Document:

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                                                                   EXHIBIT 10.21

                              EMPLOYMENT AGREEMENT

     This Employment Agreement (this "Agreement") is made and entered into by
and between Input/Output, Inc., a Delaware corporation (hereinafter referred to
as "Employer"), and J. Michael Kirksey, an individual currently resident in
Harris County, Texas (hereinafter referred to as "Employee"), effective as of
January 1,2004 (the "Effective Date").

                                  WITNESSETH:

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

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

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

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

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

Section 1. General Duties of Employer and Employee.

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

          (b) While employed hereunder, Employee will devote substantially all
reasonable and necessary time, efforts, skills and attention for the benefit of
and with

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

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

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

Section 2. Compensation and Benefits.

          (a) Employer will pay to Employee during the term of this Agreement a
base salary at the rate of $227,000 per annum (such base salary as increased by
the Compensation Committee of the Board as hereinafter provided is referred to
herein as the "Base Salary"). The Compensation Committee of the Board will
review the Base Salary from time to time and, during the term of this Agreement,
may increase, but may not decrease, the Base Salary. The Base Salary will be
paid to Employee in equal installments every two weeks or on such other schedule
as Employer may establish from time to time for its management personnel.

          (b) Employee will be eligible to participate in Employer's Incentive
Compensation Plan for the fiscal year 2004 with a target of 50% and a maximum of
75% of Employee's Base Salary. During each subsequent fiscal year during the
term of this Agreement, Employee will be eligible, in the Board's sole
discretion, to participate in that year's Incentive Compensation Plan or other
replacement incentive or bonus plan Employer establishes for its key executives.

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

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

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key executives).

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

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

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

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

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

Section 3. Fiduciary Duty; Confidentiality.

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

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

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

          (d) In addition to the foregoing provisions of this Section 3, and
effective as of the Effective Date, Employee reaffirms the duties imposed upon
Employee by that certain Employee Proprietary Information Agreement dated as of
January 1, 2004 by and between Employer and Employee.

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

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

    The term of this Agreement will commence effective as of the Effective Date,
and, subject to the terms and conditions hereof will continue for a two-year
period ending on December 31, 2005, and thereafter, the term will be
automatically extended for successive periods of one year unless prior to the
end of the original two-year period (or, if applicable, any such one-year
period), Employer gives Employee at least ninety (90) days prior written notice
that Employer has decided not to extend the term of this Agreement.
Notwithstanding any provision contained herein to the contrary, Employee
acknowledges that his or her employment with Employer is at will and that
Employer may terminate his or her employment at any time and for any reason or
for no reason at the discretion of Employer, but subject to any rights Employee
has under Sections 5, 6 and 8 of this Agreement.

Section 5. Termination.

          (a) Employee's employment with Employer hereunder will terminate upon

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the first to occur of the following:

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

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

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

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

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

               (6) Employee's sixty-fifth (65th) birthday, at which time
          Employee will continue to be employed by Employer as an employee at
          will.

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

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

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

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

               (3) Employee's material breach of this Agreement which breach has
          not been remedied by Employee within ten (10) days after receipt by
          Employee of

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          written notice from Employer that he or she is in material breach of
          the Agreement, specifying the particulars of such breach.

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

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

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

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

               (3) the assignment to Employee of any duties materially
          inconsistent with Employee's position, duties, functions,
          responsibilities or authority as contemplated by Section 1 of this
          Agreement; or

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

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

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

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

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

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

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

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

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

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

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

               (3) if Employee's employment with Employer is terminated for
          Cause, the date Notice of Termination, accompanied by a copy of the
          resolution

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          satisfying Section 5(c), is received by Employee or any later date
          specified therein, provided that Employer may, in its discretion,
          condition Employee's continued employment upon such considerations or
          requirements as may be reasonable under the circumstances and place a
          reasonable limitation upon the time within which Employee will comply
          with such considerations or requirements;

               (4) if Employee's employment with Employer is terminated upon the
          occurrence of Employee's sixty-fifth (65th) birthday, the date of such
          birthday, at which time Employee will continue to be employed by
          Employer as an employee at will; or

               (5) if Employee's employment with Employer is terminated for any
          reason other than Employee's Disability, Employee's death, Cause or
          the occurrence of Employee's sixty-fifth (65th) birthday, or for no
          reason, the date that is fourteen (14) days after the date of receipt
          of the Notice of Termination.

Section 6. Effect of Termination of Employment.

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

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

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

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employee at will.

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

               (1) Employee's Base Salary through the Date of Termination;

               (2) incentive compensation due Employee, if any, under the terms
          of the relevant incentive compensation arrangement, which, in the
          absence of any agreement to the contrary, shall be the pro rata amount
          due to Employee based on payments that would be due if Employee had
          remained employed by Employer for the full fiscal year;

               (3) during the twelve-month period following the Date of
          Termination, Employer shall pay to Employee an aggregate amount (the
          "Severance Payment") equal to (i) one time (1.0x) Employee's Base
          Salary at the highest annual rate in effect on or before the Date of
          Termination (but prior to giving effect to any reduction therein which
          precipitated such termination) plus (ii) Employee's bonus payment, if
          any, made in the fiscal year prior to the year in which the Date of
          Termination occurs, which Severance Payment will be paid to Employee
          in twelve (12) equal monthly installments during such one-year period;
          and

               (4) if immediately prior to the Date of Termination, Employee
          (and, if applicable, his or her spouse and/or dependents) was covered
          under Employer's group medical, dental, health and hospital plan in
          effect at such time, then Employer shall provide to Employee for
          twelve (12) months after the Date of Termination, and provided that
          Employee has timely elected under the Consolidated Omnibus Budget
          Reconciliation Act of 1985, as amended ("COBRA"), to continue coverage
          under such plan, Employer will, at no greater cost or expense to
          Employee than was the case immediately prior to the Date of
          Termination, maintain such continued coverage in full force and
          effect.

Except as otherwise provided above and in Sections 7 and 10, all other
compensation and benefits will cease upon the Date of Termination other than the
following: (i) those benefits that are provided by retirement and benefit plans
and programs specifically adopted and approved by Employer for Employee that are
earned and vested by the Date of Termination, (ii) any rights Employee or his
survivors may have under any grants of options to purchase Employer's Common
Stock, restricted stock grants, performance share grants, or other similar
equity compensation plans; and (iii) medical and similar benefits the
continuation of which is required by applicable law or as provided by the
applicable benefit plan. As a condition to making the

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payments and providing the benefits specified in this Section 6(d), Employer
will require that Employee execute a release of all claims Employee may have
against Employer at the time of Employee's termination. Such release will be in
substantially the same form as Exhibit A attached hereto.

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

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

               (2) all restrictions on any restricted Common Stock or other
          equity securities of Employer granted to Employee prior to such Change
          in Control shall be removed and such Common Stock or other equity
          securities shall be freely transferable (subject to applicable
          securities laws), regardless of whether the conditions set forth in
          the relevant restricted stock agreements have been satisfied in full.

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

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

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

               (3) Approval by the stockholders of Employer of a Merger, unless
          immediately following such Merger, (i) substantially all of the
          holders of the Outstanding Company Voting Securities immediately prior
          to the Merger beneficially own, directly or indirectly, more than 50%
          of the common stock of the corporation resulting from such Merger (or
          its parent corporation) in substantially the same proportion as their
          ownership of Outstanding Company Voting Securities immediately prior
          to such Merger and (ii) at least a majority of the members of the
          hoard of directors of the corporation resulting from such Merger (or
          its parent corporation) were members of the Incumbent Board at the
          time of the execution of the initial agreement providing for such
          Merger; or

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

Section 7. Excise Tax.

          (a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by, or benefit
from, Employer or any of its affiliates to or for the benefit of Employee,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise (any such payments, distributions or benefits being
individually referred to herein as a "Payment," and any two or more of such
payments, distributions or benefits being referred to herein as "Payments"),
would be subject to the excise tax imposed by Section 4999 of the Code (such
excise tax, together with any interest thereon, any penalties, additions to tax,
or additional amounts with respect to such excise tax, and any interest in
respect of such penalties, additions to tax or additional amounts, being
collectively referred herein to as the "Excise Tax"), then Employee shall be
entitled to receive an additional payment or payments (individually referred to
herein as a "Gross-Up Payment" and any two or more of such additional payments
being referred to herein as "Gross-Up Payments") in an amount such that after
payment by Employee of all taxes (as defined in Section 7(i))

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imposed upon the Gross-Up Payment, Employee retains an amount of such Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.

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

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

          (d) If a party hereto receives any written or oral communication with
respect to any question, adjustment, assessment or pending or threatened audit
examination, investigation or administrative, court or other proceeding which,
if pursued successfully, could result in or give rise to a claim by Employee
against Employer under this Section 7 ("Claim"), including, but not limited to,
a claim for indemnification of Employee by Employer under

                                      -12-
<PAGE>

Section 7(c), then such party shall promptly notify the other party hereto in
writing of such Claim ("Tax Claim Notice").

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

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

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

                                      -13-
<PAGE>

calendar days before the date payment of such taxes is due from Employee, except
where payment of such taxes is sooner required under the provisions of this
Section 7(g), in which case payment of such taxes (and payment, on a fully
grossed-up after tax basis, of any costs and expenses required to be paid under
this Section 7(g)) shall be made within the time and in the manner otherwise
provided in this Section 7(g).

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

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

Section 8. Expenses of Enforcement.

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

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

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

                                      -14-
<PAGE>

another person.

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

Section 10. No Effect on Other Rights.

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

Section 11. Successors; Binding Agreement.

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

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

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

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

                                      -15-
<PAGE>

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

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

                                      -16-
<PAGE>

take away any of the suppliers or customers of Employer or any of its
subsidiaries or affiliates whether for Employee or for any other person, firm or
entity.

          (c) Regardless of the reason for any termination of Employee's
employment, effective as of the Effective Date and for twelve (12) months
following the Date of Termination, Employee will not, either on his or her own
account or for any other person, firm, partnership, corporation, or other entity
(i) solicit any employee of Employer or any of its subsidiaries or affiliates to
leave such employment or (ii) induce or attempt to induce any such employee to
breach her or his employment agreement with Employer or any of its subsidiaries
or affiliates. This restriction shall not apply in the case of any employee or
former employee of Employer who at his or her own initiative seeks, without
solicitation or encouragement by Employee, a change of employment or responds to
solicitations made by means of general advertisement.

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

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

Section 13. Miscellaneous.

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

          If to Employer, to:

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

          If to Employee, to:

               J. Michael Kirksey
               14803 Tumbling Falls
               Houston, Texas 77062

                                      -17-
<PAGE>

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

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

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

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

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

Section 14. Arbitration.

          (a) Employer and Employee agree to submit to final and binding
arbitration any and all disputes or disagreements concerning the interpretation
or application of this Agreement. Any such dispute or disagreement will be
resolved by arbitration in accordance with the National Rules for the Resolution
of Employment Disputes of the American Arbitration Association (the "AAA
Rules"). Arbitration will take place in Houston, Texas, unless the parties

                                      -18-

<PAGE>

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

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

Section 15. Additional Agreements.

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

                       SIGNATURES TO FOLLOW ON NEXT PAGE

                                      -19-
<PAGE>

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

                                    EMPLOYER:

                                    INPUT/OUTPUT, INC.

                                    By: ROBERT P. PEEBLER

                                        /s/ ROBERT P. PEEBLER
                                        ---------------------

                                    EMPLOYEE:

                                    J. MICHAEL KIRKSEY

                                    /s/ J. MICHAEL KIRKSEY
                                    ----------------------

                                      -20-
<PAGE>
                                                EXHIBIT A - EMPLOYMENT AGREEMENT

                      AGREEMENT AND RELEASE OF ALL CLAIMS

     This Agreement, entered into as of the date written by Employee's signature
below, is by and between Input/Output, Inc. ("Input/Output"), a Delaware
corporation, and Michael Kirksey ("Employee"). (As used in this Agreement, the
term "Input/Output" includes Input/Output, Inc., and all of its subsidiary and
affiliated companies.)

     Input/Output and Employee agree as follows:

     Section 1. Within 5 business days after the Separation Date, as defined in
Section 3 below, and whether or not Employee executes and returns this
Agreement, Input/Output will pay Employee the following amounts:

          o    Employee's regular base salary prorated through the Separation
               Date;

          o    Employee's vacation pay accrued as of the Separation Date; and

          o    any expense reimbursement owed to Employee under Input/Output
               policy.

All of the above amounts will be REDUCED by applicable taxes and withholding.

     Section 2. During the one-year period ending on the first anniversary of
the Separation Date, Employer shall, subject in all respects to the terms of the
Employment Agreement between Employer and Employee dated _____________,2003
(herein referred to as the "Employment Agreement"), pay to Employee an aggregate
amount (the "Severance Payment") equal to (i) one times (lx) Employee's Base
Salary (as defined in the Employment Agreement at the highest annual rate in
effect on or before the Separation Date (but prior to giving effect to any
reduction therein which precipitated such termination) plus (ii) Employee's
bonus payment, if any, made in the fiscal year prior to the year in which the
Date of Termination occurs, which Severance Payment will be paid to Employee in
twelve (12) equal monthly installments during such one-year period (subject to
the terms of the Employment Agreement). All amounts so paid will be REDUCED by
applicable taxes and withholding.

     [IF APPLICABLE: In addition, Employer will pay or provide for Employee's
medical, dental, health, and hospital coverage for one year, in accordance with
Section 6(d)(4) of the Employment Agreement.]

                                       1

                                    EXHIBIT A
<PAGE>

                                                EXHIBIT A - EMPLOYMENT AGREEMENT

     Section 3. Employee's termination from employment will be effective at the
close of business on the Separation Date. The SEPARATION DATE as used in this
Agreement means ___________,200__.

     Section 4. Employee agrees to release Input/Output from any claims he has
or may have against Input/Output as of the date he signs this Agreement. The
claims he is releasing include all of the following:

          o    any claims under any bonus or incentive plans;

          o    any claims for tortious action or inaction of any sort ("tortious
               action or inaction" means, among other things, claims for such
               things as negligence, fraud, libel, or slander);

          o    any claims arising under the Age Discrimination in Employment Act
               of 1967 as amended (29 U.S.C. Section 621, et seq.) (the Age
               Discrimination in Employment Act of 1967 prohibits, in general,
               discrimination against employees on the basis of age);

          o    any claims arising under Title VII of the Civil Rights Act of
               1964 as amended (42 U.S.C. Section 2000e, et seq.), or the Texas
               Commission on Human Rights Act (Texas Labor Code Section 21.001,
               et seq.) (both of these statutes, in general, prohibit
               discrimination in employment on the basis of race, religion,
               national origin or gender);

          o    any claims arising under the Americans with Disabilities Act of
               1990, as amended (42 U.S.C. Section 12101, et seq.) (the
               Americans with Disabilities Act of 1990 prohibits, in general,
               discrimination in employment on the basis of an employee's or
               applicant's disability);

          o    any claims arising under Texas Labor Code Sections 451.001, et
               seq. for retaliation or discrimination in connection with a claim
               for workers' compensation benefits; and

          o    any claims for breach of contract, wrongful discharge,
               constructive discharge, retaliation, or conspiracy.

          The release contained in this Section 4 WILL NOT affect any of the
     following:

                                       2

                                    EXHIBIT A
<PAGE>

                                                EXHIBIT A - EMPLOYMENT AGREEMENT

          o    Employee's rights or benefits under Input/Output's 401(k)
               retirement savings plan, Input/Output's Employee Stock Purchase
               Plan, or any pension or retirement plan in which Employee is a
               participant on the Separation Date (Employee's rights and
               benefits will be determined by the applicable plan documents);

          o    Employee's right to elect continued health and/or dental benefits
               under the Consolidated Omnibus Budget Reconciliation Act of 1985
               ("COBRA");

          o    Employee's right to exercise any options to purchase Input/Output
               common stock in accordance with the terms of the applicable stock
               option grant;

          o    Employee's rights under any restricted stock agreement between
               Employee and Input/Output under the terms of which Employee has
               been granted Input/Output restricted stock;

          o    Employee's rights under that certain Indemnity Agreement with
               Employer dated March 23, 2002;

          o    Any other benefit to which Employee may be entitled under any
               other health or benefit plan in accordance with the applicable
               plan documents; or

          o    Employee's rights under any workers' compensation statue; the
               Jones Act 46 U.S.C. Appx. Section 688, as amended; general
               maritime law or similar laws; and any other right Employee may
               have with respect to bodily injury.

     Section 5. Input/Output and Employee agree that this Agreement is a binding
contract. The purpose of the Agreement is to compromise doubtful or disputed
claims, avoid litigation, and buy peace. Employee agrees that although
Input/Output is making payment to Employee in exchange for a release of claims,
Input/Output does not admit any wrongdoing of any kind.

     Section 6. Employee agrees to assist Input/Output in defending any legal
proceedings against Input/Output arising out of matters which occurred on or
prior to the Separation Date. Input/Output agrees to reimburse Employee for his
time and expense or costs he may incur in that regard.

     Section 7. Employee confirms that after the Effective Date he remains
subject to and agrees to comply with:

                                       3

                                    EXHIBIT A
<PAGE>

                                                EXHIBIT A - EMPLOYMENT AGREEMENT

          o    those obligations of confidentiality contained in Section 3(b)
               and 3(c) of the Employment Agreement;

          o    the provisions relating to competition with Employer contained in
               Section 10 of the Employment Agreement;

          o    the provisions relating to solicitation or hiring of Employer's
               employees contained in Section 10 of the Employment Agreement;
               and

          o    the terms of the Employee Confidentiality and Intellectual
               Property Agreement with Employer which Employee signed
               effective____________, 200__.

     Section 8. This Agreement has been delivered to Employee on _______, 200__.

          o    Employee will have 21 calendar days from _______ or until the
               close of business on to decide whether to sign and return this
               Agreement and be bound by its terms. In the event Employee has
               not signed and returned this Agreement to Input/Output on or
               before __________, this Agreement will become null and void.

          o    Input/Output and Employee agree that if they agree to change the
               terms of this Agreement in any manner after it is delivered to
               Employee, even if the changes are material, the 21-day period
               specified in the previous paragraph will not restart or be
               extended.

          o    After signing this Agreement, Employee will have the right to
               revoke the Agreement for a period of 7 calendar days after
               signing it by (a) notifying Input/Output in writing that Employee
               revokes the Agreement and (b) returning to Input/Output any
               consideration paid Employee under Section 2 above. In the event
               Employee revokes the Agreement, it will become null and void.

     Section 9. Employee acknowledges that he has read this Agreement. He
understands that, except for the exceptions set out in Section 4 above, this
Agreement will have the effect of waiving any claim he may pursue against
Input/Output.

     Section 10. Employee acknowledges that he makes this Agreement knowingly
and voluntarily.

                                       4

                                    EXHIBIT A
<PAGE>

                                                EXHIBIT A - EMPLOYMENT AGREEMENT

     Section 11. This Agreement constitutes the entire understanding between
Input/Output and Employee with respect to the subject matter hereof.

     Section 12. This Agreement will benefit and be binding upon Input/Output
and its successors and assigns and Employee and his successors and legal
representatives. Employee will not assign or attempt to assign any of his rights
under this Agreement.

     Section 13. If a court determines that any provision of this Agreement is
invalid, the other provisions will remain in effect.

     Section 14. This Agreement will be governed by, construed under, and
enforced in accordance with the laws of the State of Texas, not including,
however, its conflicts of law rules that might otherwise refer to the law of
another forum or jurisdiction.

     Section 15. This Agreement will become effective and enforceable only after
a period of 7 days has expired following Employee's execution and delivery of
this Agreement to Input/Output (this date is referred to in this Agreement as
the "EFFECTIVE DATE").

                   THIS AGREEMENT IS SUBJECT TO ARBITRATION IN
                      ACCORDANCE WITH THE FOLLOWING SECTION

     Section 16. Employer and Employee agree to submit to final and binding
arbitration any and all disputes or disagreements concerning the interpretation
or application of this Agreement. Any such dispute or disagreement will be
resolved by arbitration in accordance with the National Rules for the Resolution
of Employment Disputes of the American Arbitration Association (the "AAA
Rules"). Arbitration will take place in Houston, Texas, unless the parties
mutually agree to a different location. Within 30 calendar days of the
initiation of arbitration hereunder, each party will designate an arbitrator.
The appointed arbitrators will then appoint a third arbitrator. Employee and
Employer agree that the decision of the arbitrators will be final and binding on
both parties. Any court having jurisdiction may enter a judgment upon the award
rendered by the arbitrators. In the event the arbitration is decided in whole or
in part in favor of Employee, Employer will reimburse Employee for his
reasonable costs and expenses of the arbitration (including reasonable
attorneys' fees).

     Notwithstanding the provisions of the previous paragraph, Employer may, if
it so chooses, bring an action in any court of competent jurisdiction for
injunctive relief to enforce Employee's obligations under Section 7 of this
Agreement.

                                       5

                                    EXHIBIT A
<PAGE>

                                                EXHIBIT A - EMPLOYMENT AGREEMENT

     IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the Effective Date.

                               INPUT/OUTPUT:

                               INPUT/OUTPUT, INC.
                               On its own behalf and on behalf of its subsidiary
                               and affiliated companies

                               By:
                                  ----------------------------------------------

                               NOTICE TO EMPLOYEE

BY SIGNING THIS DOCUMENT, YOU MAY BE GIVING UP IMPORTANT LEGAL RIGHTS. YOU ARE
ADVISED TO CONSULT WITH AN ATTORNEY PRIOR TO SIGNING AND RETURNING THIS DOCUMENT
TO INPUT/OUTPUT.

                               EMPLOYEE:

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

                               Date:
                                    --------------------------------------------

                                       6

                                    EXHIBIT Aexv10w31

 

EXHIBIT 10.31

THE HOUSTON EXPLORATION COMPANY

AMENDED AND RESTATED

2002 LONG TERM INCENTIVE PLAN

ARTICLE I

PLAN

          1.1 Purpose. This Plan is for non-employee directors of the Company and
employees, consultants and advisors of the Company and its Affiliates and is
intended to advance the best interests of the Company, its Affiliates, and its
stockholders by providing those persons who have substantial responsibility for
the management and growth of the Company and its Affiliates with additional
incentives and an opportunity to obtain or increase their proprietary interest
in the Company, thereby encouraging them to continue as directors or in the
employ of the Company or any of its Affiliates.

          1.2 Effective Date of Amended and Restated Plan. This Amended and
Restated Plan shall be effective May 17, 2002, (the “Effective Date”). No
Award shall be granted pursuant to this Plan after May 17, 2012.

ARTICLE II

DEFINITIONS

          The words and phrases defined in this Article shall have the meaning set
out in these definitions throughout this Plan, unless the context in which any
such word or phrase appears reasonably requires a broader, narrower, or
different meaning.

          2.1 “Affiliate” means any parent corporation and any subsidiary
corporation. The term “parent corporation” means any corporation (other than
the Company) in an unbroken chain of corporations ending with the Company if,
at the time of the action or transaction, each of the corporations other than
the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain.
The term “subsidiary corporation” means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of the action or transaction, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain.

          2.2 “Award” shall mean any Option or Restricted Stock granted under this
Plan.

          2.3 “Award Agreement” shall mean any agreement, contract, or other
instrument or document (written or electronic) evidencing any Award.

          2.4 “Board Of Directors” means the board of directors of the Company.

          2.5 “Change Of Control” means:

               (i) the acquisition after the Effective Date, by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended) (a “Person”) of
beneficial ownership of 20 percent or more of either (i) the then
outstanding shares of common stock of the Company (the “Outstanding
Common Stock”) or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Voting Securities”), provided
that for purposes of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any acquisition directly
from the Company, (B)

 

 

any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company,
or (D) any acquisition by any corporation pursuant to a transaction
which complies with clauses (A), (B) and (C) of subsection (iii)
hereof; or

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

               (iii) consummation after the Effective Date, of a reorganization,
merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a “Corporate
Transaction”) unless, in each case, following such Corporate Transaction,
(A) (1) all or substantially all of the persons who were the beneficial
owners of the Outstanding Common Stock immediately prior to such
Corporate Transaction beneficially own, directly or indirectly, more than
60% of the then outstanding shares of common stock of the corporation
resulting from such Corporate Transaction, and (2) all or substantially
all of the persons who were the beneficial owners of the Outstanding
Voting Securities immediately prior to such Corporate Transaction
beneficially own directly or indirectly, more than 60% of the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors of the corporation resulting from
such Corporate Transaction (including, without limitation, a corporation
which as a result of such transaction owns the Company or all or
substantially all of the Company’s assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership of the Outstanding Common Stock and the Outstanding Voting
Securities immediately prior to such Corporate Transaction, as the case
may be, (B) no Person (excluding (1) any corporation resulting from
such Corporate Transaction or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Corporate
Transaction and (2) any Person approved by the Incumbent Board)
beneficially owns, directly or indirectly, 20% or more of the then
outstanding shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the then
outstanding voting securities of such corporation except to the extent
that such ownership existed prior to such Corporate Transaction and (C)
at least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction were members of the
Incumbent Board at the time of the execution of the initial agreement or
of the action of the Board providing for such Corporate Transaction.

          2.6 “Code” means the Internal Revenue Code of 1986, as amended.

          2.7 “Committee” means the Compensation Committee of the Board of Directors
or such other committee designated by the Board of Directors. The Committee
shall be comprised solely of at least two members who qualify as Outside
Directors and also Non-Employee Directors.

          2.8 “Company” means The Houston Exploration Company, a Delaware
corporation.

          2.9 “Disability” means a physical or mental infirmity which, in the sole
discretion of the Committee, shall prevent the Participant from earning a
reasonable livelihood with the Company or any Affiliate and which can be
expected to result in death or which has lasted or can be expected to last for
a continuous period of not less than 12 months.

          2.10 “Employee” means a person employed by the Company or any Affiliate.

          2.11 “Fair Market Value” of the Stock as of any date means (a) the
closing sales price of the Stock on that date (or, if there was no sale on such
date, the next preceding date on which there was such a sale) on the principal
securities exchange on which the Stock is listed; or (b) if the Stock is not
listed on a securities exchange, the closing

 

 

sales price of the Stock on that date (or, if there was no sale on such
date, the next preceding date on which there was such a sale) as reported on
the Nasdaq Stock Market; or (c) if the Stock is not listed on the Nasdaq Stock
Market, the average of the high and low bid quotations for the Stock on that
date as reported by the National Quotation Bureau Incorporated; or (d) if none
of the foregoing is applicable, an amount at the election of the Committee
equal to (x) the average between the closing bid and ask prices per share of
Stock on the last preceding date on which those prices were reported or (y) an
amount as determined by the Committee in its sole discretion.

          2.12 “Incentive Option” means an Option granted under this Plan which is
designated as an “Incentive Option” and satisfies the requirements of Section
422 of the Code.

          2.13 “Non-Employee Director” means a “non-employee director” as that term
is defined in Rule 16b-3 of the Securities Exchange Act of 1934.

          2.14 “Nonqualified Option” means an Option granted under this Plan other
than an Incentive Option.

          2.15 “Option” means either an Incentive Option or a Nonqualified Option
granted under this Plan to purchase shares of Stock.

          2.16 “Outside Director” means a member of the Board of Directors serving
on the Committee who satisfies the criteria of Section 162(m) of the Code.

          2.17 “Participant” shall mean any Non-Employee Director, Employee,
consultant or advisor granted an Award under this Plan.

          2.18 “Performance Objective” mean the objectives, if any, established by
the Committee that are to be achieved with respect to an Award granted under
this Plan, which may be described in terms of Company-wide objectives, in terms
of objectives that are related to performance of a division, subsidiary,
department or function within the Company or an Affiliate or in individual or
other terms, and which will relate to the period of time determined by the
Committee.

          2.19 “Plan” means The Houston Exploration Company 2002 Long Term Incentive
Plan, as set out in this document and as it may be amended from time to time.

          2.20 “Restricted Period” shall mean the period established by the
Committee with respect to an Award during which the Award either remains
subject to forfeiture or is not exercisable by the Participant.

          2.21 “Restricted Stock” shall mean any Stock, prior to the lapse of the
restrictions thereon, granted under Article VI or Section 6.5 of this Plan.

          2.22 “Stock” means the common stock of the Company, $.01 par value or, in
the event that the outstanding shares of common stock are later changed into or
exchanged for a different class of stock or securities of the Company or
another corporation, that other stock or security.

          2.23 “10% Stockholder” means an individual who, at the time the Award is
granted, owns stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company or of any Affiliate. An individual
shall be considered as owning the stock owned, directly or indirectly, by or
for his brothers and sisters (whether by the whole or half blood), spouse,
ancestors, and lineal descendants; and stock owned, directly or indirectly, by
or for a corporation, partnership, estate, or trust, shall be considered as
being owned proportionately by or for its stockholders, partners or
beneficiaries.

          2.24 “Vest” or “Vesting” shall mean the date on which an Award becomes
exercisable, payable and/or nonforfeitable, as applicable.

 

 

ARTICLE III

ELIGIBILITY

          The individuals who shall be eligible to receive Incentive Options and/or
Restricted Stock shall be those Employees as the Committee shall determine from
time to time. The individuals who shall be eligible to receive Nonqualified
Options shall be those Employees, consultants and advisors of the Company or
any of its Affiliates as the Committee shall determine from time to time, and
those individuals who are Non-Employee Directors; provided, however, that
Non-Employee Directors shall be eligible only to receive Nonqualified Options
pursuant to Section 5.8 and Restricted Stock pursuant to Section 6.5. Further,
no Outside Director shall be eligible to receive any Award or to receive stock,
stock options, or stock appreciation rights under any other plan of the Company
or any of its Affiliates, if to do so would cause the individual not to be an
Outside Director. The Board of Directors may designate one or more individuals
who shall not be eligible to receive any Award under this Plan or under other
similar plans of the Company.

ARTICLE IV

GENERAL PROVISIONS RELATING TO AWARDS

          4.1 Authority to Grant Awards. The Committee may grant to those
individuals (other than Non-Employee Directors), as it shall from time to time
determine, Awards under the terms and conditions of this Plan. Subject only to
any applicable limitations set out in this Plan, the number of shares of Stock
to be covered by any Award to be granted to an Employee, consultant or advisor
of the Company or any of its Affiliates shall be as determined by the
Committee. Non-Employee Directors shall automatically receive grants of
Nonqualified Options as provided in Section 5.8 and Restricted Stock as
provided in Section 6.5

          4.2 Dedicated Shares. The total number of shares of Stock with respect to
which Awards may be granted under this Plan shall be 1,500,000 shares of which
the maximum number of shares of Stock which may be issued as Restricted Stock
shall be 300,000 shares. The total number of shares of Stock with respect to
which Incentive Options may be granted under the Plan shall be 1,500,000
shares. The maximum number of shares subject to Awards which may be issued to
any Participant under the Plan during any period of three consecutive years is
1,500,000 shares. The shares of Stock delivered pursuant to an Award may
consist, in whole or in part, of authorized but unissued shares, treasury
shares, or shares of Stock bought on the market or otherwise. The number of
shares stated in this Section 4.2 shall be subject to adjustment in accordance
with the provisions of Section 4.5.

          If any Award is exercised, paid, forfeited, terminated or canceled without
the delivery of shares of Stock, then the shares of Stock covered by such
Award, to the extent of such payment, exercise, forfeiture, termination or
cancellation shall again be available for issuance under this Plan.

          4.3 Non-Transferability. Awards shall not be transferable by the
Participant otherwise than by will or under the laws of descent and
distribution, and shall be exercisable, during the Participant’s lifetime, only
by him (or his legal guardian or representative in the event of his legal
incapacity).

          4.4 Requirements of Law. The Company shall not be required to sell or
issue any Stock under any Award if issuing that Stock would constitute or
result in a violation by the Participant or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option, or the grant of any
Restricted Stock, the Company shall not be required to issue any Stock unless
the Committee has received evidence satisfactory to it to the effect that the
holder of that Award will not transfer the Stock except in accordance with
applicable law, including receipt of an opinion of counsel satisfactory to the
Company to the effect that any proposed transfer complies with applicable law.
The determination by the Committee on this matter shall be final, binding and
conclusive. The Company may, but shall in no event be obligated to, register
any Stock covered by this Plan pursuant to applicable securities laws of any
country or any political subdivision. In the event the Stock issuable pursuant
to any Award is not registered, the Company may imprint on the certificate
evidencing the Stock any legend that counsel for the Company considers
necessary or advisable to comply with applicable law. The

 

 

Company shall not be obligated to take any other affirmative action in
order to cause the issuance of shares pursuant to any Award granted hereunder
to comply with any law or regulation of any governmental authority.

          4.5 Changes in the Company’s Capital Structure. The existence of
outstanding Awards shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any adjustments,
recapitalizations, reorganizations or other changes in the Company’s capital
structure or its business, or any merger or consolidation of the Company, or
any issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock or its rights, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.

          If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of the Stock outstanding, without
receiving compensation for it in money, services or property then (a) the
number, class, and per share price of shares of Stock subject to outstanding
Options under this Plan shall be appropriately adjusted in such a manner as to
entitle a Participant to receive upon exercise of an Option, for the same
aggregate cash consideration, the equivalent total number and class of shares
he would have received had he exercised his Option in full immediately prior to
the event requiring the adjustment, (b) the number and class of shares of
Stock then reserved to be issued under the Plan shall be adjusted by
substituting for the total number and class of shares of Stock then reserved,
that number and class of shares of Stock that would have been received by the
owner of an equal number of outstanding shares of such class of Stock as the
result of the event requiring the adjustment; and (c) if the Committee
determines it to be appropriate in order to prevent dilution or enlargement of
benefits intended to be made available with respect to any Award under this
Plan, any other factor pertaining to an outstanding Award may be duly and
appropriately adjusted by the Committee, subject to any required action by the
Board or the stockholders of the Company.

          If at any time while unexercised Options and/or shares of Restricted Stock
remain outstanding under this Plan the Company, in a transaction not
constituting a Change of Control, (1) is merged or consolidated with another
corporation and the Company not the surviving corporation, or (2) is
liquidated or sells or otherwise disposes of all or substantially all of its
assets, then (a) subject to the provisions of clause (d) below, after the
effective date of the merger, consolidation, liquidation, sale or other
disposition, as the case may be, each holder of an outstanding Option shall be
entitled, upon exercise of the Option, to receive, in lieu of shares of Stock,
the number and class or classes of shares of stock or other securities or
property to which the holder would have been entitled if, immediately prior to
the merger, consolidation, liquidation, sale or other disposition, the holder
had been the holder of record of a number of shares of Stock equal to the
number of shares as to which the Option shall be so exercised; (b) the
Committee may, if it determines it to be appropriate in order to prevent
dilution or enlargement of benefits intended to be made available with respect
to any grants of Restricted Stock under this Plan, adjust, in the manner it
deems equitable, the number and type of shares (or other security or property)
subject to outstanding Awards of Restricted Stock; (c) the Committee shall
waive any limitations set out in or imposed under this Plan so that all Awards,
from and after a date prior to the effective date of the merger, consolidation,
liquidation, sale or other disposition, as the case may be, specified by the
Committee, shall be fully vested; and (d) all outstanding Options may be
canceled by the Committee as of the effective date of any such merger,
consolidation, liquidation, sale or other disposition, if (i) notice of
cancellation shall be given to each holder of an Option and (ii) each holder
of an Option shall have the right to exercise that Option in full (without
regard to any limitations set out in or imposed under this Plan or the Award
Agreement granting that Option) during a period set by the Committee preceding
the effective date of such merger, consolidation, liquidation, sale or other
disposition and, if in the event all outstanding Options may not be exercised
in full under applicable securities laws without registration of the shares of
Stock issuable on exercise of the Options, the Committee may limit the exercise
of the Options to the number of shares of Stock, if any, as may be issued
without registration. The method of choosing which Options may be exercised,
and the number of shares of Stock for which Options may be exercised, shall be
solely within the discretion of the Committee.

          The issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services either upon direct sale or upon the exercise of rights or
warrants to subscribe for them, or upon conversion of shares or obligations of
the Company convertible into shares or other securities, shall not affect, and
no adjustment by reason of such issuance shall be made with respect to, the
number, class, or price of shares of Stock then subject to outstanding Awards.

 

 

          4.6 Changes of Control.

               (a) Subject to paragraph (b) below, and except to the extent an
Award Agreement expressly provides otherwise, in the event of a Change of
Control, all outstanding Awards automatically shall become fully Vested
immediately prior to such Change of Control (or such earlier time as set
by the Committee), all restrictions, if any, with respect to such Awards
shall lapse and all Performance Criteria, if any, with respect to such
Awards shall be deemed to have been met at the target level.

               (b) In addition to the acceleration of the Vesting of any
outstanding Awards as provided in paragraph (a) above, in the event of a
Change of Control, the Committee may, in its discretion, at the time an
Award is granted or any time thereafter: (i) adjust the terms of the
Award in a manner determined by the Committee to reflect the Change of
Control, (ii) cause the Award to be assumed, or new rights substituted
therefor, by another entity, (iii) provide that all outstanding Options
may be canceled by the Committee as of the effective date of the Change
of Control if (1) notice of such cancellation shall be given to each
holder of an Option and (2) each holder of an Option shall have the
right to exercise that Option in full (without regard to any limitations
set out or imposed under this Plan or the Award Agreement granting that
Option) during a period set by the Committee preceding the effective date
of the Change of Control and, if in the event all outstanding Options may
not be exercised in full under applicable securities laws without
registration of the shares of Stock issuable on exercise of the Options,
the Committee may limit the exercise of the Options to the number of
            shares of Stock, if any, as may be issued without registration, or (iv)
make such other provisions as the Committee may consider equitable and in
the best interest of the Company.

          4.7 Effect of Termination of Employment, Directorship or Consultancy on
Nonvested and Vested Awards.

               (a) For purposes of this Plan, a Participant’s status as an
Employee, a Non-Employee Director, consultant or advisor, shall be
determined by the Committee and will be treated as continuing intact
while the Participant is on military leave, sick leave, or other bona
fide leave of absence as determined by the Committee.

               (b) If a Participant ceases to be an Employee, a Non-Employee
Director, consultant and/or advisor for any reason (i) the Participant’s
Award(s) which are not Vested at the time the Participant ceases to be an
Employee, a Non-Employee Director, consultant or advisor (as applicable)
shall be forfeited, and (ii) the Participant’s Award(s) which are Vested
at the time the Participant ceases to be an Employee, a Non-Employee
Director, consultant or advisor (as applicable) shall be forfeited and/or
expire in accordance with the provisions set forth in this Plan and in
the Award Agreement granting such Award.

ARTICLE V

OPTIONS

          5.1 Type of Option. The Committee shall specify whether a given Option
shall constitute an Incentive Option or a Nonqualified Option; provided,
however, that the Options granted to Non-Employee Directors pursuant to Section
5.8 shall be Nonqualified Options.

          5.2 Option Price. The price at which Stock may be purchased under an
Option shall not be less than the greater of: (a) 100% of the Fair Market
Value of the shares of Stock on the date the Option is granted or (b) the
aggregate par value of the shares of Stock on the date the Option is granted;
provided, however, the price at which Stock may be purchased under a
Nonqualified Option granted to a Non-Employee Director pursuant to Section 5.8
shall be equal to the greater of (a) or (b) above on the date the Option is
granted. In the case of any 10% Stockholder, the price at which shares of
Stock may be purchased under an Incentive Option shall not be less than 110% of
the Fair Market Value of the Stock on the date the Incentive Option is granted.

 

 

          5.3 Duration of Options. No Option shall be exercisable after the
expiration of 10 years from the date the Option is granted. In the case of a
10% Stockholder, no Incentive Option shall be exercisable after the expiration
of five years from the date the Incentive Option is granted.

          5.4 Amount Exercisable. Except as provided in Section 5.8 below, each
Option may be exercised from time to time, in whole or in part, in the manner
and subject to the conditions the Committee, in its sole discretion, may
provide in the Option Agreement, as long as the Option is valid and
outstanding; provided, that no Option may be exercisable within six (6) months
of the date of grant. To the extent that the aggregate Fair Market Value
(determined as of the time an Incentive Option is granted) of the Stock with
respect to which Incentive Options first become exercisable by the Optionee
during any calendar year (under this Plan and any other incentive stock option
plan(s) of the Company or any Affiliate) exceeds $100,000, the Incentive
Options shall be treated as Nonqualified Options. In making this
determination, Incentive Options shall be taken into account in the order in
which they were granted. To the extent that an Option designated as an
Incentive Option fails to qualify as such (at the time of grant or at any other
time), the Option shall be treated as a Nonqualified Option.

          5.5 Exercise of Options. Each Option shall be exercised by the delivery
of written notice to the Committee setting forth the number of shares of Stock
with respect to which the Option is to be exercised, together with: (a) cash,
certified check, bank draft, or postal or express money order payable to the
order of the Company for an amount equal to the option price of the shares, (b)
if approved by the Committee, Stock at its Fair Market Value on the date of
exercise; or (c) through a “cashless broker” exercise approved by the
Committee, and/or any other form of payment which is acceptable to such
Committee, and specifying the address to which the certificates for the shares
are to be mailed. Subject to Section 8.8, as promptly as practicable after
receipt of written notification and payment, the Company shall deliver to the
Optionee certificates for the number of shares with respect to which the Option
has been exercised, issued in the Optionee’s name. If shares of Stock are used
in payment of the exercise price, the aggregate Fair Market Value of the shares
of Stock tendered must be equal to or less than the aggregate exercise price of
the shares being purchased upon exercise of the Option, and any difference must
be paid by cash, certified check, bank draft, or postal or express money order
payable to the Company. Delivery of the shares shall be deemed effected for
all purposes when a stock transfer agent of the Company shall have deposited
the certificates in the United States mail, addressed to the Optionee, at the
address specified by the Participant.

          Whenever an Option is exercised by exchanging shares of Stock owned by the
Participant, the Participant shall deliver to the Company certificates
registered in the name of the Participant representing a number of shares of
Stock legally and beneficially owned by the Participant, free of all liens,
claims, and encumbrances of every kind, accompanied by stock powers duly
endorsed in blank by the record holder of the shares represented by the
certificates, (with signature guaranteed by a commercial bank or trust company
or by a brokerage firm having a membership on a registered national stock
exchange). The delivery of certificates upon the exercise of Options is
subject to the condition that the person exercising the Option provide the
Company with the information the Company might reasonably request pertaining to
exercise, sale or other disposition of an Option.

          5.6 Substitution Options. Options may be granted under this Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the
Company or any Affiliate as the result of a merger or consolidation of the
employing corporation with the Company or any Affiliate, or the acquisition by
the Company or any Affiliate of the assets of the employing corporation, or the
acquisition by the Company or any Affiliate of stock of the employing
corporation as the result of which it becomes an Affiliate of the Company. The
terms and conditions of the substitute Options granted may vary from the terms
and conditions set out in this Plan to the extent the Committee, at the time of
grant, may deem appropriate to conform, in whole or in part, to the provisions
of the stock options in substitution for which they are granted.

          5.7 No Rights as Stockholder. No Optionee shall have any rights as a
stockholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.

          5.8 Director Options.

               (a) Each individual who becomes a Non-Employee Director after the
Effective Date, and on or before September 20th of each year will
receive a Nonqualified Option as provided and on the date specified in
Section 5.8 (b) below, provided that if an individual becomes a
Non-Employee Director after

 

 

September 20th of such year, such individual shall automatically
receive a Nonqualified Option for 2,000 shares of Stock upon his or her
first election to the Board of Directors on the date of his or her
election as a Non-Employee Director.

               (b) On September 20 of each year that this Plan is in effect
(commencing with September 20, 2003), each individual who is a
Non-Employee Director on such date shall automatically receive a
Nonqualified Option for 2,000 shares of Stock, on such date; provided,
however, that if September 20 of any year in which such Options are to be
granted falls on a day which is not a business day, such Options shall be
granted on the next following business day.

               (c) Each Nonqualified Option granted to a Non-Employee Director
pursuant to this Section 5.8 will be subject to the following provisions:

                         (i) Each such Option shall be fully vested and
exercisable on the date of grant; and

                         (ii) Each such Option shall have a term of 10 years from
the date the Option is granted; provided, however, that if
the Non-Employee Director ceases to serve as a Non-Employee
Director of the Company for any reason, including death, each
such Option shall terminate on the earlier to occur of (A)
the first anniversary of the date on which such Non-Employee
Director ceased to serve as a Non-Employee Director of the
Company and the (B) 10th anniversary of the date of grant of
such Option.

               (d) In the event that the number of shares of Stock available for
grant under this Plan is insufficient to make all automatic grants
provided for in this Section 5.8 on the applicable date, then each
Non-Employee Director shall receive a Nonqualified Option for his or her
pro rata share of the total number of shares of Stock then available for
grant under this Plan and shall have no right to receive a grant with
respect to the deficiencies in the number of available shares, and all
future grants under this Section 5.8 shall terminate.

ARTICLE VI

RESTRICTED STOCK

          6.1 Grants of Restricted Stock. Subject to Section 4.1 the Committee
shall have the authority to determine the Participants to whom Restricted Stock
shall be granted, the number of shares of Restricted Stock to be granted to
each such Participant, the duration of the Restricted Period during which, and
the conditions, including Performance Objectives, if any, under which if not
achieved, the Restricted Stock may be forfeited to the Company, and the other
terms and conditions of such Awards. Unless subject to the achievement of
Performance Objectives or a special determination is made by the Committee as
to a shorter Restricted Period, the Restricted Period shall not be less than
five years. The terms, conditions and restrictions of each grant of Restricted
Stock shall be set forth in such Award Agreement, not inconsistent with the
provisions of this Plan, as the Committee shall, from time to time, deem
desirable.

          6.2 Rights as a Stockholder. Upon issuance of Restricted Stock, a
Participant shall have the rights of a stockholder with respect to the
Restricted Stock, including voting and dividend rights, subject to the terms,
restrictions and conditions as are set forth in this Plan and in the Award
Agreement. Unless the Committee shall determine otherwise, certificates
evidencing shares of Restricted Stock shall remain in the possession of the
Company until such shares have Vested and are no longer subject to any
restrictions on transfer in accordance with the terms of the Award Agreement.

          6.3 Vesting of Restricted Stock. The Award Agreement shall specify the
date or dates and any other terms and conditions including, without limitation,
Performance Objectives, on which the Restricted Stock may Vest. All
outstanding shares of Restricted Stock shall automatically become fully Vested
upon a Change in Control.

 

 

          6.4 Dividends. All dividends and distributions, or cash equivalent
thereof (whether cash, stock or otherwise), on Restricted Stock shall be
withheld from the respective Participant and credited by the Company to the
Participant’s account in the general accounts of the Company and not in any
trust or related account for the benefit of the Participant. At such time as a
Participant becomes Vested in a portion of the grant of Restricted Stock, all
accumulated credits for dividends and distributions, or cash equivalent thereof
attributable to such Vested Restricted Stock, shall be paid to the Participant.
Interest shall not be paid on any dividends or distributions or cash
equivalent thereof which may have been credited by the Company for the account
of a Participant. The Company shall have the option of paying such credits for
accumulated dividends or distributions or cash equivalent thereof, in shares of
Stock rather than in cash. If payment is made in shares of Stock, the
conversion to shares of Stock shall be at the Fair Market Value on the date of
payment. Dividends and distributions, or cash equivalent thereof credited on
non-Vested Restricted Stock shall be forfeited in the same manner and at the
same time as the respective shares of Restricted Stock to which they are
attributable or forfeited.

          6.5 Director Restricted Stock.

               (a) Each individual who becomes a Non-Employee Director after the
Effective Date and on or before September 20th of each year will receive
a Restricted Stock grant as provided for and on the date specified in
Section 6.5 (b) below, provided that if an individual becomes a
Non-Employee Director after September 20th of such year, such individual
shall automatically receive a grant of 2,000 shares of Restricted Stock
upon his or her first election to the Board of Directors on the date of
his or her election as a Non-Employee Director.

               (b) On September 20 of each year that this Plan is in effect
(commencing with September 20, 2003), each individual who is a
Non-Employee Director on such date shall automatically receive a grant of
2,000 shares of Restricted Stock on such date; provided, however, that
if September 20 of any year in which such Restricted Stock is to be
granted falls on a day which is not a business day, such Restricted Stock
shall be granted on the next following business day.

               (c) Any restrictions on such shares of Restricted Stock granted
pursuant to this Section 6.5 shall be removed at the earlier of five
years or upon retirement from the Board of such non-employee director,
provided that such restrictions shall not be removed if the Non-Employee
Director is removed from the Board and that the Board may, in its
discretion, remove any restrictions of the Restricted Stock granted
pursuant to the Section 6.5. in case of a resignation due to death,
disability, or other circumstance deemed appropriate by the Board.

               (d) In the event that the number of shares of Stock available for
grant under this Plan is insufficient to make all automatic grants
provided for in this Section 6.5. on the applicable date, then each
Non-Employee Director shall receive shares of Restricted Stock for his or
her pro rata share of the total number of shares of Stock then available
for grant under this Plan and shall have no right to receive a grant with
respect to the deficiencies in the number of available shares, and all
future grants under this Section 6.5. shall terminate.

ARTICLE VII

ADMINISTRATION

          This Plan shall be administered by the Committee. All questions of
interpretation and application of this Plan and Awards shall be subject to the
determination of the Committee. A majority of the members of the Committee
shall constitute a quorum. All determinations of the Committee shall be made
by a majority of its members. Any decision or determination reduced to writing
and signed by a majority of the members shall be as effective as if it had been
made by a majority vote at a meeting properly called and held. This Plan shall
be administered in such a manner as to permit the Options granted under it
which are designated to be Incentive Options to qualify as Incentive Options.
In carrying out its authority under this Plan, the Committee shall have full
and final authority and discretion, including but not limited to the following
rights, powers and authorities, to:

               (a) determine the persons to whom and the time or times at which
Awards will be made,

 

 

               (b) determine the number of shares and the purchase price of Stock
covered in each Option, subject to the terms of the Plan,

               (c) determine the terms, provisions and conditions of each Award,
which need not be identical,

               (d) determine whether an Award has been earned and/or Vested,

               (e) accelerate or, with the consent of the Participant, defer the
Vesting of any Award and/or the exercise date of any Award,

               (f) define the effect, if any, on any Award of the death,
Disability, retirement, or termination of employment of the Participant,

               (g) prescribe, amend and rescind rules and regulations relating to
administration of this Plan, and

               (h) make all other determinations and take all other actions deemed
necessary, appropriate, or advisable for the proper administration of
this Plan.

          Notwithstanding the foregoing, the Committee shall not have the authority
or discretion to modify any of the terms of (i) the Nonqualified Options
automatically granted to Non-Employee Directors pursuant to Section 5.8 or (ii)
the shares of Restricted Stock automatically granted to Non-Employee Directors
pursuant to Section 6.5.The actions of the Committee in exercising all of the
rights, powers, and authorities set out in this Article and all other Articles
of this Plan, when performed in good faith and in its sole judgment, shall be
final, conclusive and binding on all parties.

ARTICLE VIII

AMENDMENT OR TERMINATION OF PLAN

          The Board of Directors of the Company may amend, terminate or suspend this
Plan at any time, in its sole and absolute discretion; provided, however, that
to the extent required to maintain the status of any Incentive Option under the
Code, no amendment that would (a) change the aggregate number of shares of
Stock which may be issued under Incentive Options, (b) change the class of
employees eligible to receive Incentive Options, or (c) decrease the exercise
price for Incentive Options below the Fair Market Value of the Stock at the
time it is granted, shall be made without the approval of the Company’s
stockholders. Subject to the preceding sentence, the Board shall have the
power to make any changes in this Plan and in the regulations and
administrative provisions under it or in any outstanding Incentive Option as in
the opinion of counsel for the Company may be necessary or appropriate from
time to time to enable any Incentive Option granted under this Plan to continue
to qualify as an incentive stock option or such other stock option as may be
defined under the Code so as to receive preferential Federal income tax
treatment.

ARTICLE IX

MISCELLANEOUS

          9.1 No Establishment of a Trust Fund. No property shall be set aside nor
shall a trust fund of any kind be established to secure the rights of any
Participant under this Plan. All Participants shall at all times rely solely
upon the general credit of the Company for the payment of any benefit which
becomes payable under this Plan.

          9.2 No Employment Obligation. The granting of any Award shall not
constitute an employment contract, express or implied, nor impose upon the
Company or any Affiliate any obligation to employ or continue to employ any
Participant. The right of the Company or any Affiliate to terminate the
employment of any person shall not be diminished or affected by reason of the
fact that an Award has been granted to him.

 

 

          9.3 Tax Withholding. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Participant any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option, the grant of or lapse of restrictions on any Restricted
Stock, or any payment under any Award. In the alternative, the Company may
require the Participant (or successor) to pay the sum directly to the employer
corporation. If the Participant (or successor) is required to pay the sum
directly, payment in cash or by check of such sums for taxes shall be delivered
within ten days after the date of exercise or grant of or lapse of restrictions
on any Restricted Stock. The Company shall have no obligation upon exercise of
any Option until payment has been received, unless withholding (or offset
against a cash payment) as of or prior to the date of exercise is sufficient to
cover all sums due with respect to that exercise. The Company and its
Affiliates shall not be obligated to advise a Participant of the existence of
the tax or the amount which the employer corporation will be required to
withhold.

          9.4 Written Agreement. Each Award shall be embodied in a written Award
Agreement which shall be subject to the terms and conditions of this Plan and
shall be signed by the Participant and by a member of the Committee and an
officer of the Company on behalf of the Committee and the Company. The Award
Agreement may contain any other provisions that the Committee in its discretion
shall deem advisable which are not inconsistent with the terms of this Plan.

          9.5 Indemnification of the Committee and the Board of Directors. With
respect to administration of this Plan, the Company shall indemnify each
present and future member of the Committee and the Board of Directors against,
and each member of the Committee and the Board of Directors shall be entitled
without further action his part to indemnity from the Company for, all expenses
(including attorneys’ fees, the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and/or the Board of Directors, whether or not he continues to be a member of
the Committee and/or the Board of Directors at the time of incurring the
expenses including, without limitation, matters as to which he shall be finally
adjudged in any action, suit or proceeding to have been found to have been
negligent in the performance of his duty as a member of the Committee or of the
Board of Directors. However, this indemnity shall not include any expenses
incurred by any member of the Committee and/or the Board of Directors in
respect of matters as to which he shall be finally adjudged in any action, suit
or proceeding to have been guilty of gross negligence or willful misconduct in
the performance of his duty as a member of the Committee or the Board of
Directors. In addition, no right of indemnification under this Plan shall be
available to or enforceable by any member of the Committee or the Board of
Directors unless, within 60 days after institution of any action, suit or
proceeding, he shall have offered the Company, in writing, the opportunity to
handle and defend same at its own expense. This right of indemnification shall
inure to the benefit of the heirs, executors or administrators of each member
of the Committee and the Board of Directors and shall be in addition to all
other rights to which a member of the Committee and the Board of Directors may
be entitled as a matter of law, contract, or otherwise.

          9.6 Gender. If the context requires, words of one gender when used in
this Plan shall include the others and words used in the singular or plural
shall include the other.

          9.7 Headings. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of this Plan and shall
not be used in construing the terms of this Plan.

          9.8 Other Compensation Plans. Except as provided below, the adoption of
this Plan shall not affect any other stock option, incentive or other
compensation or benefit plans in effect for the Company or any Affiliate, nor
shall this Plan preclude the Company from establishing any other forms of
incentive or other compensation for employees of the Company or any Affiliate.
Notwithstanding the foregoing, on and after the Effective Date Non-Employee
Directors shall not be eligible to receive option grants under the Company’s
1999 Non-Qualified Stock Option Plan and this Section 9.8 shall operate as an
amendment to that plan.

          9.9 Other Awards. The grant of an Award shall not confer upon a
Participant the right to receive any future or other Awards under this Plan,
whether or not Awards may be granted to similarly situated Participants, or the
right to receive future Awards upon the same terms or conditions as previously
granted.

 

 

          9.10 Arbitration of Disputes. Any controversy arising out of or relating
to the Plan or an Award Agreement shall be resolved by arbitration conducted
pursuant to the arbitration rules of the American Arbitration Association. The
arbitration shall be final and binding on the parties.

          9.11 Governing Law. The provisions of this Plan shall be construed,
administered, and governed under the laws of the State of Texas.

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