Exhibit 10.1

AGREEMENT

     This Agreement (this “Agreement”) dated as of February 15, 2005 is entered
into by and between Input/Output, Inc., a corporation organized under the laws
of Delaware (together with its successors, the “Company”), and Fletcher
International, Ltd., a company organized under the laws of Bermuda (together
with its successors, “Fletcher”).

     The parties hereto agree as follows:

     1.    Purchase and Sale. In consideration of and upon the basis of the
representations, warranties and agreements and subject to the terms and
conditions set forth in this Agreement:

     (a)       Fletcher agrees to purchase from the Company, and the Company
agrees to sell to Fletcher on the Initial Closing Date (as defined below), in
accordance with Section 2 below, thirty thousand (30,000) shares (the “Initial
Preferred Shares”) of the Company’s Series D-1 Cumulative Convertible Preferred
Stock (the “Series D-1 Preferred Stock”), having the terms and conditions set
forth in the Certificate of Rights and Preferences attached hereto as Annex A
(the “Certificate of Rights and Preferences”), at a price of one thousand
dollars ($1,000) per share for an aggregate purchase price of thirty million
dollars ($30,000,000). Fletcher shall have the rights with respect to such
Initial Preferred Shares specified in this Agreement and in the Certificate of
Rights and Preferences.

     (b)       The closing (the “Initial Closing”) of the sale of the Initial
Preferred Shares shall occur on February 16, 2005, or at such other date and
time as Fletcher and the Company shall mutually agree (such date, the “Initial
Closing Date”).

     (c)       The Company grants Fletcher rights (the “Fletcher Rights”) to
require the Company to issue to it from time to time, in whole or in part, up to
an aggregate of forty thousand (40,000) shares of additional series of Company
preferred stock (e.g., Series D-2 Cumulative Convertible Preferred Stock,
Series D-3 Cumulative Convertible Preferred Stock, etc.) having, except as set
forth below, the same terms, conditions, rights, preferences and privileges as
the Series D-1 Preferred Stock (such shares shall collectively be referred to as
the “Additional Preferred Shares” and together with the Initial Preferred
Shares, the “Series D Preferred Shares”) at a price of one thousand dollars
($1,000) per share for an aggregate purchase price for all Additional Preferred
Shares of forty million dollars ($40,000,000), and together with the Initial
Preferred Shares, seventy million dollars ($70,000,000) in the aggregate of
Series D Preferred Shares. Fletcher shall have the rights with respect to such
Additional Preferred Shares specified in this Agreement and in a certificate of
rights and preferences for each such series of Additional Preferred Shares
(each, a “Subsequent Certificate of Rights and Preferences” and collectively,
the “Subsequent Certificates of Rights and Preferences”). Each Subsequent
Certificate of Rights and Preferences shall have the same terms and conditions
as the Certificate of Rights and Preferences, except that (A) the Conversion
Price (as defined therein) shall equal one hundred twenty-two percent (122%) of
the

 

--------------------------------------------------------------------------------

 

Prevailing Market Price (as defined therein) calculated as of the Business Day
of the corresponding Fletcher Notice (as defined below), but in no case less
than six dollars and thirty-one cents ($6.31) (subject to adjustment pursuant to
Section 20(o)); and (B) the number of Additional Preferred Shares issued
pursuant to each Subsequent Certificate of Rights and Preferences may differ
from the number of shares of Series D-1 Preferred Stock. To exercise any
Fletcher Rights, Fletcher shall deliver one or more written notices
substantially in the form attached hereto as Annex B (a “Fletcher Notice”) to
the Company from time to time commencing from August 16, 2005 and ending no
later than February 16, 2008, subject to extension (the “Fletcher Rights
Period”). Subject to satisfaction or, if applicable, waiver of the relevant
conditions set forth in Sections 13 and 14 hereof, the closing of each exercise
of Fletcher Rights (each, a “Subsequent Closing”) shall take place on the date
that is three (3) Business Days following and excluding the date of delivery of
the Fletcher Notice or on such other date as Fletcher and the Company shall
mutually agree (such date and time being referred to herein as the “Subsequent
Closing Date,” and together with the Initial Closing Date, each a “Closing
Date”).

     (d)       As used herein, the term “Common Shares” means the shares of the
Company’s common stock, par value $0.01 per share (together with the associated
preferred stock purchase rights under the Rights Agreement, dated as of
January 17, 1997, as amended (the “Rights Agreement”), by and between the
Company and Harris Trust and Savings Bank, as Rights Agent, the “Common Stock”)
issuable upon conversion or redemption of or as dividends under the Series D
Preferred Shares, and all other Common Stock issuable under the Certificate of
Rights and Preferences, Subsequent Certificates of Rights and Preferences or
this Agreement; the term “Investment Securities” means the Series D Preferred
Shares issued hereunder, the Fletcher Rights and all Common Shares; the term
“Business Day” means any day on which the Common Stock may be traded on the NYSE
or, if not admitted for trading on the NYSE, on any day other than a Saturday,
Sunday or holiday on which banks in New York City are required or permitted to
be closed; the term “NYSE” means the New York Stock Exchange, but if the New
York Stock Exchange is not then the principal U.S. trading market for the Common
Stock, then “NYSE” shall be deemed to mean the principal U.S. national
securities exchange (as defined in the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)) on which the Common Stock, or such other
applicable common stock, is then traded, or if such Common Stock, or such other
applicable common stock, is not then listed or admitted to trading on any
national securities exchange, but is designated as a National Association of
Securities Dealers, Inc. (“NASD”) Automated Quotation System National Market
System Security or SmallCap Market Security, then such market system, or if such
Common Stock, or such other applicable common stock, is not listed or quoted on
any of the foregoing, then the OTC Bulletin Board.

     2.       Initial Closing. The Initial Closing shall take place initially
via facsimile on the Initial Closing Date in the manner set forth below;
provided, that, original certificates representing shares of Series D-1
Preferred Stock shall be delivered via Federal Express or another reputable
overnight carrier to the address set forth in Annex I.

     At the Initial Closing, the following deliveries shall be made:

2

--------------------------------------------------------------------------------

 

     (a)       Series D-1 Preferred Stock. The Company shall deliver to Fletcher
six (6) stock certificates, each representing five thousand (5,000) shares of
Series D-1 Preferred Stock, duly executed by the Company in definitive form, and
shall register such shares in the stockholder register of the Company in the
name of Fletcher or as instructed by Fletcher in writing.

     (b)       Purchase Price. Fletcher shall cause to be wire transferred to
the Company, in accordance with the instructions set forth in Section 19, the
aggregate purchase price of thirty million dollars ($30,000,000) in immediately
available United States funds.

     (c)       Closing Documents. The closing documents required by Sections 13
and 14 shall be delivered to Fletcher and the Company, respectively.

     (d)       Delivery Notice. An executed copy of the delivery notice in the
form attached hereto as Annex C shall be delivered to Fletcher.

The deliveries specified in this Section 2 shall be deemed to occur
simultaneously as part of a single transaction, and no delivery shall be deemed
to have been made until all such deliveries have been made.

     3.       Subsequent Closing. Each Subsequent Closing shall take place
initially via facsimile on the Subsequent Closing Date in the manner set forth
below; provided, that, original certificates representing Additional Preferred
Shares shall be delivered via Federal Express or another reputable overnight
carrier to Fletcher as Fletcher instructs in writing. Each Subsequent Closing
shall be for an Additional Issuance Price (as hereinafter defined) of not less
than five million dollars ($5,000,000), unless the Additional Issuance Price for
all then remaining Fletcher Rights is less than five million dollars
($5,000,000), in which instance, such Subsequent Closing shall be for the
Additional Issuance Price for all such remaining Additional Preferred Shares. At
each Subsequent Closing, the following deliveries shall be made:

     (a)       Additional Preferred Shares. The Company shall issue and deliver
to Fletcher stock certificates, each representing five thousand (5,000)
Additional Preferred Shares (except that to the extent the number of Additional
Preferred Shares to be delivered is not evenly divisible by five thousand
(5,000), one (1) stock certificate shall represent the remaining shares), duly
executed by the Company, and shall register such shares in the stockholder
register of the Company in the name of Fletcher or as instructed by Fletcher in
writing.

     (b)       Purchase Price. Fletcher shall cause to be wire transferred to
the Company, in accordance with the instructions set forth in Section 19, one
thousand dollars ($1,000) per Additional Preferred Share, as specified in the
applicable Fletcher Notice (in the aggregate, the “Additional Issuance Price”)
payable on such Subsequent Closing Date, in immediately available United States
funds.

     (c)       Closing Documents. The closing documents required by Sections 13
and 14 shall be delivered to Fletcher and the Company, respectively.

3

--------------------------------------------------------------------------------

 

     (d)       Delivery Notice. An executed copy of the delivery notice in the
form attached hereto as Annex C shall be delivered to Fletcher.

The deliveries specified in this Section 3 shall be deemed to occur
simultaneously as part of a single transaction, and no delivery shall be deemed
to have been made until all such deliveries have been made.

     4.       Representations and Warranties of the Company. The Company hereby
represents and warrants to Fletcher on each Closing Date, as follows:

     (a)       The Company has been duly incorporated and is validly existing in
good standing under the laws of Delaware or, after the Initial Closing Date, if
another entity has succeeded the Company in accordance with the terms hereof,
under the laws of one of the states of the United States or the District of
Columbia.

     (b)       Except as otherwise contemplated by this Agreement, the
execution, delivery and performance of this Agreement, the Certificate of Rights
and Preferences and the Subsequent Certificates of Rights and Preferences
(including the authorization, sale, issuance and delivery of the Investment
Securities) have been duly authorized by all requisite corporate action and no
further consent or authorization of the Company, its Board of Directors or its
stockholders is required.

     (c)       This Agreement has been duly executed and delivered by the
Company and, when this Agreement is duly authorized, executed and delivered by
Fletcher, will be a valid and binding agreement enforceable against the Company
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors’ rights generally and to general principles of equity. The issuance of
the Investment Securities is not and will not be subject to any preemptive right
or rights of first refusal that have not been properly waived or complied with.

     (d)       The Company has full corporate power and authority necessary to
(i) own and operate its properties and assets, execute and deliver this
Agreement, (ii) perform its obligations hereunder and under the Certificate of
Rights and Preferences or Subsequent Certificates of Rights and Preferences
(including, but not limited to, the issuance of the Investment Securities) and
(iii) carry on its business as presently conducted and as presently proposed to
be conducted. The Company and its subsidiaries are duly qualified and are
authorized to do business and are in good standing as foreign corporations in
all jurisdictions in which the nature of their activities and of their
properties (both owned and leased) makes such qualification necessary, except
for those jurisdictions in which failure to do so would not, individually or in
the aggregate, be reasonably expected to have a material adverse effect on
(i) the business affairs, assets, results of operations or prospects of the
Company or any of its subsidiaries, or (ii) the transactions contemplated by, or
the Company’s ability to perform under, this Agreement, the Certificate of
Rights and Preferences or any Subsequent Certificate of Rights and Preferences.

4

--------------------------------------------------------------------------------

 

     (e)       No consent, approval, authorization or order of any court,
governmental agency or other body is required for execution and delivery by the
Company of this Agreement or the performance by the Company of any of its
obligations hereunder and under the Certificate of Rights and Preferences or
Subsequent Certificates of Rights and Preferences other than the approval of the
SEC of the Registration Statement to be filed pursuant to the terms hereof.

     (f)       Neither the execution and delivery by the Company of this
Agreement nor the performance by the Company of any of its obligations hereunder
and under the Certificate of Rights and Preferences or Subsequent Certificates
of Rights and Preferences:

     (i)       violates, conflicts with, results in a breach of, or constitutes
a default (or an event which with the giving of notice or the lapse of time or
both would be reasonably likely to constitute a default) or creates any rights
in respect of any Person (as defined below) under (A) the certificates of
incorporation or by-laws of the Company or any of its subsidiaries, (B) any
decree, judgment, order, law, treaty, rule, regulation or determination of any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company or any of its subsidiaries or any of their respective properties or
assets, (C) the terms of any bond, debenture, indenture, credit agreement, note
or any other evidence of indebtedness, or any agreement, stock option or other
similar plan, lease, mortgage, deed of trust or other instrument to which the
Company or any of its subsidiaries is a party, by which the Company or any of
its subsidiaries is bound, or to which any of the properties or assets of the
Company or any of its subsidiaries is subject, (D) the terms of any “lock-up” or
similar provision of any underwriting or similar agreement to which the Company
or any of its subsidiaries is a party or (E) any rule or regulation of the NASD
or the NYSE or any rule or regulation of the markets where the Company’s
securities are publicly traded or quoted applicable to the Company or the
transactions contemplated hereby; or

     (ii)       results in the creation or imposition of any lien, charge or
encumbrance upon any Investment Securities or upon any of the properties or
assets of the Company or any of its subsidiaries.

For the purposes of this Agreement, “Person” means an individual or a
corporation, partnership, trust, incorporated or unincorporated association,
limited liability company, joint venture, joint stock company, government (or an
agency or political subdivision thereof) or other entity of any kind.

     (g)       When issued to Fletcher against payment therefor, each Investment
Security:

     (i)       will have been duly and validly authorized, duly and validly
issued, fully paid and non-assessable;

5

--------------------------------------------------------------------------------

 

     (ii)       will be free and clear of any security interests, liens, claims
or other encumbrances; and

     (iii)       will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company.

     (h)       The Company satisfies all continued listing criteria of the NYSE.
No present set of facts or circumstances will (with the passage of time or the
giving of notice or both or neither) cause any of the Common Stock to be
delisted from the NYSE. All of the Common Shares will, when issued, be duly
listed and admitted for trading on all of the markets where shares of Common
Stock are traded, including the NYSE.

     (i)       There is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company
or any of its affiliates that would affect the execution by the Company of, or
the performance by the Company of its obligations under, this Agreement, the
Certificate of Rights and Preferences or Subsequent Certificates of Rights and
Preferences.

     (j)       Since January 1, 2002, none of the Company’s filings with the
United States Securities and Exchange Commission (the “SEC”) under the
Securities Act of 1933, as amended (the “Securities Act”) or under Section 13(a)
or 15(d) of the Exchange Act (each an “SEC Filing”), including the financial
statements and schedules of the Company and results of the Company’s operations
and cash flow contained therein, contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements, in the light of the circumstances under which they were made, not
misleading. Since January 1, 2004, there has not been any pending or, to the
best knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company or any of its subsidiaries that will or is
reasonably likely to result in a material adverse change in the condition,
financial or otherwise, or in the business affairs, assets, revenues, operations
or prospects of the Company and its subsidiaries, whether or not arising in the
ordinary course of business, except as disclosed in the Company’s SEC Filings on
or before the date immediately prior to and excluding the date hereof. Since the
date of the Company’s most recent SEC Filing, there has not been, and the
Company is not aware of, any development or condition that is reasonably likely
to result in, any material change in the condition, financial or otherwise, or
in the business affairs, assets, revenues, operations or prospects of the
Company and its subsidiaries, whether or not arising in the ordinary course of
business. The Company’s SEC Filings made before and excluding the Closing Date
fully disclose all material information concerning the Company and its
subsidiaries (other than the existence and terms of this Agreement).

     (k)       The offer and sale of the Investment Securities to Fletcher
pursuant to this Agreement will, subject to the accuracy of Fletcher’s
representations and warranties contained in Section 7 hereof and compliance by
Fletcher with the applicable covenants and agreements contained in Section 11
hereof, be made in accordance with an

6

--------------------------------------------------------------------------------

 

exemption from the registration requirements of the Securities Act and any
applicable state law. Neither the Company nor any agent on its behalf has
solicited or will solicit any offers to buy or has offered to sell or will offer
to sell all or any part of the Investment Securities or any other securities to
any Person or Persons so as to bring the sale of such Investment Securities by
the Company within the registration provisions of the Securities Act.

     (l)       Immediately prior to the Initial Closing Date, the authorized
capital stock of the Company consists of one hundred million (100,000,000)
shares of Common Stock, par value $0.01 per share and five million (5,000,000)
shares of preferred stock, par value $0.01 per share. As of February 11, 2005,
(A) 78,660,858 shares of Common Stock were issued and outstanding, and
21,146,490 shares of Common Stock are currently reserved and subject to issuance
upon the exercise of outstanding stock options, warrants or other convertible
rights, (B) 783,127 shares of Common Stock are held in the treasury of the
Company (including up to 62,564 shares of Common Stock currently held in the
treasury of the Company that may be issued under the Non-Employee Directors’
Retainer Plan), (C) no shares of preferred stock are issued and outstanding (but
100,000 shares of preferred stock are reserved for issuance as Series A
Preferred Stock pursuant to the Rights Agreement), (D) options to purchase up to
123,833 additional shares of Common Stock may be issued under the Amended and
Restated 1996 Non-Employee Director Stock Option Plan, (E) up to 507,652
additional shares of Common Stock may be issued under the Employee Stock
Purchase Plan, (F) up to 11,807 additional shares of restricted Common Stock may
be issued under the 1998 Restricted Stock Plan, (G) up to 76,073 additional
shares of restricted Common Stock may be issued under the 2000 Restricted Stock
Plan, (H) up to 8,750 additional shares of Common Stock may be issued under the
2004 Long-Term Incentive Plan, and (I) options to purchase up to 175,000
additional shares of Common Stock may be issued under the 2003 Stock Option
Plan. All of the outstanding shares of Common Stock are, and all shares of
capital stock which may be issued pursuant to outstanding stock options,
warrants or other convertible rights will be, when issued and paid for in
accordance with the respective terms thereof, duly authorized, validly issued,
fully paid and non-assessable, free of any preemptive rights in respect thereof
and issued in compliance with all applicable state and federal laws concerning
issuance of securities. As of the date hereof, except as set forth above or as
disclosed in writing in Schedule 4(l) attached hereto, and except for shares of
Common Stock or other securities issued upon conversion, exchange, exercise or
purchase associated with the securities, options, warrants, rights and other
instruments referenced above, no shares of capital stock or other voting
securities of the Company were outstanding, no equity equivalents, interests in
the ownership or earnings of the Company or other similar rights were
outstanding, and there were no existing options, warrants, calls, subscriptions
or other rights or agreements or commitments relating to the capital stock of
the Company or any of its subsidiaries or obligating the Company or any of its
subsidiaries to issue, transfer, sell or redeem any shares of capital stock, or
other equity interest in, the Company or any of its subsidiaries or obligating
the Company or any of its subsidiaries to grant, extend or enter into any such
option, warrant, call, subscription or other right, agreement or commitment.

7

--------------------------------------------------------------------------------

 

     (m)       Solvency. The sum of the assets of the Company, both at a fair
valuation and at present fair salable value, exceeds its liabilities, including
contingent liabilities. The Company has sufficient capital or access to capital
with which to conduct its business as presently conducted and as proposed to be
conducted. The Company has not incurred debt, and does not intend to incur debt,
beyond its ability to pay such debt as it matures. For purposes of this
paragraph, “debt” means any liability on a claim, and “claim” means (x) a right
to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured, or unsecured, or (y) a right to an equitable remedy
for breach of performance if such breach gives rise to a payment, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured. With respect to
any such contingent liabilities, such liabilities are computed at the amount
which, in light of all the facts and circumstances existing at the time,
represents the amount which can reasonably be expected to become an actual or
matured liability.

     (n)       Equivalent Value. As of the Initial Closing Date, the
consideration that the Company is receiving from Fletcher is equivalent in value
to the consideration Fletcher is receiving from the Company pursuant to this
Agreement. As of the Initial Closing Date, under the terms of this Agreement,
the Company is receiving fair consideration from Fletcher for the agreements,
covenants, representations and warranties made by the Company to Fletcher.

     (o)       No Non-Public Information. Fletcher has not requested from the
Company, and the Company has not furnished to Fletcher, any material non-public
information concerning the Company or its subsidiaries.

     (p)       Restatement Notices. As of each Subsequent Closing Date, the
Company has provided Fletcher with all Restatement Notices (as defined in the
Certificate of Rights and Preferences or Subsequent Certificates of Rights and
Preferences) required to be delivered following a Restatement (as defined in the
Certificate of Rights and Preferences or Subsequent Certificates of Rights and
Preferences).

     (q)       Amendment to Rights Agreement. The Company has taken all action
necessary to amend the Rights Agreement in the manner set forth in Annex K
hereto.

     5.       Registration Provisions; Authorized Share Increase.

     (a)       The Company shall, as soon as practicable and at its own expense,
but in no event later than March 31, 2005, file a Registration Statement (as
defined below) under the Securities Act covering the resale of all of the Common
Shares issuable upon conversion or redemption of or as dividends under the
Series D-1 Preferred Shares and under the Certificate of Rights and Preferences
and shall use its commercially reasonable efforts to cause such Registration
Statement (the “Initial Registration Statement”) to be declared effective on or
prior to the earlier of (i) June 15, 2005, or (ii)

8

--------------------------------------------------------------------------------

 

five (5) calendar days following the later of (A) the confirmation from the SEC
that the Initial Registration Statement will not be reviewed, and (B) the date
of stockholder approval of the Proposed Share Increase (the “Initial Required
Registration Date”). Pursuant to the preceding sentence, the Company shall
register pursuant to such Initial Registration Statement not less than the
number of shares of Common Stock equal to fifteen million, seven hundred
twenty-four thousand, three hundred and six (15,724,306) (the “Registrable
Number”). Upon the issuance of Additional Preferred Shares, the Company shall,
at its own expense and as promptly as practicable after (and in no event later
than fifteen (15) Business Days after and excluding) each Subsequent Closing
Date, file a registration statement or, if permitted by the rules and
regulations of the SEC, file a supplement to the prospectus contained in the
Initial Registration Statement (each such registration statement or prospectus
supplement, together with all amendments and supplements thereto and any
replacement registration statement with respect thereto or with respect to the
Common Shares covered thereby, a “Later Issuance Registration Statement”))
covering the resale of the Registrable Number of shares of Common Stock,
containing a prospectus that includes shares of Common Stock that may have been
previously registered on an earlier Registration Statement pursuant to Rule 429
under the Securities Act; provided, however, that if the Company is unable to
file a Later Issuance Registration Statement on or before the fifteenth Business
Day after and excluding a Subsequent Closing Date solely due to the Company’s
inability to satisfy the conditions set forth in subsection (c)(2) or (c)(3) of
Rule 3-01 under Regulation S-X (which inability is not the result of the
Company’s failure to timely file when due any document or report with the SEC,
including any annual report on Form 10-K or quarterly report on Form 10-Q), then
the Company shall be permitted to file such Later Issuance Registration
Statement as promptly as practicable after the Company is able to comply with
the requirements of Rule 3-01 of Regulation S-X (but in no event later than
seventy-five (75) days after the end of the fiscal year of the Company ended
most recently before such Subsequent Closing Date). The Company shall use its
best efforts to cause each Later Issuance Registration Statement to be declared
effective as soon as practicable, but not later than the earlier of (i) seventy
(70) calendar days following, and including, the Subsequent Closing Date or (ii)
five (5) calendar days following confirmation from the SEC that the Registration
Statement will not be reviewed (the “Subsequent Required Registration Date”).
Upon effectiveness of such Later Issuance Registration Statement, the Company
may withdraw the Initial Registration Statement or an earlier Later Issuance
Registration Statement, as applicable. The Company shall provide prompt written
notice to Fletcher if the SEC elects to review any Registration Statement. The
obligations to have any Registration Statement declared effective and to
maintain such effectiveness as provided in this Section 5 are referred to herein
as the “Registration Requirement.” The Company shall provide Fletcher with three
(3) Business Days to review and comment on any Registration Statement or
amendment thereto prior to filing, and the Company shall not file any
Registration Statement that Fletcher reasonably objects to.

     (b)       Each Common Share is a “Covered Security” and any registration
statement filed or required to be filed under the Securities Act in accordance
with Section 5(a) hereof, along with any amendments and additional registration
statements, including, without limitation, the Initial Registration Statement
and each Later Issuance Registration Statement, is referred to collectively as
the “Registration Statement”. The term “Required

9

--------------------------------------------------------------------------------

 

Registration Date” shall mean the date by which a Registration Statement must be
declared effective under this Agreement, including, without limitation, the
Initial Required Registration Date (with respect to the Initial Registration
Statement) and any Subsequent Required Registration Date (with respect to a
Later Issuance Registration Statement). The Company shall file any Registration
Statement on Form S-3, if available, otherwise on another available form and in
the meantime use its best efforts to file such Registration Statement on Form
S-3 as soon as it is available to the Company. The Company shall provide prompt
written notice to Fletcher when the Registration Statement has been declared
effective by the SEC.

     (c)       The Company will: (A) use its commercially reasonable efforts to
keep the Registration Statement effective until the earlier of (x) the later of
(i) the second anniversary of the issuance of the last Covered Security that may
be issued, or (ii) such time as all of the Covered Securities issued or issuable
hereunder can be sold by Fletcher or any of its affiliates immediately without
compliance with the registration requirements of the Securities Act pursuant to
Rule 144 under the Securities Act (“Rule 144”) and (y) the date all of the
Covered Securities issued or issuable shall have been sold by Fletcher and its
affiliates (such later period, the “Registration Period”); (B) prepare and file
with the SEC such amendments and supplements to the Registration Statement and
the prospectus used in connection with the Registration Statement (as so amended
and supplemented from time to time, the “Prospectus”) as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all Covered Securities by Fletcher or any of its affiliates with the prior
written approval of Fletcher and incorporate all such information relating to
the plan of distribution as Fletcher may reasonably request, and to use its best
efforts to cause such amendment or supplements to the Registration Statement and
the prospectus to be declared effective as soon as practicable after filing;
(C) furnish such number of Prospectuses and other documents incident thereto,
including any amendment of or supplement to the Prospectus, including all
exhibits and financial statements, as Fletcher from time to time may reasonably
request; (D) cause all Covered Securities to be listed on each securities
exchange and quoted on each quotation service on which similar securities issued
by the Company are then listed or quoted; (E) provide a transfer agent and
registrar for all Covered Securities and a CUSIP number for all Covered
Securities; (F) otherwise comply with all applicable rules and regulations of
the SEC, the NYSE and any other exchange or quotation service on which the
Covered Securities are obligated to be listed or quoted under this Agreement;
and (G) file the documents required of the Company and otherwise obtain and
maintain requisite blue sky clearance in (x) New York and all other
jurisdictions in which any of the shares of Common Stock were originally sold
and (y) all other states specified in writing by Fletcher, provided, however,
that as to this clause (y), the Company shall not be required to qualify to do
business or consent to service of process in any state in which it is not now so
qualified or has not so consented. Fletcher shall have the right to approve the
description of the selling stockholder, plan of distribution and all other
references to Fletcher and its affiliates contained in each Registration
Statement and Prospectus.

     (d)       The Company shall furnish to Fletcher upon request a reasonable
number of copies of a supplement to or an amendment of any Prospectus as may be

10

--------------------------------------------------------------------------------

 

necessary in order to facilitate the public sale or other disposition of all or
any of the Covered Securities by Fletcher or any of its affiliates pursuant to
the Registration Statement.

     (e)       With a view to making available to Fletcher and its affiliates
the benefits of Rule 144 and Form S-3 under the Securities Act, the Company
covenants and agrees to: (A) make and keep available adequate current public
information (within the meaning of Rule 144(c)) concerning the Company, until
the earlier of (x) the second (2nd) anniversary of the issuance of the last
Covered Security to be issued and (y) such date as all of the Covered Securities
shall have been resold by Fletcher or any of its affiliates; and (B) furnish to
Fletcher upon request, as long as Fletcher owns any Covered Securities, (x) a
written statement by the Company that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, (y) a copy of the most
recent annual or quarterly report of the Company, and (z) such other information
as may be reasonably requested in order to avail Fletcher and its affiliates of
Rule 144 or Form S-3 with respect to such Covered Securities.

     (f)       Notwithstanding anything else in this Section 5, if, at any time
during which a Prospectus is required to be delivered in connection with the
sale of any Covered Security, the Company determines in good faith and upon the
advice of its outside counsel that a development has occurred or a condition
exists as a result of which the Registration Statement or the Prospectus
contains a material misstatement or omission, or that a material transaction in
which the Company is engaged or proposes to engage would require an immediate
amendment to the Registration Statement, a supplement to the Prospectus, or a
filing under the Exchange Act or other public disclosure of material information
and the disclosure of such transaction would be premature or injurious to the
consummation of the transaction, the Company will immediately notify Fletcher
thereof by telephone and in writing. Upon receipt of such notification, Fletcher
and its affiliates will immediately suspend all offers and sales of any Covered
Security pursuant to the Registration Statement. In such event, the Company will
amend or supplement the Registration Statement and the Prospectus or make such
filings or public disclosures as promptly as practicable and will take such
other steps as may be required to permit sales of the Covered Securities
thereunder by Fletcher and its affiliates in accordance with applicable federal
and state securities laws. The Company will promptly notify Fletcher after it
has determined in good faith that such sales have become permissible in such
manner and will promptly deliver copies of the Registration Statement and the
Prospectus (as so amended or supplemented, if applicable) to Fletcher in
accordance with paragraphs (c) and (d) of this Section 5. Notwithstanding the
foregoing, (A) under no circumstances shall the Company be entitled to exercise
its right to suspend sales of any Covered Securities as provided in this Section
5(f) and pursuant to the Registration Statement more than twice in any twelve
(12) month period, (B) the period during which such sales may be suspended (each
a “Blackout Period”) at any time shall not exceed thirty (30) calendar days, and
(C) no Blackout Period may commence less than thirty (30) calendar days after
the end of the preceding Blackout Period.

11

--------------------------------------------------------------------------------

 

     (g)       Upon the commencement of a Blackout Period pursuant to this
Section 5, Fletcher will notify the Company of any contract to sell, assign,
deliver or otherwise transfer any Covered Security (each a “Sales Contract”)
that Fletcher or any of its affiliates has entered into prior to the
commencement of such Blackout Period and that would require delivery of such
Covered Securities during such Blackout Period, which notice will contain the
aggregate sale price and quantity of Covered Securities pursuant to such Sales
Contract. Upon receipt of such notice, the Company will immediately notify
Fletcher of its election either to (i) terminate the Blackout Period and, as
promptly as practicable, amend or supplement the Registration Statement or the
Prospectus in order to correct the material misstatement or omission and deliver
to Fletcher copies of each amended or supplemented Registration Statement and
Prospectus in accordance with paragraphs (c) and (d) of this Section 5, or
(ii) continue the Blackout Period in accordance with this paragraph. If the
Company elects to continue the Blackout Period (or the Company elects to
terminate the Blackout Period, but the Blackout Period is not terminated before
the latest date that Fletcher may consummate the transaction contemplated by the
Sales Contract), and Fletcher or any of its affiliates are therefore unable to
consummate the sale of Covered Securities pursuant to the Sales Contract, the
Company will promptly indemnify each Fletcher Indemnified Party (as such term is
defined in Section 17(a) below) against any Proceeding (as such term is defined
in Section 17(a) below) that each Fletcher Indemnified Party may incur arising
out of or in connection with Fletcher’s breach or alleged breach of any such
Sales Contract, and the Company shall reimburse each Fletcher Indemnified Party
for any reasonable costs or expenses (including legal fees) incurred by such
party in investigating or defending any such Proceeding.

     (h)       In addition to any other remedies available to Fletcher under
this Agreement or at law or equity, if any Registration Statement has not been
declared effective by the Required Registration Date or such Registration
Statement is not available with respect to all Covered Securities at any time on
or after the Required Registration Date (except during a Blackout Period
permitted under Section 5(f)) the Company shall cause to be wire transferred to
an account specified by Fletcher on the last Business Day of each month an
amount, in immediately available United States funds, equal to:

1/15% x ND x SV

     Where:

  ND =   the number of days in such month that the Registration Statement has
not been declared effective by the Required Registration Date or such
Registration Statement is not available with respect to shares of Covered
Securities that may not otherwise be sold by Fletcher or any of its affiliates
immediately pursuant to Rule 144 without compliance with the registration
requirements of the Securities Act (“Non-Rule 144 Stock”); and

12

--------------------------------------------------------------------------------

 

  SV =    the aggregate Stated Value (as defined in the Certificate of Rights
and Preferences and all Subsequent Certificates of Rights and Preferences) of
the average number of shares of Non-Rule 144 Stock issued and outstanding on
each of the days included in “ND” above.

     (i)       If the Registration Requirement is not satisfied at any point in
time during the Registration Period then the Fletcher Rights Period shall be
extended by one (1) day for each day (or portion thereof) that the Registration
Requirement shall have not been satisfied.

     (j)       The Company shall not grant any right of registration under the
Securities Act relating to any of its securities to any Person other than
Fletcher if such rights conflict with the rights of Fletcher under this
Agreement.

     (k)       The Company shall take all action necessary in accordance with
applicable law and the Company’s certificate of incorporation and bylaws to duly
call and hold a meeting of the Company’s stockholders (the “Company Meeting”)
for the purpose of considering and voting upon a proposal to amend the Restated
Certificate of Incorporation of the Company to increase the number of shares of
Common Stock authorized for issuance by the Company to a number of shares
sufficient to satisfy the requirements of the Company, including, without
limitation, to satisfy the Company’s obligations to reserve shares of Common
Stock under this Agreement, and in no event to less than two hundred million
(200,000,000) shares (the “Proposed Share Increase”). The Company shall take all
action necessary to hold the Company Meeting on or prior to May 5, 2005,
including the filing of a proxy statement with the SEC (which proxy statement
shall include the recommendation of the Company’s board of directors that
stockholders approve the Proposed Share Increase). The board of directors of the
Company will recommend that the Company’s stockholders vote in favor of approval
of the Proposed Share Increase (and not withdraw its recommendation) and the
Company will use its best efforts to solicit from its stockholders proxies in
favor of such approval and take all other action necessary or advisable to
secure the vote of the stockholders of the Company required by applicable law,
the Company’s Restated Certificate of Incorporation or bylaws or otherwise to
effect the Proposed Share Increase. The Company shall not require any vote
greater than a majority of the outstanding shares of capital stock of the
Company entitled to vote thereon, and a majority of the outstanding stock of
each class entitled to vote thereon as a class, for approval of the Proposed
Share Increase. Upon approval of the Proposed Share Increase, the Company shall
take all action necessary to reserve an aggregate of fifteen million, seven
hundred twenty-four thousand, three hundred and six (15,724,306) shares of
Common Stock.

     6.       Conversion and Redemption of Preferred Shares.

     (a)       The Initial Preferred Shares and Additional Preferred Shares are
convertible into Common Shares and redeemable into Common Shares or cash in
accordance with the terms and conditions set forth in Section 6 of the
Certificate of Rights and Preferences and Subsequent Certificates of Rights and
Preferences. The

13

--------------------------------------------------------------------------------

 

Company grants Fletcher the right to convert all or part of each series of
Series D Preferred Shares (including any accrued and unpaid dividends) pursuant
to the terms and conditions set forth in the Certificate of Rights and
Preferences or Subsequent Certificate of Rights and Preferences of each such
series, upon delivery of a “Preferred Stock Conversion Notice” in the form
attached hereto as Annex D. As set forth in the Certificate of Rights and
Preferences or Subsequent Certificate of Rights and Preferences of each such
series, the Company may satisfy its conversion obligations only by delivering
shares of Common Stock. The form of the “Preferred Stock Conversion Delivery
Notice” to be executed and delivered by the Company to Fletcher, as specified in
the Certificate of Rights and Preferences or Subsequent Certificate of Rights or
Preferences is attached hereto as Annex E. The Company grants Fletcher the right
to redeem all or part of each series of Series D Preferred Shares (including any
accrued and unpaid dividends) pursuant to the terms and conditions set forth in
the Certificate of Rights and Preferences or Subsequent Certificate of Rights
and Preferences of each such series, commencing February 15, 2007 (or sooner
under certain circumstances set forth therein), upon delivery of a notice of
redemption in the form attached hereto as Annex F (the “Redemption Notice”). As
set forth in the Certificate of Rights and Preferences or Subsequent Certificate
of Rights or Preferences of each such series, the Company may satisfy its
redemption obligations by delivering shares of Common Stock, cash or, subject to
Section 6(a)(i), resetting the Conversion Prices of the Series D-1 Preferred
Stock and Additional Preferred Shares. The form of the “Preferred Stock
Redemption Delivery Notice” to be executed and delivered by the Company to
Fletcher, as specified in the Certificate of Rights and Preferences or
Subsequent Certificate of Rights and Preferences is attached hereto on Annex G.

     (i)       If the 20-Day Average Price (as defined in the Certificate of
Rights and Preferences) is less than the Minimum Price (as defined below) on any
date after and excluding August 12, 2005, then (A) the Company shall provide
Fletcher within two (2) Business Days with a written notice that either (1)(a)
the Company shall satisfy all its future redemption obligations in a combination
of Common Stock and cash, or solely in cash, as elected by the Company in such
notice, and (b) following such notice, notwithstanding anything herein to the
contrary, if a Restatement (as defined in the Certificate of Rights and
Preferences and Subsequent Certificates of Rights and Preferences) is required
due to a material change in the financial statements of the Company on or after
the date hereof, then Fletcher shall have the right to cause the redemption of
its Preferred Shares and Additional Preferred Shares, from time to time, in
whole or in part, thereafter, or (2) that the Conversion Prices on all Preferred
Shares and Additional Preferred Shares shall thereafter be equal to the Minimum
Price and all Conversion Prices of future Additional Preferred Shares to be
issued shall thereafter be equal to the Minimum Price, and upon delivery of such
notice such Conversion Prices shall thereafter be equal to the Minimum Price and
Fletcher shall have no further right to cause the redemption of its Preferred
Shares or Additional Preferred Shares thereafter, and (B) the Company shall pay
all dividends in cash and not by the issuance of Common Stock (an “Issuance
Blockage”). If the Company shall fail to deliver the written notice in the
manner or by the date provided for in the preceding sentence, or if, in such
written notice,

14

--------------------------------------------------------------------------------

 

the Company shall fail to make the election provided for in subsection (A)(1)(a)
of the preceding sentence, then the Company shall satisfy all its future
redemption obligations in a combination of Common Stock and cash and shall pay
all dividends in cash and not by the issuance of Common Stock. Notwithstanding
the foregoing, in no event shall the total number of shares of Common Stock
issued or issuable hereunder exceed fifteen million, seven hundred twenty-four
thousand, three hundred and six (15,724,306) shares (except that in the event of
a Change of Control, the total number of shares of common stock of the Acquiring
Person issued or issuable hereunder shall not exceed a number equal to nineteen
and ninety-nine one hundredths percent (19.99%) of the outstanding common stock
of the Acquiring Person) and if such number of shares has been issued, then the
Company or the Acquiring Person, as the case may be, shall satisfy all
unsatisfied redemption obligations solely in cash.

     (ii)       The “Minimum Price” shall initially equal $4.4517, provided,
that, in the event of a Change of Control, the Minimum Price shall equal an
amount equal to seventy million dollars ($70,000,000) divided by nineteen and
ninety-nine one hundredths percent (19.99%) of the outstanding common stock of
the Acquiring Person. Upon the payment of dividends in, or the conversion or
redemption of any Preferred Shares or Additional Preferred Shares for, Common
Stock, the Minimum Price shall be reset to equal:

$70,000,000 – FV – XR
OC – DS – CS

     Where:

     
FV =
  the aggregate face value of all Preferred Shares and Additional Preferred
Shares that have been converted or redeemed for Common Stock;
 
   
XR =
  one thousand dollars ($1,000) times the number of Additional Preferred Shares
that had been potentially issuable under expired and unexercised Fletcher
Rights;
 
   
DS =
  the aggregate number of shares of Common Stock issued in payment of dividends
to and including such date;
 
   
CS =
  the aggregate number of shares of Common Stock issued upon conversion or
redemption of Preferred Shares or Additional Preferred Shares to and including
such date; and
 
   
OC =
  fifteen million, seven hundred twenty-four thousand, three hundred and six
(15,724,306), provided that in the event of a Change of Control, OC shall equal
nineteen and ninety-nine one hundredths percent (19.99%) of the outstanding
common stock of the Acquiring Person as of immediately after the consummation of
the Change of Control.

15

--------------------------------------------------------------------------------

 

     (b)       The aggregate number of shares of Common Stock issued, as of a
particular date, upon conversion or redemption of, or as dividends paid on the
Series D Preferred Shares owned by Fletcher and issuable pursuant to this
Agreement shall not exceed the Maximum Number as of that date. The “Maximum
Number” shall initially equal seven million, six hundred sixty-nine thousand,
four hundred thirty-four (7,669,434), or, in the event of a Change of Control,
shall equal nine and three-fourths percent (9.75%) of the outstanding common
stock of the Acquiring Person as of immediately after the consummation of the
Change of Control, and may be increased upon expiration of a 65-day notice
period (the “Notice Period”) after Fletcher delivers a notice (a “65 Day
Notice”) to the Company designating a greater Maximum Number. A 65 Day Notice
may be given at any time. From time to time following the Notice Period, Common
Stock may be issued to Fletcher for any quantity of Common Stock, such that the
aggregate number of shares of Common Stock issued hereunder is less than or
equal to the Maximum Number.

     7.       Representations and Warranties of Fletcher. Fletcher hereby
represents and warrants to the Company on each Closing Date:

     (a)       Fletcher has been duly incorporated and is validly existing under
the laws of Bermuda.

     (b)       The execution, delivery and performance of this Agreement by
Fletcher have been duly authorized by all requisite corporate action and no
further consent or authorization of Fletcher, its Board of Directors or its
stockholders is required. This Agreement has been duly executed and delivered by
Fletcher and, when duly authorized, executed and delivered by the Company, will
be a valid and binding agreement enforceable against Fletcher in accordance with
its terms, subject to bankruptcy, insolvency, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors’ rights
generally and to general principles of equity.

     (c)       Fletcher understands that no United States federal or state
agency has passed on, reviewed or made any recommendation or endorsement of the
Investment Securities.

     (d)       Fletcher is an “accredited investor” as such term is defined in
Regulation D promulgated under the Securities Act.

     (e)       Fletcher is purchasing the Investment Securities for its own
account for investment only and not with a view to, or for resale in connection
with, the public sale or distribution thereof in the United States, except
pursuant to sales registered under the Securities Act or an exemption therefrom.

16

--------------------------------------------------------------------------------

 

     (f)       Fletcher understands that the Investment Securities are being or
will be offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying on the truth and accuracy of, and Fletcher’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of Fletcher set forth herein in order to determine the
availability of such exemptions and the eligibility of Fletcher to acquire the
Investment Securities.

     8.       Future Equity Issuances. If, within twenty (20) Business Days
following the Initial Closing Date, there is (i) a public disclosure of the
Company’s intention or agreement to engage in, or (ii) a consummation of, any
sale or issuance to any Person or Persons (other than Fletcher or its
affiliates) of any shares of, or securities convertible into, exercisable or
exchangeable for, or whose value is derived in whole or in part from, any shares
of any class of the Company’s capital stock, then the Company shall promptly
notify Fletcher of such disclosure or such consummation, which notice shall
include a copy of such disclosure or the terms and date of such consummation
(the “Equity Issuance Notice”; provided that the Company shall not be required
to deliver an Equity Issuance Notice upon the occurrence of the any of the
following (A) a sale or issuance to the sellers of any business or assets of a
business being purchased by the Company in a bona fide acquisition whether
through purchase, merger, consolidation, exchange offer or otherwise, (B) a bona
fide sale or issuance to any strategic or joint venture partner, the primary
purpose of which is not the equity financing of the Company, (C) issuances
pursuant to any stock split, dividend or distribution payable in additional
shares of capital stock to holders of Common Stock, (D) sales or issuances to
employees, consultants or directors of the Company directly or pursuant to a
stock option plan, employee stock purchase plan or restricted stock plan, or
other similar arrangements related to compensation for services in effect on the
date of this Agreement, or similar plans, contracts or arrangements approved by
the Company’s Board of Directors after the date hereof, in each case in the
ordinary course of business consistent with past practices, (E) issuances issued
upon the exercise of any options or warrants to purchase capital stock
outstanding on the date hereof, in each case in accordance with the terms of
such options, warrants or securities in effect on the date hereof, (F) issuances
in connection with the exercise of triggering of a “poison pill” or similar
anti-takeover mechanism or (G) Common Shares issued or issuable pursuant to this
Agreement or upon the exercise of any Fletcher Rights. After the delivery of an
Equity Issuance Notice, Fletcher shall have the right, at its sole discretion,
to deliver a notice to the Company (a “Price Adjustment Notice”) no later than
five (5) Business Days after and excluding the date the Equity Issuance Notice
is delivered; provided, however, if the closing of such transaction occurs at a
later date, Fletcher shall have the right, at its sole discretion, to deliver a
new Price Adjustment Notice or replace an existing Price Adjustment Notice no
later than five (5) Business Days after such closing date. If Fletcher delivers
a Price Adjustment Notice to the Company, then the Conversion Price (as defined
in the Certificate of Rights and Preferences) shall be reset to equal one
hundred twenty-two percent (122%) of the Daily Market Price (as defined
therein), calculated as of the Business Day immediately preceding the date of
delivery of such Price Adjustment Notice.

17

--------------------------------------------------------------------------------

 

     9.       Covenants of the Company. The Company covenants and agrees with
Fletcher as follows:

     (a)       For so long as Fletcher owns or has the right to purchase any
Investment Securities, and for a period of one (1) year thereafter, the Company
will (i) maintain the eligibility of the Common Stock for listing on the New
York Stock Exchange; (ii) regain the eligibility of the Common Stock for listing
or quotation on all markets and exchanges including the New York Stock Exchange
in the event that the Common Stock is delisted by the New York Stock Exchange or
any other applicable market or exchange; (iii) obtain a listing on another
national securities exchange or Nasdaq’s National Market System if the Common
Stock is delisted by the New York Stock Exchange; and (iv) cause the
representations and warranties contained in Section 4 to be and remain true and
correct, except those representations and warranties which address matters only
as of a particular date, which shall be true and correct as of such date.

     (b)       If a Restatement (as defined in the Certificate of Rights and
Preferences and Subsequent Certificates of Rights and Preferences) occurs, the
Company shall deliver to Fletcher a Restatement Notice (as defined in the
Certificate of Rights and Preferences and Subsequent Certificates of Rights and
Preferences) within three (3) Business Days of such Restatement.

     (c)       The Company will provide Fletcher with a reasonable opportunity,
which shall not be less than two (2) full Business Days, to review and comment
on any public disclosure by the Company of information regarding this Agreement
and the transactions contemplated hereby, before such public disclosure.

     (d)       The Company will make all filings required by law with respect to
the transactions contemplated hereby.

     (e)       The Company will comply with the terms and conditions of the
Series D Preferred Shares as set forth in the Certificate of Rights and
Preferences and Subsequent Certificates of Rights and Preferences, and will not
amend the Certificate of Rights and Preferences or Subsequent Certificates of
Rights and Preferences without the required consent of the holders of Series D
Preferred Shares.

     (f)       For so long as Fletcher owns any Investment Securities, within
five (5) Business Days after the filing of each of its quarterly reports on Form
10-Q with the SEC, the Company shall deliver to Fletcher a certificate of the
Chief Executive Officer and Chief Financial Officer of the Company stating that,
based on their knowledge, the final consolidated unaudited financial statements
including the footnotes thereto contained therein fairly present in all material
respects the financial condition in conformity with accounting principles
generally accepted in the United States, results of operations and cash flows of
the Company as of and for the periods presented therein.

     (g)       The Company shall use its commercially reasonable efforts to
cause the Common Shares to be eligible for book-entry transfer through The
Depository

18

--------------------------------------------------------------------------------

 

Trust Company (or any successor thereto) as soon as practicable after the date
of this Agreement and thereafter to use its commercially reasonable efforts to
maintain such eligibility.

     (h)       Subject to the satisfaction of the matters described in Section
5(k) of this Agreement, the Company shall at all times reserve for issuance such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all such Series D Preferred Shares and to satisfy its
delivery obligation upon such conversion, to effect the redemption of the
Series D Preferred Shares and to satisfy its delivery obligation upon such
redemption and to satisfy its delivery obligation with respect to dividends.

     (i)       The Company shall, (i) when the number of shares of Common Stock
outstanding is at least two hundred and fifty thousand (250,000) shares greater
than the number of shares of Common Stock outstanding as designated in the
previous Increase Notice (as hereinafter defined), or (ii) in the event that the
Company has not delivered an Increase Notice, when the number of shares of
Common Stock outstanding is at least two hundred and fifty thousand (250,000)
shares greater than the number of shares of Common Stock specified in Section
4(l), deliver a notice (an “Increase Notice”) stating (x) the increase, if any,
in the aggregate number of shares of Common Stock outstanding as of the last day
of the preceding month over the number outstanding as of the last day of the
month of the preceding Increase Notice, or (y) in the event that the Company has
not delivered a prior Increase Notice, the increase, if any, in the aggregate
number of shares of Common Stock outstanding as of the last day of the preceding
month over number of shares outstanding specified in Section 4(l). Unless
expressly waived by Fletcher, the Company shall deliver an Increase Notice to
Fletcher on or before the tenth (10th) day of any calendar month for which an
Increase Notice is required to be delivered pursuant to this sub-section.

     (j)       The Company shall, within one (1) Business Day after and
excluding each Closing Date, publicly distribute a press release disclosing the
material terms of such Initial Closing or Subsequent Closing and shall, within
three (3) Business Days after and excluding each Closing Date file a report with
the SEC on Form 8-K with respect to the same.

     (k)       As soon as practicable after filing with the SEC, the Company
shall furnish to Fletcher (i) a true, correct and complete copy of a report of
Pricewaterhouse Coopers LLP together with accompanying consolidated financial
statements and schedules of the Company at December 31, 2004 and the results of
the Company’s operations and cash flows for the one (1) year period ended
December 31, 2004, certified by Pricewaterhouse Coopers LLP, and (ii) the
written consent of Pricewaterhouse Coopers LLP to furnishing such report as
described in clause (i) above.

     (l)       The Company shall not amend or otherwise modify the Rights
Agreement, dated as of January 17, 1997, by and between the Company and Harris
Trust and Savings Bank, as Rights Agent or any successor or similar agreement
(each, a “Rights Agreement”) in any manner such that Fletcher would become (or
after the

19

--------------------------------------------------------------------------------

 

exercise of any or all of Fletcher’s rights hereunder or under the Certificate
of Rights and Preferences or any Subsequent Certificate of Rights and
Preferences, including exercise of the Fletcher Rights and conversion or
redemption of the Series D Preferred Shares, could become) an Acquiring Person
(as defined under the Rights Agreement) or that would in any other manner
adversely affect Fletcher as compared with all other beneficial owners of the
Company’s equity securities.

     10.       Change of Control. If the Company is a party to any transaction
which results in a Change of Control, Fletcher and its assigns shall have the
rights set forth in the Certificate of Rights and Preferences and Subsequent
Certificates of Rights and Preferences regarding Changes of Control in addition
to the rights contained in this Agreement. The Company agrees that it will not
enter into an agreement with an Acquiring Person resulting in a Change of
Control unless such agreement expressly obligates the Acquiring Person to assume
all of the Company’s obligations under this Agreement, the Certificate of Rights
and Preferences and the Subsequent Certificates of Rights and Preferences
including, but not limited to, the dividend, liquidation, conversion,
redemption, voting, share registration and other provisions regarding the
Series D Preferred Shares, the Fletcher Rights and Common Stock contained herein
and therein and thereafter all references to the Company herein shall be deemed
to be references to the Acquiring Person. Without limiting the foregoing, the
Company shall cause all unexercised and unexpired Fletcher Rights to be
converted into, and appropriate adjustments will be made to ensure that the
holder of the Fletcher Rights will receive, equivalent rights with respect to
the Acquiring Person including, but not limited to, the right to receive the
equivalent of the Additional Preferred Shares issuable upon the exercise of such
rights, and the right to receive the consideration for such Additional Preferred
Shares set forth in Section 6(F) of the Subsequent Certificate of Rights and
Preferences governing such series of Additional Preferred Shares.

     (a)       The Fletcher Rights shall become exercisable immediately on and
after the date a public announcement is made of the Company’s or any other
Person’s intention or agreement to engage in a transaction or series of
transactions that may result in a Change of Control.

     (b)       On or before the date an agreement is entered into with an
Acquiring Person resulting in a Change of Control, the Company shall deliver to
Fletcher written notice that the Acquirer has assumed such obligations. The
Company shall provide Fletcher with written notice of any proposed transaction
resulting in a Change of Control as soon as the existence of such proposed
transaction is made public by any Person. Thereafter, the Company shall notify
Fletcher promptly of any material developments with respect to such transaction,
including advance notice at least ten (10) Business Days before the date such
transaction is expected to become effective.

     (c)       “Change of Control” means (a) acquisition of the Company by means
of merger or other form of corporate reorganization in which outstanding shares
of the Company are exchanged for securities or other consideration issued, or
caused to be issued, by the Acquiring Person (as hereinafter defined) or its
Parent, Subsidiary or affiliate, other than a restructuring by the Company where
outstanding shares of the Company are exchanged for shares of the Acquiring
Person on a one-for-one basis and,

20

--------------------------------------------------------------------------------

 

immediately following the exchange, former stockholders of the Company own all
of the outstanding shares of the Acquiring Person on the same pro rata basis as
prior to the exchange, (b) a sale of all or substantially all of the assets of
the Company (on a consolidated basis) in a single transaction or series of
related transactions, (c) any other transaction or series of related
transactions by the Company in which the power to cast the majority of the
eligible votes at a meeting of the Company’s stockholders at which directors are
elected is transferred to a single entity or group acting in concert, or (d) a
capital reorganization or reclassification of the Common Stock or Other
Securities (as defined in the Certificate of Rights and Preferences and
Subsequent Certificates of Rights and Preferences) (other than a reorganization
or reclassification in which the Common Stock or Other Securities are not
converted into or exchanged for cash or other property, and, immediately after
consummation of such transaction, the stockholders of the Company immediately
prior to such transaction own the Common Stock, Other Securities or other voting
stock of the Company in substantially the same proportions relative to each
other as such stockholders owned immediately prior to such transaction).
Notwithstanding anything contained herein to the contrary, the change in the
state of incorporation of the Company shall not in and of itself constitute a
Change of Control.

     (d)       “Acquiring Person” means, in connection with any Change of
Control, (a) the continuing or surviving Person of a consolidation or merger
with the Company (if other than the Company), (b) the transferee of all or
substantially all of the properties or assets of the Company, (c) the
corporation consolidating with or merging into the Company in a consolidation or
merger in connection with which the Common Stock is changed into or exchanged
for stock or other securities of any other Person or cash or any other property,
(d) the entity or group acting in concert acquiring or possessing the power to
cast the majority of the eligible votes at a meeting of the Company’s
stockholders at which directors are elected, or, (e) in the case of a capital
reorganization or reclassification, the Company, or (f) at Fletcher’s election,
any Person that (i) controls the Acquiring Person directly or indirectly through
one or more intermediaries, (ii) is required to include the Acquiring Person in
the consolidated financial statements contained in such Parent’s Annual Report
on Form 10-K (if such Person is required to file such a report) or would be
required to so include the Acquiring Person in such Person’s consolidated
financial statements if they were prepared in accordance with U.S. GAAP and
(iii) is not itself included in the consolidated financial statements of any
other Person (other than its consolidated subsidiaries).

     11.       Covenants of Fletcher. Fletcher hereby covenants and agrees with
the Company that:

     (a)       Neither Fletcher, nor any of its affiliates, will at any time
offer or sell any Investment Securities other than pursuant to an effective
registration statement under the Securities Act or pursuant to an available
exemption therefrom.

     (b)       Neither Fletcher, nor any of its affiliates, shall engage in
“short sales” (as such term is defined by Exchange Act Rule 3b-3) of Common
Stock, it being understood that nothing in this Agreement shall prohibit
Fletcher or any of its affiliates from engaging in any transaction in any stock
index, portfolio or derivative of which

21

--------------------------------------------------------------------------------

 

Common Stock is a component. This Section 11(b) shall be deemed to extend only
to Fletcher, Fletcher’s affiliates or any Person who purchases the Fletcher
Rights for value, provided that this Section 11(b) shall not apply to (i) any
Person with a class of equity securities registered pursuant to Section 12 of
the Exchange Act, (ii) any nonprofit, charitable or educational organization or
(iii) any bona fide pledgee or financing counterparty who acquires the Fletcher
Rights upon a default, foreclosure or similar event.

     12.       Legend. Subject to Section 5, Fletcher understands that the
certificates or other instruments representing the Investment Securities shall
bear a restrictive legend composed of exactly the following words (and a stop
transfer order may be placed against transfer of such certificates or other
instruments):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED UNLESS (1) THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, OR
(2) THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR ANOTHER APPLICABLE EXEMPTION
UNDER THE SECURITIES ACT. THE RELATIVE RIGHTS AND PREFERENCES OF THE SERIES D
CUMULATIVE PREFERRED STOCK OF THE COMPANY ARE DESCRIBED IN A CERTIFICATE THEREOF
FILED WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE, A COPY OF WHICH IS
AVAILABLE FROM THE COMPANY BY CONTACTING THE GENERAL COUNSEL OF THE COMPANY.

     The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to any holder of Investment Securities if,
unless otherwise required by state securities laws, such shares are sold
pursuant to an effective Registration Statement under the Securities Act,
Rule 144 or another applicable exemption from registration.

     13.       Conditions Precedent to Fletcher’s Obligations. The obligations
of Fletcher hereunder are subject to the performance by the Company of its
obligations hereunder and to the satisfaction of the following additional
conditions precedent, unless expressly waived in writing by Fletcher:

     (a)       On each Closing Date, (i) the representations and warranties made
by the Company in this Agreement shall be true and correct, except those
representations and warranties which address matters only as of a particular
date, which shall be true and correct as of such date; (ii) the Company shall
have complied fully with all of the covenants and agreements in this Agreement;
and (iii) Fletcher shall have received (A) on the Initial Closing Date a
certificate of the Chief Executive Officer and the Chief Financial Officer of
the Company dated such date and to such effect and (B) on each Subsequent
Closing Date a certificate of the Chief Executive Officer and the Chief
Financial Officer of the Company dated such date and to such effect.

22

--------------------------------------------------------------------------------

 

     (b)       On each Closing Date, the Company shall have delivered to
Fletcher an opinion of David L. Roland, Vice President-General Counsel and
Corporate Secretary of the Company, reasonably satisfactory to Fletcher, dated
the date of delivery, confirming in substance the matters covered by paragraphs
(a), (b), (c) with respect to matters other than enforceability, (d), (f) (other
than with respect to clause (i)(E) thereof), (g) and (l) of Section 4 hereof. On
each Closing Date, the Company shall have delivered to Fletcher an opinion of
Fulbright & Jaworski L.L.P. reasonably satisfactory to Fletcher, dated the date
of delivery, confirming in substance the matters regarding enforceability
covered in paragraph (c) and matters covered in paragraph (e), clause (i)(E) of
paragraph (f) and the first grammatical sentence of paragraph (k) of Section 4
hereof.

     (c)       On each Subsequent Closing Date, Fletcher shall receive a report
of Pricewaterhouse Coopers LLP, or another nationally-recognized accounting
firm, together with the accompanying consolidated financial statement and
schedules of the Company and results of the Company’s operations and cash flows,
as such report appears in the most recent Form 10-K filed by the Company with
the SEC.

     (d)       On the Initial Closing Date, the Registrable Number shall be duly
listed and admitted for trading on the New York Stock Exchange, subject to
notice of issuance.

     (e)       On or before the Initial Closing Date, the Company shall have
filed with the Delaware Secretary of State the Certificate of Rights and
Preferences. On or before each Subsequent Closing Date, the Company shall have
filed with the Delaware Secretary of State a Subsequent Certificate of Rights
and Preferences, with terms and conditions of the applicable series of
Additional Preferred Shares as required by this Agreement.

     14.       Conditions Precedent to the Company’s Obligations. The
obligations of the Company hereunder are subject to the performance by Fletcher
of its obligations hereunder and to the satisfaction (unless expressly waived in
writing by the Company) of the additional conditions precedent that, on each
Closing Date: (i) the representations and warranties made by Fletcher in this
Agreement shall be true and correct; (ii) Fletcher shall have complied fully
with all the covenants and agreements in this Agreement; and (iii) the Company
shall have received on each such date a certificate of an appropriate officer of
Fletcher dated such date and to such effect.

     15.       Fees and Expenses. Each of Fletcher and the Company agrees to pay
its own expenses incident to the performance of its obligations hereunder,
including, but not limited to the fees, expenses and disbursements of such
party’s counsel, except as is otherwise expressly provided in this Agreement.
Notwithstanding the foregoing, the Company shall pay all fees and expenses
associated with the filing of any Registration Statement, including, without
limitation, all fees and expenses associated with any NASD filing, if
applicable.

     16.       Non-Performance.

23

--------------------------------------------------------------------------------

 

     (a)       If the Company, at any time, shall fail to deliver the Investment
Securities to Fletcher required to be delivered pursuant to this Agreement, in
accordance with the terms and conditions of this Agreement, the Certificate of
Rights and Preferences and the Subsequent Certificates of Rights and
Preferences, for any reason other than the failure of any condition precedent to
the Company’s obligations hereunder or the failure by Fletcher to comply with
its obligations hereunder, then the Company shall (without limitation to
Fletcher’s other remedies at law or in equity):

     (i)       indemnify and hold Fletcher harmless against any loss, claim or
damage (including without limitation, incidental and consequential damages)
arising from or as a result of such failure by the Company; and

     (ii)       reimburse Fletcher for all of its reasonable out-of-pocket
expenses, including fees and disbursements of its counsel, incurred by Fletcher
in connection with this Agreement and the transactions contemplated herein and
therein.

     17.       Indemnification.

     (a)       Indemnification of Fletcher. The Company hereby agrees to
indemnify Fletcher and each of its officers, directors, employees, consultants,
agents, attorneys, accountants and affiliates and each Person that controls
(within the meaning of Section 20 of the Exchange Act) any of the foregoing
Persons (each a “Fletcher Indemnified Party”) against any claim, demand, action,
liability, damages, loss, cost or expense (including, without limitation,
reasonable legal fees and expenses incurred by such Fletcher Indemnified Party
in investigating or defending any such proceeding) (all of the foregoing,
including associated costs and expenses being referred to herein as a
“Proceeding”), that it may incur in connection with any of the transactions
contemplated hereby arising out of or based upon:

     (i)       any untrue or alleged untrue statement of a material fact in a
SEC Filing by the Company or any of its affiliates or any Person acting on its
or their behalf or omission or alleged omission to state therein any material
fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading by the Company or any
of its affiliates or any Person acting on its or their behalf;

     (ii)       any of the representations or warranties made by the Company
herein being untrue or incorrect at the time such representation or warranty was
made; and

     (iii)       any breach or non-performance by the Company of any of its
covenants, agreements or obligations under this Agreement, the Certificate of
Rights and Preferences and the Subsequent Certificates of Rights and
Preferences;

provided, however, that the foregoing indemnity shall not apply to any
Proceeding to the extent that it arises out of, or is based upon, the gross
negligence or willful misconduct of Fletcher in connection therewith.

24

--------------------------------------------------------------------------------

 

     (b)       Indemnification of the Company. Fletcher hereby agrees to
indemnify the Company and each of its officers, directors, employees,
consultants, agents, attorneys, accountants and affiliates and each Person that
controls (within the meaning of Section 20 of the Exchange Act) any of the
foregoing Persons against any Proceeding, that it may incur in connection with
any of the transactions contemplated hereby arising out of or based upon:

     (i)       any untrue or alleged untrue statement of a material fact
included in an SEC filing by the Company with the express written consent of
Fletcher therefor by Fletcher or any of its affiliates or any Person acting on
its or their behalf or omission or alleged omission to state any such material
fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading by Fletcher or any of
its affiliates or any Person acting on its or their behalf;

     (ii)       any of the representations or warranties made by Fletcher herein
being untrue or incorrect at the time such representation or warranty was made;
and

     (iii)       any breach or non-performance by Fletcher of any of its
covenants, agreements or obligations under this Agreement;

provided, however, that the foregoing indemnity shall not apply to any
Proceeding to the extent that it arises out of, or is based upon, the gross
negligence or willful misconduct of the Company in connection therewith.

     (c)       Conduct of Claims.

     (i)       Whenever a claim for indemnification shall arise under this
Section 17, the party seeking indemnification (the “Indemnified Party”), shall
notify the party from whom such indemnification is sought (the “Indemnifying
Party”) in writing of the Proceeding and the facts constituting the basis for
such claim in reasonable detail;

     (ii)       Such Indemnifying Party shall have the right to retain the
counsel of its choice in connection with such Proceeding and to participate at
its own expense in the defense of any such Proceeding; provided, however, that
counsel to the Indemnifying Party shall not (except with the consent of the
relevant Indemnified Party) also be counsel to such Indemnified Party. In no
event shall the Indemnifying Party be liable for fees and expenses of more than
one counsel (in addition to any local counsel) separate from its own counsel for
all Indemnified Parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances; and

     (iii)       No Indemnifying Party shall, without the prior written consent
of the Indemnified Parties (which consent shall not be unreasonably withheld),
settle or compromise or consent to the entry of any judgment with

25

--------------------------------------------------------------------------------

 

respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification could be sought under this Section 17 unless
such settlement, compromise or consent (A) includes an unconditional release of
each Indemnified Party from all liability arising out of such litigation,
investigation, proceeding or claim and (B) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of any
Indemnified Party.

     18.       Survival of the Representations, Warranties, etc. The respective
representations, warranties, and agreements made herein by or on behalf of the
parties hereto shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party to this Agreement or any
officer, director or employee of, or Person controlling or under common control
with, such party and will survive delivery of and payment for any Investment
Securities issuable hereunder.

     19.       Notices. All communications hereunder shall be in writing and
delivered as set forth below.

     (a)       If sent to Fletcher, all communications will be deemed delivered:
if delivered by hand, on the day received by Fletcher; if sent by reputable
overnight courier, on the next Business Day; and if transmitted by facsimile to
Fletcher, on the date transmitted (provided such facsimile is later confirmed),
in each case to the following address (unless otherwise notified in writing of a
substitute address):

Fletcher International, Ltd.
c/o A. S. & K. Services Ltd.
Cedar House
41 Cedar Avenue
Hamilton HM EX
Bermuda
Attention: Felicity Holmes, Corporate Administrator
Telephone:    441-295-2244
Facsimile:       441-292-8666

with a copy to:

Fletcher Asset Management, Inc.
HSBC Tower, 29th Floor
452 Fifth Avenue
New York, NY 10018
Attention:     Peter Zayfert
Telephone:   (212) 284-4800
Facsimile:      (212) 284-4801

26

--------------------------------------------------------------------------------

 

with a copy to (which copy shall not constitute notice):

Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Attention: Stephen W. Hamilton, Esq.
Telephone:   (202) 371-7010
Facsimile:     (202) 393-5760

     (b)       If sent to the Company, all communications will be deemed
delivered: if delivered by hand, on the day received by the Company; if sent by
reputable overnight courier, on the next Business Day; and if transmitted by
facsimile to the Company, on the date transmitted (provided such facsimile is
later confirmed), in each case to the following address (unless otherwise
notified in writing of a substitute address):

Input/Output, Inc.
12300 Parc Crest Drive
Stafford, Texas 77477
Attention:     J. Michael Kirksey
Telephone:   (281) 933-3339
Facsimile:     (281) 879-3600

with a copy to (which copy shall not constitute notice):

Input/Output, Inc.
12300 Parc Crest Drive
Stafford, Texas 77477
Attention:     General Counsel
Telephone:   (281) 933-3339
Facsimile:     (281) 879-3600

and

Fulbright & Jaworski L.L.P.
1301 McKinney Suite 5100
Houston, Texas 77010
Attention:    Marc H. Folladori
Telephone:   713-651-5151
Facsimile:     713-651-5246

     (c)       To the extent that any funds shall be delivered to the Company by
wire transfer, unless otherwise instructed by the Company, such funds should be
delivered in accordance with the wire instructions set forth in Annex J.

     (d)       If the Company does not agree and acknowledge or object to the
delivery of any Fletcher Notice, Preferred Stock Conversion Notice or Preferred
Stock Redemption Notice by 5:00 PM, New York time, on the Business Day following
the date of delivery of such notice, such non-response by the Company shall be
deemed to be agreement and acknowledgment by the Company with the terms of such
notice.

27

--------------------------------------------------------------------------------

 

     20.       Miscellaneous.

     (a)       The parties may execute and deliver this Agreement as a single
document or in any number of counterparts, manually, by facsimile or by other
electronic means, including contemporaneous xerographic or electronic
reproduction by each party’s respective attorneys. Each counterpart shall be an
original, but a single document or all counterparts together shall constitute
one instrument that shall be the agreement.

     (b)       This Agreement will inure to the benefit of and be binding upon
the parties hereto, their respective successors and assigns and, with respect to
Section 17 hereof, will inure to the benefit of their respective officers,
directors, employees, consultants, agents, attorneys, accountants and affiliates
and each Person that controls (within the meaning of Section 20 of the Exchange
Act) any of the foregoing Persons, and no other Person will have any right or
obligation hereunder. The Company may not assign this Agreement. Notwithstanding
anything to the contrary in this Agreement, Fletcher may assign, pledge,
hypothecate or transfer any of the rights and associated obligations
contemplated by this Agreement (including, but not limited to, the Investment
Securities), in whole or in part, at its sole discretion (including, but not
limited to, assignments, pledges, hypothecations and transfers in connection
with financing, derivative or hedging transactions with respect to this
Agreement and the Investment Securities), provided, that, any such assignment,
pledge, hypothecation or transfer must comply with applicable federal and state
securities laws. No Person acquiring Common Stock from Fletcher pursuant to a
public market purchase will thereby obtain any of the rights contained in this
Agreement. This Agreement constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, between the parties
hereto with respect to the subject matter of this Agreement. Except as provided
in this Section 20(b), this Agreement is not intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.

     (c)       This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of New York, and each of the parties hereto
hereby submits to the non-exclusive jurisdiction of any state or federal court
in the Southern District of New York and any court hearing any appeal therefrom,
over any suit, action or proceeding against it arising out of or based upon this
Agreement (a “Related Proceeding”). Each of the parties hereto hereby waives any
objection to any Related Proceeding in such courts whether on the grounds of
venue, residence or domicile or on the ground that the Related Proceeding has
been brought in an inconvenient forum.

     (d)       Each party represents and acknowledges that, in the negotiation
and drafting of this Agreement and the other instruments and documents required
or contemplated hereby, it has been represented by and relied upon the advice of
counsel of its choice. Each party hereby affirms that its counsel has had a
substantial role in the drafting and negotiation of this Agreement and such
other instruments and documents. Therefore, each party agrees that no rule of
construction to the effect that any ambiguities are to be resolved against the
drafter shall be employed in the interpretation of this Agreement and such other
instruments and documents.

28

--------------------------------------------------------------------------------

 

     (e)       Without prejudice to other rights or remedies hereunder
(including any specified interest rate), and except as otherwise expressly set
forth herein, interest shall be due on any amount that is due pursuant to this
Agreement and has not been paid when due, calculated for the period from and
including the due date to but excluding the date on which such amount is paid at
the prime rate of U.S. money center banks as published in The Wall Street
Journal (or if The Wall Street Journal does not exist or publish such
information, then the average of the prime rates of three U.S. money center
banks agreed to by the parties) plus two percent (2%).

     (f)       Fletcher and the Company stipulate that the remedies at law of
the parties hereto in the event of any default or threatened default by either
party in the performance of or compliance with any of the terms of this
Agreement, the Certificate of Rights and Preferences and the Subsequent
Certificates of Rights and Preferences are not and will not be adequate and
that, to the fullest extent permitted by law, such terms may be specifically
enforced by a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms hereof or
otherwise.

     (g)       Any and all remedies set forth in this Agreement, the Certificate
of Rights and Preferences and Subsequent Certificates of Rights and Preferences:
(i) shall be in addition to any and all other remedies Fletcher or the Company
may have at law or in equity, (ii) shall be cumulative, and (iii) may be pursued
successively or concurrently as each of Fletcher and the Company may elect. The
exercise of any remedy by Fletcher or the Company shall not be deemed an
election of remedies or preclude Fletcher or the Company, respectively, from
exercising any other remedies in the future.

     (h)       The Company agrees that the parties have negotiated in good faith
and at arms’ length concerning the transactions contemplated herein, and that
Fletcher would not have agreed to the terms of this Agreement without each and
every of the terms, conditions, protections and remedies provided herein and the
Certificate of Rights and Preferences. Except as specifically provided otherwise
in this Agreement, the Certificate of Rights and Preferences and the Subsequent
Certificates of Rights and Preferences, the Company’s obligations to indemnify
and hold Fletcher harmless in accordance with Section 17 of this Agreement are
obligations of the Company that the Company promises to pay to Fletcher when and
if they become due. The Company shall record any such obligations on its books
and records in accordance with U.S. generally accepted accounting principles.

     (i)       This Agreement may be amended, modified or supplemented in any
and all respects, but only by a written instrument signed by Fletcher and the
Company expressly stating that such instrument is intended to amend, modify or
supplement this Agreement.

     (j)       Each of the parties will cooperate with the others and use its
best efforts to prepare all necessary documentation, to effect all necessary
filings, and to obtain all necessary permits, consents, approvals and
authorizations of all governmental bodies and other third-parties necessary to
consummate the transactions contemplated by this Agreement.

29

--------------------------------------------------------------------------------

 

     (k)       For purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires: (i) the terms defined in this
Agreement have the meanings assigned to them in this Agreement and include the
plural as well as the singular, and the use of any gender herein shall be deemed
to include the other gender and neuter gender of such term; (ii) accounting
terms not otherwise defined herein have the meanings assigned to them in
accordance with U.S. generally accepted accounting principles; (iii) references
herein to “Articles”, “Sections”, “Subsections”, “Paragraphs” and other
subdivisions without reference to a document are to designated Articles,
Sections, Subsections, Paragraphs and other subdivisions of this Agreement,
unless the context shall otherwise require; (iv) a reference to a Subsection
without further reference to a Section is a reference to such Subsection as
contained in the same Section in which the reference appears, and this rule
shall also apply to Paragraphs and other subdivisions; (v) the words “herein”,
“hereof”, “hereunder” and other words of similar import refer to this Agreement
as a whole and not to any particular provision; (vi) the term “include” or
“including” shall mean without limitation; (vii) the table of contents to this
Agreement and all section titles or captions contained in this Agreement or in
any Schedule or Annex hereto or referred to herein are for convenience only and
shall not be deemed a part of this Agreement and shall not affect the meaning or
interpretation of this Agreement; (viii) any agreement, instrument or statute
defined or referred to herein means such agreement, instrument or statute as
from time to time amended, modified or supplemented, including (in the case of
agreements or instruments) by waiver or consent and (in the case of statutes) by
succession of comparable successor statues and references to all attachments
thereto and instruments incorporated therein; and (ix) references to a Person
are also to its permitted successors and assigns and, in the case of an
individual, to his or her heirs and estate, as applicable.

     (l)       If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect. If the final judgment of a court of competent
jurisdiction or other authority declares that any term or provision hereof is
invalid, void or unenforceable, the parties agree that the court making such
determination shall have the power to reduce the scope, duration, area or
applicability of the term or provision, to delete specific words or phrases, or
to replace any invalid, void or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the fullest
extent possible.

     (m)       Time shall be of the essence in this Agreement.

30

--------------------------------------------------------------------------------

 

     (n)       All dollar ($) amounts set forth herein, in the Certificate of
Rights and Preferences and Subsequent Certificates of Rights and Preferences
refer to United States dollars. All payments hereunder and thereunder will be
made in lawful currency of the United States of America.

     (o)       Notwithstanding anything herein to the contrary, all measurements
and references related to share prices and share numbers herein will be, in each
instance, appropriately adjusted for stock splits, recombinations, stock
dividends and the like.

[SIGNATURE PAGE FOLLOWS]

31

--------------------------------------------------------------------------------

 

     IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement, all as of the date first set forth above.

              INPUT/OUTPUT, INC.
 
       

  By:   /s/ J. MICHAEL KIRKSEY 

       

  Name:   J. Michael Kirksey 

       

  Title:   Executive Vice President and CFO 

       
 
            FLETCHER INTERNATIONAL, LTD., by its duly authorized
investment advisor,
FLETCHER ASSET MANAGEMENT, INC.
 
       

  By:   /s/ DENIS J. KIELY 

       

  Name:   Denis J. Kiely 

       

  Title:   Director 

       
 
       

  By:   /s/ PETER ZAYFERT 

       

  Name:   Peter Zayfert 

       

  Title:   Executive Vice President 

       

Signature Page to Agreement