tax deductibility limitations of Section 162(m) of the Code, as prescribed in Section 162(m) of the Code and Treasury Regulation § 1.162-27(e) (or its successor), which is applicable during such period that the Company is a Publicly Held Corporation.

     (ii) Performance Period. A period of time determined by the Committee over which performance is measured for the purpose of determining a Grantee’s right to and the payment value of any Performance Share or Other Stock-Based Award.

     (jj) Performance Share. An Incentive Award representing a contingent right to receive Shares of Common Stock at the end of a Performance Period.

     (kk) Period of Restriction. A period when Restricted Stock or Restricted Stock Units are subject to a substantial risk of forfeiture (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee, in its discretion), as provided in Section 4.

     (ll) Plan. 2004 Long-Term Incentive Plan, as set forth herein and as it may be amended from time to time.

     (mm) Publicly Held Corporation. A corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act.

     (nn) Restricted Stock. An Award granted to a Grantee pursuant to Section 4.

     (oo) Restricted Stock Unit. An Award granted to a Grantee pursuant to Section 4, except no Shares are actually awarded to the Grantee on the date of grant.

     (pp) Retirement. The voluntary termination of Employment from the Company or any Parent or Subsidiary constituting retirement for age on any date after the Employee attains the normal retirement age of 65 years, or such other age as may be designated by the Committee in the Employee’s Incentive Agreement.

     (qq) intentionally deleted.

     (rr) Share. A share of Common Stock of the Company.

     (ss) Share Pool. The number of Shares authorized for issuance under Section 1.4 as adjusted for awards and payouts under Section 1.5 and as adjusted for changes in corporate capitalization under Section 7.5.

     (tt) Spread. The difference between the exercise price per Share specified in any SAR grant and the Fair Market Value of a Share on the date of exercise of the SAR.

     (uu) Stock Appreciation Right or SAR. A Tandem SAR described in Section 2.4 or an Independent SAR described in Section 2.5.

     (vv) Stock Option or Option. Pursuant to Section 2 or Section 6, (i) an Incentive Stock Option granted to an Employee, or (ii) a Nonstatutory Stock Option granted to an Employee, Director or Consultant, whereunder such option the Grantee has the right to purchase Shares of Common Stock. In accordance with Section 422 of the Code, only an Employee of the Company, Parent or Subsidiary may be granted an Incentive Stock Option.

     (ww) Subsidiary. Any corporation (whether now or hereafter existing) which constitutes a “subsidiary” of the Company, as defined in Section 424(f) of the Code.

     (xx) Supplemental Payment. Any amount, as described in Sections 2.6, and/or 4.3, that is dedicated to payment of income taxes which are payable by the Grantee resulting from an Incentive Award.

     (yy) Tandem SAR. A Stock Appreciation Right that is granted in connection with a related Stock Option pursuant to Section 2.4, the exercise of which shall require forfeiture of the right to purchase a Share under the related Stock Option (and when a Share is purchased under the Stock Option, the Tandem SAR with respect thereto, shall similarly be canceled).

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     1.3 Plan Administration

     (a) Authority of the Committee. Except as may be limited by law and subject to the provisions herein, the Committee shall have full power to (i) select Grantees who shall participate in the Plan; (ii) determine the sizes, duration and types of Incentive Awards; (iii) determine the terms and conditions of Incentive Awards and Incentive Agreements; (iv) determine whether any Shares subject to Incentive Awards will be subject to any restrictions on transfer; (v) construe and interpret the Plan and any Incentive Agreement or other agreement entered into under the Plan; and (vi) establish, amend, or waive rules for the Plan’s administration. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. Notwithstanding the preceding, without the prior approval of the Company’s shareholders, any Stock Option previously granted under the Plan shall not be repriced, replaced, or regranted through cancellation, or by lowering the exercise price of a previously granted option, except as provided in Section 7.5.

     (b) Meetings. The Committee shall designate a chairman from among its members who shall preside at all of its meetings, and shall designate a secretary, without regard to whether that person is a member of the Committee, who shall keep the minutes of the proceedings and all records, documents, and data pertaining to its administration of the Plan. Meetings shall be held at such times and places as shall be determined by the Committee and the Committee may hold telephonic meetings.

     (c) Decisions Binding. All determinations and decisions made by the Committee shall be made in its discretion pursuant to the provisions of the Plan, and shall be final, conclusive and binding on all persons including the Company, Employees, Directors, Grantees, and their estates and beneficiaries. The Committee’s decisions and determinations with respect to any Incentive Award need not be uniform and may be made selectively among Incentive Awards and Grantees, whether or not such Incentive Awards are similar or such Grantees are similarly situated.

     (d) Modification of Outstanding Incentive Awards. Subject to the stockholder approval requirements of Section 8.6 if applicable, the Committee may, in its discretion, provide for the extension of the exercisability of an Incentive Award, accelerate the vesting or exercisability of an Incentive Award, eliminate or make less restrictive any restrictions contained in an Incentive Award, waive any restriction or other provisions of an Incentive Award, or otherwise amend or modify an Incentive Award in any manner that is either (i) not adverse to the Grantee to whom such Incentive Award was granted or (ii) consented to by such Grantee; provided, however, no Stock Option issued under the Plan will be repriced, replaced or regranted through cancellation, or by lowering the Option Price of a previously granted Stock Option. and the period during which a Stock Option may be exercised shall not be extended such that the compensation payable under the Stock Option would be subject to the excise tax applicable under Section 409A of the Code. With respect to an Incentive Award that is an incentive stock option (as described in Section 422 of the Code), no adjustment to such option shall be made to the extent constituting a “modification” within the meaning of Section 424(h)(3) of the Code unless otherwise agreed to by the Grantee in writing. Except as provided in this Plan in connection with a Change of Control or a Corporate Event, the language of this Section 1.3(d) prohibits all forms of repricing, including cash buyouts and Incentive Award exchanges, without stockholder approval.

     (e) Delegation of Authority. The Committee may delegate to designated officers or other employees of the Company any of its duties and authority under the Plan pursuant to such conditions or limitations as the Committee may establish from time to time; provided, however, the Committee may not delegate to any person the authority to (i) grant Incentive Awards, or (ii) take any action which would contravene the requirements of Rule 16b-3 under the Exchange Act or the Performance-Based Exception under Section 162(m) of the Code.

     (f) Expenses of Committee. The Committee may employ legal counsel, including, without limitation, independent legal counsel and counsel regularly employed by the Company, and other agents, as the Committee may deem appropriate for the administration of the Plan. The Committee may rely upon any opinion or computation received from any such counsel or agent. All expenses incurred by the Committee in interpreting and administering the Plan, including, without limitation, meeting expenses and professional fees, shall be paid by the Company.

     (g) Indemnification. Each person who is or was a member of the Committee, or of the Board, shall be indemnified by the Company against and from any damage, loss, liability, cost and expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit, or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under the Plan, except for any such act or omission constituting willful misconduct or gross negligence. Such person shall be indemnified by the Company for all amounts paid by him in settlement thereof, with the Company’s approval, or paid by him in satisfaction of any judgment in any such action, suit, or proceeding against him, provided he shall give the

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Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Articles or Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

     (h) Awards in Foreign Countries. The Board shall have the authority to adopt modifications, procedures, sub-plans, and other similar plan documents as may be necessary or desirable to comply with provisions of the laws of foreign countries in which the Company or its subsidiaries may operate to assure the viability of the benefits of Incentive Awards made to individuals employed or providing services in such countries and to meet the objectives of the Plan.

     1.4 Shares of Common Stock Available for Incentive Awards

     Subject to this Section 1.4 and subject to adjustment under Section 7.5, there shall be available for Incentive Awards that are granted wholly or partly in Common Stock (including rights or Options that may be exercised or settled in Common Stock) 15,200,000 Shares of Common Stock.

     The number of Shares of Common Stock that are the subject of Incentive Awards under this Plan, that are forfeited or terminated, expire unexercised, are settled in cash in lieu of Common Stock or in a manner such that all or some of the Shares covered by an Incentive Award are not issued to a Grantee or are exchanged for Incentive Awards that do not involve Common Stock, shall again immediately become available for Incentive Awards hereunder; provided, however, the aggregate number of Shares which may be issued upon exercise of ISOs shall in no event exceed 15,200,000 Shares (subject to adjustment pursuant to Section 7.5).

     Any Shares of Common Stock reserved for issuance under the Director Plan in excess of the number of Shares as to which Incentive Awards have been awarded thereunder shall no longer be available for grant under the Director Plan after the Effective Date but shall instead be available for grant under the terms and conditions of this Plan. Any Shares as to which Awards granted or issued under the Director Plan that may lapse, expire, terminate, or be cancelled, are settled in cash in lieu of common stock, are tendered (either by actual delivery or attestation) to pay the Option Price, or satisfy any tax withholding requirements shall be deemed available for issuance or reissuance under the preceding paragraph of this Section of the Plan.

     Subject to adjustment under Section 7.5 and the limit set forth above, the following additional limits are imposed under the Plan:

     (a) The maximum number of Shares that may be covered by Incentive Awards granted to any one individual pursuant to Section 2 (relating to Options and SARs) shall be 15,200,000 Shares during any one calendar-year period. To the extent required by Section 162(m) of the Code, Shares subject to the foregoing limit with respect to which the related Incentive Award described in Section 2 is forfeited, expires, or is canceled shall not again be available for grant under this limit.

     (b) For Performance Shares that are intended to qualify for the Performance-Based Exception, no more than 15,200,000 Shares may be delivered to any one Grantee for Performance Periods beginning in any one calendar year, regardless of whether the applicable Performance Period during which the Performance Shares are earned ends in the same year in which it begins or in a later calendar year; provided that Performance Shares described in this paragraph (b) that are intended to qualify for the Performance-Based Exception shall be subject to the following: (i) If the Performance Shares are denominated in Shares but are settled in an equivalent amount of cash, the foregoing limit shall be applied as though the Incentive Award was settled in Shares; and (ii) If delivery of Shares or cash is deferred until after Performance Shares have been earned, any adjustment in the amount delivered to reflect actual or deemed investment experience after the date the shares are earned shall be disregarded.

     (c) For Supplemental Payments that are intended to qualify for the Performance-Based Exception, no more than $2,000,000 may be paid to any one Grantee for Performance Periods beginning in any one calendar year, regardless of whether the applicable Performance Period during which the Supplemental Payment is earned ends in the same year in which it begins or in a later calendar year; provided that Supplemental Payments described in this paragraph (c) that are intended to qualify for the Performance-Based Exception shall be subject to the following: (i) If a Supplemental Payment is denominated in cash but an equivalent amount of Shares is delivered in lieu of delivery of cash, the foregoing limit shall be applied as though the Supplemental Payment was settled in cash; and (ii) if delivery of Shares or cash is deferred until after the Supplemental Payment has been earned, any adjustment in the amount delivered to reflect actual or deemed investment experience after the date the Supplemental Payment is earned shall be disregarded.

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     1.5 Share Pool Adjustments for Awards and Payouts

     The following Incentive Awards and payouts shall reduce, on a one Share for one Share basis, the number of Shares authorized for issuance under the Share Pool:

     (a) Stock Option;

     (b) SAR (except a Tandem SAR);

     (c) A payout of a Performance Share in Shares;

     (d) Restricted Stock or a payout of Restricted Stock Units in Shares; and

     (e) A payout of an Other Stock-Based Award in Shares.

     The following transactions shall restore, on a one Share for one Share basis, the number of Shares authorized for issuance under the Share Pool:

     (A) A payout of an SAR or Other Stock-Based Award in the form of cash;

     (B) A cancellation, termination, expiration, forfeiture, or lapse for any reason (with the exception of the termination of a Tandem SAR upon exercise of the related Stock Option, or the termination of a related Stock Option upon exercise of the corresponding Tandem SAR) of any Shares subject to an Incentive Award; and

     (C) Payment of an Option Price with previously acquired Shares or by withholding Shares which otherwise would be acquired on exercise (i.e., the Share Pool shall be increased by the number of Shares turned in or withheld as payment of the Option Price plus any Shares withheld to pay withholding taxes).

     1.6 Common Stock Available

     The Common Stock available for issuance or transfer under the Plan shall be made available from Shares now or hereafter (a) held in the treasury of the Company, (b) are authorized but unissued, or (c) to be purchased or acquired by the Company. No fractional Shares shall be issued under the Plan; any payment for fractional Shares shall be made in cash.

     1.7 Participation

     (a) Eligibility. The Committee shall from time to time designate those key Employees, Directors or Consultants, if any, to be granted Incentive Awards under the Plan, the type and number of Incentive Awards granted, and any other terms or conditions relating to the Incentive Awards as it may deem appropriate to the extent consistent with the provisions of the Plan. A Grantee who has been granted an Incentive Award may, if otherwise eligible, be granted additional Incentive Awards at any time.

     (b) Incentive Stock Option Eligibility. No Consultant or Non-Employee Director shall be eligible for the grant of any Incentive Stock Option. In addition, no Employee shall be eligible for the grant of any Incentive Stock Option who owns or would own immediately before the grant of such Incentive Stock Option, directly or indirectly, stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or any Parent or Subsidiary. This restriction does not apply if, at the time such Incentive Stock Option is granted, the Incentive Stock Option exercise price is at least one hundred and ten percent (110%) of the Fair Market Value on the date of grant and the Incentive Stock Option by its terms is not exercisable after the expiration of five (5) years from the date of grant. For the purpose of the immediately preceding sentence, the attribution rules of Section 424(d) of the Code shall apply for the purpose of determining an Employee’s percentage ownership in the Company or any Parent or Subsidiary. This paragraph shall be construed consistent with the requirements of Section 422 of the Code.

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     1.8 Types of Incentive Awards

     The types of Incentive Awards under the Plan are Stock Options, Stock Appreciation Rights and Supplemental Payments as described in Section 2, Performance Shares and Supplemental Payments as described in Section 3, Restricted Stock, Restricted Stock Units and Supplemental Payments as described in Section 4, and Other Stock-Based Awards and Supplemental Payments as described in Section 5, and any combination of the foregoing.

SECTION 2
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

     2.1 Grant of Stock Options

     The Committee is authorized to grant (a) Nonstatutory Stock Options to Employees, Directors or Consultants and (b) Incentive Stock Options to Employees only, in accordance with the terms and conditions of the Plan, and with such additional terms and conditions, not inconsistent with the Plan, as the Committee shall determine in its discretion. Successive grants may be made to the same Grantee whether or not any Stock Option previously granted to such person remains unexercised.

     2.2 Stock Option Terms

     (a) Written Agreement. Each grant of a Stock Option shall be evidenced by a written Incentive Agreement. Among its other provisions, each Incentive Agreement shall set forth, subject to Section 422 of the Code, the extent to which the Grantee shall have the right to exercise the Stock Option following termination of the Grantee’s Employment. Such provisions shall be determined in the discretion of the Committee, shall be included in the Grantee’s Incentive Agreement, and need not be uniform among all Stock Options issued pursuant to the Plan. In addition, Incentive Agreement shall state whether the Stock Option is intended to meet the requirements of Section 422 of the Code.

     (b) Number of Shares. Each Stock Option shall specify the number of Shares of Common Stock to which it pertains.

     (c) Exercise Price. The exercise price per Share of Common Stock under each Stock Option shall be determined by the Committee; provided, however, that in the case of a Stock Option, such exercise price shall not be less than 100% of the Fair Market Value per Share on the date the Stock Option is granted (110% in the case of an Incentive Stock Option for 10% or greater shareholders pursuant to Section 1.7(b)). Each Stock Option shall specify the method of exercise, which shall be consistent with the requirements of Section 2.3(a).

     (d) Term. In the Incentive Agreement, the Committee shall fix the term of each Stock Option, which shall be not more than ten (10) years from the date of grant (five years for ISO grants to 10% or greater shareholders pursuant to Section 1.7(b)). In the event no term is fixed, such term shall be ten (10) years from the date of grant.

     (e) Exercise. The Committee shall determine the time or times at which a Stock Option may be exercised in whole or in part. Each Stock Option may specify the required period of continuous Employment and/or the performance objectives to be achieved before the Stock Option or portion thereof will become exercisable. Each Stock Option, the exercise of which, or the timing of the exercise of which, is dependent, in whole or in part, on the achievement of designated performance objectives, may specify a minimum level of achievement in respect of the specified performance objectives below which no Stock Options will be exercisable and a method for determining the number of Stock Options that will be exercisable if performance is at or above such minimum but short of full achievement of the performance objectives. All such terms and conditions shall be set forth in the Incentive Agreement.

     (f) $100,000 Annual Limit on Incentive Stock Options. Notwithstanding any contrary provision in the Plan, to the extent that the aggregate Fair Market Value (determined as of the time the Incentive Stock Option is granted) of the Shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Grantee during any single calendar year (under the Plan and any other stock option plans of the Company and its Subsidiaries or Parent) exceeds the sum of $100,000, such Incentive Stock Option shall be treated as a Nonstatutory Stock Option to the extent in excess of the $100,000 limit, and not an Incentive Stock Option, but all other terms and provisions of such Stock Option shall remain unchanged. This paragraph shall be applied by taking Incentive Stock Options into account in the order in which they were granted and shall be construed in accordance with Section 422(d) of the Code. In the absence of such regulations or other authority, or if such regulations or other authority require or permit a designation of the Options which shall cease to constitute Incentive Stock Options, then such Incentive Stock Options, only to the extent of such excess, shall automatically be deemed to be Nonstatutory Stock Options but all other terms and conditions of such Incentive Stock Options, and the corresponding Incentive Agreement, shall remain unchanged.

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     2.3 Stock Option Exercises

     (a) Method of Exercise and Payment. Stock Options shall be exercised by the delivery of a signed written notice of exercise to the Company as of a date set by the Company in advance of the effective date of the proposed exercise. The notice shall set forth the number of Shares with respect to which the Option is to be exercised.

     The Option Price upon exercise of any Stock Option shall be payable to the Company in full either: (i) in cash or its equivalent, or (ii) by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the Option Price, or (iii) by withholding Shares which otherwise would be acquired on exercise having an aggregate Fair Market Value at the time of exercise equal to the total Option Price, or (iv) by any combination of (i), (ii), and (iii) above. Any payment in Shares shall be effected by surrender of such Shares to the Company in good form for transfer and shall be valued at their Fair Market Value on the date when the Stock Option is exercised. The Company shall not withhold shares, and the Grantee shall not surrender, or attest to the ownership of, Shares in payment of the Option Price if such action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to the Stock Option for financial reporting purposes.

     While the Company is a Publicly Held Corporation, the Committee may also allow the Option Price to be paid with such other consideration as shall constitute lawful consideration for the issuance of Shares (including, without limitation, effecting a “cashless exercise” with a broker or dealer), subject to applicable securities law restrictions and tax withholdings, or by any other means which the Committee determines to be consistent with the Plan’s purpose and applicable law.

     As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver, or cause to be delivered, to or on behalf of the Grantee, in the name of the Grantee or other appropriate recipient, Share certificates for the number of Shares purchased under the Stock Option. Such delivery shall be effected for all purposes when the Company or a stock transfer agent of the Company shall have deposited such certificates in the United States mail, addressed to Grantee or other appropriate recipient.

     Subject to Section 7.2 during the lifetime of a Grantee, each Option granted to him shall be exercisable only by the Grantee (or his legal guardian or personal representative in the event of his Disability) or by a broker or dealer acting on his behalf pursuant to a cashless exercise under the foregoing provisions of this Section 2.3(a).

     (b) Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of a Stock Option as it may deem advisable, including, without limitation, restrictions under (i) any stockholders’ agreement, buy/sell agreement, right of first refusal, non-competition, and any other agreement between the Company and any of its securities holders or employees, (ii) any applicable federal securities laws, (iii) the requirements of any stock exchange or market upon which such Shares are then listed and/or quoted, or (iv) any blue sky or state securities law applicable to such Shares. Any certificate issued to evidence Shares issued upon the exercise of an Incentive Award may bear such legends and statements as the Committee shall deem advisable to assure compliance with federal and state laws and regulations.

     Any Grantee or other person exercising an Incentive Award may be required by the Committee to give a written representation that the Incentive Award and the Shares subject to the Incentive Award will be acquired for investment and not with a view to public distribution; provided, however, that the Committee, in its sole discretion, may release any person receiving an Incentive Award from any such representations either prior to or subsequent to the exercise of the Incentive Award.

     (c) Notification of Disqualifying Disposition of Shares from Incentive Stock Options. Notwithstanding any other provision of the Plan, a Grantee who disposes of Shares of Common Stock acquired upon the exercise of an Incentive Stock Option by a sale or exchange either (i) within two (2) years after the date of the grant of the Incentive Stock Option under which the Shares were acquired or (ii) within one (1) year after the transfer of such Shares to him pursuant to exercise, shall promptly notify the Company of such disposition, the amount realized and his adjusted basis in such Shares.

     (d) Proceeds of Option Exercise. The proceeds received by the Company from the sale of Shares pursuant to Stock Options exercised under the Plan shall be used for general corporate purposes.

     (e) Information Required in Connection with Exercise of Incentive Stock Option. The Company shall provide the Grantee with a written statement required by Section 6039 of the Code no later than January 31 of the year following the calendar year during which the Grantee exercises an Option that is intended to be an Incentive Stock Option.

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     2.4 Stock Appreciation Rights in Tandem with Nonstatutory Stock Options

     (a) Grant. The Committee may, at the time of grant of a Nonstatutory Stock Option, or at any time thereafter during the term of the Nonstatutory Stock Option, grant Stock Appreciation Rights with respect to all or any portion of the Shares of Common Stock covered by such Nonstatutory Stock Option. A Stock Appreciation Right in tandem with a Nonstatutory Stock Option is referred to herein as a “Tandem SAR.”

     (b) General Provisions. The terms and conditions of each Tandem SAR shall be evidenced by an Incentive Agreement. The Option Price per Share of a Tandem SAR shall be fixed in the Incentive Agreement and shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the grant date of the Nonstatutory Stock Option to which it relates.

     (c) Exercise. A Tandem SAR may be exercised at any time the Nonstatutory Stock Option to which it relates is then exercisable, but only to the extent such Nonstatutory Stock Option is exercisable, and shall otherwise be subject to the conditions applicable to such Nonstatutory Stock Option. When a Tandem SAR is exercised, the Nonstatutory Stock Option to which it relates shall terminate to the extent of the number of Shares with respect to which the Tandem SAR is exercised. Similarly, when a Nonstatutory Stock Option is exercised, the Tandem SARs relating to the Shares covered by such Nonstatutory Stock Option exercise shall terminate.

     (d) Settlement. Upon exercise of a Tandem SAR, the holder shall receive, for each Share specified in the Tandem SAR grant, an amount equal to the Appreciation. The Appreciation shall be payable in cash, Common Stock, or a combination of both, as specified in the Incentive Agreement. The Appreciation shall be paid within 30 calendar days of the exercise of the Tandem SAR. If the Appreciation is to be paid in Common Stock or cash only, the resulting shares or cash shall be determined dividing (1) by (2), where (1) is the number of Shares as to which the Tandem SAR is exercised multiplied by the Appreciation in such shares and (2) is the Fair Market Value of a Share on the exercise date. If a portion of the Appreciation is to be paid in Shares, the Share amount shall be determined by calculating the amount of cash payable pursuant to the preceding sentence then by dividing (1) as defined herein, minus the amount of cash payable, by (2) as defined herein.

     2.5 Stock Appreciation Rights Independent of Nonstatutory Stock Options

     (a) Grant. The Committee may grant Stock Appreciation Rights independent of Nonstatutory Stock Options (“Independent SARs”).

     (b) General Provisions. The terms and conditions of each Independent SAR shall be evidenced by an Incentive Agreement. The exercise price per share of Common Stock shall be not less than one hundred percent (100%) of the Fair Market Value of a Share of Common Stock on the date of grant of the Independent SAR. The term of an Independent SAR shall be determined by the Committee.

     (c) Exercise. Independent SARs shall be exercisable at such time and subject to such terms and conditions as the Committee shall specify in the Incentive Agreement for the Independent SAR grant.

     (d) Settlement. Upon exercise of an Independent SAR, the holder shall receive, for each Share specified in the Independent SAR grant, an amount equal to the Spread. The Spread shall be payable in cash, Common Stock, or a combination of both, as specified in the Incentive Agreement. The Spread shall be paid within 30 calendar days of the exercise of the Independent SAR. If the Spread is to be paid in Common Stock or cash only, the resulting shares or cash shall be determined by dividing (1) by (2), where (1) is the number of Shares as to which the Independent SAR is exercised multiplied by the Spread in such Shares and (2) is the Fair Market Value of a Share on the exercise date. If a portion of the Spread is to be paid in Shares, the Share amount shall be determined by calculating the amount of cash payable pursuant to the preceding sentence then by dividing (1) as defined herein, minus the amount of cash payable, by (2) as defined herein.

     2.6 Supplemental Payment on Exercise of Nonstatutory Stock Options or Stock Appreciation Rights

     The Committee, either at the time of grant or as of the time of exercise of any Nonstatutory Stock Option or Stock Appreciation Right, may provide in the Incentive Agreement for a Supplemental Payment by the Company to the Grantee with respect to the exercise of any Nonstatutory Stock Option or Stock Appreciation Right. The Supplemental Payment shall be in the amount specified by the Committee, which amount shall not exceed the amount necessary to pay the federal and state income tax payable with respect to both the exercise of the Nonstatutory Stock Option and/or Stock Appreciation Right and the receipt of the Supplemental Payment, assuming the holder is taxed at either the maximum effective income tax rate applicable thereto or at a lower tax rate as deemed appropriate by the Committee. The Committee shall have the discretion to grant Supplemental Payments that are payable solely in cash or Supplemental Payments that are payable in cash, Common Stock, or a combination of both, as determined by the Committee at the time of payment.

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SECTION 3
PERFORMANCE SHARES

     3.1 Performance Based Awards

     (a) Grant. The Committee is authorized to grant Performance Shares to selected Grantees who are Employees or Consultants. Each grant of Performance Shares shall be evidenced by an Incentive Agreement in such amounts and upon such terms as shall be determined by the Committee. The Committee may make grants of Performance Shares in such a manner that more than one Performance Period is in progress concurrently. For each Performance Period, the Committee shall establish the number of Performance Shares and their contingent values which may vary depending on the degree to which performance criteria established by the Committee are met.

     (b) Performance Criteria.

     (i) The grant of Performance Shares shall be subject to such conditions, restrictions and contingencies, as determined by the Committee.

     (ii) The Committee may designate a grant of Performance Shares to any Grantee as intended to qualify for the Performance-Based Exception. To the extent required by Code section 162(m), any grant of Performance Shares so designated shall be conditioned on the achievement of one or more performance goals, subject to the following:

     (A) The performance goals shall be based upon criteria in one or more of the following categories: performance of the Company as a whole, performance of a segment of the Company’s business, and individual performance. Performance criteria for the Company shall relate to the achievement of predetermined financial objectives for the Company and its Subsidiaries on a consolidated basis. Performance criteria for a segment of the Company’s business shall relate to the achievement of financial and operating objectives of the segment for which the Grantee is accountable.

     (B) Performance criteria shall include pre-tax or after-tax profit levels, including: earnings per share, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, net operating profits after tax, and net income; total shareholder return; return on assets, equity, capital or investment; cash flow and cash flow return on investment; economic value added and economic profit; growth in earnings per share; levels of operating expense and maintenance expense; or measures of customer satisfaction and customer service, as determined from time to time including the relative improvement therein.

     (C) Individual performance criteria shall relate to a Grantee’s overall performance, taking into account, among other measures of performance, the attainment of individual goals and objectives. The performance goals may differ among Grantees.

     (c) Modification. If the Committee determines, in its discretion exercised in good faith, that the established performance measures or objectives are no longer suitable to the Company’s objectives because of a change in the Company’s business, operations, corporate structure, capital structure, or other conditions the Committee deems to be appropriate, the Committee may modify the performance measures and objectives to the extent it considers to be necessary. However, if any Performance Shares are designated as intended to qualify for the Performance-Based Exception, no such modification shall be made to the extent the modification would otherwise cause the Performance Shares to not qualify for the Performance-Based Exception.

     (d) Payment. The basis for payment of Performance Shares for a given Performance Period shall be the achievement of those performance objectives determined by the Committee at the beginning of the Performance Period as specified in the Grantee’s Incentive Agreement. If minimum performance is not achieved for a Performance Period, no payment shall be made and all contingent rights shall cease. If minimum performance is achieved or exceeded, the number of Performance Shares may be based on the degree to which actual performance exceeded the pre-established minimum performance standards. The amount of payment shall be determined by multiplying the number of Performance Shares granted at the beginning of the Performance Period times the final Performance Share value. Payments shall be made in cash or Common Stock in the discretion of the Committee as specified in the Incentive Agreement.

     (e) Special Rule for Covered Employees. No later than the ninetieth (90th) day following the beginning of a Performance Period (or twenty-five percent (25%) of the Performance Period) the Committee shall establish performance goals as described in Section 3.1(b) applicable to Performance Shares awarded to Covered Employees in such a manner as shall permit payments with respect thereto to

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qualify for the Performance-Based Exception, if applicable. If a Performance Share granted to a Covered Employee is intended to comply with the Performance-Based Exception, the Committee in establishing performance goals shall comply with Treasury Regulation § 1.162-27(e)(2) (or its successor). As soon as practicable following the Company’s determination of the Company’s financial results for any Performance Period, the Committee shall certify in writing: (i) whether the Company achieved its minimum performance for the objectives for the Performance Period, (ii) the extent to which the Company achieved its performance objectives for the Performance Period, (iii) any other terms that are material to the grant of Performance Shares, and (iv) the calculation of the payments, if any, to be paid to each Grantee for the Performance Period.

SECTION 4
RESTRICTED STOCK AND RESTRICTED STOCK UNITS

     4.1 Grant of Restricted Stock or Restricted Stock Units

     Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Restricted Stock and/or Restricted Stock Units to Grantees in such amounts as the Committee shall determine. Restricted Stock Units shall be similar to Restricted Stock except that no Shares are actually awarded to the Grantee on the date of grant.

     4.2 Restricted Stock Award or Restricted Stock Unit Award Terms

     (a) Written Agreement. The terms and conditions of each grant of Restricted Stock Award and/or Restricted Stock Unit Award shall be evidenced by an Incentive Agreement that shall specify the Period(s) of Restriction, the number of shares of Restricted Stock or the number of Restricted Stock Units granted, and such other provisions as the Committee shall determine.

     (b) Transferability. Except as provided in this Plan or an Incentive Agreement, Restricted Stock and/or Restricted Stock Units granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Incentive Agreement (and in the case of Restricted Stock Units until the date of delivery or other payment), or upon earlier satisfaction of any other conditions, as specified by the Committee, in its sole discretion, and set forth in the Incentive Agreement or otherwise at any time by the Committee. All rights with respect to the Restricted Stock and/or Restricted Stock Units granted to a Grantee under the Plan shall be available during his lifetime only to such Grantee, except as otherwise provided in an Incentive Agreement or at any time by the Committee.

     (c) Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Restricted Stock or Restricted Stock Units granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Grantees pay a stipulated purchase price for each Share of Restricted Stock or each Restricted Stock Unit, restrictions based upon the achievement of specific performance goals, time-based restrictions on vesting following the attainment of the performance goals, time-based restrictions, and/or restrictions under applicable laws or under the requirements of any stock exchange or market upon which such Shares are listed or traded, or holding requirements or sale restrictions placed on the Shares by the Company upon vesting of such Restricted Stock or Restricted Stock Units.

     To the extent deemed appropriate by the Committee, the Company may retain the certificates representing shares of Restricted Stock in the Company’s possession until such time as all conditions and/or restrictions applicable to such shares have been satisfied or lapse.

     Except as otherwise provided in this Section 4, shares of Restricted Stock covered by each Restricted Stock Award shall become freely transferable by the Grantee after all conditions and restrictions applicable to such shares have been satisfied or lapse (including satisfaction of any applicable tax withholding obligations) at the close of the Period of Restriction (but no later than 2 ¹/2 months following the end of the year that contains the close of the Period of Restriction), or as soon as practicable thereafter. Restricted Stock Units shall be paid in cash, Shares, or a combination of cash and Shares as the Committee, in its sole discretion shall determine.

     (d) Certificate Legend. In addition to any legends placed on certificates pursuant to Section 7.1(c), each certificate representing Restricted Stock granted pursuant to the Plan may bear a legend such as the following or as otherwise determined by the Committee in its sole discretion:

     the sale or transfer of shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer as set forth in the SIXTH amended and restated 2004 long-term incentive plan, and in the associated incentive agreement. a copy of the plan and such incentive agreement may be obtained from Ion Geophysical Corporation.

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     (e) Voting Rights. Unless otherwise determined by the Committee or as otherwise set forth in a Grantee’s Incentive Agreement, to the extent permitted or required by law, as determined by the Committee, Grantees holding shares of Restricted Stock granted hereunder may be granted the right to exercise full voting rights with respect to those shares during the Period of Restriction. A Grantee shall have no voting rights with respect to any Restricted Stock Units granted hereunder.

     (f) Termination of Employment. Each Incentive Agreement shall set forth the extent to which the Grantee shall have the right to retain Restricted Stock and/or Restricted Stock Units following termination of the Grantee’s employment with or provision of services to the Company, its Affiliates, and/or its Subsidiaries, as the case may be. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Incentive Agreement entered into with each Grantee, need not be uniform among all Shares of Restricted Stock or Restricted Stock Units issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination.

     (g) Section 83(b) Election. The Committee may provide in an Incentive Agreement that the Award of Restricted Stock is conditioned upon the Grantee making or refraining from making an election with respect to the Award under Section 83(b) of the Code. If a Grantee makes an election pursuant to Section 83(b) of the Code concerning a Restricted Stock Award, the Grantee shall be required to file promptly a copy of such election with the Company.

     4.3 Supplemental Payment on Vesting of Restricted Stock and Restricted Stock Units

     The Committee, either at the time of grant or at the time of vesting of Restricted Stock or Restricted Stock Units, may provide for a Supplemental Payment by the Company to the Grantee in an amount specified by the Committee, which amount shall not exceed the amount necessary to pay the federal and state income tax payable with respect to both the vesting of such Restricted Stock or Restricted Stock Units and receipt of the Supplemental Payment, assuming the Grantee is taxed at either the maximum effective income tax rate applicable thereto or at a lower tax rate as seemed appropriate by the Committee. The Committee shall also have the discretion to grant Supplemental Payments that are payable in Common Stock.

SECTION 5
OTHER STOCK-BASED AWARDS

     5.1 Grant of Other Stock-Based Awards

     Other Stock-Based Awards may be awarded by the Committee to selected Grantees that are denominated or payable in, valued in whole or in part by reference to, or otherwise related to, Shares of Common Stock, as deemed by the Committee to be consistent with the purposes of the Plan and the goals of the Company. Other types of Stock-Based Awards include, without limitation, Deferred Stock, purchase rights, Shares of Common Stock awarded which are not subject to any restrictions or conditions, convertible or exchangeable debentures, other rights convertible into Shares, Incentive Awards valued by reference to the value of securities of or the performance of a specified Subsidiary, division or department, and settlement in cancellation of rights of any person with a vested interest in any other plan, fund, program or arrangement that is or was sponsored, maintained or participated in by the Company or any Parent or Subsidiary. As is the case with other Incentive Awards, Other Stock-Based Awards may be awarded either alone or in addition to or in tandem with any other Incentive Awards.

     5.2 Other Stock-Based Award Terms

     (a) Written Agreement. The terms and conditions of each grant of an Other Stock-Based Award shall be evidenced by an Incentive Agreement.

     (b) Purchase Price. Except to the extent that an Other Stock-Based Award is granted in substitution for an outstanding Incentive Award or is delivered upon exercise of a Stock Option, the amount of consideration required to be received by the Company shall be either (i) no consideration other than services actually rendered (in the case of authorized and unissued shares) or to be rendered, or (ii) in the case of an Other Stock-Based Award in the nature of a purchase right, consideration (other than services rendered or to be rendered) at least equal to 50% of the Fair Market Value of the Shares covered by such grant on the date of grant (or such percentage higher than 50% that is required by any applicable tax or securities law).

     (c) Performance Criteria and Other Terms. In its discretion, the Committee may specify such criteria, periods or goals for vesting in Other Stock-Based Awards and payment thereof to the Grantee as it shall determine; and the extent to which such criteria, periods or goals have been met shall be determined by the Committee. All terms and conditions of Other Stock-Based Awards shall be

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determined by the Committee and set forth in the Incentive Agreement. The Committee may also provide for a Supplemental Payment similar to such payment as described in Section 4.3.

     (d) Payment. Other Stock-Based Awards may be paid in Shares of Common Stock or other consideration related to such Shares, in a single payment or in installments on such dates as determined by the Committee, all as specified in the Incentive Agreement.

     (e) Dividends. The Grantee of an Other Stock-Based Award may be entitled to receive, currently or on a deferred basis, dividends or dividend equivalents with respect to the number of Shares covered by the Other Stock-Based Award, as determined by the Committee and set forth in the Incentive Agreement. The Committee may also provide in the Incentive Agreement that such amounts (if any) shall be deemed to have been reinvested in additional Shares of Common Stock.

SECTION 6
PROVISIONS RELATING TO NON-EMPLOYEE DIRECTOR AWARDS

     6.1 Generally

     All Awards to Non-Employee Directors shall be determined by the Board or Committee.

     6.2 Vesting Period

     Unless the Committee shall otherwise prescribe or as otherwise specified in an applicable Incentive Agreement, each Incentive Award granted to a Non-Employee Director shall vest as follows:

     (a) each Incentive Award granted to a Non-Employee Director under the Plan during his initial year of service as a Non-Employee Director, if any, shall vest in 33.33% consecutive annual installments on the first, second and third anniversary dates of the date of grant of each such Incentive Award;

     (b) each Incentive Award granted to a Non-Employee Director under the Plan during his second full year of service as a Non-Employee Director, if any, shall vest in 50% consecutive annual installments on the first and second anniversary dates of the Date of Grant of each such Incentive Award;

     (c) each Incentive Award granted to a Non-Employee Director under the Plan during his third full year of service as a Non-Employee Director, if any, shall fully vest on the first anniversary date of the date of grant of each such Incentive Award; and

     (d) each Incentive Award granted to a Non-Employee Director following the completion of his third full year of service as a Non-Employee Director, if any, shall be fully vested on the date of grant.

SECTION 7
PROVISIONS RELATING TO PLAN PARTICIPATION

     7.1 Plan Conditions

     (a) Incentive Agreement. Each Grantee to whom an Incentive Award is granted shall be required to enter into an Incentive Agreement with the Company, in such a form as is provided by the Committee. The Incentive Agreement shall contain specific terms as determined by the Committee, in its discretion, with respect to the Grantee’s particular Incentive Award. Such terms need not be uniform among all Grantees or any similarly-situated Grantees. The Incentive Agreement may include, without limitation, vesting, forfeiture and other provisions particular to the particular Grantee’s Incentive Award, as well as, for example, provisions to the effect that the Grantee (i) shall not disclose any confidential information acquired during Employment with the Company, (ii) shall abide by all the terms and conditions of the Plan and such other terms and conditions as may be imposed by the Committee, (iii) shall not interfere with the employment or other service of any employee, (iv) shall not compete with the Company or become involved in a conflict of interest with the interests of the Company, (v) shall forfeit an Incentive Award as determined by the Committee (including if terminated for Cause), (vi) shall not be permitted to make an election under Section 83(b) of the Code when applicable, and (vii) shall be subject to any other agreement between the Grantee and the Company regarding Shares that may be acquired under an Incentive Award including, without limitation, a stockholders’ agreement or other agreement restricting the transferability of Shares by Grantee. An Incentive Agreement shall include such terms and conditions as are determined by the Committee, in its discretion, to

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be appropriate with respect to any individual Grantee. The Incentive Agreement shall be signed by the Grantee to whom the Incentive Award is made and by an Authorized Officer.

     (b) No Right to Employment. Nothing in the Plan or any instrument executed pursuant to the Plan shall create any Employment rights or right to serve on the Board (including without limitation, rights to continued Employment or to continue to provide services as a Director or Consultant) by any Grantee or affect the right of the Company to terminate the Employment or services of any Grantee at any time without regard to the existence of the Plan.

     (c) Securities Requirements. The Company shall be under no obligation to effect the registration pursuant to the Securities Act of 1933 of any Shares of Common Stock to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates evidencing Shares pursuant to the Plan unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities, and the requirements of any securities exchange or national quotation system on which Shares are traded or quoted. The Committee may require, as a condition of the issuance and delivery of certificates evidencing Shares of Common Stock pursuant to the terms hereof, that the recipient of such Shares make such covenants, agreements and representations, and that such certificates bear such legends, as the Committee, in its discretion, deems necessary or desirable.

     If the Shares issuable on exercise of an Incentive Award are not registered under the Securities Act of 1933, the Company may imprint on the certificate for such Shares the following legend or any other legend which counsel for the Company considers necessary or advisable to comply with the Securities Act of 1933:

     The shares of stock represented by this certificate have not been registered under the securities act of 1933 or under the securities laws of any state and may not be sold or transferred except upon such registration or upon receipt by the corporation of an opinion of counsel satisfactory to the corporation, in form and substance satisfactory to the corporation, that registration is not required for such sale or transfer.

     7.2 Transferability

     Incentive Awards granted under the Plan shall not be transferable or assignable, pledged, or otherwise encumbered other than by will or the laws of descent and distribution. However, only with respect to Incentive Awards that are not Incentive Stock Options, the Committee may, in its discretion, authorize all or a portion of the Nonstatutory Stock Options to be granted on terms which permit transfer by the Grantee to (i) the members of the Grantee’s Immediate Family, (ii) a trust or trusts for the exclusive benefit of Immediate Family members, (iii) a partnership in which Immediate Family members are the only partners, (iv) any other entity owned solely by Immediate Family members, or (v) pursuant to a domestic relations order that would qualify under Code Section 414(p); provided that (A) the Incentive Agreement pursuant to which such Nonstatutory Stock Options are granted must expressly provide for transferability in a manner consistent with this Section 7.2, (B) the actual transfer must be approved in advance by the Committee, and (C) subsequent transfers of transferred Nonstatutory Stock Options shall be prohibited except in accordance with the first sentence of this section. Following any permitted transfer, the Nonstatutory Stock Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that the term “Grantee” (subject to the immediately succeeding paragraph) shall be deemed to refer to the transferee. The events of termination of employment, as set out in Section 7.6 and in the Incentive Agreement, shall continue to be applied with respect to the original Grantee, and the Incentive Award shall be exercisable by the transferee only to the extent, and for the periods, specified in the Incentive Agreement.

     Except as may otherwise be permitted under the Code, in the event of a permitted transfer of a Nonstatutory Stock Option hereunder, the original Grantee shall remain subject to withholding taxes upon exercise. In addition, the Company and the Committee shall have no obligation to provide any notices to any Grantee or transferee thereof, including, for example, notice of the expiration of an Incentive Award following the original Grantee’s termination of employment.

     The designation by a Grantee of a beneficiary of an Incentive Award shall not constitute a transfer of the Incentive Award. No transfer by will or by the laws of descent and distribution shall be effective to bind the Company unless the Committee has been furnished with a copy of the deceased Grantee’s enforceable will or such other evidence as the Committee deems necessary to establish the validity of the transfer. Any attempted transfer in violation of this Section 7.2 shall be void and ineffective. The Committee in its discretion shall make all determinations under this Section 7.2.

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     7.3 Rights as a Stockholder

     (a) No Stockholder Rights. Except as otherwise set forth in Section 4, a Grantee of an Incentive Award (or a permitted transferee of such Grantee) shall have no rights as a stockholder with respect to any Shares of Common Stock until the issuance of a stock certificate for such Shares.

     (b) Representation of Ownership. In the case of the exercise of an Incentive Award by a person or estate acquiring the right to exercise such Incentive Award by reason of the death or Disability of a Grantee, the Committee may require reasonable evidence as to the ownership of such Incentive Award or the authority of such person and may require such consents and releases of taxing authorities as the Committee may deem advisable.

     7.4 Listing and Registration of Shares of Common Stock

     The exercise of any Incentive Award granted hereunder shall only be effective at such time as counsel to the Company shall have determined that the issuance and delivery of Shares of Common Stock pursuant to such exercise is in compliance with all applicable laws, regulations of governmental authorities and the requirements of any securities exchange or quotation system on which Shares of Common Stock are traded or quoted. The Committee may, in its discretion, elect to suspend the right to exercise any Incentive Award during any Company-imposed employee “blackout” stock trading period that is necessary or desirable to comply with requirements of such laws, regulations or requirements. The Committee may also, in its discretion, elect to extend the period for exercise of any Incentive Award to reflect any such “blackout” period. The Committee may, in its discretion, defer the effectiveness of any exercise of an Incentive Award in order to allow the issuance of Shares of Common Stock to be made pursuant to registration or an exemption from registration or other methods for compliance available under federal or state securities laws. The Committee shall inform the Grantee in writing of its decision to defer the effectiveness of the exercise of an Incentive Award.

     7.5 Change in Stock and Adjustments

     (a) Changes in Law. Subject to Section 7.7 (which only applies in the event of a Change of Control), in the event of any change in applicable law which warrants equitable adjustment because it interferes with the intended operation of the Plan, then, if the Committee should determine, in its absolute discretion, that such change equitably requires an adjustment in the number or kind of shares of stock or other securities or property theretofore subject, or which may become subject, to issuance or transfer under the Plan or in the terms and conditions of outstanding Incentive Awards, such adjustment shall be made in accordance with such determination. Such adjustments may include changes with respect to (i) the aggregate number of Shares that may be issued under the Plan, (ii) the number of Shares subject to Incentive Awards, and (iii) the price per Share for outstanding Incentive Awards. Any adjustment under this paragraph of an outstanding Incentive Stock Option shall be made only to the extent not constituting a “modification” within the meaning of Section 424(h)(3) of the Code unless otherwise agreed to by the Grantee in writing. The Committee shall give notice to each applicable Grantee of such adjustment, which shall be effective and binding.

     (b) Exercise of Corporate Powers. The existence of the Plan or outstanding Incentive Awards hereunder shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, re-capitalizations, reorganizations or other changes in the Company’s capital structure or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding whether of a similar character or otherwise.

     (c) Recapitalization of the Company. Subject to Section 7.7 (which only applies in the event of a Change in Control), in the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), re-capitalization, stock split, reverse stock split, rights offering, reorganization, merger, consolidation, split-up, spin-off, split-off, combination, subdivision, repurchase, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event affects the Common Stock such that an adjustment is determined by the Committee to be appropriate to prevent the dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it deems equitable, adjust any or all of (i) the number of shares and type of Common Stock (or the securities or property) which thereafter may be made the subject of Incentive Awards, (ii) the number of shares and type of Common Stock (or other securities or property) subject to outstanding Incentive Awards, (iii) the number of shares and type of Common Stock (or other securities or property) subject to the annual per-individual limitation under Section 1.4(a) of the Plan, (iv) the Option Price of each outstanding Incentive Award, and (v) the number of or Option Price of Shares of Common Stock then subject to outstanding SARs previously granted and unexercised under the Plan to the end that the same proportion of the Company’s issued and outstanding shares of Common Stock in each instance shall remain subject to exercise at the same aggregate Option Price; provided however, that the

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number of Shares of Common Stock (or other securities or property) subject to any Incentive Award shall always be a whole number. In lieu of the foregoing, if deemed appropriate, the Committee may make provision for a cash payment to the holder of an outstanding Incentive Award. Notwithstanding the foregoing, no such adjustment or cash payment shall be made or authorized to the extent that such adjustment or cash payment would cause the Plan or any Stock Option to violate Section 422 of the Code. Such adjustments shall be made in accordance with the rules of any securities exchange, stock market, or stock quotation system to which the Company is subject.

     Upon the occurrence of any such adjustment or cash payment, the Company shall provide notice to each affected Grantee of its computation of such adjustment or cash payment, which shall be conclusive and shall be binding upon each such Grantee.

     (d) Issue of Common Stock by the Company. Except as herein above expressly provided in this Section 7.5 and subject to Section 7.7 in the event of a Change in Control, the issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon any conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of, or Fair Market Value of, any Incentive Awards then outstanding under previously granted Incentive Awards.

     (e) Assumption of Incentive Awards by a Successor. Unless otherwise determined by the Committee in its discretion pursuant to the next paragraph, but subject to the accelerated vesting and other provisions of Section 7.7 that apply in the event of a Change in Control, in the event of a Corporate Event (defined below), each Grantee shall be entitled to receive, in lieu of the number of Shares subject to Incentive Awards, such shares of capital stock (or other securities or property) as may be issuable or payable with respect to or in exchange for the number of Shares which Grantee would have received had he exercised the Incentive Award immediately prior to such Corporate Event, together with any adjustments (including, without limitation, adjustments to the Option Price and the number of Shares issuable on exercise of outstanding Stock Options). A “Corporate Event” means any of the following: (i) a dissolution or liquidation of the Company, (ii) a sale of all or substantially all of the Company’s assets, or (iii) a merger, consolidation or combination involving the Company (other than a merger, consolidation or combination (A) in which the Company is the continuing or surviving corporation and (B) which does not result in the outstanding Shares being converted into or exchanged for different securities, cash or other property, or any combination thereof). The Committee shall take whatever other action it deems appropriate to preserve the rights of Grantees holding outstanding Incentive Awards.

     Subject to the accelerated vesting and other provisions of Section 7.7 that apply in the event of a Change in Control, in the event of a Corporate Event, the Committee in its discretion shall have the right and power to:

     (i) cancel, effective immediately prior to the occurrence of the Corporate Event, each outstanding Incentive Award (whether or not then exercisable) and, in full consideration of such cancellation, pay to the Grantee an amount in cash equal to the excess of (A) the value, as determined by the Committee, of the property (including cash) received by the holders of Common Stock as a result of such Corporate Event over (B) the exercise price of such Incentive Award, if any; or

     (ii) provide for the exchange or substitution of each Incentive Award outstanding immediately prior to such Corporate Event (whether or not then exercisable) for another award with respect to the Common Stock or other property for which such Incentive Award is exchangeable and, incident thereto, make an equitable adjustment as determined by the Committee, in its discretion, in the exercise price of the Incentive Award, if any, or in the number of Shares or amount of property (including cash) subject to the Incentive Award; or

     (iii) provide for the assumption of the Plan and such outstanding Incentive Awards by the surviving entity or its parent.

     The Committee, in its discretion, shall have the authority to take whatever action it deems to be necessary or appropriate to effectuate the provisions of this Subsection (e).

     (f) intentionally deleted.

     7.6 Termination of Employment, Death, Disability and Retirement

     (a) Termination of Relationship. Unless otherwise expressly provided in the Grantee’s Incentive Agreement, if the Grantee’s Employment or services as a Director or Consultant is terminated for any reason other than due to his death, Disability, Retirement, or for Cause, any non-vested portion of any Stock Option or other applicable Incentive Award at the time of such termination shall

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automatically expire and terminate and no further vesting shall occur after the termination date. In such event, except as otherwise expressly provided in his Incentive Agreement, the Grantee shall be entitled to exercise his rights only with respect to the portion of the Incentive Award that was vested as of his termination of Employment or service date. In such event, except as otherwise expressly provided in his Incentive Agreement, the Grantee shall be entitled to exercise his vested Stock Options for a period that shall end on the earlier of (i) the expiration date set forth in the Incentive Agreement or (ii) one hundred eighty (180) days after the date of his termination, except with respect to Incentive Stock Options, in which case such period shall be three (3) months.

     (b) Termination for Cause. Unless otherwise expressly provided in the Grantee’s Incentive Agreement, in the event of the termination of a Grantee’s Employment, or service as a Consultant or Director, for Cause, all vested and non-vested Stock Options and other Incentive Awards (other than vested Restricted Stock or vested Restricted Stock Units) granted to such Grantee shall immediately expire, and shall not be exercisable to any extent, as of 12:01 a.m., Houston, Texas time, on the date of such termination of Employment or service for cause.

     (c) Retirement. Unless otherwise expressly provided in the Grantee’s Incentive Agreement, upon the termination of Employment due to the Retirement of any Employee who is a Grantee:

     (i) all of his Stock Options and Stock Appreciation Rights then outstanding shall become 100% vested and immediately and fully exercisable until the earlier of (A) the expiration date set forth in the Incentive Agreement for such Incentive Award; or (B) the expiration of (1) twelve months after the date of his termination of Employment due to his Retirement in the case of any Incentive Award other than an Incentive Stock Option or (2) three months after his termination date in the case of an Incentive Stock Option;

     (ii) any Period of Restriction with respect to any of his Restricted Stock or Restricted Stock Units shall be deemed to have expired and all restrictions imposed on Restricted Stock or Restricted Stock Units shall lapse, and each such Incentive Award shall thereupon become free of all restrictions and fully vested; and

     (iii) all of the restrictions and conditions of any of his Other Stock-Based Awards then outstanding shall be deemed satisfied, and the Period of Restriction with respect thereto shall be deemed to have expired, and each such Incentive Award shall thereupon become free of all restrictions and fully vested.

     (d) Disability or Death. Unless otherwise expressly provided in the Grantee’s Incentive Agreement, upon the termination of Employment or service as a Director due to the Disability or death of any Employee or Non-Employee Director who is a Grantee:

     (i) all of his Stock Options and Stock Appreciation Rights then outstanding shall become 100% vested and immediately and fully exercisable until the earlier of (A) the expiration date set forth in the Incentive Agreement for such Incentive Award; or (B) the expiration of (1) twelve months after the date of his termination of Employment due to his Disability or death in the case of any Incentive Award other than an Incentive Stock Option or (2) three months after his termination date in the case of an Incentive Stock Option;

     (ii) any Period of Restriction with respect to any of his Restricted Stock or Restricted Stock Unit shall be deemed to have expired and all restrictions imposed on Restricted Stock or Restricted Stock Units shall lapse, and each such Incentive Award shall thereupon become free of all restrictions and fully vested; and

     (iii) all of the restrictions and conditions of any of his Other Stock-Based Awards then outstanding shall be deemed satisfied, and the Period of Restriction with respect thereto shall be deemed to have expired, and each such Incentive Award shall thereupon become free of all restrictions and fully vested.

     In the case of any vested Incentive Stock Option held by an Employee following termination of Employment, notwithstanding the definition of ‘Disability’ in Section 1.2, whether the Employee has incurred a ‘Disability’ for purposes of determining the length of the Option exercise period following termination of Employment under this Subsection (d) shall be determined by reference to Section 22(e)(3) of the Code to the extent required by Section 422(c)(6) of the Code. The Committee shall determine whether a Disability for purposes of this Subsection (d) has occurred.

     (e) Continuation. Subject to the conditions and limitations of the Plan and applicable law and regulation in the event that a Grantee ceases to be an Employee or Consultant, as applicable, for whatever reason, the Committee and Grantee may mutually agree with respect to any outstanding Option or other Incentive Award then held by the Grantee (i) for an acceleration or other adjustment in any

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vesting schedule applicable to the Incentive Award, (ii) for a continuation of the exercise period following termination for a longer period than is otherwise provided under such Incentive Award, or (iii) to any other change in the terms and conditions of the Incentive Award. In the event of any such change to an outstanding Incentive Award, a written amendment to the Grantee’s Incentive Agreement shall be required.

     7.7 Change in Control

     In the event of a Change in Control (as defined below), the following actions shall automatically occur as of the day immediately preceding the Change in Control date unless expressly provided otherwise in the Grantee’s Incentive Agreement:

     (a) all of the Stock Options and Stock Appreciation Rights then outstanding shall become 100% vested and immediately and fully exercisable;

     (b) any Period of Restriction with respect to any Restricted Stock or Restricted Stock Unit shall be deemed to have expired and all restrictions imposed on Restricted Stock or Restricted Stock Units shall lapse, and thus each such Incentive Award shall become free of all restrictions and fully vested;

     (c) all of the restrictions and conditions of any Other Stock-Based Awards then outstanding shall be deemed satisfied, and the Period of Restriction with respect thereto shall be deemed to have expired, and thus each such Incentive Award shall become free of all restrictions and fully vested; and

     (d) all of the Performance Shares, Restricted Stock, Restricted Stock Units and any Other Stock-Based Awards shall become fully vested, deemed earned in full, and promptly paid within thirty (30) days to the affected Grantees without regard to payment schedules and notwithstanding that the applicable performance cycle, retention cycle or other restrictions and conditions have not been completed or satisfied.

     Notwithstanding any other provision of this Plan, unless otherwise expressly provided in the Grantee’s Incentive Agreement, the provisions of this Section 7.7 may not be terminated, amended, or modified to adversely affect any Incentive Award theretofore granted under the Plan without the prior written consent of the Grantee with respect to his outstanding Incentive Awards, subject, however, to the last paragraph of this Section 7.7.

     For all purposes of this Plan, a “Change in Control” of the Company means the occurrence of any one or more of the following events:

     (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”)) of beneficial ownership(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of forty percent (40%) or more of either (i) the then outstanding shares of common stock of the Company (the “Outstanding Company Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company or any Subsidiary, (ii) any acquisition by the Company or any Subsidiary or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (iii) any acquisition by any corporation pursuant to a reorganization, merger, consolidation or similar business combination involving the Company (a “Merger”), if, following such Merger, the conditions described in clauses (i) and (ii) of Section 7.7(c) (below) are satisfied;

     (b) Individuals who, as of the Effective Date, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (a solicitation by any person or group of persons for the purpose of opposing a solicitation of proxies or consents by the Board with respect to the election or removal of Directors at any annual or special meeting of stockholders) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

     (c) Consummation of a Merger, unless immediately following such Merger, (i) substantially all of the holders of the Outstanding Company Voting Securities immediately prior to Merger beneficially own, directly or indirectly, more than 50% of the common stock of the corporation resulting from such Merger (or its parent corporation) in substantially the same proportions as their ownership of Outstanding Company Voting Securities immediately prior to such Merger and (ii) at least a majority of the members

19

of the board of directors of the corporation resulting from such Merger (or its parent corporation) were members of the Incumbent Board at the time of the execution of the initial agreement providing for such Merger; or

     (d) The sale or other disposition of all or substantially all of the assets of the Company.

     7.8 Exchange of Incentive Awards

     The Committee may, in its discretion, permit any Grantee to surrender outstanding Incentive Awards in order to exercise or realize his rights under other Incentive Awards or in exchange for the grant of new Incentive Awards, or require holders of Incentive Awards to surrender outstanding Incentive Awards (or comparable rights under other plans or arrangements) as a condition precedent to the grant of new Incentive Awards.

SECTION 8
GENERAL

     8.1 Effective Date and Grant Period

     The amendment and restatement of this Plan is adopted by the Board effective as of February 14, 2008. No Incentive Award that is an Incentive Stock Option shall be granted under the Plan after ten (10) years from the Effective Date. Unless sooner terminated by action of the Board, this Plan will terminate at 5:00 p.m. Houston, Texas time, on May 3, 2014. Incentive Awards under this Plan may not be granted after that date, but any Incentive Award duly granted before that date will continue to be effective in accordance with its terms and conditions.

     8.2 Funding and Liability of Company

     No provision of the Plan shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made, or otherwise to segregate any assets. In addition, the Company shall not be required to maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for purposes of the Plan. Although bookkeeping accounts may be established with respect to Grantees who are entitled to cash, Common Stock or rights thereto under the Plan, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash, Common Stock or rights thereto. The Plan shall not be construed as providing for such segregation, nor shall the Company, the Board or the Committee be deemed to be a trustee of any cash, Common Stock or rights thereto. Any liability or obligation of the Company to any Grantee with respect to an Incentive Award shall be based solely upon any contractual obligations that may be created by this Plan and any Incentive Agreement, and no such liability or obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company, the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by the Plan.

     8.3 Withholding Taxes

     (a) Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Grantee to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of the Plan or an Incentive Award hereunder.

     (b) Share Withholding. With respect to tax withholding required upon the exercise of Stock Options or SARs, or upon any other taxable event arising as a result of any Incentive Awards, Grantees may elect, subject to the approval of the Committee in its discretion, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum withholding tax which could be imposed on the transaction. All such elections shall be made in writing, signed by the Grantee, and shall be subject to any restrictions or limitations that the Committee, in its discretion, deems appropriate.

     8.4 No Guarantee of Tax Consequences

     Neither the Company nor the Committee makes any commitment or guarantee that any federal, state or local tax treatment will apply or be available to any person participating or eligible to participate hereunder.

20

     8.5 Designation of Beneficiary by Grantee

     Each Grantee may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his death before he receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Grantee, shall be in a form prescribed by the Committee, and will be effective only when filed by the Grantee in writing with the Committee during the Grantee’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Grantee’s death shall be paid to the Grantee’s estate.

     8.6 Amendment and Termination

     The Board shall have the power and authority to terminate or amend the Plan at any time. No termination, amendment, or modification of the Plan shall adversely affect in any material way any outstanding Incentive Award previously granted to a Grantee under the Plan, without the written consent of such Grantee or other designated holder of such Incentive Award.

     In addition, to the extent that the Committee determines that (a) the listing or qualification requirements of any national securities exchange or quotation system on which the Company’s Common Stock is then listed or quoted, if applicable, or (b) the Code (or regulations promulgated thereunder), require stockholder approval in order to maintain compliance with such listing or quotation system requirements or to maintain any favorable tax advantages or qualifications, then the Plan shall not be amended in such respect without approval of the Company’s stockholders.

     8.7 Governmental Entities and Securities Exchanges

     The granting of Incentive Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. Certificates evidencing shares of Common Stock delivered under this Plan (to the extent that such shares are so evidenced) may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules and regulations of the Securities and Exchange Commission, any securities exchange or transaction reporting system upon which the Common Stock is then listed or to which it is admitted for quotation, and any applicable federal or state securities law, if applicable. The Committee may cause a legend or legends to be placed upon such certificates (if any) to make appropriate reference to such restrictions.

     8.8 Successors to Company

     All obligations of the Company under the Plan with respect to Incentive Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

     8.9 Miscellaneous Provisions

     (a) No Employee or Consultant, or other person shall have any claim or right to be granted an Incentive Award under the Plan. Neither the Plan, nor any action taken hereunder, shall be construed as giving any Employee, Director or Consultant, any right to be retained in the Employment or other service of the Company or any Parent or Subsidiary.

     (b) By accepting any Incentive Award, each Grantee and each person claiming by or through him shall be deemed to have indicated his acceptance of the Plan.

     (c) Performance-based awards granted under the Plan to a Grantee who is subject to the Company’s Compensation Recoupment Policy, as may be amended from time to time, may be reduced or subject to recoupment pursuant to the terms and conditions of such policy.

     8.10 Severability

     In the event that any provision of this Plan shall be held illegal, invalid or unenforceable for any reason, such provision shall be fully severable, but shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if the illegal, invalid, or unenforceable provision was not included herein.

21

     8.11 Gender, Tense and Headings

     Whenever the context so requires, words of the masculine gender used herein shall include the feminine and neuter, and words used in the singular shall include the plural. Section headings as used herein are inserted solely for convenience and reference and constitute no part of the interpretation or construction of the Plan.

     8.12 Governing Law

     The Plan shall be interpreted, construed and constructed in accordance with the laws of the State of Texas without regard to its conflicts of law provisions, except as may be superseded by applicable laws of the United States or applicable provisions of the Delaware General Corporation Law.

     8.13 Successor to Director Plan

     This Plan shall serve as the successor to the Director Plan. All outstanding Awards under the Director Plan shall continue to be governed solely by the terms and conditions of the instrument evidencing such grant or issuance. Notwithstanding any provision in this Plan to the contrary, no provision of this Plan is intended to modify, extend or renew any option granted under the Director Plan. Any provision in this Plan that is contrary to a provision in the Director Plan that would create a modification, extension or renewal of such option is hereby incorporated into this Plan. All terms, conditions and limitations, if any, that are set forth in any previously granted option agreement shall remain in full force and effect under the terms of the Plan pursuant to which it was issued.

     8.14 Deferred Compensation

     This Plan and any Incentive Agreement issued under the Plan is intended to meet the requirements of Section 409A of the Code and shall be administered in a manner that is intended to meet those requirements and shall be construed and interpreted in accordance with such intent. To the extent that an Incentive Award or payment, or the settlement or deferral thereof, is subject to Section 409A of the Code, except as the Board otherwise determines in writing, the Incentive Award shall be granted, paid, settled or deferred in a manner that will meet the requirements of Section 409A of the Code, including regulations or other guidance issued with respect thereto, such that the grant, payment, settlement or deferral shall not be subject to the excise tax applicable under Section 409A of the Code. Any provision of this Plan or any Incentive Agreement that would cause an Incentive Award or the payment, settlement or deferral thereof to fail to satisfy Section 409A of the Code shall be amended (in a manner that as closely as practicable achieves the original intent of this Plan or the Incentive Agreement, as applicable) to comply with Section 409A of the Code on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other guidance issued under Section 409A of the Code. In the event the Plan allows for a deferral of compensation, the Plan is intended to qualify for certain exemptions under Title I of ERISA provided for plans that are unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly-compensated employees.

22

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)

I, Robert P. Peebler, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2011, of ION Geophysical Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2011	/s/ Robert P. Peebler
	Robert P. Peebler
	Chief Executive Officer

33

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)

I, R. Brian Hanson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2011, of ION Geophysical Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2011	/s/ R. Brian Hanson
	R. Brian Hanson
	President, Chief Operating Officer and Chief Financial Officer

34

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. §1350

     In connection with the Quarterly Report of ION Geophysical Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert P. Peebler, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 4, 2011	/s/ Robert P. Peebler
	Robert P. Peebler
	Chief Executive Officer

35

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. §1350

     In connection with the Quarterly Report of ION Geophysical Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. Brian Hanson, President, Chief Operating Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 4, 2011	/s/ R. Brian Hanson
	R. Brian Hanson
	President, Chief Operating Officer and Chief Financial Officer

36

XML



Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2011	Dec. 31, 2010
Equity:
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares outstanding	155,118,287	152,870,679
Treasury stock, shares	849,539	849,539

XML



Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Condensed Consolidated Statements of Operations [Abstract]
Product revenues	$ 39,016	$ 39,433	$ 71,403	$ 79,675
Service revenues	49,516	35,953	107,681	84,430
Total net revenues	88,532	75,386	179,084	164,105
Cost of products	17,624	20,576	32,263	51,067
Cost of services	37,277	26,748	82,051	62,610
Gross profit	33,631	28,062	64,770	50,428
Operating expenses:
Research, development and engineering	5,906	5,217	11,745	14,216
Marketing and sales	7,838	5,649	14,880	13,555
General and administrative	11,087	11,212	23,274	27,650
Total operating expenses	24,831	22,078	49,899	55,421
Income (loss) from operations	8,800	5,984	14,871	(4,993)
Interest expense, net	(1,187)	(1,373)	(2,802)	(27,016)
Loss on disposition of land division				(38,115)
Fair value adjustment of warrant				12,788
Equity in losses of INOVA Geophysical	(4,173)	(179)	(5,033)	(179)
Other income (expense)	497	(799)	(2,502)	2,418
Income (loss) before income taxes	3,937	3,633	4,534	(55,097)
Income tax expense	1,085	2,174	1,232	14,334
Net income (loss)	2,852	1,459	3,302	(69,431)
Net income attributable to noncontrolling interest	44		69
Net income (loss) attributable to ION	2,896	1,459	3,371	(69,431)
Preferred stock dividends	338	385	676	1,260
Net income (loss) applicable to common shares	$ 2,558	$ 1,074	$ 2,695	$ (70,691)
Net income (loss) per share:
Basic	$ 0.02	$ 0.01	$ 0.02	$ (0.52)
Diluted	$ 0.02	$ 0.01	$ 0.02	$ (0.52)
Weighted average number of common shares outstanding:
Basic	155,096	151,441	154,385	135,962
Diluted	156,553	152,036	156,058	135,962

XML



Document and Entity Information (USD $) In Millions, except Share data	6 Months Ended
	Jun. 30, 2011	Jul. 27, 2011	Jun. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	ION GEOPHYSICAL CORP
Entity Central Index Key	0000866609
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 495.25
Entity Common Stock, Shares Outstanding		155,138,787

XML



Notes Payable, Long-term Debt, Lease Obligations and Interest Rate Caps

6 Months Ended

Jun. 30, 2011

Notes Payable, Long-term Debt, Lease Obligations and Interest Rate Caps [Abstract]

Notes Payable, Long-term Debt, Lease Obligations and Interest Rate Caps

(7) Notes Payable, Long-term Debt, Lease Obligations and Interest Rate Caps

	June 30,			December 31,
Obligations (in thousands)	2011			2010
$100.0 million revolving line of credit	$	—		$	—
Term loan facility		101,250			103,250
Facility lease obligation		3,365			3,657
Equipment capital leases and other notes payable		657			1,753
Total		105,272			108,660
Current portion of notes payable, long-term debt and lease obligations		(5,119	)		(6,073	)
Non-current portion of notes payable, long-term debt and lease obligations	$	100,153		$	102,587

     Revolving Line of Credit and Term Loan Facility

     In March 2010, ION, its Luxembourg subsidiary, ION International S.à r.l. (“ION Sàrl”), and certain of its other U.S. and foreign subsidiaries entered into a new credit facility (the “Credit Facility”). The terms of the Credit Facility are set forth in a credit agreement dated as of March 25, 2010 (the “Credit Agreement”), by and among ION, ION Sàrl and China Merchants Bank Co., Ltd., New York Branch (“CMB”), as administrative agent and lender. The obligations of ION under the Credit Facility are guaranteed by certain of ION’s material U.S. subsidiaries and the obligations of ION Sàrl under the Credit Facility are guaranteed by certain of ION’s material U.S. and foreign subsidiaries, in each case that are parties to the Credit Agreement. In addition, in June 2010, INOVA Geophysical also entered into an agreement to guarantee the indebtedness under the Credit Facility.

     The Credit Facility provides ION with a revolving line of credit of up to $100.0 million in borrowings (including borrowings for letters of credit) and refinanced ION’s outstanding term loan with a new term loan in the original principal amount of $106.3 million. As of June 30, 2011, ION had no indebtedness outstanding under the revolving line of credit.

     The revolving credit facility and term loan under the Credit Facility are each scheduled to mature on March 24, 2015. The $106.3 million original principal amount under the term loan is subject to scheduled quarterly amortization payments that commenced on June 30, 2010, of $1.0 million per quarter until the maturity date, with the remaining unpaid principal amount of the term loan due upon the maturity date. The indebtedness under the Credit Facility may sooner mature on a date that is 18 months after the earlier of (i) any dissolution of INOVA Geophysical, or (ii) the administrative agent determining in good faith that INOVA Geophysical is unable to perform its obligations under its guarantee.

     The interest rate per annum on borrowings under the Credit Facility will be, at ION’s option:

• An alternate base rate equal to the sum of (i) the greatest of (a) the prime rate of CMB, (b) a federal funds effective rate plus 0.50%, or (c) an adjusted LIBOR-based rate plus 1.0%, and (ii) an applicable interest margin of 2.5%; or

• For eurodollar borrowings and borrowings in euros, pounds sterling or canadian dollars, the sum of (i) an adjusted LIBOR-based rate, and (ii) an applicable interest margin of 3.5%.

     As of June 30, 2011, the $101.3 million in outstanding term loan indebtedness under the Credit Facility accrued interest at a rate of 3.8% per annum.

     The Credit Facility requires compliance with certain financial covenants. Certain of these financial covenants became effective on June 30, 2011, and will continue in effect for each fiscal quarter thereafter over the term of the Credit Facility. These financial covenants require ION and its U.S. subsidiaries to:

• Maintain a minimum fixed charge coverage ratio in an amount equal to at least 1.125 to 1;

• Not exceed a maximum leverage ratio of 3.25 to 1; and

• Maintain a minimum tangible net worth of at least 60% of ION’s tangible net worth as of March 31, 2010, as defined in the Credit Agreement.

     The fixed charge coverage ratio is defined as the ratio of (i) ION’s consolidated EBITDA less cash income tax expense and non-financed capital expenditures, to (ii) the sum of scheduled payments of lease payments and payments of principal indebtedness, interest expense actually paid and cash dividends, in each case for the four consecutive fiscal quarters most recently ended. The leverage ratio is defined as the ratio of (x) total funded consolidated debt, capital lease obligations and issued letters of credit (net of cash collateral) to (y) consolidated EBITDA of ION for the four consecutive fiscal quarters most recently ended. The Company was in compliance with these financial covenants when they became effective on June 30, 2011, and expects to remain in compliance with these financial covenants throughout the remainder of 2011.

     Interest Rate Caps

     In August 2010, the Company entered into an interest rate cap agreement and purchased interest rate caps (the “August 2010 Caps”) having an initial notional amount of $103.3 million with a three-month average LIBOR cap of 2.0%. If and when the three-month average LIBOR rate exceeds 2.0%, the LIBOR portion of interest owed by the Company would be capped at 2.0%. The initial notional amount was set to equal the projected outstanding balance under the Company’s term loan facility at December 31, 2010. The notional amount was then set so as not to exceed the Company’s outstanding balance of its term loan facility over a period extending through March 29, 2013. The Company purchased these interest rate caps for approximately $0.4 million.

     In July 2011, the Company purchased additional interest rate caps (the “July 2011 Caps”) related to its term loan facility. The notional amounts, together with the notional amounts of the August 2010 Caps, were set so as not to exceed the outstanding balance of the Company’s term loan facility over a period that extends through March 31, 2014. The Company purchased these interest rate caps for an amount equal to approximately $0.3 million.

     As of July 2011, the Company held interest rate caps as follows (amounts in thousands):

				Notional Amounts
Payment Date	Cap Rate			August 2010 Caps		July 2011 Caps		Total
September 29, 2011		2.0	%	$	91,125	$	—	$	91,125
December 29, 2011		2.0	%	$	90,225	$	—	$	90,225
March 29, 2012		2.0	%	$	89,325	$	—	$	89,325
June 29, 2012		2.0	%	$	68,775	$	18,850	$	87,625
September 28, 2012		2.0	%	$	68,075	$	18,650	$	86,725
December 31, 2012		2.0	%	$	67,375	$	18,450	$	85,825
March 29, 2013		2.0	%	$	66,675	$	18,250	$	84,925
June 28, 2013		2.0	%	$	—	$	63,175	$	63,175
September 30, 2013		2.0	%	$	—	$	62,475	$	62,475
December 31, 2013		2.0	%	$	—	$	61,775	$	61,775
March 31, 2014		2.0	%	$	—	$	61,075	$	61,075

     These interest rate caps have been designated as cash flow hedges according to ASC 815 (“Derivatives and Hedging”) and, accordingly, the effective portion of the change in fair value of these interest rate caps are recognized in other comprehensive income in the Company’s consolidated financial statements. As of June 30, 2011, the total fair value of the August 2010 Caps was $0.1 million, which was based on Level 2 inputs such as interest rates and yield curves that are observable at commonly quoted intervals. For both the three and six months ended June 30, 2011, there was approximately $0.1 million, net of tax, related to the change in fair value included in other comprehensive income.

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Litigation

6 Months Ended

Jun. 30, 2011

Litigation [Abstract]

Litigation

(12) Litigation

     WesternGeco

     On June 12, 2009, WesternGeco L.L.C. (“WesternGeco”) filed a lawsuit against the Company in the United States District Court for the Southern District of Texas, Houston Division. In the lawsuit, styled WesternGeco L.L.C. v. ION Geophysical Corporation, WesternGeco alleges that the Company has infringed several United States patents regarding marine seismic streamer steering devices that are owned by WesternGeco. WesternGeco is seeking unspecified monetary damages and an injunction prohibiting the Company from making, using, selling, offering for sale or supplying any infringing products in the United States. Based on the Company’s review of the lawsuit filed by WesternGeco and the WesternGeco patents at issue, the Company believes that its products do not infringe any WesternGeco patents, that the claims asserted against the Company by WesternGeco are without merit and that the ultimate outcome of the claims against it will not result in a material adverse effect on the Company’s financial condition or results of operations. The Company intends to defend the claims against it vigorously.

     On June 16, 2009, the Company filed an answer and counterclaims against WesternGeco, in which the Company denies that it has infringed WesternGeco’s patents and asserts that the WesternGeco patents are invalid or unenforceable. The Company also asserted that WesternGeco’s Q-Marine system, components and technology infringe upon a United States patent owned by the Company related to marine seismic streamer steering devices. The claims by the Company also assert that WesternGeco tortiously interfered with the Company’s relationship with its customers. In addition, the Company claims that the lawsuit by WesternGeco is an illegal attempt by WesternGeco to control and restrict competition in the market for marine seismic surveys performed using laterally steerable streamers. In its counterclaims, the Company is requesting various remedies and relief, including a declaration that the WesternGeco patents are invalid or unenforceable, an injunction prohibiting WesternGeco from making, using, selling, offering for sale or supplying any infringing products in the United States, a declaration that the WesternGeco patents should be co-owned by the Company, and an award of unspecified monetary damages.

     In June 2010, WesternGeco filed a lawsuit against various subsidiaries and affiliates of Fugro N.V. (“Fugro”), a seismic contractor customer of the Company, accusing Fugro of infringing the same United States patents regarding marine seismic streamer steering devices by planning to use certain equipment purchased from the Company on a survey located outside of U.S. territorial waters. The court approved the consolidation of the Fugro case with the case against the Company. Fugro filed a motion to dismiss the lawsuit, and in March 2011 the presiding judge granted Fugro’s motion to dismiss in part, on the basis that the alleged activities of Fugro would occur more than 12 miles from the U.S. coast and therefore are not actionable under U.S. patent infringement law.

     Fletcher

     On November 25, 2009, Fletcher, the holder of shares of the Company’s outstanding Series D Preferred Stock, filed a lawsuit against the Company and certain of its directors in the Delaware Court of Chancery. In the lawsuit, styled Fletcher International, Ltd. v. ION Geophysical Corporation, f/k/a Input/Output, Inc., ION International S.à r.l., James M. Lapeyre, Bruce S. Appelbaum, Theodore H. Elliott, Jr., Franklin Myers, S. James Nelson, Jr., Robert P. Peebler, John Seitz, G. Thomas Marsh And Nicholas G. Vlahakis, Fletcher alleged, among other things, that the Company violated Fletcher’s consent rights contained in the Series D Preferred Stock Certificates of Designation, by ION Sàrl’s issuance of a convertible promissory note to the Bank of China, New York Branch, in connection with a bridge loan funded in October 2009 by Bank of China, and that the directors violated their fiduciary duty to the Company by allowing ION Sàrl to issue the convertible note without Fletcher’s consent. A total of $10.0 million was advanced to ION Sàrl under the bridge loan, and ION Sàrl repaid $10 million on the following day. Fletcher sought a court order requiring ION Sàrl to repay the $10 million advanced to ION Sàrl under the bridge loan and unspecified monetary damages. On March 24, 2010, the presiding judge in the case denied Fletcher’s request for the court order. In a Memorandum Opinion issued on May 28, 2010 in response to a motion for partial summary judgment, the judge dismissed all of Fletcher’s claims against the named Company directors but also concluded that, because the bridge loan note issued by ION Sàrl was convertible into ION common stock, Fletcher technically had the right to consent to the issuance of the note and that the Company violated Fletcher’s consent right by ION Sàrl issuing the note without Fletcher’s consent. In December 2010, the presiding judge in the case recused himself from the case and a new presiding judge was appointed to the case. The Company believes that the remaining claims asserted by Fletcher in the lawsuit are without merit. The Company further believes that the monetary damages suffered by Fletcher as a result of ION Sàrl issuing the bridge loan note without Fletcher’s consent are nonexistent or nominal, and that the ultimate outcome of the lawsuit will not result in a material adverse effect on the Company’s financial condition or results of operations. The Company intends to defend the remaining claims against it in this lawsuit vigorously.

     Sercel

     On January 29, 2010, the jury in a patent infringement lawsuit filed by the Company against seismic equipment provider Sercel, Inc. in the United States District Court for the Eastern District of Texas returned a verdict in the Company’s favor. In the lawsuit, styled Input/Output, Inc. et al v. Sercel, Inc., (5-06-cv-00236), the Company alleged that Sercel’s 408, 428 and SeaRay digital seismic sensor units infringe the Company’s United States Patent No. 5,852,242, which is incorporated in the Company’s VectorSeis^® sensor technology. Products of the Company or INOVA Geophysical that use the VectorSeis technology include the System Four, Scorpion^®, FireFly^®, and VectorSeis Ocean seismic acquisition systems. After a two-week trial, the jury concluded that Sercel infringed the Company’s patent and that the Company’s patent was valid, and the jury awarded the Company $25.2 million in compensatory past damages. In response to post-verdict motions made by the parties, on September 16, 2010, the presiding judge issued a series of rulings that (a) granted the Company’s motion for a permanent injunction to be issued prohibiting the manufacture, use or sale of the infringing Sercel products, (b) confirmed that the Company’s patent was valid, (c) confirmed that the jury’s finding of infringement was supported by the evidence and (d) disallowed $5.4 million of lost profits that were based on infringing products that were manufactured and delivered by Sercel outside of the United States, but were offered for sale by Sercel in the United States and involved underlying orders and payments received by Sercel in the United States. In addition, the judge concluded that the evidence supporting the jury’s finding that the Company was entitled to be awarded $9.0 million in lost profits associated with certain infringing pre-verdict marine sales by Sercel was too speculative and therefore disallowed that award of lost profits. As a result of the judge’s ruling, the Company is now entitled to be awarded an additional amount of damages equal to a reasonable royalty on the infringing pre-verdict Sercel marine sales. After the Company learned that Sercel continued to make sales of infringing products after the January 2010 jury verdict was rendered, the Company filed motions with the court to seek additional compensatory damages for the post-verdict infringing sales and enhanced damages as a result of the willful nature of Sercel’s post-verdict infringement. On February 16, 2011, the Court entered a final judgment and permanent injunction in the case. The final judgment awarded the Company $10.7 million in damages, plus interest, and the permanent injunction prohibits Sercel and parties acting in concert with Sercel from making, using, offering to sell, selling, or importing in the United States (which includes territorial waters of the United States) Sercel’s 408UL, 428XL and SeaRay digital sensor units, and all other products that are only colorably different from those products. The Court ordered that the additional damages to be paid by Sercel as a reasonable royalty on the infringing pre-verdict Sercel marine sales and the additional damages to be paid by Sercel resulting from post-verdict infringing sales would be determined in a separate future proceeding. Sercel and the Company have each appealed portions of the final judgment. The Company has not recorded any amounts related to this gain contingency as of June 30, 2011.

     Other

     The Company has been named in various other lawsuits or threatened actions that are incidental to its ordinary business. Litigation is inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time-consuming, cause the Company to incur costs and expenses, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits and actions cannot be predicted with certainty. Management currently believes that the ultimate resolution of these matters will not have a material adverse impact on the financial condition, results of operations or liquidity of the Company.

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Segment Information

6 Months Ended

Jun. 30, 2011

Segment Information [Abstract]

Segment Information

(3) Segment Information

     The Company evaluates and reviews its results based on four segments: Systems, Software, Solutions and Legacy Land Systems (INOVA). The Company measures segment operating results based on income from operations. The Legacy Land Systems (INOVA) segment represents the disposed land division operations through March 25, 2010, the date of the formation of the INOVA Geophysical joint venture.

     A summary of segment information is as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Net revenues:
Systems:
Towed Streamer	$	20,234		$	19,677		$	37,781		$	29,910
Ocean Bottom		507			1,137			509			1,311
Other		8,734			8,978			15,145			14,686
Total	$	29,475		$	29,792		$	53,435		$	45,907
Software:
Software Systems	$	9,541		$	9,641		$	17,968		$	17,257
Services		558			492			830			848
Total	$	10,099		$	10,133		$	18,798		$	18,105
Solutions:
Data Processing	$	20,634		$	27,753		$	40,933		$	51,718
New Venture		9,772			4,917			32,222			12,343
Data Library		18,552			2,791			33,696			19,521
Total	$	48,958		$	35,461		$	106,851		$	83,582
Legacy Land Systems (INOVA)	$	—		$	—		$	—		$	16,511
Total	$	88,532		$	75,386		$	179,084		$	164,105
Gross profit:
Systems	$	15,110		$	12,381		$	27,355		$	17,939
Software		7,331			6,811			12,909			12,180
Solutions		11,190			8,870			24,506			21,293
Legacy Land Systems (INOVA)		—			—			—			(984	)
Total	$	33,631		$	28,062		$	64,770		$	50,428
Gross margin:
Systems		51	%		42	%		51	%		39	%
Software		73	%		67	%		69	%		67	%
Solutions		23	%		25	%		23	%		26	%
Legacy Land Systems (INOVA)		—	%		—	%		—	%		(6	%)
Total		38	%		37	%		36	%		31	%
Income (loss) from operations:
Systems	$	9,057		$	7,231		$	15,137		$	8,140
Software		6,439			6,256			11,292			11,062
Solutions		3,042			2,548			8,854			8,113
Legacy Land Systems (INOVA)		—			—			—			(9,623	)
Corporate and other		(9,738	)		(10,051	)		(20,412	)		(22,685	)
Income (loss) from operations		8,800			5,984			14,871			(4,993	)
Interest expense, net		(1,187	)		(1,373	)		(2,802	)		(27,016	)
Loss on disposition of land division		—			—			—			(38,115	)
Fair value adjustment of warrant		—			—			—			12,788
Equity in losses of INOVA Geophysical		(4,173	)		(179	)		(5,033	)		(179	)
Other income (expense)		497			(799	)		(2,502	)		2,418
Income (loss) before income taxes	$	3,937		$	3,633		$	4,534		$	(55,097	)

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Noncontrolling Interest

6 Months Ended

Jun. 30, 2011

Noncontrolling Interest [Abstract]

Noncontrolling Interest

(9) Noncontrolling Interest

     In February 2011, the Company established a new seismic data processing center in Rio de Janeiro, Brazil, with Brazilian energy consultancy Bratexco, to provide advanced imaging services to E&P companies operating in basins off the coast of Brazil. The entity is named GX Technology Processamento de Dados Ltda. The Company owns a 70% interest, and Bratexco owns a 30% interest. Bratexco’s initial cash contribution was $0.2 million.

     The Company consolidates the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Company exercises control or for which the Company has a controlling financial interest. Bratexco’s interest in results of operations related to the entity is reflected in “Net income attributable to noncontrolling interest” in the condensed consolidated statements of operations and its interest in the assets and liabilities related to the entity is reflected in “Noncontrolling interest” in the condensed consolidated balance sheet.

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Restructuring Activities

6 Months Ended

Jun. 30, 2011

Restructuring Activities [Abstract]

Restructuring Activities

(14) Restructuring Activities

     At December 31, 2010, the Company had a liability (reflected in “Other long-term liabilities”) of $6.7 million related to permanently ceasing to use certain leased facilities. During the six months ended June 30, 2011, the Company made cash payments of $0.6 million and accrued $0.2 million related to accretion expense, resulting in a remaining liability of $6.3 million as of June 30, 2011.

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Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes [Abstract]

Income Taxes

(10) Income Taxes

     The Company maintains a valuation allowance for a portion of its U.S. deferred tax assets. The valuation allowance is calculated in accordance with the provisions of ASC 740 “Income Taxes,” which requires that a valuation allowance be established or maintained when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. In the event the Company’s expectations of future operating results change, the valuation allowance may need to be adjusted upward or downward. As of June 30, 2011, the Company’s unreserved U.S. deferred tax assets totaled $12.0 million. These existing unreserved deferred tax assets are currently considered to be “more likely than not” realized.

     The Company’s effective tax rates for the three months ended June 30, 2011 and 2010 were 27.6% and 59.8%, respectively. The decrease in the Company’s effective tax rate for the three months ended June 30, 2011 as compared to the corresponding period in 2010 was due to lower expected tax expense in certain foreign jurisdictions for 2011. The high effective rate in the three months ended June 30, 2010 was due to an update to the Company’s expectation of the distribution of earnings between U.S. and foreign jurisdictions resulting in a higher than usual estimated annual effective tax rate for that period. The Company’s effective tax rates for the six months ended June 30, 2011 and 2010 were 27.2% (provision on income) and 26.0% (provision on a loss), respectively. The increase in the Company’s effective tax rate for the six months ended June 30, 2011 was due primarily to changes in the distribution of earnings between U.S. and foreign jurisdictions.

     A reconciliation of the expected income tax expense (benefit) on income (loss) before income taxes using the statutory federal income tax rate of 35% for the six months ended June 30, 2011 and 2010 to income tax expense is as follows (in thousands):

	Six Months Ended
	June 30,
	2011			2010
Expected income tax expense (benefit) at 35%	$	1,587		$	(19,284	)
Foreign taxes (tax rate differential and foreign tax differences)		(333	)		2,075
Formation of INOVA Geophysical		—			10,507
Nondeductible financings		—			1,015
Nondeductible expenses and other		(22	)		(292	)
Deferred tax asset valuation allowance on formation of INOVA Geophysical		—			20,313
Total income tax expense	$	1,232		$	14,334

     The Company has no significant unrecognized tax benefits and does not expect to recognize significant increases in unrecognized tax benefits during the next twelve month period. Interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense.

     The Company’s U.S. federal tax returns for 2007 and subsequent years remain subject to examination by tax authorities. The Company is no longer subject to IRS examination for periods prior to 2007, although carryforward attributes that were generated prior to 2007 may still be adjusted upon examination by the IRS if they either have been or will be used in an open year. In the Company’s foreign tax jurisdictions, tax returns for 2007 and subsequent years generally remain open to examination.

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Cumulative Convertible Preferred Stock

6 Months Ended

Jun. 30, 2011

Cumulative Convertible Preferred Stock and Comprehensive Net Income (Loss) [Abstract]

Cumulative Convertible Preferred Stock

(8) Cumulative Convertible Preferred Stock

     During 2005, the Company entered into an Agreement with Fletcher International, Ltd. (this Agreement, as amended, is referred to as the “Fletcher Agreement”) and issued to Fletcher 30,000 shares of Series D-1 Cumulative Convertible Preferred Stock (“Series D-1 Preferred Stock”) in a privately-negotiated transaction, receiving $29.8 million in net proceeds. The Fletcher Agreement also provided to Fletcher an option to purchase up to an additional 40,000 shares of additional series of preferred stock from time to time, with each series having a conversion price that would be equal to 122% of an average daily volume-weighted market price of the Company’s common stock over a trailing period of days at the time of issuance of that series. In 2007 and 2008, Fletcher exercised this option and purchased 5,000 shares of Series D-2 Cumulative Convertible Preferred Stock (“Series D-2 Preferred Stock”) for $5.0 million (in December 2007) and 35,000 shares of Series D-3 Cumulative Convertible Preferred Stock (“Series D-3 Preferred Stock”) for $35.0 million (in February 2008). The shares of Series D-1 Preferred Stock, Series D-2 Preferred Stock and Series D-3 Preferred Stock are sometimes referred to herein as the “Series D Preferred Stock.”

     Dividends on the shares of Series D Preferred Stock must be paid in cash on a quarterly basis. Dividends are payable at a rate equal to the greater of (i) 5.0% per annum or (ii) the three month LIBOR rate on the last day of the immediately preceding calendar quarter plus 2.5% per annum. The Series D Preferred Stock dividend rate was 5.0% at June 30, 2011.

     Under the Fletcher Agreement, if a 20-day volume-weighted average trading price per share of the Company’s common stock fell below $4.4517 (the “Minimum Price”), the Company was required to deliver a notice (the “Reset Notice”) to Fletcher. On November 28, 2008, the volume-weighted average trading price per share of the Company’s common stock on the New York Stock Exchange for the previous 20 trading days was calculated to be $4.328, and the Company delivered the Reset Notice to Fletcher in accordance with the terms of the Fletcher Agreement. In the Reset Notice, the Company elected to reset the conversion prices for the Series D Preferred Stock to the Minimum Price ($4.4517 per share), and Fletcher’s rights to redeem the Series D Preferred Stock were terminated. The adjusted conversion price resulting from this election was effective on November 28, 2008.

     In addition, under the Fletcher Agreement, the aggregate number of shares of common stock issued or issuable to Fletcher upon conversion or redemption of, or as dividends paid on, the Series D Preferred Stock could not exceed a designated maximum number of shares (the “Maximum Number”), and such Maximum Number could be increased by Fletcher providing the Company with a 65-day notice of increase, but under no circumstance could the total number of shares of common stock issued or issuable to Fletcher with respect to the Series D Preferred Stock ever exceed 15,724,306 shares. The Fletcher Agreement had designated 7,669,434 shares as the original Maximum Number. On November 28, 2008, Fletcher delivered a notice to the Company to increase the Maximum Number to 9,669,434 shares, effective February 1, 2009. On November 8, 2010, Fletcher delivered a notice to the Company to increase the Maximum Number to the full 15,724,306 shares, effective January 12, 2011. See discussion of legal actions between Fletcher and the Company at Note 12 “— Litigation.”

     On April 8, 2010, Fletcher converted 8,000 of its shares of the outstanding Series D-1 Cumulative Convertible Preferred Stock and all of the outstanding 35,000 shares of the Series D-3 Cumulative Convertible Preferred Stock into a total of 9,659,231 shares of the Company’s common stock. The conversion price for these shares was $4.4517 per share, in accordance with the terms of these series of preferred stock. Fletcher continues to own 22,000 shares of the Series D-1 Cumulative Convertible Preferred Stock and 5,000 shares of the Series D-2 Cumulative Convertible Preferred Stock. As a result of Fletcher’s delivery of its notice to increase the Maximum Number to the full 15,724,306 shares in November 2010, under the terms of the Fletcher Agreement, Fletcher’s remaining 27,000 shares of Series D Preferred Stock are convertible into 6,065,075 shares of the Company’s common stock. The conversion prices and number of shares of common stock to be acquired upon conversion are also subject to customary anti-dilution adjustments. Fletcher remains the sole holder of all of the outstanding shares of Series D Preferred Stock.

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Basis of Presentation

6 Months Ended

Jun. 30, 2011

Basis of Presentation [Abstract]

Basis of Presentation

(1) Basis of Presentation

     The condensed consolidated balance sheet of ION Geophysical Corporation and its subsidiaries (collectively referred to as the “Company” or “ION,” unless the context otherwise requires) at December 31, 2010 has been derived from the Company’s audited consolidated financial statements at that date. The condensed consolidated balance sheet at June 30, 2011, the condensed consolidated statements of operations for the three and six months ended June 30, 2011 and 2010, and the condensed consolidated statements of cash flows for the six months ended June 30, 2011 and 2010 are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of the operating results for a full year or of future operations.

     These condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements presented in accordance with accounting principles generally accepted in the United States have been omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and on Form 10-K/A which contains the separate consolidated financial statements of INOVA Geophysical Equipment Limited for the fiscal year ended December 31, 2010.

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Investments

6 Months Ended

Jun. 30, 2011

Investments [Abstract]

Investments

(4) Investments

     Short-term Investments

     Short-term investments are comprised solely of bank certificates of deposit denominated in U.S. dollars with original maturities in excess of three months and represent the investment of excess cash that is available for current operations. The Company recorded these investments on its balance sheet at cost based on its intent and ability to hold these investments to maturity. These short-term investments were purchased at a cost, which approximates fair value based on Level 1 inputs, of $80.0 million and have scheduled maturities through January 2012. During the second quarter of 2011, the Company liquidated $41.0 million of its original investment to cover the working capital required to bridge the funding of the Company’s multi-client projects.

     Long-term Investment

     In May 2011, the Company purchased a convertible note from a private U.S-based technology company. The principal amount of the note is $6.5 million and bears interest at a rate of 4% per annum. The maturity date of the note is two years; however, the note will automatically convert into shares of common stock of the investee on the earlier to occur of (a) the maturity date of the note and (b) the date funds are invested into the investee by any venture capital firm or other investor. Upon the occurrence of a conversion event, the note will convert into a number of shares of common stock equal to 15% of the total post-conversion outstanding shares of common stock of the investee. The investee does not have the right to prepay any principal on the note without the Company’s consent; therefore, it is expected that the note will automatically convert within two years. Interest on the note will be paid in cash upon the maturity date, or conversion, if sooner.

     The Company classifies its investment as available-for-sale and has recorded the fair value of this investment as a noncurrent asset included in other assets on its consolidated balance sheet with unrealized gains and losses reflected in accumulated other comprehensive income until realized. The Company uses a market approach to estimate the fair value of its investment in the convertible debt security using Level 3 inputs, such as financial information available related to the investee and the length of time since the investment was purchased in May 2011. As of June 30, 2011, the fair value of this investment was $6.5 million with no unrealized gains or losses recorded in accumulated other comprehensive income.

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Inventories

6 Months Ended

Jun. 30, 2011

Inventories [Abstract]

Inventories

(5) Inventories

     A summary of inventories is as follows (in thousands):

	June 30,			December 31,
	2011			2010
Raw materials and subassemblies	$	42,552		$	39,412
Work-in-process		4,370			4,605
Finished goods		52,244			35,741
Reserve for excess and obsolete inventories		(13,006	)		(12,876	)
Total	$	86,160		$	66,882

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Concentration of Credit and Foreign Sales Risks

6 Months Ended

Jun. 30, 2011

Concentration of Credit and Foreign Sales Risks [Abstract]

Concentration of Credit and Foreign Sales Risks

(13) Concentration of Credit and Foreign Sales Risks

     The majority of the Company’s foreign sales are denominated in U.S. dollars. Product revenues are allocated to geographical locations on the basis of the ultimate destination of the equipment, if known. If the ultimate destination of such equipment is not known, product revenues are allocated to the geographical location of initial shipment. Service revenues, which relate primarily to the Solutions division, are allocated based upon the billing location of the customer. For the six months ended June 30, 2011 and 2010, international sales comprised 64% and 50%, respectively, of total net revenues.

     A summary of net revenues by geographic area follows (in thousands):

	Six Months Ended
	June 30,
	2011		2010
North America	$	64,770	$	82,354
Europe		56,657		34,755
Asia Pacific		30,136		16,582
Middle East		17,377		3,442
Latin America		4,451		13,878
Africa		3,713		11,528
Commonwealth of Independent States (CIS)		1,980		1,566
Total	$	179,084	$	164,105

     To the extent that world events or economic conditions negatively affect the Company’s future sales to customers in these and other regions of the world or the collectability of the Company’s existing receivables, the Company’s future results of operations, liquidity, and financial condition would be adversely affected. The Company currently requires customers in these higher risk countries to provide their own financing. The Company does not currently extend long-term credit through promissory notes or similar credit agreements to companies in countries the Company considers to be inappropriate for credit risk purposes.

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Net Income (Loss) per Share

6 Months Ended

Jun. 30, 2011

Earnings Per Share [Abstract]

Net Income (Loss) per Share

(6) Net Income (Loss) per Share

     Basic net income (loss) per common share is computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted net income per common share is determined based on the assumption that dilutive restricted stock and restricted stock unit awards have vested and outstanding dilutive stock options have been exercised and the aggregate proceeds were used to reacquire common stock using the average price of such common stock for the period. The total number of shares issued or committed for issuance under outstanding stock options at June 30, 2011 and 2010 was 5,396,075 and 7,575,100, respectively, and the total number of shares of restricted stock and shares reserved for restricted stock units outstanding at June 30, 2011 and 2010 was 964,882 and 914,907, respectively.

     There are 27,000 outstanding shares of the Company’s Series D Cumulative Convertible Preferred Stock, which may currently be converted, at the holder’s election, into up to 6,065,075 shares of the Company’s common stock. See further discussion of the Series D Preferred Stock conversion provisions at Note 8 “— Cumulative Convertible Preferred Stock” and Note 12 “— Litigation.” The outstanding shares of all Series D Preferred Stock were anti-dilutive for all periods presented.

     The following table summarizes the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Net income (loss) applicable to common shares	$	2,558	$	1,074	$	2,695	$	(70,691	)
Weighted average number of common shares outstanding		155,096		151,441		154,385		135,962
Effect of dilutive stock awards		1,457		595		1,673		—
Weighted average number of diluted common shares outstanding		156,553		152,036		156,058		135,962
Basic net income (loss) per share	$	0.02	$	0.01	$	0.02	$	(0.52	)
Diluted net income (loss) per share	$	0.02	$	0.01	$	0.02	$	(0.52	)

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities:
Net income (loss)	$ 3,302	$ (69,431)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization (other than multi-client library)	7,476	15,766
Amortization of multi-client library	36,748	18,858
Stock-based compensation expense related to stock options, nonvested stock and employee stock purchases	3,727	3,343
Amortization of debt discount		8,656
Write-off of unamortized debt issuance costs		10,121
Fair value adjustment of warrant		(12,788)
Loss on disposition of land division		38,115
Equity in losses of INOVA Geophysical	5,033	179
Deferred income taxes	(8,192)	8,250
Change in operating assets and liabilities:
Accounts receivable	11,422	31,088
Unbilled receivables	25,284	(8,183)
Inventories	(22,051)	1,153
Accounts payable, accrued expenses and accrued royalties	(15,847)	(23,568)
Deferred revenue	16,630	1,768
Other assets and liabilities	(2,720)	(3,755)
Net cash provided by operating activities	60,812	19,572
Cash flows from investing activities:
Purchase of property, plant and equipment	(7,240)	(2,056)
Investment in multi-client data library	(46,102)	(21,226)
Purchase of short-term investments	(80,000)
Proceeds from sale of short-term investments	41,000
Investment in a convertible note	(6,500)
Proceeds from disposition of land division, net of fees paid		99,790
Advances to INOVA Geophysical		(6,500)
Other investing activities	50	(1,272)
Net cash provided by (used in) investing activities	(98,792)	68,736
Cash flows from financing activities:
Borrowings under revolving line of credit		85,000
Repayments under revolving line of credit		(174,429)
Net proceeds from the issuance of debt		105,695
Net proceeds from the issuance of stock		38,039
Payments on notes payable and long-term debt	(3,388)	(142,047)
Payment of preferred dividends	(676)	(1,260)
Contribution from noncontrolling interest	307
Proceeds from exercise of stock options	12,931
Other financing activities	(40)	(78)
Net cash provided by (used in) financing activities	9,134	(89,080)
Effect of change in foreign currency exchange rates on cash and cash equivalents	380	843
Net increase (decrease) in cash and cash equivalents	(28,466)	71
Cash and cash equivalents at beginning of period	84,419	16,217
Cash and cash equivalents at end of period	55,953	16,288
Non-cash items from investing and financing activities:
Transfer of inventory to rental equipment	2,978
Reduction in multi-client data library related to finalization of accrued liabilities	1,888
Expiration of BGP Warrant		32,001
Conversion of BGP Domestic Convertible Note to equity		28,571
Investment in INOVA Geophysical		119,000
Exchange of RXT receivables into shares		$ 9,516

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Equity Method Investment in INOVA Geophysical

6 Months Ended

Jun. 30, 2011

Equity Method Investment in INOVA Geophysical [Abstract]

Equity Method Investment in INOVA Geophysical

(2) Equity Method Investment in INOVA Geophysical

     On March 25, 2010, the Company completed the disposition of most of its land seismic equipment businesses in connection with its formation of a land equipment joint venture with BGP, Inc., China National Petroleum Corporation (“BGP”). BGP is a subsidiary of China National Petroleum Corporation (“CNPC”) and is a leading global geophysical services contracting company. The resulting joint venture company, organized under the laws of the People’s Republic of China, is named INOVA Geophysical Equipment Limited (“INOVA,” or “INOVA Geophysical”). BGP owns a 51% interest in INOVA Geophysical, and the Company owns a 49% interest. INOVA Geophysical is managed through a Board of Directors consisting of four members appointed by BGP and three members appointed by the Company. The Company accounts for its 49% interest in INOVA Geophysical as an equity method investment and, as provided by Accounting Standards Codification (“ASC”) 815 “Investments,” the Company records its share of earnings in INOVA Geophysical on a one fiscal quarter lag basis. The Company’s share of INOVA Geophysical’s losses for the five-day period ended March 31, 2010 of $0.2 million is included in its financial results for the three months ended June 30, 2010, and INOVA Geophysical’s financial results for this five-day period are not presented in the table below. The following table reflects summarized, unaudited financial information for INOVA Geophysical for the three months ended March 31, 2011 and for the six-month period from October 1, 2010 through March 31, 2011 (in thousands):

	Three Months			October 1, 2010
	Ended			through
	March 31, 2011			March 31, 2011
Total net revenues	$	32,452		$	77,991
Gross profit	$	3,708		$	14,924
Loss from operations	$	(6,657	)	$	(9,867	)
Net loss	$	(8,090	)	$	(10,771	)

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Comprehensive Net Income (Loss)

6 Months Ended

Jun. 30, 2011

Cumulative Convertible Preferred Stock and Comprehensive Net Income (Loss) [Abstract]

Comprehensive Net Income (Loss)

(11) Comprehensive Net Income (Loss)

     The components of comprehensive net income (loss) are as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Net income (loss)	$	2,852		$	1,459		$	3,302		$	(69,431	)
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments (ION)		(313	)		696			3,237			(1,730	)
Foreign currency translation adjustments (noncontrolling interest)		(11	)		—			(11	)		—
Change in fair value of effective cash flow hedges (net of taxes)		(104	)		—			(148	)		—
Equity interest in INOVA Geophysical’s other comprehensive income		997			—			1,582			—
Unrealized income (loss) on available-for-sale securities		308			(7,352	)		(506	)		(7,352	)
Total other comprehensive income (loss)		877			(6,656	)		4,154			(9,082	)
Comprehensive net income (loss)		3,729			(5,197	)		7,456			(78,513	)
Comprehensive income attributable to noncontrolling interest		44			—			69			—
Comprehensive net income (loss) attributable to ION	$	3,773		$	(5,197	)	$	7,525		$	(78,513	)

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Recent Accounting Pronouncement

6 Months Ended

Jun. 30, 2011

Recent Accounting Pronouncement [Abstract]

Recent Accounting Pronouncement

(15) Recent Accounting Pronouncement

     In June 2011, the Financial Accounting Standards Board issued revised guidance on the presentation of comprehensive income that will be effective for the Company beginning in 2012. This guidance eliminates the option to present the components of comprehensive income as part of the statement of shareholders’ equity and also requires presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements. The implementation of this revised guidance in 2012 will change the presentation of the Company’s financial statements but will not have any impact on the Company’s financial position, results of operations or cash flows.

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Condensed Consolidated Balance Sheets (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 55,953	$ 84,419
Short-term investments	39,000	0
Accounts receivable, net	65,921	77,576
Unbilled receivables	45,306	70,590
Inventories	86,160	66,882
Prepaid expenses and other current assets	15,373	13,165
Total current assets	307,713	312,632
Deferred income tax asset	14,098	8,998
Property, plant and equipment, net	25,913	20,145
Multi-client data library, net	120,086	112,620
Investment in INOVA Geophysical	91,722	95,173
Goodwill	52,194	51,333
Intangible assets, net	17,654	20,317
Other assets	10,054	3,224
Total assets	639,434	624,442
Current liabilities:
Notes payable and current maturities of long-term debt	5,119	6,073
Accounts payable	30,700	30,940
Accrued expenses	42,811	54,799
Accrued multi-client data library royalties	13,024	18,667
Deferred revenue and other current liabilities	36,558	22,887
Total current liabilities	128,212	133,366
Long-term debt, net of current maturities	100,153	102,587
Other long-term liabilities	7,499	8,042
Total liabilities	235,864	243,995
Equity:
Cumulative convertible preferred stock	27,000	27,000
Common stock, $0.01 par value; authorized 200,000,000 shares; outstanding 155,118,287 and 152,870,679 shares at June 30, 2011 and December 31, 2010, respectively, net of treasury stock	1,551	1,529
Additional paid-in capital	837,726	822,399
Accumulated deficit	(445,015)	(448,386)
Accumulated other comprehensive loss	(11,376)	(15,530)
Treasury stock, at cost, 849,539 shares both at June 30, 2011 and December 31, 2010	(6,565)	(6,565)
Total stockholders' equity	403,321	380,447
Noncontrolling interest	249	0
Total equity	403,570	380,447
Total liabilities and equity	$ 639,434	$ 624,442