exv10w28



 



EXHIBIT 10.28


EMPLOYMENT AGREEMENT



     This Employment Agreement (this “Agreement”) is made and entered into by
and between Input/Output, Inc., a Delaware corporation (hereinafter referred to
as “Employer”), and Jorge Machnizh, an individual currently resident in Harris
County, Texas (hereinafter referred to as “Employee”), effective as of April
23, 2003 (the “Effective Date”).


WITNESSETH:



     WHEREAS, attendant to Employee’s employment by Employer, Employer and
Employee wish for there to be a complete understanding and agreement between
Employer and Employee with respect to, among other terms, Employee’s duties and
responsibilities to Employer; the compensation and benefits owed to Employee;
the fiduciary duties owed by Employee to Employer; Employee’s obligation to
avoid conflicts of interest, disclose pertinent information to Employer, and
refrain from using or disclosing Employer’s information;


     WHEREAS, Employer considers the establishment and maintenance of a sound
and vital management to be essential to protecting and enhancing its best
interests and the best interests of its stockholders;


     WHEREAS, the Board of Directors of Employer (the “Board”) has determined
that appropriate steps should be taken to encourage the continued attention and
dedication of members of Employer’s management; and


     WHEREAS, Employer and Employee wish to enter into this Agreement;


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


Section 1. General Duties of Employer and Employee.


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


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


     (c)  At the commencement of Employee’s employment by Employer, Employee
will be based at Employer’s corporate headquarters located at 12300 Parc Crest
Drive, Stafford, Texas 77008 (the “Place of Employment”).


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


Section 2. Compensation and Benefits.


     (a)  Employer will pay to Employee during the term of this Agreement a base
salary at the rate of $265,000 per annum (such base salary as increased by the
Compensation Committee of the Board as hereinafter provided is referred to
herein as the “Base Salary”). The Compensation Committee of the Board will
review the Base Salary from time to time and, during the term of this
Agreement, may increase, but may not decrease, the Base Salary. The Base
Salary will be paid to Employee in equal installments every two weeks or on
such other schedule as Employer may establish from time to time for its
management personnel.


     (b)  Employee will be eligible to participate in Employer’s Incentive
Compensation Plan for the fiscal year 2003 with a target of 65% and a maximum
of 100% of Employee’s Base Salary. Any such bonus paid to Employee will not be
prorated for the portion of fiscal year 2003 actually worked by Employee.
There will be a minimum bonus of $60,000 for the fiscal year 2003. During each
subsequent fiscal year during the term of this Agreement, Employee will be
eligible, in the Board’s sole discretion, to participate in that year’s
Incentive Compensation Plan or other replacement incentive or bonus plan
Employer establishes for its key executives.


     (c) Employee will be eligible for option grants to purchase shares of
Employer’s common stock, $.01 par value (“Common Stock”), or other equity
securities of Employer as provided under Employer’s 2000 Long-Term Incentive
Plan (or other stock option plan or plans Employer establishes for its key
executives); such grants to be made in the sole discretion of the Board or a
duly authorized committee of the Board.


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     (d)  Employee will be eligible to participate in Employer’s Deferred
Compensation Plan (or any replacement deferred compensation plan Employer
establishes for its key executives).


     (e)  Effective on the date hereof, without any requirement to accrue,
Employee will be entitled to paid vacation of not less than three (3) weeks
each year. Vacation may be taken by Employee at the time and for such periods
as may be mutually agreed upon between Employer and Employee.


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


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


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


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


Section 3. Fiduciary Duty; Confidentiality.


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


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


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


     (d)  In addition to the foregoing provisions of this Section 3, and
effective as of the Effective Date, Employee reaffirms the duties imposed upon
Employee by that certain Employee Proprietary Information Agreement dated as of
April 23, 2003 by and between Employer and Employee.


     (e)  Employee will comply with Employer’s Code of Ethics issued on February
4, 2003, and any amendments or replacement policies adopted by the Board (the
“Code of Ethics”).


Section 4. Term of Agreement; At-Will Employment.


     The term of this Agreement will commence effective as of the Effective
Date, and, subject to the terms and conditions hereof, will continue for a
two-year period ending on May 12, 2006, and thereafter, the term will be
automatically extended for successive periods of one year unless prior to the
end of the original two-year period (or, if applicable, any such one-year
period), Employer gives Employee at least ninety (90) days prior written notice
that Employer has decided not to extend the term of this Agreement.
Notwithstanding any provision contained herein to the contrary, Employee
acknowledges that his or her employment with Employer is at will and that
Employer may terminate his or her employment at any time and for any reason or
for no reason at the discretion of Employer, but subject to any rights Employee
has under Sections 5, 6 and 8 of this Agreement.


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Section 5. Termination.


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



		
	 	     (1) The death or “Disability” (as defined in Section 5(b)
hereof) of Employee;
	 
	 	     (2) Employer terminates such employment for “Cause” (as
defined in Section 5(c) hereof);
	 
	 	     (3) Employee terminates such employment for “Good Reason” (as
defined in Section 5(d) hereof);
	 
	 	     (4) Employer terminates such employment for any reason other
than Cause, or for no reason at all;
	 
	 	     (5) Employee terminates such employment for any reason other
than Good Reason, or for no reason at all; or
	 
	 	     (6) Employee’s sixty-fifth (65th) birthday, at which time
Employee will continue to be employed by Employer as an employee at
will.



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


     (c)  As used in this Agreement, “Cause” means:



		
	 	     (1) the willful and continued failure by Employee to
substantially perform his or her obligations under this Agreement
(other than any such failure resulting from his or her Disability)
after a written demand for substantial performance has been
delivered to him or her by the Board which specifically identifies
the manner in which the Board believes Employee has not
substantially performed such provisions and Employee has failed to
remedy the situation within ten (10) days after such demand or a
willful and material violation of the Employer’s Code of Ethics;
	 
	 	     (2) Employee’s willfully engaging in conduct materially and
demonstrably injurious to the property or business of Employer,
including without limitation, fraud, misappropriation of funds or
other property of Employer, , gross negligence that is materially
injurious to the property or business of Employer, or conviction of
a felony or any crime of moral turpitude; or



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



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


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



		
	 	     (1) Employer’s failure to comply with any of the provisions of
Section 2 of this Agreement (including, but not limited to, such a
failure resulting from any reduction in the Base Salary) which
failure is not remedied within ten (10) days after receipt of
written notice from Employee specifying the particulars of such
breach;
	 
	 	     (2) Employer’s breach of any other material provision of this
Agreement which is not remedied within ten (10) days after receipt
by Employer of written notice from Employee specifying the
particulars of such breach;
	 
	 	     (3) the assignment to Employee of any duties materially
inconsistent with Employee’s position, duties, functions,
responsibilities or authority as contemplated by Section 1 of this
Agreement; or
	 
	 	     (4) the relocation of Employee’s principal place of
performance of his or her duties and responsibilities under this
Agreement to a location more than fifty miles (50) miles from the
Place of Employment;
	 
	 	     (5) Any failure by Employer to comply with Section 11(c); or
	 
	 	     (6) Any purported termination of Employee’s employment by
Employer which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 5(e) hereof (and for
purposes of this Agreement, no such purported termination shall be effective).



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     (e)  Any termination by Employer or Employee of Employee’s employment with
Employer (other than any such termination occurring on Employee’s sixty-fifth
(65th) birthday) shall be communicated by written notice (a “Notice of
Termination”) to the other party that shall:



		
	 	     (1) indicate the specific provision of this Agreement relied
upon for such termination;
	 
	 	     (2) indicate the specific provision of this Agreement pursuant
to which Employee is to receive compensation and other benefits as
a result of such termination; and
	 
	 	     (3) otherwise comply with the provisions of this Section 5(e)
and Section 13(a).



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


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



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



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	 	     (3) if Employee’s employment with Employer is terminated for
Cause, the date Notice of Termination, accompanied by a copy of the
resolution satisfying Section 5(c), is received by Employee or any
later date specified therein, provided that Employer may, in its
discretion, condition Employee’s continued employment upon such
considerations or requirements as may be reasonable under the
circumstances and place a reasonable limitation upon the time
within which Employee will comply with such considerations or
requirements;
	 
	 	     (4) if Employee’s employment with Employer is terminated upon
the occurrence of Employee’s sixty-fifth (65th) birthday, the date
of such birthday, at which time Employee will continue to be
employed by Employer as an employee at will; or
	 
	 	     (5) if Employee’s employment with Employer is terminated for
any reason other than Employee’s Disability, Employee’s death,
Cause or the occurrence of Employee’s sixty-fifth (65th) birthday,
or for no reason, the date that is fourteen (14) days after the
date of receipt of the Notice of Termination.



Section 6. Effect of Termination of Employment.


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


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


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     (c)  Upon termination of this Agreement due to Employee’s reaching his or
her sixty-fifth (65th) birthday, Employee will continue to be employed by
Employer as an employee at will.


     (d)  If Employee’s employment with Employer is terminated (i) by Employer
for no reason or for any reason other than Cause, the death or Disability of
Employee, or Employee’s reaching his or her sixty-fifth (65th) birthday, or
(ii) by Employee for Good Reason, the obligations of Employer and Employee
under Sections 1 and 2 will terminate as of the Date of Termination, and
Employer will pay or provide to Employee the following:



		
	 	     (1) Employee’s Base Salary through the Date of Termination;
	 
	 	     (2) incentive compensation due Employee, if any, under the
terms of the relevant incentive compensation arrangement, which, in
the absence of any agreement to the contrary, shall be the pro rata
amount due to Employee based on payments that would be due if
Employee had remained employed by Employer for the full fiscal
year;
	 
	 	     (3) during the eighteen-month period following the Date of
Termination, Employer shall pay to Employee an aggregate amount
(the “Severance Payment”) equal to (i) one and one/half times
(1.5x) Employee’s Base Salary at the highest annual rate in effect
on or before the Date of Termination (but prior to giving effect to
any reduction therein which precipitated such termination) plus
(ii) Employee’s bonus payment, if any, made in the fiscal year
prior to the year in which the Date of Termination occurs, which
Severance Payment will be paid to Employee in eighteen (18) equal
monthly installments during such one-year period; and
	 
	 	     (4) if immediately prior to the Date of Termination, Employee
(and, if applicable, his or her spouse and/or dependents) was
covered under Employer’s group medical, dental, health and hospital
plan in effect at such time, then Employer shall provide to
Employee for eighteen (18) months after the Date of Termination,
and provided that Employee has timely elected under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
(“COBRA”), to continue coverage under such plan, Employer will, at
no greater cost or expense to Employee than was the case
immediately prior to the Date of Termination, maintain such
continued coverage in full force and effect.



Except as otherwise provided above and in Sections 7and 10, all other
compensation and benefits will cease upon the Date of Termination other than
the following: (i) those benefits that are provided by retirement and benefit
plans and programs specifically adopted and approved by Employer for Employee
that are earned and vested by the Date of Termination, (ii) any rights Employee
or his survivors may have under any grants of options to purchase Employer’s


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Common Stock, restricted stock grants, performance share grants, or other
similar equity compensation plans; and (iii) medical and similar benefits the
continuation of which is required by applicable law or as provided by the
applicable benefit plan. As a condition to making the payments and providing
the benefits specified in this Section 6(d), Employer will require that
Employee execute a release of all claims Employee may have against Employer at
the time of Employee’s termination. Such release will be in substantially the
same form as Exhibit A attached hereto.


     (e)  If (i) a “Change in Control” (as defined in Section 6(f) hereof) shall
have occurred, the following shall occur immediately upon the occurrence of
such Change in Control:



		
	 	     (1) each option to acquire Common Stock or other equity
securities of Employer held by Employee immediately prior to such
Change in Control issued to Employee in conjunction with or after
Employee accepted employment with Employer shall accelerate and
become fully vested and exercisable, regardless of whether or not
the vesting conditions set forth in the relevant stock option
agreement have been satisfied, and shall remain fully exercisable
for a one-year period following the Date of Termination consistent
with Section 5(e) hereof; and
	 
	 	     (2) all restrictions on any restricted Common Stock or other
equity securities of Employer granted to Employee prior to such
Change in Control shall be removed and such Common Stock or other
equity securities shall be freely transferable (subject to
applicable securities laws), regardless of whether the conditions
set forth in the relevant restricted stock agreements have been
satisfied in full.



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



		
	 	     (1) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time to time (the “Exchange
Act”), or any successor statute) (a “Covered Person”) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 40% or more of either (i) the then outstanding
shares of Common Stock (the “Outstanding Company Common Stock”), or
(ii) the combined voting power of the then outstanding voting
securities of Employer entitled to vote generally in the election
of directors (the “Outstanding Company Voting Securities”);
provided, however, that for purposes of this Section 6(f)(1), the
following acquisitions shall not constitute a Change in Control:
(i) any acquisition directly from Employer or any subsidiary of
Employer, (ii) any acquisition by Employer or any subsidiary of
Employer, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by Employer or any entity
controlled by Employer, or (iv) any



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	 	acquisition by any corporation pursuant to a reorganization,
merger, consolidation or similar business combination involving
Employer (a “Merger”), if, following such Merger, the conditions
described in Section 6(f)(3)(i) and(ii) are satisfied; or




		
	 	     (2) individuals who, as of the Effective Date, constitute the
Board (the “Incumbent Board”) cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the Effective Date
whose election, or nomination for election by Employer’s
stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered
as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest (a solicitation by any person or group of persons
for the purpose of opposing a solicitation of proxies or consents
by the Board with respect to the election or removal of Directors
at any annual or special meetings of stockholders) or other actual
or threatened solicitation of proxies or consents by or on behalf
of a Covered Person other than the Board; or
	 
	 	     (3) Approval by the stockholders of Employer of a Merger,
unless immediately following such Merger, (i) substantially all of
the holders of the Outstanding Company Voting Securities
immediately prior to the Merger beneficially own, directly or
indirectly, more than 50% of the common stock of the corporation
resulting from such Merger (or its parent corporation) in
substantially the same proportion as their ownership of Outstanding
Company Voting Securities immediately prior to such Merger and (ii)
at least a majority of the members of the board of directors of the
corporation resulting from such Merger (or its parent corporation)
were members of the Incumbent Board at the time of the execution of
the initial agreement providing for such Merger; or
	 
	 	     (4) the sale or other disposition of all or substantially all
of the assets of Employer.



Section 7. Excise Tax.


     (a)  Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by, or benefit
from, Employer or any of its affiliates to or for the benefit of Employee,
whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise (any such payments, distributions or benefits
being individually referred to herein as a “Payment,” and any two or more of
such payments, distributions or benefits being referred to herein as
“Payments”), would be subject to the excise tax imposed by Section 4999 of the
Code (such excise tax, together with any interest thereon, any penalties,
additions to tax, or additional amounts with respect to such excise tax, and
any interest in respect of such penalties, additions to tax or additional
amounts, being


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 collectively referred herein to as the “Excise Tax”), then Employee shall
be entitled to receive an additional payment or payments (individually referred
to herein as a “Gross-Up Payment” and any two or more of such additional
payments being referred to herein as “Gross-Up Payments”) in an amount such
that after payment by Employee of all taxes (as defined in Section 7(i))
imposed upon the Gross-Up Payment, Employee retains an amount of such Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.


     (b)  Subject to the provisions of Section 7(c) through (i), any
determination (individually, a “Determination”) required to be made under this
Section 7(b), including whether a Gross-Up Payment is required and the amount
of such Gross-Up Payment, shall initially be made, at Employer’s expense, by
nationally recognized tax counsel selected by Employer (“Tax Counsel”). Tax
Counsel shall provide detailed supporting legal authorities, calculations, and
documentation both to Employer and Employee within 15 business days of the
termination of Employee’s employment, if applicable, or such other time or
times as is reasonably requested by Employer or Employee. If Tax Counsel makes
the initial Determination that no Excise Tax is payable by Employee with
respect to a Payment or Payments, it shall furnish Employee with an opinion
reasonably acceptable to Employee that no Excise Tax will be imposed with
respect to any such Payment or Payments. Employee shall have the right to
dispute any Determination (a “Dispute”). The Gross-Up Payment, if any, as
determined pursuant to such Determination shall, at Employer’s expense, be paid
by Employer to or for the benefit of Employee within five business days of
Employee’s receipt of such Determination. The existence of a Dispute shall not
in any way affect Employee’s right to receive the Gross-Up Payment in
accordance with such Determination. If there is no Dispute, such Determination
shall be binding, final and conclusive upon Employer and Employee, subject in
all respects, however, to the provisions of Section 7(c) through (i) below. As
a result of the uncertainty in the application of Sections 4999 and 280G of the
Code, it is possible that Gross-Up Payments (or portions thereof) which will
not have been made by Employer should have been made (“Underpayment”), and if
upon any reasonable written request from Employee or Employer to Tax Counsel,
or upon Tax Counsel’s own initiative, Tax Counsel, at Employer’s expense,
thereafter determines that Employee is required to make a payment of any Excise
Tax or any additional Excise Tax, as the case may be, Tax Counsel shall, at
Employer’s expense, determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by Employer to or for the
benefit of Employee.


     (c)  Employer shall defend, hold harmless, and indemnify Employee on a
fully grossed-up after tax basis from and against any and all claims, losses,
liabilities, obligations, damages, impositions, assessments, demands,
judgments, settlements, costs and expenses (including reasonable attorneys’,
accountants’, and experts’ fees and expenses) with respect to any tax liability
of Employee resulting from any Final Determination (as defined in Section 7(h))
that any Payment is subject to the Excise Tax.


     (d)  If a party hereto receives any written or oral communication with
respect to any question, adjustment, assessment or pending or threatened audit,
examination,


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 investigation or administrative, court or other proceeding which, if
pursued successfully, could result in or give rise to a claim by Employee
against Employer under this Section 7 (“Claim”), including, but not limited to,
a claim for indemnification of Employee by Employer under Section 7(c), then
such party shall promptly notify the other party hereto in writing of such
Claim (“Tax Claim Notice”).


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


     (f)  Employer shall have the right to defend or prosecute, at the sole
cost, expense and risk of Employer, such Employee Claim by all appropriate
proceedings, which proceedings shall be defended or prosecuted diligently by
Employer to a Final Determination; provided, however, that (i) Employer shall
not, without Employee’s prior written consent, enter into any compromise or
settlement of such Employee Claim that would adversely affect Employee, (ii)
any request from Employer to Employee regarding any extension of the statute of
limitations relating to assessment, payment, or collection of taxes for the
taxable year of Employee with respect to which the contested issues involved
in, and amount of, Employee Claim relate is limited solely to such contested
issues and amount, and (iii) Employer’s control of any contest or proceeding
shall be limited to issues with respect to Employee Claim and Employee shall be
entitled to settle or contest, in his sole and absolute discretion, any other
issue raised by the Internal Revenue Service or any other taxing authority. So
long as Employer is diligently defending or prosecuting such Employee Claim,
Employee shall provide or cause to be provided to Employer any information
reasonably requested by Employer that relates to such Employee Claim, and shall
otherwise cooperate with Employer and its representatives in good faith in
order to contest effectively such Employee Claim. Employer shall keep Employee
informed of all developments and events relating to any such Employee Claim
(including, without limitation, providing to Employee copies of all written
materials pertaining to any such Employee Claim), and Employee or his
authorized representatives shall be entitled, at Employee’s expense, to
participate in all conferences, meetings and proceedings relating to any such
Employee Claim.


     (g)  In the case of any Employee Claim that is defended or prosecuted to a
Final Determination pursuant to the terms of this Section 7(g), Employer shall
pay, on a fully grossed-up after tax basis, to Employee in immediately
available funds the full amount of any taxes arising or resulting from or
incurred in connection with such Employee Claim that have not theretofore been
paid by Employer to Employee, together with the costs and expenses, on a fully
grossed-up after tax basis, incurred in connection therewith that have not
theretofore been paid by Employer to Employee, within ten calendar days after
such Final Determination. In the case


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 of any Employee Claim not covered by the preceding sentence, Employer
shall pay, on a fully grossed-up after tax basis, to Employee in immediately
available funds the full amount of any taxes arising or resulting from or
incurred in connection with such Employee Claim at least ten calendar days
before the date payment of such taxes is due from Employee, except where
payment of such taxes is sooner required under the provisions of this Section
7(g), in which case payment of such taxes (and payment, on a fully grossed-up
after tax basis, of any costs and expenses required to be paid under this
Section 7(g)) shall be made within the time and in the manner otherwise
provided in this Section 7(g).


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


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


Section 8. Expenses of Enforcement.


     Upon demand by Employee made to Employer, Employer shall reimburse
Employee for the reasonable expenses (including attorneys’ fees and expenses)
incurred by Employee after a Change in Control in enforcing or seeking to
enforce the payment of any amount or other benefit to which Employee shall have
become entitled under this Agreement as a result of the termination of
Employee’s employment with Employer within two (2) years after the Employee’s
Date of Termination, including, but not limited to, those incurred in
connection with any arbitration concerning same initiated pursuant to Section
14 (regardless of the outcome of such arbitration). To the extent that any
such reimbursement would be subject to the Excise Tax, then Employee shall be
entitled to receive Gross-Up Payments in an amount such that after payment by
Employee of all taxes imposed on such Gross-Up Payments, Employee retains an
amount equal to the Excise Tax imposed upon the reimbursement, and the other
provisions of Section 7 hereof shall also apply to such circumstance unless the
context thereof otherwise indicates.


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


     (a)  Employee shall not be required to mitigate the amount of any payment
or
other benefit required to be paid to Employee pursuant to this Agreement,
whether by seeking other employment or otherwise, nor shall the amount of any
such payment or other benefit be reduced on account of any compensation earned
by Employee as a result of employment by another person.


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


Section 10. No Effect on Other Rights.


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


Section 11. Successors; Binding Agreement.


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


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


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


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


     (a)  Employee agrees that, effective as of the Effective Date and for a
period of eighteen (18) months after the Date of Termination (such applicable
period being referred to herein as the “Non-Compete Period”), Employee shall
not, without the prior written consent of Employer, directly or indirectly,
anywhere in the world, engage, invest, own any interest, or participate in,
consult with, render services to, or be employed by any business, person, firm
or entity that is in competition with the “Business” (as defined in Section
12(d)) of Employer or any of its subsidiaries or affiliates, except for the
account of Employer and its subsidiaries and affiliates; provided, however,
that during the Non-Compete Period Employee may acquire, solely as a passive
investment, not more than five percent (5%) of the outstanding shares or other
units of any security of any entity subject to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended. Employee
acknowledges that a remedy at law for any breach or attempted breach of this
covenant not to compete will be inadequate and further agrees that any breach
of this covenant not to compete will result in irreparable harm to Employer,
and, accordingly, Employer shall, in addition to any other remedy that may be
available to it, be entitled to specific performance and temporary and
permanent injunctive and other equitable relief (without proof of actual damage
or inadequacy of legal remedy) in case of any such breach or attempted breach.
Employee acknowledges that this covenant not to compete is being provided as an
inducement to Employer to enter into this Agreement and that this covenant not
to compete contains reasonable limitations as to time, geographical area and
scope of activity to be restrained that do not impose a greater restraint than
is necessary to protect the goodwill or other business interest of Employer.
Whenever possible, each provision of this covenant not to compete shall be
interpreted in such a manner as to be effective and valid under applicable law
but if any provision of this covenant not to compete shall be prohibited by or
invalid under applicable law, such provision of this covenant not to compete
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remaining provisions of this covenant not to compete. If any
provision of this covenant not to compete shall, for any reason, be judged by
any court of competent jurisdiction to be invalid or unenforceable, such
judgment shall not affect, impair or invalidate the remainder of this covenant
not to compete but shall be confined in its operation to the provision of this
covenant not to compete directly involved in the controversy in which such
judgment shall have been rendered. In the event that the provisions of this
covenant not to compete should ever be deemed to exceed the time or geographic
limitations permitted by applicable laws, then such provision shall be reformed
to the maximum time or geographic limitations permitted by applicable law.


     (b)  In addition to the restrictions set forth in Section 12(a), Employee
agrees that, during the Non-Compete Period, Employee will not, either directly
or indirectly, (i) make known to any person, firm or entity that is in
competition with the Business of Employer or any of its subsidiaries or
affiliates the names and addresses of any of the suppliers or customers of


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 Employer or any of its subsidiaries or affiliates, potential customers of
Employer or any of its subsidiaries or affiliates upon whom Employer or any of
its subsidiaries or affiliates has called upon in the last twelve (12) months
or contacts of Employer or any of its subsidiaries or affiliates or any other
information pertaining to such persons, or (ii) call on, solicit, or take away,
or attempt to call on, solicit or take away any of the suppliers or customers
of Employer or any of its subsidiaries or affiliates, whether for Employee or
for any other person, firm or entity.


     (c)  Regardless of the reason for any termination of Employee’s employment,
effective as of the Effective Date and for eighteen (18) months following the
Date of Termination, Employee will not, either on his or her own account or for
any other person, firm, partnership, corporation, or other entity (i) solicit
any employee of Employer or any of its subsidiaries or affiliates to leave such
employment; or (ii) induce or attempt to induce any such employee to breach her
or his employment agreement with Employer or any of its subsidiaries or
affiliates.


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


     (e)  In the event that Employee breaches or violates any of the terms and
conditions of this Section 12 during the Non-Compete Period, then in addition
to the other rights and remedies available to Employer hereunder and under
Section 14 hereof, Employer’s obligations to pay to Employee any remaining
installments of the Severance Payment otherwise due and owing pursuant to
Section 6(d)(3) hereof, shall cease and terminate.


Section 13. Miscellaneous.


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



	 	 	 
	 	 	
If to Employer, to:
	 	 	 
	 	 	
Input/Output, Inc.
	 	 	
12300 Parc Crest Drive
	 	 	
Stafford, TX 77477
	 	 	
Attention: General Counsel
	 	 	 
	 	 	
If to Employee, to:
	 	 	
Jorge Machnizh



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


     (b)  This Agreement (including the Exhibit(s) attached hereto) supersedes,
replaces and merges all previous agreements and discussions relating to the
same or similar subject matters between Employee and Employer and constitutes
the entire agreement between Employee and Employer with respect to the subject
matter of this Agreement, except for (i) the Employee Proprietary Information
Agreement referred to in Section 3(d) hereof, and (ii) the stock option,
restricted stock award and other agreements of the nature contemplated under
Section 8 hereof, each of which shall remain in full force and effect. This
Agreement may not be modified in any respect by any verbal statement,
representation or agreement made by any employee, officer, or representative of
Employer or by any written agreement unless signed by an officer of Employer
who is expressly authorized by the Board to execute such document.


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


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


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


Section 14. Arbitration.


     (a)  Employer and Employee agree to submit to final and binding arbitration
any and all disputes or disagreements concerning the interpretation or
application of this Agreement. Any such dispute or disagreement will be
resolved by arbitration in accordance with


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


     (b)  Notwithstanding the provisions of Section 14(a), Employer may, if it
so chooses, bring an action in any court of competent jurisdiction for
injunctive relief to enforce Employee’s obligations under Sections 3(b), 3(c),
3(d), 3(e) and 12 hereof.


Section 15. Additional Agreements.


     Employer and Employee shall enter into that certain Restricted Stock Award
Agreement in the form attached hereto as Exhibit A and that certain Incentive
Agreement for Nonstatutory Stock Option in the form attached hereto as Exhibit
B on Employee’s first date of employment with Employer.


SIGNATURES TO FOLLOW ON NEXT PAGE


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     IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as to be effective as of the Effective Date.



	 	 	 
	 	 	
EMPLOYER:
	 	 	 
	 	 	
INPUT/OUTPUT, INC.
	 	 	 
	 	 	
By: /s/ Robert P. Peebler
	 	 	


	 	 	
Chief Executive Officer
	 	 	 
	 	 	
EMPLOYEE:
	 	 	 
	 	 	
JORGE MACHNIZH
	 	 	 
	 	 	
/s/ Jorge Machnizh
	 	 	






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