exv10w1

Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is made and entered into by and between Input/Output, Inc., a Delaware corporation (hereinafter referred to as “Employer”), and R. Brian Hanson (hereinafter referred to as “Employee”), effective as of May 22, 2006 (the “Effective Date”).

WHEREAS, Employee desires to enter into the employment of Employer, and Employer desires to employ Employee, subject to the terms set out in this Agreement;

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employer and Employee agree as follows:

Section 1. General Duties of Employer and Employee.

(a) Employer agrees to employ Employee, and Employee agrees to accept employment by Employer and to serve Employer, in an executive capacity as its Executive Vice President and Chief Financial Officer. Employee will report to the President and Chief Executive Officer of Employer. The powers, duties and responsibilities of Employee as Executive Vice President and Chief Financial Officer include those duties that are the usual and customary powers, duties and responsibilities of such office, including those powers, duties and responsibilities specified in Employer’s Bylaws, and such other and further duties appropriate to such position as may from time to time be assigned to Employee by the President and Chief Executive Officer or the Board of Directors of Employer (the “Board”).

(b) While employed hereunder, Employee will devote substantially all reasonable and necessary time, efforts, skills and attention for the benefit of and with Employee’s primary attention to the affairs of Employer in order that he may faithfully perform his duties and obligations. The preceding sentence will not, however, be deemed to restrict Employee from attending to matters or engaging in activities not directly related to the business of Employer, provided that (i) such activities or matters are reasonable in scope and time commitment and not otherwise in violation of this Agreement, and (ii) Employee will not become a director or officer of (or hold any substantially similar responsibility with) any corporation or other entity (excluding charitable or other non-profit organizations) without prior written disclosure to, and consent of, Employer.

(c) At the commencement of Employee’s employment by Employer, Employee will be based at Employer’s corporate headquarters located at 12300 Parc Crest Drive, Stafford, Texas 77477 (the “Place of Employment”).

(d) Employee agrees and acknowledges that as an officer and employee of Employer, and consistent with the terms hereof, he owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of Employer and to do no act knowingly which would injure Employer’s business, its interests or its reputation.

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Section 2. Compensation and Benefits.

(a) Employer will pay to Employee during the term of this Agreement a base salary at the rate of $275,000 per annum (such base salary as adjusted from time to time by the Compensation Committee of the Board as hereinafter provided is referred to herein as the “Base Salary”). The Compensation Committee of the Board will review the Base Salary from time to time and, during the term of this Agreement, may increase, but may not decrease, the Base Salary as it deems to be in the best interest of Employer. The Base Salary will be paid to Employee in equal installments every two weeks or on such other schedule as Employer may establish from time to time for its management personnel.

(b) Employee will be eligible to participate in Employer’s incentive compensation plan for the fiscal year 2006, with target plan incentive compensation at 50% of Base Salary and with an opportunity to earn plan incentive compensation up to 100% of Base Salary. Any incentive earned in fiscal year 2006 will be prorated based on Employee’s actual period of employment during such fiscal year. During each subsequent fiscal year during the term of this Agreement, Employee will be eligible to participate in that year’s incentive compensation plan or other replacement incentive or bonus plan Employer establishes for its key executives.

(c) Employee will be eligible for participation in equity compensation plans that are established for senior management employees of Employer; such grants to be made in the sole discretion of the Compensation Committee or the Board.

(d) Subject to approval by the Compensation Committee, in 2006 Employer will cause to be issued to Employee options to purchase 75,000 shares of common stock of Employer and 75,000 shares of restricted stock of Employer. Such stock options will vest 25% annually over a four-year period on the anniversary date of grant pursuant to the terms of the Input/Output, Inc. 2004 Long-Term Incentive Plan (“2004 LTIP”), or the terms of such other equity plan from which Employer elects to award the options, and the governing option agreement. Such restricted stock will vest 33% annually over a three-year period on the anniversary date of grant pursuant to the terms of the 2004 LTIP, or the terms of such other equity plan from which Employer elects to award the options, and the governing restricted stock agreement. All terms of the stock options and restricted stock will be determined by the 2004 LTIP (or such other equity plan) and Employer’s option agreement and restricted stock agreement, as the case may be.

(e) Employee will accrue vacation pay of 6.154 hours per two-week pay period. Vacation may be taken by Employee at the time and for such periods as may be mutually agreed upon between Employer and Employee.

(f) Employee will be reimbursed in accordance with Employer’s normal expense reimbursement policies for all of the actual and reasonable costs and expenses incurred by him in the performance of his services and duties hereunder, including, but not limited to, reasonable travel expenses. Employee will furnish Employer with all invoices and vouchers reflecting amounts for which Employee seeks Employer’s reimbursement.

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(g) Employee will be entitled to participate in all insurance and retirement plans, incentive compensation plans (at a level appropriate to his position) and such other benefit plans or programs as may be in effect from time to time for the employees of Employer, including, without limitation, those related to savings and thrift, retirement, welfare, medical, dental, disability, salary continuance, accidental death, travel accident, life insurance, incentive bonus, membership in business and professional organizations, and reimbursement of business and entertainment expenses.

(h) Employer, during the term of this Agreement and thereafter without limit of time, will indemnify Employee for claims and expenses to the extent provided in Employer’s Certificate of Incorporation and Bylaws. Employer will also provide Employee coverage under Employer’s policy or policies of directors’ and officers’ liability insurance to the same extent as other executive officers of Employer during the term of this Agreement.

(i) All Base Salary, bonus and other payments made by Employer to Employee pursuant to this Agreement will be subject to such payroll and withholding deductions as may be required by law and other deductions applied generally to employees of Employer for insurance and other employee benefit plans in which Employee participates.

Section 3. Fiduciary Duty; Confidentiality.

(a) In keeping with Employee’s fiduciary duties to Employer, Employee agrees that he will not knowingly take any action that would create a conflict of interest with Employer, or upon discovery thereof, allow such a conflict to continue. In the event that Employee discovers that such a conflict exists, Employee agrees that he will disclose to the Board any facts which might involve a conflict of interest that has not been approved by the Board.

(b) As part of Employee’s fiduciary duties to Employer, Employee agrees to protect and safeguard Employer’s information, ideas, concepts, improvements, discoveries, and inventions and any proprietary, confidential and other information relating to Employer or its business (collectively, “Confidential Information”) and, except as may be required by Employer, Employee will not knowingly, either during his employment by Employer or thereafter, directly or indirectly, use for his own benefit or for the benefit of another, or disclose to another, any Confidential Information, except (i) with the prior written consent of Employer; (ii) in the course of the proper performance of Employee’s duties under this Agreement; (iii) for information that becomes generally available to the public other than as a result of the unauthorized disclosure by Employee; (iv) for information that becomes available to Employee on a non-confidential basis from a source other than Employer or its affiliated companies who is not bound by a duty of confidentiality to Employer; or (v) as may be required by any applicable law, rule, regulation or order.

(c) Upon termination of his employment with Employer, Employee will immediately deliver to Employer all documents in Employee’s possession or under his control which embody any of Employer’s Confidential Information.

(d) In addition to the foregoing provisions of this Section 3, and effective as

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of the Effective Date, Employee reaffirms the duties imposed upon Employee by that certain Employee Proprietary Information Agreement (or similar agreement) by and between Employer and Employee signed in conjunction with Employee’s commencement of employment.

(e) Employee will comply with Employer’s Code of Ethics, and any amendments or replacement policies adopted by the Board (the “Code of Ethics”).

Section 4. Term of Agreement.

The term of this Agreement will commence effective as of the Effective Date, and, subject to the terms and conditions hereof and except as may be affected by a Change in Control, will continue for a three-year period ending on May 21, 2009 (the “Initial Term”), and thereafter the term will be automatically extended for successive periods of two years unless prior to the end of the original two-year period (or, if applicable, any such successive two-year period), Employer gives Employee at least ninety (90) days prior written notice that Employer has decided not to extend the term of this Agreement. Notwithstanding any provision contained herein to the contrary, Employee acknowledges that his employment with Employer is at will and that Employer may terminate his employment at any time and for any reason or for no reason at the discretion of Employer, but subject to any rights Employee has under Sections 5, 6, 7, 8 and 10 of this Agreement.

Section 5. Termination.

(a) Employee’s employment with Employer hereunder will terminate upon the first to occur of the following:

(1) The death or “Disability” (as defined in Section 5(b) hereof) of Employee;

(2) Employer terminates such employment for “Cause” (as defined in Section 5(c) hereof);

(3) Employee terminates such employment for “Good Reason” (as defined in Section 5(d) hereof);

(4) Employer terminates such employment for any reason other than Cause, or for no reason at all; or

(5) Employee terminates such employment for any reason other than Good Reason, or for no reason at all.

(b) As used in this Agreement, “Disability” means permanent and total disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor provision) which has existed for at least 180 consecutive days.

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(1) the willful and continued failure by Employee to substantially perform his obligations under this Agreement (other than any such failure resulting from his Disability) after a demand for substantial performance has been delivered to him by the Board which specifically identifies the manner in which the Board believes Employee has not substantially performed such provisions and Employee has failed to remedy the situation within ten (10) days after such demand or a willful and material violation of the Employer’s Code of Ethics;

(2) Employee’s willfully engaging in conduct materially and demonstrably injurious to the property or business of Employer, including without limitation, fraud, misappropriation of funds or other property of Employer, other willful misconduct, gross negligence or conviction of a felony or any crime of moral turpitude; or

(3) Employee’s material breach of this Agreement which breach has not been remedied by Employee within ten (10) days after receipt by Employee of written notice from Employer that he is in material breach of the Agreement, specifying the particulars of such breach.

For purposes of this Agreement, no act, or failure to act, on the part of Employee shall be deemed “willful” or engaged in “willfully” if it was due primarily to an error in judgment or negligence, but shall be deemed “willful” or engaged in “willfully” only if done, or omitted to be done, by Employee not in good faith and without reasonable belief that his action or omission was in the best interest of Employer. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated as a result of “Cause” hereunder unless and until there shall have been delivered to Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose (after reasonable notice to Employee and an opportunity for Employee, together with his counsel, to be heard before the Board), finding that, in the good faith opinion of the Board of Directors, Employee has committed an act set forth above in this Section 5(c) and specifying the particulars thereof in detail. Nothing herein shall limit the right of Employee or his or her legal representatives to contest the validity or propriety of any such determination.

(d) As used in this Agreement, “Good Reason” means:

(1) Employer’s failure to comply with any of the provisions of Section 2 of this Agreement (including, but not limited to, such a failure resulting from any reduction in the Base Salary), which failure is not remedied within ten (10) days after receipt of written notice from Employee specifying the particulars of such breach;

(2) Employer’s breach of any other material provision of this Agreement which is not remedied within ten (10) days after receipt by Employer of written notice from Employee specifying the particulars of such breach;

(3) the assignment to Employee of any duties materially inconsistent with Employee’s position, duties, functions, responsibilities or authority as

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contemplated by Section 1 of this Agreement;

(4) the relocation of Employee’s principal place of performance of his duties and responsibilities under this Agreement to a location more than fifty miles (50) miles from the Place of Employment;

(5) any failure by Employer to comply with Section 11(c);

(6) any purported termination of Employee’s employment by Employer which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 5(e) hereof (and for purposes of this Agreement, no such purported termination shall be effective); or

(7) Employer elects not to extend the Initial Term or any subsequent term of this Agreement under Section 4.

(e) Any termination by Employer or Employee of Employee’s employment with Employer shall be communicated by written notice (a “Notice of Termination”) to the other party that shall:

(1) indicate the specific provision of this Agreement relied upon for such termination;

(2) indicate the specific provision of this Agreement pursuant to which Employee is to receive compensation and other benefits as a result of such termination; and

(3) otherwise comply with the provisions of this Section 5(e) and Section 13(a).

If a Notice of Termination states that Employee’s employment with Employer has been terminated as a result of Employee’s Disability, the notice shall (i) specifically describe the basis for the determination of Employee’s Disability, and (ii) state the date of the determination of Employee’s Disability, which date shall be not more than ten (10) days before the date such notice is given. If the notice is from Employer and states that Employee’s employment with Employer is terminated by Employer as a result of the occurrence of Cause, the Notice of Termination shall specifically describe the action or inaction of Employee that Employer believes constitutes Cause and shall be accompanied by a copy of the resolution satisfying Section 5(c). If the Notice of Termination is from Employee and states that Employee’s employment with Employer is terminated by Employee as a result of the occurrence of Good Reason, the Notice of Termination shall specifically describe the action or inaction of Employer that Employee believes constitutes Good Reason. Any purported termination by Employer of Employee’s employment with Employer shall be ineffective unless such termination shall have been communicated by Employer to Employee by a Notice of Termination that meets the requirements of this Section 5(e) and the provisions of Section 13(a).

(f) As used in this Agreement, “Date of Termination” means:

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(1) if Employee’s employment with Employer is terminated for Disability, sixty (60) days after Notice of Termination is received by Employee or any later date specified therein, provided that within such sixty (60) day period Employee shall not have returned to full-time performance of Employee’s duties;

(2) if Employee’s employment with Employer is terminated as a result of Employee’s death, the date of death of Employee;

(3) if Employee’s employment with Employer is terminated for Cause, the date Notice of Termination, accompanied by a copy of the resolution satisfying Section 5(c), is received by Employee or any later date specified therein, provided that Employer may, in its discretion, condition Employee’s continued employment upon such considerations or requirements as may be reasonable under the circumstances and place a reasonable limitation upon the time within which Employee will comply with such considerations or requirements; or

(4) if Employee’s employment with Employer is terminated for any reason other than Employee’s Disability, Employee’s death or Cause, or for no reason, the date that is fourteen (14) days after the date of receipt of the Notice of Termination.

Section 6. Effect of Termination of Employment.

(a) Upon termination of Employee’s employment during the Initial Term, by Employer for Cause, or by Employee for no reason or any reason other than Good Reason, all compensation and benefits will cease upon the Date of Termination other than: (i) those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by Employer for Employee that are earned and vested by the Date of Termination; (ii) as provided in Section 10; (iii) Employee’s Base Salary through the Date of Termination; (iv) any incentive compensation due Employee if, under the terms of the relevant incentive compensation arrangement, such incentive compensation was due and payable to Employee on or before the Date of Termination; and (v) medical and similar benefits the continuation of which is required by applicable law or provided by the applicable benefit plan.

(b) Upon termination of Employee’s employment due to the death of Employee or upon termination by Employer due to the Disability of Employee, all compensation and benefits will cease upon the Date of Termination other than: (i) those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by Employer for Employee that are earned and vested by the Date of Termination; (ii) as provided in Section 10; (iii) Employee’s Base Salary through the Date of Termination; (iv) any incentive compensation due Employee if, under the terms of the relevant incentive compensation arrangement, such incentive compensation was due and payable to Employee on or before the Date of Termination; and (v) medical and similar benefits the continuation of which is required by applicable law or provided by the applicable benefit plan.

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for no reason or for any reason other than Cause or the death or Disability of Employee, or (ii) by Employee for Good Reason, the obligations of Employer and Employee under Sections 1 and 2 will terminate as of the Date of Termination and Employer will pay or provide to Employee the following:

(1) Employee’s Base Salary earned and payable through the Date of Termination;

(2) Any unpaid incentive compensation earned by Employee pursuant to the terms of the relevant incentive compensation arrangement with respect to the year of the Date of Termination. In the absence of any agreement to the contrary, such incentive compensation amount shall be the pro rata amount due to Employee based on payments that would have been due to Employee if Employee had remained employed by Employer for the full fiscal year. Any such amount payable to Employee pursuant to the foregoing shall be payable to Employee at such time that incentive compensation for such year is paid to other recipients under the plan and shall be subject to the terms or requirements of such incentive compensation as may be set forth in the plan or established by the Board or Compensation Committee;

(3) an aggregate amount (the “Severance Payment”) equal to two-times the Employee’s annual Base Salary at the highest annual rate in effect on or before the Date of Termination (but prior to giving effect to any reduction therein which precipitated such termination), which Severance Payment will be paid to Employee over a two-year period in accordance with Employer’s normal payroll practices;

(4) if immediately prior to the Date of Termination, Employee (and, if applicable, his spouse and/or dependents) was covered under Employer’s group medical, dental, health and hospital plan in effect at such time, then Employer shall provide to Employee for one (1) year after the Date of Termination, and provided that Employee has timely elected under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), to continue coverage under such plan, Employer will, at no greater cost or expense to Employee than was the case immediately prior to the Date of Termination, maintain such continued coverage in full force and effect; and

(5) Employee’s vesting and exercise rights with regard to outstanding stock options, restricted stock, performance shares and other equity grants shall be in accordance with the applicable plan and award agreements.

Except as otherwise provided above and in Section 10, all other compensation and benefits will cease upon the Date of Termination other than the following: (i) those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by Employer for Employee that are earned and vested by the Date of Termination; and (ii) medical and similar benefits the continuation of which is required by applicable law or as provided by the applicable benefit plan. As a condition to making the payments and providing the benefits specified in this

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Section 6(c), Employer will require that Employee execute a release of all claims Employee may have against Employer at the time of Employee’s termination.

Section 7. Change in Control.

(a) If (i) a “Change in Control” (as defined in Section 7(b) hereof) shall have occurred, and (ii) Employee’s employment with Employer has continued for twelve (12) months following such Change in Control, Employee at his option may during the immediately following six (6) month period terminate his employment with Employer by giving Employer a three (3) month prior notice of termination, and such termination shall be treated as a termination for Good Reason in accordance with Section 6(a) above. In the event of a Change of Control after the first anniversary of the Effective Date, the then remaining term of this Agreement shall automatically adjust to two (2) years, commencing on the effective date of the Change in Control.

(b) For purposes of this Agreement, a “Change in Control” shall mean the occurrence of any of the following after the Effective Date:

(1) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”), or any successor statute) (a “Covered Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either (i) the then outstanding shares of Common Stock (the “Outstanding Company Common Stock”), or (ii) the combined voting power of the then outstanding voting securities of Employer entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this Section 7(b)(1), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from Employer or any subsidiary of Employer, (ii) any acquisition by Employer or any subsidiary of Employer, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Employer or any entity controlled by Employer, or (iv) any acquisition by any corporation pursuant to a reorganization, merger, consolidation or similar business combination involving Employer (a “Merger”), if, following such Merger, the conditions described in Section 7(b)(3)(i) and(ii) are satisfied; or

(2) individuals who, as of the Effective Date, constitute the Board of Directors (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 Employer’s stockholders, 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 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

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meetings of stockholders) or other actual or threatened solicitation of proxies or consents by or on behalf of a Covered Person other than the Board; or

(3) approval by the stockholders of Employer of a Merger, unless immediately following such Merger, (i) substantially all of the holders of the Outstanding Company Voting Securities immediately prior to the 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 proportion as their ownership of Outstanding Company Voting Securities immediately prior to such Merger and (ii) at least a majority of the members 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

(4) the sale or other disposition of all or substantially all of the assets of Employer.

Section 8. Excise Tax.

(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by, or benefit from, Employer or any of its affiliates to or for the benefit of Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (any such payments, distributions or benefits being individually referred to herein as a “Payment,” and any two or more of such payments, distributions or benefits being referred to herein as “Payments”), would be subject to the excise tax imposed by Section 4999 of the Code (such excise tax, together with any interest thereon, any penalties, additions to tax, or additional amounts with respect to such excise tax, and any interest in respect of such penalties, additions to tax or additional amounts, being collectively referred herein to as the “Excise Tax”), then Employee shall be entitled to receive an additional payment or payments (individually referred to herein as a “Gross-Up Payment” and any two or more of such additional payments being referred to herein as “Gross-Up Payments”) in an amount such that after payment by Employee of all taxes (as defined in Section 8(i)) imposed upon the Gross-Up Payment, Employee retains an amount of such Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

(b) Subject to the provisions of Section 8(c) through (i), any determination (individually, a “Determination”) required to be made under this Section 8(b), including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall initially be made, at Employer’s expense, by nationally recognized tax counsel selected by Employer (“Tax Counsel”). Tax Counsel shall provide detailed supporting legal authorities, calculations, and documentation both to Employer and Employee within fifteen (15) business days of the termination of Employee’s employment, if applicable, or such other time or times as is reasonably requested by Employer or Employee. If Tax Counsel makes the initial Determination that no Excise Tax is payable by Employee with respect to a Payment or Payments, it shall furnish Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to any such Payment or Payments. Employee shall have the right to dispute any Determination (a “Dispute”). The Gross-Up Payment, if any, as determined pursuant to such

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Determination shall, at Employer’s expense, be paid by Employer to or for the benefit of Employee within five business days of Employee’s receipt of such Determination. The existence of a Dispute shall not in any way affect Employee’s right to receive the Gross-Up Payment in accordance with such Determination. If there is no Dispute, such Determination shall be binding, final and conclusive upon Employer and Employee, subject in all respects, however, to the provisions of Section 8(c) through (i) below. As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that Gross-Up Payments (or portions thereof) which will not have been made by Employer should have been made (“Underpayment”), and if upon any reasonable written request from Employee or Employer to Tax Counsel, or upon Tax Counsel’s own initiative, Tax Counsel, at Employer’s expense, thereafter determines that Employee is required to make a payment of any Excise Tax or any additional Excise Tax, as the case may be, Tax Counsel shall, at Employer’s expense, determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by Employer to or for the benefit of Employee.

(c) Employer shall defend, hold harmless, and indemnify Employee on a fully grossed-up after tax basis from and against any and all claims, losses, liabilities, obligations, damages, impositions, assessments, demands, judgments, settlements, costs and expenses (including reasonable attorneys’, accountants’, and experts’ fees and expenses) with respect to any tax liability of Employee resulting from any Final Determination (as defined in Section 8(h)) that any Payment is subject to the Excise Tax.

(d) If a party hereto receives any written or oral communication with respect to any question, adjustment, assessment or pending or threatened audit, examination, investigation or administrative, court or other proceeding which, if pursued successfully, could result in or give rise to a claim by Employee against Employer under this Section 8 (“Claim”), including, but not limited to, a claim for indemnification of Employee by Employer under Section 8(c), then such party shall promptly notify the other party hereto in writing of such Claim (“Tax Claim Notice”).

(e) If a Claim is asserted against Employee (“Employee Claim”), Employee shall take or cause to be taken such action in connection with contesting such Employee Claim as Employer shall reasonably request in writing from time to time, including the retention of counsel and experts as are reasonably designated by Employer (it being understood and agreed by the parties hereto that the terms of any such retention shall expressly provide that Employer shall be solely responsible for the payment of any and all fees and disbursements of such counsel and any experts) and the execution of powers of attorney.

(f) Employer shall have the right to defend or prosecute, at the sole cost, expense and risk of Employer, such Employee Claim by all appropriate proceedings, which proceedings shall be defended or prosecuted diligently by Employer to a Final Determination; provided, however, that (i) Employer shall not, without Employee’s prior written consent, enter into any compromise or settlement of such Employee Claim that would adversely affect Employee, (ii) any request from Employer to Employee regarding any extension of the statute of limitations relating to assessment, payment, or collection of taxes for the taxable year of Employee with respect to which the contested issues involved in, and amount of, Employee Claim relate is limited solely to such contested issues and amount, and (iii) Employer’s control

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of any contest or proceeding shall be limited to issues with respect to Employee Claim and Employee shall be entitled to settle or contest, in his sole and absolute discretion, any other issue raised by the Internal Revenue Service or any other taxing authority. So long as Employer is diligently defending or prosecuting such Employee Claim, Employee shall provide or cause to be provided to Employer any information reasonably requested by Employer that relates to such Employee Claim, and shall otherwise cooperate with Employer and its representatives in good faith in order to contest effectively such Employee Claim. Employer shall keep Employee informed of all developments and events relating to any such Employee Claim (including, without limitation, providing to Employee copies of all written materials pertaining to any such Employee Claim), and Employee or his authorized representatives shall be entitled, at Employee’s expense, to participate in all conferences, meetings and proceedings relating to any such Employee Claim.

(g) In the case of any Employee Claim that is defended or prosecuted to a Final Determination pursuant to the terms of this Section 8(g), Employer shall pay, on a fully grossed-up after tax basis, to Employee in immediately available funds the full amount of any taxes arising or resulting from or incurred in connection with such Employee Claim that have not theretofore been paid by Employer to Employee, together with the costs and expenses, on a fully grossed-up after tax basis, incurred in connection therewith that have not theretofore been paid by Employer to Employee, within ten calendar days after such Final Determination. In the case of any Employee Claim not covered by the preceding sentence, Employer shall pay, on a fully grossed-up after tax basis, to Employee in immediately available funds the full amount of any taxes arising or resulting from or incurred in connection with such Employee Claim at least ten calendar days before the date payment of such taxes is due from Employee, except where payment of such taxes is sooner required under the provisions of this Section 8(g), in which case payment of such taxes (and payment, on a fully grossed-up after tax basis, of any costs and expenses required to be paid under this Section 8(g)) shall be made within the time and in the manner otherwise provided in this Section 8(g).

(h) For purposes of this Agreement, the term “Final Determination” shall mean (A) a decision, judgment, decree or other order by a court or other tribunal with appropriate jurisdiction, which has become final and non-appealable; (B) a final and binding settlement or compromise with an administrative agency with appropriate jurisdiction, including, but not limited to, a closing agreement under Section 7121 of the Code; (C) any disallowance of a claim for refund or credit in respect to an overpayment of tax unless a suit is filed on a timely basis; or (D) any final disposition by reason of the expiration of all applicable statutes of limitations.

(i) For purposes of this Agreement, the terms “tax” and “taxes” mean any and all taxes of any kind whatsoever (including, but not limited to, any and all Excise Taxes, income taxes, and employment taxes), together with any interest thereon, any penalties, additions to tax, or additional amounts with respect to such taxes and any interest in respect of such penalties, additions to tax, or additional amounts.

Section 9. No Obligation to Mitigate; No Rights of Offset.

(a) Employee shall not be required to mitigate the amount of any payment or

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other benefit required to be paid to Employee pursuant to this Agreement, whether by seeking other employment or otherwise, nor shall the amount of any such payment or other benefit be reduced on account of any compensation earned by Employee as a result of employment by another person.

(b) Employer’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which Employer may have against Employee or others.

Section 10. No Effect on Other Rights.

Nothing in this Agreement shall prevent or limit Employee’s continuing or future participation in any plan, program, policy or practice of or provided by Employer or any of its affiliates and for which Employee may qualify, nor shall anything herein limit or otherwise affect such rights as Employee may have under any stock option or other agreements with Employer or any of its affiliates. Amounts which are vested benefits or which Employee is otherwise entitled to receive under any plan, program, policy or practice of or provided by, or any other contract or agreement with, Employer or any of its affiliates at or subsequent to the Date of Termination shall be payable or otherwise provided in accordance with such plan, program, policy or practice or contract or agreement except as explicitly modified by this Agreement.

Section 11. Successors; Binding Agreement.

(a) This Agreement is personal to Employee and without the prior written consent of Employer shall not be assignable by Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

(b) This Agreement shall inure to the benefit of and be binding upon Employer and its successors and assigns.

(c) Employer will require any successor (whether direct or indirect, by purchase, merger, amalgamation, consolidation or otherwise) to all or substantially all of the business and/or assets of Employer, by agreement in form and substance reasonably satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. As used in this Agreement, “Employer” shall mean Employer as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by execution and delivery of the agreement provided for in this Section 11(c) or which otherwise becomes bound by the terms and provisions of this Agreement by operation of law or otherwise.

Section 12. Non-Competition; Non-Solicitation; No Hire.

(a) Employee agrees that, effective as of the Effective Date and for a period of

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twelve (12) months after the Date of Termination (such applicable period being referred to herein as the “Non-Compete Period”), Employee shall not, without the prior written consent of Employer, directly or indirectly, anywhere in the world, engage, invest, own any interest, or participate in, consult with, render services to, or be employed by any business, person, firm or entity that is in competition with the “Business” (as defined in Section 12(d)) of Employer or any of its subsidiaries or affiliates, except for the account of Employer and its subsidiaries and affiliates; provided, however, that during the Non-Compete Period Employee may acquire, solely as a passive investment, not more than two percent (2%) of the outstanding shares or other units of any security of any entity subject to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended. Employee acknowledges that a remedy at law for any breach or attempted breach of this covenant not to compete will be inadequate and further agrees that any breach of this covenant not to compete will result in irreparable harm to Employer, and, accordingly, Employer shall, in addition to any other remedy that may be available to it, be entitled to specific performance and temporary and permanent injunctive and other equitable relief (without proof of actual damage or inadequacy of legal remedy) in case of any such breach or attempted breach. Employee acknowledges that this covenant not to compete is being provided as an inducement to Employer to enter into this Agreement and that this covenant not to compete contains reasonable limitations as to time, geographical area and scope of activity to be restrained that do not impose a greater restraint than is necessary to protect the goodwill or other business interest of Employer. Whenever possible, each provision of this covenant not to compete shall be interpreted in such a manner as to be effective and valid under applicable law but if any provision of this covenant not to compete shall be prohibited by or invalid under applicable law, such provision of this covenant not to compete shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this covenant not to compete. If any provision of this covenant not to compete shall, for any reason, be judged by any court of competent jurisdiction to be invalid or unenforceable, such judgment shall not affect, impair or invalidate the remainder of this covenant not to compete but shall be confined in its operation to the provision of this covenant not to compete directly involved in the controversy in which such judgment shall have been rendered. In the event that the provisions of this covenant not to compete should ever be deemed to exceed the time or geographic limitations permitted by applicable laws, then such provision shall be reformed to the maximum time or geographic limitations permitted by applicable law.

(b) In addition to the restrictions set forth in Section 12(a), Employee agrees that, during the Non-Compete Period, Employee will not, either directly or indirectly, (i) make known to any person, firm or entity that is in competition with the Business of Employer or any of its subsidiaries or affiliates the names and addresses of any of the suppliers or customers of Employer or any of its subsidiaries or affiliates, potential customers of Employer or any of its subsidiaries or affiliates upon whom Employer or any of its subsidiaries or affiliates has called upon in the twelve (12) months preceding the Date of Termination, or (ii) call on, solicit, or take away, or attempt to call on, solicit or take away any of the suppliers or customers of Employer or any of its subsidiaries or affiliates, whether for Employee or for any other person, firm or entity.

(c) Regardless of the reason for any termination of Employee’s employment, effective as of the Effective Date and for twelve (12) months following the Date of Termination, Employee will not, either on his or her own account or for any other person, firm, partnership,

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corporation, or other entity (i) solicit any employee of Employer or any of its subsidiaries or affiliates to leave such employment; or (ii) induce or attempt to induce any such employee to breach her or his employment agreement with Employer or any of its subsidiaries or affiliates. This restriction shall not apply in the case of any employee or former employee of Employer who at his or her own initiative seeks, without solicitation or encouragement by Employee, a change of employment or responds to solicitations made by means of general advertisement.

(d) As used in this Agreement, “Business” means the business of (i) design, manufacture, marketing and sale of equipment for seismic acquisition, (ii) seismic processing and (iii) seismic interpretation.

(e) In the event that Employee breaches or violates any of the terms and conditions of this Section 10 during the Non-Compete Period, then in addition to the other rights and remedies available to Employer hereunder, Employer’s obligations to pay to Employee any remaining installments of the Severance Payment otherwise due and owing pursuant to Section 6(c)(3) or 7(a) hereof, shall cease and terminate.

Section 13. Miscellaneous.

(a) All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith will be in writing and will be delivered by hand or by registered or certified mail, return receipt requested to the addresses set forth below in this Section 13(a):

If to Employer, to:

Input/Output, Inc.
12300 Parc Crest Drive
Stafford, TX 77477
Attention: Chief Executive Officer

with a copy to:

Input/Output, Inc.
12300 Parc Crest Drive
Stafford, TX 77477
Attention: General Counsel

If to Employee, to:

R. Brian Hanson
11 Robin Springs Place
The Woodlands, TX 77381

or to such other names or addresses as Employer or Employee, as the case may be, designate by notice to the other party hereto in the manner specified in this Section.

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(b) This Agreement supersedes, replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Employee and Employer and constitutes the entire agreement between Employee and Employer with respect to the subject matter of this Agreement, except for any other agreements expressly referred to in this Agreement, each of which shall remain in full force and effect. This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by any employee, officer, or representative of Employer or by any written agreement unless signed by an officer of Employer who is expressly authorized by the Board to execute such document.

(c) If any provision of this Agreement or application thereof to any one or under any circumstances should be determined to be invalid or unenforceable, such invalidity or unenforceability will not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application. In addition, if any provision of this Agreement is held by an arbitration panel or a court of competent jurisdiction to be invalid, unenforceable, unreasonable, unduly restrictive or overly broad, the parties intend that such arbitration panel or court modify said provision so as to render it valid, enforceable, reasonable and not unduly restrictive or overly broad.

(d) The internal laws of the State of Texas will govern the interpretation, validity, enforcement and effect of this Agreement without regard to the place of execution or the place for performance thereof.

(e) The covenants, agreements, rights and obligations of Employer under this Agreement, and the covenants, agreements, rights and obligations of Employee under this Agreement, shall survive the termination of this Agreement for any reason including, but not limited to, the termination of Employee’s employment with Employer. All covenants, agreements, indemnities, warranties, rights and obligations contained herein shall continue for so long as necessary in order for Employer and Employee to enforce their rights hereunder.

Section 14. Arbitration.

(a) Employer and Employee agree to submit to final and binding arbitration any and all disputes or disagreements concerning the interpretation or application of this Agreement. Any such dispute or disagreement will be resolved by arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (the “AAA Rules”). Arbitration will take place in Houston, Texas, unless the parties mutually agree to a different location. Within thirty (30) calendar days of the initiation of arbitration hereunder, each party will designate an arbitrator. The appointed arbitrators will then appoint a third arbitrator. Employee and Employer agree that the decision of the arbitrators will be final and binding on both parties. Any court having jurisdiction may enter a judgment upon the award rendered by the arbitrators. In the event the arbitration is decided in whole or in part in favor of Employee, Employer will reimburse Employee for his reasonable costs and expenses of the arbitration (including reasonable attorneys’ fees).

(b) Notwithstanding the provisions of Section 14(a), Employer may, if it so chooses, bring an action in any court of competent jurisdiction for injunctive relief to enforce Employee’s obligations under Sections 3(b), 3(c), 3(d), and 3(e).

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	EMPLOYER: INPUT/OUTPUT, INC.
	By:	/s/ Robert P. Peebler
		Robert P. Peebler
		President and Chief Executive Officer

	EMPLOYEE:
	/s/ R. Brian Hanson
	R. Brian Hanson