Exhibit 10.9


 


CDN.
$17,638,652 CREDIT FACILITIES


 


 










 


 


FIFTH AMENDED AND RESTATED
CREDIT AGREEMENT


 


BETWEEN


 


 


TRACE ENERGY SERVICES LTD., as
Borrower

TRACE ENERGY SERVICES, INC, GEOKINETICS INC., QUANTUM GEOPHYSICAL, INC.

AND GEOPHYSICAL DEVELOPMENT CORPORATION, as Corporate Guarantors


 


AND


 


HSBC BANK CANADA, as Lender


 


 


dated


 


November 30, 2005


 


 










 





















 


TABLE OF
CONTENTS


CREDIT
AGREEMENT


 


	
   

  	
   

  	
  Page

  
	
  Article 1
  - INTERPRETATION

  	
  2

  
	
  1.

  	
  Definitions

  	
  2

  
	
  1.2

  	
  Headings

  	
  8

  
	
  1.3

  	
  Number

  	
  8

  
	
  1.4

  	
  Accounting
  Principles

  	
  8

  
	
  1.5

  	
  Per Annum
  Calculations

  	
  9

  
	
  1.6

  	
  Included
  Words; Inclusiveness

  	
  9

  
	
  1.7

  	
  Schedules

  	
  9

  
	
   

  	
   

  	
   

  
	
  Article 2
  - THE CREDIT FACILITIES

  	
  9

  
	
  2.1

  	
  The Credit
  Facilities

  	
  9

  
	
  2.2

  	
  Manner of
  Borrowing

  	
  10

  
	
  2.3

  	
  Purpose

  	
  10

  
	
  2.4

  	
  Nature of
  the Credit Facilities

  	
  10

  
	
  2.5

  	
  Account of
  Record

  	
  11

  
	
   

  	
   

  	
   

  
	
  Article 3
  - CONDITIONS PRECEDENT TO DRAWDOWN

  	
  12

  
	
  3.1

  	
  Lender’s
  Conditions for Drawdown

  	
  12

  
	
  3.2

  	
  Waiver

  	
  13

  
	
   

  	
   

  	
   

  
	
  Article 4
  - SECURITY

  	
  14

  
	
  4.1

  	
  Existing
  Security Documents

  	
  14

  
	
  4.2

  	
  Undertaking
  to Grant Additional Security Documents

  	
  15

  
	
  4.3

  	
  Security
  Effective Notwithstanding Drawdown Date

  	
  15

  
	
  4.4

  	
  Attachment
  of Security

  	
  15

  
	
  4.5

  	
  Extensions,
  Etc.

  	
  16

  
	
  4.6

  	
  No Merger

  	
  16

  
	
   

  	
   

  	
   

  
	
  Article 5
  - PAYMENT OF INTEREST AND FEES

  	
  17

  
	
  5.1

  	
  Interest

  	
  17

  
	
  5.2

  	
  Borrower’s
  Option to Utilize Banker’s Acceptances

  	
  18

  
	
  5.3

  	
  Issuance of
  Guarantees or Letters of Credit

  	
  19

  
	
  5.4

  	
  No Deduction
  etc.

  	
  19

  
	
  5.5

  	
  Interest on
  Overdue Interest, Unpaid Costs and Expenses

  	
  19

  
	
  5.6

  	
  Application
  Fee

  	
  20

  
	
  5.7

  	
  Administration
  Fee

  	
  20

  
	
  5.8

  	
  Additional
  Fee

  	
  20

  
	
   

  	
   

  	
   

  
	
  Article 6
  - REPAYMENT OF LOAN

  	
  21

  
	
  6.1

  	
  Repayment

  	
  21

  
	
  6.2

  	
  Optional
  Repayment of Principal

  	
  21

  
	
   

  	
   

  	
   

  
	
  Article 7
  - PLACE AND APPLICATION OF PAYMENTS

  	
  21

  
	
  7.1

  	
  Place of
  Payment of Principal, Interest and Fees

  	
  21

  



 





















 


	
  7.2

  	
  Funds

  	
  22

  
	
  7.3

  	
  Application
  of Payments

  	
  22

  
	
   

  	
   

  	
   

  
	
  Article 8
  - REPRESENTATIONS AND WARRANTIES

  	
  22

  
	
  8.1

  	
  General

  	
  22

  
	
  8.2

  	
  Corporate
  Existence and Power

  	
  23

  
	
  8.3

  	
  Authorization
  and Execution

  	
  23

  
	
  8.4

  	
  No
  Contravention or Resultant Security Interest

  	
  24

  
	
  8.5

  	
  Approvals or
  Consents

  	
  24

  
	
  8.6

  	
  Binding
  Effect

  	
  25

  
	
  8.7

  	
  Litigation

  	
  25

  
	
  8.8

  	
  Defaults and
  Burdensome Provisions

  	
  25

  
	
  8.9

  	
  Certain
  Claims

  	
  26

  
	
  8.10

  	
  Other
  Information

  	
  26

  
	
  8.11

  	
  No
  Omissions; Undisclosed Events

  	
  26

  
	
   

  	
   

  	
   

  
	
  Article 9
  - COVENANTS

  	
  27

  
	
  9.1

  	
  General

  	
  27

  
	
  9.2

  	
  Payment and
  Performance

  	
  27

  
	
  9.3

  	
  Maintenance
  of Corporate Existence and Status

  	
  27

  
	
  9.4

  	
  Compliance
  with Laws and Regulations

  	
  28

  
	
  9.5

  	
  Financial
  Statements

  	
  28

  
	
  9.6

  	
  Compliance
  Certificate

  	
  29

  
	
  9.7

  	
  Other
  Financial Information

  	
  29

  
	
  9.8

  	
  Certain
  Negative Covenants of the Borrower

  	
  29

  
	
  9.9

  	
  Certain
  Negative Covenants of Geokinetics Inc.

  	
  30

  
	
  9.10

  	
  Notice of
  Certain Events

  	
  30

  
	
  9.11

  	
  Employee
  Incentive Plan

  	
  31

  
	
  9.12

  	
  Lender May Perform

  	
  31

  
	
   

  	
   

  	
   

  
	
  Article 10
  - EVENTS OF DEFAULT AND ACCELERATION

  	
  31

  
	
  10.1

  	
  Events of
  Default

  	
  31

  
	
  10.2

  	
  Acceleration
  of Operating Credit Facility Upon Demand

  	
  33

  
	
  10.3

  	
  Acceleration
  of Loan

  	
  34

  
	
  10.4

  	
  Remedies
  Cumulative and Waivers

  	
  34

  
	
   

  	
   

  	
   

  
	
  Article 11
  - COSTS, EXPENSES AND INDEMNIFICATION

  	
  35

  
	
  11.1

  	
  Costs and
  Expenses

  	
  35

  
	
  11.2

  	
  Indemnification
  by the Borrower re Loan

  	
  35

  
	
  11.3

  	
  Indemnification
  by the Loan Parties re Environmental Matters

  	
  36

  
	
   

  	
   

  	
   

  
	
  Article 12
  - GENERAL

  	
  37

  
	
  12.1

  	
  Notice

  	
  37

  
	
  12.2

  	
  Governing
  Law; Attornment

  	
  38

  
	
  12.3

  	
  Obligations
  are Absolute

  	
  38

  
	
  12.4

  	
  Set Off

  	
  39

  
	
  12.5

  	
  Benefit of
  the Agreement

  	
  39

  
	
  12.6

  	
  Assignment

  	
  39

  
	
  12.7

  	
  Severability

  	
  40

  
	
  12.8

  	
  Whole
  Agreement

  	
  40

  



 


2





















 


	
  12.9

  	
  Amendments
  and Waivers

  	
  40

  
	
  12.10

  	
  Further
  Assurances

  	
  41

  
	
  12.11

  	
  Time of the
  Essence

  	
  41

  
	
  12.12

  	
  Termination

  	
  41

  
	
  12.13

  	
  Inspection
  of the Mortgaged Property

  	
  41

  
	
  12.14

  	
  Credit
  Reporting

  	
  41

  
	
  12.15

  	
  Counterparts

  	
  42

  
	
  12.16

  	
  Conflicting
  Provisions

  	
  42

  



 


3





















 


FIFTH
AMENDED AND RESTATED CREDIT AGREEMENT


 


THIS AGREEMENT is made as of November 30, 2005, between TRACE ENERGY SERVICES LTD. (the “Borrower”), a corporation
incorporated pursuant to the laws of the Province of Alberta, as borrower, TRACE ENERGY SERVICES, INC., a corporation incorporated
pursuant to the laws of the State of Texas, GEOKINETICS
INC., a corporation incorporated pursuant to the laws of Delaware, QUANTUM GEOPHYSICAL, INC., a corporation incorporated
pursuant to the laws of Texas, and GEOPHYSICAL DEVELOPMENT
CORPORATION, a corporation incorporated pursuant to the laws, of
Texas (collectively, but jointly and severally, the “Corporate Guarantors”) and
HSBC BANK CANADA (the “Lender”), a
Canadian chartered bank, as lender.


 


THIS AGREEMENT is an amendment to and a restatement of that certain
fourth amended and restated credit agreement (the “Fourth Amended and Restated
Credit Agreement”) dated as of September 30, 2005, between the Borrower,
Trace Energy Services, Inc. and the Lender.


 


THIS AGREEMENT replaces and supersedes any and all previous credit
agreements and facility letters including, without limitation, the Fourth
Amended and Restated Credit Agreement, as previously amended from time to time.


 


WHEREAS the Borrower has requested the Credit Facilities and the Lender
has agreed to provide the Credit Facilities to the Borrower on the terms and
conditions herein set forth;


 


NOW THEREFORE, the parties hereto agree as follows:


 





















 


ARTICLE 1
— INTERPRETATION


 


1.             Definitions


 


In this Agreement, unless something in the subject matter or context is
inconsistent therewith, terms and expressions defined in the description of the
parties hereto shall have those meanings herein and:


 


“Acceptable
Receivables” means the aggregate of Canadian and
United States accounts receivable of the Margin Parties, determined by the
Lender from the most recent financial statements and aged list of accounts
receivable of the Margin Parties, over which the Lender holds a first
assignment or first security interest from customers approved by the Lender
(such approval not to be unreasonably withheld) and which have been outstanding
for not more than 90 days, from which shall be excluded accounts receivable
from affiliated corporations and accounts receivable which are disputed by the
Margin Parties’ customers or are subject to set off or are EDC Acceptable
Receivables;


 


“Adverse
Effect” means any material adverse change in the
ability of the Loan Parties to consummate the transactions contemplated by, or
perform their respective obligations under, the Documents;


 


“Agreement”
means this credit agreement as amended, supplemented, modified or restated from
time to time in accordance with the provisions hereof;


 


“Applicable
Law” means, in relation to any Person, transaction or
event, all applicable provisions, whether now or hereafter in effect, of laws,
statutes, rules, regulations, official directives and orders of all federal,
provincial and municipal governmental bodies (whether administrative, legislative,
executive or otherwise and, in the case of any central bank, fiscal or monetary
authority) and judgments, orders and decrees of all courts, arbitrators,
commissions or bodies exercising similar functions in actions or proceedings in
which the Person in question is a party or by which it is bound or having
application to the transaction or event in question;


 


“Banker’s
Acceptance” means a non-interest bearing depository
bill subject to the Depository and Notes Act
(Canada) or bill of exchange drawn by the Borrower in Canadian Dollars,
accepted by the Lender and issued for value pursuant to this Agreement;


 


“Banking
Day” means a day on which banks are generally open for
the transaction of commercial business in Calgary, Alberta, but does not in any
event include a Saturday or a Sunday or a bank holiday under Applicable Law;


 


“Borrower’s
Counsel” means the firm of Chamberlain, Hrdlicka,
White, Williams and Martin or such other firm of legal counsel as the Loan
Parties may from time to time designate and, where the context so requires,
shall include agents of the Borrower’s Counsel in jurisdictions other than
Alberta;


 


“Canadian
Dollars” and “Cdn. $” mean
the lawful money of Canada;


 


“Certificate
of the Borrower”, “Notice of the Borrower”
and “Request of the Borrower” mean,
respectively, a written certificate, notice or request addressed to the Lender
and signed in the name of the Borrower by an Officer;


 


2





















 


“Certificate
of the Corporate Guarantors” means a written
certificate, notice or request addressed to the Lender and signed in the name
of the Corporate Guarantors by an Officer;


 


“Contaminant”
includes, but is not limited to, any pollutants, noise, dangerous substances,
liquid waste, industrial waste, hauled liquid waste, toxic substances,
hazardous wastes, hazardous materials, hazardous substances or contaminants
including any of the foregoing as defined in any Environmental Law now or
hereafter effective;


 


“Credit
Facilities” means collectively the Operating Credit
Facility, the Term Credit Facilities, the Foreign Exchange Credit Facility and
the MasterCard Credit Facility;


 


“Default”
means any of the events specified in Section 10.1, whether or not in
connection therewith there has been fulfilled or has occurred any requirement
of notice or lapse of time or the happening of any further condition or event
for such event to become an “Event of Default”;


 


“Documents”
means this Agreement, the Security Documents, the certificates, directions to
pay and other documents delivered or to be delivered to or for the benefit of
the Lender pursuant hereto or thereto and all amendments, replacements,
substitutions, renewals and supplementals relating thereto and, when used in
relation to any Person, the term “Documents” shall mean and refer to the
Documents executed and delivered by such Person;


 


“Drawdown”
means the advance of funds pursuant to the Term Credit Facilities by the Lender
to the Borrower as contemplated hereby;


 


“Drawdown
Date” means the date on which the Drawdown is made
pursuant to the provisions hereof, which shall be a Banking Day, or, if there
is more than one Drawdown, the date on which the initial Drawdown is made;


 


“Drawdown
Notice” means a Notice of the Borrower in
substantially the form of Schedule 1, duly completed with all information
necessary to effect a Drawdown of the Term Credit Facilities, to be given to
the Lender by the Borrower pursuant to Section 2.2;


 


“EDC
Acceptable Receivables” means the aggregate of
Canadian and United States accounts receivables of the Margin Parties,
determined by the Lender from the most recent financial statements and aged
list of accounts receivable of the Margin Parties, over which the Lender holds
a first assignment or first security interest from customers approved by the
Lender (such approval not to be unreasonably withheld), which have not been
outstanding for more than 90 days and which are insured by Export Development
Corporation, from which shall be excluded accounts receivable from affiliated
corporations and accounts receivable which are disputed by the Margin Parties’
customers or are subject to set off;


 


“Environmental
Law” means any and all applicable international,
federal, provincial, state, municipal or local laws, statutes, regulations,
treaties, orders, judgments, decrees, ordinances, official directives and all
authorizations, relating to the environment, occupational health and safety, or
any Environmental Activity, to which the Loan Parties or the Lender is subject;


 


3





















 


“Environmental
Activity” means any past, present or future activity,
event or circumstance in respect of a Contaminant including, without
limitation, its storage, use, holding, collection, purchase, accumulation,
assessment, generation, manufacture, construction, processing, treatment,
stabilization, disposition, handling or transportation, or its Release, escape,
leaching, dispersal or migration into the natural environment, including the
movement through or in the air, soil, surface water or groundwater;


 


Event of
Default” means any of the events specified in Section 10.1
in respect of which any requirement therein stipulated of notice or of lapse of
time or the happening of any further condition or event has occurred or been
fulfilled;


 


“GAAP”
and “generally accepted accounting principles”
mean generally accepted accounting principles as described in Section 1.4;


 


“Interest
Payment Date” means the last day of each and every
month;


 


“Lender’s
Branch” means the branch of the Lender at 407 - 8th
Avenue S.W., Calgary, Alberta T2P 1E5, or such other branch in Calgary,
Alberta, as the Lender may from time to time designate by notice to the
Borrower;


 


“Lender’s
Counsel” means the firm of Fraser Milner Casgrain LLP
or such other firm of legal counsel as the Lender may from time to time
designate and, where the context so requires, shall include agents of the
Lender’s Counsel in jurisdictions other than Alberta;


 


“Loan”
means the Credit Facilities to be made hereunder together with all principal,
interest and fees and other amounts outstanding under any of the Documents from
time to time;


 


“Loan
Parties” means, collectively, but jointly and
severally, the Borrower and the Corporate Guarantors;


 


“Margin
Parties” means, collectively, the Borrower and Trace
Energy Services, Inc.


 


“Margin
Requirement” means the aggregate of 75% of Acceptable
Receivables and 90% of EDC Acceptable Receivables;


 


“Mortgaged
Property” means, collectively, all undertaking and all
the property and assets of the Loan Parties, real and personal, both present
and future, of whatsoever nature and kind and wheresoever situated, which has
been or will be mortgaged and charged to the Lender pursuant to any of the
Security Documents;


 


“Net Book
Value” means the dollar value of the Margin Parties’
fixed assets (excluding assets leased from HSBC Bank of Canada, Leasing
Division, or others) net of accumulated depreciation as reported on its balance
sheet from time to time, to be determined in accordance with generally accepted
accounting principles;


 


“Operating
Credit Facility” means the demand revolving operating
credit facility provided hereunder in the maximum principal amount of Cdn.
$9,000,000, subject to any change in accordance with the provisions hereof;


 


“Outstandings”
means any amount of the Loan, whether for principal, interest or otherwise, the
payment of which has not been made when due;


 


4





















 


“Permitted
Encumbrances” means, as of any particular time and
with respect to any Person, any one or more of the following:


 


(a)           liens
for taxes, rates and assessments not yet due or, if due, the validity of which
is being contested diligently and in good faith by appropriate proceedings by
such Person and where security in the form of cash, a bank draft or a letter of
credit of a Canadian chartered bank, a surety bond of an insurer carrying on
business in Canada acceptable to the Lender or other security satisfactory to
the Lender has been deposited with the Lender or the relevant taxing authority
if such deposit is requested by the Lender, in an amount sufficient to pay such
taxes, rates and assessments and all interest and costs in connection therewith
and liens for the excess of the amount of any past due taxes for which a final
assessment has not been received over the amount of such taxes as estimated and
paid;


 


(b)           the
lien of any judgment rendered, or claim filed, against such Person which is
being contested diligently and in good faith by appropriate proceedings by such
Person, and which does not have a material adverse affect on such Person, its
business or property or in respect of which there shall have been deposited
with the Lender security in the form referred to in paragraph (a) above in
an amount sufficient to pay such judgment or claim;


 


(c)           any
lien arising under legislation dealing with mechanics liens or the privileged
claims of builders or suppliers of material, provided that the lien is being
contested diligently and in good faith by appropriate proceedings if permitted
by the applicable legislation and any required holdback is being maintained in
accordance with such legislation, undetermined or inchoate liens and charges
arising under any such legislation, a claim for which shall not at the time
have been registered against the subject property and of which notice shall not
at the time have been given to such Person, and any lien or charge under any
such legislation which relates to obligations not overdue or delinquent;


 


(d)           any
Security Interest howsoever ranking for which provision has been made by the
deposit with the Lender of security in the form referred to in paragraph (a) above
in an amount sufficient to pay the same and all interest and costs in
connection therewith at maturity;


 


(e)           reservations,
exceptions, limitations, provisos and conditions expressed in any original
grant from the Crown and as set out in the Land Titles Act (Alberta) which do
not materially adversely impair the use of the subject property;


 


(f)            licences,
easements, rights-of-way, servitudes and rights in the nature of easements
(including, without in any way limiting the generality of the foregoing,
licences, easements, rights-of-way, servitudes and rights in the nature of
easements for sidewalks, public ways, sewers, drains, gas, steam and water
mains or electric light and power, or telephone and telegraph conduits, poles,
wires and cable) and other restrictions which in the opinion of the Lender will
not in the aggregate materially and adversely impair the use of the subject
property or in respect to which such Person has made satisfactory arrangements
for relocation so that such use will not in the aggregate be materially and
adversely impaired;


 


5





















 


(g)           zoning,
planning, development and building restrictions, by-laws and ordinances,
municipal by-laws and regulations, and restrictive covenants, which will not in
the opinion of the Lender materially impair the use of the subject property for
the purposes for which it is held by such Person;


 


(h)           title
defects or irregularities which are of a minor nature and which in the
aggregate will not materially affect the security granted to the Lender
pursuant to the Security Documents or materially impair the use of the subject
property for the purposes for which it is held by such Person;


 


(i)            Security
Interests securing obligations of such Person under any capital lease (the
categorization as such to be determined in accordance with GAAP) incurred in
the ordinary course of such Person’s business and limited to the property
acquired in the transaction in which the capital lease obligation was incurred;


 


(j)            Security
Interests securing all or any portion of the purchase price of property
purchased by such Person in the ordinary course of its business and to be used
in connection with such business, limited to the property acquired in the
transaction in which the purchase money obligation was incurred;


 


(k)           Security
Interests securing obligations of such Person incurred or assumed in the
ordinary course of such Person’s business in favour of suppliers or other
Persons for the deferred purchase price of goods supplied to such Person,
limited to the property acquired in the transaction in which the supplier
obligation was incurred;


 


(l)            security
to a public utility or other municipality or government or to any statutory or
public authority when required by such utility, municipality, government or
other authority in connection with the operations of such Person which in the
opinion of the Lender will not in the aggregate materially affect the security
for the Loan;


 


(m)          the
right reserved to or vested in any municipality or public authority to condemn,
expropriate or designate a purchaser of such property;


 


(n)           any
statutory liens or charges as contained and set out in any legislation to which
any property is subject and a claim for which shall not at the time have been
registered and of which notice in writing shall not at the time have been given
to such person and which has priority over the Security Interests constituted
by the Security Documents (other than liens of workmen, builders, contractors,
engineers or suppliers of material); and


 


(o)           any
Security Interest consented to in writing by the Lender;


 


“Person”
means an individual, a partnership, a corporation, a trust, a joint venture, an
unincorporated organization, a union, a government or any department or agency
thereof and the heirs, executors, administrators or other legal representatives
of an individual;


 


“Prime
Rate” means the floating annual rate of interest
established and recorded by the Lender from time to time as a reference rate
for the purposes of determining rates of interest it will charge on loans in
Canada denominated in Canadian dollars and which the Lender


 


6





















 


acknowledges
was four and three-quarters percent (4.75 %) on November 21, 2005.  A certificate of a Vice-President of the
Lender shall be conclusive evidence of the Prime Rate from time to time;


 


“Release”
includes discharge, spray, inject, inoculate, abandon, deposit, spill, leak,
seep, pour, emit, empty, throw, dump, place and exhaust which might occur in
any manner whatsoever;


 


“Security
Documents” any or all of the following:


 


the agreements, securities, instruments and
assurances heretofore granted to the Lender by the Loan Parties or any other
Person for the purpose of securing the repayment to the Lender of the Loan, or
any portion thereof;


 


the agreements, securities, instruments and
assurances described or contemplated in this Agreement including, without
limitation, in Article 4 hereof; and


 


any other agreements, securities, instruments
or assurances granted by the Loan Parties or any other Person to the Lender
prior, concurrently with or subsequent to the date hereof for the purpose of
securing the repayment to the Lender of the Loan, or any portion thereof;


 


“Security
Interest” means any assignment, mortgage, charge,
pledge, lien, hypothec, encumbrance securing or in effect securing an
obligation or any indebtedness of any Person, conditional sale, title retention
agreement or security interest whatsoever, howsoever created or arising,
whether absolute or contingent, fixed or floating, legal or equitable,
perfected or not;


 


“Term
Credit Facilities” means the Term Credit Facility #1 and the Term Credit Facility #2;


 


“Term
Credit Facility #1” means the term non-revolving
credit facility provided hereunder in the maximum principal amount of Cdn.
$5,621,652, subject to any change in accordance with the provisions hereof;


 


“Term
Credit Facility #2” means the term non-revolving
credit facility provided hereunder in the maximum principal amount of Cdn.
$2,937,500, subject to any change in accordance with the provisions hereof;


 


“U.S. Base
Rate” means
the floating annual rate of interest established and recorded by the Lender
from time to time as a reference rate for the purpose of determining rates of
interest it will charge on loans in Canada denominated in United States Dollars
based on a 360 day year and which the Lender acknowledges was seven and
one-half (7.5 %) on November 21, 2005. 
A certificate of an assistant vice-president, manager or account manager
of the Lender shall be, absent manifest error, conclusive evidence of the U.S.
Base Rate from time to time;


 


“U.S. Base
Rate Loan” means
a drawdown in U.S. Dollars for which the U.S. Base Rate is the reference
interest rate;


 


“U.S.
Dollars” and “U.S.” means the lawful money of United States.


 


7





















 


1.2          Headings


 


The division of this Agreement into Articles and Sections and the
insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation of this Agreement.  The terms “this Agreement”, “hereof”, “hereunder”
and similar expressions refer to this Agreement and not to any particular
Article, Section or other portion hereof and include any agreement
supplemental hereto.  Unless something in
the subject matter or context is inconsistent therewith, references herein to
Articles, Sections and Schedules are to Articles and Sections of or Schedules
to this Agreement.


 


1.3          Number


 


Words importing the singular number only shall include the plural and
vice versa, words importing the masculine gender shall include the feminine and
neuter genders and vice versa.


 


1.4          Accounting
Principles


 


Wherever in this Agreement reference is made to generally accepted
accounting principles, such reference shall be deemed to be to the generally
accepted accounting principles in Canada from time to time approved by the
Canadian Institute of Chartered Accountants, or any successor institute,
applicable as at the date on which such calculation is made or required to be
made in accordance with generally accepted accounting principles.  Where the character or amount of any asset or
liability or item of revenue or expense is required to be determined, or any
consolidation or other accounting computation is required to be made for the
purpose of this Agreement or any Document, such determination or calculation
shall (unless the context otherwise requires), to the extent applicable and
except as otherwise specified herein or as otherwise agreed in writing by the
parties, be made in accordance with generally accepted accounting principles
applied on a consistent basis.


 


8





















 


1.5          Per
Annum Calculations


 


Unless otherwise stated, wherever in this Agreement reference is made
to a rate of interest “per annum” or a similar expression is used, such
interest shall be calculated using the nominal rate method, and not the
effective rate method, of calculation and on the basis of a calendar year of
365 days or 366 days, as the case may be, unless otherwise specified herein.


 


1.6          Included
Words; Inclusiveness


 


Where any term or expression is defined herein, derivations of such
term or expression shall have a corresponding meaning.  Words and terms denoting inclusiveness (such
as “include” or “includes” or “including”) or particularity (such as “in
particular” or “such as”), whether or not so stated, are not limited by their
context or by the words or phrases which precede or succeed them.


 


1.7          Schedules


 


The following are the Schedules annexed hereto and incorporated by
reference and deemed to be part hereof:


 


Schedule 1
- Drawdown Notice


Schedule 2
- Existing Litigation


 


ARTICLE 2
— THE CREDIT FACILITIES


 


2.1          The
Credit Facilities


 


Subject to the terms and conditions hereof, the Lender shall make the
Credit Facilities available to the Borrower. 
The Credit Facilities shall consist of the following:


 


(a)           a
Cdn. $5,621,652 term non-revolving credit facility (the “Term Credit Facility
#1”);


 


(b)           a
Cdn. $2,937,000 term non-revolving credit facility (the “Term Credit Facility
#2”);


 


(c)           a
Cdn. $9,000,000 demand revolving operating credit facility (the “Operating Credit
Facility”);


 


9





















 


(d)           a
USD $500,000 demand revolving foreign exchange credit facility (the “Foreign
Exchange Credit Facility”), as a sublimit of the Operating Credit Facility;


 


(e)           a
Cdn. $80,000 MasterCard credit facility (the “MasterCard Credit Facility”).


 


2.2          Manner
of Borrowing


 


The Borrower has already made Drawdowns under the Term Credit
Facilities which were requested by a Drawdown Notice, and each is fully
advanced.  The Borrower already has access
to advances under the Operating Credit Facility.


 


2.3          Purpose


 


The Credit Facilities were made available as follows:


 


(a)           the
Term Credit Facility #1 was previously used by the Borrower to refinance
previous term indebtedness to the Lender and repatriate or distribute capital
to the shareholder of the Borrower;


 


(b)           the
Term Credit Facility #2 was previously used by the Borrower to assist with the
acquisition of seismic stations;


 


(c)           the
Operating Credit Facility is to be used by the Borrower to assist its
day-to-day working capital and operating requirements, future acquisitions and
for the issuance of bank guarantees and letters of credit;


 


(d)           the
Foreign Exchange Credit Facility is to be used by the Borrower to purchase
foreign exchange contracts for major currencies by the Lender, to a maximum
contract length of one year.


 


2.4          Nature
of the Credit Facilities


 


Outstandings under the Term Credit Facilities and the MasterCard Credit
Facility shall not exceed 60% of the Net Book Value, subject to reduction as
set forth in Section 6.1.


 


The Operating Credit Facility is a revolving credit and, accordingly,
the Borrower may utilize the facility up to a maximum of Cdn. $9,000,000,
subject to the Borrower maintaining the Margin Requirement.  Outstanding balances under the Operating
Credit Facility shall be reduced by daily U.S. Dollars deposits held by the
Borrower when determining whether the Borrower has maintained the Margin
Requirement from time to time provided that the outstanding balance of the
Operating Credit Facility does not exceed Cdn. $9,000,000 at any


 


10





















 


time.  The Operating Credit
Facility shall include, as a sublimit, the amount of $1,000,000 U.S. Dollars,
and the Foreign Exchange Credit Facility. 
The amount of Cdn. $1,000,000 shall be available for the issuance of
bank guarantees and letters of credit to a maximum of 365 days.


 


The Borrower shall ensure that the “Foreign Exchange Percentage” (as
hereafter defined) of the aggregate face amount of outstanding forward foreign
exchange contracts under the Foreign Exchange Credit Facility at no time
exceeds the amount of USD $500,000 and at no time places the Borrower in excess
of the Margin Requirement.  All liabilities
of the Lender under any foreign exchange contract shall be fulfilled by the
Borrower as they fall due.  For the
purpose herein, “Foreign Exchange Percentage” means the notional risk
percentage(s) established and recorded by the Lender from time to time based on
the Lender’s assessment of the foreign exchange market.


 


2.5          Account
of Record


 


The Lender shall open and maintain books of account evidencing the Loan
and all other amounts owing by the Loan Parties to the Lender hereunder.  The Lender shall enter in the foregoing
accounts details of all amounts from time to time owing, paid or repaid by the
Loan Parties hereunder.  The information
entered in the foregoing accounts shall, subject to manifest error, constitute
evidence of the obligations of the Loan Parties to the Lender hereunder with
respect to the Loan and all other amounts owing by the Loan Parties to the
Lender hereunder.  After a request by the
Loan Parties the Lender shall promptly advise the Loan Parties of such entries
made in the Lender’s books of account.


 


11





















 


ARTICLE 3
— CONDITIONS PRECEDENT TO DRAWDOWN


 


3.1          Lender’s
Conditions for Drawdown


 


The obligation of a Lender to effect a Drawdown is subject to
satisfaction of the following conditions precedent:


 


(a)           the
Lender shall have received a favourable legal opinion of Lender’s Counsel as to
the validity, binding effect and enforceability of this Agreement and the
Security Documents and the Security Interests constituted thereby and the due
registration thereof and as to such further matters of a legal nature relating
to the Loan Parties, this Agreement or the Security Documents as the Lender may
reasonably request;


 


(b)           the
Lender shall have received, prior to the Drawdown Date, a favourable legal
opinion of the Borrower’s Counsel addressed to the Lender and the Lender’s
Counsel as to (i) the due incorporation and valid and subsisting nature of
the Loan Parties; (ii) the power and authority of the Loan Parties to
execute and deliver and perform their obligations under this Agreement and the
Security Documents referred to in Section 4.2 hereof; (iii) the due
execution and delivery by the Loan Parties of this Agreement and the Security
Documents referred to in Section 4.2 hereof; (iv) the non-violation
of this Agreement and the Security Documents referred to in Section 4.2
hereof with the provision of existing law; (v) this Agreement and the
Security Documents referred to in Section 4.2 hereof not being, to the
best of their knowledge, inconsistent with or constituting a default under
other obligations of the Loan Parties; (vi) this Agreement and the
Security Documents referred to in Section 4.2 hereof not being in conflict
with the Loan Parties’ articles of incorporation, by-laws or corporate
resolutions; and (vii) no legal proceeding against the Loan Parties taking
place, to the best of their knowledge, which might materially adversely affect
their ability to perform their obligations under this Agreement or the Security
Documents referred to in Section 4.2 hereof;


 


(c)           no
Default shall have occurred and be continuing hereunder and no Default shall
occur hereunder as a result of the making of the Drawdown and a Certificate of
the Borrower and a Certificate of the Corporate Guarantor addressed to the
Lender dated the proposed Drawdown Date to that effect shall have been received
by the Lender;


 


(d)           all
representations and warranties herein shall have been true and correct in all
material respects when made and additionally shall be true and correct in all
material respects on and with effect from the Drawdown Date and a Certificate
of the Borrower and a Certificate of the Corporate Guarantor addressed to the
Lender dated the proposed Drawdown Date to those effects shall have been
received by the Lender;


 


(e)           the
Lender shall have received, prior to the initial Drawdown Date, in respect of
each corporate Loan Party (i) a certificate of status and certified true
copies of its


 


12





















 


constating documents, each of the foregoing from appropriate
governmental authorities and (ii) certified copies of the by-laws (or
equivalent), and resolutions of its boards of directors or shareholders, as
applicable, authorizing the transactions contemplated hereby and the execution,
delivery and performance of the Documents and such certification shall indicate
that such resolutions are in full force and effect in such form;


 


(f)            all
of the Documents shall be in form and substance satisfactory to the Lender and
Lender’s Counsel;


 


(g)           the
Security Documents shall have been executed and delivered and registered or
filed at all registries or filing offices necessary or of advantage (in the
reasonable opinion of Lender’s Counsel) to preserve and protect the efficacy
and priority thereof;


 


(h)           the
Lender shall have received evidence that the Loan Parties carry all risk
insurance (including extended coverage endorsements) in amounts and from an
insurer acceptable to the Lender on the Mortgaged Property showing the Lender
as first loss payee by way of standard mortgage endorsement, the said policy to
include public liability insurance;


 


(i)            the
Loan Parties shall provide to the Lender a satisfactory equipment list
evidencing the Net Book Value of various equipment, such list to include serial
numbers, if applicable;


 


(j)            the
Borrower shall provide to the Lender a copy of any unanimous shareholder’s
agreement relating to the shareholders of the Borrower;


 


(k)           the
Bank shall be provided with an independent evaluation of fixed assets of the
Loan Parties, in form and content satisfactory to the Lender, indicating a fair
market value of not less than (Cdn.)$13,600,000.  An orderly liquidation value of the fixed
assets of the Loan Parties shall also be provided with the independent
evaluation (both previously provided);


 


(l)            the
Borrower shall provide to the Lender a copy of the Purchase Agreement between
Geokinetics Inc. and SCF Partners related to the purchase and sale of the
Borrower’s shares;


 


(m)          the
Borrower shall provide the Lender with written confirmation satisfactory to the
Lender that Geokinetics Inc. has raised sufficient equity to satisfy the
purchase price to acquire the Borrower’s shares.


 


3.2          Waiver


 


The conditions set forth in Section 3.1 are inserted for the sole
benefit of the Lender and may be waived by the Lender, in whole or in part in
its discretion (with or without terms or conditions), prior to a Drawdown.


 


13





















 


ARTICLE 4
— SECURITY


 


4.1          Existing
Security Documents


 


As security for all of the indebtedness, liabilities and obligations of
the Loan Parties to the Lender from time to time, each of the Loan Parties, as
the case may be, confirms and acknowledges that it has previously executed and
delivered to the Lender and shall hereby maintain in effect so long as this
Agreement has not been terminated under Section 12.13, the following:


 


(a)           a
line of credit by way of current account overdraft agreement evidencing
advances under the Operating Credit Facility by the Borrower;


 


(b)           an
agreement for U.S. dollar line of credit by way of account overdraft evidencing
U.S. Dollar advances under the Operating Credit Facility by the Borrower;


 


(c)           promissory
note(s) of the Borrower, evidencing advances under the Term Credit Facilities;


 


(d)           Security
Over Cash, Credit Balances and Deposit Instruments by Customer by the Borrower;


 


(e)           an
agreement for foreign exchange contracts by the Borrower;


 


(f)            a
general security agreement of the Borrower granting a security interest to the
Lender on all of the Borrower’s present and after-acquired personal property
and a floating charge on all other assets and registered specifically, where
required, against serial numbered items (currently registered in Alberta,
British Columbia, Saskatchewan and Texas);


 


(g)           a
general assignment of book debts of the Borrower granting a security interest
to the Lender on all of the Borrower’s book debts (currently registered in
Alberta, British Columbia, Saskatchewan and Texas);


 


(h)           an
unlimited guarantee of Trace Energy Services, Inc. whereby it guarantees
repayment of the Loan to the Lender;


 


(i)            a
general security agreement Trace Energy Services, Inc. granting a security
interest to the Lender on all of its present and after-acquired personal
property and a floating charge on all other assets and registered specifically
where required against serial numbered items (currently registered in Alberta,
British Columbia, Saskatchewan and Texas);


 


(j)            a
general assignment of book debts Trace Energy Services, Inc. granting a
security interest to the Lender on all of its book debts (currently registered
in Alberta, British Columbia, Saskatchewan and Texas);


 


14





















 


(k)           a
banker’s acceptance agreement;


 


(l)            an
acknowledgement and confirmation of Trace Energy Services, Inc. that its
unlimited corporate guarantee previously given to the Lender shall extend to
the Credit Facilities.


 


The Security
Interests created by all of the above Security Documents shall (subject always
to Permitted Encumbrances) rank at the time of the Drawdown Date or at the time
of the execution and delivery thereof and in each case at all times thereafter,
as first priority Security Interests, perfected by possession or confirmed
registration, filing or recordation, as applicable.


 


4.2          Undertaking
to Grant Additional Security Documents


 


As security for all the indebtedness, liabilities and obligations of
the Loan Parties to the Lender from time to time, each of the Loan Parties, as
the case may be, shall and hereby covenants to execute and deliver to the
Lender prior to the Drawdown Date and maintain in effect so long as this
Agreement has not been terminated under Section 12.12, the following:


 


(a)           an
unlimited grantee of each of the other Corporate Guarantors whereby it
guarantees repayment of the Loan to the Lender.


 


The Security
Interests created by all of the above Security Documents shall (subject always
to Permitted Encumbrances) rank at the time of the Drawdown Date or at the time
of the execution and delivery thereof and in each case at all times thereafter,
as first priority Security Interests, perfected by possession or confirmed
registration, filing or recordation, as applicable.


 


4.3          Security
Effective Notwithstanding Drawdown Date


 


The Security Interests constituted or required to be created hereby or
by any Security Document shall be effective and continuing whether the monies
hereby or there-by secured or any part thereof shall be advanced before or
after or at the same time as the creation of any such Security Interests or
before or after or upon the date of execution of this Agreement.


 


4.4          Attachment
of Security


 


Each of the Loan Parties acknowledges, covenants and agrees on its own
behalf and with respect to the Security Documents executed by it that:


 


(a)           any
Security Documents issued or granted by it in favour of the Lender prior to the
completion of the execution of this Agreement by all of the parties hereto
shall (i) be conclusively deemed to have been issued or granted in
consideration of, inter alia, the execution of this Agreement by the Lender,
and (ii) constitute valid


 


15





















 


and binding security for all the indebtedness, liabilities and
obligations of the Loan Parties under the Credit Facilities or any of the
Documents from time to time, notwithstanding that any of such Documents may
have been executed and (in certain cases) registered, filed or recorded at
certain registries and offices of public record prior to the execution and any
advance of funds hereunder;


 


(b)           the
fact that any of the Security Documents described in Section 4.4(a) were
executed, registered, filed or recorded prior to the completion of the
execution of this Agreement by all of the Loan Parties hereto shall not be
raised or pleaded as a defence or the basis of any counterclaim in any
proceedings relating to the Security Documents (or any portion thereof) or the
enforcement of this Agreement, nor form the basis of any claim or cause of
action by any of the Loan Parties against the Lender or any other Person acting
on its behalf; and


 


(c)           the
Security Interests created in the Security Documents described in Section 4.4(a) attached
forthwith upon the completion of the execution and delivery thereof (except to
the extent they relate to property in which the Loan Parties have no interest
in which case they attach at the time that the Loan Parties, as applicable,
acquire any interest therein) and have at all times secured and shall at all
times secure all the indebtedness, liabilities and obligations of the Borrower
in respect of the Credit Facilities or the Documents from time to time and the
security described in Sections 4.1 and 4.2 will continue at all times to secure
the Outstandings from time to time; and


 


(d)           the
Security Documents described in Sections 4.1 and 4.2 executed and delivered
after execution of this Agreement and the Security Interests created pursuant
thereto shall attach at the time of execution of the relevant Security Document
(except to the extent they relate to property in which the Loan Parties have no
interest in which case they attach at the time that the Loan Parties, as
applicable, acquire any interest therein).


 


4.5          Extensions,
Etc.


 


The Lender may grant extensions, take and give up securities, accept
compositions, grant releases and discharges and otherwise deal with the
Borrower, or any other Persons, sureties, or securities, as the Lender, in its
sole discretion, may see fit, all without prejudice to the liability of any
Loan Party or the Lender’s rights under this Agreement.


 


4.6          No
Merger


 


The taking of any security as provided under this Agreement or any
Security Document shall not operate by way of merger of any of the obligations
of any Loan Party under this Agreement or any Security Document, or of any
Security Interest, guarantee, contract,


 


16





















 


promissory note, bill of exchange or security in any other form,
whether or not similar to the foregoing, and no judgment recovered by the
Lender shall operate by way of merger or in any way affect the security
provided for in this Agreement, which shall be in addition to and not in
substitution for any other security now or hereafter held by or behalf of the
Lender whether for the Loan or under any Security Document. For greater
certainty, no judgment recovered by the Lender shall operate by way of merger
or in any way affect the obligation of any Loan Party to pay interest at the
rates, times and compounded as provided in this Agreement.  Without limiting the generality of the
foregoing, the Facility Letter shall not merge in this Agreement or be
superseded or replaced but shall remain in full force and effect; and the terms
and conditions provided in the Facility Letter shall, subject to Section 12.17
hereof, be applicable to the Loan as well as the terms and provisions of this
Agreement.


 


ARTICLE 5
— PAYMENT OF INTEREST AND FEES


 


5.1          Interest


 


The Borrower shall pay interest on the daily balance outstanding on the
Term Credit Facilities and remaining unpaid from time to time both before and
after maturity or default at a rate per annum equal to five-eights of one
percent (5/8 of 1%) per annum above the Prime Rate in effect from time to time,
calculated daily and compounded monthly from the respective dates of such
advances, on the last day of each and every month during the currency of this
Agreement, commencing with the month in which the Drawdown is made and
continuing to and including the date the entire amount of the Term Credit
Facilities have been repaid.  If the
Prime Rate changes and so often as the same occurs during the currency of this
Agreement, the rate of interest charged on the Term Credit Facilities shall
change on the same day and in the same amount as the Prime Rate shall have
changed.


 


17





















 


The Borrower shall pay interest on the daily balance outstanding on the
Operating Credit Facility remaining unpaid from time to time both before and
after maturity or default at a rate per annum equal to one-half of one percent
(1/2 of 1%) per annum above the Prime Rate in effect from time to time,
calculated daily and compounded monthly from the respective dates of
borrowings, on the last day of each and every month during the currency of this
Agreement commencing with the month in which the Drawdown is made and
continuing to and including the date the entire amount of the Operating Credit
Facility has been repaid.  If the Prime
Rate changes and so often as the same occurs during the currency of this
Agreement, the rate of interest charged on the Operating Credit Facility shall
change on the same day and in the same amount as the Prime Rate shall have
changed.


 


To the extent that the
Borrower utilizes the Operating Credit Facility in U.S. Dollars, the Borrower
shall pay interest on the daily balance outstanding for such amount at the rate
per annum equal to one-half of one percent (1/2 of 1%) per annum above the U.S.
Base Rate in effect from time to time, calculated daily and compounded monthly
from the respective dates of borrowings on the last day of each and every month
during the currency of this Agreement commencing in the month in which the
initial Drawdown (of U.S. Dollars) is made and continuing to and including the
date the entire amount of the U.S. Dollars borrowed under the Operating Credit
Facility has been repaid.  If the U.S.
Base Rate changes and so often as the same occurs during the currency of this
Agreement, the rate of interest charged on the U.S. Dollar portion on the
Operating Credit Facility shall change on the same day and in the same amount
as the U.S. Base Rate may have changed.


 


5.2          Borrower’s
Option to Utilize Banker’s Acceptances


 


The Borrower shall have the option to borrow by way of Banker’s
Acceptance in relation to the Term Credit Facilities and the Operating Credit
Facility.  A stamping fee of one and


 


18





















 


three-quarters (13⁄4%) percent per annum shall be payable at the time of
acceptance of each Banker’s Acceptance under the Operating Credit Facility,
charged on the full amount of the Banker’s Acceptance, calculated over the term
of the Banker’s Acceptance.  A stamping
fee of one and seven-eights (17/8%) percent per annum shall be
payable at the time of acceptance of each Banker’s Acceptance under the Term
Credit Facilities, charged on the full amount of the Banker’s Acceptance,
calculated over the term of the Banker’s Acceptance.  The maximum term of any Banker’s Acceptance
shall be 364 days.


 


5.3          Issuance
of Guarantees or Letters of Credit


 


Upon the issuance of any guarantee or standby letter of credit by the
Lender under the Operating Credit Facility, a fee equal to one and one-quarter
(11⁄4%) per cent per annum shall be paid to the Lender, calculated against the
face amount and over the term of each guarantee or letter of credit.


 


5.4          No
Deduction etc.


 


All interest and fees to be paid hereunder shall accrue from day to day
and shall be paid without allowance or deduction for deemed re-investment or
otherwise howsoever, both before and after maturity and before and after
default and/or judgment, if any, until payment thereof.


 


5.5          Interest
on Overdue Interest, Unpaid Costs and Expenses


 


Notwithstanding any other provision hereof, in the event that any
amount due hereunder (including, without limitation, any interest payment and
unpaid costs and expenses) is not paid when due (whether by acceleration or
otherwise), the Borrower shall and hereby agrees to pay to the Lender interest
on such unpaid amount (including, without limitation, interest on interest), if
and to the fullest extent permitted by Applicable Law, from the date that such
amount is due until the date that such amount is paid in full (but excluding
the date of such


 


19





















 


payment if the payment is made before 3:00 p.m. (Calgary time) at
the Lender’s Branch on the date of such payment), and such interest shall
accrue daily, be calculated and compounded on the last Banking Day of each
calendar month and be payable in Canadian Dollars on demand, after as well as
before maturity, Default and judgment, at a rate per annum that is equal to the
same rate(s) charged on the principal relating thereto (or, in the event of
different interest rates on the principal, arrears of interest shall bear
interest at the same rate charged on that portion or those portions of the
principal which relates to the interest in arrears), and arrears in unpaid
costs, expenses and other amount due hereunder shall bear interest at a rate
per annum that is equal to the Prime Rate from time to time plus three percent
(3%) per annum.


 


5.6          Application
Fee


 


The Lender acknowledges receipt from the Borrower of an irrevocable
application fee in the amount of Cdn. $45,000, which sum is the property of the
Lender as consideration for its time, effort and expense incurred in the review
of documents and financial statements. 
The Borrower acknowledges and agrees that determination of such costs is
not feasible and the aforementioned sum represents a reasonable estimate
thereof.


 


5.7          Administration
Fee


 


The Borrower shall pay to the Lender on the last day of each month, an
administration fee of Cdn. $1,000 with respect to the Operating Credit
Facility, such fee to be charged only in those months in which the Operating
Credit Facility is utilized, and shall be debited to the Borrower’s current
account on the last day of the month.


 


5.8          Additional
Fees


 


The Borrower shall pay to the Lender the following:


 


(a)           a
monthly business internet banking fee of Cdn. $50;


 


20





















 


(b)           a
fee of 0.25% per annum on the unused portion of the Operating Credit Facility
in excess of $5,000,000 based on the average outstandings for the previous
quarter and paid quarterly in arrears.


 


ARTICLE 6
— REPAYMENT OF LOAN


 


6.1          Repayment


 


The Borrower shall pay the entire unpaid amount of the Operating Credit
Facility on demand by the Lender.  If an
Event of Default has accrued, the Borrower shall pay the entire unpaid amount
of the Term Credit Facilities on demand by the Lender.  Until demanded, accelerated or otherwise, in
which case the unpaid portion of the Loan shall immediately become due and
payable, principal payments on the Term Credit Facility #1 shall be paid in
equal monthly instalments of Cdn. $193,334 on the last day of each month with
full repayment no later than April 30, 2008, and principal repayments on
the Term Credit Facility #2 shall be paid in equal monthly instalments of Cdn.
$62,500 with full repayment no later than September 30, 2009.


 


6.2          Optional
Repayment of Principal


 


Provided there does not exist a Default hereunder, the Borrower may at
any time and from time to time on any Banking Day repay, without bonus or
penalty to the Borrower, the whole or any part of the Loan, provided that the
Borrower shall give notice to the Lender of such prepayment at least one (1) Banking
Day prior to the proposed repayment date.


 


ARTICLE 7
— PLACE AND APPLICATION OF PAYMENTS


 


7.1          Place
of Payment of Principal, Interest and Fees


 


All payments of principal, interest, fees or other amounts to be made
by the Loan Parties to the Lender pursuant to this Agreement shall be made for
value on the day such amount is due hereunder at the Lender’s Branch, provided
the Lender receives funds from the Borrower before 3:00 p.m. (Calgary
time) and if such funds are not received by such time, or if such day is not a
Banking Day, on the Banking Day next following, by deposit or transfer thereof


 


21





















 


at the time specified herein to the account of the Lender for such
purpose or to such other place or account as the Lender may from time to time
notify the Borrower.


 


7.2          Funds


 


Each amount advanced, disbursed or paid hereunder shall be advanced,
disbursed or paid, as the case may be, in such form of funds as may from time
to time be customarily used for the settlement of banking transactions in
Canadian Dollars in Calgary, Alberta similar to the banking transactions
required to give effect to the provisions of this Agreement for value on the
day such advance, disbursement or payment is to be made.


 


7.3          Application
of Payments


 


All payments made by the Borrower hereunder shall (unless mutually
agreed among the Loan Parties and the Lender) be applied in the following
order:


 


(a)           to
amounts due hereunder as fees;


 


(b)           to
amounts due hereunder as costs and expenses;


 


(c)           to
amounts due hereunder as interest on overdue amounts;


 


(d)           to
amounts due hereunder as interest; and


 


(e)           to
amounts due hereunder as principal.


 


ARTICLE 8
— REPRESENTATIONS AND WARRANTIES


 


8.1          General


 


The Borrower hereby represents and warrants to the Lender the accuracy
of each of the matters set out in this Article 8 (and the Corporate
Guarantor hereby represents and warrants to the Lender the occurrence of each
of the matters that pertain to it or the Documents that it has executed) and
they acknowledge that the Lender has entered into this Agreement and agreed to
make the Credit Facilities available to the Borrower in full reliance upon these
representations and warranties.  Any
investigations made at any time by or on behalf of the Lender shall not
diminish in any respect whatsoever its right to rely on the representations


 


22





















 


and warranties in this Agreement or in any certificates, instruments or
opinions of counsel.  All statements
contained in a Certificate of the Borrower or a Certificate of the Corporate
Guarantor or in any instruments delivered by or on behalf of the Borrower or the
Corporate Guarantor under or pursuant to this Agreement or in connection with
any provision hereof shall constitute representations and warranties made by
the Borrower and the Corporate Guarantor to the Lender under this Agreement.


 


8.2          Corporate
Existence and Power


 


Each of the Loan Parties (a) is and will continue to be a duly
formed and validly existing corporation in good standing under the laws of the
jurisdiction of its incorporation; (b) is and will continue to be duly
qualified and licensed as a foreign or extra-provincial corporation in each
jurisdiction where its assets or the business conducted by it with respect
thereto makes such qualification necessary or of advantage or where it
maintains an office for the conduct of business; and (c) has and will
continue to have all necessary power and authority to own or hold its assets,
to carry on its businesses with respect thereto as now conducted and as
proposed to be conducted, and to execute, deliver and perform its obligations
under this Agreement, the other Documents and all documents referred to herein
or therein to which it is, or is to be, a party.


 


8.3          Authorization
and Execution


 


The execution, delivery and performance of its obligations under this
Agreement and the other Documents to which each of the corporate Loan Parties,
as applicable, is, or is to be, a party and the consummation of the
transactions contemplated hereby or thereby have been duly and validly
authorized by all corporate or other action of each of the corporate Loan
Parties necessary to ensure its and their respective validity and legality.


 


23





















 


8.4          No
Contravention or Resultant Security Interest


 


The execution, delivery and performance of this Agreement and the other
Documents to which each of the Loan Parties, as applicable, is, or is to be, a
party and the consummation of the transactions contemplated hereby or thereby
and the enforcement hereof and thereof by the Lender or any trustee or agent
appointed under or pursuant to the terms of any of the Documents do not and
will not (a) conflict with, contravene or result in a breach of or exceed
the limitations or privileges contained in or conferred by, or constitute a
default under or accelerate the time for payment of any indebtedness or
enforcement of any obligation under, any of the terms, conditions or provisions
of (i) the constating documents of the corporate Loan Parties, (ii) any
resolutions of shareholders or directors or consent instruments in lieu
thereof, by-laws, shareholders’ agreements, or articles of the corporate Loan
Parties, or (iii) any agreement or instrument, licence or consent to which
the applicable Loan Party is a party or by which it or any of its assets is
bound or affected; (b) result in or require the creation or imposition of
any Security Interest upon any Loan Party or its respective assets other than
in favour of the Lender; or (c) contravene any provision of Applicable
Law.


 


8.5          Approvals
or Consents


 


Except those which have been obtained or will be obtained prior to the
Drawdown Date and are or will be on the Drawdown Date in full force and effect,
no present authorization, consent, approval, order, licence, permit or other
action by, or filing, registration, declaration or qualification with or before,
or publication or giving of notice to, any Person, and in particular to any
governmental authority or regulatory body or any agency, department or division
of any thereof, is of advantage or required to be obtained, given or made for (a) the
due execution and delivery by the Loan Parties, as applicable, of this
Agreement and the other Documents to which it is or may be a party; (b) the
perfection, protection or ranking of the Security Documents that create a
Security Interest or the Security Interests thereof; (c) the


 


24





















 


performance of the terms of this Agreement and the other Documents (d) the
enforcement of this Agreement or any of the other Documents by the Lender or
any agent or trustee appointed under or pursuant to any thereof; or (e) the
consummation of the transactions contemplated by this Agreement and the other
Documents.


 


8.6          Binding
Effect


 


This Agreement and each of the other Documents executed or to be
executed by the Loan Parties, as applicable, constitute, or will at the time of
delivery in each case constitute, the legal, valid and binding obligations of
the Loan Parties, as applicable, enforceable against it or them, respectively,
in accordance with the terms hereof or thereof subject to any qualifications or
limitations contained in the opinions delivered by the Lender’s Counsel or the
Borrower’s Counsel under Section 3.1 hereof.


 


8.7          Litigation


 


(a)           Other
than as set forth in Schedule 2, there are no actions, suits or
proceedings pending, or, to the best of the knowledge, information and belief
of the Loan Parties, threatened in or before any court, arbitrator or
governmental or other public authority, or before any private dispute resolving
body, in Canada or elsewhere which could have a material adverse affect on (i) the
legality, validity, binding effect or enforceability of, or the ability of the
Loan Parties to perform this Agreement, the other Documents or any of the
transactions or obligations contemplated hereby or thereby, or (ii) any of
the Mortgaged Property.


 


(b)           No
order, judgment, writ, injunction, decree, determination or award of any court,
arbitrator, governmental or other public authority or private dispute resolving
body exists with respect to the Loan Parties, which could affect (i) the
legality, validity, binding effect or enforceability of, or the ability of the
Loan Parties as applicable, to perform, this Agreement, the other Documents or
any of the transactions or obligations contemplated hereby or thereby, or (ii) any
of the Mortgaged Property.


 


8.8          Defaults
and Burdensome Provisions


 


(a)           Each
of the Loan Parties is not in material default in the performance or observance
of any of its obligations, covenants or conditions contained in any contract,
agreement or instrument, including any bond, debenture, note, conditional sale
agreement, lease or other document of whatever kind to which it is a party
evidencing or constituting or providing for the issuance, creation, evidencing
or securing of any indebtedness for borrowed money.


 


25





















 


(b)           No
Default or Event of Default has occurred and is continuing.


 


(c)           None
of the Loan Parties is aware of any event that has occurred and is continuing
which constitutes, or which with the giving of notice and/or the lapse of time
and/or a relevant determination would constitute a material contravention of or
default under any agreement or instrument by which the Loan Parties or any of
the Mortgaged Property are bound or affected.


 


8.9          Certain
Claims


 


(a)           The
Mortgaged Property is not, and at the time of the Drawdown Date and thereafter
will not be, subject to any Security Interest, other than Permitted
Encumbrances or encumbrances permitted by the terms of the Security Documents.


 


(b)           As
of the date hereof after due inquiry, the Loan Parties are not aware of any
Person enforcing or seeking to enforce or having given notice of its intention
to enforce any Security Interest or any right of first refusal, right of first
purchase or similar right or option relating to any portion of the Mortgaged
Property which Security Interest or right could (on any facts or circumstances)
if enforced, have an Adverse Effect.


 


8.10        Other
Information


 


All information, materials and documents delivered by the Loan Parties
to the Lender in connection with the transactions contemplated by this
Agreement were and will be, as the case may be


 


(a)           complete
and accurate in all material respects as at their respective dates, and as at
date of delivery thereof to the Lender,


 


(b)           if
delivered to the Lender prior to the date hereof, are additionally complete and
accurate (except to the extent superseded by later information, materials or
documents dealing with the same subject-matter) in all material respects on and
as of the date hereof, and


 


(c)           if
delivered to the Lender prior to the Drawdown Date, will be complete and
accurate in all material respects on the initial Drawdown Date, subject to any
changes in the normal and ordinary course of the Borrower’s business.


 


8.11        No
Omissions; Undisclosed Events


 


The Loan Parties have given to the Lender all information necessary to
make any statements contained herein not misleading in light of the
circumstances in which they are given, and there is no fact which materially
adversely affects or, so far as the Loan Parties can (after


 


26





















 


diligent inquiry) reasonably foresee, will materially adversely affect
the Mortgaged Property, the Loan Parties’ title thereto, as applicable, or each
Loan Party’s ability to perform its respective obligations under this
Agreement, the other Documents or any document referred to herein or therein to
which it is or is to be a party.


 


ARTICLE 9
— COVENANTS


 


9.1          General


 


The Loan Parties covenant and agree, as applicable, with the Lender as
set forth in this Article 9, each such covenant and agreement to remain in
force and effect until this Agreement has been terminated under Section 12.13
and the Loan Parties have no further indebtedness or liability hereunder or
under any other Documents or, in the case of provisions stated to survive
termination, until the discharge thereof. 
The covenants and agreements set forth in this Article 9 are
without limitation to any covenants, undertakings or agreements elsewhere
contained herein or in any other Documents.


 


9.2          Payment
and Performance


 


The Borrower will punctually pay all amounts falling due hereunder,
whether for principal, fees or interest or otherwise howsoever, as and when the
same fall due and at the places and manner provided herein and the Loan Parties
shall perform all other obligations to be performed under the terms of the
Documents by the applicable Loan Party at the times and places and in the
manner provided for herein or therein.


 


9.3          Maintenance
of Corporate Existence and Status


 


The Loan Parties shall each (a) keep and maintain its corporate
existence, status and authority, and (b) not vary or amend its by-laws or
its instruments of incorporation without the prior written consent of the
Lender (such consent not to be unreasonably withheld or delayed) and unless
such variation or amendment would not be likely to prejudice the rights


 


27





















 


of the Lender under any Document or adversely affect, in a material
manner, the ability of each corporate Loan Party to perform its obligations
under any Documents to which it is a party.


 


9.4          Compliance
with Laws and Regulations


 


The Loan Parties shall each duly observe and comply in all respects
with all Applicable Laws, regulations and orders of governmental authorities
relating to any portion of its assets or its ownership thereof or its business
in relation thereto, if non-compliance would result in an Adverse Effect.


 


9.5          Financial
Statements


 


The Loan Parties shall furnish to the Lender financial statements as
follows, such financial statements to be prepared in accordance with generally
accepted accounting principles on a basis consistent with prior years:


 


(a)           within
120 days after the ends of each fiscal year of the Borrower, audited year end
financial statements for the Borrower, on a consolidated basis, signed by the
directors of the Borrower;


 


(b)           within
120 days after the end of each fiscal year of Geokinetics Inc., audited year
end financial statements for Geokinetics Inc., signed by its directors;


 


(c)           within
120 days after the end of each fiscal year of each Loan Party, non-consolidated
year end financial statements for such Loan Party, prepared on an internal
basis;


 


(d)           within
120 days after the end of each fiscal year of the Borrower, pro forma financial
statements and cash flow forecast and budget for the following fiscal year of
the Borrower, on a consolidated basis;


 


(e)           within
120 days after the end of each fiscal year of the Borrower, a listing of fixed
assets of the Loan Parties with Net Book Value;


 


(f)            within
30 days of each calendar month end, aged listings of accounts receivable and
payable of the Margin Parties;


 


(g)           within
30 days of each quarter end, an internally prepared consolidated income statement
and balance sheet of the Borrower and an internally prepared unconsolidated
income statements and balance sheets of the Loan Parties.


 


28





















 


The Borrowers shall apply
depreciation allowance in attendance with GAAP to its quarterly in-house
financial statements to ensure that the Lender is provided with an up-to-date
listing and Net Book Value of the Loan Parties’ fixed assets on an ongoing
basis.


 


9.6          Compliance
Certificate


 


The Borrower shall upon the request of the Lender, within one hundred
and twenty (120) days after the end of each fiscal year, cause to be prepared
and delivered to the Lender a Certificate of the Borrower in respect of the
applicable fiscal year certifying that no Default or Event of Default has
occurred hereunder or, if any Default or Event of Default has occurred,
particulars thereof and an explanation of the steps being taken or proposed to
remedy the same.


 


9.7          Other
Financial Information


 


The Borrower shall furnish to the Lender such other financial and
operating reports and statements and other information on the financial
condition or business or affairs of the Loan Parties as the Lender may
reasonably request from time to time.


 


9.8          Certain
Negative Covenants of the Borrower


 


Without the consent of the Lender, the Borrower shall not:


 


(a)           declare
or pay dividends on any class or kind of its shares, repurchase or redeem any
of its shares or reduce its capital in any way whatsoever;


 


(b)           other
than Permitted Encumbrances, grant or allow any lien, charge, privilege,
hypothec, lease or other encumbrance, whether fixed or floating, to be
registered against or exist on any of the Mortgaged Property save as
specifically provided herein;


 


(c)           become
guarantor or endorser or otherwise become liable upon any note or other
obligation other than in the normal and ordinary course of the Borrower’s
business;


 


(d)           permit
its ratio of consolidated debt to tangible net worth (as determined in
accordance with GAAP) to exceed 2.25:1 during the month of December 2005;
and thereafter, 2.25:1 during the months of January to April annually
and 1.75:1 during the months of May to December annually; where debt
shall include all external liabilities but shall exclude future income taxes
and tangible net worth shall include all share capital and retained earnings,
from which shall be deducted any intangible assets and amounts due from
shareholders;


 


29





















 


(e)           amalgamate
with or permit all or substantially all of its assets to be acquired by any
other Person or permit any reorganization or change of control of the Borrower;


 


(f)            permit
its ratio of consolidated current assets to current liabilities to at any time
be less than 1.25:1 (0.90:1 for the period ending December 2005).  For the purpose of this calculation, the
current portion of long term debt shall be excluded from current liabilities;


 


(g)           permit
its ratio of consolidated net cash flow to total debt service to at any time be
less than 1.30:1 (1.15:1 for the period ending December 31, 2005).  Net cash flow will be calculated on a rolling
four quarters basis and total debt service will be calculated using “Net Debt”.  Net debt is defined as total debt less total
cash on hand.  For calculation purposes,
net debt is amortized over a 5 year period.


 


9.9          Certain
Negative Covenants of Geokinetics Inc.


 


Without the consent of the Lender, Geokinetics Inc. shall not:


 


(a)           permit
its ratio of consolidated debt to tangible net worth (as determined in
accordance with GAAP) to exceed 2.00:1; where debt shall include all external
liabilities but shall exclude future income taxes and tangible net worth shall
include all share capital and retained earnings, from which shall be deducted
any intangible assets and amounts due from shareholders;


 


(b)           permit
its ratio of consolidated current assets to current liabilities to at any time
be less than 1.10:1.  For the purpose of
this calculation, the current portion of long term debt shall be excluded from
current liabilities;


 


(c)           permit
its ratio of consolidated net cash flow to total debt service to at any time be
less than 1.30:1 (1.15:1 for the period ending December 31, 2005).  Net cash flow will be calculated on a rolling
four quarters basis and total debt service will be calculated using “Net Debt”.  Net debt is defined as total debt less total
cash on hand.  For calculation purposes,
net debt is amortized over a 5 year period.


 


9.10        Notice
of Certain Events


 


The Loan Parties shall each promptly advise the Lender in writing of:


 


(a)           any
litigation commenced against it or threatened, the final outcome of which is
reasonably likely to have an Adverse Effect;


 


(b)           the
occurrence of any Default or Event of Default;


 


(c)           all
asset dispositions in excess of $500,000, prior to such disposition;


 


(d)           all
asset acquisitions in excess of $2,500,000, prior to such acquisition.


 


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9.11        Employee
Incentive Plan


 


The Loan Parties shall promptly provide to the Lender copies of any
employee incentive, bonus or similar plan in effect from time to time.


 


9.12        Lender
May Perform


 


If any of the Loan Parties shall fail to perform any act which it is
required to perform under any of the Documents the Lender may, in its absolute
but reasonable discretion, perform or cause to be performed such act at the
Loan Parties’ expense, and may pay such money at the Loan Parties’ expense, and
thereupon, without prejudice to the rights of the Lender to damages and other
remedies available at law or in equity hereunder or otherwise, the Loan Parties
shall immediately repay to the Lender all reasonable expenses so incurred and
all amounts so paid by the Lender, together with interest thereon at the rate
payable on overdue interest under Section 5.4 from time to time from and
after the date that the Lender incurs such expense or makes such payment, and
the amount of each such expense and payment, and interest thereon, shall be
secured by the Security Documents.


 


ARTICLE 10
— EVENTS OF DEFAULT AND ACCELERATION


 


10.1        Events
of Default


 


The following events constitute Events of Default hereunder:


 


(a)           if
any Loan Party fails to make any payment of any interest or portion thereof
when due hereunder or under any Document or on demand, if so payable;


 


(b)           if
any Loan Party fails to make any payment, other than interest, when due
hereunder or under any Document or on demand, if so payable;


 


(c)           if
any Loan Party fails to observe or perform any term, covenant or agreement
contained in this Agreement or any other Document including, without
limitation, the Facility Letter (other than those covered by Sections 10.1(a) and
(b)) to which it is a party and such failure is not remedied within ten (10) Banking
Days after notice from the Lender to the Borrower of such failure;


 


(d)           if
any statement, representation or warranty of a Loan Party or any of its
employees or agents, as applicable, set forth in this Agreement, a Document, a


 


31





















 


Certificate of the Borrower or a Certificate of the Corporate
Guarantors shall prove to have been untrue or incomplete and may result in an
Adverse Effect;


 


(e)           if
any Loan Party shall (i) institute or commence proceedings to be
adjudicated a bankrupt or insolvent or enter liquidation, or consent to the
filing of a bankruptcy or insolvency proceeding against it; or (ii) file,
institute or commence or otherwise take any proceeding or proposal relating to
reorganization, adjustment, arrangement, composition, compromise, stay of
proceedings, or relief similar to any of the foregoing under any Applicable Law
regarding bankruptcy, insolvency, reorganization or relief of debtors; or (iii) consent
to the filing of any such proceeding; or (iv) consent to the appointment
of a receiver, liquidator or trustee or assignee in bankruptcy, liquidation,
reorganization or insolvency of any Loan Party, or of a substantial part of its
assets; or (v) make an assignment for the benefit of creditors; or (vi) admit
in writing its inability to pay its debts generally as they become due; or (vii) voluntarily
suspend transaction of its usual business; or (viii) generally not be
paying its debts as they come due; or (ix) take any corporate or other
action authorizing or in furtherance of any of the foregoing;


 


(f)            if
(i) in a court having jurisdiction in the premises there shall have been
entered a judgment, decree or order which has not been reversed on appeal and
is not stayed pending the outcome of appeals adjudging any Loan Party a
bankrupt or insolvent, or for the appointment of a receiver, liquidator,
trustee or assignee in bankruptcy or for liquidation, reorganization,
insolvency, compromise, composition, arrangement or other plan of any Loan
Party or a substantial part of its assets or property or for a stay of
proceedings or the winding-up or liquidation of its affairs; or (ii) any
proceeding is filed, instituted or commenced by any Person seeking liquidation,
reorganization or winding-up, adjustment, arrangement, compromise, composition,
stay of proceedings or similar relief of or for any Loan Party under any
Applicable Law regarding bankruptcy, insolvency, reorganization or relief of
debtors except in either such case (aa) if the affected Loan Party has filed an
appeal or objection thereto in the appropriate court or office within the lesser
of the applicable appeal period and five (5) Banking Days of entry thereof
(and, in the case of (i) above, if and for so long as the effects thereof
are stayed and, in the case of (ii) above, unless and until a final
judgment, decree or order is entered, in which case (i) shall, subject to
these exceptions, apply) or filing, institution or commencement thereof, as
applicable, and (bb) for any transaction consented to in writing by the Lender;


 


(g)           if
any proceeding with respect to any Loan Party is commenced under the Companies’
Creditors Arrangement Act or the Bankruptcy and Insolvency Act or similar
legislation or any Loan Party shall seek or take any proceeding or be the
subject of any proceeding relating to a compromise or arrangement with
creditors or claimants (other than any such proceeding in the ordinary course
of business which is by its terms not applicable to the Lender or any Person on
its behalf);


 


(h)           if
any Loan Party is insolvent or makes an unapproved sale of all or substantially
all of its assets;


 


(i)            if
any Loan Party should have its charter revoked or rescinded or its existence in
any way terminated;


 


32





















 


(j)            if
the Borrower fails to repay any borrowed money when due or causes or permits
any default to exist or other event under any agreement or instrument relating
to an obligation to repay borrowed money if the effect of such default or
obligation is to accelerate or to permit the acceleration of the maturity of
such borrowed money in an amount in excess of $100,000;


 


(k)           if
an encumbrancer, lienor or any other Person with a Security Interest lawfully
takes possession of any material portion of the assets of any Loan Party;


 


(l)            if
any material provision of a Document is or is declared to be unenforceable,
invalid or illegal in any respect or should fail to provide charges of the
types or priorities herein or therein provided for;


 


(m)          if
a material adverse change in the financial condition of the Borrower or any of
the Corporate Guarantors occurs in the reasonable discretion of the Lender; or


 


(n)           if
the Lender in good faith believes and has reasonable commercial grounds to
believe that any of the Mortgaged Property is or is about to be placed in
jeopardy.


 


10.2        Acceleration
of Operating Credit Facility Upon Demand


 


If the Lender shall demand payment of the Operating Credit Facility,
the entire principal amount of the Operating Credit Facility then outstanding
and all accrued and unpaid interest thereon shall become immediately due and
payable with interest thereon, at the rate or rates determined as herein
provided, to the date of actual payment thereof, all without any other notice,
presentment, protest, demand, notice of dishonour or any other demand
whatsoever, all of which are hereby expressly waived by the Borrower.  In such event the Lender may, in its
discretion, exercise any right or recourse and/or proceed by any action, suit,
remedy or proceeding authorized or permitted by Applicable Law for the recovery
of all of the aforementioned indebtedness, liabilities and obligations of the
Loan Parties to the Lender and proceed to exercise any and all rights hereunder
or under any other Document and no such remedy for the enforcement of the
rights of the Lender shall be exclusive of or dependent on any other remedy but
any one or more of such remedies may from time to time be exercised
independently or in combination.


 


33





















 


10.3        Acceleration
of Loan


 


If any Event of Default shall occur (including, without limitation, the
non-payment of any amount of the Operating Credit Facility upon demand by the
Lender), and the Lender shall demand payment thereof,


 


(i)            the
entire principal amount of the Loan then outstanding and all accrued and unpaid
interest thereon, and


 


(ii)           all
other payments due hereunder,


 


shall, at the
option of the Lender, become immediately due and payable with interest thereon,
at the rate or rates determined as herein provided, to the date of actual
payment thereof, all without any other notice, presentment, protest, demand,
notice of dishonour or any other demand whatsoever, all of which are hereby
expressly waived by the Borrower.  In
such event the Lender may, in its discretion, exercise any right or recourse
and/or proceed by any action, suit, remedy or proceeding authorized or
permitted by Applicable Law for the recovery of all the indebtedness,
liabilities and obligations of the Loan Parties to the Lender and proceed to
exercise any and all rights hereunder or under any other Document and no such
remedy for the enforcement of the rights of the Lender shall be exclusive of or
dependent on any other remedy but any one or more of such remedies may from
time to time be exercised independently or in combination.


 


10.4        Remedies
Cumulative and Waivers


 


For greater certainty, it is expressly understood and agreed that the
rights and remedies of the Lender hereunder or under any other Document or
instrument executed pursuant to this Agreement are cumulative and are in
addition to and not in substitution for any rights or remedies provided by law
or by equity; and any single or partial exercise by the Lender of any right or
remedy, or procurement of a judgment in respect of a default or breach of any
term, covenant, condition or matter contained in this Agreement or other
Document or instrument executed pursuant to this Agreement shall not be deemed
to operate as a merger of or be a waiver of or to alter, affect or prejudice
any other right or remedy or other rights or remedies to which the Lender may
be lawfully entitled in respect of such default or breach.  Any waiver by the Lender of the strict
observance, performance or compliance with any term, covenant, condition or
other matter contained herein and any indulgence granted, either


 


34





















 


expressly or by course of conduct by the Lender shall be effective only
in the specific instance and for the purpose for which it was given and shall
be deemed not to be a waiver of any rights and remedies of the Lender under
this Agreement or any other Document or instrument executed pursuant to this
Agreement.


 


ARTICLE 11
— COSTS, EXPENSES AND INDEMNIFICATION


 


11.1        Costs
and Expenses


 


(a)           The
Borrower shall pay promptly upon notice from the Lender all reasonable costs
and expenses in connection with preparation, printing, execution and delivery
of this Agreement and the other Documents, whether or not any Drawdown has been
made hereunder, including without limitation, the reasonable fees and
out-of-pocket expenses of Lender’s Counsel on a solicitor and his own client
basis with respect thereto and with respect to advising the Lender as to its
rights and responsibilities under this Agreement and the other Documents.


 


(b)           Except
for ordinary expenses of the Lender relating to the day-to-day administration
of this Agreement, the Borrower further agrees to pay within ten Banking Days
of demand by the Lender all reasonable costs and expenses in connection with
the preservation or enforcement of the rights of the Lender under this
Agreement (including any interpretation of the Documents or the validity and
enforceability thereof in connection with any actual or potential Default or
Event of Default) and other Documents, including, without limitation, all
reasonable costs, fees and out-of-pocket expenses of Lender’s Counsel on a
solicitor and his own client basis and reasonable expenses sustained by the
Lender as a result of any failure by the Borrower to perform or observe any of
its obligations hereunder, together with interest at the Prime Rate plus
one-half of one percent (1⁄2  of 1%) per
annum from and after such tenth Banking Day if such payment is not made by such
time.


 


11.2        Indemnification
by the Borrower re Loan


 


In addition to, and without duplication of, any liability of the
Borrower to the Lender under any other provision hereof, the Borrower shall
indemnify the Lender and hold the Lender harmless against any reasonable loss
or expense incurred by the Lender including, without limitation, any cost or
expense incurred by reason of the liquidation or re-employment in whole or in
part of deposits or other funds required to fund or maintain the Loan, as a
result of:


 


35





















 


(a)           any
Event of Default or breach or failure by the Borrower to fulfil any of its
obligations hereunder or to complete the Drawdown or to make any payment,
repayment or prepayment on the date required hereunder or specified by it in
any notice given hereunder;


 


(b)           the
Borrower’s failure to pay any other amount, including without limitation any
interest or fee, due hereunder on its due date;


 


(c)           the
Borrower’s failure to give any notice required to be given by it to the Lender
hereunder; or


 


(d)           the
failure of the Borrower to make any other payment when and as due hereunder.


 


11.3        Indemnification
by the Loan Parties re Environmental Matters


 


The Loan Parties hereby indemnify and hold harmless the Lender against
and from any and all claims, suits, actions, debts, damages, costs, losses,
obligations, judgments, charges and expenses (including reasonable legal fees
on a solicitor and his own client basis), of any nature whatsoever suffered or
incurred by the Lender due to the actions or inactions of the Loan Parties on
account of any Environmental Law, including the assertion of any lien
thereunder, with respect to:


 


(a)           the
Release of a Contaminant affecting any property, the threat of the Release of
any Contaminant affecting any property or the presence of any Contaminant
affecting any property, including any loss of value of property as a result of
any of the foregoing;


 


(b)           any
costs of removal or remedial action incurred by the Government of Canada or any
provincial government or any costs incurred by any other person or damages from
injury to any property, destruction of any property, or loss of natural
resources in relation to any property, including reasonable costs of assessing
such injury, destruction or loss incurred pursuant to any Environmental Law;


 


(c)           liability
for personal injury or property damage arising under any statutory or common
law tort theory including, without limitation, third party, consequential,
indirect damages and damages assessed for the maintenance of a public or
private nuisance or for the carrying on of a dangerous activity at or near any
property;


 


(d)           any
other environmental matter affecting any property within the jurisdiction of
any federal environmental agency, or any provincial or local environmental
agency; and


 


36





















 


(e)           all
environmental, health, reclamation and clean up costs and obligations
associated with or pertaining to the abandonment or reclamation of any property
or any wells, facilities, buildings, fixtures or equipment located thereon.


 


The Loan
Parties’ obligations under this Section 11.3 shall arise upon the
discovery of the presence of any Contaminant or upon the creation of an
obligation to abandon, reclaim or clean up any property, whether or not any
federal agency or any provincial or local environmental agency has taken or
threatened any action in connection with the presence of any Contaminant and,
notwithstanding anything contained in this Agreement to the contrary, shall
survive the full repayment of the Loan and the termination of this Agreement.


 


ARTICLE 12
— GENERAL


 


12.1        Notice


 


Any demand, notice or communication to be made or given hereunder shall
be in writing and may be made or given by personal delivery or by transmittal
by telecopy, rapifax or other electronic means of communication addressed to the
respective parties as follows:


 


To the Loan Parties:


 


3815 – 32nd Avenue N.E.


Calgary, Alberta


T1Y 7C1


Attention: 
The President


Telecopy No.: 
(403) 265-1693


 


To the Lender:


 


HSBC Bank Canada


407 - 8th Avenue S.W.


Calgary, Alberta


T2P 1E5


Attention: 
The Manager


Telecopy No.: 
(403) 693-8561


 


with a copy to:


Fraser Milner Casgrain LLP


Fifth Avenue Place


 


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30th Floor, 237 - 4th Avenue S.W.


Calgary, Alberta


T2P 4X7


Attention: 
Mr. Gary J. Cochrane


Telecopy No.: 
(403) 268-3100


 


or to such
other address or telecopy number or rapifax number as any party may from time
to time notify the others in accordance with this Section 12.1.  Any demand, notice or communication made or
given by personal delivery during usual business hours at the place of receipt
on a Banking Day shall be conclusively deemed to have been given on the day of
actual delivery thereof, or, if made or given by personal delivery after usual
business on a Banking Day or by telecopier or other electronic means of
communication on the first Banking Day following the transmittal thereof.


 


12.2        Governing
Law; Attornment


 


(a)           This
Agreement shall be governed by and construed in accordance with the Applicable
Laws prevailing in the Province of Alberta, and not the provisions of laws of
other jurisdictions which may be referred to pursuant to such laws in order to
determine any question.  There shall be
no application of any conflict of laws rules inconsistent with this Section 12.2(a).


 


(b)           The
parties hereto do hereby irrevocably submit and attorn to the non-exclusive
jurisdiction of the Courts of the Province of Alberta for all matters arising
out of or relating to this Agreement, or any other Document, or any of the
transactions contemplated hereby or thereby.


 


12.3        Obligations
are Absolute


 


The obligations of the Loan Parties under this Agreement and the other
Documents shall be absolute and (except as otherwise expressly stated herein)
unconditional irrespective of:


 


(a)           any
lack of genuineness, legality, validity, enforceability or value of any of the
Documents or any other agreements or instruments relating thereto or any
collateral therefor;


 


(b)           any
change in the time, manner or place of payment of, or in any other term of, any
of the Documents, or any amendment or waiver of or any consent to departure
from this Agreement or any other Documents;


 


(c)           any
exchange, release or non-perfection of any of this Agreement or any other
Document or any release or amendment or waiver of or consent to departure from
any undertaking of any Person respecting any of this Agreement or any of the
other Documents;


 


(d)           any
failure to obtain any governmental approvals necessary or appropriate in
connection with this Agreement or any of the other Documents;


 


38





















 


(e)           the
existence at any time of any Default or Event of Default; or


 


(f)            any
impossibility or impracticality of performance, or force majeure, any act of
any government or any agency or instrumentality thereof, or any other
circumstance, event or happening whatsoever, whether foreseen or unforeseen and
whether similar or dissimilar to anything referred to above in this Section.


 


This Agreement shall continue to be effective or be reinstated, as the
case may be, if at any time any payment or other performance hereunder is
rescinded or must otherwise be returned or unwound for any reason, all as
though such payment had not been made or such performance had not
occurred.  The obligations of the Loan
Parties under this Agreement shall not be subject to reduction, termination or
other impairment by reason of any set-off, recoupment, counterclaim or defence
or for any other reason.


 


12.4        Set
Off


 


Following an Event of Default which remains unremedied, the Lender may,
without notice to the Borrower, combine, consolidate or merge all or any of its
accounts with, and liabilities to, the Lender and may set off or transfer any
sum standing to the credit of any such accounts in or towards the satisfaction
of any sum due from the Borrower to the Lender under this Agreement, and may do
so notwithstanding that the balances on such accounts and the liabilities may
not be expressed in the same currency and the Lender is hereby authorized to
effect any necessary conversions at such rate of exchange as it reasonably
determines, acting in good faith.


 


12.5        Benefit
of the Agreement


 


This Agreement shall enure to the benefit of and be binding upon the
Loan Parties and the Lender and their respective successors and assigns.


 


12.6        Assignment


 


(a)           The
Lender may, with the prior consent of the Borrower (such consent not to be
unreasonably withheld) at any time and from time to time, sell, assign,
transfer or grant an interest in the Loan to another bank or financial
institution.  The Lender 


 


39





















 


shall promptly notify the Borrower of such sale, assignment, transfer
or grant and upon the assignee assuming the obligations of the Lender
hereunder, the Lender shall have no further obligation hereunder with respect
to such interest.  No such sale,
assignment, transfer or grant shall obligate the Borrower to pay any amount
hereunder in addition to any amount the Borrower would have been required to
pay hereunder had such sale, assignment, transfer or grant not taken place.


 


(b)           The
Borrower or any other Loan Party shall not assign its rights or obligations
hereunder without the prior written consent of the Lender, which consent may be
arbitrarily withheld.


 


12.7        Severability


 


Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall not invalidate the remaining provisions hereof and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.


 


12.8        Whole
Agreement


 


This Agreement constitutes the whole and entire agreement between the
parties hereto and cancels and supersedes any prior agreements, undertakings,
declarations, commitments, representations, written or oral, in respect thereof,
including the provisions of any term sheet or commitment letter.


 


12.9        Amendments
and Waivers


 


Any provision of this Agreement may be amended only if the Loan Parties
and the Lender so agree in writing and, except as otherwise specifically
provided herein, may be waived only if the Lender so agrees in writing.


 


Any such waiver and any consent by the Lender, under any provision of
this Agreement must be in writing and may be given subject to any conditions
thought fit by the person giving that waiver or consent. Any waiver or consent
shall be effective only in the instance and for the purpose for which it is
given.


 


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12.10      Further
Assurances


 


Each of the Loan Parties and the Lender shall promptly cure any default
by it in the execution and delivery of this Agreement, the Documents or of any
other agreements provided for hereunder to which it is a party.  The Loan Parties, at their expense, shall
each promptly execute and deliver to the Lender, upon request by the Lender,
all such other and further documents, agreements, opinions, certificates and
instruments in compliance with, or accomplishment of, the covenants and
agreements of the Loan Parties hereunder or to make any recording, file any
notice or obtain any consent, all as may be reasonably necessary or appropriate
in connection therewith.


 


12.11      Time
of the Essence


 


Time shall be of the essence with regard to this Agreement.


 


12.12      Termination


 


This Agreement shall be effective as of its date until the full amount
of the Loan and all other amounts outstanding hereunder have been indefeasibly
paid to the Lender.


 


12.13      Inspection
of the Mortgaged Property


 


The Lender shall have the right (on notice to the applicable Loan
Party) to inspect the Mortgaged Property and the Loan Parties’ business at any
reasonable time and, in any event, not less than quarterly.


 


12.14      Credit
Reporting


 


The Loan Parties hereby consent to the Lender obtaining from any credit
reporting agency or from any Person such information as the Lender may require
at any time.  The Loan Parties hereby
further consent to the disclosure at any time of any information concerning
them to any credit grantor or credit reporting agency with whom they, or any one
of them, have financial relations.


 


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12.15      Counterparts


 


This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which taken together shall
be deemed to constitute one and the same instrument, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one full set of counterparts.


 


12.16      Conflicting
Provisions


 


In case of any conflict or inconsistency between any provision of this
Agreement and any provision of the Security Documents or any other agreement by
the Borrower or the Corporate Guarantor in favour of the Lender, the provision
of this Agreement shall govern and prevail and the conflicting or inconsistent
provision in the Security Document or other agreement shall be deemed to be
amended to be consistent with the provision hereof.


 


IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date and year first above written.


 


 


	
   

  	
  TRACE ENERGY SERVICES LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Per:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  c/s

  	
   

  
	
   

  	
  Per:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TRACE ENERGY SERVICES, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Per:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  c/s

  	
   

  
	
   

  	
  Per:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GEOKINETICS INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Per:

  	
   

  	
   

  



 


42





















 


	
   

  	
   

  	
  c/s

  	
   

  
	
   

  	
  Per:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  QUANTUM GEOPHYSICAL, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Per:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  c/s

  	
   

  
	
   

  	
  Per:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GEOPHYSICAL DEVELOPMENT CORPORATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Per:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  c/s

  	
   

  
	
   

  	
  Per:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HSBC BANK CANADA

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Per:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Per:

  	
   

  	
   

  



 


43





















 


SCHEDULE 1


 


DRAWDOWN
NOTICE


 


TO:                 HSBC
BANK CANADA, as Lender


 


FROM:           TRACE
ENERGY SERVICES LTD., as Borrower


 


DATE:            ,
20      


 


(1)           This
Drawdown Notice is delivered to you pursuant to Section 2.2 of the fifth
amended and restated credit agreement (the “Credit Agreement”) dated as of November <>, 2005. 
All defined terms set forth in this Drawdown Notice shall have the
respective meanings set forth in the Credit Agreement.


 


(2)           We
hereby request a Drawdown as follows:


 


a.             Date
of Drawdown:


 


b.             Amount
of Drawdown:


 


c.             Type
of Loan:


 


(3)           All
of the covenants of the Loan Parties contained in Article 9 of the Credit
Agreement together with all of the conditions precedent to the Drawdown and all
other terms and conditions contained in the Credit Agreement to be complied
with by the Loan Parties have been fully complied with.


 


(4)           No
Default or Event of Default has occurred and is continuing, nor will any
Default or Event of Default occur as a result of the aforementioned Drawdown.


 


	
   

  	
  Yours very truly,

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  TRACE ENERGY SERVICES LTD.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Per:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  c/s

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Per:

  	
   

  	
   

  



 


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SCHEDULE 2


 


Litigation


 


1.             Potential claim by bond
provider in Argentina.  The amount of the
potential claim is approximately $130,000 U.S. Dollars.  The Borrower is currently seeking legal
advice in that jurisdiction.


 


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